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Process StrategyProcess Strategy3
For For Operations Management, 9eOperations Management, 9e by by Krajewski/Ritzman/Malhotra Krajewski/Ritzman/Malhotra © 2010 Pearson Education© 2010 Pearson Education
PowerPoint Slides PowerPoint Slides by Jeff Heylby Jeff Heyl
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Process StrategyProcess Strategy
Principles of process strategy1. Make choices that fit the situation and that
make sense together, that have a close strategic fit
2. Individual processes are the building blocks that eventually create the firm’s whole supply chain
3. Management must pay particular attention to the interfaces between processes
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Process StrategyProcess Strategy
There are four basic process decisions
1. Process structure including layout
2. Customer involvement
3. Resource flexibility
4. Capital intensity
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Process Strategy DecisionsProcess Strategy Decisions
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
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Process Structure in ServicesProcess Structure in Services
Customer contact is the extent to which the customer is present, actively involved, and receives personal attention during the service process
Face-to-face interaction is sometimes called a moment of truth or a service encounter
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Process Structure in ServicesProcess Structure in Services
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
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Process Structure in ServicesProcess Structure in Services
The three elements of the customer-contact matrix are
1. The degree of customer contact
2. Customization
3. Process characteristics
Process characteristics include1. Process divergence deals with customization
and the latitude as to how tasks are performed
2. Flow is how customers, objects, or information are processed, and can be either line flow or flexible flow
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Service Process StructuringService 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
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Product-Process MatrixProduct-Process Matrix
For manufacturing organization it brings together
1. Volume
2. Product customization
3. Process characteristics
Process choices include job, batch, line, and continuous flow processes
Production and inventory strategies include make-to-order, assemble-to-order, and make-to-stock
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Product-Process MatrixProduct-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
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LayoutLayout
The physical arrangement of human and capital resources
An operation is a group of resources performing all or part of one or more processes
Layout involves three basic steps1. Gather information
2. Develop a block plan
3. Design a detailed layout
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LayoutLayout
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
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150’
100’
Block PlanBlock Plan
1 2
3 4
5
6
Figure 3.4 – Current Block Plan for the Office of Budget Management
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Closeness MatrixCloseness 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 ―
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RequirementsRequirements
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
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 ―
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Developing a Block PlanDeveloping 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
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 ―
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150’
100’
Developing a Block PlanDeveloping 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
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The Weighted-Distance MethodThe 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
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The Weighted-Distance MethodThe 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
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Application 3.1Application 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
=
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Application 3.1Application 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
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Calculating the WD ScoreCalculating 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
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Calculating the WD ScoreCalculating the WD Score
Current Plan Proposed Plan
Department Pair
Closeness Factor (w)
Distance (d)
Weighted-Distance Score (wd)
Distance (d)
Weighted-Distance Score (wd)
1, 2 3
1, 3 6
1, 4 5
1, 5 6
1, 6 10
2, 3 8
2, 4 1
2, 5 1
3, 4 3
3, 5 9
4, 5 2
5, 6 1
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3 15
2 12
2 20
2 16
2 2
1 1
2 6
3 27
1 2
2 2
Total 112
Calculating the WD ScoreCalculating the WD Score
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
Current Plan Proposed Plan
Department Pair
Closeness Factor (w)
Distance (d)
Weighted-Distance Score (wd)
Distance (d)
Weighted-Distance Score (wd)
1, 2 3
1, 3 6
1, 4 5
1, 5 6
1, 6 10
2, 3 8
2, 4 1
2, 5 1
3, 4 3
3, 5 9
4, 5 2
5, 6 1
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OM Explorer AnalysisOM Explorer Analysis
Figure 3.6 – Second Proposed Block Plan (Analyzed with Layout Solver)
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Application 3.2Application 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
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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 3.2Application 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.
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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 3.2Application 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.
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DepartmentPair
ClosenessFactor Distance Score
4 6 1
1, 6 165 2 5 3
3, 5 125
3, 6 125
2, 5 105
5, 6 105
1, 3 90
1, 2 25
4, 5 25
Total
Application 3.2Application 3.2
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DepartmentPair
ClosenessFactor Distance Score
4 6 1
1, 6 165 2 5 3
3, 5 125
3, 6 125
2, 5 105
5, 6 105
1, 3 90
1, 2 25
4, 5 25
Total
1 165
1 125
2 250
1 105
1 105
1 90
3 75
2 50
965
Application 3.2Application 3.2
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A Detailed LayoutA 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
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Customer InvolvementCustomer Involvement
Possible disadvantages
Can be disruptive 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
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Customer InvolvementCustomer 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
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Resource FlexibilityResource Flexibility
A flexible workforce can often require higher skills and more training and education
Worker flexibility can help achieve reliable customer service and alleviate bottlenecks
Resource flexibility helps absorb changes in workloads
The type of workforce may be adjusted using full-time or part-time workers
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Resource FlexibilityResource Flexibility
The volume of business may affect the type of equipment used
Break-even analysis can be used to determine at what volumes changes in equipment should be made
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Break-Even AnalysisBreak-Even Analysis
Process 2: Special-purpose equipment
Process 1: General-purpose equipment
Break-even quantity
To
tal c
ost
(d
olla
rs)
Units per year (Q)
F2
F1
Figure 3.7 – Relationship Between Process Costs and Product Volume
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Application 3.3Application 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
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Capital IntensityCapital Intensity
Automation is one way to address the mix of capital and labor
Automated manufacturing processes substitute capital equipment for labor
Typically require high volumes and costs are high
Automation might not align with a company’s competitive priorities
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Capital IntensityCapital Intensity
Fixed automation produces one type of part or product in a fixed sequence
Typically requires large investments and is relatively inflexible
Flexible automation can be changed to handle various products
Industrial robots are classic examples of flexible automation
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Capital IntensityCapital Intensity
Capital equipment may be used to automate service processes
Investment can be justified by cost reduction and increased task divergence through expanded customer choice
May impact customer contact
May be used in both front and back-office operations
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Capital IntensityCapital Intensity
Economies of scope reflect the ability to produce multiple products more inexpensively in combination than separately
Applies to manufacturing and services
Requires sufficient collective volume
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Strategic FitStrategic 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
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Decision Patterns for ServicesDecision 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
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Decision Patterns for ManufacturingDecision 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
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Decision Patterns for ManufacturingDecision Patterns for Manufacturing
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
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Decision Patterns for ManufacturingDecision Patterns for Manufacturing
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
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Gaining FocusGaining 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
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Strategies for ChangeStrategies 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
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Process ReengineeringProcess 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
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Solved Problem 1Solved 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
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Solved Problem 1Solved 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
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Solved Problem 1Solved Problem 1
Current Plan Proposed Plan
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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