SECTION 2 STRATEGIC DESIGN 3º GADI- 5º DG-ADI-DER Slide presentation Chapter 4 Departamento de Organización de Empresas y Marketing Área de Organización de Empresas Operations Management I Dirección de Operaciones I- English teaching

2 CHAPTER 4 PROCESS SELECTION AND DESIGN 4.1. Process Strategy 4.2. Process Focus 4.3. Repetitive Focus 4.4. Product Focus 4.5. Mass Customization 4.6. Comparison of Processes 4.7. Process Analysis and Design 4.8. Service Process Design

3 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

4 4.1 Process Strategy  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 Four basic strategies  Process focus  Repetitive focus  Product focus  Mass customization Within these basic strategies there are many ways they may be implemented

5 4.2 Process Focus  Low volume, high variety of products: “job shops”  Facilities are organized around specific activities or processes  General purpose equipment and skilled personnel  High degree of product flexibility  Each process designed to perform a wide variety of activities and handle frequent changes, “intermittent processes”  Typically high variable costs and low equipment utilization  Product flows may vary considerably making planning and scheduling a challenge  Examples: restaurants, hospitals, print shop

6 Example: Print Shop Many inputs High variety of outputs Print Shop

7 4.3 Product Focus  Facilities are organized by product  High volume but low variety of products  Long, continuous production runs enable efficient processes  Also known as “continuous processes”  Typically high fixed cost but low variable cost (high facility utilization)  Generally less skilled labor  High standardization and effective quality control  Examples: glass, paper, steel, beer

8 Example: Product Focus (flow diagram) 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

9 4.4 Repetitive Focus  Between product focus and process focus  Facilities often organized as assembly lines  Characterized by modules with parts and assemblies made previously: “work cells”  Modules may be combined for many output options  Less flexibility than process-focused facilities but more efficient  Examples: fast food restaurants, automobile companies

10 Example: Harley-Davidson (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

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

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  Brings the variety of products traditionally provided by low-volume manufacture (process focus) at the cost of standardized high-volume (product focus)  Relies on modular design, effective scheduling and rapid throughput (next slide)  Build-to-order: produce to customer orders rather than forecasts  Drives down inventories but increases pressure on scheduling and supply-chain performance  Examples: Dell Computer, General Motors, Toyota, telephone service providers

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

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

15 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 4.6 Comparison of Processes

16 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 4.6 Comparison of Processes

17 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 4.6 Comparison of Processes

18 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 4.6 Comparison of Processes

19 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 4.6 Comparison of Processes

Process Analysis and Design Basic questions about the process:  Is it designed to achieve competitive advantage?  Does it eliminate steps that do not add value?  Does it maximize customer value as perceived by the customer?  Will it win orders? Changing processes:  Difficult and expensive  May mean starting over  Process strategy determines transformation strategy for an extended period  Important to get it right

Process Analysis and Design  Flow Diagrams - Show the movement of materials, product or people; provide a view of the big picture  Time-Function Mapping - Shows flows and time frame; adds rigor and a time frame  Value Stream Mapping - Shows flows and time and value added beyond the immediate organization; extends to customers and suppliers  Process Charts - Use symbols to show key activities; show details  Service Blueprinting - focuses on customer/provider interaction

22 Time-Function Mapping (baseline) 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

23 Time-Function Mapping (target) 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

24 Process Chart

25 Service Blueprint  For products with a high service content  Focuses on the customer and provider interaction  Defines three levels of interaction  Each level has different management issues  Identifies potential failure points

26 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 No Notify customer and recommend an alternative provider Standard request Determine specificsNo Can service be done and does customer approve?

Service Process Design  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  Standardize (fast-food), automate (airlines: ticketing) and remove some services (sit assignment: Southwest Airlines)  Low labor intensity responds well to process technology and scheduling  Tight control required to maintain standards

28 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