PROCESS CHOICE

What we will cover

 What is a Process
 Why is process choice important
 Benefit
 What are the components
 How to Choose a Process
 Example and Exercise
 Conclusion
What is Process
 Process is defined as all operations or activities that
consume significant resources.

 Resources include: Utilization of materials, labor, and

facility or plant capacity.
Process Choice
 Choose a Process that will utilize your resources in the
most efficient and profitable manner possible
Process Choice Steps
 Know your product/Services
 Know your customer
 Know your competition
 Compare the needs of the product/Service and
customer
 Decide on your desired revenues and what the market
will support
 Layout all the data together
Know your Product
 Understand the physical space requirements
 Area needed for manufacture
 Receiving area for raw material
 Shipping area for finished products
 Special handling or storage requirements for the raw
materials.
 Need for Flexibility
 Understanding the manufacturing needs
 Materials
 Time
 Equipment
 Labor
 Flexibility
Know Your Customer
 Understand your customer’s needs
 Quantity
 Time Requirements
 Quality Tolerances
 Buying Habits
 Product usage
Know Your Competition
 Understands your competition’s process
 Speed of output
 Quality of product
 Price of product
 Company Revenue
 Identify Strengths And weaknesses
Decide on your desired revenues and
what the market will support
 Understand your financial requirements and where the
product market is
 Price/Margin
 Quantity
 Quality
Process Structure in Manufacturing
 Job Production
 Batch Production
 Mass/Line Production
 Continuous Production
 Product-Process Matrix
Less customization and higher volume
(1) (2) (3) (4)
Low-volume Multiple products with low Few major High volume, high
Process products, made to moderate volume products, standardization,
to customer higher commodity
Characteristics
order volume products
(1)
Customized process, Job
with flexible and unique process
Less complexity, less divergence, and more line flows

sequence of tasks

Small batch
(2)
process
Disconnected line flows,
moderately complex Batch processes
work
Large batch
process
(3)
Connected line, highly
repetitive work Line
process

(4)
Continuous flows Continuous
process

Figure 3.3 – Product-Process Matrix for Processes

Process & Cost
 The process type chosen will impact fixed and variable costs,
Flexibility & Unit Cost

High Low

 Project/Job Production Variable

Cost, Fixed
 Batch Production Flexibility, Cost
Unit Cost
 Mass/Line Production
 Continuous Production High
Low
Comparison of Process Options
 Understanding the difference in costs at varying output
 Use the process total cost
 Identify the Indifference point
 Evaluate the results compared to projected unit sales
 Decide on the most effective process
 Re-evaluate Break Even Analysis if necessary
Using Break Even Analysis
 Total Revenue = Total Cost
VxP = FC + TVC
 The Indifference Point
TC Process A= TC Process B

Choose Choose
process A process B
 Example
 Manufacturing Custom luxury boats
 Price Rs.525,000
 Quantity 25 Nos.
 Quality High
 Calculate Costs
 Fixed Cost
 Batch Production Rs. 1,500,000
 Mass Production Rs. 10,000,000
 Variable Cost
 Batch Production Rs. 450,000/unit
 Mass Production Rs. 350,000/Unit
Break Even Point
 Batch Production
TR=TC
Vx P= FC +TVC
V x 525,000 = 1,500,000 + 450,000 x V
V= 20 Units
 Mass Production
TR=TC
Vx P= FC +TVC
V x 525,000 = 10,000,000 + 350,000 x V
V= 58 Units
 Break Even Point batch production
35

30

25

RS.
20
(Millions) TR
TC
15

10

0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59
Break Even 20
units
Units
 Break Even Point Mass production
45.00

40.00

35.00

30.00
RS.
25.00
(Millions) TR
20.00 TC

15.00

10.00

5.00

0.00
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79
Break Even
Units 58units
 Comparison of Process Option
50

45

40

35
RS. Mass production
Total Cost
(Millions) 30
Choose Mass
25 production

Batch production
20
Total Cost
15

10
Choose Batch
production
5

0
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100
Units 85 units point
of indifference
Process Structure in Services
 Customer contact is the extent to which the customer is
present, actively involved, and receives personal attention
during the service process

 Face-to-face interaction is sometimes called a moment of truth

or a service encounter
Process Structure in Services
TABLE 3.1 | DIMENSIONS OF CUSTOMER CONTACT IN SERVICE
| PROCESSES
Dimension High Contact Low Contact
Physical presence Present Absent
What is processed People Possessions or information
Contact intensity Active, visible Passive, out of sight
Personal attention Personal Impersonal
Method of delivery Face-to-face Regular mail or e-mail
Process Structure in Services
 The three elements of the customer-contact matrix are
1. The degree of customer contact
2. Customization
3. Process characteristics
 Process characteristics include
1. Process divergence deals with customization and the latitude
as to how tasks are performed
2. Flow is how customers, objects, or information are process
and can be either line of flexible
 Service Process StructuringLess customer contact and customization

(1) (2) (3)

High interaction with Some interaction with Low interaction with
Process customers, highly customers, standard customers, standardized
Characteristics customized service services with some options services
Less processes divergence and more line flows

(1)
Flexible flows with
Individual processes
Front office

(2)
Flexible flows with
some dominant
paths, with Hybrid office
some exceptions to
how work performed

(3)
Line flows, routine Back office
work same with all
customers
Process Strategy Decisions
Process Structure
• Customer-contract position
(services)
• Product-process position
(manufacturing)
• Layout
Customer Involvement Resource Flexibility
• Low involvement • Specialized
• High involvement • Enlarged

Capital Intensity
• Low automation
• High automation

Strategy for Change

• Process reengineering
• Process improvement

Major Decisions for Effective Effective Process

Processes
Design
Decision Patterns for Manufacturing
Competitive Priorities Process Choice

Top-quality, on-time delivery, and Job process or

flexibility small batch process

Low-cost operations, consistent Large batch, line, or

quality, and delivery speed continuous flow process

(a) Links with Process Choice

Competitive Priorities Production and Inventory Strategy

Top-quality, on-time delivery, and

Make-to-order
flexibility

Delivery speed and variety Assemble-to-order

Low-cost operation
Make-to-stock
and delivery speed

(b) Links with Production and Inventory Strategy

 Decision Patterns for Manufacturing
Low-Volume,
make-to-order process Job
process
• More process divergence and
more flexible flows
• More customer involvement
• More resource flexibility Small batch
• Less capital intensity process
Batch processes
decisions
process
Major

Large batch
process

Line
process
High-Volume,
make-to-stock process
• Less process divergence and
more line flows Continuous
• Less customer involvement process
• Less resource flexibility
• More capital intensity Low High
Volume
 Decision Patterns for Services
High customer-contact
process
• More complexity, more
divergence, more flexible flows Front office
• More customer involvement
• More resource flexibility
• Capital intensity varies with
volume

Hybrid office

Low customer-contact
process
• Less complexity, less divergence,
more line flows
• Less customer involvement Back office
• Less resource flexibility
• Capital intensity varies with
volume

Figure 3.8 – Decision Patterns for Service Processes

Gaining Focus
 Operations can be focused by process segments when
competitive priorities differ
 Plants within plants (PWPs) are different operations under
the same roof
 Service can be focused in much the same way
 Focused factories can be created by splitting a large plant into
several smaller plants dedicated to narrower product lines
Strategies for Change
 Process reengineering is the fundamental rethinking and
radical redesign of a process to improve performance
 Can be successful but it is not simple or easy
 The people who are involved with the process each day are
the best source of ideas on how to improve it
 Process improvement is the systematic study of activities and
flows of a process to find ways to improve it
 Process Reengineering
TABLE 3.2 | KEY ELEMENTS OF REENGINEERING

Element Description
Critical processes Emphasis on core business processes, normal process
improvement activities can continue with other processes
Strong leadership Strong leadership from senior executives to overcome
resistance
Cross-functional teams A team with members from each functional area charged with
carrying out the project
Information technology Primary enabler of the project as most reengineering projects
involve information flows
Clean-slate philosophy Start with the way the customer wants to deal with the company
and includes internal and external customers
Process analysis Must understand the current processes throughout the
organization
The End