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Process Strategy

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

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PROCESS DESIGN:
Process design is the selection of the inputs,
resources, workflows and methods that
transforms inputs into outputs.

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Process Strategy
Principles of process strategy
1. 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 firms whole supply


chain

3. Management must pay particular attention to

the interfaces between processes

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Process 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 Decisions


Process Structure
Customer-contract position
(services)
Product-process position
(manufacturing)
Layout
Customer Involvement
Low involvement
High involvement

Resource Flexibility
Specialized
Enlarged
Capital Intensity
Low automation
High automation

Strategy for Change


Process reengineering
Process improvement

Figure 3.1 Major Decisions for Effective


Processes

Effective Process
Design

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Process 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 Services


TABLE 3.1

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|

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 Services


The three elements of the customercontact matrix are
1. The degree of customer contact
2. Customization
3. Process characteristics

Process characteristics include


1. Process divergence deals with customization

and the latitude as to how tasks are performed

2. Flow is how customers, objects, or information

are process and can be either line of flexible

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Service Process Structuring


Less processes divergence and more line flows

Less customer contact and customization

Process
Characteristics
(1)
Flexible flows with
Individual
processes

(1)
High interaction with
customers, highly
customized service

(2)
Some interaction with
customers, standard
services with some options

(3)
Low interaction with
customers, standardized
services

Front office

(2)
Flexible flows with
some dominant
paths, with
some exceptions
to how work
performed
(3)
Line flows, routine
work same with all
customers

Hybrid office

Back office

Figure 3.2 Customer-Contact Matrix for Service Processes


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Product-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 Matrix
Less customization and higher volume

Less complexity, less divergence, and more line flows

Process
Characteristics
(1)
Customized process,
with flexible and
unique sequence of
tasks

(2)
Disconnected line
flows, moderately
complex work

(1)
(2)
Low-volume
Multiple products with low
products, made to moderate volume
to customer
order

(3)
Few major
products,
higher
volume

(4)
High volume, high
standardization,
commodity
products

Job
process

Small batch
process

(3)
Connected line, highly
repetitive work

(4)
Continuous flows

Batch processes
Large batch
process

Line
process

Continuous
process

Figure 3.3 Product-Process Matrix for Processes


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Customer 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 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 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 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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Total cost (dollars)

Break-Even Analysis

Process 2:
Special-purpose
equipment
Break-even
quantity

F2
F1

Process 1:
General-purpose
equipment

Units per year (Q)


Figure 3.7 Relationship Between Process Costs and Product Volume

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Application 3.3
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.
Fixed costs
Variable costs

welded manually
(Make)

welded by robot
(Buy)

$10,000

$400,000

$50

$20

At what volume would BBC be indifferent to these alternative


methods?
Q =

F m Fb

$10,000 $400,000
=
= 13,000 frames
$20 $50

cb
cm

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Capital 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
companys competitive priorities

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Capital 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 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 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 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 Services

Major process decisions

High customer-contact
process
More complexity, more
divergence, more flexible
flows
More customer involvement
More resource flexibility
Capital intensity varies with
volume

Low customer-contact
process
Less complexity, less
divergence, more line flows
Less customer involvement
Less resource flexibility
Capital intensity varies with
volume

Front office

Hybrid office

Back office
High

Low
Customer contact and customization

Figure 3.8 Decision Patterns for Service Processes


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Decision Patterns for Manufacturing


Processes can be adjusted for the degree
of customization and volume
Process flows can be made more of less
linear
Competitive priorities must be considered
when choosing processes

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Decision Patterns for Manufacturing


Competitive Priorities

Process Choice

Top-quality, on-time delivery, and


flexibility

Job process or
small batch process

Low-cost operations, consistent


quality, and delivery speed

Large batch, line, or


continuous flow process

(a) Links with Process Choice


Competitive Priorities

Production and Inventory Strategy

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

(b) Links with Production and Inventory Strategy


Figure 3.9 Links of Competitive Priorities with Manufacturing Strategy
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Decision Patterns for Manufacturing

Job
process

Small batch
process
Batch processes

Major
process
decisions

Low-Volume,
make-to-order process
More process divergence
and more flexible flows
More customer involvement
More resource flexibility
Less capital intensity

High-Volume,
make-to-stock process
Less process divergence
and more line flows
Less customer involvement
Less resource flexibility
More capital intensity

Large batch
process

Line
process

Continuous
process
Low

High
Volume

Figure 3.10 Decision Patterns for Manufacturing Processes


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Gaining 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 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 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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