When process decisions made?
New or modified product/service to be offered Quality to be improved Competitive priorities have changed Demand for product/service is changing Cost/availability of inputs have changed
Positioning
The positioning strategy - whether resources are organised around the product or process.
Key variables
Factors
Vertical integration
Resource flexibility
Customer involvement
Capital intensity
Key variables
Volume of production Degree of customisation
Vertical Integration (VI)
The degree to which a firm owns (production) system to handle the entire chain of processes. Higher degree of handling, greater VI Types of VI:
Backward integration: Firm moves towards sources of raw materials and parts (e.g. buying out suppliers) Forward integration: Firm acquires more channels of distribution (e.g. own warehouse, distribution centres)
Rao
Vertical Integration: Consider
Cost of producing resources Efficiency in producing resources Market penetration (see the IBMMitsubishi story) Need for Resource flexibility (investment tied up) Tolerance of low range of acceptable business opportunities
Resource flexibility (RF)
The ease for employees and equipment to be able to handle a wide variety of products, output levels, duties and functions.- Higher degree of ease, greater flexibility RF can be affected by vertical integration when more resources are tied up in covering new tasks.
Customer involvement
The extent of involvement in the production process
Capital intensity
The degree of mixture of equipment and skill in the production process. The greater the relative cost of equipment, the greater is capital intensity.
PROCESS STRATEGIES
Process strategies
Involves determination of how to produce a product or provide a service Objective
Meet or exceed customer requirements Meet cost & managerial goals
Has long-run effects
Product & volume flexibility Costs & quality
Fit of Process, Volume, and Variety
Low-Volume (Intermittent)
Repetitive Process (Modular)
High-Volume (Continuous)
High Variety One or few units per run, high variety (allows customization) Changes in modules Modest runs, standardized modules Changes in attributes (such as grade, quality, size, thickness, etc.) Long runs only
Process focus projects, job shops,(machine, print, carpentry) Standard Register Repetitive (autos, motorcycles) Harley Davidson
Mass Customization (difficult to achieve, but huge rewards) Dell Computer Co.
Poor strategy
Product focus (commercial baked goods, steel, glass) Nucor Steel
Types of process strategies
Process strategies follow a continuum. Within a given facility, several strategies may be used
ProcessFocused
RepetitiveFocused
ProductFocused
Continuum
Process focused strategies
Facilities are organized by process Similar processes are together Example: All drill presses are together Low volume, high variety products Jumbled flow Product A Other names Operation 1 2 Intermittent process Job shop
Product B
Process focused strategies: Example
Bank Hospital Machine Shop
1995 Corel Corp. 1995 Corel Corp.
1995 Corel Corp.
Process Focused Strategy: Pros & Cons
Advantages
Greater product flexibility More general purpose equipment Lower initial capital investment
Disadvantages
More highly trained personnel More difficult production planning & control Low equipment utilization (5% to 25%)
Repetitive Focused Strategy
Facilities often organized by assembly lines Characterized by modules
Parts & assemblies made previously
Modules combined for many output options Other names
Assembly line Production line
Repetitive Focused Strategy: Considerations
More structured than process-focused, less structured than product focused Enables quasi-customization Using modules, it enjoys economic advantage of continuous process, and custom advantage of low-volume, highvariety model
Repetitive-Focused Strategy: Examples
Clothes Dryer
McDonalds
over 95 billion served
Fast Food
Truck
1995 Corel Corp.
Product-Focused Strategy
Facilities are organized by product High volume, low variety products Where found
Discrete unit manufacturing Continuous process manufacturing
Other names
Line flow production Continuous production
Products A & B 1 2 Operation 3
Product-Focused Strategy: Pros & Cons
Advantages
Lower variable cost per unit Lower but more specialized labor skills Easier production planning and control Higher equipment utilization (70% to 90%)
Disadvantages
Lower product flexibility More specialized equipment Usually higher capital investment
Product-Focused Examples
Soft Drinks (Continuous, then Discrete)
1995 Corel Corp.
Light Bulbs (Discrete)
Paper (Continuous)
Mass Flu Shots (Discrete)
Mass Customization
Using technology and imagination to rapidly mass-produce products that cater to satisfy unique customer desires. Under mass customization the three process models become so flexible that distinctions between them become blur, making variety and volume issues less significant.
Table of Summary
Process Focus (Low volume, High variety)
Repetitive Focus (Modular)
Product focus (High-volume, low-variety) Large quantity, small variety of products Special purpose equipment
Mass Customization (High-volume, high-variety) Large quantity, large variety of products Rapid changeover on flexible equipment
1. Small quantity, Long runs, large variety of standardized products product, from modules 2. General purpose equipment Special equipment aids in use of assembly line
Table of Summary (cont d)
Process Focus
Repetitive Focus
Product focus Operators less broadly skilled
Mass Customization Flexible operators trained for customization
3 Broadly skilled Modestly operators trained employees 4 Many instructions because of change in jobs 5 Raw material high relative to product value Reduced training and number of job instructions JIT techniques used
Few work Custom orders orders and job require many instructions instructions Raw material low relative to product value Raw material low relative to product value
Table of Summary (cont d)
Process Focus 6 WIP high relative to output
Repetitive Focus JIT techniques used
Product focus WIP low relative to output
Mass Customization WIP driven down by JIT, kanban, lean production Goods move swiftly thru facility
7 Units move slowly thru plant
Movement measured in hours & days
Units move swiftly thru facility
8 Finished goods Finished goods made to order, made to frequent forecasts not stored
Finished goods Finished goods made to forecast, made to order then stored
Table of Summary (cont d)
Process Focus 9 Scheduling complex and concerned with trade-off between inventory, capacity, and customer service 10 Fixed costs low, variable costs high Repetitive Focus Scheduling based on building models from a variety of forecasts Product focus Scheduling relatively simple, concerns establishing sufficient rate of output to meet forecasts Fixed costs high, variable costs low Mass Customization Scheduling sophisticated to accommodate customization
Fixed costs dependent on flexibility of facilities
Fixed costs high; variable costs must be low
Table of Summary (cont d)
Process Focus
Repetitive Focus
Product focus Because of high fixed costs, cost dependent on utilization of capacity
Mass Customization High fixed costs and dynamic variable costs
11 Costing, done Costs usually by job, is known based on estimated prior to experience doing job but only known after doing job
Process Continuum
Repetitive Focus (assembly line) Product Focused (continuous process)
Process Focused (intermittent process)
Continuum
High variety, low volume Modular Low utilization (5% - 25%) Flexible equipment General-purpose equipment
Low variety, high volume High utilization (70% - 90%) Specialized equipment
Volume and Variety of Products
Volume and Variety of Products One or very few units per lot Very small runs, high variety Modest runs, modest variety Long runs, modest variations Very long runs, changes in attributes Equipment utilization Low Volume High Variety Process (Intermittent) Projects Job Shops Repetitive Poor Strategy (High variable costs) 5%-25% Repetitive Continuous 20%-75% 70%-80% Repetitive Process (Modular) High Volume Low Variety Process (Continuous)
Mass Customization
Process Strategies
Repetitive Focus Modular design Flexible equipment Modular techniques Mass Customization Effective scheduling techniques Process-focused High variety, low volume Low utilization (5% - 20%) General purpose equipment Rapid throughput techniques Product-focused Low variety, high volume High utilization (70% - 80%) Specialized equipment