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MBA 570 Summer 2011. McDonald’s over 95 billion served Consider McDonald’s restaurants. Fact #1: Franchisees of McDonald’s have to go to ‘Hamburger U.’

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Presentation on theme: "MBA 570 Summer 2011. McDonald’s over 95 billion served Consider McDonald’s restaurants. Fact #1: Franchisees of McDonald’s have to go to ‘Hamburger U.’"— Presentation transcript:

1 MBA 570 Summer 2011

2 McDonald’s over 95 billion served 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.’ © T/Maker Co.

3 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  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  Major factors in design strategy ◦ Cost ◦ Quality ◦ Time-to-market ◦ Customer satisfaction ◦ Competitive advantage Product and Service Design Product and service design – or redesign – should be closely tied to an organization’s strategy

6  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  Economic  Social and demographic  Political, liability, or legal  Competitive  Technological

8  Main focus ◦ Customer satisfaction  Secondary focus ◦ Function of product/service ◦ Cost/profit ◦ Quality ◦ Appearance ◦ Ease of production/assembly ◦ Ease of maintenance/service

9  Taking into account the capabilities of the organization in designing goods and services

10  Legal ◦ FDA, OSHA, IRS ◦ Product liability ◦ Uniform commercial code  Ethical ◦ Releasing products with defects  Environmental ◦ EPA

11  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  Product/service life cycles  How much standardization  Product/service reliability  Range of operating conditions

14  Standardization ◦ Extent to which there is an absence of variety in a product, service or process  Standardized products are immediately available to customers

15  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  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 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.


20 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 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  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 Continuu m  Process strategies follow a continuum  Within a given facility, several strategies may be used

24 Continuu m Product- Focused Process- Focused  The strategies are often classified as:


26  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 Oper. Product A Product B

27 Machine Shop Hospital Bank © 1995 Corel Corp.

28  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 Organized by function Steps completed in any sequence 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


31  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 Oper. Products A & B

32 Paper (Continuous) Soft Drinks (Continuous, then Discrete) © 1995 Corel Corp. Light Bulbs (Discrete) © T/Maker Co. McDonald’s over 95 billion served Fast Food (Discrete)

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  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 Not much information on what customers want Adopt process- orientation to remain flexible and produce many varieties Adopt process- orientation to remain flexible and produce many varieties Late in life-cycle Much better understanding of what customers want Much better understanding of what customers want Shift to product- orientation with fewer options Shift to product- orientation with fewer options

36 Process Continuum 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  Production flexibility ◦ Product volume ◦ Product variety  Technology  Cost  Human resources  Quality  Reliability These factors reduce the number of alternatives! © T/Maker Co.

38  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 Volume and Variety of Products Low Volume High Variety Process (Intermittent) Repetitive Process (Modular) High Volume Low Variety Process (Continuous) One or very few units per lot Projects Very small runs, high variety Job Shops Modest runs, modest variety Disconnected Repetitive Long runs, modest variations Connected Repetitive Very long runs, changes in attributes Continuous Equipment utilization5%-25%20%-75%70%-80% Poor Strategy (High variable costs) Mass Customization

41 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 Mail contact Face-to-face loose specs Face-to-face tight specs Phone Contact Face-to-face total customization Buffered core (none) Permeable system (some) Reactive system (much) High Low High Low Degree of customer/server contact Internet & on-site technology Sales Opportunity Production Efficiency

44 1. Conceptualize 2. Identify service package components 3. Determine performance specifications 4. Translate performance specifications into design specifications 5. Translate design specifications into delivery specifications

45  Service blueprinting ◦ 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  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  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. 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 1. Consistent with the organization mission 2. User friendly 3. Robust 4. Easy to sustain 5. Cost effective 6. Value to customers 7. Effective linkages between back operations 8. Single unifying theme 9. Ensure reliability and high quality

52  Variable requirements  Difficult to describe  High customer contact  Service – customer encounter



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 Loan application Branch Officer Pay book 30min--1hr. 30min--1hr. Line of visibility Line of visibility Deny Deny 1 day 2 days 3 days 1 day 2 days 3 days Fail point Customer wait Employee decision Fail point Customer wait Employee decision === ==== =====$ 0 $========= Receive Payment Final payment Decline Notify customer Issue check Confirm Credit check Accept Print payment book Delinquent Close account Verify income data Initial screening Verify payer Employer Credit bureau Branch records Bank accounts Accounting Data base records F W Confirm w w F F F F F F

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. 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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