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Slide 1Process View & Strategy © Van Mieghem (Apr 21, 2023)
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
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Slide 2Process View & Strategy © Van Mieghem (Apr 21, 2023)
Goals
1. Operations as a managerial integration function
2. Evaluation and Improvement
We will adopt two paradigms
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Slide 3Process View & Strategy © Van Mieghem (Apr 21, 2023)
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]
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Slide 4Process View & Strategy © Van Mieghem (Apr 21, 2023)
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.
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Slide 5SOP: Strategy ■ Operations ■ Performance © Van Mieghem (Apr 21, 2023)
What is a Process?
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Slide 6Process View & Strategy © Van Mieghem (Apr 21, 2023)
Informationstructure
A process is a transformation of inputs into outputs through a network of activities and buffers, utilizing resources, IT and mgt
Outputs
GoodsServices
Inputs
Flow units/Entities(customers, data,
material, cash, etc.)
Labor & Capital
Resources
ProcessManagement
Network ofActivities and Buffers
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Slide 7Process View & Strategy © Van Mieghem (Apr 21, 2023)
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
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Slide 8SOP: Strategy ■ Operations ■ Performance © Van Mieghem (Apr 21, 2023)
What is a “good” Process?
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Slide 9Process View & Strategy © Van Mieghem (Apr 21, 2023)
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 ServiceOutputs
Emergency Carevs.
Dialysis Treatment
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Slide 10Process View & Strategy © Van Mieghem (Apr 21, 2023)
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
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Slide 11Process View & Strategy © Van Mieghem (Apr 21, 2023)
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”
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Slide 12Process View & Strategy © Van Mieghem (Apr 21, 2023)
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
competitivestrategy
Processstructure & mgt
operationsstrategy
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Slide 13Process View & Strategy © Van Mieghem (Apr 21, 2023)
Shouldice Hospital
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Slide 14Process View & Strategy © Van Mieghem (Apr 21, 2023)
Wriston Manufacturing
Handouts to be distributed in class
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Slide 15Process View & Strategy © Van Mieghem (Apr 21, 2023)
Total Burden Rates (total overhead cost / direct labor cost)
01234567
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 NetworkExhibit 2A
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Slide 16Process View & Strategy © Van Mieghem (Apr 21, 2023)
Another example of strategic fit: Wal-Mart
Corporate StrategyEnable 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
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Slide 17Process View & Strategy © Van Mieghem (Apr 21, 2023)
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
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Slide 18Process View & Strategy © Van Mieghem (Apr 21, 2023)
Characteristics of Processes:Comparison of Process Types
Type of Process
Product Volume
Specialized Equipment
Product Variety
Machine Setup
Frequency
Labor Skills
Variable Cost
Job Shop
Flow Shop
Q: what are the typical managerial challenges in JS vs FS?
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Slide 19Process View & Strategy © Van Mieghem (Apr 21, 2023)
ProcessFlexibility
Jumbled Flow.Process segmentsloosely linked.
Disconnected LineFlow/Jumbled Flowbut a dominant flowexists.
JOB SHOP
(Commercial Printer,Architecture firm)
BATCH
(Heavy Equipment,Auto Repari)
LINE FLOWS
(Auto Assembly,Car lubrication shop)
CONTINUOUSFLOW
(Oil Refinery)
ProductVariety
LowLow Standardization
One of a kindLow Volume
Many ProductsFew Major Products
High volume
High StandardizationCommodity Products
Connected LineFlow (assembly line)
Continuous, automated,rigid line flow.Process segments tightlylinked.
Oppor
tunity
Costs
Out-of
-poc
ket
Costs
High
Low
High
Matching Process Choice with Strategy:Product-Process Matrix
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Slide 21Process View & Strategy © Van Mieghem (Apr 21, 2023)
Classification of Processes:by “layout”
Functional (a.k.a. process-oriented) Layout:
Product-oriented Layout:
? Relationship of layout to process type?
A B
C D
Product 1
Product 2
A D B
C B A
Product 1
Product 2
= resource pool (e.g., X-ray dept, billing)
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Slide 22Process View & Strategy © Van Mieghem (Apr 21, 2023)
Classification of Processes:by Customer Interface
Make to Stock =
Make to Order =
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Slide 23Process View & Strategy © Van Mieghem (Apr 21, 2023)
1990 2000
7.5 days
4.5 days
Average length of inpatient stayhas 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 havecaused slope of revenue line todecline 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.
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Slide 24Process View & Strategy © Van Mieghem (Apr 21, 2023)
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?
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Slide 25Process View & Strategy © Van Mieghem (Apr 21, 2023)
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
