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Chapter four
PROCESS SELECTION AND
CAPCITY PLANNING
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Objective of the chapter
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Definition of process
Process selection
Types of process
Strategic capacity planning
Process of capacity planning
Measuring Capacity
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Introduction
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Another major decision for the
operation manager is finding the best
way to produce.
It is clear that no product can be made
and no service provided without a
process, and no process can exist
without a product or service.
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Process: Is any part of an
organization that
transforms inputs into
outputs.
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Process selection
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Refers to the way an organization chooses
to produce its goods or provide its service.
Essentially it involves choice of
technology and related issues, and it has
major implications for capacity planning,
layout facilities, equipment and design of
work systems.
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Types of processes
All processes can be grouped into two
broad categories: intermittent
operations and repetitive operations.
Intermittent Operations
Intermittent operations are used to
produce a variety of products with
different processing requirements in
lower volumes.
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Conti…
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Think about a healthcare facility. Each patient,
“the product,” is routed to different
departments as needed.
One patient may need to get an X-ray, go to the
lab for blood work, and then go to the examining
room. Another patient may need to go to the
examining room and then to physical therapy.
To be able to produce products with different
processing requirements, intermittent
operations tend to be labor intensive rather than
capital intensive. 06/16/2025
Example of an intermittent operation
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Repetitive Operations
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Repetitive operations are used to produce one or
a few standardized products in high volume.
Examples are a typical assembly line, cafeteria, or
automatic car wash.
Resources are organized in a line flow to
efficiently accommodate production of the
product.
To efficiently produce a large volume of one type
of product, these operations tend to be capital
intensive rather than labor intensive.
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Example of a repetitive operation
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Conti…
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The most common differences between
intermittent and repetitive operations relate
to two dimensions:
(1) The amount of product volume produced,
and
(2) The degree of product standardization
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Conti…
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Product volume can range from making
a unique product one at a time to
producing a large number of products
at the same time.
Product standardization refers to a lack
of variety in a particular product.
Examples of standardized products are
white undershirts, calculators, and
television sets.
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Conti…
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Types of processes
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Dividing processes into two fundamental
categories of operations is helpful in our
understanding of their general
characteristics.
To be more detailed, we can further
divide each category according to
product volume and degree of product
standardization.
Intermittent operations can be divided
into project processes and batch
processes. 06/16/2025
Conti…
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o Project processes are used to make one-of-a-kind
products exactly to customer specifications.
o These processes are used when there is high
customization and low product volume, because
each product is different.
o Examples can be seen in construction, ship
building, medical procedures, and creation of
artwork, custom tailoring, and interior design.
o The artistic baker you hired to bake a wedding
cake to your specifications uses a 06/16/2025
project process.
Conti…
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Batch processes are used to produce small
quantities of products in groups or batches
based on customer orders or product
specifications.
They are also known as job shops. The
volumes of each product produced are still
small, and there can still be a high degree
of customization.
Examples can be seen in bakeries,
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education, and printing shops. The classes
Repetitive operations
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Line processes are designed to produce a large
volume of a standardized product for mass
production.
They are also known as flow shops, flow lines, or
assembly lines.
With line processes the product that is produced is
made in high volume with little or no customization.
Think of a typical assembly line that produces
everything to cars, computers, television sets,
shoes, candy bars, even food items.06/16/2025
Conti…
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Continuous processes operate continually to
produce a very high volume of a fully
standardized product.
Examples include oil refineries, water
treatment plants, and certain paint
facilities.
The products produced by continuous
processes are usually in continual rather
than discrete units, such as liquid or gas.
They usually have a single input and a
limited number of outputs. Also, these
facilities are usually highly capital
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intensive
Conti…
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Other Types of Processes
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Make-to-order
Only activated in response to an actual
order
Both work-in-process and finished
goods inventory kept to a minimum
Make-to-stock
Process activated to meet expected or
forecast demand
Customer orders are served from
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target stocking level
Strategic capacity planning
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Capacity can be defined as the
maximum output rate that can be
achieved by a facility.
Planning for capacity in a company
is usually performed at two levels,
each corresponding to either
strategic or tactical decisions.
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First level of capacity decisions is
strategic and long-term in nature.
The second level of capacity
decisions is more tactical in
nature, focusing on short-term
issues that include planning of
workforce, inventories, and day-
to-day use of machines.
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Process of capacity planning
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Capacity planning is concerned with
defining the long-term and the short-
term capacity needs of an organization
and determining how those needs will be
satisfied.
Capacity planning decisions are taken
based upon the consumer demand and
this is merged with the human, material
and financial resources of the
organization. 06/16/2025
Conti…
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1. Long-term capacity strategies:
Long-term capacity requirements are
more difficult to determine because the
future demand and technology are
uncertain.
Following parameters will affect long-
range capacity decisions.
1) Multiple products
2) Phasing in capacity
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3) Phasing out capacity
Conti…
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Multiple products: Company’s produce more
than one product using the same facilities
in order to increase the profit.
The manufacturing of multiple products will
reduce the risk of failure.
Having more than one product helps the
capacity planners to do a better job.
Because products are in different stages of
their life cycles, it is easy to schedule them
to get maximum capacity utilization.
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Conti…
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Phasing in capacity: In high technology industries,
and in industries where technology developments
are very fast, the rate of obsolescence is high.
The products should be brought into the market
quickly. The time to construct the facilities will be
long and there is no much time, as the products
should be introduced into the market quickly.
Here the solution is phase in capacity on modular
basis. Some commitment is made for building funds
and men towards facilities over a period of 3-5
years. This is an effective way of capitalizing on
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technological breakthrough.
Conti…
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Phasing out capacity: The outdated
manufacturing facilities cause excessive plant
closures and down time. The impact of
closures is not limited to only fixed costs of
plant and machinery.
Thus, the phasing out here is done with
humanistic way without affecting the
community.
The phasing out options makes alternative
arrangements for men like shifting them to
other jobs or to other locations,06/16/2025
compensating
the employees, etc.
Conti…
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2. Short-term capacity strategies: Managers
often use forecasts of product demand to
estimate the short-term workload the facility
must handle.
Managers looking ahead up to 12 months,
anticipate output requirements for different
products, and services.
Managers then compare requirements with
existing capacity and then take decisions as
to when the capacity adjustments are
needed. 06/16/2025
The short-term capacity
strategies
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Inventories: Stock finished goods during
slack periods to meet the demand during
peak period.
Backlog: During peak periods, the willing
customers are requested to wait and their
orders are fulfilled after a peak demand
period.
Employment level: Hire additional
employees during peak demand period and
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lay off employees as demand decreases.
Conti…
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Employee training: Develop multi skilled
employees through training so that they
can be rotated among different jobs. The
multi skilling helps as an alternative to
hiring employees.
Subcontracting: During peak periods, hire
the capacity of other firms temporarily to
make the component parts or products.
Process design: Change job contents by
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redesigning the job.
Importance of capacity decisions
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Capacity decisions have a real impact on
the ability of the organization to meet
future demands for products and services;
capacity essentially limits the rate of output
possible.
Capacity decisions affect operating costs.
Ideally, capacity and demand requirements
will be matched, which will tend to minimize
operating costs.
Capacity is usually a major determinant of
initial cost. Typically, the 06/16/2025
greater the
Conti…
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Capacity decisions often involve long-term
commitment of resources and the fact that, once
they are implemented, it may be difficult or
impossible to modify those decisions without
incurring major costs.
Capacity decisions can affect competitiveness. If
a firm has excess capacity, or can quickly add
capacity, that fact may serve as a barrier to
entry by other firms.
Capacity affects the ease of management;
having appropriate capacity makes management
easier than when capacity is mismatched.
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Measuring Capacity
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The most common measures of capacity
are:
Design capacity is the maximum output
rate that can be achieved by a facility
under ideal conditions.
A company achieves this output rate by
using many temporary measures, such
as overtime, overstaffing, maximum
use of equipment, and subcontracting.
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Conti…
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Effective capacity is the maximum output rate
that can be sustained under normal
conditions.
These conditions include realistic work
schedules and breaks, regular staff levels,
scheduled machine maintenance, and none of
the temporary measures that are used to
achieve design capacity.
Note that effective capacity is usually lower
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than design capacity.
Measuring Effectiveness of Capacity
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Capacity utilization simply tells us how much of our
capacity we are actually using.
Example 1: Given the information below, compute
the efficiency and the utilization of the vehicle repair.
Department: Design capacity = 50 trucks per day
Effective capacity = 40 trucks per day
Actual output = 36 trucks per day 06/16/2025
Conti…
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Solution
Example 2: The design capacity for engine repair in our
company is 80 trucks per day. The effective capacity is
40 engines per day and the actual output is 36 engines
per day.
Q1. Calculate the utilization and efficiency of the
operation. If the efficiency for next month is expected
to be 82%,
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Q2. What is the expected output?
Conti…
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Solution
Utilization = Actual output ÷ Design capacity =
36/80 = 45%
Efficiency = Actual output ÷ Effective capacity =
36/40 = 90%
Expected output = (Effective capacity)
(Efficiency)
= (40)(0.82)
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= 32.8 engines per day
Questions
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