© 2006 Prentice Hall, Inc.7 – 1 Process Strategy Chapter7.

© 2006 Prentice Hall, Inc. 7 – 1

Process Strategy

Chapter7

2© 2006 Prentice Hall, Inc. 7 – 2

What is a process strategy? A process strategy is an organization’s

approach to transforms resources into goods and services.

The objective of a process strategy is to find a way to produce goods and services that meet customers requirements and product specifications within cost and other managerial constraints.


Process Strategies

How to produce a product or provide How to produce a product or provide a service thata service that Meets or exceeds customer Meets or exceeds customer

requirementsrequirements

Meets cost and managerial goalsMeets cost and managerial goals

Has long term effects onHas long term effects on Efficiency and production flexibilityEfficiency and production flexibility

Costs and qualityCosts and quality


Dell Computer Company““How can we make the process of How can we make the process of

buying a computer better?”buying a computer better?”

Sell custom-built PCs directly to consumerSell custom-built PCs directly to consumer

Build computers rapidly, at low cost, and Build computers rapidly, at low cost, and only when ordered only when ordered

Integrate the Web into every aspect of its Integrate the Web into every aspect of its businessbusiness

Focus research on software designed to Focus research on software designed to make installation and configuration of its make installation and configuration of its PCs fast and simplePCs fast and simple


Process Strategies

Virtually every good or service is made by using some variation of one of four process strategies:

1. process focus2. repetitive focus3. product focus4. mass customization

Within these basic strategies there are many Within these basic strategies there are many ways they may be implementedways they may be implemented


Process, Volume, and Variety

Process Focusprojects, job shops

(machine, print, carpentry)

Standard Register

Repetitive(autos, motorcycles)

Harley Davidson

Product Focus(commercial

baked goods, steel, glass)Nucor Steel

High VarietyHigh Varietyone or few one or few units per run, units per run, high varietyhigh variety(allows (allows customization)customization)

Changes in Changes in ModulesModulesmodest runs, modest runs, standardized standardized modulesmodules

Changes in Changes in AttributesAttributes (such as grade, (such as grade, quality, size, quality, size, thickness, etc.) thickness, etc.) long runs onlylong runs only

Mass Customization(difficult to achieve, but huge rewards)Dell Computer Co.

Poor Strategy Poor Strategy (Both fixed and (Both fixed and variable costs variable costs

are high)are high)

Low Low VolumeVolume

Repetitive Repetitive ProcessProcess

High High VolumeVolume

VolumeVolumeFigure 7.1Figure 7.1


Process Focus

Facilities are organized around specific Facilities are organized around specific activities or processesactivities or processes

General purpose equipment and skilled General purpose equipment and skilled personnelpersonnel

High degree of product flexibilityHigh degree of product flexibility

Typically high costs and low equipment Typically high costs and low equipment utilizationutilization

Product flows may vary considerably Product flows may vary considerably making planning and scheduling a making planning and scheduling a challengechallenge


Accounting

PRINTING DEPT

COLLATING DEPT

GLUING, BINDING, STAPLING, LABELING

POLYWRAP DEPT

SHIPPING

Vendors

Receiving

Warehouse

Purchasing

PREPRESS DEPT

Process Flow DiagramCustomer

Customer sales representative

Information flowInformation flowMaterial flowMaterial flow

Figure 7.2Figure 7.2


Process Focus

Many Many inputsinputs

High High variety variety

of of outputsoutputs

Print ShopPrint Shop





Standard Register


Harley Davidson








are high)are high)






Repetitive Focus

Facilities often organized as Facilities often organized as assembly linesassembly lines

Characterized by modules with parts Characterized by modules with parts and assemblies made previouslyand assemblies made previously

Modules may be combined for Modules may be combined for manymany output optionsoutput options

Less flexibilityLess flexibility than process- than process-focused facilities but more focused facilities but more efficientefficient


Repetitive Focus

Raw Raw materials materials

and and module module inputsinputs

Modules Modules combined combined for many for many

output output optionsoptions

Few Few modulesmodules

Automobile Assembly LineAutomobile Assembly Line


Process Flow Diagram

THE ASSEMBLY LINETHE ASSEMBLY LINETESTING28 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 From Milwaukee on a JIT arrival on a JIT arrival scheduleschedule

Engines and transmissions

Frame tube bending

Frame-building work cells

Frame machining

Hot-paint frame painting

Crating






Standard Register


Harley Davidson








are high)are high)






Product Focus

Facilities are organized by productFacilities are organized by product

High volume but low variety of High volume but low variety of productsproducts

Long, Long, continuous productioncontinuous production runs runs enable efficient processesenable efficient processes

Typically Typically high fixed costhigh fixed cost but but low low variable costvariable cost

Generally less skilled laborGenerally less skilled labor


Product Focus

Many Many inputsinputs

Output Output variation variation in size, in size, shape, shape,

and and packagingpackaging

Bottling PlantBottling Plant


Product FocusNucor Steel PlantNucor Steel Plant

Co

nti

nu

ou

s ca

ster

Co

nti

nu

ou

s ca

ster

Continuous cast steel Continuous cast steel sheared into 24-ton slabssheared into 24-ton slabs

Hot tunnel furnace - 300 ftHot tunnel furnace - 300 ft

Hot mill for finishing, cooling, and coilingHot mill for finishing, cooling, and coiling

DD

EE FF

GGHHII

Scrap Scrap steelsteel

Ladle of molten steelLadle of molten steelElectric Electric furnacefurnace

AA

BBCC





Standard Register


Harley Davidson








are high)are high)






Mass Customization

The rapid, low-cost production of The rapid, low-cost production of goods and service to satisfy goods and service to satisfy increasingly unique customer increasingly unique customer desiresdesires

Combines the flexibility of a Combines the flexibility of a process focus with the efficiency process focus with the efficiency of a product focusof a product focus


Mass Customization

Vehicle modelsVehicle models 140140 260260Vehicle typesVehicle types 1818 1,2121,212Bicycle typesBicycle types 88 1919Software titlesSoftware titles 00 300,000300,000Web sitesWeb sites 00 46,412,16546,412,165Movie releasesMovie releases 267267 458458New book titlesNew book titles 40,53040,530 77,44677,446Houston TV channelsHouston TV channels 55 185185Breakfast cerealsBreakfast cereals 160160 340340Items (SKUs) in Items (SKUs) in 14,00014,000 150,000150,000 supermarketssupermarkets

Number of ChoicesNumber of ChoicesEarly 21stEarly 21st

ItemItem Early 1970sEarly 1970s Century Century

Table 7.1Table 7.1


Mass Customization

Modular techniquesModular techniques

Mass Customization

Effective Effective scheduling scheduling techniquestechniques

Rapid Rapid throughput throughput techniquestechniques

Repetitive FocusRepetitive FocusModular designModular design

Flexible equipmentFlexible equipment

Process-FocusedProcess-FocusedHigh variety, low volumeHigh variety, low volume

Low utilization Low utilization (5% to 25%)(5% to 25%)General-purpose equipmentGeneral-purpose equipment

Product-FocusedProduct-FocusedLow variety, high volumeLow variety, high volume

High utilization High utilization (70% to 90%)(70% to 90%)Specialized equipmentSpecialized equipment



Comparison of Processes

Process Focus

(Job shop)

(Low volume, high variety)

Repetitive Focus(Harley-

Davidson

(Modular)

Product Focus

(Paper-beer)

(High-volume, low-variety)

Mass Customization

(Dell Computer)

(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

Table 7.2Table 7.2



Process Focus

(Job shop)


Repetitive Focus(Harley-Davidson

(Modular)

Product Focus

(Paper-beer)


Mass Customization

(Dell Computer)


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

Table 7.2Table 7.2



Process Focus

(Job shop)


Repetitive Focus (Harley-Davidson

(Modular)

Product Focus

(Paper-beer)


Mass Customization

(Dell Computer)


Raw material inventories high

JIT procurement techniques used

Raw material inventories are low

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

Table 7.2Table 7.2



Process Focus

(Job shop)


Repetitive Focus (Harley-Davidson

(Modular)

Product Focus

(Paper-beer)


Mass Customization

(Dell Computer)


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

Table 7.2Table 7.2



Process Focus

(Job shop)


Repetitive Focus(Harley-

Davidson

(Modular)

Product Focus

(Paper-beer)


Mass Customization

(Dell Computer)


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

Table 7.2Table 7.2



Process Focus

(Job shop)


Repetitive Focus(Harley-Davidson

(Modular)

Product Focus

(Paper-beer)


Mass Customization

(Dell Computer)


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

Table 7.2Table 7.2


Crossover Charts

Fixed costs

Variable Variable costscosts

$$

High volume, low varietyHigh volume, low varietyProcess CProcess C

Fixed costs

Variable Variable costscosts$$

RepetitiveRepetitiveProcess BProcess B

Fixed costs

Variable Variable costscosts$$

Low volume, high varietyLow volume, high varietyProcess AProcess A

Fixed cost Process A Fixed cost Fixed cost

Process BProcess BFixed cost Process C

Tota

l cos

t

Tota

l cos

t

Total cost

Total cost

Total costTotal cost

VV11(2,857)(2,857) VV22(6,666)(6,666)

400,000 400,000

300,000 300,000

200,000 200,000

VolumeVolume

$$



Changing Processes

Difficult and expensiveDifficult and expensive

May mean starting overMay mean starting over

Process strategy determines Process strategy determines transformation strategy for an transformation strategy for an extended periodextended period

Important to get it rightImportant to get it right


Process Analysis and Design

Flow Diagrams - Shows the movement Flow Diagrams - Shows the movement of materialsof materials

Time-Function Mapping - Shows flows Time-Function Mapping - Shows flows and time frameand time frame

Value Stream Mapping - Shows flows Value Stream Mapping - Shows flows and time and value added beyond the and time and value added beyond the immediate organizationimmediate organization

Process Charts - Uses symbols to show Process Charts - Uses symbols to show key activitieskey activities

Service Blueprinting - focuses on Service Blueprinting - focuses on customer/provider interactioncustomer/provider interaction


Time-Function Mapping (Before process improvement at American National Can Company)

CustomerCustomer

SalesSales

Production Production controlcontrol

Plant APlant A

WarehouseWarehouse

Plant BPlant B

TransportTransport Move

Receive product

Extrude

Wait

Move

Wait

Print

Wait

Order product

Process order

Wait

12 days12 days 13 days13 days 1 day1 day 4 days4 days 1 day1 day 10 days10 days 1 day1 day 0 day0 day 1 day1 day

52 days52 daysFigure 7.7Figure 7.7


Time-Function Mapping (After process improvement at American National Can Company)

CustomerCustomer

SalesSales

Production Production controlcontrol

PlantPlant

WarehouseWarehouse

TransportTransport Move

Receive product

Extrude

Wait

Print

Order product

Process order

Wait

1 day1 day 2 days2 days 1 day1 day 1 day1 day 1 day1 day

6 days6 days



Process Chart



Service Blueprint

Focuses on the Focuses on the customercustomer and and provider provider interactioninteraction

Defines three levels of interactionDefines three levels of interaction

Each level has different Each level has different management issuesmanagement issues

Identifies potential failure pointsIdentifies potential failure points


Service BlueprintPersonal Greeting Service Diagnosis Perform Service Friendly 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 invoice

YesYesYesYes

LevelLevel#3#3

LevelLevel#1#1

LevelLevel#2#2

Potential failure pointPotential failure point


NoNo

Notifycustomer

and recommendan alternative

providerStandard request

Determine specifics

NoNo

Canservice be

done and does customer approve?


Service FactoryService Factory Service ShopService Shop

Degree of CustomizationDegree of Customization

LowLow HighHigh

Deg

ree

of

Lab

or

Deg

ree

of

Lab

or

LowLow

HighHigh

Mass ServiceMass Service Professional ServiceProfessional Service

Service Process Matrix

Commercial banking

Private banking

General-purpose law firms

Law clinicsSpecialized hospitals

Hospitals

Full-service stockbroker

Limited-service stockbroker

Retailing

Boutiques

Warehouse and catalog stores

Fast food restaurants

Fine-dining restaurants

Airlines

No frills airlinesFigure 7.10Figure 7.10


Improving Service Productivity

Strategy Technique Example

Separation Structure service so customers must go where service is offered

Bank customers go to a manager to open a new account, to loan officers for loans, and to tellers for deposits

Self-service Self-service so customers examine, compare, and evaluate at their own pace

Supermarkets and department stores, internet ordering

Table 7.3Table 7.3



Postponement Customizing at delivery Customizing vans at delivery rather than at production

Focus Restricting the offerings Limited-menu restaurant

Modules Modular selection of service, modular production

Investment and insurance selection, prepackaged food modules in restaurants


Table 7.3Table 7.3



Automation Precise personnel scheduling

Automatic teller machines

Scheduling Precise personnel scheduling

Scheduling ticket counter personnel at 15-minute intervals at airlines

Training Clarifying the service options, explaining how to avoid problems

Investment counselor, funeral directors, after-sale maintenance personnel


Table 7.3Table 7.3


Equipment and Technology

Often complex decisionsOften complex decisions

Possible competitive advantagePossible competitive advantage FlexibilityFlexibility

Stable processesStable processes

May allow enlarging the scope of the May allow enlarging the scope of the processesprocesses


Improving Service Processes

LayoutLayout Product exposure, customer Product exposure, customer

education, product enhancementeducation, product enhancement

Human ResourcesHuman Resources Recruiting and trainingRecruiting and training

Impact of flexibilityImpact of flexibility


Production Technology

Machine technologyMachine technology Automatic identification systems (AIS)Automatic identification systems (AIS) Process controlProcess control Vision systemVision system RobotRobot Automated storage and retrieval systems Automated storage and retrieval systems

(ASRS)(ASRS) Flexible manufacturing systems (FMS)Flexible manufacturing systems (FMS) Computer-integrated manufacturing (CIM)Computer-integrated manufacturing (CIM)


Machine Technology

Increased precisionIncreased precision

Increased productivityIncreased productivity

Increased flexibilityIncreased flexibility

Improved environmental impact Improved environmental impact

Reduced changeover timeReduced changeover time

Decreased sizeDecreased size

Reduced power requirementsReduced power requirements


Automatic Identification Systems (AIS): These systems help us move

data into electronic form, whereby it is easily manipulated.

Improved data acquisitionImproved data acquisition

Reduced data entry errorsReduced data entry errors

Increased speedIncreased speed

Increased scope of process Increased scope of process automationautomation

Example: Radio frequency Example: Radio frequency identification for tracking identification for tracking everything!everything!


Process Control: Use of Information Technology to

monitor and control a physical process.

Increased process stabilityIncreased process stability

Increased process precisionIncreased process precision

Real-time provision of information Real-time provision of information for process evaluationfor process evaluation

Data available in many formsData available in many forms

Example: Sensors, Computer Example: Sensors, Computer Programs read file and analyze the Programs read file and analyze the data.data.


Process Control Software: controls the flow of sugars and fruits into a juice mixer.


Vision Systems: Combine video cameras and computer technology and are often used in inspection roles.

Particular aid to inspectionParticular aid to inspection

Consistently accurateConsistently accurate

Never boredNever bored

Modest costModest cost

Superior to individuals performing Superior to individuals performing the same tasksthe same tasks

Example: Example: inspecting French fries so that inspecting French fries so that imperfections can be identified by the end of the imperfections can be identified by the end of the line.line.


Robots

Perform monotonous or dangerous Perform monotonous or dangerous taskstasks

Perform tasks requiring significant Perform tasks requiring significant strength or endurancestrength or endurance

Generally enhanced consistency Generally enhanced consistency and accuracyand accuracy


Robotic Surgery


Automated Storage and Retrieval Systems (ASRS)

Provide for the automated placement and Provide for the automated placement and withdrawal of parts and productswithdrawal of parts and products

Reduced errors and laborReduced errors and labor

Particularly useful in inventory and test Particularly useful in inventory and test areas of manufacturing firmsareas of manufacturing firms

Such systems are commonly used in Such systems are commonly used in distribution facilities of retailers such as distribution facilities of retailers such as Wal-Mart.Wal-Mart.


Automated Guided Vehicle (AGV)

Electronically guided and controlled Electronically guided and controlled cartscarts

Used for movement of products Used for movement of products and/or individualsand/or individuals


Flexible Manufacturing Systems (FMS)

Computer controls both the workstation Computer controls both the workstation and the material handling equipmentand the material handling equipment

Enhance flexibility and reduced wasteEnhance flexibility and reduced waste Can economically produce low volume at Can economically produce low volume at

high qualityhigh quality Reduced changeover time and increased Reduced changeover time and increased

utilizationutilization Stringent communication requirement Stringent communication requirement

between componentsbetween components


Computer Integrated Manufacturing (CIM)

Extension of flexible manufacturing Extension of flexible manufacturing systemssystems Backwards to engineering and inventory Backwards to engineering and inventory

controlcontrol Forward into warehousing and shippingForward into warehousing and shipping Can also include financial and customer Can also include financial and customer

service areasservice areas

Reducing the distinction between low-Reducing the distinction between low-volume/high-variety, and volume/high-variety, and high-volume/low-variety productionhigh-volume/low-variety production


Computer Integrated Manufacturing (CIM)

Top management decides to make a product

OM runs the production process

Computer-aided design (CAD) designs the product

Computer-aided manufacturing (CAM)

Robots put the product together

Automated storage and retrieval system (ASRS) and automated guided vehicles (AGVs)

Management Information

System

FM

SF

MS

CIM

CIM



Technology in Services

Service Industry Example

Financial Services Debit cards, electronic funds transfer, ATMs, Internet stock trading

Education Electronic bulletin boards, on-line journals

Utilities and government

Automated one-man garbage trucks, optical mail and bomb scanners, flood warning systems

Restaurants and foods

Wireless orders from waiters to kitchen, robot butchering, transponders on cars that track sales at drive-throughs

Communications Electronic publishing, interactive TV

Table 7.4Table 7.4


Technology in Services

Service Industry Example

Hotels Electronic check-in/check-out, electronic key/lock system

Wholesale/retail trade

Point-of-sale terminals, e-commerce, electronic communication between store and supplier, bar coded data

Transportation Automatic toll booths, satellite-directed navigation systems

Health care Online patient-monitoring, online medical information systems, robotic surgery

Airlines Ticketless travel, scheduling, Internet purchases

Table 7.4Table 7.4

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