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7C H A P T E R

Process Strategy and Sustainability

88 Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.

1DISCUSSION QUESTIONS 1. Process strategy is the organization’s approach to transforming resources into goods and services. 2.

Product Likely Process(a) Beer Product Focused/Continuous(b) Wedding invitations Process Focused/Job Shop(c) Automobiles Modular/Repetitive(d) Paper Product Focused/Continuous(e) “Big Mac” Modular/Repetitive(f) Custom Homes Job Shop with components made

in Product Focused and Modularfacilities

(g) Motorcycles Modular/Repetitive 3. Service blueprinting is a process analysis technique that focuses on the provider’s interaction with the customer. 4. Process redesign reengineering is the rethinking and radical design of business processes to bring about dramatic improvements in performance. 5. Techniques for improving service productivity include separation, self-service, postponement, focus, modules, automation, scheduling, and training. 6. The four quadrants are:

(1) Mass service (low interaction/customization; high labor intensity)

(2) Professional service (high interaction/customization; high labor intensity)

(3) Service factory (low interaction/customization; low labor intensity)

(4) Service shop (high interaction/customization; low labor intensity)

7. CIM (computer-integrated manufacturing) in its ideal but seldom realized form, ties together computer-aided design (CAD), computer-aided manufacturing, flexible manufacturing systems (FMS), the necessary automated storage and retrieval systems (ASRS) and movement of materials (automated transfer machines or automated guided vehicles [AGVs]) to make it all work. 8. In process-control systems sensors collect data; analog devices read data on a periodic basis; measurements are digitized and transmitted to a computer; data are analyzed; and output is presented in various signals, charts, diagrams, messages, etc. 9. Manufacturing firms in each of the process models:

Process focus, your local print shop, Kinko’s.

Repetitive focus, Harley-Davidson Product focus, Frito-Lay Mass customization, Dell Computer

10. Competitive advantage of manufacturing firms in each of the process models:

Process focus, differentiation, and expertise in each process area (Kinko’s)

Repetitive focus, rapid response, and efficiency (Harley-Davidson)

Product focus, very low variable cost (Frito-Lay) Mass customization, low cost, rapid response to unique

customer demands (Dell Computer)11. Students may find Figure 7.1 and Figure 7.8 and the related discussions helpful with this question. Service firms in each of the process models:

Process: your local general-purpose hospital. Also most construction firms, such as Bechtel

Repetitive: fast-food restaurants Product: Shouldice Hospital. Mass customization: cafeterias and online stockbrokers

such as Schwab12. Competitive advantage of service firms in each process model:

Process focus for a general-purpose hospital: specialization of expertise in each hospital discipline, x-ray, physical therapy, blood lab, etc., by both the technician and supervision.

Repetitive focus: high-quality modules as in most fast-food (very limited menu) restaurants, and law clinics—with the low cost of the uncontested divorce.

Product focus: Southwest Airlines and online stockbrokers may be good examples of low-cost advantage.

Mass customization, per the text, McDonald’s is trying this in a limited way. Charles Schwab seems to be effective at this in the financial services areas. They seek competitive advantage via low cost and high customization.

13. Numerically controlled machinery means the equipment is computer controlled via programming languages. As an added note, machinery with its own programmable computer is sometimes called computer numerically controlled (CNC), implying that there is computer memory at the machine. Machines that are wired to a central machine are called direct numerically controlled (DNC) machines.

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89 CHAPTER 7 PROCESS STRATEGY AND SUSTAINABILITY

14. In an automatic identification system (AIS), bar codes, radio frequency (RF) signals, and optical signals improve both accuracy and speed of data entry contributing to productivity. For instance, costs are reduced because clerks spend less time keying in prices and quantities and do so with fewer errors. New services are being developed as these systems collect more information about customer behavior.15. Technological advances include: numeric control, process control, vision systems, robots, automated storage and retrieval systems, automated guided vehicles, flexible manufacturing systems, and computer-integrated manufacturing (CIM).16. A flexible manufacturing system (FMS) usually refers to the manufacturing element (a subsystem) within a larger computer-integrated manufacturing (CIM) system. A CIM includes elements of computer-aided design, computer-aided engineering, computer-aided drafting, production, inventory control, etc., as well as flexible manufacturing systems.17. CAD data generates design data, but can also generate instructions for NC machines. If the NC machines are connected (integrated) with other NC machines and material handling equipment such as AGVs or conveyors or other transfer machines, the entire system is considered a flexible manufacturing system.18. The four Rs of sustainability are:Resources: Use human, financial, and material resources in a sustainable way.Recycle: Recycle beginning at design and continuing through process design for initial production, as well as through process design for disassembly and reuse.Regulations: Abide by laws and regulations for products, processes, by-products, transportation, waste, noise, disposal and reuse.Reputation: Strive for a good reputation because the marketplace rewards leadership in social responsibility and sustainability.

ETHICAL DILEMMAFor a nice class discussion exercise, all you need is an animal rights advocate to really get things going. Most students will agree that this is not a nice way to treat animals.

However, to get things in perspective you might point out that much egg production is also handled this way with chickens in small cages, and although we do not put steers in cages, we do confine them to feedlots, and most bulls become steers. The advantage to society is that food (pork in this example) is prepared very economically, bringing lower-cost food and some protein to those who might not otherwise be able to afford it. (Lack of protein is a contributor to limited mental development.) The violence reaped upon animals in the food chain is not confined to what homo sapiens do to hogs. Animals reap violence on others in their food chain.

Virtually all of those cows grazing peacefully in pastures and chickens looking quaint in farmyards will come to a violent end. That violent end is why the investment is made in them.

The alternatives are expensive; we don’t even take very good care of many animals in zoos.

Active Model ExerciseActive Model 7.1: Crossover Chart1. Suppose Kleber Enterprises wants to lower the point of indifference between Software A and Software B to 2,000 units. What would the Fixed costs need to be for software B?

$270,0002. Examine the graph. If the expected volume is 1,500 reports, which process should be used?

Software A3. Examine the graph. If the expected volume is 15,000 reports, which process should be used?

Software C4. As the fixed costs for developing software B drop, what happens to the graph?

The cost line for B drops and the area between the break-even points for B widens. There is a wider range of volume over which software B is the best choice.

END-OF-CHAPTER PROBLEMS7.1 (a) A fun topic, as students will add a lot of waiting. Flow

is, of course, dependent upon the school but usually includes the following:

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.

(c) Flow diagram for a shoe shine (customer perspective, a very different diagram would be prepared for the operator):

CHAPTER 7 PROCESS STRATEGY AND SUSTAINABILITY 90

7.2


(b) Flow diagram for a car wash:



7.3 Time function map of a shoe shine:

7.4 A service blueprint for a shoe shine. (For a discussion of thisparticular application, see G.L. Shostack “Designing Services thatDeliver,” Harvard Business Review 62, no. 1, (Jan.–Feb. 1984):133–139.)


7.5 GPE’s total cost = $3,100,000 = [($15 200,000)+ $100,000]

FMS’s total cost = $3,000,000 = [($14 200,000)+ $200,000]

DM’s total cost = $3,100,000 = [($13 200,000)+ $500,000]

The total cost for the flexible manufacturing system is lowest.7.6 15x + 100,000 = 14x + 200,000. Therefore,

x = 100,00014x + 200,000 = 13x + 500,000. Therefore,x = 300,000GPE is best below 100,000.FMS is best between 100,000 and 300,000.DM is best over 300,000.

7.7 Based on the solution to Problem 7.6,at 75,000 units, use GPEat 275,000 units, use FMSat 375,000 units, use DM

7.8 The optimum process will change at 100,000 units and 300,000 units, as shown in Problem 7.6. If total units are 600,000 (3 years 200,000) then DM has the lowest cost.7.9 (a) Values to aid in plotting the graph below:

Units Stan’s Costs Salt Lake Supply Costs

0 15,000 010,000 18,200 +

15,00040,000

(b) At 6,881 gears, either choice would have the same cost (indifference point)

4x = 15,000 + 1.82x4x – 1.82x = 15,0002.18x = 15,000 x = 6,881 = the exact quantity at the crossover point

7.10 (a)

Units At 0 Units

At 4,000 units

(arbitrarynumber)

(A) y = 800 + 1.10x 800 $5200 refurbish

(B) y = 1100 + 0.70x 1100 $3900 modify(C) y = 1800 + 0.4x 1800 $3400 new



(b) At 3,000 boards, costs are:Plan A: 800 + (1.10)(3,000) = $4,100.Plan B: 1,100 + (.70)(3,000) = $3,200.Plan C: 1,800 + (.40)(3,000) = $3,000.

So, at 3,000 board, plan C is the low-cost plan.(c) Crossover points:

First, 800 + 1.10x = 1,100 + .70x.40x = 300

x = 750Second, 1,100 + .70x = 1,800 + .40x

.30x = 700x = 2,333

So, between 1,000 and 2,000 boards, plan B is best.7.11 Expected rooms rented: 50 365 = 18,250.

Current: Fixed cost = $61,000Variable cost = $12.50

Outsourcing: Fixed cost = $25,000Variable cost = $18.50

61,000 + (12.50)x = $25,000 + (18.50)x36,000 = 6x6,000 = x = crossover point in room

nightsSince Susan expects to rent 18,250 rooms, she should not

outsource the cleanup.7.12 CAD software decision.

(5)($3,000) + $200x = (6)($2,000) + $240x$15,000 + $200x = $12,000 + $240x

3,000 = 40x75 = x = crossover in no. of drawings

Since the projected volume of 80 is above the crossover point, he should rent the HP software.7.13 Using the value stream map, Figure 7.6, as a starting point, analyze the opportunity for improvement and develop an improved process.

Remove inventory, improve throughput by reducing setup, reduce lot sizes, use pull techniques, and focus on only activities the customer is willing to pay for. Possible improvements include


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(1) driving the lot size down to 500 and trying to lower it even more if the supplier and shipping can do so efficiently; (2) getting more frequent shipments from supplier, perhaps twice a week or even each day; (3) shipping smaller lots; and (4) implementing a work cell that performs the machine, component mount, assemble, test, and pack function on a one-piece-flow basis.7.14 (a) Find break-even points, X.Mass customization: 1,260,000 + 60X = 120X X = 21,000Intermittent: 1,000,000 + 70X = 120X X = 20,000Repetitive: 1,625,000 + 55X = 120X X = 25,000Continuous: 1,960,000 + 50X = 120X X = 28,000Find least-cost process at X = 24,000 units.

Fixed cost VC UnitsMass customization: 1,260,000 + 60(24,000) = 2,700,000Intermittent: 1,000,000 + 70(24,000) = 2,680,000Repetitive: 1,625,000 + 55(24,000) = 2,945,000Continuous: 1,960,000 + 50(24,000) = 3,160,000Least-cost process: Intermittent process

(b) Annual profit using intermittent process: $[120(24,000) – 2,680,000] = $200,000

The intermittent process will maximize profit.Annual profit: $200,000

CASE STUDIESROCHESTER MANUFACTURING’S PROCESS DECISION

1. As a production manager for RMC, what do you recommend? Why?As production manager, you believe that the inherent advantages of an FMS should tilt the scales in favor of FMS. Your management task should be easier and therefore better. Your task will be easier and better because those parts of your workday that are related to scheduling, manpower, maintenance, and housekeeping should require less direction and be easier to control. You would be inclined to ask the “numbers people” to be sure they included all of these relatively minor shop floor issues in the decision.

2. Prepare a case by a conservative plant manager for main-taining the status quo until the returns are more obvious.A conservative plant manager may well be the individual in the decision-making process who is asked about the return on investment. ROI may be largely the plant manager’s responsibility. If the numbers do not support change, then don’t do it. Additionally, the trauma of change in layout, training, and acceptance by workers contains numerous hidden costs. Consequently, the plant manager may have a strong case for the status quo.

3. Prepare the case for an optimistic sales manager who suggests that you should move ahead with the FMS now.

The optimistic sales manager’s case is that improved delivery time (i.e., improved throughput) and improved quality may well yield a higher market share, which, if the company is already above breakeven, is great for profitability, and hence ROI will be higher than projected (sales growth is not typically included in ROI computations). Additionally, the management task is easier (i.e., fewer machines to maintain, fewer people to supervise), and additional floor space will be available when needed.

ENVIRONMENTAL SUSTAINABILITY AT WALMART

1. How is Walmart doing in terms of social and environmental sustainability?

Walmart views “environmental sustainability as one of the most important opportunities for both the future of our business, and the future of our world.” Everyday low prices is the vision that guides Walmart’s business model, and it is predicated on everyday low costs. Its environmental vision is equally clear: “to be supplied 100 percent by renewable energy; to create zero waste; and to sell products that sustain our natural resources and the environment.” Its specific goals in the three areas are as follows:

Renewable energy: Existing stores are to be 20% more efficient in 7 years, new stores are to be 30% more efficient in 4 years, and the fleet is to be 25% more efficient in 3 years and twice as efficient in 10 years.

Zero waste: The goal is 25% reduction in solid waste in 3 years and improved brand packaging through right-sized packaging that uses reusable materials.

Sustainable resources and the environment: Walmart’s goal is 20% of the supply base aligned in 3 years as well as the design and support of a Green Company program in China.

These three elements make up what Walmart refers to as its Sustainable Value Networks. The company has focused on a list of “Preferred Products,” made up of textiles, seafood, jewelry, forest products, china, electronics, food and agriculture, and chemical-intensive products. Renewable energy includes global logistics, greenhouse gas emissions, and sustainable buildings in addition to alternative fuels. Waste refers to packaging and operations and procurement.

Walmart has launched various experiments and innovations, including the following:

Two stores (McKinney, Texas, and Aurora, Colorado) have shown how multifunctional teams can solve sustainability problems as well as foster a more positive shopping experience for customers.

Walmart built three high-efficiency stores using recycled building materials and lighting that conserve energy. The water-source heating, cooling, and refrigeration system is completely integrated. The company included ordinary innovations such as low-flow bathroom faucets and LED lights and also adopted an advanced daylight harvesting system and used white roofs.


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The first of its next-generation high-efficiency stores incorporated a secondary-loop refrigeration system, which, along with other sustainable techniques, made it 25% more energy efficient than the 2005 baseline and reduced use of refrigerant 90%.

Walmart is purchasing solar power equipment at a rate that could put it in the 10 largest ever solar power purchasers in the United States. It’s planning to install solar power at 22 locations in Hawaii and California.

Walmart participates in the Blue Skyways Collaborative of companies, municipalities, and organizations along Interstate 35 (from Mexico to Canada) that have joined forces to reduce pollution.

“Sandwich baling” refers to placing loose plastic between layers of cardboard for recycling. This reduces waste normally sent to landfills and generates income for Walmart.

Walmart works to reduce packaging. For example, its changes to packaging for patio sets resulted in 400 fewer shipping containers. It used 230 fewer shipping containers to distribute toys.

It sells reusable bags that could eliminate 100 disposable plastic bags each. It also encourages schools to collect plastic bags, for which the schools are paid.

Walmart has adopted a series of innovations, including the following, for its trucking fleet:

1. Improved wind skirts to reduce wind resistance around the trailer

2. A rear axle single wheel that is smaller than the sum of the two wheels it replaced

3. A more aerodynamic tractor4. An eliminated internal drive train, making the rear axle

lighter5. Development of an auxiliary power unit to keep drivers

warm or cool at night without using the main engine.

Sources: Above information paraphrased from http:// walmartstores.com/Sustainability/ and Erica L. Plamback, “The Greening of Walmart’s Supply Chain,” Supply Chain Management Review (July 1, 2007).

2. Based on library and Internet research, report on other Walmart sustainability efforts.In addition to the above information, students should note that Walmart is taking a very aggressive position regarding the sustainability expectations of its supply chain. Students may be encouraged to also look at the following sources:

http://walmartfacts.com/reports/2006/ethicalstandards/documents/2006ReportionEthicalSourcing.pdf and A. Zettlemoyer-Lazar, and R. A. Parvis, “EPA Resource Conservation Challenge Web Academy. Recycling and Solid Waste Management Educational Series (December 20, 2007). www.epa.gov/ region1/RCCedu/presentations/PackagingSustainability_Dec20_ 2007.pdf.3. Compare the firm’s sustainability plan to that of Home

Depot, Target, or another big box retailer.

Our reading of Walmart’s efforts is that Walmart is working at getting ahead of the international movement toward sustainability and in the process is building a leadership position vis-à-vis other retailers.

4. How much of Walmart’s sustainability effort is (a) resource focused, (b) recycle focused, (c) regulation focused, and (d) reputation focused?

Walmart is making efforts is all four areas:

Its resource focus is somewhat less than that of a manufacturer, but more than those of smaller, less dedicated retailers.

Walmart’s recycle effort seems to be well behind the performance of Frito-Lay, whose performance is stellar, but ahead of the performance of many other firms.

Walmart seems to be exceeding regulatory requirements. Walmart, as its Web site and performance suggest, seems to

understand the importance of sustainability on its reputation.We thank Professor Asbjorn Osland of San Jose State University for his contribution to this case and the solution.

VIDEO CASE STUDIES

GREEN MANUFACTURING AND SUSTAIN-ABILITY AT FRITO-LAY

The video, filmed specifically for our text, is available from Prentice Hall and is designed to supplement this case.

1. Although cost is typically the number-one long-term motiva-tor to reduce resources, Frito-Lay’s investment in solar power is not yet a cost saver. Being on the cutting edge of being “green” may help with advertising and public relations, but a positive im-pact on the bottom line may not occur for some time. Second, pressures are generated by various power groups in society, in-cluding customers, environmental groups, socially conscious in-vestors, as well as municipalities and counties in which the firms operate (many landfills as well as fresh water and waste water systems are run by municipalities or counties), and state and fed-eral government regulations.2. Techniques the firm is using to become a green manufacturer includes: Using solar power to generate electricity, recycling wa-ter, selling by-products such as starch as animal feed, setting spe-cific goals, using biodegradable packaging, motivating both man-agers and employees to get the job done with score cards and ac-tion plans, and perhaps most importantly, leveraging top manage-ment leadership.3. The Walmart case in this chapter provides an excellent paral-lel with actions by a manufacturer (Frito-Lay) and a retailer (Wal-mart).

PROCESS ANALYSIS AT ARNOLD PALMER HOSPITAL

The video, filmed specifically for our text, is available from Prentice Hall and is designed to supplement this case.

1. As Diane’s new assistant, you need to flowchart this process. Explain how the process might be improved once you have completed the chart.

Managers (and students) have a variety of options at their disposal for preparing flowcharts. These include: Traditional flowcharts, which show a process with anno-

tated boxes and interconnected lines. (See the Harley-Davidson flowchart in the Global Company Profile that opens Chapter 7 in the text.)


http://walmartfacts.com/reports/2006/ethical


Value stream mapping, similar to traditional flowcharting but adds customers and suppliers (Figure 7.6 in text).

Time-function mapping, a flow diagram with time added on the horizontal axis (Figure 7.5 in text).

Process charts, which use symbols to map the flow of people or materials (Figure 7.7 in text).

Service blueprinting, which focuses on the customer and interaction with the customer (Figure 7.8 in text).

The chart below is a version of a traditional flow chart for the flow of maternity patients.:

2. If the mother is scheduled for a Caesarean-section birth (i.e. the baby is removed from the womb surgically), how would this flowchart change?

See step 7 of flowchart for question 1 above.3. If all mothers were electronically (or manually) pre-

registered, how would the flowchart change? Redraw the chart to show your changes.Dispense with step 2b.

4. Describe in detail a process that the hospital could analyze besides the one mentioned in this case.

Many options are available to the student including the hundreds of processes charted by hospital staff such as: forms needed under various situations, vacated room turnaround, admissions, inventory, delivery of foodservice, and information requirements

(for the patient and information from the patient.) See the chart on the next page for an example of how to document information requirements.

PROCESS STRATEGY AT WHEELED COACH

The video, filmed specifically for the text, is available from Prentice Hall and is designed to supplement this case. 1. The major auto companies are not in the custom design

business, and ambulance volume is small compared with the volume of the big three U.S. auto manufacturers.

2. The traditional way to build specialized custom products such as autos was for the work to stand still and to bring the material and parts to the workstation.

3. It is more efficient to prepare work modules and then deliver them to the assembly line than it would be to produce the components on the line because of all of the advantages of work cells. Work cells can be designed around the modules (upholstery, wiring, or cabinetry work) with the necessary supplies, talents, and machinery located in that particular “module.” Then the employees become experienced in those modules and the customized modules can be delivered to the

line as needed.


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4. Management sets high expectations for quality and provides an extensive in-house training program to ensure the proper talent is available. Because custom products require unique labor standards, they are set for each module and assembly area to ensure that the work at each station can be accomplished in the time allocated. Absentees, tardiness, and special talents can play havoc with such a system.

ADDITIONAL CASE STUDY*MATTHEW YACHTS, INC.This is an excellent case to address the characteristics of process-oriented vs. repetitive vs. product-oriented production.1. Matthew Yachts is profitable, thanks to its custom-designed

yachts. Its management experience appears to have yielded a

competitive advantage in custom-designed yachts, hence the higher profit margins. However, since the demand for the “fixed” design is growing, expansion into this area, with its repetitive-oriented layout and procedures (see Table 7.2 and Figure 7.1 in text), may be warranted.

2. Establishing a separate facility with its own labor force, costing, and procedures may be a good move. Particularly if this can be done at a low production level that will allow maintenance of production even in periods of recession (or high federal luxury taxes).

*This is the solution to a case that appears on our Companion Web site, www.pearsonhighered.com/heizer.


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