OBJECTIVES OF

Describe four process strategies 272

OA2Calculate the crossing points for different processes 277
LEARNING
OA3Use the process analysis tools 279
Describe the interaction with the client in the service processes 283
Identify recent advances in production technology

Four strategies of the process

In chapter 5, the need to select, define, and design goods and services was examined.
the aim was to create designs that are friendly to the environment and that could be offered ethically and their-
tenable. Now the focus is on production. An important decision for a manager of
Operations is about finding the best way to produce. Below are some ways.
que ayudan a los administradores a diseñar un proceso que les permita alcanzar esta meta.
Process strategy Oneprocess strategyit is the approach adopted by an organization to transform the
Approach adopted by a resources in goods and services. The objective of a process strategy is to find the way to
organization for transformation to produce goods and services that meet customer requirements and product specifications in
resources in goods and services. As for costs and other administrative restrictions. The selected process will have an effect on
long term on the efficiency and flexibility of production, as well as on the cost and quality of
the produced goods.
Almost all goods or services are produced through some variation of one of the four strategies.
of the process: (1) process focus, (2) repetitive focus, (3) product focus, and (4) per-
mass customization. The relationship of these four strategies with volume and variety is shown
in figure 7.1. In this chapter, we examine Arnold Palmer Hospital as a business with
focus on the process, Harley-Davidson as a repetitive producer, Frito-Lay as a em-
OA1Describe four
press with product-focused operation, and aDell as a mass customizer.
process strategies

Focus on the process

The vast majority of global production is dedicated to making low volume and high variety products.
dad in places where 'workshop jobs' are done. Such facilities are organized around
specific activities or processes. In a factory, these processes could be the departments
dedicated to welding, polishing, and painting. In an office, the processes would be accounts payable, the sales
you and the payroll. In a restaurant, they could be the bar, the kitchen, and the bakery. These facilities
Focused on the process they arefocused on the processin terms of equipment, distribution, and supervision. They provide a high

A production facility
organized around the
processes to facilitate the Volume
low volume and high production
Low volume Repetitive process High volume
variety.
Focus on the process mass personalization
High variety projects, workshop jobs (difficult to achieve, but
one or a few units (machining, printing, with great rewards)
by race (allows the hospitals, restaurants Dell Computer
customization) Arnold Palmer Hospital

Changes in modules Repetitive

modest races, (cars, motorcycles,
standardized modules appliances
Harley-Davidson

Figure 7.1
Changes in attributes Deficient strategy Focus on the product
The selected process must (baked commercial goods,
(as degree, quality, Both fixed costs and
adjust to the volume and to the steel, glass, beer
tamaño, grosor, the variables are high.
variety etcetera), only runs Frito-Lay
big
272
 CHAPTER7| process strategy 273

(a) (b) (c) (d)

Focus on the process Repetitive approach Focus on the product Mass personalization
(low volume, high variety, (modular) (high volume, low variety, (high volume, high variety)
intermittent process continuous process
Harley-Davidson
Arnold Palmer Hospital Frito-Lay Dell Computer

Many entries Subject entries Few entries Many entries

primes and modules parts and components
(surgeries, patients)
sick, birth of (multiple modules (corn, potatoes, water) (chips, hard drives,
babies, emergencies of engines and wheels seasonings software, armors

Few
modules
Many modules
Many departments
and many routes

Many different exits Combined modules Output with variations Many versions of output
(only treated patients) for many outputs in size, shape, and packaging (PCs and computers
(many combinations (packages of 3 oz, 5 oz, 24 oz) custom laptops
of motorcycle) labeled for each market)

Figure 7.2
Cuatro alternativas de los procesos con un ejemplo de cada una

degree of flexibility of the products since they move between specialized processes.
Each process is designed to perform a wide variety of activities and handle changes.
frequent. Consequently, they are also referred to as intermittent processes.
With reference to figure 7.2(a), imagine a diverse group of patients entering the hospital.
such as Arnold Palmer, a facility focused on the process, which are channeled to departments.
specialized, they are treated differently and then they are discharged as treated individuals
unique way.
Process-focused facilities have high variable costs with very low utilization.
drop in facilities, by up to 5%. This is the case for many restaurants, hospitals, and workshops.
of specialized machines. However, certain facilities work a little better through
the use of electronic controls.

Repetitive approach
The repetitive processes, as we saw in the Global Profile of a Company about Harley-Da-
vidson, use modules (see figure 7.2b). Themodulesthey are parts or components that are prepared Modules
previously, often in processes focused on the product (continuous). Parts or components of a
Therepetitive processIt's the classic assembly line. It's widely used in the assembly of almost all products that are prepared
automobiles and household appliances, has more structure and, consequently, less flexibility previously, often in
dad that a facility with a process-oriented approach. a continuous process.
Fast food companies are another example of a repetitive process that uses modules. This Repetitive process
This type of production allows for greater customization than the continuous process; the modules (for A production process
example, meat, cheese, sauce, tomatoes, onions) are assembled to form an almost per- product-oriented that uses
customized, a cheeseburger. In this way, the company gains both the advantages modules.
PART 2| operations design

economic aspects of the continuous model (where many of the modules are prepared), such as the advantage of
the customization of the low volume and high variety model.

Focus on the product

Focused on the product High volume and low variety processes arefocused on the productThe facilities are orga-
An organized installation They are arranged around the products. They are also known as continuous processes because they have runs.
around the products; a large and continuous production. Products such as glass, paper, tin sheets, bulbs, beer, and tor-
product-oriented process, is rings are made through continuous processes. Some products, such as light bulbs, are discrete; others,
of high volume and low variety. Like paper rolls, they are manufactured in a continuous flow. Others, such as hernia surgery in
the famous Canadian hospital Shouldice, its services. Only through standardization and control
quality cash companies have been able to establish product-focused facilities. A
an organization that produces the same light bulb or the same bread for hot dogs day after day can be organized
around the product. Such an organization has an inherent capacity to set standards and maintain
a specific quality, unlike an organization that produces unique goods every day, like a
printing workshop or a general hospital. For example, the Frito-Lay product family also
it is manufactured in a facility focused on the product [see figure 7.2(c)]. At Frito-Lay, the corn, the
potatoes, water, and seasonings are relatively few inputs, but the outputs (like Cheetos,
Ruffles, Tostitos, and Fritos vary in terms of seasoning and packaging within the family of products.
A facility focused on the product involves high volumes and little variety. The na-
The specialized nature of the installation requires high fixed costs, but low variable costs.
they facilitate the extensive use of the facility.

Focus on mass customization

Our increasingly complex and sophisticated world demands personalized goods and services.
Table 7.1 shows a peak in the abundant variety of goods and services that must be supplied.
the operations managers. The explosion in variety has occurred in cars, movies-
the, breakfast cereals and thousands of other areas. Despite this proliferation of products, the
operation managers have improved quality and reduced costs. Consequently,
The variety of products has continued to grow. Operations managers use the lap-
Mass customization mass personalization to produce this vast array of goods and services. Themass personalization
Fast and low production It is the fast and low-cost production of goods and services that increasingly satisfy the
cost that addresses changes personal wishes of the client. However, this personalization (see the upper right section of
constants in wishes Figure 7.1 not only refers to variety but also to production in an economic form.
customer personal information.
de loqueel cliente quierecuandoel cliente lo desea.
Mass customization gives us the variety of products that tradition provides.
from low volume manufacturing (focus on the process) to the cost of standardized production
high volume (focus on the product). However, achieving this personalization is a challenge that
requires sophisticated operational capabilities. The construction of agile processes that produce
quick and inexpensive personalized items require a limited product line

TABLE 7.1 Mass customization provides more options than ever.

NUMBER OF POSSIBILITIESa
ARTICLE 1970s XXI Century

Vehicle styles 18 1212

Types of bicycles 8 211000c
Software Titles 0 400000
Websites 0 255,000,000d
Movie releases by year 267 774e
New book titles 40530 300000+
TV channels in Houston 5 185
Breakfast cereals 160 340
Items with identification (SKU, Stock Keeping Unit) in supermarkets 14000b 150000f
LCD televisions 0 102

Source: Various; however, many of the data come from the Federal Reserve Bank of Dallas.
aVariety
available in the United States; worldwide, the variety is even greater.b1989.
cPossible
combinations for a [Link] Pingdom estimate (2010).
[Link] (2011).fSKUs managed by the supermarket chain H. C. Butts.
 CHAPTER7| strategy of the process 275

and a modular design. The link between sales, design, production, the supply chain and
logistics must be tight.
Dell Computer [see figure 7.2(d)] has shown that the recovery of personalization
massive can be substantial. The most traditional manufacturers include Toyota, who recently-
It announced the delivery of customized cars in 5 days. Likewise, in the industry
electronic controls allow designers to quickly adjust their lines to
respond to changes.
The service industry is also moving towards mass customization. For example,
Not many years ago, most people had the same telephone service.
Today, there is not only a telephone service with many alternatives, from call identification...
beyond just voicemail, but contemporary phones are not only limited to
are simple telephone devices. They can also be partly a camera, a computer, a
electronic game, a GPS and internet browser. Insurance companies are adding
and adapting new products in shorter development times to meet the needs
unique to their clients. And companies like iTunes, Spotify, Rhapsody, Amazon, and eMusic maintain
an inventory of music tests online that allows customers to select a dozen
of songs to have in their personalized playlist. Similarly, the number of
New books and movies increase every year. Mass customization brings with it new
demands for operations managers who must build the necessary processes
to provide this growing variety of goods and services.
Execution of the work for mass customizationThe term personalizes-
mass customization suggests a system in which products are manufactured on demand. Themanufacturing on Made to order
order (BTO)it means producing according to the customer's orders and not through forecasts. (BTO)
Pero fabricar sobre pedido es difícil. Algunos de los retos principales son: Produce according to the
customer orders in place
uThe product design must be imaginative. Successful designs for made-to-order manufacturing. to use the forecasts.
they usually employ a limited line of product and modules. Ping Inc., one of the main
golf club manufacturers use different combinations of club heads, shafts, irons
and angles to make 20,000 variations of their golf clubs.
uThe process design must be flexible and capable of adapting to changes arising in the design.
and technology. For example, thepostponementallows postponing the customization until the part Postponement
end of the production process. Toyota installs unique interior modules very late in the Delay of any modification
production for its popular Scion model, a process that is also common in trucks or product customization
customized. The deferral is discussed in more detail in chapter 11. for as long as possible
uInventory management requires strict control. To be successful, a company must
in the production process.
avoid filling up with unpopular or obsolete components. With almost no raw material, work
In process or finished products, Dell builds customized computers in less than a day.
uThe strict programs that track orders and materials from design to delivery are
another requirement of mass customization. Align Technology, a well-known name in the
orthodontics, found a way to gain a competitive advantage by providing aligners
custom-made plastics in the three weeks following the first visit to the office of
dentist (see the AO box in action "Mass customization for straight teeth").
uReliable partners in the supply chain generate effective collaboration. The forecast,
the inventory management and ordering of men's shirts
JCPenney is managed by a supplier located in Hong Kong.

AO in actionMass customization for right teeth

Align Technology from Santa Clara, California, wants to straighten teeth with an aligner The clear aligners
removable from transparent plastic. The company is a mass customizer for the rents are taking the place
orthodontic treatments. Each patient receives very personalized attention, due to of the traditional 'wires and
what requires a truly unique product, there are no two patients who are the same. Withbrackets”. Align claims that its
based on dental impressions, X-rays, and photographs taken in the office of the product is "complex to make and
dentist and sent to the headquarters of Align, the company builds a model by [Link] to use. With a good AO,
I need a 3-D and a file of the patient's mouth. Then, this digitized file. mass customization works,
it is sent to Costa Rica, where the technicians develop a comprehensive treatment plan,even
the if it is for a very product
which is sent to the dentist for approval. After approval, the data of the complex and highly individualized,
virtual models and the treatment plan are used to program 3-D printers like the teeth aligners.
to form molds. These molds are sent to Juárez, Mexico, where a Sources: Business Week (April 30, 2012); Laura Rock Kopezak and M. Eric Johnson, "Aligning
series of custom tooth aligners, usually around 19. The time the Supply Chain", Case #6-0024, Dartmouth College, 2006 and [Link].
required for this process: around 3 weeks from start to finish.
PART 2| operations design

TABLE 7.2 Comparison of the characteristics of four types of process

FOCUS ON THE PROCESS FOCUS ON THE PRODUCT

(LOW VOLUME, HIGH REPETITIVE APPROACH (HIGH VOLUME, LITTLE) MASS CUSTOMIZATION (HIGH
VARIETY) (FOR EXAMPLE, THE (MODULAR) (FOR EXAMPLE, VARIETY) (FOR EXAMPLE, VOLUME, HIGH VARIETY) (FOR
ARNOLD PALMER HOSPITAL HARLEY-DAVIDSON FRITO-LAY EXAMPLE, DELL COMPUTER)
Small amount and great Big races, a Large quantity and small Large quantity and variety of
variety of products standardized product variety of products products
starting from modules
The workers have 2. Trained employees 2. Operators with skills 2. Flexible workers.
very broad skills moderately less wide
3. Instructions for each 3. Few changes in the 3. Work instructions 3. Custom orders
work work instructions standardized they require many instructions
of work
High inventories 4. Low inventory 4. Low inventories 4. Low inventories in relation to the
product value
5. The finished goods are 5. Finished goods 5. The finished goods are 5. Finished products usually
they are made to order and I don't know they are produced according to the produced according to a made to order (BTO)
they store Frequent forecasts forecast and are stored
6. Programming is 6. Programming is routine. 6. La programación rutinaria 6. Sophisticated programming
complex to adjust to the orders
customized
7. Fixed costs are low and 7. Fixed costs depend on 7. Fixed costs are high and 7. Fixed costs tend to be high,
the variable costs, high the flexibility of the installation the variable costs, low but the variable costs are low

Mass customization and made-to-order manufacturing represent a new imperative for

operations. There are advantages to mass customization and made-to-order manufacturing: prime-
By meeting market demands, companies win orders and remain in the business.
they also reduce existing costs (from staff and inventory to facilities)
due to the inaccurate sales forecast.

Comparison of processes
The characteristics of the four processes are shown in table 7.2 and figure 7.2 (page 273) and it is
possible to find strategic advantages in any of them. For example, unit costs will be
lower in the case of continuous process if there is a high volume (and high utilization). However,
a differentiated low-volume product is more economical when its production focuses on the
Process. Mass customization requires exceptional competence in product design.
and the process, programming, supply chain, and inventory management. The eva-
The evaluation and the proper selection of process strategies are crucial.
Cross graphsThe comparison of processes can be further improved if one observes the
point where the total cost of the process changes. For example, in figure 7.3, the three are shown
Cross graph process alternatives in a single graph. This graph is sometimes calledcross graphThe
A cost graph of the Process A has the lowest cost for volumes below V.1, process B has the highest cost
possible volumes for more under between V1yV2, and process C has the lowest cost with volumes above V.2.
of a process. Example 1 illustrates how to determine the exact volume where a process becomes more
expensive than another.

Example 1 CROSS GRAPH

Kleber Enterprises would like to evaluate three accounting software products (A, B, and C) to provide support for
changes in their internal accounting processes. The resulting processes will have cost structures similar to the
from figure 7.3. The software costs for these processes are:

Dollars required by
TOTAL FIXED COST EACH ACCOUNTING REPORT
Software A $200000 $60
Software B $300000 $25
Software C $400000 $10
 CHAPTER7| PROCESS STRATEGY 277

OA2Calculate the points METHOD ▶ Find the crossover point for software A and B, and then the crossover point for the software.
of crossing for different B and C.
processes SOLUTION ▶ Software A produces a more economical process up to V1, but exactly until what
number of reports (volume)? To determine the volumeV1it is established that the cost of software A is equal
the B.V1it is the unknown volume:
200000ϩ (60)Vϭ 1300000ϩ (25)V 1
35Vϭ
1 100000
Vϭ
1 2857

This means that software A is cheaper for 0 to 2857 reports (V1).

Similarly, to determine the crossing point for V2, the cost of software B is equal to that of C:

300000ϩ (25)Vϭ 2400000ϩ (10)V 2

15Vϭ
2 100000
Vϭ
2 6666

This means that software B is more economical if the number of reports is between 2857 (V1) and 6666
(V2) and that software C is cheaper if the number of reports exceeds 6666 (V2).
REASONING ▶ As can be seen, the software and the related process that are selected depend on
largely from the forecasted volume.
LEARNING EXERCISE ▶ If the supplier of software A reduces the fixed cost to $150,000, what is
the new crossing point between A and B? (Answer: 4286).
RELATED PROBLEMS ▶ 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.14.

Figure 7.3
Cross graphs

Costs Costs Costs

$ variables
$ variables variables
$
Fixed costs
Fixed costs
Fixed costs

Low volume, high variety Repetitive High volume, low variety

Process A Process B Process C

$
TIP FOR THE STUDENT
One can expect that the
different processes have costs
different. However, for a
given volume, only one process
it will have the lowest cost.
400000

300000

200000
Costs Costs Costs
fixed of fixed of fixed of the
process A process B process C

V1 V2
(2857) (6666)
Volume
PART 2| operations design

VIDEO 7.1 Procesos enfocados In a continuous pursuit of efficiency, industrial societies-

Process strategy in Wheeled specialized organizations continue to move towards specialization. The approach that comes with specialization
Coach Ambulance
contribute to achieving efficiency. Managers who focus on a limited number of activities
data, products, and technologies make it better. As the variety increases in a facility
of products, overhead costs are rising even faster. Similarly, as
While the variety of products, customers, and technologies increases, so does the complexity. The resources
necessary to address the complexity expand disproportionately. An approach
In the depth of the product line as opposed to its breadth is a characteristic.
typical of the most prominent firms, of which Intel, L.M. Ericsson, and Bosch are class examples
worldwide. Focus, defined here as specialization, simplification, and concentration
they generate effectiveness. The approach also helps to build a core competency that produces
commercial and financial success. The approach can be:
uIn the clients (like Winterhalter Gastronom, a German company that focuses on the
production of dishwashers for hotels and restaurants, for which glasses are crucial
and spotless dishes).
uIn products with similar attributes (such as the Nucor Steel plant located in Crawford,
Ohio, which processes only high-quality steel sheets; and Gallagher, a company from New
New Zealand, which has 45% of the world's electric fence market.
VIDEO 7.2 uIn service (like the Arnold Palmer Hospital in Orlando, with a focus on children and the
Analysis of the process in the Hospital
Arnold Palmer
women; or the Shouldice Hospital, in Canada, which focuses on hernia surgery).
uIn technology (like Texas Instruments, with a focus only on certain specialized types
of semiconductors; and SAP, which despite a world of opportunities, remains focused on
the software).
The key for the operations manager is to continuously move towards the spice-
focus, concentrating on the core competencies needed to achieve excellence in that
specialty.

TIP FOR THE STUDENT

Selection of equipment
A process that will win orders to Finally, selecting a particular process strategy requires decisions regarding
it really depends on the selection the team and the technology. These decisions can be complex since there are alternative methods
adequate equipment. production natives in almost all operation functions, whether hospitals, restaurants or
manufacturing facilities. Choosing the best equipment means understanding an industry.
specifies the processes and technologies available. The selection of equipment, whether a machine for
X-rays for a hospital, a computer-controlled lathe for a factory, or a new
computer for an office, it is necessary to consider the cost, quality, capacity, and flexibility
dad. To make this decision, the operations manager develops the documentation that
indicate the capacity, size, and tolerances of each alternative, as well as their requirements
maintenance.
In this era of rapid technological change and short product life cycles, adding flexi-
Flexibility The ability to the production process can be an important competitive [Link]
The ability to respond with the ability to respond with few surcharges in time, cost or value for the client. This can
few surcharges on time, cost to represent a modular, mobile, or digitally controlled team. For example, the flexibility of the pro-
the value for the customer. Honda's cease has allowed it to become the leader in the industry regarding its response to the
market dynamics when modifying the production volume and product mix.
Building flexibility in a production process can be difficult and expensive, but if
it is not present, the change may mean starting anew. Consider what would be required to
a fairly simple change, like adding the necessary flexibility at McDonald's to serve a
charcoal burger. What seems to be quite simple would require changes in many of the
10 decisions of AO. For example, changes may be needed in (1) purchases (a different
meat quality, possibly with higher fat content, and additional supplies such as charcoal,
(2) the quality standards (how long and at what temperature the hamburger is cooked), (3) the
equipamiento (la parrilla al carbón), (4) el diseño (espacio para el nuevo proceso y nuevas salidas
of air), (5) training and (6) maintenance. You may want to consider the implications of another
simple modification, such as a change from paper menus to iPad menus as analyzed in the
AO box in action 'The menu on iPad ... A new process.'