Process

Strategy
Chapter 7
Outline Global Company Four Process
• •

Profile: Strategies
Harley-Davidson • Selection of
Equipment
• Process Analysis and
Design
• Special Consideration
for Service Process
Design
• Production
Technology
• Technology in
Services
• Process Redesign
 •When you complete this chapter you
should be able to:

1. Describe four process strategies

Learning 2. Compute crossover points for different
processes
Objectives 3. Use the tools of process analysis
4. Describe customer interaction in service
processes
5. Identify recent advances in production
technology
Harley-Davidson [Link]
watch?v=rFDAzRRCu2I

Repetitive manufacturing works

► The only major U.S. motorcycle company
► Emphasizes quality and lean
manufacturing
► Materials as Needed system
► Many variations possible
► Tightly scheduled repetitive production
line
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
Arrive on a JIT
schedule from a
Air cleaners Oil tank work cell 10-station work
cell in
Milwaukee
Fluids and mufflers Shocks and forks

Fuel tank work cell Handlebars

Wheel work cell Fender work cell

Roller testing
Crating
 •The objective is to create a
Process process to produce products
that meets customer
Strategy requirements 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

Process, Volume, and Variety
Figure 7.1 Volume
Low Repetitive High
Volume Process Volume
High Variety
one or few units
per run, Process Focus
(allows projects, job shops Mass Customization
customization) (machine, print, (difficult to achieve, but
hospitals, huge rewards)
restaurants) Dell Computer
Changes in Arnold Palmer
Modules Hospital
modest runs, Repetitive
standardized (autos, motorcycles,
modules home appliances)
Harley-Davidson
Changes in
Attributes
(such as grade, Poor Product Focus
quality, size, Strategy (commercial baked
thickness, etc.) (Both fixed goods, steel, glass,
long runs only and variable beer)
costs are Frito-Lay
high)
Process Strategies
Four basic strategies
1. Process focus
2. Repetitive focus
3. Product focus
4. Mass customization

Within these basic strategies there are

many ways they may be implemented
 • Facilities are organized around
specific activities or processes
• General purpose equipment and
skilled personnel
• High degree of product flexibility
1-Process Focus • Typically, high costs and low
equipment utilization
• Product flows may vary
considerably making planning
and scheduling a challenge
1-Process Focus Many inputs
(surgeries, sick patients,
baby deliveries, emergencies)

(low-volume, high-variety,
Many departments and
intermittent processes) many routings
Arnold Palmer Hospital

Figure 7.2(a) Many different outputs

(uniquely treated patients)
2-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
 Raw materials and
2-Repetitive module inputs
(multiple engine models,
Focus wheel modules)

Few
modules

(modular)
Harley Davidson

Figure 7.2(b) Modules combined for many

Output options
(many combinations of motorcycles)
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
3-Product Focus Few Inputs
(corn, potatoes, water,
seasoning)

(high-volume, low-variety,
continuous process)
Frito-Lay

Output variations in size, shape,

Figure 7.2(c) and packaging
(3-oz, 5-oz, 24-oz package
labeled for each material)
4-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
4-Mass Customization
TABLE 7.1 Mass Customization Provides More Choices Than Ever
NUMBER OF CHOICES
ITEM 1970s 21ST CENTURY
Vehicle styles 18 1,212
Bicycle types 8 211,000
Software titles 0 400,000
Web sites 0 255,000,000
Movie releases per year 267 744
New book titles 40,530 300,000
Houston TV channels 5 185
Breakfast cereals 160 340
Items (SKUs) in supermarkets 14,000 150,000
LCD TVs 0 102
4-Mass Many parts and
component inputs

Customization (chips, hard drives, software,

cases)

Many modules
(high-volume, high-variety)
Dell Computer

Figure 7.2(d)
Many output versions
(custom PCs and notebooks)
4-Mass Customization

• Imaginative product design

• Flexible process design
• Tightly controlled inventory management
• Tight schedules
• Responsive supply-chain partners
 Comparison of Processes
MASS
PROCESS FOCUS PRODUCT FOCUS CUSTOMIZATION
(LOW-VOLUME, REPETITIVE FOCUS (HIGH-VOLUME, (HIGH-VOLUME,
HIGH-VARIETY) (MODULAR) LOW-VARIETY) HIGH-VARIETY)

1. Small quantity 1. Long runs, usually 1. Large quantity 1. Large quantity and
and large variety a standardized and small variety large variety of
of products product from of products products
modules

2. Broadly skilled 2. Moderately trained 2. Less broadly 2. Flexible operators

operators employees skilled operators
3. Instructions for 3. Few changes in the 3. Standardized job 3. Custom orders
each job instructions instructions requiring many job
instructions

4. High inventory 4. Low inventory 4. Low inventoryLow

inventory relative to
the product value
5. Finished goods are 5. Finished goods are 5. Finished goods 5. Finished goods are
made to order and made to frequent are made to a build-to-order (BTO)
not stored forecasts forecast and
stored

6. Scheduling is 6. Scheduling is 6. Scheduling is

complex routine routineSophisticated
scheduling
accommodates
custom orders
7. Fixed costs are low 7. Fixed costs are 7. Fixed costs are high
and variable costs dependent on and variable costs
high flexibility of the lowFixed costs tend to
facility be high and variable
Crossover Chart Example
▶ Evaluate three different accounting software
products
▶ Calculate crossover points between software A
and B and between software B and C

TOTAL FIXED DOLLARS REQUIRED PER

COST ACCOUNTING REPORT
Software A $200,000 $60
Software B $300,000 $25
Software C $400,000 $10
Crossover Chart Example

► Software A is most economical from 0 to 2,857 reports

► Software B is most economical from 2,857 to

6,666 reports
 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

ts
ts

s
s

co
co

sA
B
ss
$ e

es
ro c sts

oc
p co
t al sC

pr
To pro ce s
al
l
t Tota
To

400,000
300,000
200,000
Fixed cost Fixed cost Fixed cost
Process A Process B Process C
Figure 7.3
(2,857) V1 V2 (6,666) Volume
Focused Processes

► Focus brings efficiency

► Focus on depth of product line
rather than breadth
► Focus can be
► Customers
► Products
► Service
► Technology
Selection of Equipment

▶ Decisions can be complex as

► Cost ► Quality
alternate methods may be available ► Cash flow ► Capacity
▶ Important factors may be ► Market stability ► Flexibility
Equipment and Technology

• Possible competitive
advantage
• Flexibility may be a
competitive advantage
• May be difficult and expensive
and may require starting over
• Important to get it right
Process Analysis and Design

• Is the process designed to

achieve a competitive
advantage?
• Does the process eliminate
steps that do not add value?
• Does the process maximize
customer value?
• Will the process win orders?
Process Analysis and Design

• Flowcharts
• Shows the movement of

materials
• Harley-Davidson flowchart

• Time-Function Mapping
• Shows flows and time

frame
 “Baseline” Time-Function Map
Order Receive
Customer product product

Process
Sales order

Order
Production Wait
control

Product
Order
Plant A Print

Product
WIP
Warehouse Wait Wait Wait

Product
WIP
WIP
Plant B Extrude

WIP
Transport Move Move

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

Figure 7.4(a)
52 days
 “Target” Time-Function Map
Order Receive
Customer product product

Process
Sales order

Product
Order
Production
control Wait

Order
WIP
Plant Print Extrude

Product
Warehouse Wait

Product
Transport Move

1 day 2 days 1 day 1 day 1 day

6 days
Figure 7.4(b)
Process Analysis and Design

• Value-Stream Mapping
• Where value is added in

the entire production

process, including the
supply chain
• Extends from the customer

back to the suppliers

Value-Stream Mapping
Begin with symbols
for customer,
Calculate the daily
supplier, and Enter customer
production
production to order requirements
requirements
ensure the big
picture

Add the process

Enter the outbound Determine inbound
steps (i.e.,
shipping shipping method
machine, assemble)
requirements and and delivery
in sequence, left to
delivery frequency frequency
right

I
Add communication Add inventory Determine total
methods, add their quantities (shown working time
frequency, and with ) between (value-added time)
show the direction every step of the and delay (non-
with arrows entire flow value-added time)
Value-Stream Mapping

Figure 7.5
 Process Chart

© 2014 Pearson Education, Inc. Figure 7.6 7 - 34

Service Blueprinting

• Focuses on the customer and provider interaction

• Defines three levels of interaction
• Each level has different management issues
• Identifies potential failure points
 Service Blueprint
Personal Greeting Service Diagnosis Perform Friendly Close
Service

Level Customer arrives

for service. Customer departs
#1
(3 min)

F
Determine Notify Customer pays bill.
specifics. customer (4 min)
Warm greeting (5 min)
and obtain No and recommend
an alternative
F
service request.
(10 sec) provider.
Standard Can F
Level request. (7 min)
service be
#2 (3 min) done and does Notify
Direct customer customer No customer the
to waiting room. approve? car is ready.
(5 min) (3 min)

F F F F
Yes Yes
Perform
Level required work. F Prepare invoice.
#3 (varies) (3 min)

Figure 7.7
Special Considerations for
Service Process Design

► Some interaction with customer is necessary, but this often affects

performance adversely
► The better these interactions are accommodated in the process
design, the more efficient and effective the process
► Find the right combination of cost and customer interaction
 Service Process Matrix
Degree of Customization
Figure 7.8
Low High
Mass Service Professional Service
Private Traditional
banking orthodontics
Commercia
l banking
High General-
Full-service purpose law firms
stockbroker
Degree of Labor

Digital
Boutiques orthodontics
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
airlines
Service Process Matrix

Mass Service and Professional Service

► Labor involvement is high
► Focus on human resources
► Selection and training highly
important Degree of Customization
Low High

► Personalized services Commerci

Mass Service

al banking
Professional Service
Private
banking
Traditional
orthodontics

High General-
Full-service purpose law
stockbroker firms
Digital

Degree of Labor
Boutiques orthodontics
Retailing
Law clinics
Service Factory Service Shop
Limited-service Specialized
stockbroker hospitals
Warehouse and Fast-food
catalog stores Fine-dining
Low restaurants restaurants Hospitals

Airlines

No-frills
airlines
Service Process Matrix

Service Factory and Service Shop

► Automation of standardized services
► Restricted offerings
► Low labor intensity responds well to
process technology and
scheduling
Degree of Customization
Low High

Mass Service Professional Service

Private Traditional
banking orthodontics
Commerci

Tight control required to

al banking

►
High General-
Full-service purpose law
stockbroker firms
Digital

Degree of Labor
Boutiques orthodontics

maintain standards
Retailing
Law clinics
Service Factory Service Shop
Limited-service Specialized
stockbroker hospitals
Warehouse and Fast-food
catalog stores Fine-dining
Low restaurants restaurants Hospitals

Airlines

No-frills
airlines
 Improving Service Productivity
TABLE 7.3 Techniques for Improving Service Productivity
STRATEGY TECHNIQUE EXAMPLE
Separation Structuring service so Bank customers go to a manager to
customers must go where the open a new account, to loan officers
service is offered for loans, and to tellers for deposits
Self-service Self-service so customers Supermarkets and department
examine, compare, and stores
evaluate at their own pace
Postponemen Customizing at delivery Customizing vans at delivery rather
t than at production

Focus Restricting the offerings Limited-menu restaurant

Modules Modular selection of service Investment and insurance selection
Modular production Prepackaged food modules in
restaurants
Automation Separating services that may lend Automatic teller machines
themselves to some type of
automation
Scheduling Precise personnel scheduling Scheduling ticket counter personnel at
15-minute intervals at airlines
Training Clarifying the service options
Explaining how to avoid
problemsInvestment counselor, funeral
Production Technology

• Machine technology
• Automatic identification systems (AISs) and RFID
• Process control
• Vision systems
• Robots
• Automated storage and retrieval systems (ASRSs)
• Automated guided vehicles (AGVs)
• Flexible manufacturing systems (FMSs)
• Computer-integrated manufacturing (CIM)
Machine Technology
► Increased precision Comput
er n u
contr meric
► Increased productivity ol (CN
C)
al
► Increased flexibility
► Improved environmental impact
► Reduced changeover time
► Decreased size
► Reduced power requirements
Automatic Identification
Systems (AISs)
► Improved data acquisition
► Reduced data entry errors
► Increased speed
► Increased scope
of process
automation

Bar codes and RFID

 Process Control
► Real-time monitoring and control of
processes
► Sensors collect data
► Devices read data
on periodic basis
► Measurements translated into digital
signals then sent to a computer
► Computer programs analyze the data
► Resulting output may take numerous
forms
Vision Systems
► Particular aid to inspection
► Consistently
accurate
► Never bored
► Modest cost
► Superior to
individuals performing the same tasks
Robots
► Perform monotonous or dangerous
tasks
► Perform tasks
requiring significant
strength or
endurance
► Generally enhanced
consistency and
accuracy
Automated Storage and
Retrieval Systems (ASRSs)
► Automated placement and withdrawal
of parts and products
► Reduced errors and labor
► Particularly useful in inventory and test
areas of manufacturing firms
Automated Guided Vehicle
(AGVs)
► Electronically guided
and controlled carts
► Used for movement
of products and/or
individuals
Flexible Manufacturing
Systems (FMSs)
► 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
Computer-Integrated
Manufacturing (CIM)
► Extend flexible manufacturing
► 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
 Computer-
Integrated
Manufacturing
(CIM)

ASRS and AGVs

Figure 7.9
 Technology in Services
TABLE 7.4 Examples of Technology’s Impact on Services
SERVICE EXAMPLE
INDUSTRY
Financial Services Debit cards, electronic funds transfer, ATMs, Internet stock trading, on-line
banking via cell phone

Education Electronic bulletin boards, on-line journals, WebCT, Blackboard, and smart
phones
Utilities and Automated one-man garbage trucks, optical mail and bomb scanners,
government flood warning systems, meters allowing homeowners to control energy
usage and costs
Restaurants and Wireless orders from waiters to kitchen, robot butchering, transponders
foods on cars that track sales at drive-throughs

Hotels
Communications Electronic
Interactivecheck-in/check-out, electronic key/lock systems, mobile Web
TV, e-books via Kindle
bookings
Wholesale/retail Point-of-sale (POS) terminals, e-commerce, electronic communication
trade between store and supplier, bar-coded data, RFID

Transportation Automatic toll booths, satellite-directed navigation systems, Wi-Fi in

automobiles
Health care Online patient-monitoring systems, online medical information systems,
robotic surgery

Airlines Ticketless travel, scheduling, Internet purchases, boarding passes

downloaded as two-dimensional bar codes on smart phones
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