Chapter 3 Product & Process Design Part 2: Process Design

Product vs. Process Design Which comes first: Design of process or Design of product? The answer is ??

Product Strategy Once a company decides to produce a given product or offer a particular service, company should decide if product or service is to be Made-to-order Assemble-to-order (or Built-to-Order) Made-to-stock

Make-to-order Products/services that are made to customer’s specs but only after an order is received. Product/service is customized Volume is ?? Inventory level is ?? Delivery time—from time order is place to time it is received--is generally ??

Make-to-order Examples Custom built home or office building Tailor made suit Commercial airplane Wedding cake Professional services (law case, prescriptions, some medical procedures, etc.) Hair styling

Assemble-to-order (built- to-order) Standard components are produced in anticipation of demand. Once an order is received, components can be combined in different ways to accommodate different customer specs. Some customization May have what type of inventory? Delivery time shorter than make-to- order.

Assemble-to-order (built- to-order) Examples Computers (Dell) Standard vacation packages Track homes Cars built to customer’s specs Omelet

Make-to-stock Products produced for immediate sale or delivery in anticipation of demand. Product is standardized. Produced in large volumes. May have what type of inventory? Instant or short delivery time.

Make-to-stock Each unit is produced or assembled by going through same series of operations in same order.

Make-to-stock Examples “Off-the-shelf” items Big ones Cars TV sets Small ones Toothpaste Candy

Overview of Product Strategy Bake

Product Strategies Differ by Degree of customization Type of inventory Delivery time Volume Type of process (later)

Comparison of Product Strategies Make to Order Assemble to Order Make to Stock Custom- ization Very highHighLow Type of inventory NoneWIPFinished goods Delivery time LongModerateInstant or Very Fast VolumeLowModerateVery high ProcessProjectBatchLine or continuous

Types of Processes What type of process is best for each type of product strategy? Processes can be classified as Project Batch Line Continuous

Project Process (Custom Job Shop) A process set that makes a one-at-a- time product exactly to customer specifications. Product has its own unique processing requirements. Product is routed to different operations (workstations), depending on its own unique needs.

Project Process (Custom Job Shop) High degree of customization Low volume

Project Process Construction, some medical procedures, landscaping, custom built home, tailor made suit. Therefore, use with products that are “make to order.”

Batch Process Produces small quantities of a product in groups or batches based on customer orders or specs. Product is often made using standard components, which are combined in different ways, depending on product requirements.

Batch Process Print shop, computers (Dell), education classes Works best for products that are assemble-to-order.

Example of Layout of a Project or Batch Process: Hospital

Line process (or assembly line) Produces large quantities of a standardized product. Assembly line operation designed for mass production. Each unit is produced or assembled by going through same series of operations performed in same order. Cars, off the shelf items. Works best for make-to-stock products.

Continuous Process Very high volumes of a fully standardized product Product is continuous – liquid or gas Oil refinery Water purification plant Liquid chemicals Capital intensive and automated Use for make-to-stock products

Example of Repetitive Process: Car Wash DryRinseSoapSpray

Example of Line Process: Hotel Laundry

Classification of Processes ProjectBatchLineContinuous IntermittentRepetitive

Processes Characterized by Relationship Between Standardization and Volume

DecisionIntermittent OperationRepetitive Operation Product varietyGreatSmall Degree of standardizationLowHigh Organization of resourcesGrouped by FunctionLine flow Path of productsVaried, depends on productLine flow Factor driving productionCustomer ordersForecast of demand Critical resourceLaborCapital Type of equipmentGeneral purposeSpecialized Degree of automationLowHigh Throughput timeLongerShorter Work-in-process inventoryMoreLess Intermittent vs. Repetitive Processes

Types of Processes vs. Product Strategy Types of ProcessProduct Strategy ProjectMade to order BatchAssemble to order Line Make to stock Continuous

Process Performance Metrics To determine if a process is functioning properly, we must measure its performance. To measure performance, process should be in statistical control.

Process Performance Metrics

Process Velocity Should ratio be big or small? What does a ratio of 1.0 imply? Greater than 1.0?

Utilization Should ratio be big or small? What does a ratio of 1.0 imply? Less than 1.0?

Efficiency Should ratio be big or small? What does a ratio of 1.0 imply? Less than 1.0? Greater than 1.0?

Example – Page 72, text A title company is analyzing its operations in an effort to improve performance. The following data has been collected:

It takes an average of 4 hrs. to process and close a title. Value added time is estimated at 30 minutes per title. Each title officer is on payroll for 8 hrs. per day, but works 6 hrs. per day on average, accounting for lunches and breaks. Industry standard for labor utilization is 80%.

The company closes 8 titles per day. Industry standard at comparable companies is 10 titles closed per day. Compute Process velocity Labor utilization Efficiency

Process Velocity

Labor Utilization

Efficiency