This lecture will cover the following topic: Major Process Design Decisions Process Structure Process Structure in Services Process Structure in Manufacturing Customer Involvement Vertical Integration Resource Flexibility Capital Intensity Major Process Design DecisionMajor Process Design Decision Chapter: FOURChapter: FOUR

Major Process Design Decisions Whether dealing with processes for offices, service providers, or manufacturers, operations managers must consider five common process decisions. 1.Process structure determines how processes are designed relative to the kinds of resources needed, how resources are partitioned between them, and their key characteristics. 2.Customer involvement reflects the ways in which customers become part of the process and the extent of their participation. 3.Vertical integration is the degree to which a firm’s own production system or service facility handles the entire value chain. 4.Resource flexibility is the ease with employees and equipment can handle a wide variety of products, output levels, duties, and functions. 5.Capital intensity is the mix of equipment and human skills in a process. The greater the relative cost of equipment, the greater is the capital intensity.

Process Structure in Services One of the first decisions a manager makes in designing a well-functioning process. Strategies for designing processes can be quite different, depending on whether a service is being provided or a product is being manufactured. An effective service process design in one situation can be a poor choice in another. A process design that gets customers in and out of a fast-food restaurant quickly would not be the right process design strategy for a five- star restaurant, where customers seek a leisurely dining experience. Further, a good design strategy for the servers at a restaurant might be totally inappropriate for a process back in the restaurant’s business office.

A good process design for a service process depends first and foremost on the type and amount of customer contact. Customer contact is the extent to which the customer is present, is actively involved, and receives personal attention during the service process. Customer contact at a process is important, regardless of whether the customer is internal or external, and regardless of whether the service process is at a manufacturing or service organization. Process Structure in Services…….Contd.

High ContactDimensionLow Contact PresentPhysical PresenceAbsent PeopleWhat is ProcessedPossessions Active, VisibleContact Intensity Passive, out of sight PersonalPersonal AttentionImpersonal Face-to-faceMethod of DeliveryRegular Mail Figure : Different Dimensions of Customer Contact in Service Processes Process Structure in Services…….Contd.

The first dimension is whether or not the customer is physically present at the process. The higher the percentage of time that the customer is present, the higher the customers contact. Face-to-face interaction, sometimes called a moment of truth or service encounter, brings the customer and service providers together. At that time, customer attitudes about the quality of the service provided are shaped. Many processes requiring physical presence are found in health care, hospitality services, and passenger transportation. Process Structure in Services…….Contd.

A second dimension is what is being processed at the service encounter. People processing services involve tangible actions to customers in person. The service is provided to the person, rather that for the person, and so it requires physical presence. Customers become part of the process, making the service’s production simultaneous with its consumption. The service is consumed after the process is finished, rather than simultaneously with the service’s creation. Such processes are common in insurance, news, banking, education, and legal services. Process Structure in Services…….Contd.

The intensity of customer contact goes one step beyond physical presence and what is processed. It deals with the extent to which the process accommodates the customer, and it involves considerable interaction and service customization. Active contact usually means the process is visible to the customer. Passive contact means that the customer is not involved in tailoring the process to meet special needs or in how the process is performed. Even if the customer is present, he may simply be sitting in a waiting room, standing in line, or perhaps living in a hospital bed. Process Structure in Services…….Contd.

A fourth dimension is the extent of personal attention provided. High-contact processes are more intimate, and they exhibit mutual confiding and trust between the service provider and the customer. Impersonal contact lies at the other end of the customer-contact continuum. At a less intimate process, for example, the customer might move through a standardized work flow or stand in line at a ticket counter. Process Structure in Services…….Contd.

A final dimension of customer contact is the method used to be in contact. A high contact process would use face- to-face or the telephone, assuring more clarity is identifying customer needs and in deliver in the service. A low-contact process would likely use a less personable means to deliver the service. Regular mail or standardized messages would be the preferred way to exchange information for low-contact process. Process Structure in Services…….Contd.

Process Structure in Manufacturing Manufacturing processes convert materials into goods that have a physical form. The transformation processes change the properties of materials on one or more of the following dimensions: change the material’s physical properties, change the material’s shape, machine parts to a fixed dimension, obtain a surface finish, assemble or join parts and materials. For example, changing the material’s physical properties could be a chemical reaction, cold working, hot working, heat treatment, or refining/extraction.

Customer Involvement The second key decision in process design strategy is customer involvement. It reflects the way in which customers become part of the process and the extent of their participation. It is important for many service processes, particularly if customers contact is high. A good place to begin increasing customer involvement is making more of the process visible to the customer.

Vertical Integration Management decides the level of vertical integration by looking at all the processes performed between the acquisition of raw materials or outside services and the delivery of finished products or services. The more processes in the value chain that the organization performs itself the more process vertically integrated it is. If it does not perform some process itself, it must rely on outsourcing, or paying suppliers and distributors to perform those processes and provide needed services and materials. When managers opt for more vertical integration, there is by definition less outsourcing. These decisions are sometimes called make-or-buy decisions, with a make decision meaning more integration and a buy decision meaning more outsourcing.

Vertical integration can be in two directions: (i)Backward integration represents a firm’s movement upstream toward the source of raw materials and parts, such as a major grocery chain having its own plants to produce house brands of ice cream, frozen pizza dough, and peanut butter. (ii) Forward integration means that the firm acquires more channels of distribution, such as its own distribution centers and retail stores. It can also mean that the firm goes even further by acquiring its business customers. Vertical Integration

Resource Flexibility Just as managers must account for customer contact when making customer involvement decisions, so must they account for process divergence and diverse process flows when making resource flexibility decisions. High task divergence and jumbled process flows require more flexibility of the process’s resources-its employees, facilities, and equipment. Employees need to perform a broad range of duties, and equipment must be general purpose. Otherwise, resource utilization will be too low for economical operations.

Capital Intensity For either the design of a new process or the redesign of an existing one, managers must determine the amount of capital intensity required. 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. As the capabilities of technology increase and its costs decrease, managers face an ever- widening range of choices, from operations utilizing very little automation to those requiring task-specific equipment and very little human intervention.