Chapter 3

Product & 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 Assemble to Make to
Order Order Stock
Custom- Very high High Low
ization
Type of None WIP Finished
inventory goods
Delivery Long Moderate Instant or
time Very Fast
Volume Low Moderate Very high

Process Project Batch Line 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

Spray Soap Rinse Dry

Example of Line Process:
Hotel Laundry
Classification of Processes

Project Batch Line Continuous

Intermittent Repetitive
Process Selection Facility Layout

© 2005 Wiley
Processes Characterized by
Relationship Between
Standardization and Volume
 Intermittent vs. Repetitive
Processes
Decision Intermittent Operation Repetitive Operation
Product variety Great Small
Degree of standardization Low High
Organization of resources Grouped by Function Line flow
Path of products Varied, depends on product Line flow
Factor driving production Customer orders Forecast of demand
Critical resource Labor Capital
Type of equipment General purpose Specialized
Degree of automation Low High
Throughput time Longer Shorter
Work-in-process inventory More Less
Types of Processes vs.
Product Strategy

Types of Process Product Strategy

Project Made to order

Batch Assemble 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

Throughput time
Process Velocity 
Value - added time

 Should ratio be big or small?

 What does a ratio of 1.0 imply?
 Greater than 1.0?
 Utilization

Time Resource is Used

Resource Utilization 
Time Resource is Avaliable

 Should ratio be big or small?

 What does a ratio of 1.0 imply?
 Less than 1.0?
 Efficiency

Actual ouptut
Efficiency 
Standard Output
 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

Throughput time
Process Velocity 
Value - added time
4 hrs./title

1/2 hrs./title
8
 Labor Utilization

Time Labor is Used

Labor Utilization 
Time Labor is Avaliable
6 hrs./day

8 hrs./day
 0.75 (75%)
Efficiency

Actual ouptut
Efficiency 
Standard Output
8 titles/day

10 titles/day
 0.80 (80%)