3 – 1 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Process Strategy 3 For Operations Management, 9e by Krajewski/Ritzman/Malhotra © 2010 Pearson Education Homework Ch. 3: 2, 3, 5

3 – 2 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Process Strategy Principles of process strategy 1.Make choices that fit the situation and that make sense together, that have a close strategic fit 2.Individual processes are the building blocks that eventually create the firm’s whole supply chain 3.Management must pay particular attention to the interfaces between processes

3 – 3 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Process View External environment Information on performance Internal and external customers Processes and operations Inputs Workers Managers Equipment Facilities Materials Land Energy Outputs Goods Services Figure 1.2

3 – 4 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. The Supply Chain View Support Processes External suppliers External customers Supplier relationship process New service/ product development Order fulfillment process Customer relationship management Figure 1.4

3 – 5 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Process Strategy Four basic process decisions 1.Process structure including layout 2.Customer involvement 3.Resource flexibility 4.Capital intensity

3 – 6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Process Strategy Decisions Figure 3.1 –Major Decisions for Effective Processes Process Structure Customer-contract position (services) Product-process position (manufacturing) Layout Resource Flexibility Specialized Enlarged Customer Involvement Low involvement High involvement Effective Process Design Strategy for Change Process reengineering Process improvement Capital Intensity Low automation High automation

3 – 7 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1.a. Service Process Structuring Front office Hybrid office Back office Less customer contact and customization Less processes divergence and more line flows (1)(2)(3) High interaction withSome interaction withLow interaction with customers, highlycustomers, standardcustomers, standardized customized serviceservices with some optionsservices Process Characteristics (1) Flexible flows with Individual processes (2) Flexible flows with some dominant paths, with some exceptions to how work performed (3) Line flows, routine work same with all customers Figure 3.2 – Customer-Contact Matrix for Service Processes High-End Home Design IBM/Dell

3 – 8 Service Process Structuring Front, Hybrid, or Back? Bank Teller Financial Planning Tax Service Expedia Barber/Salon Employee Payroll Monthly bank statements Car wash

3 – 9 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1.b. Manufacturing Process Structuring Continuous process Job process Line process Large batch process Small batch process (1)(2)(3)(4) Low-volumeMultiple products with low Few majorHigh volume, high products, made to moderate volume to customer order Process Characteristics (1) Customized process, with flexible and unique sequence of tasks (2) Disconnected line flows, moderately complex work (3) Connected line, highly repetitive work (4) Continuous flows Less complexity, less divergence, and more line flows Less customization and higher volume Batch processes Figure 3.3 – Product-Process Matrix for Processes standardization, commodity products products, higher vol

3 – 10 Manufacturing Process Structuring Job, Batch, Line or Continuous? Uniform production Electrical production Ben & Jerry’s Ice Cream Automobile manufacturing Oil refinery Alcon Auto repair shop/body shop

3 – 11 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Layout (page 140 or 100) The physical arrangement of human and capital resources An operation is a group of resources performing all or part of one or more processes

3 – 12 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Closeness Matrix There are two absolute requirements for the new layout 1.Education should remain where it is 2.Administration should remain where it is Closeness Factors Department Administration― Social services― Institutions―39 4. Accounting―2 5. Education―1 6. Internal audit―

3 – 13 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Developing a Block Plan EXAMPLE 3.1 Develop an acceptable block plan for the Office of Budget Management that locates departments with the greatest interaction as close to each other as possible. 150’ 100’

3 – 14 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 150’ 100’ Developing a Block Plan Figure 3.5 – Proposed Block Plan 15 a.Departments 1 and 6 close together b.Departments 3 and 5 close together c.Departments 2 and 3 close together

3 – 15 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Total 112 Calculating the WD Score Total 82 Current PlanProposed Plan Department Pair Closeness Factor (w) Distance (d) Weighted-Distance Score (wd) Distance (d) Weighted-Distance Score (wd) 1, 23 1, 36 1, 45 1, 56 1, 610 2, 38 2, 41 2, 51 3, 43 3, 59 4, 52 5, 61

3 – 16 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 2. Customer Involvement

3 – 17 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 3. Resource Flexibility A flexible workforce can often require higher skills and more training and education Worker flexibility can help achieve reliable customer service and alleviate bottlenecks Resource flexibility helps absorb changes in workloads The type of workforce may be adjusted using full-time or part-time workers

3 – 18 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Resource Flexibility The volume of business may affect the type of equipment used Break-even analysis can be used to determine at what volumes changes in equipment should be made

3 – 19 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Break-Even Analysis Process 2: Special-purpose equipment Process 1: General-purpose equipment Break-even quantity Total cost (dollars) Units per year (Q) F2F2 F1F1 Figure 3.7 – Relationship Between Process Costs and Product Volume

3 – 20 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 3.3 Q = F m – F b c b – c m BBC is deciding whether to weld bicycle frames manually or to purchase a welding robot. If welded manually, investment costs for equipment are only $10,000. the per-unit cost of manually welding a bicycle frame is $50.00 per frame. On the other hand, a robot capable of performing the same work costs $400,000. robot operating costs including support labor are $20.00 per frame. At what volume would BBC be indifferent to these alternative methods? welded manually (Make) welded by robot (Buy) Fixed costs$10,000$400,000 Variable costs$50$20 = $10,000 – $400,000 $20 – $50 = 13,000 frames

3 – 21 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 4. Capital Intensity

3 – 22 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Strategies for Change Process reengineering is the fundamental rethinking and radical redesign of a process to improve performance Can be successful but it is not simple or easy The people who are involved with the process each day are the best source of ideas on how to improve it Process improvement is the systematic study of activities and flows of a process to find ways to improve it

3 – 23 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Process Reengineering TABLE 3.2 | KEY ELEMENTS OF REENGINEERING ElementDescription Critical processesEmphasis on core business processes, normal process improvement activities can continue with other processes Strong leadershipStrong leadership from senior executives to overcome resistance Cross-functional teamsA team with members from each functional area charged with carrying out the project Information technologyPrimary enabler of the project as most reengineering projects involve information flows Clean-slate philosophyStart with the way the customer wants to deal with the company and includes internal and external customers Process analysisMust understand the current processes throughout the organization

3 – 24 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 1 A defense contractor is evaluating its machine shop’s current layout. Figure 3.11 shows the current layout and the table shows the closeness matrix for the facility measured as the number of trips per day between department pairs. Safety and health regulations require departments E and F to remain at their current locations. a.Use trial and error to find a better layout b.How much better is your layout than the current layout in terms of the wd score? Use rectilinear distance. Trips Between Departments DepartmentABCDEF A―8395 B―3 C―89 D―3 E―3 F― E A B CD F Figure 3.11 – Current Layout

3 – 25 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 1 SOLUTION a.In addition to keeping departments E and F at their current locations, a good plan would locate the following department pairs close to each other: A and E, C and F, A and B, and C and E. Figure 3.12 was worked out by trial and error and satisfies all these requirements. Start by placing E and F at their current locations. Then, because C must be as close as possible to both E and F, put C between them. Place A below E, and B next to A. All of the heavy traffic concerns have now been accommodated. Trips Between Departments DepartmentABCDEF A―8395 B―3 C―89 D―3 E―3 F― EF A B C D Figure 3.12 – Proposed Layout

3 – 26 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 1 Current PlanProposed Plan Department Pair Number of Trips (1)Distance (2) wd Score (1)  (2) Distance (3) wd Score (1)  (3) A, B A, C31326 A, E91919 A, F53153 B, D32613 C, E C, F D, F31313 E, F32626 wd = 92wd = 67 b.The table reveals that the wd score drops from 92 for the current plan to 67 for the revised plan, a 27 percent reduction.