1. Process and Product Strategies
MBA 570 Summer 2011

2. McDonald’s over 95 billion served
Thinking Challenge
Consider McDonald’s restaurants. Fact #1: Franchisees of McDonald’s have to go to ‘Hamburger U.’ They protest, ‘But, I’ve been in the restaurant business 20 years – I know the restaurant business!’ ‘Yes, but you don’t know OUR business.’
McDonald’s over 95 billion served
© T/Maker Co.

3. McDonald’s over 95 billion served
Thinking Challenge
Fact #2: A typical McDonald’s restaurant is run by unskilled teenagers, whose mothers can’t even get them to make their beds in the morning.
What do these facts & your own experiences suggest about McDonald’s operations?
McDonald’s over 95 billion served
© T/Maker Co.

4. Solution*
McDonald’s is not in the business of selling haute cuisine, but ‘fuel’ – a standardized product.
The new franchisee has to learn the McDonald’s production system – a typical assembly line.
An assembly line requires low labor skills, but high mechanization. Hence, unskilled teenagers are used.

5. Product and Service Design
Major factors in design strategy
Cost
Quality
Time-to-market
Customer satisfaction
Competitive advantage
Product and service design – or redesign – should be
closely tied to an organization’s strategy

6. Product or Service Design Activities
Translate customer wants and needs into product and service requirements
Refine existing products and services
Develop new products and services
Formulate quality goals
Formulate cost targets
Construct and test prototypes
Document specifications

7. Reasons for Product or Service Design
Economic
Social and demographic
Political, liability, or legal
Competitive
Technological

8. Objectives of Product and Service Design
Main focus
Customer satisfaction
Secondary focus
Function of product/service
Cost/profit
Quality
Appearance
Ease of production/assembly
Ease of maintenance/service

9. Designing For Operations
Taking into account the capabilities of the organization in designing goods and services

10. Legal, Ethical, and Environmental Issues
FDA, OSHA, IRS
Product liability
Uniform commercial code
Ethical
Releasing products with defects
Environmental
EPA

11. Regulations & Legal Considerations
Product Liability - A manufacturer is liable for any injuries or damages caused by a faulty product.
Uniform Commercial Code - Products carry an implication of merchantability and fitness.

12. Order Losers, Qualifiers, and Winners
Order Loser: a product or service characteristic that repels customers.
Order Qualifier: a product or service characteristic that is necessary, but not sufficient to win the order.
Order Winner: a product or service characteristic most important to a particular customer.
Beware Order Winners Becoming Order Qualifiers!!

13. Other Issues in Product and Service Design
Product/service life cycles
How much standardization
Product/service reliability
Range of operating conditions

14. Standardization Standardization
Extent to which there is an absence of variety in a product, service or process
Standardized products are immediately available to customers

15. Advantages of Standardization
Fewer parts to deal with in inventory & manufacturing
Design costs are generally lower
Reduced training costs and time
More routine purchasing, handling, and inspection procedures

16. Advantages of Standardization (Cont’d)
Orders fillable from inventory
Opportunities for long production runs and automation
Need for fewer parts justifies increased expenditures on perfecting designs and improving quality control procedures.

17. Delayed Differentiation
Delayed differentiation is a postponement tactic
Producing but not quite completing a product or service until customer preferences or specifications are known

18. Reverse Engineering Reverse engineering is the
dismantling and inspecting of a competitor’s product to discover product improvements.

19. Introduction to Process Strategies

20. The Product/Process Matrix
Process Choice:
The Product/Process Matrix
Process Types
Project – Unique, one-of-a-kind, products or customers. Generally large in size (building a bridge, installing a software system, implementing a major improvement effort)
Job Shop –Manufacturing and Service high customization and flexibility, but higher volume than project.
Batch Production – Groups of identical products or customers processed together through one step and then moved together to the next step. More limited product variety, higher production volume.

21. The Product/Process Matrix
Process Choice:
The Product/Process Matrix
Process Types
Assembly Line – Narrowly defined processes, made up of equipment with limited flexibility. Much higher volume. Still the possibility of some flexibility.
Continuous (Repetitive) Processing – Equipment and workstations dedicated to a single thing. Very high volume. Very low flexibility. Best chance for automation.

22. Process Decisions
Involve determining how to produce a product or provide a service
Objective
Meet or exceed customer requirements
Meet cost & managerial goals
Has long-run effects
Product & volume flexibility
Costs & quality

23. Types of Process Strategies
Process strategies follow a continuum
Within a given facility, several strategies may be used
Continuum

24. Types of Process Strategies
The strategies are often classified as:
Process-Focused
Product-Focused
Continuum

25. Process-Focused Strategy

26. Process-Focused Strategy
Facilities are organized by process
Similar processes are together
Example: All drill presses are together
Low volume, high variety products
‘Jumbled’ flow
Other names
Intermittent process
Job shop
Product A
Oper. 1 2 3
Product B

27. Process-Focused Strategy Examples
Bank
© 1995 Corel Corp.
Hospital
Machine Shop
© 1995 Corel Corp.
© 1995 Corel Corp.

28. Process-Focused Strategy Pros & Cons
Advantages
Greater product flexibility
More general purpose equipment
Lower initial capital investment
Disadvantages
More highly trained personnel
More difficult production planning & control
Low equipment utilization (5% to 25%)

29. Process Oriented Layout
Process-oriented (“functional”) Layout
Organized by function
Steps completed in any sequence
Advantages
Flexibility and customization Disadvantages
Higher cost per unit
Higher skilled, high cost employees
Transport/wait time between departments
Less consistency across products or services

30. Product-Focused Strategy

31. Product-Focused Strategy
Facilities are organized by product
High volume, low variety products
Other names
Line flow production
Continuous production
Where found
Discrete unit manufacturing
Continuous process manufacturing
Products A & B
Oper. 1 2 3

32. Product-Focused Strategy Examples
Soft Drinks (Continuous, then Discrete)
Light Bulbs (Discrete)
© 1995 Corel Corp.
© 1995 Corel Corp.
Fast Food
© T/Maker Co.
Paper (Continuous)
(Discrete)
McDonald’s over 95 billion served

33. Product Oriented Layout
Advantages
Efficient production of standardized goods and services
High processing speed
Low cost per unit
Disadvantages
Lack of flexibility or customization
Employee boredom/ dissatisfaction
Quality problems

34. Product-Focused Strategy Pros & Cons
Advantages
Lower variable cost per unit
Lower but more specialized labor skills
Easier production planning & control
Higher equipment utilization (70% to 90%)
Disadvantages
Lower product flexibility
More specialized equipment
Usually higher capital investment

35. Product vs. Process Layouts
Transition from Process to Product Layout may be triggered by age of the product
Early in life-cycle
Not much information on what customers want
Adopt process-orientation to remain flexible and produce many varieties
Late in life-cycle
Much better understanding of what customers want
Shift to product-orientation with fewer options

36. Process Continuum Product Focused (continuous process) Process Focused
(intermittent process)
Repetitive Focus
(assembly line)
Product Focused (continuous process)
Continuum
High variety, low volume
Low utilization (5% - 25%)
General-purpose equipment
Low variety, high volume
High utilization (70% - 90%)
Specialized equipment
Modular
Flexible equipment

37. Factors Affecting Process Alternatives
Production flexibility
Product volume
Product variety
Technology
Cost
Human resources
Quality
Reliability
These factors reduce the number of alternatives!
© T/Maker Co.

38. Process Investment Evaluation
Long-term factors
Fit with company strategic plan
Competitive advantage
Product life cycle
Operating factors (e.g., scrap, training)
Financial return
Break-even analysis
Cash flow analysis (IRR, NPV)

39. Questions for Process Analysis and Design
Is the process designed to achieve competitive advantage in terms of differentiation, response, or low cost?
Does the process eliminate steps that do not add value?
Does the process maximize customer value as perceived by the customer?
Will the process win orders?

40. Volume and Variety of Products
Low Volume High
Repetitive
High Volume
Variety of
Variety Process
Process
Low Variety
Products
(Intermittent)
(Modular)
Process
(Continuous)
One or very few
Projects
Mass Customization
units per lot
Very small runs, high
Job Shops
variety
Modest runs, modest
Disconnected
variety
Repetitive
Long runs, modest
Poor Strategy
(High variable costs)
Connected
variations
Repetitive
Very long runs,
Continuous
changes in
attributes
Equipment utilization
5%-25%
20%-75%
70%-80%

41. Mass Customization Mass customization:
A strategy of producing standardized goods or services, but incorporating some degree degree of customization
Delayed differentiation
Modular design

42. Mass Customization
Using technology and imagination to rapidly mass-produce products that cater to sundry unique customer desires.
Under mass customization the three process models become so flexible that distinctions between them blur, making variety and volume issues less significant.

43. Service-System Design Matrix
Degree of customer/server contact
Buffered
Permeable
Reactive
High
core (none)
system (some)
system (much)
Low
Face-to-face
total
customization
Face-to-face
loose specs
Sales
Opportunity
Production
Efficiency
Face-to-face
tight specs
Phone
Contact
Internet &
on-site
technology
Mail contact
Low
High

44. Phases in Service Design
Conceptualize
Identify service package components
Determine performance specifications
Translate performance specifications into design specifications
Translate design specifications into delivery specifications

45. Service Blueprinting Process Mapping
A method used in service design to describe and analyze a proposed/existing service
A useful tool for conceptualizing a service delivery system
Excellent tool for continuous improvement

46. Process mapping provides a graphical representation of a process, using arrows, boxes and other tools to indicate the ‘flow’ of the process, what steps are taken, what decisions are made and what records are created. It is a methodology used in systems design.

47. Using a process map may assist in graphically documenting your analysis of the work flow produced by different activities. The value of a process map is in building a picture of activities with which you are less familiar, helping you to identify the different steps in the process and what records should result.

48. Creating a Process Map
To create a process map, it is important to determine the start and stop points because you will create the process map between those points. The Once you have determined the beginning and ending activity steps, start mapping what is done between the two. Make sure to:
Keep it simple.
Start at a high level first.
Involve the people closest to the process.
Walk through the process yourself.
Think end to end.
Work with a small group of 3-7 people. A larger group can make the activity unwieldy.

49. Major Steps in Service Blueprinting/Mapping
Choose a process. You have to first decide what you want to improve. Some examples are the process of making reservations at a corporate travel center, handling a customer's repair order at a car dealership, or registering students at a college. The best bet is a process which is time-consuming, error-prone, or critical to success; starting where there is a strong potential for improvement will build morale and help launch later mapping projects.
Assemble a team. Preferably, the team will include people from the lowest and highest levels directly involved in the operation, such as customer service agents, their supervisors and managers, and the head of operations. The team must be empowered (given the responsibility and sufficient authority or leeway) to make significant changes in the work flow.
Map out the way work is currently done. Diagram each step, showing decision branches, time spent, any distances traveled or people contacted, and other important aspects of the work. It is often be easier to sketch out the individual tasks first, then go back and fill in the details.

50. Identify problem areas
Identify problem areas. These are areas where people feel there are currently major issues to be resolved, such as poor customer satisfaction, "dropping the ball," large expenses, or significant delays. Where there are many areas to choose from, try to follow the 80/20 rule: work on the 20% of the areas that cause 80% of the problems.
Brainstorm solutions. Identify all possible action steps for each problem area, without evaluating them.
Evaluate action steps. Set up a set of "final" action steps by group consensus.
Assign responsibilities. Ask people to volunteer to take responsibility for each action step judged to be worthwhile by the group, and to set deadlines.
Create a master plan. Summarize who has responsibility for what actions and the deadlines. Distribute the plan and make sure everyone agrees with it and that it accurately reflects the decisions made during the sessions.
Follow through. The meetings are useless without appropriate follow-through. Try meeting again every two weeks to see what went well and what did not. When the time is right, try having another brainstorming session. This is where having a detailed, clear, and well communicated master plan is invaluable.

51. Characteristics of Well Designed Service Systems
Consistent with the organization mission
User friendly
Robust
Easy to sustain
Cost effective
Value to customers
Effective linkages between back operations
Single unifying theme
Ensure reliability and high quality

52. Challenges of Service Design
Variable requirements
Difficult to describe
High customer contact
Service – customer encounter

53. Mapping Tools

54. Tools Continued

55. Example of Service Blueprinting

56. Process Map of Training Authorization

57. Service Blueprint of Luxury Hotel

58. Service Blueprinting (Bank Lending Operation Example)
Loan application Branch Officer Pay book
30min--1hr.
Line of visibility
Deny
1 day days days
Fail point Customer wait Employee decision
===
====
=====
$ 0 $
====
===== w w
Receive
Payment
Final
payment
Decline
Notify
customer
Issue
check
Confirm F F
Verify
income
data
Print
payment
book
Credit
check
Accept
Delinquent
Close
account
Initial
screening F
Verify
payer
Confirm
Employer
Credit
bureau F
Branch
records F
Bank
accounts F
Accounting
Data base
records F W

59. Process Mapping Mistakes
Map all the details, losing track of the big picture.
Focus on the seller, instead of the customer.
Map the process without showing how the results will be measured.
Buy somebody else's "ideal" process.

60. Strategic Positioning Through Process Structure
Degree of Complexity: Measured by the number of steps in the service blueprint. For example a clinic is less complex than a general hospital.
Degree of Divergence: Amount of discretion permitted the server to customize the service. For example the activities of an attorney contrasted with those of a paralegal.

61. Customer Contact View of Services
Degree of Customer Contact Influences Potential Efficiency of Service
Separate High- and Low-Contact Operations
Consider Sales Opportunity and Production Efficiency Tradeoff