1. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 1 Operations D30 Managing Business Process Flows: Ch 1 + 2 Processes and Strategy Module u Introduction u Key Principles of Course »Strategic role of Ops »Process view of Ops u What Defines a Good Process? »Product attributes and the Competitive Product Space »Strategic Operational Audit u Aligning strategy and operations: »Focus »Relationship between process choice and strategy »Shouldice Hospital »Wriston Manufacturing u Classification of Processes 1

2. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 2 Key Principle of course: 1. The Strategic Role of Ops “A company’s operations function is either a competitive weapon or a corporate millstone. It is seldom neutral.” [Skinner ‘69] 2

3. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 3 Key Principle of Course: 2. The Process View of Ops USA Today reported that Sealy dramatically improved its operations: – Each bed is completed in four hours, down from 21. – Median delivery times have been cut to 60 hours from 72. – Plants have cut their raw-material inventories by 50% to 16 days' worth. – By moving workers closer together, the Williamsport facility last year freed enough space to combine two shifts, slicing costs. 3

4. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 4 Operations & the Process View: What is a Process? Inputs Outputs Goods Services Labor & Capital Information structure Network of Activities and Buffers Flow units (customers, data, material, cash, etc.) Resources Process Management 4

5. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 5 What defines a “good process”? Delivered value Delivered value of process = benefit to process customers – total process cost Benefit driven by customer value Variety V (flexibility) Quality Q: of product or outcome of service Time T: Rapid, reliable delivery New product development Price p (Cost) 5

6. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 6 What defines a “good process”? Performance: Financial Measures  Absolute measures: – revenues, costs, operating income, net income – Net Present Value (NPV) =  Relative measures: – ROI, ROE – ROA =  Survival measure: – cash flow 6

7. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 7 Firms compete on product attributes. This requires process competencies. Product Attribute (External)Process Competency (Internal) Cost Response timeFlow time VarietyFlexibility Quality 7

8. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 8 Process Competencies are affected by Process Structure and Management  Process structure or architecture: – (1) inputs and outputs – (2) flow unit (“jobs”) – (3) network of activities & buffers  quantity & location  precedence relationships – (4) resource allocation  capacity & throughput – (5) information structure  Operations Planning & Control  Organization 8

9. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 9 A Framework for Designing an Operations Strategy and Structure Business Unit Strategy Desired Competencies Processes Resources Operations Structure Corporate Strategy 9

10. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 10 What defines a good operation? Achieving alignment at IKEA 10

11. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 11 Linking the strategic role & process view: Strategic Operational Audit Desired Business Strategy Operations Strategy Desired Capabilities Marketing, …, Financial Strategy Desired Oper’l Structure: Processes & Infrastructure Product Attributes P, T, Q, V Process Attributes C, T, Q, Flex Existing Capabilities Operational Structure: Processes & Infrastructure ExistingDesired Feasible Business Strategies Strategy Gap? Measures Capability Gap? Process Gap? 11

12. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 12 Shouldice Hospital 12

13. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 13 Wriston Manufacturing 13

14. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 14 Focus and the Frontier I n the health-care sector Cost efficiency Responsiveness World-class Emergency Room World-class (non-emergency) Hospital One general facility operations frontier 14

15. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 15 Classification of Processes by process architecture  Project  Job Shop  Batch  Line Flow  Continuous Flow Job Shop Flow Shop 15

16. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 16 Characteristics of Processes: Job Shop vs. Batch vs. Flow Shop 16

17. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 17 Process Flexibility Jumbled Flow. Process segments loosely linked. Disconnected Line Flow/Jumbled Flow but a dominant flow exists. JOB SHOP (Commercial Printer, Architecture firm) BATCH (Heavy Equipment, Auto Repari) LINE FLOWS (Auto Assembly, Car lubrication shop) CONTINUOUS FLOW (Oil Refinery) Product Variety Low Low Standardization One of a kind Low Volume Many Products Few Major Products High volume High Standardization Commodity Products Connected Line Flow (assembly line) Continuous, automated, rigid line flow. Process segments tightly linked. Opportunity Costs Out-of-pocket Costs High Low High Matching Process Choice with Strategy: Product-Process Matrix 17

18. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 18 Classification of Processes: by Positioning Strategy  Functional Focus:  Product Focus: AB CD Product 1 Product 2 ADB CBA Product 1 Product 2 = resource pool (e.g., X-ray dept, billing) 18

19. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 19 Classification of Processes: by Customer Interface  Make to Stock  Make to Order 19

20. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 20 Learning Objectives Operations & Strategy (Chapter 1 & 2)  An operation as a transformation process  Product attributes / process competencies – A good process attempts to grow delivered value – Delivered value grows by aligning process competencies with desired product attributes  Process improvement attempts to change processes and resources to improve alignment between process competencies and strategy – Shouldice: Alignment when strategic focus is narrow – Wriston: Alignment when desired product attributes vary over product life cycle  Process types 20

21. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 21 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.