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MBA 570Summer 2011
Process and Product Strategies
McDonald’sover 95 billion served
McDonald’sover 95 billion served
Thinking ChallengeThinking Challenge
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.’
© 1984-1994 T/Maker Co.
Thinking ChallengeThinking Challenge
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’sover 95 billion served
McDonald’sover 95 billion served
© 1984-1994 T/Maker Co.
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.
Solution*Solution*
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
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
Product or Service Design Activities
Reasons for Product or Service Design
Economic Social and demographic Political, liability, or legal Competitive Technological
Objectives of Product and Service Design Main focus
◦ Customer satisfaction Secondary focus
◦ Function of product/service◦ Cost/profit◦ Quality◦ Appearance◦ Ease of production/assembly◦ Ease of maintenance/service
Taking into account the capabilities of the organization in designing goods and services
Designing For Operations
Legal◦ FDA, OSHA, IRS◦ Product liability◦ Uniform commercial code
Ethical◦ Releasing products with defects
Environmental◦ EPA
Legal, Ethical, and Environmental Issues
Regulations & Legal Considerations
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.
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!!
Other Issues in Product and Service Design
Product/service life cycles How much standardization Product/service reliability Range of operating conditions
Standardization
Standardization ◦ Extent to which there is an absence of variety in
a product, service or process Standardized products are immediately
available to customers
Advantages of Standardization 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
Advantages of Standardization (Cont’d)
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.
• Delayed differentiation is a postponement tactic◦ Producing but not quite completing a
product or service until customer preferences or specifications are known
Delayed Differentiation
Reverse Engineering
Reverse engineering is thedismantling and inspecting of a competitor’s product to discover product improvements.
Introduction to Process StrategiesIntroduction to Process Strategies
Process Choice: The Product/Process Matrix
Process TypesProject – 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.
Process Choice: The Product/Process Matrix
Process TypesAssembly 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.
Process DecisionsProcess Decisions 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
Types of Process StrategiesTypes of Process Strategies
Continuum
Process strategies follow a continuum Within a given facility, several strategies may
be used
Types of Process StrategiesTypes of Process Strategies
Continuum
Product-Focused
Process-Focused
The strategies are often classified as:
Process-Focused StrategyProcess-Focused Strategy
Process-Focused StrategyProcess-Focused Strategy
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
11 22 33
Process-Focused Strategy ExamplesProcess-Focused Strategy Examples
Machine Shop
Hospital
Bank
© 1995 Corel Corp.© 1995 Corel Corp.
© 1995 Corel Corp.
Process-Focused Strategy Pros & ConsProcess-Focused Strategy Pros & Cons
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%)
Process Oriented LayoutProcess-oriented (“functional”) Layout
Organized by function
Steps completed in any sequence
AdvantagesFlexibility and customization
DisadvantagesHigher cost per unit
Higher skilled, high cost employees
Transport/wait time between departments Less consistency across products or services
Product-Focused StrategyProduct-Focused Strategy
Product-Focused StrategyProduct-Focused Strategy
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 & B11 22 33
Product-Focused Strategy ExamplesProduct-Focused Strategy Examples
Paper (Continuous)
Soft Drinks (Continuous, then Discrete)
© 1995 Corel Corp.© 1995 Corel Corp.
Light Bulbs (Discrete)
© 1984-1994 T/Maker Co.
McDonald’sover 95 billion served
McDonald’sover 95 billion served
Fast Food(Discrete)
Product Oriented Layout
AdvantagesEfficient production of standardized goods and servicesHigh processing speedLow cost per unit
DisadvantagesLack of flexibility or customizationEmployee boredom/ dissatisfactionQuality problems
Product-Focused StrategyPros & ConsProduct-Focused StrategyPros & Cons
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
Product vs. Process LayoutsTransition from Process to Product Layout may be triggered by age of the product
Early in life-cycle Not much information
on what customers want
Adopt process-orientation to remain flexible and produce many varieties
Late in life-cycle Much better
understanding of what customers want
Shift to product-orientation with fewer options
Process Continuum
Process Focused(intermittent process)
Repetitive Focus(assembly line)
Product Focused (continuous process)
Continuum
High variety, low volumeLow utilization (5% - 25%)
General-purpose equipment
Low variety, high volumeHigh utilization (70% - 90%)
Specialized equipment
ModularFlexible equipment
Factors Affecting Process AlternativesFactors Affecting Process Alternatives
Production flexibility◦ Product volume◦ Product variety
Technology Cost Human resources Quality Reliability
These factors reduce the number of alternatives!
These factors reduce the number of alternatives!
© 1984-1994 T/Maker Co.
Process Investment EvaluationProcess Investment Evaluation
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)
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?
Volume and Variety of Products
Volume andVariety ofProducts
Low Volume HighVariety Process
(Intermittent)
RepetitiveProcess
(Modular)
High VolumeLow Variety
Process(Continuous)
One or very fewunits per lot
Projects
Very small runs, highvariety
Job Shops
Modest runs, modestvariety
DisconnectedRepetitive
Long runs, modestvariations
ConnectedRepetitive
Very long runs,changes inattributes
Continuous
Equipment utilization 5%-25% 20%-75% 70%-80%
Poor Strategy(High variable
costs)
Mass Customization
• Mass customization:◦ A strategy of producing standardized
goods or services, but incorporating some degree degree of customization
◦ Delayed differentiation◦ Modular design
Mass Customization
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.
Service-System Design Matrix
Mail contact
Face-to-faceloose specs
Face-to-facetight specs
PhoneContact
Face-to-facetotal
customization
Buffered core (none)
Permeable system (some)
Reactivesystem (much)
High
LowHigh
Low
Degree of customer/server contact
Internet & on-site
technology
SalesOpportunity
ProductionEfficiency
Phases in Service Design1.Conceptualize2. Identify service package components3.Determine performance specifications4.Translate performance specifications into
design specifications5.Translate design specifications into
delivery specifications
Service BlueprintingProcess Mapping
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
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.
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.
Creating a Process Map
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.
Major Steps in Service Blueprinting/Mapping
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.
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.
Characteristics of Well Designed Service Systems
1. Consistent with the organization mission
2. User friendly3. Robust4. Easy to sustain5. Cost effective6. Value to customers7. Effective linkages between back
operations8. Single unifying theme9. Ensure reliability and high quality
Challenges of Service Design
Variable requirements Difficult to describe High customer contact Service – customer encounter
Mapping Tools
Tools Continued
Example of Service Blueprinting
Brushshoes
Applypolish
Failpoint
BuffCollect
payment
Cleanshoes Materials
(e.g., polish, cloth)
Select andpurchasesupplies
Standardexecution time
2 minutes
Total acceptableexecution time
5 minutes
30secs
30secs
45secs
15secs
Wrongcolor wax
Seen bycustomer 45
secs
Line ofvisibility
Not seen bycustomer butnecessary toperformance
Process Map of Training Authorization
Service Blueprint of Luxury Hotel
Service Blueprinting (Bank Lending Operation
Example) Loan application Branch Officer Pay book 30min--1hr.
Line of visibility
Deny
1 day 2 days 3 days
Fail point Customer wait Employee decision
===========
===== $ 0 $ ==== =====
Receive Payment
Final paymentDecline Notify
customerIssuecheck
Confirm
Creditcheck
AcceptPrint
paymentbook
DelinquentClose
account
Verifyincome
dataInitial
screening
Verifypayer
Employer Creditbureau Branch
recordsBank
accounts Accounting
Data baserecords
F W
Con
firm
ww
F
F
F
F
F
F
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.
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.
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