In industrial engineering, a process layout is when you group similar activities together according to the process or function they perform. An example would be a machine shop where all the drills are located in one area of the shop, all the saws in another, etc. Another example would be a department store, where there is a shoe department, a jewelry department, etc.
A product layout arranges activities in a line according to the sequence of operations for a particular product or service. This would be an assembly line, such as an auto assembly line.
Process layouts are flexible, as the equipment is general purpose and workers are skilled at working the equipment in their particular department. Custom jobs can come into the shop, as the work flow is not set to flow through in an orderly manner.
Product layouts are efficient, but lack the ability to change product designs easily. An example would be when demand shifted to smaller cars, then US automakers could not adapt their old equipment to build the smaller engines.
(Source:S.N. Chary (2006). Production and Operations Management. McGraw Hill. ISBN 9780070583559)
At my work we use both concepts "product and process layouts". We updated our equipments to be more automated however we kept one of our plants simi-automated to give us the flexibility to produce special products that we will not be able to produce using the updated equipments
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