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Chapter 4

PROCESS STRATEGY

LEARNING OUTCOMES

L.O.2.11 Describe four process strategies.

L.O.2.12 Conduct Break-even point analysis & do

process selection/ make-buy decision

 Objective: create a process

that can produce offerings
PROCESS STRATEGY that meet customer
An organization’s requirements within cost
approach to and other managerial
transforming constraints.
resources into  Long-term effect
goods and services.
Variety →Efficiency
→Flexibility of production
→Cost
→Quality

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FOUR PROCESS
STRATEGIES

PROCESS OPTIONS

Classify by
variety &
volume

Source: Heizer, J., Render, B. & Munson, C. (2020). Operations

Management: Sustainability and Supply Chain management
(13th ed.). Pearson Education, Inc.

PROCESS FOCUS

A production
facility organized
around processes
to facilitate low
volume, high-
variety
production.

Intermittent process/
Job shops

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Job shop (or process layout)

Assembly

4 6 7 9

5 8

2 10 12

1 3 11

A B C Raw materials

PRODUCT FOCUS

A facility
organized around
products; a
product-oriented,
high-volume, low-
variety process.

Continuous process

REPETITIVE PROCESS

A product-
oriented
production
process that uses
modules.

Module = part/ Module – previously prepared (often) in a

component of a product product-focused process
previously prepared

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MASS CUSTOMIZATION
FOCUS

Rapid, low-cost
production that
caters to
constantly
changing unique
customer desires.

What & when the MC = high variety + low cost

customer want precisely
(Process focus) (Product focus)
& economically

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Sales

High
Logistics Design
collaboration

Supply
Mass chain
Production

Customization
= Make-to-stock ≠ Build-to-order
High volume Build- Challenges
to-order (BTO)  Imaginative Product Design
 Agile Process Design (Postponement)
 Tight control of inventory (NO
unpopular/obsolete components)
 Tight schedule
 Responsive SCM

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TOOLS OF PROCESS
ANALYSIS

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 selection of a particular
process strategy requires
decisions about equipment
and technology
Selection of  The choice of equipment
equipment requires considering cost,
cash flow, market stability,
quality, capacity, and
flexibility

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Flowchart Process chart

Time-Function
Tools of process Mapping Value Stream
(Process Mapping
analysis Mapping)

Service
Blueprinting

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Flowchart
Shows the
movement of people
or materials

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Process chart

Source: Heizer, J., Render, B. & Munson, C. (2020). Operations

Management: Sustainability and Supply Chain management
(13th ed.). Pearson Education, Inc.

17

Time-function
Mapping
Shows flows and time
frame

Source: Heizer, J., Render, B. & Munson, C. (2020). Operations Instructor: Huynh Thi Phuong Lan
Management: Sustainability and Supply Chain management
(13th ed.). Pearson Education, Inc.

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Where value is added in the

entire production process,
including the supply chain
Extends from the customer
back to the suppliers

Value Stream
Mapping

Source: Heizer, J., Render, B. & Munson, C. (2020). Instructor: Huynh Thi Phuong Lan
Operations Management: Sustainability and Supply
Chain management (13th ed.). Pearson Education, Inc.

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Source: Heizer, J., Render, B. & Munson, C. (2020).

Operations Management: Sustainability and Supply
Chain management (13th ed.). Pearson Education, Inc.

 Focuses on the customer and provider

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interaction
 Defines three levels of interaction
 Each level has different management issues
 Identifies potential failure points

Service
Blueprinting

Source: Heizer, J., Render, B. & Munson, C. (2020). Instructor: Huynh Thi Phuong Lan
Operations Management: Sustainability and Supply
Chain management (13th ed.). Pearson Education, Inc.

21

Source: Heizer, J., Render, B. & Munson, C. (2020). Operations

Management: Sustainability and Supply Chain management
(13th ed.). Pearson Education, Inc.

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BREAK-EVEN-POINT
ANALYSIS

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 Costs and revenue are linear

functions
→Generally not the case in the
Break-even-point real world
analysis  We actually know these costs
→Very difficult to verify
Assumptions  Time value of money is often
ignored

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BEPx = v = (Formula 1)

BREAK-EVEN-POINT ANLYSIS

Where:
A means of finding  cf: fixed cost
the point, in units
or in dollars, at  v: volume (i.e., number of
which costs equal units produced and sold)
to revenues.  cv: variable cost per unit
 p: price per unit

BEP$ = *p (Formula 2)
( )

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Example 1 25

Cv
Cf Fixed costs = $10,000 Material = $.75/unit
Direct labor = $1.50/unit Selling price = $4.00 per unit
Cv p

F $10,000
BEPx    5,714
P -V 4.00 – 1.50  .75

F $10,000
BEP$  
1 – (V / P ) 1 – 1.50  .75  /  4.00  
$10,000
=  $22,857.14
.4375

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27

 Identify min. volume/ price of

product produced & sold.
 Select the appropriate process/
equipment

Application of  Make-or-buy decision

BEP analysis

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Example 2: Consider 3 systems 28

Initial
Investment Variable cost
a) VacuClean System $ 250,000 $ 1.50
b) Wash n Scrub Model III $ 400,000 $ 1.20
c) DynoClean $ 550,000 $ 0.95

Which system do you choose?

250,000  15
. x  400,000  12
. x
a&b
 x  500,000
400,000  12
. x  550,000 .95x
b&c
 x  600,000
250,000  15
. x  550,000 .95x
a&c
 x  545,454

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dollars

550,000

400,000
250,000

0 units

Example 3 30

Initial
Investment Variable cost
a) In-house Production $ 300,000 $ 70
b) Outsourcing $0 $ 150

BEP = ?

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cost

300×10 6

Buy Make
0
BEP = 3,750 volume

Example 4 32

We have 5 machines as follows ($):

M1 M2 M3 M4 M5
Fixed cost ($) 1000 11000 7000 4000 2000
Variable cost 0.5 0.1 0.2 0.3 0.4
($)

1. When we should buy M1, M2, M3, M4, M5?

2. If you have to produce 100 000 units, which one you choose? And the
price you should set for each unit?
3. You are producing15000 units. You consider to buy a supporting tool with
$A to reduce the variable cost as of 10%. The maximal value of A should
be?

Instruction: 33
Step 1: Arrange the alternatives according to the increase in the fixed costs
M1 – M5 – M4 – M3 – M2
Step 2: Find the break-even points between them
M1 – M5: 1000 + 0.5 x = 2000 + 0.4 x  X1
M5 – M4: X2
M4 – M3: X3
M3 – M2: X4
Step 3: Make the decisions
X ≤ X1  choose M1
X1≤ X ≤ X2  choose
X2≤ X ≤ X3  choose
X3≤ X ≤ X4  choose
X≥X4  choose

2. Choose M2  100000*p ≥ 11000 + 0.1*100000  p?

3. 15 000 units Choose M5: 2000 + A + 90% x 0.4 x 15.000 ≤ 2000 + 0.4 x 15.000
 A ≤ $ 600

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1. Heizer, J., Render, B. & Munson, C.

(2020). Operations Management:
Sustainability and Supply Chain
management (13th ed.). Pearson
Education, Inc.
references 2. Roberta S. Russell, Bernard W.
Taylor III, (2017), Operations
management – Creating Value
Along the Supply Chain, 7th
edition, Wiley.

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