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

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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

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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)

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

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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

Print

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

Print

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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Process Chart

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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