Process Theory The Principles of Operations Manage... - (2 The Process) PDF

OUP CORRECTED PROOF – FINAL, 10/1/2018, SPi
2 The process
With this chapter, we begin defining the discipline of operations management

using the framework of Design–Measure–Improve. We do this by setting forth
some principles that define what we think operations management stands
for. The first principle states our fundamental world view that processes are
the bedrock of operations management. This principle is a prelude to four
principles that deal with the “design” of operations.
Principle #1: All operations are composed of processes.
This first principle should come as no surprise. Indeed, Chapter 1 addressed
processes and their history. Processes are the focal points of operations man-
agement. Repetitive work, of whatever kind, is accomplished through processes
that convert inputs into outputs.
When we consider processes, we often think of manufacturing processes
and service processes as distinct. In reality, the two are not as different as we
suppose, but there are some features that we associate more with one than the
other. With that proviso, let us turn first to manufacturing, then to services,
and finally to overhead functions in the company.1
2.1 What is a process?

Copyright © 2018. Oxford University Press. All rights reserved.
THE PROCESS MODEL AS CONCEPTUAL LENS

At its most basic, a “process” is the sequence of activities that turns inputs
(or resources) into outputs (products or services)—see Figure 2.1. It is the
sequence of operations and involved events, taking up time, space, expertise, or
other resources that lead, or should lead, to the production of some outcome.
The basic process model thus consists of inputs, conversion, and outputs.
A process also has a purpose, which is to provide a particular desired output. In
converting the inputs into outputs, it may also produce undesired outputs, such as
emissions and waste in the form of defects, rework, and the like. The basic process
model is shown in Figure 2.1.
This model is the most generic representation of what happens in any
business process. Various aspects of this model warrant a closer look.
Holweg, Matthias, et al. <i>Process Theory : The Principles of Operations Management</i>, Oxford University Press, 2018.
ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/oxford/detail.action?docID=5267432.
Created from oxford on 2019-11-03 14:11:25.
32 PROCESS THEORY
Inputs Outputs
Transformation
Figure 2.1 The process model.
PURPOSE
It may seem obvious, but processes have a purpose, namely to produce the
desired output. The reason this is not as straightforward as one might think is
because there are an infinite number of process (or asset) configurations that
can convert inputs into a desired output, outsourcing portions of the entire
process to third parties aside. Thus there are many possible variations of
process design, but only one (or a few) that provides the best fit between the
external requirements (market) and the operational resources. It is at this
intersection that our process model interlinks with operations strategy (we will
return to this point in Chapters 5 and 6).
INPUTS
Resources of all kinds are needed for a process to operate. These inputs come
in many forms and modes of delivery. First and foremost, there are production
resources: materials, components, and labor. The former two are sourced, or
procured, from external organizations: suppliers. Labor, in turn, is an intern-
ally developed resource. Through training, education, and process improve-
ment, so-called “human capital” is built up: a firm’s workforce. Although labor
is technically also “sourced” from the labor market, it is naïve to assume that
one can readily buy and sell labor. The lead times involved in hiring and
training make this a near-static resource for many firms, and thus more of a
fixed cost as opposed to a variable cost. More recently, information has

become a production resource of its own. It is used to inform the design of
the process, as well as the conversion of the resources in a high-value product.
Other, more generic resources include energy needed to run the process.
And capital is required to procure the resources needed and to finance the
inventories of raw materials, components, work in process, and finished
goods. We deliberately exclude the capital needed for investing in the “con-
version assets” (factory building, production machinery), as the nature of
capital flows for the operation of a process is very different from that needed
to set up the process. All resources are of equal importance, simply because
they all are necessary but insufficient in their own rights. You need all of them
for the process to function.
While this way of thinking about processes—this discipline—seems natural
to us as students of operations management, these concepts are not the only
THE PROCESS 33
way to regard production. Economics and accounting take a significantly

different approach. They think of production in terms of “factors of produc-
tion.” Factors of production examine the equipment (capital), labor, and
materials that go into the products and services that the company markets.
Materials, both consumables and non-consumables, typically constitute the
inputs that are transformed by the process into outputs. Capital and labor are
required for the transformation process itself.
The factors of production are clearer for manufacturing processes than for
service processes. In manufacturing, the materials to be transformed are
typically marshaled in plain sight, and both the equipment to which it is
destined and the labor associated with that equipment are evident. For ser-
vices, the materials to be transformed may not be so evident, and may only be
information or data. Nevertheless, transformation occurs through the appli-
cation of capital and labor.
The ratios of capital to labor can differ greatly from process to process.
Continuous flow processes and service factories, respectively, have considerably
larger ratios of capital to labor than job shops or professional services. The
materials (inputs) for some processes are more uniform than others, too.
In more recent years information has come to be often considered a fourth
factor of production. In particular in services, but increasingly also in manu-
facturing, data have a significant influence on the production processes.
Sometimes they are needed for the customization of the product. In other
cases, particularly when traceability of the origins and transformation of the
product is essential, e.g. in pharmaceuticals or food, data “accompanies” the
product through the process.
This perspective of “factors of production” is of interest to economics and
accounting chiefly because those disciplines are interested in costing inputs
and outputs. Economics and accounting do not examine as critically as does
operations how one can assemble together the factors of production more
effectively. Rather, they take the factors of production as more or less given,
and they are, for those disciplines, the elements that account for the costs a
company incurs. We, on the other hand, as students of operations manage-
ment, acknowledge the need for the various factors of production, but they are
of less interest to us, perhaps with the exception of information and data. The
factors of production are, for us, the givens. They are sunk costs. Our job is to
use them effectively—to design and operate the process to create the through-
put that the company sells, and as much of it as is needed by the marketplace.
CONVERSION
The conversion that takes place is the actual transformative process within the
firm. Here the inventory of materials and components turns to work-in-process
34 PROCESS THEORY
(or work-in-progress) inventory as it moves from process step to process step,

until it is complete. “Complete” here refers to the state at which it is useful for
the customer of this process—which may well be another manufacturer, not
necessarily the end consumer. A finished good or product can also both be used
as input for another firm’s process, and be consumed by end consumers. For
example, tires are used both by vehicle manufacturers to build new cars, and by
vehicle owners to replace their existing ones. A process can have both “original
equipment” and “aftersales” customers.
While the “inputs” are generally seen as the “supply chain,” the “conver-
sion” step is where the actual operational improvements are generally focused.
The downstream end is generally called “distribution” or “retail.”
OUTPUTS
The “outputs” are the actual products or services the process provides. In fact
their production represents the aforementioned “purpose.” It should not be
assumed, however, that all resources are converted into outputs; in fact the
quality of a process is, among other things, measured by the degree to which it
is able to convert inputs into outputs completely or efficiently. Typical losses
occur due to defects during start-up or production that lead to scrap, or
inefficient use of raw materials that leads to wastage. As we will discuss in
greater detail in Chapter 7, the most fundamental metric of a process is its
productivity, which is defined as the ratio of its outputs to its inputs. The fewer
inputs a process needs to deliver a desired output, the more productive it is.
CONTEXT
Processes do not happen in a void—they are embedded in a national, an

industry, and intra-firm setting. As such it is important to understand how
this context influences the process. Most directly this context can be seen
through its impact on items such as working hours, break times, and emissions
in manufacturing. Also, the national and regional differences in energy pro-
vision result in differences in cost and carbon intensity for the energy con-
sumed by the process.
All regulation and taxation issues that affect the process are part of the
context. The ones most commonly cited by companies refer to business
taxation, labor hours, and safety regulations, as well as emissions and other
environmental standards. Tariff and non-tariff trade barriers for international
trade are also important. Conjointly these define the context in which the
process operates, which has a significant impact on the performance of a
process, and at times may restrict the freedom of the operations manager to
act in the most efficient way from the business’ point of view.
THE PROCESS 35
MANAGEMENT SYSTEM
The management system is the “control unit” of the process, which plans and
oversees all activities, as shown in Figure 2.2. Effectively, it is what puts the
management into operations management. The management system has the
fundamental function of “running” the process, which starts with the basic
planning and set-up, but also covers the control of the process while it is
running, and improving the process over time based on what has been learned
from running the process.
Planning involves the provision and allocation of resources for the
process to operate against a given plan or schedule. This includes setting
the production schedule, procuring the required materials and components,
and scheduling all work centers or machines so that the process can
function. This part is the traditional production planning and scheduling
function.
Process control involves measuring the process before, during, and after it
has operated. Once the process has run, it is important to measure its
performance. This, however, is only meaningful if one has a “baseline” to
compare against. A common mistake is to omit the “baseline” measurement in
process improvement, yet measuring the outcome of a process run is mean-
ingless unless one has a standard or baseline—or a “before”—to measure it
against. The fundamental premise of any operational improvement is to
measure outcomes on a continuous basis.
The management system also is responsible for improving the process,
which is one of the creative parts in operations management, where the
main objective is to increase the performance, measured for example through
total factor productivity or the ratio of outputs to inputs—either through
reducing the inputs for a given output, increasing the outputs for a given set
of inputs, or both. The ratio of outputs to inputs is no doubt the most
fundamental performance metric of a process. We will return to this when
Management system
Filter
Inputs Outputs
Suppliers Transformation Customers
Context
Figure 2.2 Process model with management system.
36 PROCESS THEORY
we discuss productivity and efficiency in Chapters 7 and 8. But improvement

can also be about reducing the time to delivery at constant output over input,
or increasing the flexibility of the process, thus allowing for more variety
coming off the production line.
The actual design of the process is in the first place also part of the
management function. But few operations managers will actually have the
opportunity to design their processes from scratch. Most processes are already
operational, or even if new, have to follow the corporate global standard in
terms of layout, machinery, and IT backbone, so there are considerable
constraints that need to be adhered to. So, even many “greenfield” processes
feature less design freedom than one might imagine.
Lastly, it is important to mention that the information that the management
system faces is filtered. It would make little sense to inform the production
scheduler about every single product sold from inventory in the marketplace,
and neither would it make sense to reorder components and materials in
single units. Instead, this information is aggregated through a filter, which
reduces the total amount of information that the management system has to
deal with.
This has been known in the field of cybernetics for almost half a century,
and is known as “Ashby’s Law of Requisite Variety.” Applied to the process
model, it essentially says that the management system’s capacity for dealing
with requests needs to be equal to or greater than the actual requests that it
faces. Requests could be any kind of information needed for the process to run,
from supply uncertainties to machine breakdowns, and other issues that need
to be rectified for the process to run. In the “rock–boat analogy” (see
Section 8.3) these issues would be the “rocks” that are buffered with inventory
and capacity in the system.
In a cybernetics context, having insufficient processing capacity at the
controller means that the robot simply falls over at the point in time when
the sensors in the arms and legs are sending too many signals to the controller
at the same time. It is unable to process these in time to devise counterbalance
actions. The same principle applies to a management system. If the manage-
ment system does not provide sufficient capacity to deal with the exception
reports, quality problems, and customer change requests then eventually the
schedules, and soon the entire processes, will fall over. A “firefighting” scen-
ario will develop where standard processes are replaced by managing by
continuous exceptions. This bears the danger of seriously compromising
customer service levels (as lead times become unpredictable), and standard
processes are no longer followed. As a consequence, any process improvement
activity becomes impossible. As we will discuss in greater detail in Chapter 8, a
standardized process is the necessary platform for devising any meaningful
improvement.
THE PROCESS 37
2.2 Understanding a process as

a sociotechnical system
It is very easy to describe a process as a mechanistic system, but this misses
an important point. Processes are inherently sociotechnical in nature, which
means that they rely on a combination of human and machine as their key
resources. In order to succeed, both need to be considered—each in isola-
tion, as well as their interaction. Seminal studies in the Hawthorne Works at
Bell Labs (incidentally, the same factory where Walter Shewhart was devel-
oping his early theories on process quality) in the early twentieth century
showed how limited the mechanistic approach to understanding and man-
aging sociotechnical systems was. In fact to this day you hear statements like
“Turn the lights up a bit brighter, and they work faster,” which stems from
Mayo and Roethlisberger’s famous study,2 where they experimented with the
effects of lighting on worker productivity. In essence: when they increased
the lighting levels, productivity went up, as expected. But when they decreased
the lighting levels, productivity went up even further, clearly showing that the
effect of being observed was far greater than the effect of lighting.
Since then we have developed a much more sophisticated understanding of
what drives the performance of sociotechnical systems, which must include
“soft” systems aspects of incentives, rewards, and motivation—as well as
aspects of structuration, whereby process and technology co-evolve together.
In fact virtually no technology is used entirely in the way it was intended—its
use generally emerges as the technology is implemented and being used.3
In short, when we look at processes, we need to consider the hard system
(machines, equipment, and materials) as well as the soft system (the people),
which each have their own rules and dynamics, yet conjointly determine the
performance of a process.
2.3 Processes within processes: the level

of resolution
Principle #1 states that operations are composed of processes. The operations
of a factory or of a service firm are often a combination of different manufac-
turing, service, and/or overhead processes. For example, different products are
often produced with different processes. And a variety of overhead processes
are common to any operation. The largest-scale operations are typically
supply chains. Supply chains link different operations, often different manu-
facturing and service operations. For example, a supply chain could begin
38 PROCESS THEORY
upstream with suppliers that are manufacturing operations that feed an

assembly operation, another sort of manufacturing operation. Between
them, transportation companies and perhaps warehousing, both classed as
service operations, provide a vital link. The assembly operation would then
ship its products to a series of distribution centers, and the product would
then be on its way to the market and the end consumer. The distribution
channels that the company uses to reach the consumer can themselves be an
amalgam of service operations of various types and the overhead processes
that help to run them.
Processes span across departments within the firm, and of course across all
firms in the value chain: from raw materials to finished product, from cus-
tomer order to service delivery, and from internal request to completed task
(see Figure 2.3). At the micro level, every single machine or process step also
conforms to the input-conversion-output logic. So we have processes within
processes. Furthermore, processes are essentially embedded in a web of inter-
related processes, where the manufacturing process interacts with the pur-
chasing, finance, and human resource processes, and so on. So how does one
define what is part of the process and what is not?
The answer is “It depends!”—mostly on the question one is setting: the
relevant level of “resolution” one takes to analyze a given process is a function
of what problem is being investigated. If the productivity of a given machining
center is in question, the relevant level of resolution is at the micro or machine
level. If dynamic distortions are experienced in the supply chain system
(such as the infamous “bullwhip effect,” which we will explain further in
Chapter 9) then the resolution level should be at macro or supply chain
level. A particular danger, which we will also return to in Chapter 9, is to
create local optimization, or “islands of excellence.” By considering a process
Supply chain
Tier 2 Tier 1 OEM Retailer
(Macro)
Firm
Machining Paint Assembly
(Intermediate)
Powder Machine
Sanding Inspection
coating (Micro)
Figure 2.3 Processes at different levels of resolution.
THE PROCESS 39
in isolation, and then “optimizing” it by improving its productivity, one can

easily fall into the trap of improving a subsystem at the expense of the
performance of the overall system, firm, or supply chain. Such islands of
excellence form easily where managers lack visibility of the whole system,
and thus cannot judge the implications of their behavior for the whole system.
They can also happen easily where functional metrics are poorly designed, and
not aligned to the objective of the firm (found, for example, by using a Hoshin
Kanri or policy deployment process).
There are several ways in which business processes can be classified.
A typical list of business processes would group them by their respective
outputs, or objectives, such as order fulfillment, or order-to-delivery, which
describes the activities from a customer placing an order to that order being
fulfilled.4 Others include sales and operations planning (SOP), which describes
all activities related to providing the appropriate capacity and processes within
which current and future demand can be fulfilled, or new product develop-
ment and introduction, which describe all activities from concept to launching
a new product, and to the first production run, respectively.
Derivatives of the above processes that are more common in practice
include the “order to cash cycle,” the “complaint to resolution” process, and
the “concept to launch” process. In general, several process classification
schemes have been proposed. Douglas Lambert, for example, identifies eight
business processes: customer relationship management, customer service
management, demand management, order fulfillment, manufacturing flow
management, procurement, product development and commercialization,
and returns.
The definition of what is and is not a relevant process is entirely dependent
on the question one is asking. Nonetheless, we would like to propose the list of
selected business processes in Table 2.1, as most relevant to operations man-
agement, as a starting point.

Another often-used classification groups processes by thematic flows.
These tend to span across several cross-functional business processes that are
often mentioned. These are “high-level” processes that connect many business
functions:
• “Order to delivery”: from order submission, through manufacture, to

distribution and delivery of a product.
• “Order to cash”: from submission of a customer order, through order
fulfillment, to delivery, to payment for that product.
• “Complaint to resolution”: from submission of a customer complaint
towards resolution of the problem.
• “Concept to launch”: from initial product concept, through product devel-
opment, towards launch of the new product—the traditional NPD (new
product development) process.
40 PROCESS THEORY
Table 2.1 Key operations processes

Key business process Definition
Order fulfillment The process from a customer order being placed, to that order being
fulfilled.
Sales and operations planning The planning process that sets the framework in terms of production
(SOP) capacity, labor, and processes to fulfill current and future (forecast)
demand.
Product life-cycle management The process of managing all aspects from new product introduction, to
upgrading the product, to phasing out the product, as well as all aspects of
service and maintenance related to the product.
Technology, plant, and The process of procuring, operating, and conducting maintenance on
equipment management production equipment in order to maximize their utilization.
Human resource development To hire, develop, and retain the right levels of skills needed for the
operation and its support functions.
Strategy and policy deployment To develop and deploy key performance metrics throughout all levels of
the organization that support the goal at organization or firm level.
Purchasing and supplier The process of selecting, contracting with, and developing suppliers of
integration direct and indirect goods and services.
Continuous improvement To continuously improve the various aspects of performance of
manufacturing, service, and overhead processes.
New product development To design a new product from a concept up to the point of the new
(NPD) product introduction (NPI) process, where the product enters volume
production.
Closed loop logistics To distribute the product, to monitor its use, and to take it back and
remanufacture or recycle it at the end of its useful life.
2.4 Types of processes

Processes come in a wide range of forms, and even for similar purposes a
wide range of resource configurations are feasible. While each process is
unique, there are common features that determine a process’ essential char-
acter. In fact there are two main dimensions that determine which types of
processes are economically viable, and which ones are not. We capture the
two dimensions in Volume and Variety, but others are possible. For example,
in Schmenner’s terminology for the service process matrix these are labor
intensity and degree of customer interaction, and in his later book Getting and
Staying Productive: Applying Swift, Even Flow to Practice they are called speed
of flow, measured as throughput time of materials, and variability. Common
to all these descriptions are the notions that the volume of the process and its
variation determine which types of processes are economically appropriate
and feasible.
Plotting these two dimensions in a chart (see Figure 2.4), one can generally
observe that economic processes tend to be located along the center line from
Low volume/High variety to High volume/Low variety. This is driven by the
facts that low-volume, low-variety processes are not economically viable, and
THE PROCESS 41
High
Technically
infeasible
Variety
Economically
unviable
Low
Low High
Volume
Figure 2.4 Economic pressures pull processes to the center line.
high-volume, high-variety processes are currently difficult to accomplish

technically. In a low-volume setting one expects a high degree of customiza-
tion to warrant the high margins required to make this kind of operation
feasible. Equally, for high-volume processes to produce highly variable goods,
the technical requirements are currently too stringent.
Please note that while the underlying economic principles, in our view, will
always hold, this is not to say that new technologies will not challenge the
product–process matrix. 3D printing, for example, is largely agnostic to
product variety and does challenge the “top right-hand” corner. So technology
certainly can shift the boundaries of what is economical and feasible! We will
return to this point in Section 8.7.
These two dimensions have been found to be the main features that
determine the process’ fundamental character. This relationship was initially
discovered by Robert Hayes of Harvard Business School in the spring of 1976.
Hayes was trying to summarize the variety of cases that were being taught in
the required operations management course for MBAs. He, together with
Steven Wheelwright, the course head at the time, called this relationship the
“product–process matrix” and shared their thoughts in a pair of Harvard
Business Review articles that were published in 1979.
We will use these two dimensions to classify the main three base types of
processes: (1) manufacturing and (2) service, which are both “order to
delivery” processes that deliver a product (good or service, or combination
of both) to a customer, and (3) overhead processes, which are internal to the
42 PROCESS THEORY
firm (financial accounting, sales acquisition, strategy deployment, budgeting/

planning, etc.).
In a special class are “small-n” processes (which are projects, new product
development, etc.) that can be customer-oriented (projects), but can also be
internal/overhead (new product development). This class of processes exists in
all three basic types of process, as “projects” or “professional services” and
“artful overhead.” The fundamental difference with the three base processes is
the limited ability to learn from past process runs. This constrains the amount
of cross-project learning, and thus requires a different kind of process
improvement strategy to the repetitive processes common in most firms.
We will discuss each of the main process types—manufacturing, service,
and overhead—in more detail in Sections 2.5 to 2.9.
2.5 Manufacturing processes

Although students of operations management sometimes differ on the
terminology, there is broad agreement on the variety of manufacturing
processes that are typically encountered. Besides projects, we identify four
“pure” processes, which form a spectrum (see Figure 2.5). Hybrids of these
pure processes are also possible.
Process Process
High
tasks flow
Project
Diverse &
Intermittent
complex
Job shop
Variety
Batch
production
Line
production
Continuous
processing
Low
Repetitive & Low High

Continuous
simple Volume
Figure 2.5 The spectrum of manufacturing processes: the product–process matrix.
Adapted from Hayes and Wheelwright (1979).
THE PROCESS 43
THE PROJECT
Projects are the epitome of customization, in as far as the entire product design
and delivery processes are geared to delivering a single, unique product.
Typical features of projects are that resources are very generic in nature,
operated by highly specialized workers. Often the materials and production
equipment are brought to the location of production, for example in the case
of construction. The equipment used for projects tends to be general purpose,
so that it can be reused for the next project. The workforce, on the other hand,
needs to be highly skilled in their respective tasks, as they need to execute a
wide range of diverse tasks.
A key operational challenge with projects is the lower level of repetition:
many projects are executed only once. Thus this process form is often
deprived of the repetition needed to improve the process by identifying
problems and investigating their root causes in order to codify practices that
prevent these problems from reoccurring at subsequent executions of that
process. The focus shifts towards learning about the methods used to carry out
certain tasks, codify this learning into best practices, and apply these to the
next project.
There are of course many different types of projects. Loch et al. make a
distinction between different projects based on the complexity of the project as
well as the degree of uncertainty with which the project team is confronted.5
They refer to “task complexity” and “relationship complexity.” Uncertainty
can be the normal variance one would expect due to different contextual
circumstances in which the project needs to be implemented. But the project
can also be confronted with “known unknowns” or “unknown unknowns.”
They see projects not as a sequence of tasks, but as a sequence of decisions.
Depending on the degree of complexity and uncertainty, the project manage-
ment will need to be adjusted. At low levels of uncertainty and complexity we
use the traditional network techniques like PERT or critical path methods.
They call this the instructionist approach: i.e. a project can be defined in a
certain set of instructions to be implemented. But with higher levels of
uncertainty and complexity the project manager will have to shift to high-
reliability projects (which we will discuss later in Chapter 5) or a combination
of a “Darwinian” selectionist approach (i.e. launching several projects in
parallel and weeding out the unsuccessful attempts) and a learning approach.
Loch et al. observe that the degree to which learning can be achieved is
determined by the type of project management approach that is selected.
A construction project may be unique because of the design of the building,
but the methods used can easily be transferred and learned from one to
another. Research projects, on the other hand, are confronted with a high
level of uncertainty or unintended consequences and therefore learning is
more difficult. Still, it is often possible to generate general best practices from
44 PROCESS THEORY
project executions, and transfer learning across with regards to organiza-

tional structures (“heavyweight project managers”), resource allocation
(“front-loading”), and review schemata (“stage gates”).
THE JOB SHOP

Beyond projects, where a single product is designed and made, the job shop is
the most flexible process for creating a wide variety of products in significant
quantities. Machine shops, tool and die shops, kitchens, and many plastic
molding operations are job shops that work to fulfill particular customer
orders.
The job shop’s layout groups similar equipment together (“process cen-
ters”), primarily because no single product generates enough sales volume to
justify the creation of a product-specific array of equipment. A job shop
typically contains a diverse array of equipment with different capabilities.
Some of that equipment will be used heavily and some may not be used
much at all.
The flow of material in a job shop can be complex and far from straight-line
in character. Materials can be routed in many directions and can loop back to
the same equipment later in the processing cycle. With each order (job)
capable of such complexity, it is absolutely essential that information on
how the order is to be routed through the factory, what is to be done to it at
each step of the way, and how much time and effort are actually spent on
it, follows the job. A well-functioning job shop depends heavily on its infor-
mation flows. This information is vital, because job shops typically bid for
work. Without good information on costs, times (run times, set-up times,
labor content times), routings, and process steps, a job shop would not be able
to bid intelligently or schedule itself effectively.
THE BATCH FLOW PROCESS

One step towards the continuous flow process from the job shop is the batch
flow process. The job shop and the batch flow process have much in common.
Their layouts are similar, with equipment grouped by function rather than by
product. The product moves from department to department within the
factory. Like a job shop, a batch flow operation depends on information
such as routings and process steps and it tracks costs and times spent.
However, batch flow processes typically have a set menu of products that
they produce, frequently in set quantities (lot sizes). The batch flow operation
is thus somewhat more standardized than the job shop, particularly as it
relates to routings and costs.
THE PROCESS 45
While the job shop usually operates to fulfill an outside customer’s order by
an agreed-upon due date and in whatever quantity is ordered, the batch flow
operation usually produces in established lot sizes that move into an inventory
from which further production or final customer orders are filled. Batch flow
processes are commonplace; much “fabrication” is done this way.
Batch production is not always directly associated with smaller lot sizes.
Sometimes batch production is the only way that is technically possible.
Production processes that require fermentation or the development of living
organisms—e.g. brewing beer, fermenting cheese, or producing vaccines—can
only be achieved in a batch process. Other examples of batch flow processes
include much of the chemical industry, semiconductor fabrication, apparel,
much of the steel industry, and huge chunks of the metal bending, metal
forming, and metal machining industries.
THE LINE FLOW PROCESS

Between the batch flow and continuous flow processes, along the process
spectrum, lies the line flow process. In reality it lies closer to the continuous
flow process because it presents some substantive distinctions from the batch
flow. The line flow process is most popularly exemplified by the moving
assembly line that one finds in the auto industry. But it is also found in a
host of other assembly industries such as consumer electronics, computers,
and other consumer goods. In contrast to the batch flow process, the line flow
process exhibits the following characteristics:
• A product-specific layout with different pieces of equipment placed in
sequence ready to perform operations on the product. There are, of course,
mixed-model lines that can produce distinctly different models of the basic
product, but the more diverse the products made, the less satisfactory the
line becomes at producing them.
• The product moves readily from one operation to another so that there is
little work-in-process inventory, nor is there a stockroom in the product’s
path. This also means that there is a great need to examine the “balance” of
the process so that the different tasks to be accomplished take roughly the
same amount of time to perform and have the same capacities, not just over
weeks of time, but over minutes of time.
• The paperwork needs of the line flow process are less demanding than the
batch flow process or the job shop. Routings are not needed and operations
sheets can frequently be simplified, if not eliminated altogether. Products
have set “recipes” that remove the need for tracking labor and machine
inputs to particular products/parts.
• In contrast to the continuous flow operation, the line flow is somewhat more
flexible, generally less automated, and more labor-intensive.
46 PROCESS THEORY
As one proceeds across the spectrum from project to continuous flow, one
tends to move from a highly individualized, flexible process to one that is
much more inflexible in the products it can make, but at the same time much
more productive and efficient in how it makes them.
THE CONTINUOUS FLOW PROCESS

At the other extreme of the process spectrum lies the continuous flow
process. Many high-volume consumer goods and commodities are made
by continuous flow processes, for example oil refining, papermaking, and
food processing. In a continuous flow process, materials move without
much, or any, stopping. They are typically guided and transformed in
their journey by some impressive engineering. Each process step typically
involves some equipment that is specially designed for the task, and the
equipment for each process stage needed to produce the product is inte-
grated and synchronized with the equipment for the other process stages.
Thus the materials progress constantly from one process operation to
another. Indeed, one can estimate realistically how long it takes to transform
the raw materials into a specific product. Work-in-process inventories exist
at well-defined levels and are low relative to the value of output the con-
tinuous flow process generates. Capital investments and automation, on the
other hand, are often higher than those of other processes, frequently dramat-
ically so, especially when contrasted with the workforce employed. Layouts are
almost always product-specific, often with a straight-line character to them.
Continuous flow processes can be very productive and very profitable,
assuming normal sales levels. Only when sales levels plunge is the profitability
of the continuous flow process in jeopardy.
HYBRID PROCESSES
The four process types introduced in the previous sections—job shop, batch
flow, line flow, and continuous flow—are all “pure.” Many factories are
combinations of two (or sometimes more) of these pure processes. Popular
hybrids are the batch flow–line flow hybrid (e.g. auto engines, air condition-
ing, furniture) and the batch flow–continuous flow hybrid (e.g. drinks and
food canning/bottling, many high-volume consumer products whose raw
materials are made in batches).
In these processes the first part of the flow of materials looks like a batch
flow process (often this part of the process is labeled “fabrication”) while the
latter part resembles a line or continuous flow process (this part of the process
is labeled “assembly” or “finishing”). Importantly, the two portions of the
THE PROCESS 47
hybrid are separated by an inventory, typically termed a “decoupling” inventory.

The batch flow process fills up the inventory with parts or semi-finished product
which then is drawn down by the line or continuous flow process for assembly
or completion.
The reason the hybrid process is divided into two parts is that the batch
flow process is not normally as nimble as the line flow or continuous flow
process. It may not be able to switch from product to product as quickly.
Significant chunks of time may be needed to set up the existing machines for
a different component or version of the finished product. This puts pressure
on the batch flow process to produce in longer runs than would be needed
to match precisely the product mix and quantities produced by the line or
continuous flow process. If the batch flow process tried to match the line
or continuous flow process precisely (say, hourly or daily), it would lose a lot
of time to set-up and this downtime could rob the process of the capacity it
needs to keep up with overall demand. Thus the batch flow process does not
attempt a precise, real-time match of the line or continuous flow process’
product mix and quantity, but rather a quantity and product mix match over
a much longer period of time, say days or weeks. The batch flow process
then replenishes the decoupling inventory, while the line or continuous flow
process fills particular customer orders. The two types of process are governed
by two distinct production plans.
2.6 Comparing manufacturing processes

Arrayed as they have been here, the different processes introduced demon-
strate some distinct trends involving the types of products manufactured and
how those products compete against others. Specifically, the more one goes
from a project towards a continuous flow process, the more it is generally the
case that:
• The number of different kinds of products made (variety) declines.
• Product volumes increase to the point where the continuous flow process is
essentially producing a commodity for the mass market.
• Product customization declines and product standardization increases.
• New product introductions become less frequent and are more costly to do.
• Competition is more likely to center on price.
• Competition, at least in the middle ranges of the array, is more likely to
emphasize aspects like workmanship, product performance, and product
reliability; but as the process becomes more and more a continuous flow,
any differences between rival products become narrower and narrower.
48 PROCESS THEORY
GENERAL PROCESS FEATURES

One can observe some complementary trends in some general process features
as well. For example, as one progresses down the array of processes from job
shop to continuous flow, it is generally true that:
• The pattern of the process becomes more rigid, and the routing of products
through their various process steps becomes less individual, more pre-
scribed, and better defined.
• Process layouts, with like machines grouped together, give way to line flow,
or product-specific layouts.
• Process segments become more tightly linked together and synchronized.
• Equipment becomes more specialized.
• More, and generally larger, equipment is part of the process.
• There are more opportunities for automation.
• Proprietary process knowhow becomes more important.
• The operation becomes bigger, and economies related to that scale are possible.
• Equipment is less likely to be idle; pieces of equipment become better
balanced to one another in size and speed.
• Equipment set-ups are fewer and run lengths are longer.
• The pace of the process is determined largely by machine capabilities or
regulated by machines or conveyors.
• The pace of production keeps increasing.
• The notion of capacity becomes less ambiguous and more measurable in
physical, rather than monetary, units.
• Additions to capacity come in large chunks, and incremental additions to
capacity become less viable.
• Bottlenecks become less and less movable, that is, less and less influenced by
the mix of product produced at any time, and thus better understood.
• Incremental change to the process itself becomes relatively more frequent

and routine, but the impact of radical change to the process is likely to be
more sweeping, even daunting.
MATERIALS-ORIENTED FEATURES
Again, keeping the array of different processes ordered from job shop through
continuous flow process, some general trends in materials-oriented features
can be observed. For example, as the process becomes more and more a
continuous flow, it becomes more and more the case that:
• The span of the process (vertical integration) becomes broader. A plant is
more and more likely to start with “commodity type” raw materials and to
transform them into products that may need little or no finishing before
consumers purchase them.
THE PROCESS 49
• Raw materials requirements are large, but their purchase and delivery can be
made steady.
• Supplier ties are long term, with frequent deliveries.
• Because of large production volumes and steady purchases, control over
suppliers for price, delivery, quality, design, and the like is great.
• Control over the delivery time of the finished product becomes greater.
• Because of process design, work-in-process inventories become scant, and
queues of work cease to exist.
• Finished goods are sold through formal distribution channels and can
sometimes be forced down those channels for the sake of keeping produc-
tion running smoothly.
INFORMATION-ORIENTED FEATURES
A number of trends are evident for many information-oriented features of
the various production processes. As the process changes from job shop to
continuous flow, generally it is more and more likely that:
• Production is not instigated by a bidding procedure.
• Longer-term sales forecasts are used, and orders are “frozen” long before
production is scheduled to start.
• The corporation outside the plant is an integral part of the plant’s schedul-
ing and materials movement tracking (the plant is likely to be one among
others owned by the corporation).
• Order scheduling is done on a very sophisticated basis.
• A finished goods inventory is managed.
• The flow of information and paperwork between management and workers
is less.
• Quality control measures become increasingly formal.
• Inventory adjustments become important in responding to seasonal or

business cycle changes in demand.
• The process is less flexible in making swift adjustments to demand changes,
and so production must be carefully planned in advance.
LABOR-ORIENTED FEATURES
Again, trends are evident across the spectrum of production processes
explored, this time concerning labor issues. Progressing from job shop to
continuous flow process, it is more likely that:
• The labor content of the product is smaller, relative to the product’s value.
• As a result of the smaller labor content, less skill is needed to perform the
repeating task.
50 PROCESS THEORY
• Labor is paid by the hour or salaried rather than by some incentive system
(in fact, the progression of wage payment schemes tends to go from hourly
or individual incentive rates for the job shop, through individual and then
group incentive schemes, and then on to hourly rates or monthly salaries).
• While the importance of setting standards for labor remains high, the
mechanization of the continuous flow process means that such standards
are useful, less to define the process and its capacity than to assign the
workforce to the equipment.
• As production moves more and more to mechanical or technological
pacing, the scramble to complete a lot of production to meet monthly
goals or billings becomes less and less prevalent.
• The path of worker advancement becomes better defined and formalized.
• Job content moves from doing (i.e. producing the good) to overseeing and
controlling the process.
MANAGEMENT FEATURES
Finally, some trends can be identified for several aspects of the management of
these diverse production processes. Progressing from job shop to continuous
flow process, it is more and more the case that:
• Staff operations concerning such topics as materials movement, scheduling,
capacity planning, new technology planning, and quality control become
more important relative to line operations.
• The size of the plant’s management (line and staff) is larger relative to the
size of the workforce, both because the capital intensity of the operation is
greater and because staff operations are more important.
• Given that the plant involved is part of a multi-plant company, the involve-
ment of managers situated at the corporate offices (rather than at the plant
itself) becomes greater; the corporation’s influence may extend to oper-

ations as well as to capital planning and spending.
• The operation is controlled more as a cost center, as opposed to a profit
center.
• The major challenges that management faces are significantly altered,
largely shifting from day-to-day operational considerations to very long-
term, high-expense items.
2.7 Service processes

The realm of services is vast and diverse. A host of different traits can describe
them. Some services are “pure” (i.e. intangible) and some involve “facilitating
goods.” The customers for some services interact repeatedly with those
THE PROCESS 51
services’ providers, while the customers of other services scarcely interact with
their providers at all. Some services are delivered quickly and their benefits are
enjoyed right away. Other services take a long time to deliver and their benefits
might stretch out over longer periods of time. Many services cannot be
inventoried (e.g. a night’s stay at a hotel). Other services deal with inventories
all the time.
One consequence of this diversity of traits is that managers of services are
more apt to think of their processes as unique, in comparison with manufac-
turing managers. After all, the classification of manufacturing processes into
job shops, batch operations, assembly lines, and continuous flow operations is
of reasonably long standing and is well accepted. Service research, especially in
its formative years, spent considerable effort on classifying services in different
ways, in part to dispel the notion that each kind of service was unique. The
search was on to find categories within which services could share important
characteristics.
In line with our focus on processes, we are most comfortable grouping
services into process types. Figure 2.6 compares four different types of service
operation: service factory, service shop, mass service, and professional service.
These service processes can only roughly be equated to the four manufacturing
services that have been discussed earlier in the chapter. They contain elements
that are unlike the more well-established manufacturing processes.
The four service processes can be described by arraying them according to
two dimensions. One dimension is labor intensity, which describes the labor
input required by the service provider to complete the service offered relative
Process Process
High
tasks flow Professional

Diverse & service
Intermittent
complex
Degree of customization
Service shop
Service factory
Mass service
Low
Repetitive & High Low

Continuous
simple Labor intensity
Figure 2.6 A spectrum of service processes: the service process matrix.
Adapted from Schmenner (1986).
52 PROCESS THEORY
to the capital employed. And for the second dimension the degree of custom-
ization is used—how different each service is from the service offered to
another customer. Using these two dimensions, process patterns, layouts,
bottlenecks, and a range of other characteristics can be distinguished, much as
we did with manufacturing. Other aspects do not match up as well, however,
such as capacity, peak vs. off-peak demand, and customer interaction. The
challenges that management faces can be very different.
Please note that, just as for manufacturing processes, technologies can
challenge and shift the boundaries of what is technically feasible and econom-
ically viable. Digital platforms in particular can be customized to a great
extent, with little or no labor input required. As such, both the product–
process and service process matrices must be seen as dynamic, and bound to
change in relation to technological advancement.
PROFESSIONAL SERVICE
The professional service is effectively the “project” or “job shop” of the service
world. Here, highly skilled workers (“professionals”) provide such services as
customized tax advice, legal advice, and personal development services. Very
often little equipment is needed beyond general-purpose equipment. As these
services are initiated by, and tailored to, a specific customer, the level of
customization is effectively infinite.
SERVICE SHOP
The service shop combines lower labor intensity with the high interaction and
customization associated with professional service. An auto repair operation
and many aspects of the general hospital are typical “service shops.” The
output is quite specialized to the customer, but the customer moves through
specialized departments, often constructed with considerable capital expend-
iture, that provide distinct operations—e.g. undercarriage work on a car, or
X-ray and surgery services for a patient. The patient (either human or auto)
travels from “process” to “process,” depending on the specific needs. Like in a
manufacturing job shop, the pathway any given patient might take will differ;
however, the processes within each department will show considerable
amounts of repetition.
SERVICE FACTORY
The service factory mirrors the high-volume processes found in manufacturing.
They are often the back office operation, the fast-food restaurant, the no-frills
airline, and the Internet retailer. They are frequently characterized as having
THE PROCESS 53
little customization but considerable capital expenditure, and thus only modest
labor intensity. They are standard services offered on a large-volume basis.
MASS SERVICE
Mass services are those whose labor intensity is high but for which the
customization needed is low. Standard services such as in-store retailing or
wholesaling, where the capital needs are modest, are typical examples. Cus-
tomers are served, but the degree to which customization must be applied in
doing so is limited.
HYBRID SERVICE SET-UPS

While factories mostly tend to provide a clear separation of process types (e.g.
an assembly line in production, but a separate job shop in the product
development area), for service operations this separation is often not apparent.
For example, a general hospital will see service factory-type operations for
small, standard, elective interventions, a service shop for most patients, offer-
ing services that vary according to their needs, and highly complex surgeries or
treatments that require a professional service set-up. These all share the same
resources, such as wards and operating theatres, which explains to some extent
the general difficulties in improving healthcare operations. We call these
“hybrid” set-ups, as different process types can occur in parallel.
NEW INFORMATION SERVICES

Over the last ten to fifteen years we have seen the emergence of low-labor
intensity mass services like Alibaba’s Taobao in online consumer sales,
WeChat’s portfolio of communication platforms, or Telegram’s secured chat

platform. In the case of Taobao, customers and suppliers can to a large extent
customize their own services and offerings, based on a clever utilization of
platforms and data. Some of these services have probably moved off the diagonal
and can be found in the top right-hand corner of the matrix in Figure 2.6.
2.8 Product manufacturer or service provider?

As we have noted, what constitutes a service is not as easily defined as what
constitutes manufacturing. Nevertheless, many of the principles of operations
management apply to services as readily as they do to manufacturing. Notions
of capacity, bottlenecks, balance, quality, scheduling, and the like are as
54 PROCESS THEORY
applicable to services as they are to manufacturing. And, as we have observed,

what leads to productivity is the same for both.
Some emphases are different, however. That most services are deemed to be
more intangible than manufactured goods means, for example, that perceptions
and expectations play important roles in service management. Perceptions get
tangled up with service quality. And those perceptions can depend on what was
expected. Thus, managing customer expectations so that the service can be seen
to “under-promise and over-deliver” can be critical.
As is suggested by the discussion in Section 2.7, services also engage in more
customer contact than does manufacturing. Service customers often interact or
otherwise become a part of the service process. Some scholars think that this
aspect of service, customer contact, is the chief defining characteristic of service.
The fact that many services cannot be inventoried means that service
capacity has to be carefully managed, even rationed. Demand management
and reservation systems become crucial for many services. Revenue (or yield)
management has grown into a major mechanism for rationing capacity by
exploiting the demand curve and people’s willingness to pay, particularly as
time counts down. However, when reservation systems or demand manage-
ment becomes impractical or insufficient, queues can develop. Managing the
queues, and the psychology of waiting, then becomes necessary. Those among
us who have waited in endless security check lines at airports will know
everything about this. A number of companies, pre-eminently Disney, are
recognized masters of this.
Despite the conceptual differences between manufacturing and service
firms, it is important to note that virtually all products contain both manu-
factured and service elements. A manufactured iPad is of little use without
iTunes and app-store services, and a restaurant visit without any tangible and
manufactured food is equally disappointing. So while it is important to
understand the difference in emphasis between manufacturing and service

processes, it is equally important to understand their connectedness in the
context of the firm.
2.9 Overhead processes

Within our discipline of operations management, we conventionally divide
repetitive operations into two major categories: manufacturing and service.
We have devoted considerable time and effort to characterizing and classifying
different manufacturing and service processes and we have developed an
arsenal of tools by which to improve one or the other.6
Overheads are indirect costs, which are necessary but generally non-value
adding activities needed to sustain the business. If you are an accountant, then
THE PROCESS 55
accounting is your customer-facing service process. The same applies to any

professional service. Just because it is accounting or HR, does not mean it is
overhead. If accounting firms provide accounting as a service process, then it is
value-adding.
Yet there is a third category of repetitive process that is critical to the
effectiveness of companies of all sizes and shapes. This category encompasses
the processes that are internal to the company and are given the label of overhead
or support processes. In the heyday of business process engineering in the 1990s,
in the wake of Michael Hammer and James Champy’s work on re-engineering,7
much was made of core processes and support processes. Core processes typically
encompass manufacturing and service while support processes encompass what
here is referred to as overhead. Also, one can think of managerial processes that
direct strategy and change.8 However, because of the sui generis nature of much
of upper management’s actions, we leave managerial processes to the side.
Companies are swimming in such processes. Some of the processes are
directly tied to the products that a company sells, but others are not. These
latter are both overhead and overlooked. Of course, much has been written
about the often escalating costs of overheads and alternative ways to allocate
them (e.g. activity-based costing, as in the work of Robin Cooper, for example
Cooper and Kaplan (1988)).9 Of concern to this chapter is not how overhead
costs should be allocated, but rather what the processes standing behind those
overheads look like and whether they can be improved and made more
productive.
The internal company overhead processes that are in direct support of the
manufacturing or service delivery process have been amply studied and are, in
the main, well understood. These are processes such as new product develop-
ment, purchasing, maintenance, warranty, marketing, and sales lead qualifi-
cation. Although these processes are often conducted in the background, the
scope of their activity is directly related to the sales, either current or projected,
that the company enjoys. Change what the company sells in the marketplace
and these supporting processes will, of necessity, change as well.
The overhead processes that do not directly support the company’s product
offerings, what could be termed “pure overhead” processes, are a different
matter. They run the gamut of company operations from human resources
(e.g. recruiting, executive appraisal, promotions and transfers) to accounting
and finance (e.g. monthly close of the books, capital appropriation requests,
annual budgeting process) and to a host of others (e.g. regulatory compliance,
orders on the IT department). Look into any department of the company and
one can find processes that govern how the company operates and processes
that company policy firmly dictates must be followed irrespective of what the
company is selling.
Although one could presumably argue that processes of this type are simply
another form of service process, they are sufficiently different to be flagged
56 PROCESS THEORY
here. The customers for and the suppliers of such processes reside within the
company. Indeed, it has been fashionable for managers to think of themselves
as being a “customer” for someone in the company and in turn being a
“supplier” to someone else. Yet there is no external market for these processes,
nor are they linked to the market as support processes such as purchasing or
new product development are. Thus, although there are customers and sup-
pliers, and these are well known within the company, there are no formal,
market-based buyers and sellers. The processes and procedures used are
typically those that the company itself has devised or has “borrowed” from
other companies; they are not ones that have been honed in competitive battle
with other companies. They are only rarely benchmarked and their benefits
and costs are seldom explicitly researched.
Companies are typically complex amalgams of various manufacturing and
service processes, and of the overhead processes that support them. Indeed,
the overhead processes that are found in companies of all types are often more
similar to each other than the manufacturing and service processes that are the
raisons d’être of such companies. In the main, accountants and IT and HR
executives, for example, can pass between diverse companies more easily than
the operations managers that produce what is sold. Frequently, their allegiance
is as much, or more, to their disciplines as it is to the industries they serve. This
is another reason to consider such “pure overhead” separately.
Table 2.2 presents a comparison of overhead processes, both pure ones
and ones that exist to support the product offered to the marketplace,
against both service and manufacturing processes. As can be readily seen
in the table, pure overhead processes display some characteristics that are
not shared by the others. The fact that overhead processes escape the rigors
of the marketplace shows up in these characteristics. Issues surrounding
capacity, precise specifications, customer expectations, and customer wait
are often ignored.
CLASSIFYING OVERHEAD PROCESSES

As one might expect, not all pure overhead processes are alike. For example,
the company’s accounting and finance processes (e.g. creation of financial
statements, annual budgeting, capture of expense data) are much more stand-
ard and less subject to change than some other processes. Figure 2.7 arrays
some pure overhead processes according to two traits. One trait relates to the
definition of the process, namely whether the process is tightly defined,
perhaps enough to be considered a standard operating procedure, or whether
it is more loosely defined. The other trait relates to the output of the process,
namely whether that output is well understood (“volume”) and whether it is
subject to change and uncertainty (“variety”).
Table 2.2 Comparing manufacturing, service, and overhead processes

Overhead
Pure overhead, not in direct

Characteristic Services Manufacturing In direct support of products support of products
Tangibility/ The intangible is often what is valued. Goods are tangible. The output of such processes is often Process often has a deliverable
intangibility tangible as it is directly tied to the that is tangible but the value of
product on offer. the process can be intangible.
Quality Sometimes defined as customer perception– Conformance to well-defined Specifications and customer Specifications, perceptions, and
customer expectation. Thus managing specifications, tied to the customer. perceptions and expectations are expectations are often not
perceptions and expectations is critical. typically well known. defined at all. Quality is more
often seen as speed and
definitiveness.
Customer Lots of customer contact and interaction with Customer does not interact with the The extent of any customer contact People interact with the process
contact and the process. This is often a defining process or come into contact with it. and interaction depends on the all the time, including its

interaction characteristic. circumstances. customers.
Inventory Services typically cannot be inventoried. Inventories of all sorts exist. Inventories are often relevant to the Inventory is usually not relevant.
process.
Simultaneity Production and consumption are often nearly Consumption is divorced from As these processes operate in the Consumption and production
of production simultaneous. production. background, production and can be nearly simultaneous but
and consumption are typically not the lags between production
consumption simultaneous. and consumption can also be
long.
Managing Determining the proper extent of capacity While capacity is examined regularly, The delivery of the product or service is Capacity for overhead processes
capacity and managing the capacity that is available is the ability to build up finished goods sensitive to the capacity of these is often ignored, as the
critical. Reservation systems and revenue inventory attenuates the urgency of processes. Capacity is monitored and deliverables of the process are
management are frequently used to ration employing capacity management managed. not sold to a market.
capacity. tools.
Managing Given that queuing often involves people and The queuing of materials can matter The queuing of materials can matter a Queuing is often ignored, as
queues not simply materials, the management of and is handled by production great deal. As the process is often there are no buyers in the
queues and the psychology of queues planning and scheduling. The distant from the consumer, the traditional sense.
become important. psychology of queues, however, is psychology of queues usually has little
not relevant. relevance.
Source: R. Schmenner, 2012. Overhead and overlooked. operations Management Research, 5(3–4), pp.87–90.
58 PROCESS THEORY
Process Process
High
tasks flow
Artful overhead
Diverse &
Intermittent
complex
Non-standardized
overhead
Variety
Overhead
factory
“Black-box” or
transactional
overhead
Low
Repetitive & Low High

Continuous
simple Volume
Figure 2.7 Spectrum of overhead processes.
Adapted from Schmenner (2012).
The standard nature of many accounting procedures—characterized as an

“overhead factory” in Figure 2.7—is a far cry from the fluidity and uncertainty
of dealing with the press. Press relations, in contrast, can be characterized as
“artful overhead.” Executive appraisals that lead to promotions and advance-
ments and IT projects are in this “artful overhead” category as well. What it is
about someone that led to his or her promotion and advancement may not be
clear to others in the company, and IT projects are often famous for their
opacity and for the uncertainty of their cost and timing.
Some accounting and finance processes are not as tightly defined as expense
approvals are. The budget process and the capital appropriations request
process are more loosely defined, although both of these processes are typically
well understood and not subject to much change over time. They are thus
labeled in Figure 2.7 as “non-standardized overhead.”
A lot of HR processes like recruiting, layoffs, and salary setting, although
more tightly defined than some other HR processes, are not well understood
and more subject to change. They fall into the category of “black-box over-
head,” as they are procedural yet shrouded in some mystery.
THE BURDEN OF OVERHEAD

However these overhead processes are defined, they can be millstones around
a company’s neck. These processes frequently do not have “owners,” or at least
“owners” that one can count on to take responsibility for their continual
THE PROCESS 59
improvement. Prior to the widespread adoption of Lean principles, product

changeovers were not routinely studied and worked on to reduce changeover
times. Their impact was not appreciated. Overhead processes share much of
that same neglect. One characteristic of overhead processes that seems often to
be neglected is that they create their own work by imposing new controls and
procedures. They can take up valuable time, and if they are done haphazardly
they can lead to poor decisions. They are too often the object of employee
exasperation or even scorn.
Nevertheless, improving such processes can make a big difference to a
company and its employees. Fortunately, the same tools of analysis that apply
to manufacturing and service operations can be applied to these internal
company processes. They can be flow charted, studied, and improved. The
waste within them can be identified and removed. The time it takes to
accomplish them can be slashed. The variability they are subject to can be
lessened. In this, overhead processes react just like manufacturing or service
processes.
■ NOTES
1. This discussion of process characteristics draws on Roger Schmenner’s previous

depictions of different processes, as found in his textbook, Production/Operations
Management, 5th edition. Macmillan, 1993.
2. E. Mayo, F.J. Roethlisberger, and W. Dickson, 1939. Management and the Worker.
Harvard University Press.
3. S.R. Barley and P.S. Tolbert, 1997. Institutionalization and structuration: Studying
the links between action and institution. Organization Studies, 18(1), pp.93–117.
4. B.P. Shapiro, V.K. Rangan, and J.J. Sviokla, 1992. Staple yourself to an order.
Harvard Business Review, 70(4), pp.113–22.

5. C.H. Loch, A. De Meyer, and M.T. Pich, 2006. Managing the Unknown: A New
Approach to Managing High Uncertainty and Risk in Projects. J. Wiley and Sons.
6. See, for example, R.B. Chase, 1981. The customer contact approach to services:
Theoretical bases and practical extensions. Operations Research, 29(4), pp.698–706
and R.W. Schmenner, 1986. How can service businesses survive and prosper? Sloan
Management Review (1986–1998), 27(3), p.21 for early service classifications and
see the vast literature on quality, Six Sigma, and process re-engineering for process
improvement.
7. M.C. Hammer and J. Champy, 1993. Reengineering the Corporation: A Manifesto
for Business Revolution. Nicholas Brealey Publishing.
8. U.S. Bititci, P. Suwignjo, and A.S. Carrie, 2001. Strategy management through
quantitative modelling of performance measurement systems. International Journal
of Production Economics, 69(1), pp.15–22.
9. R. Cooper and R.S. Kaplan, 1988. Measure costs right: Make the right decisions.
Harvard Business Review, Sept–Oct, pp.96–103.
60 PROCESS THEORY
■ FURTHER READING
Davenport, T.H., 2013. Process Innovation: Reengineering Work through Information

Technology. Harvard Business Press (Brighton, MA).
Deming, W.E., 2000. Out of the Crisis. MIT Press (Cambridge, MA).
Deming, W.E. and Birge, R.T., 1934. On the statistical theory of errors. Reviews of
Modern Physics, 6(3), p.119.
Hammer, M. and Champy, J. 2009. Reengineering the Corporation: A Manifesto for
Business Revolution. HarperBusiness (New York).
Hayes, R.H. and Wheelwright, S.C., 1979. Link manufacturing process and product life
cycles. Harvard Business Review, 57(1), pp.133–40.
Loch, C.H., De Meyer, A., and Pich, M.T., 2006. Managing the Unknown: A New Approach
to Managing High Uncertainty and Risk in Projects. J. Wiley and Sons (London).
Schmenner, R.W., 1986. How can service businesses survive and prosper? Sloan
Management Review (1986–1998), 27(3), p.21.
Schmenner, R.W., 1995. Service Operations Management. Prentice-Hall (Englewood
Cliffs, NJ).
Schmenner, R.W., 2012. Overhead and overlooked. Operations Management Research,
5(3–4), pp.87–90.
Schmenner, R.W., 2012. Getting and Staying Productive: Applying Swift, Even Flow to
Practice. Cambridge University Press (Cambridge).
Shewhart, A., 1931. Economic Control of the Manufacturing Product. Van Nostrand
(New York).

Process Theory The Principles of Operations Manage... - (2 The Process) PDF

Uploaded by

Document Informationclick to expand document information

Document Informationclick to expand document information

Copyright:

Available Formats

Process Theory The Principles of Operations Manage... - (2 The Process) PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Process Theory The Principles of Operations Manage... - (2 The Process) PDF

Uploaded by

Copyright:

Available Formats

OUP CORRECTED PROOF – FINAL, 10/1/2018, SPi

With this chapter, we begin deﬁning the discipline of operations management

2.1 What is a process?

THE PROCESS MODEL AS CONCEPTUAL LENS

Figure 2.1 The process model.

ﬁxed cost as opposed to a variable cost. More recently, information has

way to regard production. Economics and accounting take a signiﬁcantly

(or work-in-progress) inventory as it moves from process step to process step,

Processes do not happen in a void—they are embedded in a national, an

fundamental performance metric of a process. We will return to this when

Figure 2.2 Process model with management system.

we discuss productivity and efﬁciency in Chapters 7 and 8. But improvement

2.2 Understanding a process as

2.3 Processes within processes: the level

upstream with suppliers that are manufacturing operations that feed an

Figure 2.3 Processes at different levels of resolution.

in isolation, and then “optimizing” it by improving its productivity, one can

agement, as a starting point.

• “Order to delivery”: from order submission, through manufacture, to

Table 2.1 Key operations processes

2.4 Types of processes

high-volume, high-variety processes are currently difﬁcult to accomplish

ﬁrm (ﬁnancial accounting, sales acquisition, strategy deployment, budgeting/

2.5 Manufacturing processes

Repetitive & Low High

project executions, and transfer learning across with regards to organiza-

THE JOB SHOP

to bid intelligently or schedule itself effectively.

THE BATCH FLOW PROCESS

THE LINE FLOW PROCESS

THE CONTINUOUS FLOW PROCESS

hybrid are separated by an inventory, typically termed a “decoupling” inventory.

2.6 Comparing manufacturing processes

GENERAL PROCESS FEATURES

• Incremental change to the process itself becomes relatively more frequent

• Inventory adjustments become important in responding to seasonal or

itself) becomes greater; the corporation’s inﬂuence may extend to oper-

2.7 Service processes

tasks flow Professional

Repetitive & High Low

HYBRID SERVICE SET-UPS

NEW INFORMATION SERVICES

WeChat’s portfolio of communication platforms, or Telegram’s secured chat

2.8 Product manufacturer or service provider?

applicable to services as they are to manufacturing. And, as we have observed,

understand the difference in emphasis between manufacturing and service

2.9 Overhead processes

accounting is your customer-facing service process. The same applies to any

are often ignored.

CLASSIFYING OVERHEAD PROCESSES

Table 2.2 Comparing manufacturing, service, and overhead processes

Pure overhead, not in direct

OUP CORRECTED PROOF – FINAL, 10/1/2018, SPi

Repetitive & Low High

The standard nature of many accounting procedures—characterized as an

THE BURDEN OF OVERHEAD

improvement. Prior to the widespread adoption of Lean principles, product