Process Strategy ⢠Process strategy specifies the pattern ...
Chapter 3 – Process Strategy
Process strategy specifies the pattern of decisions made in managing processes so that the processes will achieve their competitive priorities o It guides a variety of process decisions o 4 basic process decisions Process structure (including layout) Customer involvement Resource flexibility Capital intensity
Process Strategy across the Organization Supplier Chains Have Processes
Supply chain processes are business processes that have external customers or suppliers Table 3.1 has some common supply chain processes Processes Are Not Just in Operations
Processes are found in various areas such as in accounting, finance, hr, management information systems & marketing o Table 3.2 lists some business processes that are outside the operations area
Process Strategy Decisions
1 recurring question in managing processes is deciding how to provide services or make products o Many choices are available in selecting hr, equipment, outsourced services, materials, work flows & methods that transform inputs into outputs Another choice is which processes are to be done in-house & which processes are to be outsourced o This decision helps to define the supply chain Operations managers must consider 4 process decisions o Figure 3.1 shows them o The 4 process decisions are Process structure determines the process type relative to the kinds of resources needed, how resources are partitioned between them & their key characteristics Layout is the physical arrangement of operations created from the various processes Customer involvement reflects the ways in which customers become part of the process & the extent of their participation
Resource flexibility is the ease with which employees & equipment can handle a wide variety of products, output levels, duties & functions Capital intensity is the mix of equipment & human skills in a process. The greater the relative cost of equipment, the greater is the capital intensity
Process Structure in Services Nature of Service Processes: Customer Contact
A good process strategy for a service process depends first & foremost on the type & amount of customer contact o Customer contact is the extent to which the customer is present, is actively involved & receives personal attention during the service process Table 3.3 shows dimensions of customer contact in service processes Customer-Contact Matrix
Customer-contact matrix in figure 3.2 brings together 3 elements o The degree of customer contact Positions on the left side of the matrix represent high customer contact & highly customized services (customer will be present & active, process will be visible to the customer who receives more personal attention etc.) Positions on the right side of the matrix represents low customer contact, passive involvement, less personalized attention & process out of the customers sight o Customization o Process characteristics Process divergence and flow o Vertical dimension of the customer-contact matrix deals with 2 characteristics of the process itself. Each process can be analyzed on these two elements Process divergence It is the extent to which the process is highly customized with considerable latitude as to how its tasks are performed If the process changes with each customer, that means every performance of the service is unique (ex. on pg 93) A service with low divergence is repetitive & standardized, work is performed exactly the same with all the customers & less complex Flow Flexible flow means that the customers, materials or information move in diverse ways with the path of 1 customer or job often crisscrossing the path that the next one takes
Line flow means that the customers, materials or information move linearly from 1 operation to the next according to a fixed sequence o When diversity is low & the process is standardized, line flows are common
Service Process Structuring
Front Office o Front-office process has high customer contact where the service provider interacts directly with the internal or external customer o Because of customization of service & variety of service options, many of the steps in it have high divergence o Work flows are flexible & vary from 1 customer to the next o High-contact service process tends to be unique to each customer Hybrid Office o Hybrid-office process has moderate levels of customer contact & standard services with some options available from which the customer chooses o The work slow progresses from 1 workstation to the next with some dominant paths apparent Back Office o Back-office process has low customer contact & little service customization o Work is standardized & routine with line flows from 1 service provider to the next until the service is completed (ex. on pg 94)
Process Structure in Manufacturing Product-Process Matrix
Product-process matrix (in figure 3.3) brings together 3 elements o Volume o Product customization o Process characteristics For manufacturing processes, high product customization means lower volumes Product-process matrix also deals with the same 2 characteristics as the customer-contact matrix o Process divergence & flow Manufacturing Process Structuring
Process choice is the way of structuring the process by organizing resources around the process or organizing them around the products (ex. on pg 95) Manager has 4 process choices which form a scale to choose from
o Job process Job process creates the flexibility needed to produce a wide variety of products in significant quantities with considerable difference in the steps performed Customization is high and volume is low Companies choosing job processes typically make products to order & does not produce them ahead of time (each new order is handled as a individual job) (ex. on pg 95) (more on pg 95 bottom) o Batch process Batch process differs from the job process with respect to volume, variety & quantity Main difference is that volumes are higher because the same products are produced repeatedly Production lots are handled in larger quantities (or batches) than they are with job processes A batch of 1 product is processed & then production is switched to the next one Batch process has average or moderate volumes Process flow is flexible but more dominant paths emerge than at a job process & some segments of the process have a line flow (ex. on pg 96) o Line process Line process lies between the batch & continuous process on the scale; volumes are high & products are standardized which allows resources to be organized around particular products Divergence is minimal in the process or line flows Each step performs the same process over & over with little variability in the products manufactured (ex. on pg 96) Standard products are produced in advance of their need & held in inventory so that they are ready when a customer orders o Continuous-flow process Continuous flow process is the extreme end of high-volume standardized production with rigid line flows It differs from a line process in one important respect o 1 primary material moves without stopping through the process until the whole batch is finished (ex. on pg 96) Product and Inventory Strategies
Make-to-Order Strategy
o Make-to-order strategy is used by manufacturers that make products to customer specifications in low volumes This strategy is complex & provides a high degree of customization & typically uses job or small batch processes (ex. on pg 96) Assemble-to-Order Strategy o Assemble-to-order strategy is an approach to producing a wide variety of products from relatively few subassemblies & components after the customer orders are received Often involves a line process for assembly & a batch process for fabrication (manufacturing) Once the specific order from the customer is received, the assembly processes create the product from standardized components & subassemblies produced by the fabrication (manufacturing) process o Stocking finished products is not allowed, principle of postponement is applied here Postponement is the strategy of delaying final activities in the provision of a product until the orders are received o Assemble-to-order strategy also involves mass customization Mass customization uses highly different processes to generate a wide variety of customized products at reasonably low costs Make-to-Stock Strategy o Make-to-stock strategy involves holding items in the stock for immediate delivery thereby minimizing customer delivery times This is possible for standardized products with high volumes & reasonably accurate forecasts (ex. on pg 97) o Combining a line process with the make-to-stock strategy is sometimes called mass production
Layout
Layout is the physical arrangement of operations created from the various processes & puts them in tangible form Operation is a group of human & capital resources performing all or part of 1 or more processes (ex. on pg 97) Process structures that create more flows across departmental lines as with job or batch processes are the most challenging layout problems 3 basic steps that demonstrate an approach to layout design o Gather information Example on pg 97-98 (beginning part) Block plan allocates space & indicates placement of each operation
Layout designer must know which operations need to be located close to one another when designing a layout for various departments in an organization Closeness matrix is a table that gives a measure of the relative importance of each pair of operations being located close together Closeness factors are indicators of the need for proximity based on an analysis of information flows & the need for face-to-face meetings, it gives clues as to which departments should be located close together (ex. on pg 98) At a manufacturing plant, the closeness factor could be the # of trips between each pair of operations per day o Develop a block plan Block plan must be developed to satisfy performance criteria & area requirements o Applying the Weighted-Distance Method Weighted-distance method is a mathematical model used to evaluate layouts based on closeness factors Objective is to select a layout that minimizes the total weighted distances Euclidean distance is the straight-line distance or the shortest possible path between 2 points Rectilinear distance measures the distance between 2 points with a series of 90-degree turns as along city blocks o Design a detailed layout After finding a satisfactory block plan, the final step translates it into a detailed representation, showing the exact size & shape of each center, the arrangement of elements such as desks, machines & storage areas & the location of aisles, stairways & other service space This step helps decision makers discuss the proposal & problems that might otherwise be overlooked Customer involvement
Customer involvement reflects the ways in which customers become part of the process & the extent of their participation o Important for many service processes especially if customer contact is high (ex. on pg 100-101) Possible disadvantages
Customer involvement is not always a good idea
Giving customer more active contact in a service process will just be disruptive & make the process less efficient Managing the timing & volume of customer demands becomes more challenging if the customer is physically present & expects prompt delivery Possible advantages
There are also advantages Some customers want active participation & control over the service process Managers must assess whether advantages outweigh disadvantages More customer involvement can mean better quality, faster delivery, greater flexibility & even lower cost (ex. on pg 101) Customer involvement can also help coordinate across the supply chain o Emerging technologies allow companies to engage in an active dialogue with customers & make them partners in creating value & forecasting future demand
Resource Flexibility
Managers need to account for process divergence & diverse process flows when making resource flexibility decisions
Workforce
Flexible workforce is a workforce where members are capable of doing many tasks, either at their own workstations or as they move from one workstation to another o Operations managers must decide whether to have a flexible workforce or not o Some disadvantages More costs Requires greater skills thus more training & education o There are advantages too Worker flexibility can be 1 of the best ways to achieve reliable customer service & improve capacity bottlenecks (blockage) Resource flexibility helps to absorb the feast-or-famine workloads in individual operations that are caused by low-volume production, divergent tasks, flexible flows & fluid scheduling
Equipment
More on pg 102 & refer to figure 3.7
Capital Intensity
Capital intensity is the mix of equipment & human skills in the process o The greater the relative cost of equipment, the greater is the capital intensity
Automation is a system, process or piece of equipment that is self-acting & selfregulating
Automating Manufacturing Processes
If investment costs are large, automation works best when volume is high (ex. on pg 103) 1 big disadvantage of capital intensity can be the prohibitive investment cost for lowvolume operations o Usually capital-intensive operations must have high utilization to be justifiable (ex. on pg 103) Manufactures use 2 types of automation o Fixed Automation Appropriate for line & continuous-flow process choices Fixed automation produces 1 type of part or product in a fixed sequence of simple operations Ops managers favour fixed automation when demand volumes are high, product designs are stable & product life cycles are long It maximizes efficiency & yields the lowest variable cost per unit when volumes are high o Flexible Automation Flexible automation can be changed easily to handle various products The ability to reprogram machines to allow for low-customized process & high-customized process is useful (more on pg 103) Industrial robot is a versatile, computer-controlled machine programmed to perform various tasks (more on pg 103) Automating Service Processes
Example on pg 103 The need for volume to justify expensive automation is just as valid for service processes as for manufacturing processes o Increasing the volume lowers the cost per dollar of sales Economies of Scope
Economies of scope reflect the ability to produce multiple products more cheaply in combination than separately
Strategic Fit Decision Patterns for Service Processes
Refer to figure 3.8 and more on pg 105-106
Decisions Patterns for Manufacturing Processes
Refer to figure 3.9 and 3.10 and more on pg 106-107 Gaining Focus
Focus by Process Segments o Plans within plans (PWPs) are different operations within a facility with individualized competitive priorities, processes & workforces under the same roof Advantages of PWPs are fewer layers of management, greater ability to rely on team problem solving & shorter lines of communication between departments Focused Service Operations o Service industries also implement the concepts of focus & PWPs o Specialty retailers opened stores with smaller, more accessible spaces Some department stores now focus on specific customers or products Focused Factories o Focused factories are the result of a firm’s splitting large plants that produced all the company’s products into several specialized smaller plants (ex. on pg 108) Theory is that narrowing the range of demands on a facility will lead to better performance because mgt can focus on fewer tasks & lead a workforce toward a single goal
Strategies for Change Process Reengineering
Reengineering is the fundamental rethinking & radical redesign of processes to improve performance dramatically in terms of cost, quality & speed o It is about reinvention, rather than incremental improvement such as layoffs, large cash outflows for investments in IT but also has advantages (refer to Table 3.4) Process Improvement
Process improvement is the systematic study of the activities & flows of each process to improve it o Purpose is to learn the numbers, understand the process & dig out the details o 1 individual or a whole team examines the process to improve & looks for ways to Streamline tasks Eliminate whole processes entirely Cut expensive materials or services Improve the environment
Make jobs safer
Process strategy specifies the pattern of decisions made in managing processes so that the processes will achieve their competitive priorities o It guides a variety of process decisions o 4 basic process decisions Process structure (including layout) Customer involvement Resource flexibility Capital intensity
Process Strategy across the Organization Supplier Chains Have Processes
Supply chain processes are business processes that have external customers or suppliers Table 3.1 has some common supply chain processes Processes Are Not Just in Operations
Processes are found in various areas such as in accounting, finance, hr, management information systems & marketing o Table 3.2 lists some business processes that are outside the operations area
Process Strategy Decisions
1 recurring question in managing processes is deciding how to provide services or make products o Many choices are available in selecting hr, equipment, outsourced services, materials, work flows & methods that transform inputs into outputs Another choice is which processes are to be done in-house & which processes are to be outsourced o This decision helps to define the supply chain Operations managers must consider 4 process decisions o Figure 3.1 shows them o The 4 process decisions are Process structure determines the process type relative to the kinds of resources needed, how resources are partitioned between them & their key characteristics Layout is the physical arrangement of operations created from the various processes Customer involvement reflects the ways in which customers become part of the process & the extent of their participation
Resource flexibility is the ease with which employees & equipment can handle a wide variety of products, output levels, duties & functions Capital intensity is the mix of equipment & human skills in a process. The greater the relative cost of equipment, the greater is the capital intensity
Process Structure in Services Nature of Service Processes: Customer Contact
A good process strategy for a service process depends first & foremost on the type & amount of customer contact o Customer contact is the extent to which the customer is present, is actively involved & receives personal attention during the service process Table 3.3 shows dimensions of customer contact in service processes Customer-Contact Matrix
Customer-contact matrix in figure 3.2 brings together 3 elements o The degree of customer contact Positions on the left side of the matrix represent high customer contact & highly customized services (customer will be present & active, process will be visible to the customer who receives more personal attention etc.) Positions on the right side of the matrix represents low customer contact, passive involvement, less personalized attention & process out of the customers sight o Customization o Process characteristics Process divergence and flow o Vertical dimension of the customer-contact matrix deals with 2 characteristics of the process itself. Each process can be analyzed on these two elements Process divergence It is the extent to which the process is highly customized with considerable latitude as to how its tasks are performed If the process changes with each customer, that means every performance of the service is unique (ex. on pg 93) A service with low divergence is repetitive & standardized, work is performed exactly the same with all the customers & less complex Flow Flexible flow means that the customers, materials or information move in diverse ways with the path of 1 customer or job often crisscrossing the path that the next one takes
Line flow means that the customers, materials or information move linearly from 1 operation to the next according to a fixed sequence o When diversity is low & the process is standardized, line flows are common
Service Process Structuring
Front Office o Front-office process has high customer contact where the service provider interacts directly with the internal or external customer o Because of customization of service & variety of service options, many of the steps in it have high divergence o Work flows are flexible & vary from 1 customer to the next o High-contact service process tends to be unique to each customer Hybrid Office o Hybrid-office process has moderate levels of customer contact & standard services with some options available from which the customer chooses o The work slow progresses from 1 workstation to the next with some dominant paths apparent Back Office o Back-office process has low customer contact & little service customization o Work is standardized & routine with line flows from 1 service provider to the next until the service is completed (ex. on pg 94)
Process Structure in Manufacturing Product-Process Matrix
Product-process matrix (in figure 3.3) brings together 3 elements o Volume o Product customization o Process characteristics For manufacturing processes, high product customization means lower volumes Product-process matrix also deals with the same 2 characteristics as the customer-contact matrix o Process divergence & flow Manufacturing Process Structuring
Process choice is the way of structuring the process by organizing resources around the process or organizing them around the products (ex. on pg 95) Manager has 4 process choices which form a scale to choose from
o Job process Job process creates the flexibility needed to produce a wide variety of products in significant quantities with considerable difference in the steps performed Customization is high and volume is low Companies choosing job processes typically make products to order & does not produce them ahead of time (each new order is handled as a individual job) (ex. on pg 95) (more on pg 95 bottom) o Batch process Batch process differs from the job process with respect to volume, variety & quantity Main difference is that volumes are higher because the same products are produced repeatedly Production lots are handled in larger quantities (or batches) than they are with job processes A batch of 1 product is processed & then production is switched to the next one Batch process has average or moderate volumes Process flow is flexible but more dominant paths emerge than at a job process & some segments of the process have a line flow (ex. on pg 96) o Line process Line process lies between the batch & continuous process on the scale; volumes are high & products are standardized which allows resources to be organized around particular products Divergence is minimal in the process or line flows Each step performs the same process over & over with little variability in the products manufactured (ex. on pg 96) Standard products are produced in advance of their need & held in inventory so that they are ready when a customer orders o Continuous-flow process Continuous flow process is the extreme end of high-volume standardized production with rigid line flows It differs from a line process in one important respect o 1 primary material moves without stopping through the process until the whole batch is finished (ex. on pg 96) Product and Inventory Strategies
Make-to-Order Strategy
o Make-to-order strategy is used by manufacturers that make products to customer specifications in low volumes This strategy is complex & provides a high degree of customization & typically uses job or small batch processes (ex. on pg 96) Assemble-to-Order Strategy o Assemble-to-order strategy is an approach to producing a wide variety of products from relatively few subassemblies & components after the customer orders are received Often involves a line process for assembly & a batch process for fabrication (manufacturing) Once the specific order from the customer is received, the assembly processes create the product from standardized components & subassemblies produced by the fabrication (manufacturing) process o Stocking finished products is not allowed, principle of postponement is applied here Postponement is the strategy of delaying final activities in the provision of a product until the orders are received o Assemble-to-order strategy also involves mass customization Mass customization uses highly different processes to generate a wide variety of customized products at reasonably low costs Make-to-Stock Strategy o Make-to-stock strategy involves holding items in the stock for immediate delivery thereby minimizing customer delivery times This is possible for standardized products with high volumes & reasonably accurate forecasts (ex. on pg 97) o Combining a line process with the make-to-stock strategy is sometimes called mass production
Layout
Layout is the physical arrangement of operations created from the various processes & puts them in tangible form Operation is a group of human & capital resources performing all or part of 1 or more processes (ex. on pg 97) Process structures that create more flows across departmental lines as with job or batch processes are the most challenging layout problems 3 basic steps that demonstrate an approach to layout design o Gather information Example on pg 97-98 (beginning part) Block plan allocates space & indicates placement of each operation
Layout designer must know which operations need to be located close to one another when designing a layout for various departments in an organization Closeness matrix is a table that gives a measure of the relative importance of each pair of operations being located close together Closeness factors are indicators of the need for proximity based on an analysis of information flows & the need for face-to-face meetings, it gives clues as to which departments should be located close together (ex. on pg 98) At a manufacturing plant, the closeness factor could be the # of trips between each pair of operations per day o Develop a block plan Block plan must be developed to satisfy performance criteria & area requirements o Applying the Weighted-Distance Method Weighted-distance method is a mathematical model used to evaluate layouts based on closeness factors Objective is to select a layout that minimizes the total weighted distances Euclidean distance is the straight-line distance or the shortest possible path between 2 points Rectilinear distance measures the distance between 2 points with a series of 90-degree turns as along city blocks o Design a detailed layout After finding a satisfactory block plan, the final step translates it into a detailed representation, showing the exact size & shape of each center, the arrangement of elements such as desks, machines & storage areas & the location of aisles, stairways & other service space This step helps decision makers discuss the proposal & problems that might otherwise be overlooked Customer involvement
Customer involvement reflects the ways in which customers become part of the process & the extent of their participation o Important for many service processes especially if customer contact is high (ex. on pg 100-101) Possible disadvantages
Customer involvement is not always a good idea
Giving customer more active contact in a service process will just be disruptive & make the process less efficient Managing the timing & volume of customer demands becomes more challenging if the customer is physically present & expects prompt delivery Possible advantages
There are also advantages Some customers want active participation & control over the service process Managers must assess whether advantages outweigh disadvantages More customer involvement can mean better quality, faster delivery, greater flexibility & even lower cost (ex. on pg 101) Customer involvement can also help coordinate across the supply chain o Emerging technologies allow companies to engage in an active dialogue with customers & make them partners in creating value & forecasting future demand
Resource Flexibility
Managers need to account for process divergence & diverse process flows when making resource flexibility decisions
Workforce
Flexible workforce is a workforce where members are capable of doing many tasks, either at their own workstations or as they move from one workstation to another o Operations managers must decide whether to have a flexible workforce or not o Some disadvantages More costs Requires greater skills thus more training & education o There are advantages too Worker flexibility can be 1 of the best ways to achieve reliable customer service & improve capacity bottlenecks (blockage) Resource flexibility helps to absorb the feast-or-famine workloads in individual operations that are caused by low-volume production, divergent tasks, flexible flows & fluid scheduling
Equipment
More on pg 102 & refer to figure 3.7
Capital Intensity
Capital intensity is the mix of equipment & human skills in the process o The greater the relative cost of equipment, the greater is the capital intensity
Automation is a system, process or piece of equipment that is self-acting & selfregulating
Automating Manufacturing Processes
If investment costs are large, automation works best when volume is high (ex. on pg 103) 1 big disadvantage of capital intensity can be the prohibitive investment cost for lowvolume operations o Usually capital-intensive operations must have high utilization to be justifiable (ex. on pg 103) Manufactures use 2 types of automation o Fixed Automation Appropriate for line & continuous-flow process choices Fixed automation produces 1 type of part or product in a fixed sequence of simple operations Ops managers favour fixed automation when demand volumes are high, product designs are stable & product life cycles are long It maximizes efficiency & yields the lowest variable cost per unit when volumes are high o Flexible Automation Flexible automation can be changed easily to handle various products The ability to reprogram machines to allow for low-customized process & high-customized process is useful (more on pg 103) Industrial robot is a versatile, computer-controlled machine programmed to perform various tasks (more on pg 103) Automating Service Processes
Example on pg 103 The need for volume to justify expensive automation is just as valid for service processes as for manufacturing processes o Increasing the volume lowers the cost per dollar of sales Economies of Scope
Economies of scope reflect the ability to produce multiple products more cheaply in combination than separately
Strategic Fit Decision Patterns for Service Processes
Refer to figure 3.8 and more on pg 105-106
Decisions Patterns for Manufacturing Processes
Refer to figure 3.9 and 3.10 and more on pg 106-107 Gaining Focus
Focus by Process Segments o Plans within plans (PWPs) are different operations within a facility with individualized competitive priorities, processes & workforces under the same roof Advantages of PWPs are fewer layers of management, greater ability to rely on team problem solving & shorter lines of communication between departments Focused Service Operations o Service industries also implement the concepts of focus & PWPs o Specialty retailers opened stores with smaller, more accessible spaces Some department stores now focus on specific customers or products Focused Factories o Focused factories are the result of a firm’s splitting large plants that produced all the company’s products into several specialized smaller plants (ex. on pg 108) Theory is that narrowing the range of demands on a facility will lead to better performance because mgt can focus on fewer tasks & lead a workforce toward a single goal
Strategies for Change Process Reengineering
Reengineering is the fundamental rethinking & radical redesign of processes to improve performance dramatically in terms of cost, quality & speed o It is about reinvention, rather than incremental improvement such as layoffs, large cash outflows for investments in IT but also has advantages (refer to Table 3.4) Process Improvement
Process improvement is the systematic study of the activities & flows of each process to improve it o Purpose is to learn the numbers, understand the process & dig out the details o 1 individual or a whole team examines the process to improve & looks for ways to Streamline tasks Eliminate whole processes entirely Cut expensive materials or services Improve the environment
Make jobs safer
