CHAPTER 7 PROCESS STRATEGY PROBLEMS

DISCUSSION QUESTIONS
Q1

The features of the process strategy are as given below:

• The objective of process strategy is to set up a production process that meets the customer
requirements and product specifications.

• An operations manager can practice the process strategy in four modules namely

1. Process focus

2. Repetitive focus

3. Product focus

4. Mass customization

• The process selected will have a long term effect on efficiency and flexibility of production.

For example, process strategy involves planning as to whether the company purchases the materials
from a supplier, do they make it themselves, or do they come to the end result through a combination of
processes.

However, the main purpose of the purpose strategy is to assemble the difference between customer
expectation and actual proposition of products and services including its labor and costs

Q2

The type of process likely to be followed including a brief description

are given below:

Products Type of process Brief description

Product focused and High volume, low variety and continuous process
Beer
continuous. which normally works 24/7.
Printing press handle a variety of print jobs of
Wedding Process focused as in a job
different complexity and differing volumes of
invitations shop.
production runs.
The components either purchased or
Automobiles Modular and Repetitive. manufactured go into sub assemblies. These
enter the main assembly line at various stages.
Paper plants are normally continuous plants of
Product focused and capacities of the order of thousands of tonnes
Paper
continuous. per day. The finished product is wound in giant
reels.
Fillings (cheese, onions, meat, sauce and so on)
Big Macs Modular and Repetitive are prepared in separate modules and the final
steps for making the finished are repetitive.
Process focused as in a job Low volume and large variety. Components such
Custom shop. Components could be as bricks, cables, lights, plumbing, glass could
homes product focused and/or be product focused. Doors and windows may be
modular. modular.
The components either purchased or
Motorcycles Modular and Repetitive manufactured go into sub assemblies. These
enter the main assembly line at various stages.

Q3
CHAPTER 7 PROCESS STRATEGY PROBLEMS
Service blueprinting

Service blueprinting is a customer-focused technique that is used for service innovation and
improvement. It gives a clear picture for service processes and delivery from the customer’s perspective.
It identifies the service process and customer segment.

Q4

Process redesign

Process redesign is also known as process re-engineering, which helps in identifying and designing the
workflow within the organization. It improves the performance of overall business processes.

The following are the main objectives of process redesign:

• Return on investment (ROI)

• Reducing inventory cost

• Providing quality service to the customer

Q5

Service productivity:

The ratio between quantity and quality of output and input is termed as service productivity. The
formula is as follows:

Techniques for improving service productivity:

Following are the techniques used for improving service productivity:

• Separation – It is a process that structures service to meet the customer expectations.

• Self-service – It is a process of examining, contrasting, and evaluating the service by the customers
themselves.

• Postponement – A business strategy that maximizes possible benefits and minimizes risks by delaying
further investment.

• Focus – The main focus on productivity is to create and deliver quality products to the customer.

• Modules – A process of selecting the service and modular production.

• Automation – A process of dividing services, which helps to optimize the process of productivity.

Q6

The four quadrants in the service process matrix is a classification of the service business based on
characteristics, such as the extent of labor intensity in one axis and the degree of customer
interaction/customization in the other axis as shown in figure.
CHAPTER 7 PROCESS STRATEGY PROBLEMS

• The bottom left quadrant which has a low degree of labour and low degree of customization is labeled
as “service factory”. Typical service businesses such as fast food restaurants, low frill budget airlines,
catalog stores and so on are classified in this quadrant due to low degree of labour and low degree of
customization. These businesses can take the advantage of scale economies with less expensive unskilled
workers.

• The bottom right quadrant has a low degree of labour and a high degree of customization. This
quadrant is labeled as “service shop”. Hospitals, automobile repair shops and “a la carte” restaurants are
classified into this quadrant.

• The top left quadrant has a high degree of labour and a low degree of customization. This quadrant is
labeled as “mass service”. Mass service providers such as schools and retail chains belong to this
quadrant.

• The top right quadrant has a high degree of labour and high degree of customization. This
quadrant is labeled as “professional service”. Specialized service providers such as investment
bankers and architects would fall in this quadrant. The four quadrants in the service
process matrix is a classification of the service business based on
characteristics, such as the extent of labor intensity in one axis and
the degree of customer interaction/customization in the other axis as
shown in figure.

Q7

Computer-integrated manufacturing (CIM)

Computer-integrated manufacturing (CIM) is the manufacturing
technique which controls the entire process of production by using
computer. It also supports the overall manufacturing process of the
organization. It is the integration of computer-aided design (CAD),
flexible manufacturing system (FMS) inventory control, warehousing,
and shipping.

Q8

Typically in a product focused manufacturing facility, process control systems are used to monitor and
control the process. Large product focused manufacturing facilities such as petroleum refineries,
petrochemical plants, paper mills, steel plants, cement manufacturing units, nuclear reactors, sugar
factories and so on use process control systems.
CHAPTER 7 PROCESS STRATEGY PROBLEMS
Some of the parameters monitored are:

• Pressure

• Temperature

• Moisture

• Thickness

•Volume and so on

Normally, the various elements which make up the process control systems are

• Sensors to measure the various parameters

• Connections/interfaces from these sensors to devices which can read on a periodic basis. These
connections could be wireless or through cables.

• Conversion of the data to digital signals, which are transmitted to a computer or a microprocessor
based device.

• The computer processes the data and the output is in the form of messages or signals to motors to
change valve settings, warning lights, reduce pressure, or increase temperature and so on. In rare
instances, the computer may activate safe shut down based on the parameters monitored

Q9

Some of the manufacturing firms that compete on each of the four processes are described below:

Process focus

The manufacturing is process focused where there is a large variety and low volume. Typical machine
shops which have lathes, milling machines, grinding machines, drilling machines and so on process a job
against firm order.

A shipbuilding unit normally would have a process focus. Each ship may have different specifications and
sizes. Some of the ships built could be VLCCs or very large crude petroleum carriers. Some of the ships
may be container vessels. Some others may be bulk cargo vessels such as coal carriers and so on. Capital
equipment manufacturers in the petrochemical industry or manufacturers of material handling
equipment such as belt conveyors may have a process focus.

Repetitive focus

Automobile manufacturers would have a repetitive focus. Consumer durable manufacturers like
producers of washing machines and televisions would have a repetitive focus.

Product focus

Manufacturing units such as petroleum refineries, cement plants or sugar plants would normally have a
product focus. Large volume and low variety characterize these industries. Such businesses normally
work 24/7.

Mass customization

Mass customization combines the advantages of both mass production in terms of costs and the product
differentiation to meet the customer needs. It is a method of postponing till the very last stage, the task
of differentiating the product for a specific customer.

A leading computer manufacturer is able to deliver customized configurations at prices comparable to

standard configurations. One of the global brands in jeans also follows mass customization
CHAPTER 7 PROCESS STRATEGY PROBLEMS
Q10 not available

Q11 not available

Q12 NA
Q13

Numerically controlled machine:

Equipment controlled by computer programming languages is termed as numerically controlled

machines. The machines that are controlled by its own unique computer programs are also termed as
numerically controlled machine. The machines that are connected through wires to a central controlling
device can be termed as direct numerically controlled machine.

Q14

Data once it is in the electronic form can be analyzed. Converting physical data into electronic form is not
only time consuming but also expensive and prone to errors. Automatic Identification Systems (AIS)
captures data in the electronic form for further processing. Some of the ways in which the electronic
data is captured by Automatic Identification Systems (AIS) are

• Bar codes

• Radio Frequency Identification (RFID)

• Optical scanners and so on

Automatic Identification Systems (AIS) contributes to increased productivity in service organizations in

the following ways

• Bar code scanners enable faster and accurate billing in retail stores.

• Easier to detect shoplifting through RFID tags on products in retail stores.

• Taking stock of inventory of Bar coded and RFID tagged items are easier and faster than physical
counting.

• Large courier firms use bar codes for sorting the packages at the origin point to different destinations.

• RFIDs enable toll collection without stopping the vehicles.

• Tracking parts and components in warehouses become easier and faster

Q15

Some of the advances in technology which enhance production and productivity are

Numeric Control in Machine tools

Machine tools such as lathes, milling machines and drilling machines which are typically used to perform
operations in factories have improved both in terms of precision and control. Therefore machining
allowances have come down, reducing processing time and costs. Machines have electronic controls
which can be programmed so that set up time can be reduced. This, besides saving costs also decreases
wastage due to reduction in mistakes during processing.

Automatic Identification Systems such as optical scanners

Optical scanners can be used in manufacturing such as in making bottled products such as soft drinks
and mineral water. The optical scanner automatically detects whether a bottle has been filled up to a
predetermined level. Bottles which fail in the quality control process carried out through optical scanning
are identified for removal from the production line.
CHAPTER 7 PROCESS STRATEGY PROBLEMS
Automatic process control system in petroleum refineries

Various fractions of refined products such as gasoline, diesel and naphtha have different boiling points.
Temperatures are controlled to extract various fractions of refined products using automatic process
control systems. Both the quality and the production of refined products increase due to automatic
process control systems.

Vision systems for quality control

Vision systems are used to check the shape, size and uniformity of fruits and vegetables for sorting
before being sent to the retail markets. Customers prefer uniform shape and size when they buy fresh
fruits and vegetables. Fruits and vegetables which are out of shape are removed and if possible sent to
the food processing industry. Tomatoes which are out of shape may not be acceptable in the fresh
vegetable retail outlets but would be accepted by the ketchup manufacturers.

Robots in the iron foundry industry

Cast iron foundries are not the most pleasant places to work where hot metal, foundry sand and dust
make the work environment challenging. Robots are used for picking and placing hot castings after they
are removed from the mould boxes. This not only reduces the hazards of working with hot metal but
also the monotony of manually handling rough castings.

Automatic storage and retrieval systems in warehouses

Cargo warehouses in airports have a number of inbound parcels and a large number of outbound
parcels. Automatic storage and retrieval systems help in properly storing in the designated place a
parcel. Similarly this system, when required helps in locating and retrieving the parcel.

Such a system helps in proper usage of warehouse space, besides speedy storage and retrieval of air
cargo items.

Automated guided vehicles for material movement

In industrial applications, raw materials and partly processed materials have to be moved around a
factory. Forklift trucks and overhead cranes are normally used. Automatic guided vehicles also help in
moving materials. To illustrate in a nuclear reactor, radioactive materials may be moved by automated
guided vehicles so that no employee comes close to the hazardous material.

Flexible Manufacturing System

For a manufacturing system to be flexible (i) the system should be able to quickly identify the production
units to perform the operation (ii) speedy changeover of operating instructions to machines which are
numerically controlled and (iii) automatic and speedy change of tools, jigs, fixtures and movement
sequence of materials.

Heavy fabrication facilities which cater to a variety of requirements of the defense industry, where large
number of parts and components are also required, flexible manufacturing systems are used.

Computer integrated manufacturing

Electronics has become all pervading from the product design as in Computer Aided design (CAD) to
production through Flexible manufacturing systems (FMS) and to computer based inventory
management and warehousing. The entire system can be termed as a Computer Integrated
Manufacturing system. Silicon foundries which make integrated chips often are Computer Integrated
Manufacturing systems.

Q16
CHAPTER 7 PROCESS STRATEGY PROBLEMS
In a flexible manufacturing system (FMS), a central microprocessor based system gives directions to each
machine or workstation and to the material handling system which are connected to the microprocessor.

It is flexible because the programme in the microprocessor can be altered depending on the work on
hand.

The major advantages of FMS are:

• A variety of items can be produced under one roof.

• Speedier production using FMS.

• Improved efficiency and product quality.

• Reduction in set up times.

• Better utilization of human resources on the shop floor.

The major disadvantages are

• Substantial pre-planning activity.

• Expensive compared to conventional machines.

Q17

Computer Aided Designs (CAD) are three dimensional representations of a part or system of parts based
on the input geometric parameters. CAD had its origins when attempts were made to automate the
drafting process which were done manually.

CAD benefits the design engineer in the following ways

• The design engineer is able to quickly and conveniently cross check whether the design conforms to
the various engineering standards. The areas of non conformance get highlighted and flagged for
corrective action without loss of too much time.

• When designing products which have various components and sub-assemblies, it becomes crucial to
keep dimensional tolerances in view so that there is no interference between parts and sub-assemblies.
CAD is again useful in checking interference between mating parts and sub-assemblies.

• For various design conditions such as strength, stress and heat transfer, CAD helps in analyzing various
options quickly and efficiently.

The design data generated through CAD can also give commands to numerically controlled machines
which may be part of a flexible manufacturing system (FMS).

CAD and FMS are elements of a fully Computer Integrated Manufacturing system

Q18

The computer intelligence is used to control the machines to make production faster and efficient.
Additive manufacturing is one of the advanced versions of technology that is widely used in present
scenario.

Additive manufacturing also known to be 3D printing is defined as a process that builds a component by
adding material layer by layer. The additive manufacturing is used for design testing as well as developing
prototypes and customized products. It helps in designing with minimum tooling and assembly by
maintaining low inventory levels. With the invention of additive manufacturing, the efficiency of
production processes is also enhancing.

Q19
CHAPTER 7 PROCESS STRATEGY PROBLEMS
3D printing is defined as a process that builds a component by adding material layer by layer. The 3D
printing is used for design testing as well as developing prototypes and customized products. It helps in
designing with minimum tooling and assembly by maintaining low inventory levels.

The advantages and disadvantages of 3d printing are as discussed below:

Advantages:

(i) Productivity increase: 3d printing enables quick production as a number of prototypes are created and
designed by removing design flaws that affect the quality of the product.

(ii) Customization: With the use of less material, the product designs are easily made by 3d printing to
produce customized and innovative products.

(iii) Affordability: The equipment cost is relatively low when compared to the cost of conventional
manufacturing. Also, the material is used at an optimum level compared to conventional manufacturing.

Disadvantages:

(i) Limited material: Only some materials are used by the 3d printing to create products compared to
conventional manufacturing. Conventional manufacturing uses wide variety of materials to create and
produce products.

(ii) Energy consumption: 3d printers consume high energy to create and produce products compared to
conventional manufacturing. Due to high energy consumption, 3d printing is chosen for batch
production rather than mass production.

(iii) Decrease in employment: Due to the lesser usage of machinery and equipment in this process, the
workforce required by the firm decreases, which finally results in decreasing employment opportunities.
Additionally, it requires highly skilled workforce to handle the equipment for 3D printing, which would
affect the jobs of semi-skilled and unskilled workers.

Though 3D printing compared to conventional manufacturing provides major benefits, still there is a
need to make developments to reduce the limitations.

CASE STUDY
Case Study 1
(1) As a production manager would recommend this project, though now without an extensive amount
of deliberation.

There are 5 OM considerations of implementing FMS:

OM
Benefits / Negatives Consideration
Component
None / $3 million Unknown transition and startup
Installation
expenditure costs
20% utilization
Utilization increase /
overestimate
Significant decrease
Inventory / Unquantifiable, but large cost
in inventory and
Throughput saving possibilities
throughput
Physical 14,000 square feet Create space for other product
CHAPTER 7 PROCESS STRATEGY PROBLEMS
Space opened up lines
Positive ROI with At $3 mn expenditure and 12.5%
conservative ROI, the project’s payback period
ROI
assumptions / under is 8 years. This exceeds firm
typical project yield expectation of < 5 year payback1
1Payback period = Project Cost / (ROI * Project Cost) = 1 / ROI

While ROI and payback period fall below company standards, the potential for new business lines in the
empty space, low project risk and capital saved from inventory and throughput reeducation justify the
project.

(2) While the above analysis is both conservative and realistic, both FMS salesperson and plant manager
must consider best and worst-case scenarios, respectively. A conservative plant manager is most
concerned with maintaining their current line and growth with limited disruption. These assumptions
must be conservative.

Installation poses the largest threat to current product lines and cost savings. $3 million in expenditures
could be a very generous estimate, with various transition, startup, and unforeseen expenses likely. It is
not uncommon for projects to cost twice an estimate, making the project a $6 million dollar endeavor.

Utilization, like installation, could very likely be an overestimate. 20% is a high estimate, with 15% being
more likely and 10% being a distinct possibility. At this level of utilization the ROI drastically drops and
profit from product lines drops off (due to low volume).

Inventory and throughput are direct functions of utilization. A conservative estimate of utilization would
point to a much larger inventory and lower throughput (each decreasing ROI of the project).

Physical space is a set amount, and will not decrease even in conservative estimates. If the 14,000-
square foot space is not put to efficient and profitable use, then optimistic contributions of a new
product line cannot be considered in ROI estimation.

ROI, and subsequently payback period, is already below company standards. With this in mind,
conservative estimates push ROI well below 10%. At a certain point, investing in Treasury Bills or CDs
provides the same payoff with no risk and no transition period.

(3) An FMS sales person has the opposite considerations of a project manager. They are looking to
present the FMS OM system in a favorable a financially liberal light.

Installation carries a consistent price, but companies with infrastructure may have already invested in
infrastructure and personnel that reduce redundancy costs.

Utilization was estimated at a “conservative” 20%. Due to the high throughput and low inventory
capability of the FMS system, the potential for greater utilization is higher. Furthermore, FMS’s greatest
strength is autonomy, versatility, and adaptability. While the current system may have comparable
utilization, a product or market change would render the current system unusable. This would not be the
case with the new FMS system.

Inventory and throughput are direct functions of utilization. A higher estimate of utilization would point
to a much lower inventory and higher throughput (each increasing ROI of the project).

Physical space is a set amount, and will not increase even in liberal estimates. If the 14,000-square foot
space is put to efficient and profitable use, then a whole another product line could be added to the
company. This creates an unaccounted for ROI contributor.

ROI, and subsequently payback period, is below company standards. That being said, the FMS system
allows the company to quickly and efficiently changes product lines (important, but not accounted for in
CHAPTER 7 PROCESS STRATEGY PROBLEMS
ROI). Conservative estimates also put ROI at the “low-end” of company standards, but the product is
provides a guaranteed product line improvement with a possible large upside.

Case Study 2
As a conservative plant manager, the arguments in favour of maintaining the status quo are

• The returns on investment for conversion from numerically controlled machines to flexible
manufacturing system is between 10% and 15% per year. This is far lower than the historical rates of over
15% ROI for RMC’s projects.

• Change from one system to the other would disrupt operations. Such disruptions would have an
impact on customers’ businesses. The plant manager may be unwilling to annoy a regular customer.

• Surplus machinery identified may not have a ready market at remunerative prices.

• Similarly, a reduction in manpower requirements and consequently gainful utilization of surplus

employees may be a difficult issue to resolve.

• The plant manager may have apprehensions regarding the trainability of his team members in the new
process.

Case Study 3
An optimistic sales manager would perceive the advantages of going ahead with the FMS for the
following reasons

• Substantial reduction in processing time would ensure that there are no delays or missed deadlines.
Customer satisfaction would be higher which may result in improved prices for the next contract and/or
increased size of future contracts.

• The flexible manufacturing systems because of higher automation would have less scope for human
errors. The quality of the output would be much higher compared to the earlier system. Better quality
would facilitate more remunerative prices from the customers.

• Showcasing the state of the art equipment to new and potential customers would help in future sales
growth.

Problems
Q1

FMS HAS THE MINIMUM TOTAL COST, IT IS BEST FOR THIS CONTRACT

Q2
GPE has the lowest Total Cost for 0 units. The next lowest cost is FMS. For comparing
these plans, let Y be the no of units when the cost of both plans is the same.

GPE is the best alternative for 75000 units.

Similarly, When we compare FMS and DM to find Y, we get
CHAPTER 7 PROCESS STRATEGY PROBLEMS

So, FMS is the best alternative for the 275000 units.

DM is the best alternative for 375,000 units.
ECONOMIC VALUE:
the option GPE is best when the contracted volume is below
100,000 units, FMS is best when the contracted volume is between 100,000 and 300,000
units and DM is best when the contracted volume is over 300,000 units.

Q3

Q4

The criteria for selection of the process is on least total cost basis, TC= TFC+ TVC.The problem only states that there
is anticipated volume increase in second and subsequent years. It is therefore utmost important, to establish a
forecast for volume for 2nd and subsequent year and suitable forecasting method to be chosen accordingly based
on existing data and anticipated market condition. It will be much easier to choose accurately future process in
advance, if the forecasting method adequately predicts anticipated volume for future years.Since no other
comments have been made, it has been assumed that fixed cost as well as variable cost per unit will remain
unchanged with change in production volume

Q5

Q6
we need to calculate the total cost for each alternative at a production level of 3,000 boards.

A)

TC Refurbish= 800+ 1.1x

TC Mod=1100+0.7x

TC purchase= 1800+0.4x

B)

Refurbish:
CHAPTER 7 PROCESS STRATEGY PROBLEMS
Total cost = $800 + (3,000 x $1.10) = $4,100

Make modifications:

Total cost = $1,100 + (3,000 x $0.70) = $3,300

Purchase new equipment:

Total cost = $1,800 + (3,000 x $0.40) = $3,000

Therefore, if Ski Boards, Inc., thinks it can sell more than 3,000 boards, it should choose to purchase new
equipment.

C)

Refurbish:

Total cost at 1,000 boards = $800 + (1,000 x $1.10) = $1,900

Total cost at 2,000 boards = $800 + (2,000 x $1.10) = $3,900

Make modifications:

Total cost at 1,000 boards = $1,100 + (1,000 x $0.70) = $1,800

Total cost at 2,000 boards = $1,100 + (2,000 x $0.70) = $2,900

Purchase new equipment:

Total cost at 1,000 boards = $1,800 + (1,000 x $0.40) = $2,200

Total cost at 2,000 boards = $1,800 + (2,000 x $0.40) = $2,600

Therefore, if the market for boards will be between 1,000 and 2,000, Ski Boards, Inc., should choose to make
modifications

Q7
 CHAPTER 7 PROCESS STRATEGY PROBLEMS

Q8

Q9

Q10
 CHAPTER 7 PROCESS STRATEGY PROBLEMS

Q11

Q12

7.13

or
 CHAPTER 7 PROCESS STRATEGY PROBLEMS
7.14

7.15

7.16

7.17 NA