Product and Service Markets:

Process & Capacity Analysis

Quantitative and Qualitative aptitude in

Operations Management

Should develop habit of going through and analyzing

numbers/growth rate/loss/profitability/productivity

BSE index
Rain fall
US Dollar rate
Inflation rate
Crude oil rate
Analysis and Quantitative techniques

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Process & Capacity Analysis
Manufacturing or Service capacity defines the amount of business/Revenue one can generate
with the resources made available.

Capacity is the ability to produce required number of products or deliver a quantum of service
in a given time.

Capacity is analyzed using Process analysis.

Process is a set of activities that have to be carried out which consumes resources and time to
deliver the desired product/service.

The process defines the productivity, utilization of resources, time for making
product/service, cost and hence the profits.

Capacity Utilization = Capacity put to use/ Capacity available

Shift wise working to utilize capacity, Uber, AirBnB

Capacity calculation in a service setup is challenging than in a product setup

due to its unique characteristics. (Ex: Restaurant, Hospital, etc…)
Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Process & Capacity Analysis

Questions /Issues to answer in process design:

1. Do we have adequate resources to meet market demand?

2. What is the Utilization of our resources?
3. If we need additional capacity, how can we modify the process?
4. If I need extra resources, where we should add them?
5. What will be the impact on cost, if we add resources?

Process analysis can provide solution to the above.

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Process & Capacity Analysis
• Decisions taken with respect to
– The amount of capacity that an operating unit has
– The manner in which the existing capacity is put to use (due to a certain process
design)
will lead to loss of productivity & overall reduction in the profitability of the
operating system ( Ex: KYC is reused with the introduction of Computerization in
banks)

• Examples
– Excessive delay in service systems such as a teller counter in a bank leading to long
waiting time
– Some factories working with near 100 percent utilization of their resources, resulting
in longer lead time.

Watch videos of steel making, paper making to understand the process and
parallel processes for bottle neck stages.

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Process Analysis
Definition & Scope
• Process analysis utilizes some analytical mechanism
to understand the impact of

– process design on output, cost or any other performance

metric
– alternative process configurations/flow on the chosen
performance metric

Performance metric: Output Units/labor hour, Machine productivity, material

productivity, etc..

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Process Flow Charting
• Design & Analysis of process begins with identification of (WBS- Work breakdown structure)
– activities that constitute the process
– time taken for each of the activity
– nature of flow of materials/information in the process.
• A pictorial representation of all these information could be developed using process flow
charting.
• Process flow charting employs a set of standard symbols and graphical tools to represent all
the information pertaining to the process
• The symbols used are

– A step in the Process

– Transportation (Move)

– Storage or Inventory

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 A Simplified Process Flow Chart
Case of Shirt Manufacturing
Inventory of
Cloth & Other WIP
materials Inventory
Stitching 1
Spreading Cutting
Stitching 2

Pressing &
Assembly
Inspection

Inventory
of Shirts
Imp Assumption: Continuous flow of process

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Planning Premises in Process Design
• Three generic planning premises are in use in operations management .
(B2B, B2C scenarios).

– Make-to-Stock (MTS): more amenable for systems with fewer product

varieties and high production volume as in the case of continuous and
streamlined flow systems . Forecasted demand, No customization. Low unit
value, Low/no lead time. FMCG, Bikes, TVs, Mobiles.

– Make-to-order (MTO): organizations typically belong to manufacturer of high

product variety (jumbled flow process systems) use this planning
methodology. Customization allowed. Produced against confirmed order.
Lead time high. Unit cost high. Inventory carrying cost very high. Computer
servers, Homes, Ships, Special purpose machines.

– Assemble-to-order (ATO): useful for intermittent flow systems catering to the

mid-volume mid-variety situations . Dell PCs, Restaurants, Pharma for some
products, Watches, Flats
Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Capacity Planning using MTS, ATO & MTO:
The case of services
Peak Hour Non-Peak Hour
• Assemble to order (keep ingredients • Made to order
ready)
• Service Portfolio (wide)
• Service Portfolio (narrow)
• Demand Mgmt.
• Demand Mgmt.
– Special Tariffs, Happy hours, offers
– Reservations
• Leveraging
– Multi-skill labour
– Flexible work force

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Process Analysis issues for MTS
• From a process and capacity analysis perspective MTS is
related to mass production systems. Therefore the relevant
questions for process and capacity analysis are:

– What is the productive capacity of my process per shift or per day?

– Where is the bottleneck for this process?
– If I need to increase the capacity of the process at which stage of the
process should I invest?
– Can I improve the productive capacity by other means than investing
in new resources?

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Process Analysis Performance Metrics
• Throughput time: Throughput time (TPUT) is the total elapsed time from the first
stage of the process to the last stage of the process. It is also known as lead time.
(Raw material to finished product, Steel, Car, Service in a Hotel)

• Cycle Time (CT): Cycle time is the elapsed time between two successive output
from a particular process that is continuously operating in a given period of time.
( McD Burger, Painting of a part of bike)

• Bottleneck: That stage of the process that dictates the output of a process is the
bottleneck.

• Measures such as Cycle Time and Bottleneck are relevant in the case of MTS/Mass
production systems.
• TPUT is a relevant measure for MTO/customized orders/ systems.

Example : Stitching a shirt, Bike Manufacturing

What is TPUT and CT for a single stage process?

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 A Simplified Process Flow Chart
Case of Shirt Manufacturing

Inventory of
Cloth & Other WIP
materials Inventory
Stitching 1

Spreading Cutting
Stitching 2

What is TPUT TIME of a

Short and Pressing & Assembly
Inspection
CT of a process ?
Inventory
of Shirts

Imp Assumption: Continuous flow of process

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Process Analysis
Toy Manufacturing (Example 8.1)

Inspect &
Prepare Pre-treat Paint Dry
Pack
8 minutes 12 minutes 20 minutes 10minutes
5 minutes

• The throughput time for the process is 55 minutes

• The spray painting is the bottleneck in the process

• Cycle time is 20 minutes. The implication of this is that when the

process operates in a continuous manner, a pallet (carrying FOUR
toys) of finished toys come out every 20 minutes, after the FIRST
TPUT is elapsed.

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Process Analysis (Example 8.1)
A graphical representation with start and end times

Every batch of four toys come out exactly in an interval of 20 minutes which is the
cycle time for the process, after the FIRST TPUT TIME. This is a continuous process
setup. There is a cycle time for every sub process also.
CT can be at individual process or a group of processes.

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Process Analysis (Example 8.1)
Production Capacity (per hour) of the system at every process
stage

Inspect &
Prepare Pre-treat Paint
Dry Pack
7.5 pallets/hr 5 pallets/hr 3 pallets/hr
12 pallets/hr

8 minutes/cycle 12 minutes/cycle 20 minutes/cycle 10 minutes/cycle 5 minutes/cycle

• The system can produce at the rate of 3 pallets per hour (12 toys)
• For a 8 hour operation the daily production is 24 pallets (72 toys)
• Capacity is unbalanced across different stages of the process

• Attempt Questions in the chapter 1, 2.

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Production Capacity under varying batch sizes (Example 8.2)
Existing Scenario: Batch Size of the Process = 1 pallet Final Output

Inspect &
Prepare Pre-treat Paint
Pack
(8 minutes) (12 minutes) (20 minutes) Dry 3 Pallets/Hour
(5 minutes)
7.5 pallets/hr 5 pallets/hr 3 pallets/hr
12 pallets/hr

Scenario 1: Batch Size of the Process = 2 pallets

Prepare Inspect &

Pre-treat Paint
(4+ (2*4) = Pack
(12 minutes) (20 minutes) Dry 5 Pallets/Hour
12 minutes) (5 minutes)
5 pallets/hr 6 pallets/hr
10 pallets/hr 12 pallets/hr
Scenario 2: Batch Size of the Process = 3 pallets

Prepare Inspect &

Pre-treat Paint
(4+ (3*4) = Pack 5 Pallets/Hour
(12 minutes) (20 minutes) Dry
16 minutes) (5 minutes)
5 pallets/hr 9 pallets/hr
11.25 pallets/hr 12 pallets/hr

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Production Capacity under varying resource availability
Balancing the capacity (Example 8.2)
Existing Scenario: Batch Size of the Process = 1 pallet, 1 painting booth, 1 Pre-treat

Inspect &
Prepare Pre-treat Paint
Pack
(8 minutes) (12 minutes) (20 minutes) Dry 3 Pallets/Hour
(5 minutes)
7.5 pallets/hr 5 pallets/hr 3 pallets/hr
12 pallets/hr

Scenario 1: Batch Size of the Process = 3 pallets, 2 pre-treatment units, 1 painting booth

Pre-treat
(12 minutes)
Prepare 5 pallets/hr Inspect &
Paint
(4+ (3*4) = Pack
(20 minutes) Dry 9 Pallets/Hour
16 minutes) (5 minutes)
9 pallets/hr
11.25 pallets/hr Pre-treat 12 pallets/hr
(12 minutes)
5 pallets/hr

In steel mills, they will have ONE FURNACE, ONE Rolling mill and number of Heat treatment facilities to balance
the process capacity
Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Process Analysis
Takt Time
Takt Time

Takt Time in German means rhythm. It is the steady ‘beat’ to which production must follow to
satisfy the demands of the customer.

Takt time is the rate at which manufacturing processes and systems need to complete the
production in order to meet the customer request. Therefore, this is less of measuring the total
time it takes to complete a segment or the entirety of the production.

Takt time measures the pace at which work must be done to deliver what has been promised.

Takt Time can be calculated with the amount of time available until product delivery and the
required number of production quotas the customer has requested.

Objective is to have CT = Takt Time

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Process Analysis (Example 8.2)
Some important observations
• Batch sizes play a crucial role in determining the
bottleneck of a process
• As several choices are made with respect to the
resources and batch size bottleneck shifts from one
stage of the process to another. This is referred to as
wandering bottleneck.
• A process analysis exercise often leads to the issue of
improving the process

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
Components of Lead Time in Organizations

Lost Time
Actual (Scrap, Rework,
Operations Unnecessary Activities)
Time Moving Time

Between Processing Units, Waiting Time

People across Departments

Unclear Instructions, Missing Information, Approvals, Authorizations,

Non-availability of Material & Components, Resources
Awaiting Approvals, Decisions
Time lost in coordination among chain of customers

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education
 Thank You

Mahadevan (2015), “Operations Management: Theory & Practice”, 3rd Edition © Pearson Education