Operations

Management
Chapter 7 –
Process Strategy
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e

© 2006
© 2006 Prentice
Prentice Hall, Inc. Hall, Inc. 7–1
 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
© 2006 Prentice Hall, Inc. 7–2
 Process, Volume, and Variety
Figure 7.1 Volume
Low Repetitive High
Volume Process Volume
High Variety
one or few Process Focus Mass Customization
units per run, projects, job shops (difficult to achieve,
high variety (machine, print, but huge rewards)
(allows carpentry) Dell Computer Co.
customization) Standard Register
Changes in
Modules
modest runs,
standardized Repetitive
modules (autos, motorcycles)
Harley Davidson
Changes in
Attributes Product Focus
(such as grade, (commercial
quality, size, Poor Strategy baked goods,
thickness, etc.) (Both fixed and steel, glass)
long runs only variable costs Nucor Steel
are high)
© 2006 Prentice Hall, Inc. 7–3
 Process Flow Diagram
Customer

Customer sales
Purchasing
representative

Vendors

PREPRESS DEPT
Accounting Receiving

PRINTING DEPT
Warehouse

COLLATING GLUING, BINDING,

DEPT STAPLING, LABELING

Information flow POLYWRAP DEPT

Material flow

SHIPPING Figure 7.2

© 2006 Prentice Hall, Inc. 7–4
 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

© 2006 Prentice Hall, Inc. 7–5

 Process Strategies
Four basic strategies
 Process focus
 Repetitive focus
 Product focus
 Mass customization
Within these basic strategies there are
many ways they may be implemented
© 2006 Prentice Hall, Inc. 7–6
 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
© 2006 Prentice Hall, Inc. 7–7
 Process Focus
Print Shop

High
Many variety
inputs of
outputs

© 2006 Prentice Hall, Inc. 7–8

 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
© 2006 Prentice Hall, Inc. 7–9
 Repetitive Focus
Automobile Assembly Line

Raw Modules
materials combined
and for many
module output
inputs options

Few
modules

© 2006 Prentice Hall, Inc. 7 – 10

 Process Flow Diagram
Frame tube Frame-building Frame Hot-paint
bending work cells machining frame painting
THE ASSEMBLY LINE
TESTING Engines and
Incoming parts transmissions
28 tests
From Milwaukee
on a JIT arrival
Air cleaners Oil tank work cell schedule

Fluids and mufflers Shocks and forks

Fuel tank work cell Handlebars

Wheel work cell Fender work cell

Roller testing
Crating

Figure 7.3
© 2006 Prentice Hall, Inc. 7 – 11
 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
© 2006 Prentice Hall, Inc. 7 – 12
 Product Focus
Bottling Plant

Output
variation
Many in size,
inputs shape,
and
packaging

© 2006 Prentice Hall, Inc. 7 – 13

 Product Focus
D A Scrap
Nucor Steel Plant steel
Continuous caster

B
C Electric
Ladle of molten steel furnace

Continuous cast steel

sheared into 24-ton slabs
Hot tunnel furnace - 300 ft
E F

Hot mill for finishing, cooling, and coiling

H G
I

© 2006 Prentice Hall, Inc. 7 – 14

 Comparison of Processes
Process Focus Repetitive Focus Product Focus Mass Customization
(Low volume, high (Modular) (High-volume, low- (High-volume, high-
variety) variety) variety)

Small quantity, large Long runs, Large quantity, small Large quantity, large
variety of products standardized product variety of products variety of products
made from modules

General purpose Special equipment Special purpose Rapid changeover

equipment aids in use of equipment on flexible equipment
assembly line

Table 7.2
© 2006 Prentice Hall, Inc. 7 – 15
 Comparison of Processes
Process Focus Repetitive Focus Product Focus Mass Customization
(Low volume, high (Modular) (High-volume, low- (High-volume, high-
variety) variety) variety)

Operators are Employees are Operators are less Flexible operators

broadly skilled modestly trained broadly skilled are trained for the
necessary
customization

Many job Repetition reduces Few work orders and Custom orders
instructions as each training and changes job instructions require many job
job changes in job instructions because jobs instructions
standardized

Table 7.2
© 2006 Prentice Hall, Inc. 7 – 16
 Comparison of Processes
Process Focus Repetitive Focus Product Focus Mass Customization
(Low volume, high (Modular) (High-volume, low- (High-volume, high-
variety) variety) variety)

Raw material JIT procurement Raw material Raw material

inventories high techniques used inventories are low inventories are low

Work-in-process is JIT inventory Work-in-process Work-in-process

high techniques used inventory is low inventory driven
down by JIT, lean
production

Table 7.2
© 2006 Prentice Hall, Inc. 7 – 17
 Comparison of Processes
Process Focus Repetitive Focus Product Focus Mass Customization
(Low volume, high (Modular) (High-volume, low- (High-volume, high-
variety) variety) variety)

Units move slowly Movement is Swift movement of Goods move swiftly

through the plant measured in hours unit through the through the facility
and days facility is typical

Finished goods Finished goods Finished goods Finished goods often

made to order made to frequent made to forecast and made to order
forecast stored

Table 7.2
© 2006 Prentice Hall, Inc. 7 – 18
 Comparison of Processes
Process Focus Repetitive Focus Product Focus Mass Customization
(Low volume, high (Modular) (High-volume, low- (High-volume, high-
variety) variety) variety)

Scheduling is Scheduling based Relatively simple Sophisticated

complex, trade-offs on building various scheduling, scheduling required
between inventory, models from establishing output to accommodate
availability, modules to rate to meet forecastscustom orders
customer service forecasts

Table 7.2
© 2006 Prentice Hall, Inc. 7 – 19
 Comparison of Processes
Process Focus Repetitive Focus Product Focus Mass Customization
(Low volume, high (Modular) (High-volume, low- (High-volume, high-
variety) variety) variety)

Fixed costs low, Fixed costs Fixed costs high, Fixed costs high,
variable costs high dependent on variable costs low variable costs must
flexibility of the be low
facility

Costing estimated Costs usually known High fixed costs High fixed costs and
before job, not due to extensive mean costs dynamic variable
known until after job experience dependent on costs make costing a
is complete utilization of capacity challenge

Table 7.2
© 2006 Prentice Hall, Inc. 7 – 20
 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

© 2006 Prentice Hall, Inc. 7 – 21

 Mass Customization
Table 7.1 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
© 2006 Prentice Hall, Inc. 7 – 22
 Mass Customization
Figure 7.5
Repetitive Focus
Modular design
Flexible equipment

Modular techniques

Mass Customization
Effective Rapid
scheduling throughput
techniques techniques

Process-Focused Product-Focused
High variety, low volume Low variety, high volume
Low utilization (5% to 25%) High utilization (70% to 90%)
General-purpose equipment Specialized equipment

© 2006 Prentice Hall, Inc. 7 – 23

 Crossover Charts
Variable
costs
Variable Variable
$ costs $ costs $
Fixed costs Fixed costs
Fixed costs
Low volume, high variety Repetitive High volume, low variety
Process A Process B Process C

t
os
$
t

c
os

tal st
l co
lc

To Tot a
ta
To

400,000
300,000
200,000
Fixed cost Fixed cost Fixed cost
Process A Process B Process C
Figure 7.6 (2,857) V1 V2 (6,666) Volume
© 2006 Prentice Hall, Inc. 7 – 24
 Changing Processes

 Difficult and expensive

 May mean starting over
 Process strategy determines
transformation strategy for an
extended period
 Important to get it right

© 2006 Prentice Hall, Inc. 7 – 25

 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
© 2006 Prentice Hall, Inc. 7 – 26
 Time-Function Mapping
Order Receive
Customer product product

Process
Sales order

Production Wait
control

Plant A Print

Warehouse Wait Wait Wait

Plant B Extrude

Transport Move Move

12 days 13 days 1 day 4 days 1 day 10 days 1 day 0 day 1 day

Figure 7.7
52 days
© 2006 Prentice Hall, Inc. 7 – 27
 Time-Function Mapping
Order Receive
Customer product product

Process
Sales order

Production
control Wait

Plant Print Extrude

Warehouse Wait

Transport Move

1 day 2 days 1 day 1 day 1 day

6 days
Figure 7.7
© 2006 Prentice Hall, Inc. 7 – 28
 Process Chart

Figure 7.8
© 2006 Prentice Hall, Inc. 7 – 29
 Service Blueprint

 Focuses on the customer and

provider interaction
 Defines three levels of interaction
 Each level has different
management issues
 Identifies potential failure points

© 2006 Prentice Hall, Inc. 7 – 30

 Service Blueprint
Personal Greeting Service Diagnosis Perform Service Friendly Close
Level Customer arrives
#1 for service Customer departs

Customer pays bill

Determine Notify
Warm greeting specifics customer
and obtain No and recommend
service request an alternative
Standard provider
request Can
Level service be
#2 done and does No
Direct customer customer
to waiting room approve? Notify
customer the
car is ready

Yes Yes
Perform
Level required work
#3

Potential failure point

Prepare invoice

Figure 7.9
© 2006 Prentice Hall, Inc. 7 – 31
 Process Analysis Tools
 Flowcharts provide a view of the
big picture
 Time-function mapping adds rigor
and a time element
 Value stream analysis extends to
customers and suppliers
 Process charts show detail
 Service blueprint focuses on
customer interaction
© 2006 Prentice Hall, Inc. 7 – 32
 Service Process Matrix
Degree of Customization
Low High
Mass Service Professional Service
Private
banking
Commercial
banking
High General-
Full-service purpose law firms
stockbroker
Degree of Labor

Boutiques
Retailing

Service Factory Law clinics Service Shop

Limited-service Specialized
stockbroker hospitals
Warehouse and Fast food Fine-dining
catalog stores restaurants Hospitals
Low restaurants
Airlines

No frills
Figure 7.10 airlines
© 2006 Prentice Hall, Inc. 7 – 33
 Service Process Matrix
Mass Service and Professional Service
 Labor involvement is high
 Selection and training highly important
 Focus on human resources
 Personalized services
Service Factory and Service Shop
 Automation of standardized services
 Low labor intensity responds well to
process technology and scheduling
 Tight control required to maintain
standards
© 2006 Prentice Hall, Inc. 7 – 34
 Improving Service
Productivity
Strategy Technique Example
Separation Structure service so Bank customers go to a
customers must go manager to open a new
where service is offered account, to loan officers
for loans, and to tellers
for deposits

Self-service Self-service so Supermarkets and

customers examine, department stores,
compare, and evaluate at internet ordering
their own pace

Table 7.3
© 2006 Prentice Hall, Inc. 7 – 35
 Improving Service
Productivity
Strategy Technique Example
Postponement Customizing at delivery Customizing vans at
delivery rather than at
production

Focus Restricting the offerings Limited-menu restaurant

Modules Modular selection of Investment and

service, modular insurance selection,
production prepackaged food
modules in restaurants

Table 7.3
© 2006 Prentice Hall, Inc. 7 – 36
 Improving Service
Productivity
Strategy Technique Example
Automation Precise personnel Automatic teller
scheduling machines
Scheduling Precise personnel Scheduling ticket counter
scheduling personnel at 15-minute
intervals at airlines

Training Clarifying the service Investment counselor,

options, explaining how tofuneral directors, after-
avoid problems sale maintenance
personnel

Table 7.3
© 2006 Prentice Hall, Inc. 7 – 37
 Equipment and Technology

 Often complex decisions

 Possible competitive advantage
 Flexibility
 Stable processes
 May allow enlarging the scope of the
processes

© 2006 Prentice Hall, Inc. 7 – 38

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

© 2006 Prentice Hall, Inc. 7 – 39

 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)
© 2006 Prentice Hall, Inc. 7 – 40
 Machine Technology
 Increased precision
 Increased productivity
 Increased flexibility
 Improved environmental impact
 Reduced changeover time
 Decreased size
 Reduced power requirements
© 2006 Prentice Hall, Inc. 7 – 41
 Automatic Identification
Systems (AIS)
 Improved data acquisition
 Reduced data entry errors
 Increased speed
 Increased scope of process
automation

© 2006 Prentice Hall, Inc. 7 – 42

 Process Control

 Increased process stability

 Increased process precision
 Real-time provision of information
for process evaluation
 Data available in many forms

© 2006 Prentice Hall, Inc. 7 – 43

 Process Control Software

© 2006 Prentice Hall, Inc. 7 – 44

 Vision Systems

 Particular aid to inspection

 Consistently accurate
 Never bored
 Modest cost
 Superior to individuals performing
the same tasks

© 2006 Prentice Hall, Inc. 7 – 45

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

© 2006 Prentice Hall, Inc. 7 – 46

 Robotic
Surgery

© 2006 Prentice Hall, Inc. 7 – 47

 Automated Storage and
Retrieval Systems (ASRS)

 Automated placement and

withdrawal of parts and products
 Reduced errors and labor
 Particularly useful in inventory and
test areas of manufacturing firms

© 2006 Prentice Hall, Inc. 7 – 48

 Automated Guided Vehicle
(AGV)

 Electronically guided and controlled

carts
 Used for movement of products
and/or individuals

© 2006 Prentice Hall, Inc. 7 – 49

 Flexible Manufacturing
Systems (FMS)
 Computer controls both the workstation
and the material handling equipment
 Enhance flexibility and reduced waste
 Can economically produce low volume at
high quality
 Reduced changeover time and increased
utilization
 Stringent communication requirement
between components

© 2006 Prentice Hall, Inc. 7 – 50

 Computer Integrated
Manufacturing (CIM)
 Extension of flexible manufacturing
systems
 Backwards 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

© 2006 Prentice Hall, Inc. 7 – 51

 Computer Integrated
Manufacturing (CIM) Figure 7.11

Top management decides to make a product

Computer-
OM runs the
aided design
CIM

production
(CAD) designs
process
the product
Management
Information
System
FMS

Computer-aided
manufacturing Automated storage and Robots put
(CAM) retrieval system (ASRS) the product
and automated guided together
vehicles (AGVs)
© 2006 Prentice Hall, Inc. 7 – 52
 Technology in Services
Service Industry Example
Financial Services Debit cards, electronic funds transfer, ATMs,
Internet stock trading

Education Electronic bulletin boards, on-line journals

Utilities and Automated one-man garbage trucks, optical mail
government and bomb scanners, flood warning systems

Restaurants and Wireless orders from waiters to kitchen, robot

foods butchering, transponders on cars that track sales
at drive-throughs

Communications Electronic publishing, interactive TV

© 2006 Prentice Hall, Inc.

Table 7.4 7 – 53
 Technology in Services
Service Industry Example
Hotels Electronic check-in/check-out, electronic
key/lock system

Wholesale/retail Point-of-sale terminals, e-commerce, electronic

trade communication between store and supplier, bar
coded data

Transportation Automatic toll booths, satellite-directed

navigation systems
Health care Online patient-monitoring, online medical
information systems, robotic surgery
Airlines Ticketless travel, scheduling, Internet purchases

© 2006 Prentice Hall, Inc.

Table 7.4 7 – 54
 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
© 2006 Prentice Hall, Inc. 7 – 55
 Ethics and Environmentally
Friendly Processes
Reduce the negative impact on the
environment
 Encourage recycling
 Efficient use of resources
 Reduction of waste by-products
 Use less harmful ingredients
 Use less energy
© 2006 Prentice Hall, Inc. 7 – 56