2

Process Strategy

Dr. Asil Oztekin

UMass Lowell
Manning School of Business
Operations & Information Systems
21

Process Strategy
Principles of process strategy
1. Make choices that fit the situation and that
make sense together, that have a close
strategic fit: should not work at crosspurposes
2. Individual processes are the building blocks
that eventually create the firms whole supply
chain cumulative effect on customer
satisfaction and competitive advantage
3. Management must pay particular attention to
the interfaces between processes crossfunctional coordination
22

Process Strategy
There are four basic process decisions
1. Process structure including layout: process
type relative to the kinds of resources needed,
how resources are partitioned between them,
and their key characteristics
2. Customer involvement: the ways in which
customers become the part of the process and
the extent of participation
3. Resource flexibility: the ease with which
employees can handle a wide variety of
products, output levels, functions, duties
4. Capital intensity: the mix of equipment and
human skills in a process. Relative cost of
equipment makes the process more capital
intensive

23

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

24

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: time customer and service
provide meet customer attitudes about
the quality of service are shaped.
25

Process 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

26

Customer-contact matrix
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 processed, and can be either line flow or
flexible flow
27

Service Process Structuring

Less processes divergence and more line flows

Less customer contact and customization

Process
Characteristics
(1)
Flexible flows with
Individual
processes

(2)
Flexible flows with
some dominant
paths, with
some exceptions
to how work
performed

(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

Hybrid office

(3)
Line flows, routine
work same with all
customers

Back office

Figure 3.2 Customer-Contact Matrix for Service Processes

28

Product-Process Matrix
For manufacturing organization it brings
together
1. Volume
2. Product customization
3. Process characteristics

Process choice is the way of structuring

the process by organizing resources
around the process or organizing them
around products.

Organizing around process: same type of

machines are grouped together.
29

Product-Process Matrix-contd.
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

2 10

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
Batch processes

(3)
Connected line, highly
repetitive work

(4)
Continuous flows

Large batch
process

Line
process

Continuous
process

Figure 3.3 Product-Process Matrix for Processes

2 11

Manufacturing process choices

Job process:
1.

Flexibility-wide variety of products in significant

quantities

2.

Considerable divergence in steps

3.

High customization

4.

Low volume

5.

Workforce and equipment are flexible

6.

Companies bid for work

7.

Make-to-order, no production ahead of time

8.

Needs of next customer is unknown

9.

Timing of the same customer for next time unknown

10. Each new order a single unit a job

2 12

Manufacturing process choices

Batch process:
1.

The most common found process choice in practice

2.

Differs from job process with respect to volume,

variety, and quantity

3.

Some components might be produced in advance

4.

Narrower range of products provided

5.

Larger production quantities batches

6.

Moderate volumes but high process divergence so

dedicate a separate process each product

7.

Flexible process flow: no standard sequence of steps

thru the facility

2 13

Manufacturing process choices

Line process:
1.

Examples are assembly of computers, automobiles,

appliances, toys

2.

Lies between batch and continuous flow processes

3.

High volumes, standardized products so resources

are organized around particular products

4.

Minimal divergence in processes

5.

Little inventory between processing steps

6.

Each step performs same process again and again

7.

Little variability in products manufactured

8.

Specialized production and material handling

equipment

9.

Production orders are not directly linked to customer

orders-always ready and kept in inventory
2 14

Manufacturing process choices

Continuous flow process:
1.

Examples are petroleum refining, chemical

processes, soft drinks, and food

2.

Extreme end of high-volume standardized production

with rigid line flows

3.

Negligible process divergence

4.

Continuous flow name drives from the way materials

move thru the process: liquid, gas, powder moves
without stopping

5.

Capital intensive process, operates around the clock

to max utilization, to avoid expensive shut-downs and
start-ups

6.

Main difference with line flow: materials flow without

stopping until the whole batch is finished time
span can be several shifts, even months
2 15

Layout
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 steps
1. Gather information
2. Develop a block plan
3. Design a detailed layout
2 16

Layout
Gather information on space requirements,

available space, and closeness factors

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

2 17

Block Plan

4
100

150

Figure 3.4 Current Block Plan for the Office of Budget Management

2 18

Closeness Matrix
Closeness Factors
Department

1. Administration

10

2. Social services
3. Institutions
4. Accounting

5. Education
6. Internal audit

2 19

Requirements
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. Administration

10

2. Social services
3. Institutions
4. Accounting
5. Education
6. Internal audit

2 20

Developing 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

Closeness Factors
Department

1. Administration

10

2. Social services
3. Institutions
4. Accounting
5. Education
6. Internal audit

Departments 1 and 5 should

remain at their current locations
2 21

Developing a Block Plan

a. Departments 1 and 6 close together
b. Departments 3 and 5 close together
c. Departments 2 and 3 close together

3
100

150
Figure 3.5 Proposed Block Plan
2 22

The 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

d AB

x A xB y A y B
2

where

dAB
xA
yA
xB
yB

= distance between points A and B

= x-coordinate of point A
= y-coordinate of point A
= x-coordinate of point B
= y-coordinate of point B
2 23

The Weighted-Distance Method

Rectilinear distance measures the distance
between two possible points with a series
of 90-degree turns

d AB x A xB y A yB
The objective is to minimize the weighteddistance score (wd)

A layouts wd score is calculated by

summing the products of the proximity
scores and distances between centers
2 24

Application 3.1
What is the distance between (20,10) and (80,60)?
Euclidian Distance
dAB =

(20 80)2 + (10 60)2

=
Rectilinear Distance
dAB = |20 80| + |10 60| =

2 25

Application 3.1
What is the distance between (20,10) and (80,60)?
Euclidian Distance
dAB =

(20 80)2 + (10 60)2

= 78.1
Rectilinear Distance
dAB = |20 80| + |10 60| = 110

2 26

Calculating 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

Current Block Plan

Proposed Block Plan

2 27

Calculating the WD Score

Current Plan
Department
Pair

Closeness
Factor (w)

1, 2

1, 3

1, 4

1, 5

1, 6

10

2, 3

2, 4

2, 5

3, 4

3, 5

4, 5

5, 6

Distance
(d)

Weighted-Distance
Score (wd)

Proposed Plan
Distance
(d)

Weighted-Distance
Score (wd)

2 28

Calculating the WD Score

Current Plan
Department
Pair

Closeness
Factor (w)

Distance
(d)

Proposed Plan

Weighted-Distance
Score (wd)

Distance
(d)

Weighted-Distance
Score (wd)

1, 2

1, 3

18

1, 4

15

1, 5

12

12

1, 6

10

20

10

2, 3

16

2, 4

2, 5

3, 4

3, 5

27

4, 5

5, 6

Total 112

Total 82

2 29

OM Explorer Analysis

Figure 3.6 Second Proposed Block Plan (Analyzed with Layout Solver)

2 30

Application 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
1
2
3
4
5
6

Trips between Departments

25

90

6
165

105

125

125

25

105

2 31

Application 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.
Department
Pair

Closeness
Factor

Distance

Score

1, 6

165

165

3, 5

125

3, 6

125

2, 5

105

105

5, 6

105

105

1, 3

90

1, 2

25

75

4, 5

25

25

Total

1030

Based on the above

results, propose a
better plan and
evaluate it in terms
of the load-distance
score.

2 32

Application 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.
Department
Pair

Closeness
Factor

Distance

Score

1, 6

165

165

3, 5

125

250

3, 6

125

125

2, 5

105

105

5, 6

105

105

1, 3

90

180

1, 2

25

75

4, 5

25

25

Total

1030

Based on the above

results, propose a
better plan and
evaluate it in terms
of the load-distance
score.

2 33

Application 3.2

Department
Pair

Closeness
Factor

1, 6

165

3, 5

125

3, 6

125

2, 5

105

5, 6

105

1, 3

90

1, 2

25

4, 5

25

Distance

Score

Total

2 34

Application 3.2

Department
Pair

Closeness
Factor

Distance

Score

1, 6

165

165

3, 5

125

125

3, 6

125

250

2, 5

105

105

5, 6

105

105

1, 3

90

90

1, 2

25

75

4, 5

25

50

Total

965

2 35

A 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
2 36

Customer Involvement
The ways in which customers become part
of the process and the extent of their
participation
Possible disadvantages
Can

be disruptive less efficient, too divergent

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

2 37

Customer Involvement-contd.
Possible advantages
Increased

net value to the customer

Customers

seek in and control over the process

to enjoy savings in time and price

Can

mean better quality, faster delivery, greater

flexibility, and lower cost

May

reduce product, shipping, and inventory

costs (via self-service and assembly e.g.
furniture)

May

help coordinate across the supply chain

Processes

may be revised to accommodate the

customers role use them in creating value
and forecasting future demand
2 38

Resource Flexibility
High task divergence more flexibility of the
process resources (facilities, equipment)
A flexible workforce can often require higher skills
and more training and education cost
Flexible workforce capable of doing many tasks
at their stations of while moving from one to
another workstation
Worker flexibility can help achieve reliable
customer service and alleviate bottlenecks

Resource flexibility helps absorb changes in

workloads caused by low-volume production with
divergent tasks and flexible flows

2 39

Resource Flexibility-contd.
The type of workforce may be adjusted
using full-time or part-time workers:
a)smooth, steady output permanent
workforce (full-time employment)
b)process is subject to hourly, daily,
seasonal fluctuations part-time,
temporary employees, not practical
though, why?

2 40

Resource Flexibility-contd.
The volume of business may affect the type
of equipment used: low-volume flexible,
general-purpose equipment
Break-even analysis can be used to
determine at what volumes changes in
equipment should be made

2 41

Total cost (dollars)

Break-Even Analysis

Process 2:
Special-purpose
equipment
Break-even
quantity

Process 1:
General-purpose
equipment

F2
F1

Units per year (Q)

Figure 3.7 Relationship Between Process Costs and Product Volume

2 42

Capital Intensity
Automation is one way to address the mix of
capital and labor (equipment and human skills).
The greater the relative cost of equipment, the
greater the capital intensity
As capabilities of tech increase, choices increase
ranging from little automation to task-specific
equipment (little human intervention)
productivity improvement and quality consistency
Automated manufacturing processes substitute
capital equipment for labor
Typically require high volumes and costs are high
To be justifiable, capital intensive operations must
have high utilization
Automation might not align with a companys
competitive priorities

2 43

Capital Intensity-contd.
Fixed automation produces one type of part or
product in a fixed sequence (line or
continuous flow processes)
When? Demand volumes high, product
designs stable max productivity and yield
the lowest variable cost per unit
Typically requires large investments and is
relatively inflexible
Flexible (programmable) automation can be
changed to handle various products good
for both low- and high- customization process
examples of flexible automation: industrial
robots, computer-controlled machines
2 44

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

Physical contact, personalized treatment,

face-to-face communication low-volume,
divergent tasks, not always though!
2 45

Capital Intensity
Economies of scope reflect the ability to
produce multiple products more cheaply in
combination than separately
Often, capital intensity and resource
flexibility IR but programmable automation
(e.g. machining and assembly) breaks the
rule conflicting competitive priorities are
now compatible like customization vs. low
price
To make use of economies of scope: family
of products should have enough collective
volume to utilize equipment fully
2 46

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

2 47

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

Front office

Hybrid office

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

Back office

High

Low
Customer contact and customization

Figure 3.8 Decision Patterns for Service Processes

2 48

Decision 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

2 49

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

2 50

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

2 51

Strategies for Change

Process reengineering is the fundamental
rethinking and radical redesign of a
process to improve performance (cost,
quality, service and speed)
Reinvention-not incremental improvement

Can be successful but it is not simple or

easy-layoffs and large cash outflows
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

2 52

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

2 53

Solved Problem 1
A defense contractor is evaluating its machine shops 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

B
C
D
E
F

Figure 3.11 Current Layout

2 54

Solved 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

B
C
D
E
F

Figure 3.12 Proposed Layout

2 55

Solved Problem 1
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.
Current Plan
Department
Pair

Number of
Trips (1)

Distance (2)

Proposed Plan

wd Score
(1) (2)

Distance (3)

wd Score
(1) (3)

A, B

16

A, C

A, E

A, F

15

15

B, D

C, E

16

C, F

18

D, F

E, F

wd = 92

wd = 67

2 56