1. Slide 1Process View & Strategy© Van Mieghem (8-Jan-16) Introduction & Strategy Module  Introduction & Administrative  Goals and Key Paradigms of Course  Strategic role of Ops  Process view of Ops  A Strategic Framework for Ops  Strategy: Product attributes and the Competitive Product Space  Ops: competencies and Processes  Wal-Mart  Aligning strategy and operations:  Focus  Relationship between process choice and strategy  Shouldice Hospital  Wriston Manufacturing

2. Slide 2Process View & Strategy© Van Mieghem (8-Jan-16) Goals 1. Operations as a managerial integration function 2. Evaluation and Improvement  We will adopt two paradigms

3. Slide 3Process View & Strategy© Van Mieghem (8-Jan-16) Key Paradigm of Course: 1. The Strategic Role of Ops: motivating quote “A company’s operations function is either a competitive weapon or a corporate millstone. It is seldom neutral.” [Skinner ‘69]

4. Slide 4Process View & Strategy© Van Mieghem (8-Jan-16) Key Principle of Course: 2. The Process View of Ops: motivating quote  Chicago Tribune reported: By rethinking the IBM Austin assembly plant and introducing cells, – distance traveled by a card was cut from 1.5 miles to 200 yards – floor space was reduced to half – production tripled with about the same number of workers.

5. Slide 5SOP: Strategy ■ Operations ■ Performance© Van Mieghem (8-Jan-16) What is a Process?

6. Slide 6Process View & Strategy© Van Mieghem (8-Jan-16) Information structure A process is a transformation of inputs into outputs through a network of activities and buffers, utilizing resources, IT and mgt Outputs Goods Services Inputs Flow units/Entities (customers, data, material, cash, etc.) Labor & Capital Resources Process Management Network of Activities and Buffers

7. Slide 7Process View & Strategy© Van Mieghem (8-Jan-16) Advantages of Adopting a Process View of Organizations – Applies to any organization – Applies at any level – Highlights externalities – Highlights integration and problems (cross-functional)  buffers as handoffs and risk points – Is always “customer aware” and focused on outcomes  Key Property: focus on flows rather than snapshots → the process view is a unified, customer-centric model of the organization that facilitates analysis and improvement in a systematic manner Hint for flow charting: Post-it Notes

8. Slide 8SOP: Strategy ■ Operations ■ Performance© Van Mieghem (8-Jan-16) What is a “good” Process?

9. Slide 9Process View & Strategy© Van Mieghem (8-Jan-16) What are “appropriate competencies”? There is no one best way The patient needs + your strategy determine criteria for appropriate process competencies. Patients Service Delivery System Service Outputs Emergency Care vs. Dialysis Treatment

10. Slide 10Process View & Strategy© Van Mieghem (8-Jan-16) What defines a “good process”? Performance: Financial Measures  Absolute measures: – revenues, costs, operating income, net income – Net Present Value  Relative measures: – Return on assets (ROA), ROI, ROE  Survival measure: – cash flow  Problems with financial measures: – Infrequent – Aggregate – Lagging Need operational or process measures

11. Slide 11Process View & Strategy© Van Mieghem (8-Jan-16) What defines a “good process”? Ultimately, all organizations compete on delivered value  Delivered value of process = the benefit to process customers – total process cost  Benefit is driven by customer value: – Price (Cost) P – Quality Q  Quality of product  Quality of service – Time T  Rapid, reliable product/service delivery – Variety V  Degree of customization of product/service  Example: patient value priorities for – Emergency care “order winners” To deliver we need “process competencies”

12. Slide 12Process View & Strategy© Van Mieghem (8-Jan-16) A Strategic Framework for Process Design and Improvement: Three questions 1. What is our strategic position: how do we compete & provide value in the market?  What is the value proposition to our customers?  Rank (p, T, Q, V) 2. Given our strategic position, what must operations do particularly well?  Which competencies must ops develop?  Rank (c, T, Q, Flex) 3. Given needed competencies, how should operations processes be structured to develop competencies that support strategy?  Process choice (structure) and management competitive strategy Process structure & mgt operations strategy

13. Slide 13Process View & Strategy© Van Mieghem (8-Jan-16) Shouldice Hospital

14. Slide 14Process View & Strategy© Van Mieghem (8-Jan-16) Wriston Manufacturing Handouts to be distributed in class

15. Slide 15Process View & Strategy© Van Mieghem (8-Jan-16) Total Burden Rates (total overhead cost / direct labor cost) 0 1 2 3 4 5 6 7 Free capacity and Throughput $0 $50 $100 $150 $200 Sandusky, OH Essex, Canada Detroit, MI Saginaw, MI Lima, OH Lebanon, PA Tiffin, OH Fremont, OH Maysville, KY Sandusky, OH Essex, Canada Detroit, MI Saginaw, MI Lima, OH Lebanon, PA Tiffin, OH Fremont, OH Maysville, KY Wriston’s HED Division Plant Network Exhibit 2A

16. Slide 16Process View & Strategy© Van Mieghem (8-Jan-16) Another example of strategic fit: Wal-Mart Corporate Strategy Enable every low prices and above average profitability by procuring, distributing, and selling products, when and where needed, at lower costs than any competitor. Operations Strategy –Short flow times –Low inventory levels Operations Structure –Cross docking –EDI –Fast transportation system –Focused locations –Communication between retail stores

17. Slide 17Process View & Strategy© Van Mieghem (8-Jan-16) Classification of Processes: by “Process Types”  Project – One-of-a-kind products – Examples:  Job Shop – Small volume of highly customized products – Examples:  Batch – Groups of items (“lots or batches”) that are essentially identical – Examples:  Line Flow – Repetitive, discrete process – Examples:  Continuous Flow – Repetitive, continuous process – Examples: Job Shop Flow Shop

18. Slide 18Process View & Strategy© Van Mieghem (8-Jan-16) Characteristics of Processes: Comparison of Process Types  Q: what are the typical managerial challenges in JS vs FS?

19. Slide 19Process View & Strategy© Van Mieghem (8-Jan-16) Process Flexibility Jumbled Flow. Process segments loosely linked. Disconnected Line Flow/Jumbled Flow but a dominant flow exists. JOB SHOP (Commercial Printer, Architecture firm) BATCH (Heavy Equipment, Auto Repari) LINE FLOWS (Auto Assembly, Car lubrication shop) CONTINUOUS FLOW (Oil Refinery) Product Variety Low Low Standardization One of a kind Low Volume Many Products Few Major Products High volume High Standardization Commodity Products Connected Line Flow (assembly line) Continuous, automated, rigid line flow. Process segments tightly linked. Opportunity Costs Out-of-pocket Costs High Low High Matching Process Choice with Strategy: Product-Process Matrix

20. Slide 20Process View & Strategy© Van Mieghem (8-Jan-16) Wriston Manufacturing Corp.: using the Product-Process Matrix Product Volume Process Flexibility Job Shop Batch Shop Low volume Many Products Medium volume Few Major Products High volume High Standardization Commodity Products Flow Shop 1 $M/yr (Designed Dollar) Volume per family # routes (product families) 1 10 100 Detroit SaginawFremont EssexLima Sandusky Tiffin Lebanon Maysville 10 $M/yr100 $M/yr

21. Slide 21Process View & Strategy© Van Mieghem (8-Jan-16) Classification of Processes: by “layout”  Functional (a.k.a. process- oriented) Layout:  Product-oriented Layout: ? Relationship of layout to process type? AB CD Product 1 Product 2 ADB CBA Product 1 Product 2 = resource pool (e.g., X-ray dept, billing)

22. Slide 22Process View & Strategy© Van Mieghem (8-Jan-16) Classification of Processes: by Customer Interface  Make to Stock =  Make to Order =

23. Slide 23Process View & Strategy© Van Mieghem (8-Jan-16) 19902000 7.5 days 4.5 days Average length of inpatient stay has declined by 40% … Changes in the economic structure of US hospitals (1995-2000) lead to more & shorter “operations” $ Volume Fixed costs Revenue Total costs Declines in reimbursements have caused slope of revenue line to decline 10-15% … … thus driving higher, by 25-35%, the volume required to break even. 0% 27% 42% … while outpatient gross revenue as share of total gross revenue has increased. (Ratio of outpatient to inpatient visits = 15:1 in 2000.) Source: “Hospitals get serious about operations,” McKinsey Quarterly, March 2001.

24. Slide 24Process View & Strategy© Van Mieghem (8-Jan-16) 1. What is Process Management? Summary  A process is a transformation of inputs into outputs through a network of activities and buffers, utilizing resources, IT and mgt  A process view of organizations – Brings all parties together and focuses on systems versus pointing to people  Focus on outcomes, externalities, and integration (risk) points  Service operations can learn from established knowledge in manufacturing operations – Looks at actual execution in a cross-functional view  Process management = How to –design/structure the processes and –manage resources –to develop the appropriate competencies to convert inputs to outputs.  What is appropriate?

25. Slide 25Process View & Strategy© Van Mieghem (8-Jan-16) 2. What is a “good” process? Summary  A “good” process maximizes delivered value, which is the difference between the benefit delivered to the customer minus total process cost  Value improves when process competencies are aligned with targeted customer value proposition. A simple framework asks three questions: 1. What is the value proposition to our patients? → Rank (p, T, Q, V) 2. Given this proposition, which competencies must the process have? →Rank (c, T, Q, Flex) 3. Given needed competencies, which process design is best? → design process  How to design the process? – Focused processes are easiest to get to the “frontier”; one integrated may be needed because of financial investments  It’s all about tradeoff’s! – Pick the right process type (job shop vs. flow shop) using service-process matrix