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Process Strategy

Chapter 7

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Learning Objectives

When you complete this chapter you should be able to:

Describe four process strategies

Compute and explain crossover points for different processes

Explain the tools of process analysis (VSM)

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Process Strategy

The objective is to create a process to produce products that meet customer requirements within cost and other managerial constraints

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Process Strategies

Involves determining how to produce a good or provide a service within constraints (cost and other managerial constraints )

Objective

Meet or exceed customer requirements

Meet cost & managerial goals

Has long-run effects

Production efficiency

Product & volume flexibility

Cost & quality

So we need to take it seriously!

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This slide can be used to introduce the concept of trade-off in process design.

Process Strategies

Process should:

Be designed to achieve competitive advantage:

Differentiation

Response

Low cost

Eliminates steps that does not add value

Maximize customer value, as perceived by the customer.

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This slide can be used to introduce the concept of trade-off in process design.

Process selection

Process selection refers to the way production of goods or services is organized. It has major implications for capacity planning, layout of facilities, equipment, and design of work systems.

Process selection occurs as a matter of course when new products or services are being planned. However, it also occurs periodically due to technological changes in equipment.

Two primary questions bear on process selection:

How much variety in products or services will the system need to handle?

What is the expected volume of output?

Answers to these questions will serve as a guide to selecting an appropriate process strategy.

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Process Strategy

Processes convert inputs into outputs; they are at the core of operations management.

But the impact of process selection goes beyond operations management: It affects the entire organization and its ability to achieve its mission, and it affects the organization's supply chain.

So process selection choices very often have strategic significance and long-term consequences for the organization.

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Process Strategies (process type)

Four basic strategies:

Process focus (a.k.a Job Shop)

Repetitive focus (a.k.a Assembly Line)

Product focus (a.k.a Continuous Production)

Mass customization (a.k.a Batch Production)

Within these basic strategies there are many ways they may be implemented. Several strategies maybe used within one facility.

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Process: Volume &Variety

Process Focus

(Banks, hospitals, restaurants, glasses)

Repetitive

(autos, motorcycles, home appliances)

Harley-Davidson

Product Focus

(commercial baked goods, steel, glass, oil)

Kitco – KOC

High Variety

one or few units per run,(allows customization)

Changes in Modules

modest runs, standardized modules

Changes in Attributes (such as grade, quality, size, thickness, etc.)

long runs only

Mass Customization

(difficult to achieve, but huge rewards)

Dell Computer – Nike Shoes- Toyota

Low Volume

Repetitive Process

High Volume

Volume (Quantity)

Variety (Customization)

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Process Focus (job shop) intermittent process

Facilities are organized around specific activities or processes (eg. hospitals)

General purpose equipment and skilled personnel (eg. Doctors uses few tools to treat different patients)

High degree of product flexibility (eg. each patient is treated in a distinct way)

Typically high costs and low equipment utilization

Product flows may vary considerably making planning and scheduling a challenge

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Process Focus (job shop)

A job shop usually operates on a relatively small scale. It is used when a low volume of high-variety goods or services will be needed. Processing is intermittent; work shifts from one small job to the next, each with somewhat different processing requirements.

High flexibility of equipment and skilled workers are important characteristics of a job shop.

FYI

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Process Focus (job shop)

Some examples of the process focused are a hospital and banks.

Lets think about Hospitals, which are a clear example of Process Focused. Imagine a diverse group of patients entering the Hospital, a process-focused facility, to be routed to specialized departments, treated in a distinct way, and then exiting as uniquely cared for individuals.

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Process Focus

Many inputs

(surgeries, sick patients, baby deliveries, emergencies, etc.)

Many different outputs (uniquely treated patients)

Many departments and many routings

(Low-volume, High-variety, Intermittent Processes)

Hospitals

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Process Focus (job shop)

All operations are grouped according to the type of process. In a factory these process might be departments devoted to welding, grinding and painting.

In an office the process might be account payable, sales and payroll.

Such facilities are process focused in terms of equipment, layout and supervision. They provide a high degree of product flexibility as product moves between processes. Each process is designed to provide a high variety of activities and handle frequent changes.

The system is also called ‘job shop´ as the product moves from one department to another in small batches that are determine by the customer’s order.

It is usually used to produce small quantity of different items on general purpose machineries

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Process Focus - Pros & Cons

Advantages

Greater product (output) flexibility

More general purpose equipment – equipment not dedicated to one product or service

Disadvantages

High production cost per unit

More difficult production planning & control

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Select one of the examples you have presented of process-focused strategy, and ask students to identify the sources of advantage and disadvantage.

Repetitive Focus (assembly line)

Facilities often organized as assembly lines.

Characterized by few modules with parts and assemblies made previously

Modules may be combined for many output options.

Less flexibility than process-focused facilities but more efficient (semi-customization)

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Repetitive Focus (assembly line)

When higher volumes of more standardized goods or services are needed, repetitive processing is used.

The standardized output means only slight flexibility of equipment is needed.

Skill of workers is generally low.

Examples of this type of system include production lines and assembly lines. Familiar products made by these systems include automobiles, television sets, pencils, and computers.

An example of a service system is an automatic carwash. Other examples of service include cafeteria lines and ticket collectors at sports events and concerts.

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Repetitive Focus

Raw materials and module inputs

Modules combined for many

Output options

(many combinations of motorcycles)

Few modules

(multiple engine models, wheel modules)

(Modular)

Harley Davidson

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Product Focus (continuous)

Facilities are organized by product

High volume but low variety of products

Long, continuous production runs enable efficient processes

Typically high fixed cost but low variable cost

Generally less skilled labor (to run the production) but requires specialist (to monitor the process)

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Product Focus (continuous)

When a very high volume of highly standardized output is desired, a continuous strategy is used.

This strategy has almost no variety in output and, hence, no need for equipment flexibility

Examples of products made in product focus strategy include petroleum products, steel, sugar, flour, and salt.

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Product Focus

Few inputs

(corn, potatoes, water, seasoning)

Many Output

Differences in size, shape, and packaging

(3-oz, 5-oz, 24-oz package labeled for each material)

(High-volume, Low-variety, Continuous Process)

Kitco

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Product Focus

Advantages

Lower production cost per unit

Lower but more specialized labor skills

Easier production planning and control

Higher equipment utilization

Disadvantages

Lower product flexibility (less customization)

More specialized equipment

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Mass Customization

The rapid, low-cost production of goods and service to satisfy increasingly unique customer desires

Combines the flexibility of a process focus with the efficiency of a product focus

Requires flexible (multi-skilled) workers

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Mass Customization

(High-volume, High-variety)

Dell Computer

Many parts and component inputs

Many output versions

(custom PCs and notebooks)

(chips, hard drives, software, cases)

Many modules

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Mass Customization

Requires:

Imaginative product design

Flexible process design

Tightly controlled inventory management

Tight schedules

Responsive partners in the supply-chain

FYI

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Process Comparison

Characteristics	Process Focused	Repetitive	Product Focused	Mass Customization
Volume	Low	Moderate	High	High
Varity	High	Moderate	Low	High
Labor Skills	Highly skilled	Moderately trained employees	Less skilled but requires specialist to monitor the process	Multitasked & flexible workers
Fixed Cost	Low	High	High	Tend to be High
Variable Cost	High	Low	Low	Must be Low
Finished Goods	Build-to-order (BTO)	Made to a forecast and stored	Made to a forecast and stored	Build-to-order (BTO)
Scheduling	Complex	Routine	Routine	Complex
Job Instructions	Instructions for each job	Few changes in job instructions	Standardized job instructions	Instructions for each job

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Fixed and variable cost

A fixed cost is an expense or cost that does not change with an increase or decrease in the number of goods or services produced.

A variable cost is a corporate expense that changes in proportion with production output.

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Process Comparison Crossover Chart Example

Evaluate three different processes

Calculate crossover points between Process A and B and between Process B and C

	Total fixed cost	$ per accounting unit
Process A	$200	$6
Process B	$300	$2
Process C	$400	$1

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Crossover Chart Example

Process A is most economical from 0 to 25 units

Process B is most economical from 25 to 100 units

200 + (6)X1 = 300 + (2)X1

4 X1 = 100

X1 = 25 units

300 + (2)X2 = 400 + (1)X2

1 X2 = 100

X2 = 100 units

Process C is most economical from 100 and more units

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Crossover Charts

Fixed costs

Variable costs

High volume, low variety

Process C

Fixed costs

Variable costs

Repetitive

Process B

Fixed costs

Variable costs

Low volume, high variety

Process A

Fixed cost Process A

Fixed cost Process B

Fixed cost Process C

Total process A costs

Total process B costs

Total process C costs

(25)

(100)

400

300

200

Volume

Figure 7.3

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Flexibility

Flexibility is the ability to respond with little penalty in time, cost, or customer value

May be a competitive advantage

May be difficult and expensive

Without it, change may mean starting over

FYI

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Process Analysis and Design

Is the process designed to achieve a competitive advantage?

Does the process eliminate steps that do not add value?

Does the process maximize customer value?

Will the process win orders?

FYI

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Process Analysis & Design

Value-Stream Mapping (VSM): a tool that can be used to Map Processes, based on the flow of material as well as the flow of Information.

Shows where value is added in the entire production process, including the supply chain

Extends from the customer back to the suppliers

Value added: Anything that directly adds value to the product or services as seen or experienced by the CUSTOMER.

FYI

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Value-Stream Mapping

Begin with symbols for customer, supplier, and production to ensure the big picture

Enter customer order requirements

Calculate the daily production requirements

Enter the outbound shipping requirements and delivery frequency

Determine inbound shipping method and delivery frequency

FYI

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Value-Stream Mapping

Add the process steps (i.e., machine, assemble) in sequence, left to right

Add communication methods, add their frequency, and show the direction with arrows

Add inventory quantities between every step of the entire flow

Determine total working time (value-added time) and delay (non-value-added time)

FYI

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Value-Stream Mapping

Figure 7.6

FYI

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Special Considerations for Service Process Design

Some interaction with customer is necessary, but this often affects performance adversely

The better these interactions are accommodated in the process design, the more efficient and effective the process

Find the right combination of cost and customer interaction

FYI

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Improving Service Productivity

TABLE 7.3	Techniques for Improving Service Productivity
STRATEGY		TECHNIQUE	EXAMPLE
Separation		Structuring service so customers must go where the service is offered	Bank customers go to a manager to open a new account, to loan officers for loans, and to tellers for deposits
Self-service		Self-service so customers examine, compare, and evaluate at their own pace	Supermarkets and department stores Internet ordering
Postponement		Customizing at delivery	Customizing vans at delivery rather than at production
Focus		Restricting the offerings	Limited-menu restaurant

FYI

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Improving Service Productivity

TABLE 7.3	Techniques for Improving Service Productivity
STRATEGY		TECHNIQUE	EXAMPLE
Modules		Modular selection of service Modular production	Investment and insurance selection Prepackaged food modules in restaurants
Automation		Separating services that may lend themselves to some type of automation	Automatic teller machines
Scheduling		Precise personnel scheduling	Scheduling ticket counter personnel at 15-minute intervals at airlines
Training		Clarifying the service options Explaining how to avoid problems	Investment counselor, funeral directors After-sale maintenance personnel

FYI

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Production Technology

Machine technology

Automatic identification systems (AISs)

Process control

Vision systems

Robots

Automated storage and retrieval systems (ASRSs)

Automated guided vehicles (AGVs)

Flexible manufacturing systems (FMSs)

Computer-integrated manufacturing (CIM)

FYI

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Machine Technology

Increased precision, productivity, and flexibility

Reduced environmental impact

Additive manufacturing produces products by adding material, not removing it

Supports innovative product design, minimal custom tooling required, minimal assembly time, low inventory, and reduced time to market

Computer numerical

control (CNC)

FYI

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Automatic Identification Systems (AISs) and RFID

Improved data acquisition

Reduced data entry errors

Increased speed

Increased scope of process automation

Bar codes and RFID

FYI

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Process Control

Real-time monitoring and control of processes

Sensors collect data

Devices read data on periodic basis

Measurements translated into digital signals then sent to a computer

Computer programs analyze the data

Resulting output may take numerous forms

FYI

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Vision Systems

Particular aid to inspection

Consistently accurate

Never bored

Modest cost

Superior to individuals performing the same tasks

FYI

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Robots

Perform monotonous or dangerous tasks

Perform tasks requiring significant strength or endurance

Generally enhanced consistency and accuracy

FYI

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Automated Storage and Retrieval Systems (ASRSs)

Automated placement and withdrawal of parts and products

Reduced errors and labor

Particularly useful in inventory and test areas of manufacturing firms

FYI

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Automated Guided Vehicle (AGVs)

Electronically guided and controlled carts

Used for movement of products and/or individuals

FYI

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Flexible Manufacturing Systems (FMSs)

Computer controls both the workstation and the material handling equipment

Enhance flexibility and reduced waste

Can economically produce low volume but high variety

Reduced changeover time and increased utilization

Stringent communication requirement between components

FYI

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Computer-Integrated Manufacturing (CIM)

Extend flexible manufacturing

Backward to engineering and inventory control

Forward into warehousing and shipping

Can also include financial and customer service areas

Reducing the distinction between low-volume/high-variety, and high-volume/low-variety production

FYI

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Computer-Integrated Manufacturing (CIM)

Figure 7.9

FYI

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Technology in Services

TABLE 7.4	Examples of Technology's Impact on Services
SERVICE INDUSTRY		EXAMPLE
Financial Services		Debit cards, electronic funds transfer, ATMs, Internet stock trading, online banking via cell phone
Education		Online newspapers and journals, interactive assignments via WebCT, Blackboard, and smartphones
Utilities and government		Automated one-person garbage trucks, optical mail scanners, flood-warning systems, meters that allow homeowners to control energy usage and costs
Restaurants and foods		Wireless orders from waiters to kitchen, robot butchering, transponders on cars that track sales at drive-throughs
Communications		Interactive TV, e-books via Kindle

FYI

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Technology in Services

TABLE 7.4	Examples of Technology’s Impact on Services
SERVICE INDUSTRY		EXAMPLE
Hotels		Electronic check-in/check-out, electronic key/lock systems, mobile Web bookings
Wholesale/retail trade		Point-of-sale (POS) terminals, e-commerce, electronic communication between store and supplier, bar-coded data, RFID
Transportation		Automatic toll booths, satellite-directed navigation systems, Wi-Fi in automobiles
Health care		Online patient-monitoring systems, online medical information systems, robotic surgery
Airlines		Ticketless travel, scheduling, Internet purchases, boarding passes downloaded as two-dimensional bar codes on smart phones

FYI

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Process Redesign

The fundamental rethinking of business processes to bring about dramatic improvements in performance

Relies on reevaluating the purpose of the process and questioning both the purpose and the underlying assumptions

Requires reexamination of the basic process and its objectives

Focuses on activities that cross functional lines

Any process is a candidate for redesign

FYI

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Process-Product matrix

https://www.youtube.com/watch?v=U_hGhCYqbg4

FYI

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