PROCESS STRATEGY

OVERVIEWProcess Strategies

Service Process Design

Capacity

PROCESS STRATEGY

A process strategy is an organization’s approach to transform resources into goods and/or services.

The objective is to find a way to produce goods and/or services that meet customer demands and product specifications within cost and other managerial constraints.

FOUR PROCESS STRATEGIES

Process Focus: facilitates low-volume, high variety production

Repetitive Focus: uses previously prepared parts or components in a continuous process

Product Focus: facilitates high volume, low variety production

Mass Customization: facilitates production that accommodates high volume products that respond to changing or unique customer demands

PROCESS DESIGN

Variety

Process Mass

High Focus Customization

Moderate Repetitive

Product Focus

Low

Low Moderate High

Volume

PROCESS-FOCUSED STRATEGY EXAMPLESMachine shopsPrinting shopsCabinet shopsEmergency roomsFine dining restaurants

PROCESS-FOCUSED STRATEGYJob ShopFacilities organized by processSimilar processes are togetherLow volume, high variety productsVariable or “jumbled” flow Operation Product A

1 2 3 Product

B

CHARACTERISTICS OF PROCESS-FOCUSED STRATEGY

Positives - Greater product flexibility - More general purpose equipmentNegatives - More highly trained personnel - More difficult production planning - Low equipment utilization (5-25%)

REPETITIVE FOCUS STRATEGY EXAMPLESAutomobile manufacturingMotorcycle manufacturingAppliancesFast food restaurants

CHARACTERISTICS OF REPETITIVE FOCUSED STRATEGYAssembly or production lineuses modules or pre-made componentsComponents combined for different output optionsFacilities often organized by assembly linesMore structured than process but less structured

than product-focused strategyEnables quasi-customizationModules allow economic advantage of continuous

process with some custom advantage of low-volume, high-variety model

PRODUCT FOCUS STRATEGY EXAMPLESGlass manufacturingSteel manufacturingBeer productionHardware manufacturingLight bulbsPaper productsCommercial bread making

CHARACTERISTICS OF PRODUCT-FOCUS STRATEGYContinuous productionFacilities organized by productHigh volume, low varietyHigh facility utilizationEasier to set and measure quality standards

CHARACTERISTICS OF PRODUCT FOCUS STRATEGYLower variable cost per uniteasier production planning and controlHigher equipment utilization (70-90%)Lower but somewhat specialized labor skillsLow product flexibilityHigher capital investmentSpecialized equipment

MASS CUSTOMIZATIONBrings variety of products typically

provided by low volume manufacturing at the cost of high volume production

Uses technology and imaginationthe other 3 process models blur and

volume/variety issues become insignificantComputerization, flexible factories and

simultaneous engineering are evident

MASS CUSTOMIZATIONMORE CHOICE THAN EVER

ITEM EARLY 70’S LATE 90’S

Vehicle styles 18 1212

Bicycle types 8 19

Move releases 267 458

Book titles 40,530 77,446

Breakfast cereals 160 340

SERVICE PROCESS MATRIX

Labor Intensity

Mass Service Professional Service

High Commercial Banking General Law Firm

Service Factory Service Shop

Warehouse Store Fine Dining Restaurant

Low Fast Food Hospital

Low High

Customization

TECHNIQUES TO IMPROVE SERVICE PRODUCTIVITYSTRATEGY TECHNIQUESeparation Structuring services so

customers go where service is offeredSelf-service Customers examine,

compare and evaluate at their own pacePostponement Customize at deliveryFocus Restricting the offerings

TECHNIQUES TO IMPROVE SERVICE PRODUCTIVITYSTRATEGY TECHNIQUEModules Modular selection of service/ modular productionAutomation Separating services that may

lend themselves to some type of auto- mationScheduling Precise personnel scheduleTraining Service options/explain problems

CAPACITYDesign Capacity: Maximum theoretical

output of a system in a given periodEffective Capacity: The capacity a firm

expects to achieve given current operating constraints (% of Design Capacity)

- Product mix - Scheduling - Maintenance - Standards of quality

UTILIZATION, EFFICIENCY AND ANTICIPATED OUTPUTUtilization = Actual Output/Design CapacityEfficiency = Actual Output/Effective CapacityAnticipated Production = (Design Capacity)

(Effective Capacity)(Efficiency)

BILL’S GLASS COMPANY

Characteristics- 2 production lines for cutting standard

plate glass- Operates 5 days per week, 8 hours per

day- Each line is designed to produce 20 panes

per hour- Historical efficiency is 80%- Effective capacity is 90%

BILL’S GLASS COMPANYANTICIPATED PRODUCTIONMaximum Capacity = (2 lines)(5 days) (8

hours)(20 panes) = 1600 panes/week

Anticipated Production = (1600)(.90)(.80) = 1152 panes/week

MEETING CAPACITY REQUIREMENTS

Demand Expected Demand

New Capacity

1 2 3

Time (Years)

MEETING CAPACITY REQUIREMENTS

Demand Demand

New Capacity

1 2 3

Time (Years)

USING DECISION TREES TO MAKE DECISIONS ABOUT CAPACITYStudy pages 254 and 255The method of using a decision tree to make

decisions about capacity is similar to that discussed in Quantitative Module A (Decision Making Tools)

MANAGING DEMAND

Demand Exceeds Capacity - Raise prices - Schedule long lead times - Discourage marginally profitable businessCapacity Exceeds Demand - Reduce prices - Aggressive marketingSeasonal Demand - Offer complementary products

TACTICS TO MATCH CAPACITY WITH DEMANDIncrease or decrease staffAdjust equipment and processes (purchase or

sell or lease out equipment)Improve throughputRe-engineer the product to facilitate more

throughput