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Process and Product Strategies

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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

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