Constituent of Symbiosis International (Deemed University)

Process Selection and Analysis

Session – 7
For: Semester – I MBA, Operations

By : Dr. Ramkrishna Manatkar, Sr. Asst. Professor

Date : 8/07/2021

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Process Strategy
The objective is to create a process to
produce offerings that meet customer
requirements within cost and other
managerial constraints

The pattern of decisions made in managing

processes so that they will achieve their
competitive priorities

2
Process Strategies

How to produce a product or provide a service that

• Meets or exceeds customer requirements

• Meets cost and managerial goals

Has long term effects on

• Efficiency and production flexibility

• Costs and quality

3
 Process, Volume, and Variety
Volume
Low Repetitive High
Volume Process Volume
High Variety
one or few units Process Focus Mass Customization
per run, projects, job shops (difficult to achieve, but
(allows (machine, print, huge rewards)
customization) hospitals, Dell Computer
restaurants)
Variety (flexibility)

Arnold Palmer
Hospital
Changes in
Modules
modest runs, Repetitive
standardized (autos, motorcycles,
modules home appliances)
Harley-Davidson

Changes in
Attributes (such as Poor Strategy
grade, quality, size, Product Focus
(Both fixed and (commercial baked goods,
thickness, etc.) variable costs
long runs only steel, glass, beer)
are high) Frito-Lay

4
Process Strategies

Four basic strategies

1. Process focus
2. Repetitive focus
3. Product focus
4. Mass customization

Within these basic strategies there are

many ways they may be implemented
5
Relationship between the Product Life Cycle
and Productive System Types
Product
focused to
stock
(Continuous)

Product
focused
to stock
Sales Units

Process (Batch)
focused,
to order
Process
(Batch)
focused,
to order
(Job shop)

Introduction Growth Maturity Decline

Stage of Development 6
Process Selection With Break-Even
Analysis
• Study cost trade-offs based on demand volume
• Cost
• Fixed costs
• constant regardless of the number of units produced
• Variable costs
• vary with the volume of units produced
• Revenue
• price at which an item is sold

7
Process Selection With Break-Even
Analysis
• Total revenue
• price times volume sold
• Profit
• difference between total revenue and total cost

8
 Fixed Costs - Examples
Examples of fixed costs:
1.Salaries (Permanent employees)
2.Interest paid.
3.Depreciation.
4.Amortization. ( gradual charging to expense of
the cost of Tools , Purchased Patents - over the
useful life of the asset)
5.Insurance.
6.Property taxes.
7.Rent …. etc

9
Variable Costs - Examples

Examples of variable costs,

1.Direct materials. The most purely variable cost of
all, these are the raw materials that go into a
product.
2.Piece rate labor. ...
3.Production consumables,
4.Sales Commissions.
5.Transportation - In/out. etc

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 Break Even Analysis

It is necessary for a firm to plan its profit. So

it should understand the relationship Of
Cost, Price, and Profit.
The most important method of determining is
Break-Even Analysis.
At Break Even Point,
1.{Total Revenue = Total Cost }, i.e.
2.‘No Profit = No loss’ Point

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Assumptions - ‘Break- Even Analysis’
1. The Firm produces only one product.
2. Fixed costs are constant, only variable costs
change.
3. Selling price remains constant, does not change
with volume of scale.
4. Technology remains same.
5. Costs and revenue change with changes in sales
volume, in same proportions.

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Process Selection With Break-Even
Analysis
Total cost = fixed cost + total variable cost
TC = cf + vcv
Total revenue = volume x price
TR = vp
Profit = total revenue - total cost
Z = TR – TC = vp - (cf + vcv)
cf = fixed cost
V = volume (i.e., number of units produced and sold)
cv = variable cost per unit
p = price per unit

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Process Selection With Break-Even
Analysis

TR = TC
vp = cf + vcv
vp - vcv = cf
v(p - cv) = cf
cf
v= p-c
v

Solving for Break-Even Point (Volume)

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Break-Even Analysis
Fixed cost = cf = $2,000
Variable cost = cv = $50 per unit
Price = p = $100 per unit

Break-even point is
cf
v= p-c =
v

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Break-Even Analysis
Fixed cost = cf = $2,000
Variable cost = cv = $50 per unit
Price = p = $100 per unit

Break-even point is
cf 2000
v= p-c = = 40 units
v 100 - 50

16
Break-Even Analysis: Graph

Dollars

$3,000 — Total
cost
line

$2,000 —

$1,000 —

Total
revenue
line
40 Units
Break-even point

17
Process Selection – Multiple Processes
Process A Process B
$2,000 + $50v = $10,000 + $30v

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Process Selection – Multiple Processes
Process A Process B
$2,000 + $50v = $10,000 + $30v
$20v = $8,000
v = 400 units

Below or equal to 400, choose A

Above or equal to 400, choose B

19
Multiple Processes – Indifference Point

20
Crossover Chart Example
▶Evaluate three different accounting software
products
▶Calculate crossover points between software A
and B and between software B and C

DOLLARS REQUIRED PER

TOTAL FIXED COST ACCOUNTING REPORT
Software A $200,000 $60
Software B $300,000 $25
Software C $400,000 $10

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Crossover Chart Example
( ) ( )
200,000 + 60 V1 = 300,000 + 25 V1
35V1 = 100,000
V1 = 2,857
► Software A is most economical from 0 to 2,857 reports

( ) ( )
300,000 + 25 V2 = 400,000 + 10 V2
15V2 = 100,000
V2 = 6,666
► Software B is most economical from 2,857 to
6,666 reports
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 Crossover Charts
Variable Variable Variable
$ costs $ costs $ costs

Fixed costs Fixed costs

Fixed costs
Low volume, high variety Repetitive High volume, low variety
Process A Process B Process C

400,000
300,000
200,000
Fixed cost Fixed cost Fixed cost
Process A Process B Process C
Figure 7.3
(2,857) V1 V2 (6,666) Volume
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Example: Break-Even Analysis
• Suppose a manufacturer has identified the following
options for obtaining machine part :
• It can Buy a part for $200/unit (including materials)
• It can make a part on a semiautomatic lathe at
$75/unit (including material)
• It can make a part on machining center at $15/unit
(including materials)
• There is no fixed costs, if the item is purchased
• Semiautomatic lathe has $80,000 fixed costs
• A machining center has $200,000 fixed costs

7-24
Example: Total Cost for Each Option
1. Purchase

• Cost = $200 x Demand

2. Produce Using Lathe

• Cost = $80,000 + $75 x Demand

3. Produce Using Machining Center

• Cost = $200,000 + $15 x Demand

7-25
Example: Costs Shown Graphically

If demand expected to be more than 2000 units, machine centre is the best
choice because this would lead to lowest total cost.
If demand is between point B(640 units and 2000 units) the semiautomatic
m/c is cheapest)
If demand is less than 640 (between 0 and point B ) the most economic course is to
buy the product
7-26
Exhibit 7.3
Example:Finding Points A and B
The breakeven point A and Point B calculations are :

Point A
$80,000 + $75  Demand = $200,000 + $15  Demand
$80,000 + $60  Demand = $200,000
$60  Demand = $120,000
Demand = $120,000 = 2,000
$60

Point B
$200  Demand = $80,000 + $75  Demand
$125  Demand = $80,000
Demand = $80,000 = 640
$125
7-27
What is Process Analysis?
• Process Analysis
• The documentation and detailed understanding of how
work is performed and how is can be redesigned
Manufacturing Process Flow Design
• Manufacturing process flow design: a method to
evaluate the specific processes that material follow as
they move through the plant
• Common tools are assembly drawings, assembly charts,
route sheets, and flow process charts
• Each of these charts are useful diagnostic tool that
can be used to improve operations
• Focus should be on the identification of activities that
can be minimized or eliminated
• Movement and storage
• The fewer the moves, delays, and storage, the better the
flow

7-29
Process Plans
• Set of documents that detail manufacturing and
service delivery specifications
• assembly charts
• operations sheets
• quality-control check-sheets

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The Charts
Assembly drawing

• An exploded view of the product showing its component parts

Assembly chart

• Defines how parts go together, their order of assembly, and overall flow
pattern

Operation and route sheet

• Specifies operations and process routing

Process flowchart

• Denotes what happens to the product as it progresses through the

production facility
7-31
Sample Assembly Drawing

7-32
Exhibit 7.4
Sample Assembly Chart

7-33
Exhibit 7.5
Sample Operation and Route Sheet

7-34
Exhibit 7.6
Sample Flowchart

7-35
Exhibit 7.7
Example: Manufacturing Process Analysis
• Company supplies a component to several large auto
manufacturer. This component is assembled by15
workers, working on eight-hour shift on an
• Assembly line that moves at the rate of 150
components per hour
• The workers receives their pay in the form of group
incentive amounting to 30¢ per good part
• Management believes that it can hire 15 more
workers for second shift if needed
• Parts for final assembly come from two sources. The
molding department makes one critical part and rest
of the parts come from outside vender

7-36
Example: Molding
• There are 11 Machines capable of molding one part
in-house
• One usually down
• One operator per machine
• Each machine could produce 25 parts per hour
• The workers are paid on an individual piece rate of
20¢ per good part
• The workers will work overtime @ 50% increase in
rate it Overtime is 30¢ per part
• Currently the workforce is flexible
• Currently 6 employees are on the job
• 4 more available from labour pool

7-37
Example: Remaining Costs
• The raw materials for each part molded costs 10¢ per
part
• Electricity is 2¢ per part
• The parts purchased from outside cost 30¢ per
component

• Other weekly expenses

• Rent is $100
• Other employees receive $1,000
• Accounting depreciation is $50

7-38
Example: Questions to Answer
a) Determine the capacity of the process
• Are the capacities balanced?
b) If the molding process were to use 10 machines
instead of 6, what would be the capacity of the
entire process?
c) If the company went to a second shift, what would
be the new capacity?
d) Determine the cost per unit output when the
capacity is 6,000 per week or 10,000 per week

7-39
Example : (a) Capacity of Entire Process
• Molding Capacity
• 6 machines x 25 parts per hour x 8 hours x 5 days = 6,000

• Assembly Capacity
• 150 components per hour x 8 hours x 5 days = 6,000

• The capacities are balanced

7-40
Example : (b) Increasing Molding to 10
Machines
• Molding Capacity
• 10 x 25 x 8 x 5 = 10,000

• Assembly capacity has not changed from 6,000

• The capacities are no longer balanced

7-41
Example : (c) Increasing Assembly Capacity
• Molding Capacity
• 10 x 25 x 8 x 5 = 10,000

• Assembly Capacity
• 150 x 16 x 5 = 12,000

• New capacity is 10,000

7-42
Example : (d) Cost for 6,000 Parts per Week

7-43
Example: (d) Cost for 10,000 Parts per Week

7-44
Process Analysis
Introduction / The three
measures
Process Analysis
The systematic study of
the activities and flows of Basic tools
each process to improve it
• make it faster • process flowcharts
• more efficient • diagrams
• less costly • maps
• more responsive

6-46
Process Analysis
A process that Process: any part of
does not match an organization
the needs of the that takes inputs
firm will punish and transforms
the firm every them into outputs
minute that the
firm operates

Cycle time: the Utilization: the

average successive ratio of the time
time between that a resource is
completions of actually activated
successive units relative to the time
that it is available
for use

11-47
Principles for Redesigning Processes

Remove waste, Let the swiftest and

simplify, and Link processes to most capable
consolidate similar create value enterprise execute
activities the process

Capture information
Flex process for any
digitally at the source
time, any place, any
and propagate it
way
through process

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Principles for Redesigning Processes

Provide visibility
Fit process with sensors
through fresher and Add analytic capabilities
and feedback loops that
richer information about to the process
can prompt action
process status

Connect, collect, and

Personalize process with
create knowledge
preferences and habits
around process through
of participants
all who touch it

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Process Analysis and Design
Is the process
Does the process
designed to achieve
eliminate steps that
a competitive
do not add value?
advantage?

Does the process

Will the process win
maximize customer
orders?
value?

50
Defining, Measuring, and Analyzing the Process (1
of 3)
Flowcharts
• A flowchart representation of
the sequence of steps and Work Measurement
decisions needed to perform a Techniques
process using boxes and
arrows

Process Charts
• Graphical representations of a
steps in a process Data Analysis Tools

51
Defining, Measuring, and Analyzing the
Process (2 of 3)
Flowchart Service Blueprint

• A diagram that • A special flowchart

traces the flow of of a service process
information, that shows which
customers, steps have high
equipment, or customer contact
materials through
the various steps of
a process

52
Defining, Measuring and Analyzing the
Process (3 of 3)

Work Measurement Techniques

• Time Study
• Elemental Standard Data Method
• Predetermined Data Method
• Work Sampling Method
• Learning Curve Analysis

53
Building a Flowchart
• Determine objectives
• Define process boundaries
• Define units of flow
• Choose type of chart
• Observe process and collect data
• Map out process
• Validate chart

54
Process Flowcharts
Look at manufacture of
product or delivery of
Incorporate
service from broad
perspective

nonproductive
activities (inspection,
transportation,
delay, storage)

productive activities
(operations)

55
Process Flowchart Symbols

Operation
Inspection
Transportation
Delay
Storage

56
Process Flowchart of Apple Processing

57
Process Chart for Hemberger Assembly

Figure 7.5

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Process Map
or Swimlane
Chart of
Restaurant
Service

59
Simple Value Chain Flowchart

60
Process Analysis and Design
► Flowchart
► Shows the movement of materials
► Time-Function Mapping
► Shows flows and time frame

61
 "Baseline" Time-Function Map
Order Receive
Customer product product

Process
Sales order

Production

Order
Wait
control

Product
Order
Plant A Print

Product
WIP
Warehouse Wait Wait Wait

Product
WIP
WIP
Plant B Extrude

WIP
Transport Move Move

12 days 13 days 1 day 4 days 1 day 10 days 1 day 9 day 1 day

Figure 7.4(a) 52 days
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 "Target" Time-Function Map
Order Receive
Customer product product

Process
Sales order

Product
Order
Production
control Wait

Order
WIP
Plant Print Extrude

Product
Warehouse Wait

Product
Transport Move

1 day 2 days 1 day 1 day 1 day

6 days

Figure 7.4(b)
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Process Chart

Figure 7.5
Example on Analyzing process
• A toy manufacturer receives crafted toys from local carpenters and performs final
operations before stocking it for sale. The process consists of 5 steps:
Prepare Pre-treat Paint Dry Inspect &
8 min 12 min 20 min 10 min pack5 min
• What is the throughput time for this mfg. process?
• Identify the bottleneck for this process?
• What is the cycle time for this process?
• What is the productive capacity for this process?
• What are the assumptions behind this computation?
• Process is continuous, adequate amount resources are available
• Once operation starts there are no delay, no variations

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 Thank You
Dr. Ramkrishna Manatkar
+91 9373163739
[email protected]
SIOM Faculty - Operations Management

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