This lecture will cover the following topic:

Major Process Design Decisions

• Process Structure

•Process Structure in Services

•Process Structure in Manufacturing

•Customer Involvement

•Vertical Integration

•Resource Flexibility

•Capital Intensity

Major Process Design Major Process Design DecisionDecision

Chapter: FOURChapter: FOUR

Major Process Design Decisions Whether dealing with processes for offices, service providers, or manufacturers, operations managers must consider five common process decisions.1.Process structure determines how processes are designed relative to the kinds of resources needed, how resources are partitioned between them, and their key characteristics.2.Customer involvement reflects the ways in which customers become part of the process and the extent of their participation.3.Vertical integration is the degree to which a firm’s own production system or service facility handles the entire value chain.4.Resource flexibility is the ease with employees and equipment can handle a wide variety of products, output levels, duties, and functions.5.Capital intensity is the mix of equipment and human skills in a process. The greater the relative cost of equipment, the greater is the capital intensity.

Process Structure in Services

One of the first decisions a manager makes in designing a well-functioning process. Strategies for designing processes can be quite different, depending on whether a service is being provided or a product is being manufactured.

An effective service process design in one situation can be a poor choice in another. A process design that gets customers in and out of a fast-food restaurant quickly would not be the right process design strategy for a five-star restaurant, where customers seek a leisurely dining experience. Further, a good design strategy for the servers at a restaurant might be totally inappropriate for a process back in the restaurant’s business office.

A good process design for a service process depends

first and foremost on the type and amount of customer

contact. Customer contact is the extent to which the

customer is present, is actively involved, and receives

personal attention during the service process. Customer

contact at a process is important, regardless of whether

the customer is internal or external, and regardless of

whether the service process is at a manufacturing or

service organization.

Process Structure in Services…….Contd.

High Contact Dimension Low Contact

Present Physical Presence Absent

People What is Processed Possessions

Active, Visible

Contact IntensityPassive, out

of sight

Personal Personal Attention Impersonal

Face-to-face Method of Delivery Regular Mail

Figure : Different Dimensions of Customer Contact in Service Processes

Process Structure in Services…….Contd.

The first dimension is whether or not the customer is

physically present at the process. The higher the

percentage of time that the customer is present, the

higher the customers contact. Face-to-face interaction,

sometimes called a moment of truth or service

encounter, brings the customer and service providers

together. At that time, customer attitudes about the

quality of the service provided are shaped. Many

processes requiring physical presence are found in

health care, hospitality services, and passenger

transportation.

Process Structure in Services…….Contd.

A second dimension is what is being processed at

the service encounter. People processing services

involve tangible actions to customers in person. The

service is provided to the person, rather that for

the person, and so it requires physical presence.

Customers become part of the process, making the

service’s production simultaneous with its consumption.

The service is consumed after the process is finished,

rather than simultaneously with the service’s creation.

Such processes are common in insurance, news,

banking, education, and legal services.

Process Structure in Services…….Contd.

The intensity of customer contact goes one step

beyond physical presence and what is processed. It

deals with the extent to which the process

accommodates the customer, and it involves

considerable interaction and service customization.

Active contact usually means the process is visible to

the customer. Passive contact means that the customer

is not involved in tailoring the process to meet special

needs or in how the process is performed. Even if the

customer is present, he may simply be sitting in a

waiting room, standing in line, or perhaps living in a

hospital bed.

Process Structure in Services…….Contd.

A fourth dimension is the extent of personal attention

provided. High-contact processes are more intimate,

and they exhibit mutual confiding and trust between the

service provider and the customer. Impersonal contact

lies at the other end of the customer-contact continuum.

At a less intimate process, for example, the customer

might move through a standardized work flow or stand

in line at a ticket counter.

Process Structure in Services…….Contd.

A final dimension of customer contact is the method

used to be in contact. A high contact process would

use face-to-face or the telephone, assuring more clarity

is identifying customer needs and in deliver in the

service. A low-contact process would likely use a less

personable means to deliver the service. Regular mail or

standardized e-mail messages would be the preferred

way to exchange information for low-contact process.

Process Structure in Services…….Contd.

Process Structure in Manufacturing

Manufacturing processes convert materials into goods that

have a physical form. The transformation processes

change the properties of materials on one or more of the

following dimensions:

•change the material’s physical properties,

•change the material’s shape,

•machine parts to a fixed dimension,

•obtain a surface finish,

•assemble or join parts and materials.

For example, changing the material’s physical properties

could be a chemical reaction, cold working, hot working,

heat treatment, or refining/extraction.

Customer Involvement

The second key decision in process design strategy is

customer involvement. It reflects the way in which

customers become part of the process and the

extent of their participation. It is important for many

service processes, particularly if customers contact is

high.

A good place to begin increasing customer involvement

is making more of the process visible to the customer.

Vertical Integration Management decides the level of vertical integration by

looking at all the processes performed between the

acquisition of raw materials or outside services and the

delivery of finished products or services. The more

processes in the value chain that the organization

performs itself the more process vertically integrated it

is. If it does not perform some process itself, it must rely on

outsourcing, or paying suppliers and distributors to perform

those processes and provide needed services and materials.

When managers opt for more vertical integration, there is by

definition less outsourcing. These decisions are sometimes

called make-or-buy decisions, with a make decision meaning

more integration and a buy decision meaning more outsourcing.

Vertical integration can be in two directions:

(i)Backward integration represents a firm’s

movement upstream toward the source of raw materials

and parts, such as a major grocery chain having its own

plants to produce house brands of ice cream, frozen pizza

dough, and peanut butter.

(ii) Forward integration means that the firm

acquires more channels of distribution, such as its own

distribution centers and retail stores. It can also mean

that the firm goes even further by acquiring its business

customers.

Vertical Integration

Resource Flexibility

Just as managers must account for customer contact

when making customer involvement decisions, so must

they account for process divergence and diverse

process flows when making resource flexibility

decisions. High task divergence and jumbled

process flows require more flexibility of the

process’s resources-its employees, facilities, and

equipment. Employees need to perform a broad range

of duties, and equipment must be general purpose.

Otherwise, resource utilization will be too low for

economical operations.

Capital IntensityFor either the design of a new process or the redesign

of an existing one, managers must determine the

amount of capital intensity required. Capital 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. As

the capabilities of technology increase and its costs

decrease, managers face an ever-widening range of

choices, from operations utilizing very little automation

to those requiring task-specific equipment and very

little human intervention.