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Chapter 3-process-design-strategy

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The document discusses process design strategy and major process design decisions. It describes process design as selecting inputs, resources, workflows and methods to transform inputs into outputs. Major process design decisions include process structure, customer involvement, vertical integration, resource flexibility, and capital intensity. The document provides details on each of these decisions and how they impact process design for both services and manufacturing.

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To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Part 1Part 1 Chapter 1:Chapter 1: Operations As aOperations As a Competitive WeaponCompetitive Weapon Chapter 2:Chapter 2: Operations StrategyOperations Strategy Chapter 3:Chapter 3: Process Design StrategyProcess Design Strategy
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Process DesignProcess Design StrategyStrategy Chapter 3Chapter 3
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. We’ll Discuss...We’ll Discuss...  What Is Process Design?What Is Process Design?  Major Process Design DecisionsMajor Process Design Decisions  Process StructureProcess Structure  Customer InvolvementCustomer Involvement  Vertical IntegrationVertical Integration  Resource FlexibilityResource Flexibility  Capital IntensityCapital Intensity
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. What Is Process Design?What Is Process Design? The selection of the inputs, resources, work flows, andThe selection of the inputs, resources, work flows, and methods that transform inputs into outputsmethods that transform inputs into outputs Includes:Includes:  Which process are to be done in-house orWhich process are to be done in-house or outside?outside?  Proper mix of human skills and equipmentProper mix of human skills and equipment  Quality, Capacity, InventoryQuality, Capacity, Inventory  Impact on environmentImpact on environment Decisions must be consistent with Competitive PrioritiesDecisions must be consistent with Competitive Priorities
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Process Decisions must be made when:Process Decisions must be made when: Gap exists between competitive priorities and capabilitiesGap exists between competitive priorities and capabilities A new or substantially modified service or product is beingA new or substantially modified service or product is being offeredoffered Quality must be improvedQuality must be improved Competitive priorities have changedCompetitive priorities have changed Demand for a service or product is changingDemand for a service or product is changing The cost or availability of inputs have changedThe cost or availability of inputs have changed Competitors are gaining by using a new processCompetitors are gaining by using a new process New technologies are availableNew technologies are available
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Effective Process Design Major Decisions forMajor Decisions for Effective Process DesignEffective Process Design Vertical Integration • In-house • Outsource Capital Intensity • Low automation • High automation Customer Involvement • Low involvement • High involvement Resource Flexibility • Specialized • Enlarged Process Structure • Customer-contact Matrix (services) • Product-process Matrix (manufacturing) Strategy for Change • Process Reengineering • Process Improvement Figure 3.1Figure 3.1
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Process Structure determines how processes are designed relative to the kinds of resources needed, how resources are partitioned between them, and their key characteristics. Customer Involvement refers to the ways in which customers become part of the process and the extent of their participation. Vertical Integration refers to the degree to which the firm’s own production system or service facility handles the entire value chain. Resource flexibility is the ease with which employees and equipment can handle a wide variety of products, output levels, duties, and functions. Capital intensity is the mix of equipment and human skills in a process.
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.  A good process strategy for a service process depends first and foremost on the type and amount of customer contact.  Customer contact is the extent to which the customer is present, is actively involved, and receives personal attention during the process. Process Structures in ServicesProcess Structures in Services
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. PeoplePeople What is processedWhat is processed PossessionsPossessions Active, visibleActive, visible Contact intensityContact intensity Passive, out of sightPassive, out of sight PersonalPersonal Personal attentionPersonal attention ImpersonalImpersonal Face-to-faceFace-to-face Method of deliveryMethod of delivery Regular mailRegular mail PresentPresent Physical presencePhysical presence AbsentAbsent High ContactHigh Contact DimensionDimension Low ContactLow Contact Process Structures in ServicesProcess Structures in Services
Customer-Contact Matrix forCustomer-Contact Matrix for Service ProcessesService Processes Less Customer Contact and CustomizationLess Customer Contact and Customization ServiceService PackagePackage Front office Hybrid office Back office (1) (2) (3) High interaction with Some interaction with Low interaction with customers, highly customers, standard customers, standardized customized service services with some options services Process Characteristics (1) Jumbled flows, complex work with many exceptions (2) Flexible flows with some dominant paths, moderate job complexity with some exceptions (3) Line flows, routine work easily understood by employees LessComplexity,LessDivergence,MoreLineFlows
Process Structure in ManufacturingProcess Structure in Manufacturing Manufacturing processes convert materials into goods that have a physical form.
Process choicesProcess choices Project Process:Project Process: A process characterized by a high degree ofA process characterized by a high degree of customization, the large scope of each product, and the release ofcustomization, the large scope of each product, and the release of substantial resources once it is completed.substantial resources once it is completed. Job ProcessJob Process: A process with the flexibility needed to produce a: A process with the flexibility needed to produce a wide variety of products in significant quantities, with considerablewide variety of products in significant quantities, with considerable complexity and divergence in the steps performed.complexity and divergence in the steps performed. Batch ProcessBatch Process: A process that differs from the job process with: A process that differs from the job process with respect to volume, variety and quantity.respect to volume, variety and quantity. Line ProcessLine Process: A process that lies between the batch and: A process that lies between the batch and continuous processes on the continuum; volumes are high andcontinuous processes on the continuum; volumes are high and products are standardized, which allows resources to be organizedproducts are standardized, which allows resources to be organized around particular products.around particular products. ContinuousContinuous FlowFlow: The extreme end of high-volume, standardized: The extreme end of high-volume, standardized production and rigid line flows, with production not starting andproduction and rigid line flows, with production not starting and stopping for long time intervals.stopping for long time intervals.
Product-Process Matrix for ProcessesProduct-Process Matrix for Processes ProcessProcess CharacteristicsCharacteristics (1)(1) Complex and highlyComplex and highly customized process,customized process, unique sequence ofunique sequence of taskstasks (2)(2) Disconnected lineDisconnected line flows, moderatelyflows, moderately complex workcomplex work (3)(3) Connected line, ,Connected line, , highly repetitive workhighly repetitive work (4)(4) Continuous flowsContinuous flows LessComplexity,LessDivergence,MoreLineFlowsLessComplexity,LessDivergence,MoreLineFlows Less Customization and Higher VolumeLess Customization and Higher Volume Product DesignProduct Design Continuous process Project process Line process Batch process Job process One-of-a-kindOne-of-a-kind products, madeproducts, made to customerto customer orderorder Low volume,Low volume, lowlow standardizationstandardization MultipleMultiple products,products, moderatemoderate volumevolume Few majorFew major products,products, higher volumehigher volume High volume,High volume, highhigh standardizationstandardization
Production and Inventory StrategiesProduction and Inventory Strategies  Make-to-order strategyMake-to-order strategy: A strategy used by manufactures: A strategy used by manufactures that make products to customer specifications in lowthat make products to customer specifications in low volume.volume.  Assemble-to-orderAssemble-to-order strategystrategy: A strategy for producing a: A strategy for producing a wide variety of products from relatively few assemblies andwide variety of products from relatively few assemblies and components after the customer orders are received.components after the customer orders are received.  Make-to-stockMake-to-stock strategystrategy: A strategy that involves holding: A strategy that involves holding items in stock for immediate delivery, thereby minimizingitems in stock for immediate delivery, thereby minimizing customer delivery times.customer delivery times.  Mass productionMass production: A term sometimes used in the popular: A term sometimes used in the popular press for a line process that uses the make-to-stockpress for a line process that uses the make-to-stock strategy.strategy.
Customer InvolvementCustomer Involvement Good or Bad?Good or Bad?  Improved Competitive CapabilitiesImproved Competitive Capabilities: More customer: More customer involvement can mean better quality, faster delivery,involvement can mean better quality, faster delivery, greater flexibility, and even lower cost.greater flexibility, and even lower cost. – Customers can come face-to-face with the service providers,Customers can come face-to-face with the service providers, where they can ask questions, make special requests on thewhere they can ask questions, make special requests on the spot and provide additional information.spot and provide additional information. – Self-service is the choice of many retailers.Self-service is the choice of many retailers.
Customer InvolvementCustomer Involvement Good or Bad?Good or Bad? • However customer involvement can be disruptive and makeHowever customer involvement can be disruptive and make the process less efficient.the process less efficient. – Greater interpersonal skills are required.Greater interpersonal skills are required. – Quality measurement becomes more difficult.Quality measurement becomes more difficult.
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Vertical IntegrationVertical Integration King Soopers In-houseIn-house processesprocesses BackwardBackward integrationintegration Raw materials (eggs, flour, sugar) ForwardForward integrationintegration Customers (grocery stores) Figure 3.9Figure 3.9
Resource FlexibilityResource Flexibility  Flexible workforceFlexible workforce: A workforce whose members are: A workforce whose members are capable of doing many tasks, either at their owncapable of doing many tasks, either at their own workstations or as they move from one workstation toworkstations or as they move from one workstation to another.another. – Job EnlargementJob Enlargement – Job RotationJob Rotation – Job EnrichmentJob Enrichment
Resource FlexibilityResource Flexibility • Flexible equipmentFlexible equipment: Low volumes mean that process: Low volumes mean that process designers should select flexible, general-purposedesigners should select flexible, general-purpose equipment.equipment.
Capital IntensityCapital Intensity Capital IntensityCapital Intensity is the mix of equipment and human skills in theis the mix of equipment and human skills in the process; the greater the relative cost of equipment, the greater isprocess; the greater the relative cost of equipment, the greater is the capital intensity.the capital intensity. AutomationAutomation is a system, process, or piece of equipment that isis a system, process, or piece of equipment that is self-acting and self-regulating.self-acting and self-regulating.  Fixed automationFixed automation is a manufacturing process that produces oneis a manufacturing process that produces one type of part or product in a fixed sequence of simple operations.type of part or product in a fixed sequence of simple operations.  Flexible automationFlexible automation is a manufacturing process that can beis a manufacturing process that can be changed easily to handle various products.changed easily to handle various products.
Economies of ScopeEconomies of Scope  Economies of scopeEconomies of scope are economies that reflect the ability toare economies that reflect the ability to produce multiple products more cheaply in combination thanproduce multiple products more cheaply in combination than separately.separately.  With economies of scope, the often conflicting competitiveWith economies of scope, the often conflicting competitive priorities of customization and low price become morepriorities of customization and low price become more compatible.compatible.
Strategies for ChangeStrategies for Change  Process ReengineeringProcess Reengineering is a fundamental rethinking and drasticis a fundamental rethinking and drastic redesign of processes to improve performance dramatically inredesign of processes to improve performance dramatically in terms of cost, quality, and speed.terms of cost, quality, and speed.  Process improvementProcess improvement is the systematic study of the activitiesis the systematic study of the activities and flows of each process to improve it.and flows of each process to improve it.

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Chapter 3-process-design-strategy

  • 1. To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Part 1Part 1 Chapter 1:Chapter 1: Operations As aOperations As a Competitive WeaponCompetitive Weapon Chapter 2:Chapter 2: Operations StrategyOperations Strategy Chapter 3:Chapter 3: Process Design StrategyProcess Design Strategy
  • 2. To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Process DesignProcess Design StrategyStrategy Chapter 3Chapter 3
  • 3. To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. We’ll Discuss...We’ll Discuss...  What Is Process Design?What Is Process Design?  Major Process Design DecisionsMajor Process Design Decisions  Process StructureProcess Structure  Customer InvolvementCustomer Involvement  Vertical IntegrationVertical Integration  Resource FlexibilityResource Flexibility  Capital IntensityCapital Intensity
  • 4. To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. What Is Process Design?What Is Process Design? The selection of the inputs, resources, work flows, andThe selection of the inputs, resources, work flows, and methods that transform inputs into outputsmethods that transform inputs into outputs Includes:Includes:  Which process are to be done in-house orWhich process are to be done in-house or outside?outside?  Proper mix of human skills and equipmentProper mix of human skills and equipment  Quality, Capacity, InventoryQuality, Capacity, Inventory  Impact on environmentImpact on environment Decisions must be consistent with Competitive PrioritiesDecisions must be consistent with Competitive Priorities
  • 5. To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Process Decisions must be made when:Process Decisions must be made when: Gap exists between competitive priorities and capabilitiesGap exists between competitive priorities and capabilities A new or substantially modified service or product is beingA new or substantially modified service or product is being offeredoffered Quality must be improvedQuality must be improved Competitive priorities have changedCompetitive priorities have changed Demand for a service or product is changingDemand for a service or product is changing The cost or availability of inputs have changedThe cost or availability of inputs have changed Competitors are gaining by using a new processCompetitors are gaining by using a new process New technologies are availableNew technologies are available
  • 6. To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Effective Process Design Major Decisions forMajor Decisions for Effective Process DesignEffective Process Design Vertical Integration • In-house • Outsource Capital Intensity • Low automation • High automation Customer Involvement • Low involvement • High involvement Resource Flexibility • Specialized • Enlarged Process Structure • Customer-contact Matrix (services) • Product-process Matrix (manufacturing) Strategy for Change • Process Reengineering • Process Improvement Figure 3.1Figure 3.1
  • 7. To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Process Structure determines how processes are designed relative to the kinds of resources needed, how resources are partitioned between them, and their key characteristics. Customer Involvement refers to the ways in which customers become part of the process and the extent of their participation. Vertical Integration refers to the degree to which the firm’s own production system or service facility handles the entire value chain. Resource flexibility is the ease with which employees and equipment can handle a wide variety of products, output levels, duties, and functions. Capital intensity is the mix of equipment and human skills in a process.
  • 8. To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved.  A good process strategy for a service process depends first and foremost on the type and amount of customer contact.  Customer contact is the extent to which the customer is present, is actively involved, and receives personal attention during the process. Process Structures in ServicesProcess Structures in Services
  • 9. To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. PeoplePeople What is processedWhat is processed PossessionsPossessions Active, visibleActive, visible Contact intensityContact intensity Passive, out of sightPassive, out of sight PersonalPersonal Personal attentionPersonal attention ImpersonalImpersonal Face-to-faceFace-to-face Method of deliveryMethod of delivery Regular mailRegular mail PresentPresent Physical presencePhysical presence AbsentAbsent High ContactHigh Contact DimensionDimension Low ContactLow Contact Process Structures in ServicesProcess Structures in Services
  • 10. Customer-Contact Matrix forCustomer-Contact Matrix for Service ProcessesService Processes Less Customer Contact and CustomizationLess Customer Contact and Customization ServiceService PackagePackage Front office Hybrid office Back office (1) (2) (3) High interaction with Some interaction with Low interaction with customers, highly customers, standard customers, standardized customized service services with some options services Process Characteristics (1) Jumbled flows, complex work with many exceptions (2) Flexible flows with some dominant paths, moderate job complexity with some exceptions (3) Line flows, routine work easily understood by employees LessComplexity,LessDivergence,MoreLineFlows
  • 11. Process Structure in ManufacturingProcess Structure in Manufacturing Manufacturing processes convert materials into goods that have a physical form.
  • 12. Process choicesProcess choices Project Process:Project Process: A process characterized by a high degree ofA process characterized by a high degree of customization, the large scope of each product, and the release ofcustomization, the large scope of each product, and the release of substantial resources once it is completed.substantial resources once it is completed. Job ProcessJob Process: A process with the flexibility needed to produce a: A process with the flexibility needed to produce a wide variety of products in significant quantities, with considerablewide variety of products in significant quantities, with considerable complexity and divergence in the steps performed.complexity and divergence in the steps performed. Batch ProcessBatch Process: A process that differs from the job process with: A process that differs from the job process with respect to volume, variety and quantity.respect to volume, variety and quantity. Line ProcessLine Process: A process that lies between the batch and: A process that lies between the batch and continuous processes on the continuum; volumes are high andcontinuous processes on the continuum; volumes are high and products are standardized, which allows resources to be organizedproducts are standardized, which allows resources to be organized around particular products.around particular products. ContinuousContinuous FlowFlow: The extreme end of high-volume, standardized: The extreme end of high-volume, standardized production and rigid line flows, with production not starting andproduction and rigid line flows, with production not starting and stopping for long time intervals.stopping for long time intervals.
  • 13. Product-Process Matrix for ProcessesProduct-Process Matrix for Processes ProcessProcess CharacteristicsCharacteristics (1)(1) Complex and highlyComplex and highly customized process,customized process, unique sequence ofunique sequence of taskstasks (2)(2) Disconnected lineDisconnected line flows, moderatelyflows, moderately complex workcomplex work (3)(3) Connected line, ,Connected line, , highly repetitive workhighly repetitive work (4)(4) Continuous flowsContinuous flows LessComplexity,LessDivergence,MoreLineFlowsLessComplexity,LessDivergence,MoreLineFlows Less Customization and Higher VolumeLess Customization and Higher Volume Product DesignProduct Design Continuous process Project process Line process Batch process Job process One-of-a-kindOne-of-a-kind products, madeproducts, made to customerto customer orderorder Low volume,Low volume, lowlow standardizationstandardization MultipleMultiple products,products, moderatemoderate volumevolume Few majorFew major products,products, higher volumehigher volume High volume,High volume, highhigh standardizationstandardization
  • 14. Production and Inventory StrategiesProduction and Inventory Strategies  Make-to-order strategyMake-to-order strategy: A strategy used by manufactures: A strategy used by manufactures that make products to customer specifications in lowthat make products to customer specifications in low volume.volume.  Assemble-to-orderAssemble-to-order strategystrategy: A strategy for producing a: A strategy for producing a wide variety of products from relatively few assemblies andwide variety of products from relatively few assemblies and components after the customer orders are received.components after the customer orders are received.  Make-to-stockMake-to-stock strategystrategy: A strategy that involves holding: A strategy that involves holding items in stock for immediate delivery, thereby minimizingitems in stock for immediate delivery, thereby minimizing customer delivery times.customer delivery times.  Mass productionMass production: A term sometimes used in the popular: A term sometimes used in the popular press for a line process that uses the make-to-stockpress for a line process that uses the make-to-stock strategy.strategy.
  • 15. Customer InvolvementCustomer Involvement Good or Bad?Good or Bad?  Improved Competitive CapabilitiesImproved Competitive Capabilities: More customer: More customer involvement can mean better quality, faster delivery,involvement can mean better quality, faster delivery, greater flexibility, and even lower cost.greater flexibility, and even lower cost. – Customers can come face-to-face with the service providers,Customers can come face-to-face with the service providers, where they can ask questions, make special requests on thewhere they can ask questions, make special requests on the spot and provide additional information.spot and provide additional information. – Self-service is the choice of many retailers.Self-service is the choice of many retailers.
  • 16. Customer InvolvementCustomer Involvement Good or Bad?Good or Bad? • However customer involvement can be disruptive and makeHowever customer involvement can be disruptive and make the process less efficient.the process less efficient. – Greater interpersonal skills are required.Greater interpersonal skills are required. – Quality measurement becomes more difficult.Quality measurement becomes more difficult.
  • 17. To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Vertical IntegrationVertical Integration King Soopers In-houseIn-house processesprocesses BackwardBackward integrationintegration Raw materials (eggs, flour, sugar) ForwardForward integrationintegration Customers (grocery stores) Figure 3.9Figure 3.9
  • 18. Resource FlexibilityResource Flexibility  Flexible workforceFlexible workforce: A workforce whose members are: A workforce whose members are capable of doing many tasks, either at their owncapable of doing many tasks, either at their own workstations or as they move from one workstation toworkstations or as they move from one workstation to another.another. – Job EnlargementJob Enlargement – Job RotationJob Rotation – Job EnrichmentJob Enrichment
  • 19. Resource FlexibilityResource Flexibility • Flexible equipmentFlexible equipment: Low volumes mean that process: Low volumes mean that process designers should select flexible, general-purposedesigners should select flexible, general-purpose equipment.equipment.
  • 20. Capital IntensityCapital Intensity Capital IntensityCapital Intensity is the mix of equipment and human skills in theis the mix of equipment and human skills in the process; the greater the relative cost of equipment, the greater isprocess; the greater the relative cost of equipment, the greater is the capital intensity.the capital intensity. AutomationAutomation is a system, process, or piece of equipment that isis a system, process, or piece of equipment that is self-acting and self-regulating.self-acting and self-regulating.  Fixed automationFixed automation is a manufacturing process that produces oneis a manufacturing process that produces one type of part or product in a fixed sequence of simple operations.type of part or product in a fixed sequence of simple operations.  Flexible automationFlexible automation is a manufacturing process that can beis a manufacturing process that can be changed easily to handle various products.changed easily to handle various products.
  • 21. Economies of ScopeEconomies of Scope  Economies of scopeEconomies of scope are economies that reflect the ability toare economies that reflect the ability to produce multiple products more cheaply in combination thanproduce multiple products more cheaply in combination than separately.separately.  With economies of scope, the often conflicting competitiveWith economies of scope, the often conflicting competitive priorities of customization and low price become morepriorities of customization and low price become more compatible.compatible.
  • 22. Strategies for ChangeStrategies for Change  Process ReengineeringProcess Reengineering is a fundamental rethinking and drasticis a fundamental rethinking and drastic redesign of processes to improve performance dramatically inredesign of processes to improve performance dramatically in terms of cost, quality, and speed.terms of cost, quality, and speed.  Process improvementProcess improvement is the systematic study of the activitiesis the systematic study of the activities and flows of each process to improve it.and flows of each process to improve it.

Editor's Notes

  1. This presentation covers the graphical material in Chapter 2 - Operations Strategy.