Krajewski Om9 Ppt 03

3 – 1Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Process Strategy3

For Operations Management, 9e by Krajewski/Ritzman/Malhotra © 2010 Pearson Education

PowerPoint Slides by Jeff Heyl


Process Strategy

This chapter focuses on process strategy, which specifies the pattern of decisions made in managing processes so that the processes will achieve their competitive priorities assigned to it, such as quality, flexibility, time, and cost.


Process Strategy Across the Organization

1) Emphasize that processes are everywhere, in all functional areas of the enterprise.As explained in Chapter 1: processes are found in

accounting, finance, human resources, management information systems, marketing, and operations.

They are the basic unit of work. 2) Managers must see to it that processes in all departments

are adding as much customer value as possible.


Process Strategy Across the Organization

3) Three particularly important principles concerning process strategy:Successful process decisions require choices that fit the

situation and make sense together (strategic fit).Individual processes are the building blocks that

eventually create the firm’s whole supply chain.Management must pay particular attention to the

interfaces between processes whether they are performed internally or externally by outside suppliers or customers. These interfaces underscore the need for cross-functional coordination.


Process Strategy Decisions

Process strategy is the pattern of decisions made in managing processes so that they will achieve their competitive priorities. Process strategy is the selection of the human resources, equipment, work flows, and methods that transform inputs into outputs. It begins with deciding what to do in-house and what to outsource.They underlie all work activity throughout the

organization.They are nested within other processes along an

organization’s supply chains.The recurring question is how to provide a service or

make a product.



Four common process decisions Process structure: determines the process type

relative to the kinds of resources needed, how resources are partitioned between them, and their key characteristics. A layout, which is the physical arrangement of operations created from the various processes, puts these decisions into tangible form.

Customer involvement: reflects the ways in which customers become part of the process and the extent of their participation.



Resource flexibility: is the ease with which employees and equipment can handle a wide variety of products, output levels, duties, and functions.

Capital intensity: is the mix of equipment and human skills in process. The greater the relative cost of equipment, the greater is the capital intensity.



Figure 3.1 – Major Decisions for Effective Processes

Process Structure• Customer-contract position

(services)• Product-process position

(manufacturing)• Layout

Resource Flexibility• Specialized• Enlarged

Customer Involvement• Low involvement• High involvement

Effective Process Design

Strategy for Change• Process reengineering• Process improvement

Capital Intensity• Low automation• High automation


Process Structure in Services

1. Nature of Service Processes: Customer Contact

A. A good process strategy for a service process:Depends on the type and amount of

customer contact.Customer contact: the extent to which the

customer is present, is actively involved, and receives personal attention during the service process.



B. Dimensions of customer contactPhysical presence (face-to-face interaction

is sometimes called a moment of truth, or service encounter)

What is processedPeople-processing servicesPossession-processing servicesInformation-based services



Contact intensityActive contact: the customer is very

much a part of the creation of the service, and affects the service process itself. Dental, psychiatric services for example.

Passive contact: the customer is not involved in tailoring the process to meet special needs, or in how the process is performed. Public transportation, theaters, for example.



Personal attentionWhen contact is more personal, the

customer “experiences” the service rather than just receiving it.

Method of delivery usedFace-to-face or telephone versus regular

mail or standardized e-mail message



2. Customer-contact matrix (fitting the service processes with customer contact)

A. Customer contact and customizationA key competitive priority is how much

customization is neededCompetitive priorities require more

customization, the more the customer is present and actively involved.



B. Process divergence, and flowProcess divergence: is the extent to which

the process is highly customized with considerable latitude as to how it is performed

High divergence involves much judgment and discretion. Consulting and law, for example

Low divergence is more repetitive and standardized

Process flow, closely related to divergence, may range from highly diverse to linear.

Flexible flow means movements in diverse ways. Line flow means movement in fixed sequence.



TABLE 3.1 | DIMENSIONS OF CUSTOMER CONTACT IN SERVICE | PROCESSES

Dimension High Contact Low Contact

Physical presence Present Absent

What is processed People Possessions or information

Contact intensity Active, visible Passive, out of sight

Personal attention Personal Impersonal

Method of delivery Face-to-face Regular mail or e-mail



3. Service process structuring (three process structures forming a continuum)Front office: a process with higher customer

contact where the service provider interacts directly with the customer

Hybrid office: a process with moderate levels of customer contact and standard services with some options available

Back office: a process with low customer contact where the service provider interacts little with the customer


Service Process Structuring

Front office

Hybrid office

Back office

Less customer contact and customization

Les

s p

roce

sses

div

erg

ence

an

d m

ore

lin

e f

low

s

(1) (2) (3)High interaction with Some interaction with Low interaction withcustomers, highly customers, standard customers, standardizedcustomized service services with some options services

ProcessCharacteristics

(1)Flexible flows withIndividual processes

(2)Flexible flows withsome dominantpaths, withsome exceptions to how work performed

(3)Line flows, routinework same with all customers

Figure 3.2 – Customer-Contact Matrix for Service Processes


Process Structure in Manufacturing

Many processes in a manufacturing setting are actually services to internal (or

external) customers, so the previous section applies also to manufacturing.



Manufacturing processes convert materials into goods that have a physical form.

1. Product-process matrix

A. Three elementsVolumeProduct customizationProcess characteristics

B. A good strategy for a manufacturing structure depends first on volume.



C. Customer contact is not normally a consideration for manufacturing processes, although it is a factor for the service processes in manufacturing organizations.

D. Vertical dimension deals with the same two characteristics in the customer-contact matrix: divergence and flow



2. Manufacturing process structuringA. Process choice: A way of structuring the process by

organizing resources around the process or organizing them around the products

B. Four process choices, forming a continuumJob process: A process with the flexibility needed to

produce a wide variety of products in significant quantities, with considerable divergence in the steps performed.

Batch process, higher volumes, batching of customer orders. Further differentiated as small batch and large batch processes.

Line process, high-volumes, standardized products, dedicated resources, repetitive manufacturing

Continuous flow process, the extreme end of high-volumes, rigid line flows. Primary material moves without stopping.



3. Production and inventory strategiesA. Make-to-order strategy

Make products to customer specifications in low volumes with job or small batch processes,

Matches up with flexibility (customization) and top quality

B. Assemble-to-order strategyProducing a wide variety of products from relatively few

subassemblies and components after the customers orders are received

Allows delivery speed and high process divergencePrinciple of postponement (the strategy of delaying final

activities in the provision of a product until the orders are received).



C. Make-to-stock strategyFeasible for standardized products with high volumes

and reasonably accurate forecasts with line or continuous flow processes

Holding items in stock for immediate deliveryCombined with line process, it is sometimes called mass

productionChoice for delivery speed and low cost


Product-Process Matrix

Continuousprocess

Jobprocess

Lineprocess

Large batchprocess

Small batchprocess

(1) (2) (3) (4)Low-volume Multiple products with low Few major High volume, highproducts, made to moderate volume products, standardization,to customer higher commodity order volume products

ProcessCharacteristics

(1)Customized process, with flexible and unique sequence of tasks

(2)Disconnected line flows, moderately complex work

(3)Connected line, highly repetitive work

(4)Continuous flows

Le

ss

co

mp

lex

ity,

le

ss

div

erg

en

ce

, a

nd

mo

re l

ine

flo

ws

Less customization and higher volume

Batch processes

Figure 3.3 – Product-Process Matrix for Processes



4. LayoutA. Human and capital resources used by processes

at an operation that must be arranged physically within their facilities.

B. One approach to layout design seeks to give form to process structure. The objective is to position those operations close together that have strong interactions between them. It involves three basic steps, whether the design is for a new layout or for revising an existing layout.



Step 1: gather information Space requirements by operation

Tie space requirements to capacity and staffing plans. Calculate specific equipment and space needs for each operation Add “circulation” space such as aisles. Consult with the managers and employees involved

Available space and current block plan Closeness factors

Which items need to be close to each other, and which should not be close to each other?

Closeness Matrix A table that gives the relative importance of each pair of centers being

located close together. Closeness factors are indicators of the need for proximity based on an

analysis of information flows and the need for face-to-face meetings.



For the general case of n centers in a layout, there are n-1 closeness factors found either in the row or column assigned to the center.

At a manufacturing plant, the closeness factor could be the number of trips between each pair of operations per day.

Other considerations Absolute location criteria—departments fixed in place: relocation costs,

foundations, noise levels, and so forth.

Department Area Needed (ft2)

1. Administration 3,500

2. Social services 2,600

3. Institutions 2,400

4. Accounting 1,600

5. Education 1,500

6. Internal audit 3,400

Total 15,000


Layout

Department Area Needed (ft2)

1. Administration 3,500

2. Social services 2,600

3. Institutions 2,400

4. Accounting 1,600

5. Education 1,500

6. Internal audit 3,400

Total 15,000

Gather information on space requirements, available space, and closeness factors


150’

100’

Block Plan

1 2

3 4

5

6

Figure 3.4 – Current Block Plan for the Office of Budget Management


Closeness Matrix

Closeness Factors

Department 1 2 3 4 5 6

1. Administration ― 3 6 5 6 10

2. Social services ― 8 1 1

3. Institutions ― 3 9

4. Accounting ― 2

5. Education ― 1

6. Internal audit ―


Requirements

There are two absolute requirements for the new layout

1. Education should remain where it is

2. Administration should remain where it is

Closeness Factors





4. Accounting ― 2

5. Education ― 1



Developing a Block Plan

EXAMPLE 3.1

Develop an acceptable block plan for the Office of Budget Management that locates departments with the greatest interaction as close to each other as possible.

SOLUTION

Using closeness ratings of 8 and above, you might plan to locate departments as follows:

a. Departments 1 and 6 close together

b. Departments 3 and 5 close together

c. Departments 2 and 3 close together

Departments 1 and 5 should remain at their current locations

Closeness Factors





4. Accounting ― 2

5. Education ― 1



150’

100’

Developing a Block Plan

Figure 3.5 – Proposed Block Plan

1 54

6 32

a. Departments 1 and 6 close togetherb. Departments 3 and 5 close togetherc. Departments 2 and 3 close together


The Weighted-Distance Method

The weighted-distance method can be used to compare alternative block plans when relative locations are important

Euclidian distance is the straight-line distance between two possible points

22BABAAB yyxxd

wheredAB = distance between points A and BxA = x-coordinate of point AyA = y-coordinate of point AxB = x-coordinate of point ByB = y-coordinate of point B


The Weighted-Distance Method

Rectilinear distance measures the distance between two possible points with a series of 90-degree turns

BABAAB yyxxd

The objective is to minimize the weighted-distance score (wd)

A layout’s wd score is calculated by summing the products of the proximity scores and distances between centers


Application 3.1

Rectilinear Distance

dAB = |20 – 80| + |10 – 60| =

Euclidian Distance

What is the distance between (20,10) and (80,60)?

dAB = (20 – 80)2 + (10 – 60)2

=


Application 3.1

Rectilinear Distance

dAB = |20 – 80| + |10 – 60| =

Euclidian Distance

dAB = (20 – 80)2 + (10 – 60)2

What is the distance between (20,10) and (80,60)?

110

= 78.1


Calculating the WD Score

EXAMPLE 3.2

How much better is the proposed block than the current block plan?

SOLUTION

The following table lists pairs of departments that have a nonzero closeness factor and the rectilinear distances between departments for both the current plan and the proposed plan

6

1

2

4 5

33

1 2

6

5

4

Current Block Plan Proposed Block Plan



Current Plan Proposed Plan

Department Pair

Closeness Factor (w)

Distance (d)

Weighted-Distance Score (wd)

Distance (d)


1, 23

1, 36

1, 45

1, 56

1, 610

2, 38

2, 41

2, 51

3, 43

3, 59

4, 52

5, 61


3 15

2 12

2 20

2 16

2 2

1 1

2 6

3 27

1 2

2 2

Total 112


2 6

1 6

1 3

3 18

1 5

2 12

1 10

1 8

1 1

2 2

2 6

1 9

1 2

3 3

Total 82


Department Pair

Closeness Factor (w)

Distance (d)


Distance (d)


1, 23

1, 36

1, 45

1, 56

1, 610

2, 38

2, 41

2, 51

3, 43

3, 59

4, 52

5, 61


OM Explorer Analysis

Figure 3.6 – Second Proposed Block Plan (Analyzed with Layout Solver)


Application 3.2

Matthews and Novak Design Company has been asked to design the layout for a newly constructed office building of one of its clients. The closeness matrix showing the daily trips between its six department offices is given below.

Departments Trips between Departments

1 2 3 4 5 6

1 25 90 165

2 105

3 125 125

4 25

5 105

6


DepartmentPair

ClosenessFactor

Distance Score

3 6 1

1, 6 165 1 165 2 5 4

3, 5 125

3, 6 125

2, 5 105 1 105

5, 6 105 1 105

1, 3 90

1, 2 25 3 75

4, 5 25 1 25

Total 1030

Application 3.2

Shown below on the right is a block plan that has been suggested for the building (original plan). Assume rectilinear distance. Students complete highlighted cells.

Based on the above results, propose a better plan and evaluate it in terms of the load-distance score.


DepartmentPair

ClosenessFactor

Distance Score

3 6 1

1, 6 165 1 165 2 5 4

3, 5 125

3, 6 125

2, 5 105 1 105

5, 6 105 1 105

1, 3 90

1, 2 25 3 75

4, 5 25 1 25

Total 1030

2 250

1 125

2 180

Application 3.2

Shown below on the right is a block plan that has been suggested for the building (original plan). Assume rectilinear distance. Students complete highlighted cells.

Based on the above results, propose a better plan and evaluate it in terms of the load-distance score.


DepartmentPair

ClosenessFactor Distance Score

4 6 1

1, 6165

2 5 3

3, 5125

3, 6125

2, 5105

5, 6105

1, 390

1, 225

4, 525

Total

Application 3.2


DepartmentPair

ClosenessFactor Distance Score

4 6 1

1, 6165

2 5 3

3, 5125

3, 6125

2, 5105

5, 6105

1, 390

1, 225

4, 525

Total

1165

1125

2250

1105

1105

190

375

250

965

Application 3.2


A Detailed Layout

Once a block plan has been selected, a detailed representation is created showing the exact size and shape of each center

Elements such as desks, machines, and storage areas can be shown

Drawings or models can be utilized

Options can be discussed and problems resolved


Customer Involvement

Possible disadvantagesCan be disruptive, making the process less

efficient Managing timing and volume can be

challenging Quality measurement can be difficult Requires interpersonal skills Layouts may have to be revised Multiple locations may be necessary


Customer Involvement

Possible advantages Increased net value to the customer Can mean better quality, faster delivery, greater

flexibility, and lower cost May reduce product, shipping, and inventory

costs May help coordinate across the supply chain Processes may be revised to accommodate the

customers’ role


Resource Flexibility

WorkforceImplications of a flexible workforce

Requires more education and trainingAlleviates capacity bottlenecks, volume flexibilityOften increased job satisfaction

Volume flexibility and needed skills determine the type of workforce.

Steady volume, high skills—permanent workforceVariable volume, low skills—part-time or temporary

employees to supplement permanent workforceVariable volume, high skills—trained flexible force

that can be moved to produce whatever the market demands


Resource Flexibility

EquipmentManagers must account for process divergence

and diverse process flows when making resource flexibility decisions. Break-even analysis can be useful.

Break-even analysis can be used to determine at what volumes changes in equipment should be made.


Break-Even Analysis

Process 2: Special-purpose equipment

Process 1: General-purpose equipment

Break-even quantity

Tota

l co

st (

do

llars

)

Units per year (Q)

F2

F1

Figure 3.7 – Relationship Between Process Costs and Product Volume


Application 3.3

Q = Fm – Fb

cb –

cm

BBC is deciding whether to weld bicycle frames manually or to purchase a welding robot. If welded manually, investment costs for equipment are only $10,000. the per-unit cost of manually welding a bicycle frame is $50.00 per frame. On the other hand, a robot capable of performing the same work costs $400,000. robot operating costs including support labor are $20.00 per frame.

At what volume would BBC be indifferent to these alternative methods?

welded manually (Make)

welded by robot (Buy)

Fixed costs $10,000 $400,000

Variable costs $50 $20

=

$10,000 – $400,000

$20 – $50 = 13,000 frames


Capital IntensityCapital intensity is the mix of equipment and human

skills in the process; the greater the relative cost of equipment, the greater is the capital intensity.

1. Automating manufacturing processesAdvantage

Classic way of improving productivity when volume is high

DisadvantagesAutomated (capital intensive) operations must have high

utilization. Automation may not fit with competitive priorities being

emphasized.More capital intensity is not always best.


Capital Intensity

Fixed automationHigh demand volumeStable product designLong life cycleFixed automation produces one type of part or

product in a fixed sequenceTypically requires large investments and is

relatively inflexible


Capital Intensity

Flexible automation. Useful in both low-customization and high-

customization Can be quickly set up to make a variety of

products in small batchesPerhaps show photos of the JustBorn robotsFlexible automation can be changed to handle

various productsIndustrial robots are classic examples of

flexible automation


Capital Intensity

2. Automating service processesCapital equipment may be used to automate

service processes. Examples:Long-distance learning technologyATMsFinancial services

Investment can be justified by cost reduction and increased task divergence through expanded customer choice

May impact customer contactMay be used in both front and back-office

operations


Capital Intensity

3. Economies of scope reflect the ability to produce multiple products

more inexpensively in combination than separately

Applies to manufacturing and servicesRequires sufficient collective volume


Strategic Fit

The process chosen should reflect the desired competitive priorities

The process structure has a major impact on customer involvement, resource flexibility, and capital intensity


Decision Patterns for Services

Front office

Hybrid office

Back office

Low customer-contact process

• Less complexity, less divergence, more line flows

• Less customer involvement• Less resource flexibility• Capital intensity varies with

volume

High customer-contact process

• More complexity, more divergence, more flexible flows

• More customer involvement• More resource flexibility• Capital intensity varies with

volume

Figure 3.8 – Decision Patterns for Service Processes

LowHighCustomer contact and customization

Maj

or

pro

ces

s d

ecis

ion

s


Decision Patterns for Manufacturing

Processes can be adjusted for the degree of customization and volume

Process flows can be made more or less linear

Competitive priorities must be considered when choosing processes



Competitive Priorities Process Choice

Competitive Priorities Production and Inventory Strategy

(b) Links with Production and Inventory Strategy

Top-quality, on-time delivery, and flexibility

Job process or small batch process

(a) Links with Process Choice

Low-cost operations, consistent quality, and delivery speed

Large batch, line, or continuous flow process

Top-quality, on-time delivery, and flexibility Make-to-order

Delivery speed and variety Assemble-to-order

Low-cost operation and delivery speed Make-to-stock

Figure 3.9 – Links of Competitive Priorities with Manufacturing Strategy



Continuousprocess

Jobprocess

Lineprocess

Large batchprocess

Small batchprocess

Batch processes

Figure 3.10 – Decision Patterns for Manufacturing Processes

Ma

jor

pro

ce

ss

d

ec

isio

ns

Low HighVolume

High-Volume, make-to-stock process

• Less process divergence and more line flows

• Less customer involvement• Less resource flexibility• More capital intensity

Low-Volume, make-to-order process

• More process divergence and more flexible flows

• More customer involvement• More resource flexibility• Less capital intensity


Gaining Focus

Operations can be focused by process segments when competitive priorities differ

Plants within plants (PWPs) are different operations under the same roof

Service can be focused in much the same way

Focused factories can be created by splitting a large plant into several smaller plants dedicated to narrower product lines


Strategies for Change

Process reengineering is the fundamental rethinking and radical redesign of a process to improve performance

Can be successful but it is not simple or easy

The people who are involved with the process each day are the best source of ideas on how to improve it

Process improvement is the systematic study of activities and flows of a process to find ways to improve it


Process Reengineering

TABLE 3.2 | KEY ELEMENTS OF REENGINEERING

Element Description

Critical processes Emphasis on core business processes, normal process improvement activities can continue with other processes

Strong leadership Strong leadership from senior executives to overcome resistance

Cross-functional teams A team with members from each functional area charged with carrying out the project

Information technology Primary enabler of the project as most reengineering projects involve information flows

Clean-slate philosophy Start with the way the customer wants to deal with the company and includes internal and external customers

Process analysis Must understand the current processes throughout the organization


Solved Problem 1

A defense contractor is evaluating its machine shop’s current layout. Figure 3.11 shows the current layout and the table shows the closeness matrix for the facility measured as the number of trips per day between department pairs. Safety and health regulations require departments E and F to remain at their current locations.

a. Use trial and error to find a better layout

b. How much better is your layout than the current layout in terms of the wd score? Use rectilinear distance.

Trips Between Departments

Department A B C D E F

A ― 8 3 9 5

B ― 3

C ― 8 9

D ― 3

E ― 3

F ―

E

A

B

C D

F

Figure 3.11 – Current Layout


Solved Problem 1

SOLUTION

a. In addition to keeping departments E and F at their current locations, a good plan would locate the following department pairs close to each other: A and E, C and F, A and B, and C and E. Figure 3.12 was worked out by trial and error and satisfies all these requirements. Start by placing E and F at their current locations. Then, because C must be as close as possible to both E and F, put C between them. Place A below E, and B next to A. All of the heavy traffic concerns have now been accommodated.

Trips Between Departments

Department A B C D E F

A ― 8 3 9 5

B ― 3

C ― 8 9

D ― 3

E ― 3

F ―

E F

A B

C

D

Figure 3.12 – Proposed Layout


Solved Problem 1


Department Pair

Number of Trips (1) Distance (2)

wd Score (1) (2) Distance (3)

wd Score (1) (3)

A, B 8 2 16 1 8

A, C 3 1 3 2 6

A, E 9 1 9 1 9

A, F 5 3 15 3 15

B, D 3 2 6 1 3

C, E 8 2 16 1 8

C, F 9 2 18 1 9

D, F 3 1 3 1 3

E, F 3 2 6 2 6

wd = 92 wd = 67

b. The table reveals that the wd score drops from 92 for the current plan to 67 for the revised plan, a 27 percent reduction.


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Krajewski Om9 Ppt 03