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SECTION 2STRATEGIC DESIGN
3º GADI- 5º DG-ADI-DER2013-2014
Slide presentation Chapter 4
Departamento de Organización de Empresas y Marketing
Área de Organización de Empresas
Operations Management I
Dirección de Operaciones I- English teaching
2
CHAPTER 4PROCESS SELECTION AND DESIGN
4.1. Process Strategy4.2. Process Focus4.3. Repetitive Focus4.4. Product Focus4.5. Mass Customization4.6. Comparison of Processes4.7. Process Analysis and Design4.8. Service Process Design
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Process, Volume, and Variety
Process Focusprojects, job shops
(machine, print, carpentry)
Standard Register
Repetitive(autos, motorcycles)
Harley Davidson
Product Focus(commercial
baked goods, steel, glass)Nucor Steel
High VarietyHigh Varietyone or few one or few units per run, units per run, high varietyhigh variety(allows (allows customization)customization)
Changes in Changes in ModulesModulesmodest runs, modest runs, standardized standardized modulesmodules
Changes in Changes in Attributes Attributes (such as grade, (such as grade, quality, size, quality, size, thickness, etc.) thickness, etc.) long runs onlylong runs only
Mass Customization(difficult to achieve, but huge rewards)Dell Computer Co.
Poor Strategy Poor Strategy (Both fixed and (Both fixed and variable costs variable costs
are high)are high)
Low Low VolumeVolume
Repetitive Repetitive ProcessProcess
High High VolumeVolume
VolumeVolume
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4.1 Process Strategy How to produce a product or provide a service thatHow to produce a product or provide a service that
Meets or exceeds customer requirementsMeets or exceeds customer requirements
Meets cost and managerial goalsMeets cost and managerial goals
Has long term effects onHas long term effects on Efficiency and production flexibilityEfficiency and production flexibility
Costs and qualityCosts and quality
Four basic strategiesFour basic strategies
Process focusProcess focus
Repetitive focusRepetitive focus
Product focusProduct focus
Mass customizationMass customization
Within these basic strategies there are many ways they may be Within these basic strategies there are many ways they may be implementedimplemented
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4.2 Process Focus
Low volume, high variety of products: “job shops”Low volume, high variety of products: “job shops”
Facilities are organized around specific activities or Facilities are organized around specific activities or processesprocesses
General purpose equipment and skilled personnelGeneral purpose equipment and skilled personnel
High degree of product flexibilityHigh degree of product flexibility
Each process designed to perform a wide variety of Each process designed to perform a wide variety of activities and handle frequent changes, “intermittent activities and handle frequent changes, “intermittent processes”processes”
Typically high variable costs and low equipment Typically high variable costs and low equipment utilizationutilization
Product flows may vary considerably making planning Product flows may vary considerably making planning and scheduling a challengeand scheduling a challenge
Examples: restaurants, hospitals, print shopExamples: restaurants, hospitals, print shop
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Example: Print Shop
Many Many inputsinputs
High High variety variety
of of outputsoutputs
Print ShopPrint Shop
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4.3 Product Focus
Facilities are organized by productFacilities are organized by product
High volume but low variety of productsHigh volume but low variety of products
Long, continuous production runs enable efficient Long, continuous production runs enable efficient processesprocesses
Also known as “continuous processes”Also known as “continuous processes”
Typically high fixed cost but low variable cost (high Typically high fixed cost but low variable cost (high facility utilization)facility utilization)
Generally less skilled laborGenerally less skilled labor
High standardization and effective quality controlHigh standardization and effective quality control
Examples: glass, paper, steel, beerExamples: glass, paper, steel, beer
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Example: Product Focus (flow diagram)
Nucor Steel PlantNucor Steel Plant
Co
nti
nu
ou
s ca
ster
Co
nti
nu
ou
s ca
ster
Continuous cast steel Continuous cast steel sheared into 24-ton slabssheared into 24-ton slabs
Hot tunnel furnace - 300 ftHot tunnel furnace - 300 ft
Hot mill for finishing, cooling, and coilingHot mill for finishing, cooling, and coiling
DD
EE FF
GGHHII
Scrap Scrap steelsteel
Ladle of molten steelLadle of molten steelElectric Electric furnacefurnace
AA
BBCC
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4.4 Repetitive Focus
Between product focus and process focusBetween product focus and process focus
Facilities often organized as assembly linesFacilities often organized as assembly lines
Characterized by modules with parts and assemblies Characterized by modules with parts and assemblies made previously: “work cells”made previously: “work cells”
Modules may be combined for many output optionsModules may be combined for many output options
Less flexibility than process-focused facilities but more Less flexibility than process-focused facilities but more efficientefficient
Examples: fast food restaurants, automobile companiesExamples: fast food restaurants, automobile companies
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Example: Harley-Davidson (flow diagram)
THE ASSEMBLY LINETHE ASSEMBLY LINETESTING28 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 From Milwaukee on a JIT arrival on a JIT arrival scheduleschedule
Engines and transmissions
Frame tube bending
Frame-building work cells
Frame machining
Hot-paint frame painting
Crating
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4.5 Mass Customization
Vehicle modelsVehicle models 140140 260260Vehicle typesVehicle types 1818 1,2121,212Bicycle typesBicycle types 88 1919Software titlesSoftware titles 00 300,000300,000Web sitesWeb sites 00 46,412,16546,412,165Movie releasesMovie releases 267267 458458New book titlesNew book titles 40,53040,530 77,44677,446Houston TV channelsHouston TV channels 55 185185Breakfast cerealsBreakfast cereals 160160 340340Items (SKUs) in Items (SKUs) in 14,00014,000 150,000150,000 supermarketssupermarkets
Number of ChoicesNumber of ChoicesEarly 21stEarly 21st
ItemItem Early 1970sEarly 1970s Century Century
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4.5 Mass Customization The rapid, low-cost production of goods and service to The rapid, low-cost production of goods and service to
satisfy increasingly unique customer desiressatisfy increasingly unique customer desires
Combines the flexibility of a process focus with the Combines the flexibility of a process focus with the efficiency of a product focusefficiency of a product focus
Brings the variety of products traditionally provided by Brings the variety of products traditionally provided by low-volume manufacture (process focus) at the cost of low-volume manufacture (process focus) at the cost of standardized high-volume (product focus)standardized high-volume (product focus)
Relies on modular design, effective scheduling and Relies on modular design, effective scheduling and rapid throughput (next slide)rapid throughput (next slide)
Build-to-order: produce to customer orders rather than Build-to-order: produce to customer orders rather than forecastsforecasts
Drives down inventories but increases pressure on Drives down inventories but increases pressure on scheduling and supply-chain performancescheduling and supply-chain performance
Examples: Dell Computer, General Motors, Toyota, Examples: Dell Computer, General Motors, Toyota, telephone service providerstelephone service providers
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4.5 Mass Customization
Modular techniquesModular techniques
Mass Customization
Effective Effective scheduling scheduling techniquestechniques
Rapid Rapid throughput throughput techniquestechniques
Repetitive FocusRepetitive FocusModular designModular design
Flexible equipmentFlexible equipment
Process-FocusedProcess-FocusedHigh variety, low volumeHigh variety, low volume
Low utilization Low utilization (5% to 25%)(5% to 25%)General-purpose equipmentGeneral-purpose equipment
Product-FocusedProduct-FocusedLow variety, high volumeLow variety, high volume
High utilization High utilization (70% to 90%)(70% to 90%)Specialized equipmentSpecialized equipment
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4.6 Comparison of Processes
Process Focus
(Low volume, high variety)
Repetitive Focus
(Modular)
Product Focus
(High-volume, low-variety)
Mass Customization
(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
15
Process Focus
(Low volume, high variety)
Repetitive Focus
(Modular)
Product Focus
(High-volume, low-variety)
Mass Customization
(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
4.6 Comparison of Processes
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Process Focus
(Low volume, high variety)
Repetitive Focus
(Modular)
Product Focus
(High-volume, low-variety)
Mass Customization
(High-volume, high-variety)
Raw material inventories high
JIT procurement techniques used
Raw material inventories are low
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
4.6 Comparison of Processes
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Process Focus
(Low volume, high variety)
Repetitive Focus
(Modular)
Product Focus
(High-volume, low-variety)
Mass Customization
(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
4.6 Comparison of Processes
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Process Focus
(Low volume, high variety)
Repetitive Focus
(Modular)
Product Focus
(High-volume, low-variety)
Mass Customization
(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
4.6 Comparison of Processes
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Process Focus
(Low volume, high variety)
Repetitive Focus
(Modular)
Product Focus
(High-volume, low-variety)
Mass Customization
(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
4.6 Comparison of Processes
20
4.7 Process Analysis and DesignBasic questions about the process:Basic questions about the process: Is it designed to achieve competitive Is it designed to achieve competitive
advantage?advantage? Does it eliminate steps that do not add value?Does it eliminate steps that do not add value? Does it maximize customer value as perceived Does it maximize customer value as perceived
by the customer?by the customer? Will it win orders?Will it win orders?
Changing processes:Changing processes:
Difficult and expensiveDifficult and expensive
May mean starting overMay mean starting over
Process strategy determines transformation strategy Process strategy determines transformation strategy for an extended periodfor an extended period
Important to get it rightImportant to get it right
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4.7 Process Analysis and Design Flow Diagrams - Show the movement of Flow Diagrams - Show the movement of
materials, product or people; provide a view of materials, product or people; provide a view of the big picturethe big picture
Time-Function Mapping - Shows flows and time Time-Function Mapping - Shows flows and time frame; adds rigor and a time frameframe; adds rigor and a time frame
Value Stream Mapping - Shows flows and time Value Stream Mapping - Shows flows and time and value added beyond the immediate and value added beyond the immediate organization; extends to customers and organization; extends to customers and supplierssuppliers
Process Charts - Use symbols to show key Process Charts - Use symbols to show key activities; show detailsactivities; show details
Service Blueprinting - focuses on Service Blueprinting - focuses on customer/provider interactioncustomer/provider interaction
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Time-Function Mapping (baseline)
CustomerCustomer
SalesSales
Production Production controlcontrol
Plant APlant A
WarehouseWarehouse
Plant BPlant B
TransportTransport Move
Receive product
Extrude
Wait
Move
Wait
Wait
Order product
Process order
Wait
12 days12 days 13 days13 days 1 day1 day 4 days4 days 1 day1 day 10 days10 days 1 day1 day 0 day0 day 1 day1 day
52 days52 days
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Time-Function Mapping (target)
CustomerCustomer
SalesSales
Production Production controlcontrol
PlantPlant
WarehouseWarehouse
TransportTransport Move
Receive product
Extrude
Wait
Order product
Process order
Wait
1 day1 day 2 days2 days 1 day1 day 1 day1 day 1 day1 day
6 days6 days
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Service Blueprint
For products with a high service contentFor products with a high service content
Focuses on the customer and provider Focuses on the customer and provider interactioninteraction
Defines three levels of interactionDefines three levels of interaction
Each level has different management issuesEach level has different management issues
Identifies potential failure pointsIdentifies potential failure points
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Service BlueprintPersonal Greeting Service Diagnosis Perform Service Friendly 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 invoice
YesYesYesYes
LevelLevel#3#3
LevelLevel#1#1
LevelLevel#2#2
Potential failure pointPotential failure point
NoNo
Notifycustomer
and recommendan alternative
providerStandard request
Determine specifics
NoNo
Canservice be
done and does customer approve?
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4.8 Service Process Design
Labor involvement is highLabor involvement is high Selection and training highly importantSelection and training highly important Focus on human resourcesFocus on human resources Personalized servicesPersonalized services
Mass Service and Professional ServiceMass Service and Professional Service
Service Factory and Service ShopService Factory and Service Shop Standardize (fast-food), automate (airlines: Standardize (fast-food), automate (airlines:
ticketing) and remove some services (sit ticketing) and remove some services (sit assignment: Southwest Airlines)assignment: Southwest Airlines)
Low labor intensity responds well to process Low labor intensity responds well to process technology and schedulingtechnology and scheduling
Tight control required to maintain standardsTight control required to maintain standards
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Service FactoryService Factory Service ShopService Shop
Degree of CustomizationDegree of Customization
LowLow HighHigh
Deg
ree
of
Lab
or
Deg
ree
of
Lab
or
LowLow
HighHigh
Mass ServiceMass Service Professional ServiceProfessional Service
Service Process Matrix
Commercial banking
Private banking
General-purpose law firms
Law clinicsSpecialized hospitals
Hospitals
Full-service stockbroker
Limited-service stockbroker
Retailing
Boutiques
Warehouse and catalog stores
Fast food restaurants
Fine-dining restaurants
Airlines
No frills airlines