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

3 – 2 Process Strategy Addresses how to make a product or provide a service Involves: Selection of appropriate processes Managing their execution Continuous improvement Considers: Volume Level of customization Quality level Cost Uses basic analytical tools for selecting and measuring process activities

3 – 3 What is a Process? For an operations view, a process is a set of organized activities that are performed to add value for the customer From a broader perspective, everything we do uses processes that can be understood, managed, and improved upon

3 – 4 Process Selection The selection of a process for any manufacturing or service activity will affect: How fast it is (cycle time) How easy it is to change (flexibility) How effectively it uses resources (sustainability) How efficient or productive it is How expensive it is to set up and to operate The quality of the outputs The ability to customize outputs (flexibility)

3 – 5 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 – 6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Process Strategy There are four basic process decisions 1.Process structure including layout 2.Customer involvement 3.Resource flexibility 4.Capital intensity

3 – 7 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 – 8 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Process Structure in Services Customer contact is the extent to which the customer is present, actively involved, and receives personal attention during the service process Face-to-face interaction is sometimes called a moment of truth or a service encounter

3 – 9 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Process Structure in Services TABLE 3.1|DIMENSIONS OF CUSTOMER CONTACT IN SERVICE |PROCESSES DimensionHigh ContactLow Contact Physical presencePresentAbsent What is processedPeoplePossessions or information Contact intensityActive, visiblePassive, out of sight Personal attentionPersonalImpersonal Method of deliveryFace-to-faceRegular mail or

3 – 10 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Process Structure in Services The three elements of the customer- contact matrix are 1.The degree of customer contact 2.Customization 3.Process characteristics Process characteristics include 1.Process divergence deals with customization and the latitude as to how tasks are performed 2.Flow is how customers, objects, or information are process and can be either line of flexible

3 – 11 Service Process Structuring Front office: A process with high customer contact where the service provider interacts directly with the internal or external customer. Hybrid office: A process with moderate levels of customer contact and standard services with some options available. Back office: A process with low customer contact and little service customization.

3 – 12 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 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

3 – 13 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Product-Process Matrix For manufacturing organization it brings together 1.Volume 2.Product customization 3.Process characteristics Process choices include job, batch, line, and continuous flow processes Production and inventory strategies include make-to-order, assemble-to-order, and make-to-stock

3 – 14 Process choice: A way of structuring the process by organizing resources around the process or organizing them around the products. Job Process: A process with the flexibility needed to produce a wide variety of products in significant quantities, with considerable complexity and divergence in the steps performed. Batch process: A process that differs from the job process with respect to volume, variety and quantity. Process Structuring in Manufacturing

3 – 15 Line process: A process that lies between the batch and continuous processes on the continuum; volumes are high and products are standardized, which allows resources to be organized around particular products. Continuous flow: The extreme end of high- volume, standardized production and rigid line flows, with production not starting and stopping for long time intervals. Process Structuring in Manufacturing

3 – 16 Production and Inventory Strategies Make-to-order strategy: A strategy used by manufactures that make products to customer specifications in low volume. Assemble-to-order strategy: A strategy for producing a wide variety of products from relatively few assemblies and components after the customer orders are received. Make-to-stock strategy: A strategy that involves holding items in stock for immediate delivery, thereby minimizing customer delivery times. Mass production: A term sometimes used in the popular press for a line process that uses the make-to-stock strategy.

3 – 17 © 2007 Pearson Education Links of Competitive Priorities with Manufacturing Strategy

3 – 18 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Product-Process Matrix 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 products,standardization, to customer highercommodity ordervolumeproducts 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

3 – 19 © 2007 Pearson Education The Big Picture King Soopers Bakery

3 – 20 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Layout The physical arrangement of human and capital resources An operation is a group of resources performing all or part of one or more processes Layout involves three basic steps 1.Gather information 2.Develop a block plan 3.Design a detailed layout

3 – 21 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Layout DepartmentArea Needed (ft 2 ) 1. Administration3, Social services2, Institutions2, Accounting1, Education1, Internal audit3,400 Total 15,000 Gather information on space requirements, available space, and closeness factors

3 – 22 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 150’ 100’ Block Plan Figure 3.4 – Current Block Plan for the Office of Budget Management

3 – 23 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Closeness Matrix Closeness Factors Department Administration― Social services― Institutions―39 4. Accounting―2 5. Education―1 6. Internal audit―

3 – 24 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Requirements 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 – 25 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. SOLUTION Using closeness ratings of 8 and above, you might plan to locate departments as follows: a.Departments 1 and 6 close together b.Departments 3 and 5 close together c.Departments 2 and 3 close together Departments 1 and 5 should remain at their current locations Closeness Factors Department Administration― Social services― Institutions―39 4. Accounting―2 5. Education―1 6. Internal audit―

3 – 26 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 150’ 100’ Developing a Block Plan Figure 3.5 – Proposed Block Plan a.Departments 1 and 6 close together b.Departments 3 and 5 close together c.Departments 2 and 3 close together

3 – 27 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. The Weighted-Distance Method The weighted-distance method can be used to compare alternative block plans when relative locations are important Euclidian distance is the straight-line distance between two possible points where d AB = distance between points A and B x A = x -coordinate of point A y A = y -coordinate of point A x B = x -coordinate of point B y B = y -coordinate of point B

3 – 28 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. The Weighted-Distance Method Rectilinear distance measures the distance between two possible points with a series of 90-degree turns The objective is to minimize the weighted- distance score (wd) A layout’s wd score is calculated by summing the products of the proximity scores and distances between centers

3 – 29 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 3.1 Rectilinear Distance d AB = |20 – 80| + |10 – 60| = Euclidian Distance What is the distance between (20,10) and (80,60)? d AB = (20 – 80) 2 + (10 – 60) 2 =

3 – 30 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 3.1 Rectilinear Distance d AB = |20 – 80| + |10 – 60| = Euclidian Distance d AB = (20 – 80) 2 + (10 – 60) 2 What is the distance between (20,10) and (80,60)? 110 = 78.1

3 – 31 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Calculating the WD Score EXAMPLE 3.2 How much better is the proposed block than the current block plan? SOLUTION The following table lists pairs of departments that have a nonzero closeness factor and the rectilinear distances between departments for both the current plan and the proposed plan Current Block PlanProposed Block Plan

3 – 32 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Calculating the WD Score 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 – 33 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 – 34 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Detailed Layout Once a block plan has been selected, a detailed representation is created showing the exact size and shape of each center Elements such as desks, machines, and storage areas can be shown Drawings or models can be utilized Options can be discussed and problems resolved

3 – 35 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Customer Involvement Possible disadvantages  Can be disruptive  Managing timing and volume can be challenging  Quality measurement can be difficult  Requires interpersonal skills  Layouts may have to be revised  Multiple locations may be necessary

3 – 36 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Customer Involvement Possible advantages  Increased net value to the customer  Can mean better quality, faster delivery, greater flexibility, and lower cost  May reduce product, shipping, and inventory costs  May help coordinate across the supply chain  Processes may be revised to accommodate the customers’ role

3 – 37 Resource Flexibility Flexible workforce: A workforce whose members are capable of doing many tasks, either at their own workstations or as they move from one workstation to another. Worker flexibility can be one of the best ways to achieve reliable customer service and alleviate capacity bottlenecks. This comes at a cost, requiring greater skills and thus more training and education. Flexible equipment: Low volumes mean that process designers should select flexible, general-purpose equipment.

3 – 38 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 – 39 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 – 40 Capital Intensity Capital Intensity is the mix of equipment and human skills in the process; 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 and self-regulating. Fixed automation is a manufacturing process that produces one type of part or product in a fixed sequence of simple operations. Flexible (or programmable) automation is a manufacturing process that can be changed easily to handle various products.

3 – 41 Economies of Scope In certain types of manufacturing, such as machining and assembly, programmable automation breaks the inverse relationship between resource flexibility and capital intensity. Economies of scope are economies that reflect the ability to produce multiple products more cheaply in combination than separately. With economies of scope, the often conflicting competitive priorities of customization and low price become more compatible. Taking advantage of economies of scope requires that a family of parts or products have enough collective volume to use equipment fully.

3 – 42 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Decision Patterns for Services Front office Hybrid office Back office Low customer-contact process Less complexity, less divergence, more line flows Less customer involvement Less resource flexibility Capital intensity varies with volume High customer-contact process More complexity, more divergence, more flexible flows More customer involvement More resource flexibility Capital intensity varies with volume Figure 3.8 – Decision Patterns for Service Processes LowHigh Customer contact and customization Major process decisions

3 – 43 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Decision Patterns for Manufacturing Processes can be adjusted for the degree of customization and volume Process flows can be made more of less linear Competitive priorities must be considered when choosing processes

3 – 44 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Decision Patterns for Manufacturing Competitive PrioritiesProcess Choice Competitive PrioritiesProduction and Inventory Strategy (b) Links with Production and Inventory Strategy Top-quality, on-time delivery, and flexibility Job process or small batch process (a) Links with Process Choice Low-cost operations, consistent quality, and delivery speed Large batch, line, or continuous flow process Top-quality, on-time delivery, and flexibility Make-to-orderDelivery speed and varietyAssemble-to-order Low-cost operation and delivery speed Make-to-stock Figure 3.9 –Links of Competitive Priorities with Manufacturing Strategy

3 – 45 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Decision Patterns for Manufacturing Continuous process Job process Line process Large batch process Small batch process Batch processes Figure 3.10 – Decision Patterns for Manufacturing Processes Major process decisions LowHigh Volume High-Volume, make-to-stock process Less process divergence and more line flows Less customer involvement Less resource flexibility More capital intensity Low-Volume, make-to-order process More process divergence and more flexible flows More customer involvement More resource flexibility Less capital intensity

3 – 46 Focus by Process Segment A facility’s process often can neither be characterized nor actually designed for one set of competitive priorities and one process choice. Plants within plants (PWPs) are different operations within a facility with individualized competitive priorities, processes, and workforces under the same roof. Focused factories are the result of a firm’s splitting large plants that produce all the company’s products into several specialized smaller plants.

3 – 47 Strategies for Change Process Reengineering is a fundamental rethinking and radical redesign of processes to improve performance dramatically in terms of cost, quality, service, and speed. Process improvement is the systematic study of the activities and flows of each process to improve it.

3 – 48 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 – 49 Vertical Integration Backward integration is when an organization develops more capability for supplying the raw materials it requires. Forward integration is when an organization develops more capability for distributing and selling the product or service it provides. Full integration was much more prevalent in the past. As many technologies become more complex and specialized, vertical integration is not as efficient or effective.

3 – 50 Backward Integration Raw materials (eggs, flour, sugar) King Soopers Backward integration In-house processes

3 – 51 Forward Integration King Soopers Customers (grocery stores) Backward integration Forward integration In-house processes

3 – 52 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 – 53 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 – 54 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.

3 – 55 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.