1. © 2006 Prentice Hall, Inc.7 – 1 Process Strategy Chapter7

2. © 2006 Prentice Hall, Inc.7 – 2 2 What is a process strategy? A process strategy is an organization’s approach to transforms resources into goods and services. The objective of a process strategy is to find a way to produce goods and services that meet customers requirements and product specifications within cost and other managerial constraints.

3. © 2006 Prentice Hall, Inc.7 – 3 3 Process Strategies  How to produce a product or provide a service that  Meets or exceeds customer requirements  Meets cost and managerial goals  Has long term effects on  Efficiency and production flexibility  Costs and quality

4. © 2006 Prentice Hall, Inc.7 – 4 4 Dell Computer Company “How can we make the process of buying a computer better?”  Sell custom-built PCs directly to consumer  Build computers rapidly, at low cost, and only when ordered  Integrate the Web into every aspect of its business  Focus research on software designed to make installation and configuration of its PCs fast and simple

5. © 2006 Prentice Hall, Inc.7 – 5 5 Process Strategies Virtually every good or service is made by using some variation of one of four process strategies: 1. process focus 2. repetitive focus 3. product focus 4. mass customization Within these basic strategies there are many ways they may be implemented

6. © 2006 Prentice Hall, Inc.7 – 6 6 Process, Volume, and Variety Process Focus projects, job shops (machine, print, carpentry) Standard Register Repetitive (autos, motorcycles) Harley Davidson Product Focus (commercial baked goods, steel, glass) Nucor Steel High Variety one or few units per run, high variety (allows customization) Changes in Modules modest runs, standardized modules Changes in Attributes (such as grade, quality, size, thickness, etc.) long runs only Mass Customization (difficult to achieve, but huge rewards) Dell Computer Co. Poor Strategy (Both fixed and variable costs are high) Low Volume Repetitive Process High Volume Volume Figure 7.1

7. © 2006 Prentice Hall, Inc.7 – 7 7 Process Focus  Facilities are organized around specific activities or processes  General purpose equipment and skilled personnel  High degree of product flexibility  Typically high costs and low equipment utilization  Product flows may vary considerably making planning and scheduling a challenge

8. © 2006 Prentice Hall, Inc.7 – 8 8 Accounting PRINTING DEPT COLLATING DEPT GLUING, BINDING, STAPLING, LABELING POLYWRAP DEPT SHIPPING Vendors Receiving Warehouse Purchasing PREPRESS DEPT Process Flow Diagram Customer Customer sales representative Information flow Material flow Figure 7.2

9. © 2006 Prentice Hall, Inc.7 – 9 9 Process Focus Many inputs High variety of outputs Print Shop

10. © 2006 Prentice Hall, Inc.7 – 10 10 Process, Volume, and Variety Process Focus projects, job shops (machine, print, carpentry) Standard Register Repetitive (autos, motorcycles) Harley Davidson Product Focus (commercial baked goods, steel, glass) Nucor Steel High Variety one or few units per run, high variety (allows customization) Changes in Modules modest runs, standardized modules Changes in Attributes (such as grade, quality, size, thickness, etc.) long runs only Mass Customization (difficult to achieve, but huge rewards) Dell Computer Co. Poor Strategy (Both fixed and variable costs are high) Low Volume Repetitive Process High Volume Volume Figure 7.1

11. © 2006 Prentice Hall, Inc.7 – 11 11 Repetitive Focus  Facilities often organized as assembly lines  Characterized by modules with parts and assemblies made previously  Modules may be combined for many output options  Less flexibility than process-focused facilities but more efficient

12. © 2006 Prentice Hall, Inc.7 – 12 12 Repetitive Focus Raw materials and module inputs Modules combined for many output options Few modules Automobile Assembly Line

13. © 2006 Prentice Hall, Inc.7 – 13 13 Process Flow Diagram THE ASSEMBLY LINE TESTING 28 tests Oil tank work cell Shocks and forks Handlebars Fender work cell Air cleaners Fluids and mufflers Fuel tank work cell Wheel work cell Roller testing Incoming parts From Milwaukee on a JIT arrival schedule Engines and transmissionsFrame tube bending Frame-building work cells Frame machining Hot-paint frame painting Crating Figure 7.3

14. © 2006 Prentice Hall, Inc.7 – 14 14 Process, Volume, and Variety Process Focus projects, job shops (machine, print, carpentry) Standard Register Repetitive (autos, motorcycles) Harley Davidson Product Focus (commercial baked goods, steel, glass) Nucor Steel High Variety one or few units per run, high variety (allows customization) Changes in Modules modest runs, standardized modules Changes in Attributes (such as grade, quality, size, thickness, etc.) long runs only Mass Customization (difficult to achieve, but huge rewards) Dell Computer Co. Poor Strategy (Both fixed and variable costs are high) Low Volume Repetitive Process High Volume Volume Figure 7.1

15. © 2006 Prentice Hall, Inc.7 – 15 15 Product Focus  Facilities are organized by product  High volume but low variety of products  Long, continuous production runs enable efficient processes  Typically high fixed cost but low variable cost  Generally less skilled labor

16. © 2006 Prentice Hall, Inc.7 – 16 16 Product Focus Many inputs Output variation in size, shape, and packaging Bottling Plant

17. © 2006 Prentice Hall, Inc.7 – 17 17 Product Focus Nucor Steel Plant Continuous caster Continuous cast steel sheared into 24-ton slabs Hot tunnel furnace - 300 ft Hot mill for finishing, cooling, and coiling DE F G H I Scrap steel Ladle of molten steel Electric furnace A B C

18. © 2006 Prentice Hall, Inc.7 – 18 18 Process, Volume, and Variety Process Focus projects, job shops (machine, print, carpentry) Standard Register Repetitive (autos, motorcycles) Harley Davidson Product Focus (commercial baked goods, steel, glass) Nucor Steel High Variety one or few units per run, high variety (allows customization) Changes in Modules modest runs, standardized modules Changes in Attributes (such as grade, quality, size, thickness, etc.) long runs only Mass Customization (difficult to achieve, but huge rewards) Dell Computer Co. Poor Strategy (Both fixed and variable costs are high) Low Volume Repetitive Process High Volume Volume Figure 7.1

19. © 2006 Prentice Hall, Inc.7 – 19 19 Mass Customization  The rapid, low-cost production of goods and service to satisfy increasingly unique customer desires  Combines the flexibility of a process focus with the efficiency of a product focus

20. © 2006 Prentice Hall, Inc.7 – 20 20 Mass Customization Vehicle models140260 Vehicle types181,212 Bicycle types819 Software titles0300,000 Web sites046,412,165 Movie releases267458 New book titles40,53077,446 Houston TV channels5185 Breakfast cereals160340 Items (SKUs) in 14,000150,000 supermarkets supermarkets Number of Choices Early 21st ItemEarly 1970sCentury Table 7.1

21. © 2006 Prentice Hall, Inc.7 – 21 21 Mass Customization Modular techniques Mass Customization Effective scheduling techniques Rapid throughput techniques Repetitive Focus Modular design Flexible equipment Process-Focused High variety, low volume Low utilization (5% to 25%) General-purpose equipment Product-Focused Low variety, high volume High utilization (70% to 90%) Specialized equipment Figure 7.5

22. © 2006 Prentice Hall, Inc.7 – 22 22 Comparison of Processes Process Focus (Job shop) (Low volume, high variety) Repetitive Focus(Harley- Davidson (Modular) Product Focus (Paper-beer) (High-volume, low-variety) Mass Customization (Dell Computer) (High-volume, high-variety) Small quantity, large variety of products Long runs, standardized product made from modules Large quantity, small variety of products Large quantity, large variety of products General purpose equipment Special equipment aids in use of assembly line Special purpose equipment Rapid changeover on flexible equipment Table 7.2

23. © 2006 Prentice Hall, Inc.7 – 23 23 Comparison of Processes Process Focus (Job shop) (Low volume, high variety) Repetitive Focus(Harley- Davidson (Modular) Product Focus (Paper-beer) (High-volume, low-variety) Mass Customization (Dell Computer) (High-volume, high-variety) Operators are broadly skilled Employees are modestly trained Operators are less broadly skilled Flexible operators are trained for the necessary customization Many job instructions as each job changes Repetition reduces training and changes in job instructions Few work orders and job instructions because jobs standardized Custom orders require many job instructions Table 7.2

24. © 2006 Prentice Hall, Inc.7 – 24 24 Comparison of Processes Process Focus (Job shop) (Low volume, high variety) Repetitive Focus (Harley- Davidson (Modular) Product Focus (Paper-beer) (High-volume, low-variety) Mass Customization (Dell Computer) (High-volume, high-variety) Raw material inventories high JIT procurement techniques used Raw material inventories are low Work-in- process is high JIT inventory techniques used Work-in- process inventory is low Work-in- process inventory driven down by JIT, lean production Table 7.2

25. © 2006 Prentice Hall, Inc.7 – 25 25 Comparison of Processes Process Focus (Job shop) (Low volume, high variety) Repetitive Focus (Harley- Davidson (Modular) Product Focus (Paper-beer) (High-volume, low-variety) Mass Customization (Dell Computer) (High-volume, high-variety) Units move slowly through the plant Movement is measured in hours and days Swift movement of unit through the facility is typical Goods move swiftly through the facility Finished goods made to order Finished goods made to frequent forecast Finished goods made to forecast and stored Finished goods often made to order Table 7.2

26. © 2006 Prentice Hall, Inc.7 – 26 26 Comparison of Processes Process Focus (Job shop) (Low volume, high variety) Repetitive Focus(Harley- Davidson (Modular) Product Focus (Paper-beer) (High-volume, low-variety) Mass Customization (Dell Computer) (High-volume, high-variety) Scheduling is complex, trade-offs between inventory, availability, customer service Scheduling based on building various models from modules to forecasts Relatively simple scheduling, establishing output rate to meet forecasts Sophisticated scheduling required to accommodate custom orders Table 7.2

27. © 2006 Prentice Hall, Inc.7 – 27 27 Comparison of Processes Process Focus (Job shop) (Low volume, high variety) Repetitive Focus(Harley- Davidson (Modular) Product Focus (Paper-beer) (High-volume, low-variety) Mass Customization (Dell Computer) (High-volume, high-variety) Fixed costs low, variable costs high Fixed costs dependent on flexibility of the facility Fixed costs high, variable costs low Fixed costs high, variable costs must be low Costing estimated before job, not known until after job is complete Costs usually known due to extensive experience High fixed costs mean costs dependent on utilization of capacity High fixed costs and dynamic variable costs make costing a challenge Table 7.2

28. © 2006 Prentice Hall, Inc.7 – 28 28 Crossover Charts Fixed costs Variable costs $ High volume, low variety Process C Fixed costs Variable costs $ Repetitive Process B Fixed costs Variable costs $ Low volume, high variety Process A Fixed cost Process A Fixed cost Process B Fixed cost Process C Total cost V1V1V1V1 (2,857) V2V2V2V2 (6,666) 400,000300,000200,000 Volume$ Figure 7.6

29. © 2006 Prentice Hall, Inc.7 – 29 29 Changing Processes  Difficult and expensive  May mean starting over  Process strategy determines transformation strategy for an extended period  Important to get it right

30. © 2006 Prentice Hall, Inc.7 – 30 30 Process Analysis and Design  Flow Diagrams - Shows the movement of materials  Time-Function Mapping - Shows flows and time frame  Value Stream Mapping - Shows flows and time and value added beyond the immediate organization  Process Charts - Uses symbols to show key activities  Service Blueprinting - focuses on customer/provider interaction

31. © 2006 Prentice Hall, Inc.7 – 31 31 Time-Function Mapping (Before process improvement at American National Can Company) Customer Sales Production control Plant A Warehouse Plant B Transport Move Receive product Extrude Wait Move Wait Print Wait Order product Process order Wait 12 days 13 days 1 day 4 days 1 day 10 days 1 day 0 day 1 day 52 days Figure 7.7

32. © 2006 Prentice Hall, Inc.7 – 32 32 Time-Function Mapping (After process improvement at American National Can Company) Customer Sales Production control Plant Warehouse Transport Move Receive product Extrude Wait Print Order product Process order Wait 1 day 2 days 1 day 6 days Figure 7.7

33. © 2006 Prentice Hall, Inc.7 – 33 33 Process Chart Figure 7.8

34. © 2006 Prentice Hall, Inc.7 – 34 34 Service Blueprint  Focuses on the customer and provider interaction  Defines three levels of interaction  Each level has different management issues  Identifies potential failure points

35. © 2006 Prentice Hall, Inc.7 – 35 35 Service Blueprint Personal GreetingService DiagnosisPerform ServiceFriendly Close Customer arrives for service Warm greeting and obtain service request Direct customer to waiting room Notify customer the car is ready Customer departs Customer pays bill Perform required work Prepare invoiceYesYesLevel#3Level#1 Level#2 Potential failure point Figure 7.9 No Notify customer and recommend an alternative provider Standard request Determine specificsNo Can service be done and does customer approve?

36. © 2006 Prentice Hall, Inc.7 – 36 36 Service Factory Service Shop Degree of Customization Low High Degree of Labor Low High Mass Service Professional Service Service Process Matrix Commercial banking Private banking General- purpose law firms Law clinics Specialized hospitals Hospitals Full-service stockbroker Limited-service stockbroker Retailing Boutiques Warehouse and catalog stores Fast food restaurants Fine-dining restaurants Airlines No frills airlines Figure 7.10

37. © 2006 Prentice Hall, Inc.7 – 37 37 Improving Service Productivity StrategyTechniqueExample SeparationStructure service so customers must go where service is offered Bank customers go to a manager to open a new account, to loan officers for loans, and to tellers for deposits Self-serviceSelf-service so customers examine, compare, and evaluate at their own pace Supermarkets and department stores, internet ordering Table 7.3

38. © 2006 Prentice Hall, Inc.7 – 38 38 StrategyTechniqueExample PostponementCustomizing at deliveryCustomizing vans at delivery rather than at production FocusRestricting the offeringsLimited-menu restaurant ModulesModular selection of service, modular production Investment and insurance selection, prepackaged food modules in restaurants Improving Service Productivity Table 7.3

39. © 2006 Prentice Hall, Inc.7 – 39 39 StrategyTechniqueExample AutomationPrecise personnel scheduling Automatic teller machines Scheduling Precise personnel scheduling Scheduling ticket counter personnel at 15-minute intervals at airlines Training Clarifying the service options, explaining how to avoid problems Investment counselor, funeral directors, after- sale maintenance personnel Improving Service Productivity Table 7.3

40. © 2006 Prentice Hall, Inc.7 – 40 40 Equipment and Technology  Often complex decisions  Possible competitive advantage  Flexibility  Stable processes  May allow enlarging the scope of the processes

41. © 2006 Prentice Hall, Inc.7 – 41 41 Improving Service Processes  Layout  Product exposure, customer education, product enhancement  Human Resources  Recruiting and training  Impact of flexibility

42. © 2006 Prentice Hall, Inc.7 – 42 42 Production Technology  Machine technology  Automatic identification systems (AIS)  Process control  Vision system  Robot  Automated storage and retrieval systems (ASRS)  Flexible manufacturing systems (FMS)  Computer-integrated manufacturing (CIM)

43. © 2006 Prentice Hall, Inc.7 – 43 43 Machine Technology  Increased precision  Increased productivity  Increased flexibility  Improved environmental impact  Reduced changeover time  Decreased size  Reduced power requirements

44. © 2006 Prentice Hall, Inc.7 – 44 44 Automatic Identification Systems (AIS): These systems help us move data into electronic form, whereby it is easily manipulated.  Improved data acquisition  Reduced data entry errors  Increased speed  Increased scope of process automation  Example: Radio frequency identification for tracking everything!

45. © 2006 Prentice Hall, Inc.7 – 45 45 Process Control: Use of Information Technology to monitor and control a physical process.  Increased process stability  Increased process precision  Real-time provision of information for process evaluation  Data available in many forms  Example: Sensors, Computer Programs read file and analyze the data.

46. © 2006 Prentice Hall, Inc.7 – 46 46 Process Control Software: controls the flow of sugars and fruits into a juice mixer.

47. © 2006 Prentice Hall, Inc.7 – 47 47 Vision Systems: Combine video cameras and computer technology and are often used in inspection roles.  Particular aid to inspection  Consistently accurate  Never bored  Modest cost  Superior to individuals performing the same tasks  Example: inspecting French fries so that imperfections can be identified by the end of the line.

48. © 2006 Prentice Hall, Inc.7 – 48 48 Robots  Perform monotonous or dangerous tasks  Perform tasks requiring significant strength or endurance  Generally enhanced consistency and accuracy

49. © 2006 Prentice Hall, Inc.7 – 49 49 Robotic Surgery

50. © 2006 Prentice Hall, Inc.7 – 50 50 Automated Storage and Retrieval Systems (ASRS)  Provide for the automated placement and withdrawal of parts and products  Reduced errors and labor  Particularly useful in inventory and test areas of manufacturing firms  Such systems are commonly used in distribution facilities of retailers such as Wal-Mart.

51. © 2006 Prentice Hall, Inc.7 – 51 51 Automated Guided Vehicle (AGV)  Electronically guided and controlled carts  Used for movement of products and/or individuals

52. © 2006 Prentice Hall, Inc.7 – 52 52 Flexible Manufacturing Systems (FMS)  Computer controls both the workstation and the material handling equipment  Enhance flexibility and reduced waste  Can economically produce low volume at high quality  Reduced changeover time and increased utilization  Stringent communication requirement between components

53. © 2006 Prentice Hall, Inc.7 – 53 53 Computer Integrated Manufacturing (CIM)  Extension of flexible manufacturing systems  Backwards to engineering and inventory control  Forward into warehousing and shipping  Can also include financial and customer service areas  Reducing the distinction between low- volume/high-variety, and high- volume/low-variety production

54. © 2006 Prentice Hall, Inc.7 – 54 54 Computer Integrated Manufacturing (CIM) Top management decides to make a product OM runs the production process Computer- aided design (CAD) designs the product Computer-aided manufacturing (CAM) Robots put the product together Automated storage and retrieval system (ASRS) and automated guided vehicles (AGVs) Management Information System FMS CIM Figure 7.11

55. © 2006 Prentice Hall, Inc.7 – 55 55 Technology in Services Service IndustryExample Financial ServicesDebit cards, electronic funds transfer, ATMs, Internet stock trading EducationElectronic bulletin boards, on-line journals Utilities and government Automated one-man garbage trucks, optical mail and bomb scanners, flood warning systems Restaurants and foods Wireless orders from waiters to kitchen, robot butchering, transponders on cars that track sales at drive-throughs CommunicationsElectronic publishing, interactive TV Table 7.4

56. © 2006 Prentice Hall, Inc.7 – 56 56 Technology in Services Service IndustryExample HotelsElectronic check-in/check-out, electronic key/lock system Wholesale/retail trade Point-of-sale terminals, e-commerce, electronic communication between store and supplier, bar coded data TransportationAutomatic toll booths, satellite-directed navigation systems Health careOnline patient-monitoring, online medical information systems, robotic surgery AirlinesTicketless travel, scheduling, Internet purchases Table 7.4