© 2006 Prentice Hall, Inc.7 – 1 Operations Management Process Strategy © 2006 Prentice Hall, Inc. Alan D. Smith

© 2006 Prentice Hall, Inc.7 – 2 Outline  Global Company Profile: Dell Computer Co.  Four Process Strategies  Process Focus  Repetitive Focus  Product Focus  Mass Customization Focus  Comparison of Process Choices

© 2006 Prentice Hall, Inc.7 – 3 Outline – Continued  Process Analysis And Design  Flow Diagrams  Time-Function Mapping  Value Stream Mapping  Process Charts  Service Blueprinting

© 2006 Prentice Hall, Inc.7 – 4 Outline – Continued  Service Process Design  Customer Interaction and Process Design  More Opportunities to Improve Service Processes  Selection Of Equipment And Technology

© 2006 Prentice Hall, Inc.7 – 5 Outline – Continued  Production Technology  Machine Technology  Process Control  Vision Systems  Automated Storage and Retrieval System  Automated Guided Vehicle (AGV)  Flexible Manufacturing System (FMS)  Computer-Integrated Manufacturing (CIM)

© 2006 Prentice Hall, Inc.7 – 6 Outline – Continued  Technology In Services  Process Redesign  Ethics And Environmentally Friendly Processes

© 2006 Prentice Hall, Inc.7 – 7 Learning Objectives When you complete this chapter, you should be able to: Identify or Define:  Process focus  Repetitive focus  Product focus  Process reengineering  Service process issues  Environmental issues

© 2006 Prentice Hall, Inc.7 – 8 Learning Objectives When you complete this chapter, you should be able to: Describe or Explain:  Process Analysis  Service Design  Production Technology  Process Redesign  Ethics and Environmentally Friendly Processes

© 2006 Prentice Hall, Inc.7 – 9 Dell Computer Company “How can we make the process of buying a computer better?”  Sell custom-built PCs directly to consumer  Build computers rapidly, at low cost, and only when ordered  Integrate the Web into every aspect of its business  Focus research on software designed to make installation and configuration of its PCs fast and simple

© 2006 Prentice Hall, Inc.7 – 10 Process, Volume, and Variety Process Focus projects, job shops (machine, print, carpentry) Standard Register Repetitive (autos, motorcycles) Harley Davidson Product Focus (commercial baked goods, steel, glass) Nucor Steel High Variety one or few units per run, high variety (allows customization) Changes in Modules modest runs, standardized modules Changes in Attributes (such as grade, quality, size, thickness, etc.) long runs only Mass Customization (difficult to achieve, but huge rewards) Dell Computer Co. Poor Strategy (Both fixed and variable costs are high) Low Volume Repetitive Process High Volume Volume Figure 7.1

© 2006 Prentice Hall, Inc.7 – 11 Accounting PRINTING DEPT COLLATING DEPT GLUING, BINDING, STAPLING, LABELING POLYWRAP DEPT SHIPPING Vendors Receiving Warehouse Purchasing PREPRESS DEPT Process Flow Diagram Customer Customer sales representative Information flow Material flow Figure 7.2

© 2006 Prentice Hall, Inc.7 – 12 Process Strategies  How to produce a product or provide a service that  Meets or exceeds customer requirements  Meets cost and managerial goals  Has long term effects on  Efficiency and production flexibility  Costs and quality

© 2006 Prentice Hall, Inc.7 – 13 Process Strategies Four basic strategies  Process focus  Repetitive focus  Product focus  Mass customization Within these basic strategies there are many ways they may be implemented

© 2006 Prentice Hall, Inc.7 – 14 Process Focus  Facilities are organized around specific activities or processes  General purpose equipment and skilled personnel  High degree of product flexibility  Typically high costs and low equipment utilization  Product flows may vary considerably making planning and scheduling a challenge

© 2006 Prentice Hall, Inc.7 – 15 Process Focus Many inputs High variety of outputs Print Shop

© 2006 Prentice Hall, Inc.7 – 16 Repetitive Focus  Facilities often organized as assembly lines  Characterized by modules with parts and assemblies made previously  Modules may be combined for many output options  Less flexibility than process-focused facilities but more efficient

© 2006 Prentice Hall, Inc.7 – 17 Repetitive Focus Raw materials and module inputs Modules combined for many output options Few modules Automobile Assembly Line

© 2006 Prentice Hall, Inc.7 – 18 Process Flow Diagram THE ASSEMBLY LINE TESTING 28 tests Oil tank work cell Shocks and forks Handlebars Fender work cell Air cleaners Fluids and mufflers Fuel tank work cell Wheel work cell Roller testing Incoming parts From Milwaukee on a JIT arrival schedule Engines and transmissionsFrame tube bending Frame-building work cells Frame machining Hot-paint frame painting Crating Figure 7.3

© 2006 Prentice Hall, Inc.7 – 19 Product Focus  Facilities are organized by product  High volume but low variety of products  Long, continuous production runs enable efficient processes  Typically high fixed cost but low variable cost  Generally less skilled labor

© 2006 Prentice Hall, Inc.7 – 20 Product Focus Many inputs Output variation in size, shape, and packaging Bottling Plant

© 2006 Prentice Hall, Inc.7 – 21 Product Focus Nucor Steel Plant Continuous caster Continuous cast steel sheared into 24-ton slabs Hot tunnel furnace ft Hot mill for finishing, cooling, and coiling DE F G H I Scrap steel Ladle of molten steel Electric furnace A B C

© 2006 Prentice Hall, Inc.7 – 22 Comparison of Processes Process Focus (Low volume, high variety) Repetitive Focus (Modular) Product Focus (High-volume, low-variety) Mass Customization (High-volume, high-variety) Small quantity, large variety of products Long runs, standardized product made from modules Large quantity, small variety of products Large quantity, large variety of products General purpose equipment Special equipment aids in use of assembly line Special purpose equipment Rapid changeover on flexible equipment Table 7.2

© 2006 Prentice Hall, Inc.7 – 23 Comparison of Processes Process Focus (Low volume, high variety) Repetitive Focus (Modular) Product Focus (High-volume, low-variety) Mass Customization (High-volume, high-variety) Operators are broadly skilled Employees are modestly trained Operators are less broadly skilled Flexible operators are trained for the necessary customization Many job instructions as each job changes Repetition reduces training and changes in job instructions Few work orders and job instructions because jobs standardized Custom orders require many job instructions Table 7.2

© 2006 Prentice Hall, Inc.7 – 24 Comparison of Processes Process Focus (Low volume, high variety) Repetitive Focus (Modular) Product Focus (High-volume, low-variety) Mass Customization (High-volume, high-variety) Raw material inventories high JIT procurement techniques used Raw material inventories are low Work-in- process is high JIT inventory techniques used Work-in- process inventory is low Work-in- process inventory driven down by JIT, lean production Table 7.2

© 2006 Prentice Hall, Inc.7 – 25 Comparison of Processes Process Focus (Low volume, high variety) Repetitive Focus (Modular) Product Focus (High-volume, low-variety) Mass Customization (High-volume, high-variety) Units move slowly through the plant Movement is measured in hours and days Swift movement of unit through the facility is typical Goods move swiftly through the facility Finished goods made to order Finished goods made to frequent forecast Finished goods made to forecast and stored Finished goods often made to order Table 7.2

© 2006 Prentice Hall, Inc.7 – 26 Comparison of Processes Process Focus (Low volume, high variety) Repetitive Focus (Modular) Product Focus (High-volume, low-variety) Mass Customization (High-volume, high-variety) Scheduling is complex, trade-offs between inventory, availability, customer service Scheduling based on building various models from modules to forecasts Relatively simple scheduling, establishing output rate to meet forecasts Sophisticated scheduling required to accommodate custom orders Table 7.2

© 2006 Prentice Hall, Inc.7 – 27 Comparison of Processes Process Focus (Low volume, high variety) Repetitive Focus (Modular) Product Focus (High-volume, low-variety) Mass Customization (High-volume, high-variety) Fixed costs low, variable costs high Fixed costs dependent on flexibility of the facility Fixed costs high, variable costs low Fixed costs high, variable costs must be low Costing estimated before job, not known until after job is complete Costs usually known due to extensive experience High fixed costs mean costs dependent on utilization of capacity High fixed costs and dynamic variable costs make costing a challenge Table 7.2

© 2006 Prentice Hall, Inc.7 – 28 Mass Customization  The rapid, low-cost production of goods and service to satisfy increasingly unique customer desires  Combines the flexibility of a process focus with the efficiency of a product focus

© 2006 Prentice Hall, Inc.7 – 29 Mass Customization Vehicle models Vehicle types181,212 Bicycle types819 Software titles0300,000 Web sites046,412,165 Movie releases New book titles40,53077,446 Houston TV channels5185 Breakfast cereals Items (SKUs) in 14,000150,000 supermarkets supermarkets Number of Choices Early 21st ItemEarly 1970sCentury Table 7.1

© 2006 Prentice Hall, Inc.7 – 30 Mass Customization Modular techniques Mass Customization Effective scheduling techniques Rapid throughput techniques Repetitive Focus Modular design Flexible equipment Process-Focused High variety, low volume Low utilization (5% to 25%) General-purpose equipment Product-Focused Low variety, high volume High utilization (70% to 90%) Specialized equipment Figure 7.5

© 2006 Prentice Hall, Inc.7 – 31 Crossover Charts Fixed costs Variable costs $ High volume, low variety Process C Fixed costs Variable costs $ Repetitive Process B Fixed costs Variable costs $ Low volume, high variety Process A Fixed cost Process A Fixed cost Process B Fixed cost Process C Total cost V1V1V1V1 (2,857) V2V2V2V2 (6,666) 400,000300,000200,000 Volume$ Figure 7.6

© 2006 Prentice Hall, Inc.7 – 32 Changing Processes  Difficult and expensive  May mean starting over  Process strategy determines transformation strategy for an extended period  Important to get it right

© 2006 Prentice Hall, Inc.7 – 33 Process Analysis and Design  Flow Diagrams - Shows the movement of materials  Time-Function Mapping - Shows flows and time frame  Value Stream Mapping - Shows flows and time and value added beyond the immediate organization  Process Charts - Uses symbols to show key activities  Service Blueprinting - focuses on customer/provider interaction

© 2006 Prentice Hall, Inc.7 – 34 Time-Function Mapping Customer Sales Production control Plant A Warehouse Plant B Transport Move Receive product Extrude Wait Move Wait Print Wait Order product Process order Wait 12 days 13 days 1 day 4 days 1 day 10 days 1 day 0 day 1 day 52 days Figure 7.7

© 2006 Prentice Hall, Inc.7 – 35 Time-Function Mapping Customer Sales Production control Plant Warehouse Transport Move Receive product Extrude Wait Print Order product Process order Wait 1 day 2 days 1 day 6 days Figure 7.7

© 2006 Prentice Hall, Inc.7 – 36 Process Chart Figure 7.8

© 2006 Prentice Hall, Inc.7 – 37 Service Blueprint  Focuses on the customer and provider interaction  Defines three levels of interaction  Each level has different management issues  Identifies potential failure points

© 2006 Prentice Hall, Inc.7 – 38 Service Blueprint Personal GreetingService DiagnosisPerform ServiceFriendly Close Customer arrives for service Warm greeting and obtain service request Direct customer to waiting room Notify customer the car is ready Customer departs Customer pays bill Perform required work Prepare invoiceYesYesLevel#3Level#1 Level#2 Potential failure point Figure 7.9 No Notify customer and recommend an alternative provider Standard request Determine specificsNo Can service be done and does customer approve?

© 2006 Prentice Hall, Inc.7 – 39 Process Analysis Tools  Flowcharts provide a view of the big picture  Time-function mapping adds rigor and a time element  Value stream analysis extends to customers and suppliers  Process charts show detail  Service blueprint focuses on customer interaction

© 2006 Prentice Hall, Inc.7 – 40 Service Factory Service Shop Degree of Customization Low High Degree of Labor Low High Mass Service Professional Service Service Process Matrix Commercial banking Private banking General- purpose law firms Law clinics Specialized hospitals Hospitals Full-service stockbroker Limited-service stockbroker Retailing Boutiques Warehouse and catalog stores Fast food restaurants Fine-dining restaurants Airlines No frills airlines Figure 7.10

© 2006 Prentice Hall, Inc.7 – 41 Service Process Matrix  Labor involvement is high  Selection and training highly important  Focus on human resources  Personalized services Mass Service and Professional Service Service Factory and Service Shop  Automation of standardized services  Low labor intensity responds well to process technology and scheduling  Tight control required to maintain standards

© 2006 Prentice Hall, Inc.7 – 42 Improving Service Productivity StrategyTechniqueExample Separation Structure service so customers must go where service is offered Bank customers go to a manager to open a new account, to loan officers for loans, and to tellers for deposits Self-service Self-service so customers examine, compare, and evaluate at their own pace Supermarkets and department stores, internet ordering Table 7.3

© 2006 Prentice Hall, Inc.7 – 43 StrategyTechniqueExample Postponement Customizing at delivery Customizing vans at delivery rather than at production Focus Restricting the offerings Limited-menu restaurant Modules Modular selection of service, modular production Investment and insurance selection, prepackaged food modules in restaurants Improving Service Productivity Table 7.3

© 2006 Prentice Hall, Inc.7 – 44 StrategyTechniqueExample Automation Precise personnel scheduling Automatic teller machines Scheduling Precise personnel scheduling Scheduling ticket counter personnel at 15-minute intervals at airlines Training Clarifying the service options, explaining how to avoid problems Investment counselor, funeral directors, after-sale maintenance personnel Improving Service Productivity Table 7.3

© 2006 Prentice Hall, Inc.7 – 45 Equipment and Technology  Often complex decisions  Possible competitive advantage  Flexibility  Stable processes  May allow enlarging the scope of the processes

© 2006 Prentice Hall, Inc.7 – 46 Improving Service Processes  Layout  Product exposure, customer education, product enhancement  Human Resources  Recruiting and training  Impact of flexibility

© 2006 Prentice Hall, Inc.7 – 47 Production Technology  Machine technology  Automatic identification systems (AIS)  Process control  Vision system  Robot  Automated storage and retrieval systems (ASRS)  Flexible manufacturing systems (FMS)  Computer-integrated manufacturing (CIM)

© 2006 Prentice Hall, Inc.7 – 48 Machine Technology  Increased precision  Increased productivity  Increased flexibility  Improved environmental impact  Reduced changeover time  Decreased size  Reduced power requirements

© 2006 Prentice Hall, Inc.7 – 49 Automatic Identification Systems (AIS)  Improved data acquisition  Reduced data entry errors  Increased speed  Increased scope of process automation

© 2006 Prentice Hall, Inc.7 – 50 Process Control  Increased process stability  Increased process precision  Real-time provision of information for process evaluation  Data available in many forms

© 2006 Prentice Hall, Inc.7 – 51 Process Control Software

© 2006 Prentice Hall, Inc.7 – 52 Vision Systems  Particular aid to inspection  Consistently accurate  Never bored  Modest cost  Superior to individuals performing the same tasks

© 2006 Prentice Hall, Inc.7 – 53 Robots  Perform monotonous or dangerous tasks  Perform tasks requiring significant strength or endurance  Generally enhanced consistency and accuracy

© 2006 Prentice Hall, Inc.7 – 54 Robotic Surgery

© 2006 Prentice Hall, Inc.7 – 55 Automated Storage and Retrieval Systems (ASRS)  Automated placement and withdrawal of parts and products  Reduced errors and labor  Particularly useful in inventory and test areas of manufacturing firms

© 2006 Prentice Hall, Inc.7 – 56 Automated Guided Vehicle (AGV)  Electronically guided and controlled carts  Used for movement of products and/or individuals

© 2006 Prentice Hall, Inc.7 – 57 Flexible Manufacturing Systems (FMS)  Computer controls both the workstation and the material handling equipment  Enhance flexibility and reduced waste  Can economically produce low volume at high quality  Reduced changeover time and increased utilization  Stringent communication requirement between components

© 2006 Prentice Hall, Inc.7 – 58 Computer Integrated Manufacturing (CIM)  Extension of flexible manufacturing systems  Backwards to engineering and inventory control  Forward into warehousing and shipping  Can also include financial and customer service areas  Reducing the distinction between low- volume/high-variety, and high- volume/low-variety production

© 2006 Prentice Hall, Inc.7 – 59 Computer Integrated Manufacturing (CIM) Top management decides to make a product OM runs the production process Computer- aided design (CAD) designs the product Computer-aided manufacturing (CAM) Robots put the product together Automated storage and retrieval system (ASRS) and automated guided vehicles (AGVs) Management Information System FMS CIM Figure 7.11

© 2006 Prentice Hall, Inc.7 – 60 Technology in Services Service Industry Example Financial Services Debit cards, electronic funds transfer, ATMs, Internet stock trading Education Electronic bulletin boards, on-line journals Utilities and government Automated one-man garbage trucks, optical mail and bomb scanners, flood warning systems Restaurants and foods Wireless orders from waiters to kitchen, robot butchering, transponders on cars that track sales at drive-throughs Communications Electronic publishing, interactive TV Table 7.4

© 2006 Prentice Hall, Inc.7 – 61 Technology in Services Service Industry Example Hotels Electronic check-in/check-out, electronic key/lock system Wholesale/retail trade Point-of-sale terminals, e-commerce, electronic communication between store and supplier, bar coded data Transportation Automatic toll booths, satellite-directed navigation systems Health care Online patient-monitoring, online medical information systems, robotic surgery Airlines Ticketless travel, scheduling, Internet purchases Table 7.4

© 2006 Prentice Hall, Inc.7 – 62 Process Redesign  The fundamental rethinking of business processes to bring about dramatic improvements in performance  Relies on reevaluating the purpose of the process and questioning both the purpose and the underlying assumptions  Requires reexamination of the basic process and its objectives  Focuses on activities that cross functional lines  Any process is a candidate for redesign

© 2006 Prentice Hall, Inc.7 – 63 Ethics and Environmentally Friendly Processes  Encourage recycling  Efficient use of resources  Reduction of waste by-products  Use less harmful ingredients  Use less energy Reduce the negative impact on the environment