1. 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 PowerPoint Slides by Jeff Heyl

2. 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 – 3 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

4. 3 – 4 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

5. 3 – 5 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

6. 3 – 6 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 e-mail

7. 3 – 7 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 processed, and can be either line flow or flexible flow

8. 3 – 8 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

9. 3 – 9 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

10. 3 – 10 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

11. 3 – 11 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

12. 3 – 12 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Layout DepartmentArea Needed (ft 2 ) 1. Administration3,500 2. Social services2,600 3. Institutions2,400 4. Accounting1,600 5. Education1,500 6. Internal audit3,400 Total 15,000 Gather information on space requirements, available space, and closeness factors

13. 3 – 13 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 150’ 100’ Block Plan 12 34 5 6 Figure 3.4 – Current Block Plan for the Office of Budget Management

14. 3 – 14 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Closeness Matrix Closeness Factors Department123456 1. Administration―365610 2. Social services―811 3. Institutions―39 4. Accounting―2 5. Education―1 6. Internal audit―

15. 3 – 15 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 Department123456 1. Administration―365610 2. Social services―811 3. Institutions―39 4. Accounting―2 5. Education―1 6. Internal audit―

16. 3 – 16 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 Department123456 1. Administration―365610 2. Social services―811 3. Institutions―39 4. Accounting―2 5. Education―1 6. Internal audit―

17. 3 – 17 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 150’ 100’ Developing a Block Plan Figure 3.5 – Proposed Block Plan 15 4 632 a.Departments 1 and 6 close together b.Departments 3 and 5 close together c.Departments 2 and 3 close together

18. 3 – 18 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

19. 3 – 19 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

20. 3 – 20 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 =

21. 3 – 21 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

22. 3 – 22 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 6 1 2 45 3 3 1 2 6 5 4 Current Block PlanProposed Block Plan

23. 3 – 23 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

24. 3 – 24 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 315 212 220 216 22 11 26 327 12 22 Total 112 Calculating the WD Score 26 16 13 318 15 212 110 18 11 22 26 19 12 33 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

25. 3 – 25 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. OM Explorer Analysis Figure 3.6 – Second Proposed Block Plan (Analyzed with Layout Solver)

26. 3 – 26 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 3.2 Matthews and Novak Design Company has been asked to design the layout for a newly constructed office building of one of its clients. The closeness matrix showing the daily trips between its six department offices is given below. DepartmentsTrips between Departments 123456 1  2590165 2  105 3  125 4  25 5  105 6 

27. 3 – 27 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Department Pair Closeness Factor DistanceScore 361 1, 61651 254 3, 5125 3, 6125 2, 51051 5, 61051 1, 390 1, 225375 4, 5251 Total1030 Application 3.2 Shown below on the right is a block plan that has been suggested for the building (original plan). Assume rectilinear distance. Students complete highlighted cells. Based on the above results, propose a better plan and evaluate it in terms of the load-distance score.

28. 3 – 28 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Department Pair Closeness Factor DistanceScore 361 1, 61651 254 3, 5125 3, 6125 2, 51051 5, 61051 1, 390 1, 225375 4, 5251 Total1030 2250 1125 2180 Application 3.2 Shown below on the right is a block plan that has been suggested for the building (original plan). Assume rectilinear distance. Students complete highlighted cells. Based on the above results, propose a better plan and evaluate it in terms of the load-distance score.

29. 3 – 29 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Department Pair Closeness FactorDistanceScore 461 1, 6165253 3, 5125 3, 6125 2, 5105 5, 6105 1, 390 1, 225 4, 525 Total Application 3.2

30. 3 – 30 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Department Pair Closeness FactorDistanceScore 461 1, 6165253 3, 5125 3, 6125 2, 5105 5, 6105 1, 390 1, 225 4, 525 Total 1165 1125 2250 1105 1 190 375 250 965 Application 3.2

31. 3 – 31 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

32. 3 – 32 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

33. 3 – 33 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

34. 3 – 34 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 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

35. 3 – 35 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

36. 3 – 36 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

37. 3 – 37 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

38. 3 – 38 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Capital Intensity Automation is one way to address the mix of capital and labor Automated manufacturing processes substitute capital equipment for labor Typically require high volumes and costs are high Automation might not align with a company’s competitive priorities

39. 3 – 39 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Capital Intensity Fixed automation produces one type of part or product in a fixed sequence Typically requires large investments and is relatively inflexible Flexible automation can be changed to handle various products Industrial robots are classic examples of flexible automation

40. 3 – 40 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Capital Intensity Capital equipment may be used to automate service processes Investment can be justified by cost reduction and increased task divergence through expanded customer choice May impact customer contact May be used in both front and back-office operations

41. 3 – 41 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Capital Intensity Economies of scope reflect the ability to produce multiple products more inexpensively in combination than separately Applies to manufacturing and services Requires sufficient collective volume

42. 3 – 42 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Strategic Fit The process chosen should reflect the desired competitive priorities The process structure has a major impact on customer involvement, resource flexibility, and capital intensity

43. 3 – 43 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

44. 3 – 44 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 or less linear Competitive priorities must be considered when choosing processes

45. 3 – 45 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

46. 3 – 46 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

47. 3 – 47 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Gaining Focus Operations can be focused by process segments when competitive priorities differ Plants within plants (PWPs) are different operations under the same roof Service can be focused in much the same way Focused factories can be created by splitting a large plant into several smaller plants dedicated to narrower product lines

48. 3 – 48 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

49. 3 – 49 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

50. 3 – 50 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

51. 3 – 51 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

52. 3 – 52 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, B821618 A, C31326 A, E91919 A, F53153 B, D32613 C, E821618 C, F921819 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.

53. 3 – 53 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.