Process Strategy

Process Strategy Chapter7

What is a process strategy? • A process strategy is an organization’s approach to transforms resources into goods and services. • The objective of a process strategy is to find a way to produce goods and services that meet customers requirements and product specifications within cost and other managerial constraints.

Process Strategies • How to produce a product or provide a service that • Meets or exceeds customer requirements • Meets cost and managerial goals • Has long term effects on • Efficiency and production flexibility • Costs and quality

Dell Computer Company “How can we make the process of buying a computer better?” • Sell custom-built PCs directly to consumer • Build computers rapidly, at low cost, and only when ordered • Integrate the Web into every aspect of its business • Focus research on software designed to make installation and configuration of its PCs fast and simple

Process Strategies • Virtually every good or service is made by using some variation of one of four process strategies: • process focus • repetitive focus • product focus • mass customization Within these basic strategies there are many ways they may be implemented

Volume Low Volume Repetitive Process High Volume Process, Volume, and Variety Figure 7.1 High Variety one or few units per run, high variety (allows customization) Process Focus projects, job shops (machine, print, carpentry) Standard Register Mass Customization (difficult to achieve, but huge rewards) Dell Computer Co. Changes in Modules modest runs, standardized modules Repetitive (autos, motorcycles) Harley Davidson Changes in Attributes (such as grade, quality, size, thickness, etc.) long runs only Product Focus (commercial baked goods, steel, glass) Nucor Steel Poor Strategy (Both fixed and variable costs are high)

Process Focus • Facilities are organized around specific activities or processes • General purpose equipment and skilled personnel • High degree of product flexibility • Typically high costs and low equipment utilization • Product flows may vary considerably making planning and scheduling a challenge

Customer Customer sales representative Purchasing Vendors PREPRESS DEPT Receiving Accounting PRINTING DEPT Warehouse COLLATING DEPT GLUING, BINDING, STAPLING, LABELING Information flow Material flow POLYWRAP DEPT SHIPPING Process Flow Diagram Figure 7.2

High variety of outputs Many inputs Process Focus Print Shop

Repetitive Focus • Facilities often organized as assembly lines • Characterized by modules with parts and assemblies made previously • Modules may be combined for many output options • Less flexibility than process-focused facilities but more efficient

Modules combined for many output options Raw materials and module inputs Few modules Repetitive Focus Automobile Assembly Line

Frame tube bending Frame-building work cells Frame machining Hot-paint frame painting THE ASSEMBLY LINE Engines and transmissions TESTING 28 tests Incoming parts From Milwaukee on a JIT arrival schedule Air cleaners Oil tank work cell Fluids and mufflers Shocks and forks Fuel tank work cell Handlebars Wheel work cell Fender work cell Roller testing Crating Process Flow Diagram Figure 7.3

Product Focus • 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

Output variation in size, shape, and packaging Many inputs Product Focus Bottling Plant

D Scrap steel A B C Electric furnace Continuous caster Ladle of molten steel Continuous cast steel sheared into 24-ton slabs Hot tunnel furnace - 300 ft E F Hot mill for finishing, cooling, and coiling G H I Product Focus Nucor Steel Plant

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

Number of Choices Early 21st Item Early 1970s Century Vehicle models 140 260 Vehicle types 18 1,212 Bicycle types 8 19 Software titles 0 300,000 Web sites 0 46,412,165 Movie releases 267 458 New book titles 40,530 77,446 Houston TV channels 5 185 Breakfast cereals 160 340 Items (SKUs) in 14,000 150,000 supermarkets Mass Customization Table 7.1

Repetitive Focus Modular design Flexible equipment Mass Customization Process-Focused High variety, low volume Low utilization (5% to 25%) General-purpose equipment Product-Focused Low variety, high volume High utilization (70% to 90%) Specialized equipment Mass Customization Figure 7.5 Modular techniques Effective scheduling techniques Rapid throughput techniques

Comparison of Processes Table 7.2

Variable costs Variable costs Variable costs $ $ $ Fixed costs Fixed costs Fixed costs Repetitive Process B High volume, low variety Process C Low volume, high variety Process A $ Total cost Total cost Total cost 400,000 300,000 200,000 Fixed cost Process C Fixed cost Process B Fixed cost Process A V1 V2 (6,666) (2,857) Volume Crossover Charts Figure 7.6

Changing Processes • Difficult and expensive • May mean starting over • Process strategy determines transformation strategy for an extended period • Important to get it right

Process Analysis and Design • Flow Diagrams - Shows the movement of materials • Time-Function Mapping - Shows flows and time frame • Value Stream Mapping - Shows flows and time and value added beyond the immediate organization • Process Charts - Uses symbols to show key activities • Service Blueprinting - focuses on customer/provider interaction

Customer Sales Production control Plant A Extrude Order product Process order Wait Wait Wait Wait Print Warehouse Move Move Receive product Plant B Transport 12 days 13 days 1 day 4 days 1 day 10 days 1 day 0 day 1 day 52 days Time-Function Mapping (Before process improvement at American National Can Company) Figure 7.7

Order product Receive product Customer Process order Sales Production control Wait Print Plant Wait Warehouse Extrude Transport Move 1 day 2 days 1 day 1 day 1 day 6 days Time-Function Mapping (After process improvement at American National Can Company) Figure 7.7

Process Chart Figure 7.8

Service Blueprint • Focuses on the customer and provider interaction • Defines three levels of interaction • Each level has different management issues • Identifies potential failure points

Personal Greeting Service Diagnosis Perform Service Friendly Close Level #1 Customer arrives for service Customer departs Customer pays bill Notifycustomerand recommendan alternativeprovider Determine specifics Warm greeting and obtain service request No Standard request Canservice bedone and does customer approve? Level #2 No Direct customer to waiting room Notify customer the car is ready Perform required work Yes Yes Prepare invoice Potential failure point Service Blueprint Level #3 Figure 7.9

Degree of Customization High Low Mass Service Professional Service Private banking Commercial banking High General- purpose law firms Full-service stockbroker Boutiques Retailing Degree of Labor Service Factory Service Shop Law clinics Specialized hospitals Limited-service stockbroker Warehouse and catalog stores Fine-dining restaurants Fast food restaurants Low Hospitals Airlines No frills airlines Service Process Matrix Figure 7.10

Improving Service Productivity Table 7.3

Equipment and Technology • Often complex decisions • Possible competitive advantage • Flexibility • Stable processes • May allow enlarging the scope of the processes

Improving Service Processes • Layout • Product exposure, customer education, product enhancement • Human Resources • Recruiting and training • Impact of flexibility

Production Technology • Machine technology • Automatic identification systems (AIS) • Process control • Vision system • Robot • Automated storage and retrieval systems (ASRS) • Flexible manufacturing systems (FMS) • Computer-integrated manufacturing (CIM)

Machine Technology • Increased precision • Increased productivity • Increased flexibility • Improved environmental impact • Reduced changeover time • Decreased size • Reduced power requirements

Automatic Identification Systems (AIS): These systems help us move data into electronic form, whereby it is easily manipulated. • Improved data acquisition • Reduced data entry errors • Increased speed • Increased scope of process automation • Example: Radio frequency identification for tracking everything!

Process Control: Use of Information Technology to monitor and control a physical process. • Increased process stability • Increased process precision • Real-time provision of information for process evaluation • Data available in many forms • Example: Sensors, Computer Programs read file and analyze the data.

Process Control Software: controls the flow of sugars and fruits into a juice mixer.

Vision Systems: Combine video cameras and computer technology and are often used in inspection roles. • Particular aid to inspection • Consistently accurate • Never bored • Modest cost • Superior to individuals performing the same tasks • Example: inspecting French fries so that imperfections can be identified by the end of the line.

Robots • Perform monotonous or dangerous tasks • Perform tasks requiring significant strength or endurance • Generally enhanced consistency and accuracy

Robotic Surgery

Automated Storage and Retrieval Systems (ASRS) • Provide for the automated placement and withdrawal of parts and products • Reduced errors and labor • Particularly useful in inventory and test areas of manufacturing firms • Such systems are commonly used in distribution facilities of retailers such as Wal-Mart.

Process Strategy