CHAPTER 4: UNDERSTANDING PROCESS STRATEGY

PROCESS STRATEGY
A process (or transformation) strategy is an organization’s approach to transform
resources into goods and services.
The objective of a process strategy is to find a way to produce goods and services that
meet customer requirements and product specifications within cost and other managerial
constraints. The process selected will have a long-term effect on efficiency and flexibility of
production, as well as on cost and quality of the good produced.

FOUR PROCESS STRATEGIES

1. Process focus – a production facility organized around processes to facilitate low-
volume, high-variety production.
2. Repetitive focus – a product oriented production process that uses modules.
Modules – parts or components of a product previously prepared, often in a continuous
process.
3. Product focus – a facility organized around products; a product-oriented, high-volume,
low-variety process.
4. Mass customization focus – rapid, low-cost production that caters to constantly
changing unique customer desires.

Figure 4:1 FOUR TYPES OF PROCESSES

(Source: https://omiupo1415.wordpress.com/2014/12/19/4-a-process-strategy/)
COMPARISON OF THE CHARACTERISTICS OF FOUR TYPES OF PROCESSES

PROCESS FOCUS (low REPETITIVE FOCUS PRODUCT FOCUS MASS

volume, high variety) (Modular) (high volume, low CUSTOMIZATION
variety) (high volume, high
variety)
Small quantity and Long runs, usually a Large quantity and Large quantity and
large variety of standardized product small variety of large variety of
products are with options, are products are products are
produced produced from produced produced
modules
Equipment used is Special equipment Equipment used is Rapid changeover n
general purpose aids in use of an special purpose flexible equipment
assembly line
Operators are broadly Employees are Operators are less Flexible operators are
skilled modestly trained broadly skilled trained for the
necessary
customization
There are many job Repetitive operations Work orders and job Custom orders
instructions because reduce training and instructions are few require many job
each job changes changes in job because they are instructions
instructions standardized
Raw-material Just-in-time Raw-material Raw-material
inventories are high procurement inventories are low inventories are low
relative to the value techniques are used relative to the value relative to the value
of the product of the product of the product
Work-in-process is Just-in-time inventory Work-in-process Work-in-process
high compared to techniques are used inventory is low inventory is driven
output compared to output down by JIT, kanban,
lean production
Units move slowly Movement is Swift movement of Goods move swiftly
through the plant measured in hours units through the through the facility
and days facility is typical
Finished goods are Finished goods are Finished goods are Finished goods are
usually made to order made to frequent usually made to a often made to order
and not stored forecasts forecast and stored
Scheduling orders is Scheduling is based Scheduling is Sophisticated
complex and on building various relatively simple and scheduling is required
concerned with the models from a variety concerned with to accommodate
trade-off between of modules to establishing a rate of custom orders
inventory availability, forecasts output sufficient to
capacity, and meet sales forecasts
customer service
Fixed costs tend to be Fixed costs are Fixed costs tend to be Fixed costs tend to be
low and variable costs dependent on high and variable high, but variable
high flexibility of the costs low costs must be low
facility
Costing, often done Costs are usually Because fixed costs High fixed costs and
by the job, is known because of are high, costs are dynamic variable
estimated prior to extensive prior highly dependent on costs make costing a
doing the job, but experience utilization of capacity challenge
known only after the
job
Crossover chart is a chart of costs at the possible volumes for more than one process.

Focused Processes
1. Customers
2. Product families
3. Service
4. Technology

Changing Processes
1. Purchasing
2. Quality standards
3. Equipment
4. Layout
5. Training

PROCESS ANALYSIS AND DESIGN

When analyzing and designing processes to transform resources into goods and
services, we ask questions such as the following:
1. Is the process designed to achieve competitive advantage in terms of differentiation,
response, or low cost?
2. Does the process eliminate steps that do not add value?
3. Does the process maximize customer value as perceived by the customer?
4. Will the process win orders?

Five Tools that Help Us Understand the Complexities of Process Design and Redesign
1. Flow diagram - a drawing used to analyze the movement of people or material.
2. Time-function mapping (or process mapping) – a flow diagram but with time added on
the horizontal axis.
3. Value-stream mapping – helps managers understand how to add value in the flow of
material and information through the production process.
4. Process charts – charts using symbols to analyze the movement of people or material.
5. Service blueprinting – a process analysis technique that lends itself to a focus on the
customer and the provider’s interaction with the customer.

SERVICE PROCESS DESIGN

Customer Interaction and Process Design
1. In the upper sections (quadrants) of mass service and professional service, where labor
content is high, we expect the manager to focus extensively on human resources. These
quadrants require that managers find ways of addressing unique issues that satisfy
customers and win orders. This is often done with very personalized services, requiring
high labor involvement and therefore significant selection and training issues in the
human resources area. This is particularly true in the professional quadrant.
2. The quadrants with low customization tend to (1) standardize or restrict some offerings
as do fast-food restaurants, (2) automate, as have airlines with ticket-vending machines,
or (3) remove some services, such as seat assignments, as has Southwest Airlines. Off-
loading some aspect of the service through automation may require innovations in
process design as well as capital investment. Such is the case with airline ticket vending
and bank ATMs. This move to standardization and automation may require added
capital expenditure, as well as putting operations managers under pressure to develop
new skills for the purchase and maintenance of such equipment. A reduction in a
customization capability will require added strength in other areas.
3. Because customer feedback is lower in the quadrants with low customization, tight
control may be required to maintain quality standards.
4. Operations with low labor intensity may lead themselves particularly well to innovations
in process technology and scheduling.
Techniques for Improving Service Productivity

STRATEGY TECHNIQUE EXAMPLE

Separation Structuring service so Bank customers go to a
customers must go where the manager to open a new
service is offered account, to loan officers for
loans, and to tellers for
deposits
Self-service Self-service so customers Supermarkets and
examine, compare, evaluate department stores Internet
at their own pace ordering
Postponement Customizing at delivery Customizing vans at delivery
rather than at production
Focus Restricting the offerings Limited-menu restaurant
Modules Modular selection of service; Investment and insurance
Modular production selection; Prepackaged food
modules in restaurants
Automation Separating services that may Automatic teller machines
lend themselves to some type
of automation
Scheduling Precise personnel scheduling Scheduling ticket customer
personnel at 15-minute
intervals at airlines
Training Clarifying the service options; Investment counsellor,
Explaining how to avoid funeral directors; after-sale
problems maintenance personnel

More Opportunities to Improve Service Processes

1. Layout
2. Human Resources

SELECTION OF EQUIPMENT AND TECHNOLOGY

Flexibility – the ability to respond with little penalty in time, cost, or customer value.

PRODUCTION TECHNOLOGY
1. Machine technology
Computer numerical control (CNC) – machinery with its own compute and memory.
2. Automatic identification system (AIS) – a system for transforming data into electronic
form, for example, bar codes.
3. Process control – the use of information technology to control a physical process.
4. Vision systems – using video cameras and computer technology in inspection roles.
5. Robot – a flexible machine with the ability to hold, move, or grab items. It functions
through electronic impulses that activate motors and switches.
6. Automated storage and retrieval system (ASRS) – computer-controlled warehouses
that provide for the automatic placement of parts into and from designated process
within the warehouse.
7. Automated guided vehicle (AGV) – electronically guided and controlled cart used to
move materials.
8. Flexible manufacturing system (FMS) - system using an automated work cell controlled
by electronic signals from a common centralized computer facility.
9. Computer-integrated manufacturing (CIM) – a manufacturing system in which CAD,
FMS, inventory control, warehousing, and shopping are integrated.
TECHNOLOGY IN SERVICES

Examples of Technology’s Impact on Services

SERVICE INDUSTRY EXAMPLE

Financial Services Debit cards, electronic funds transfer, automatic teller
machines, Internet stock trading
Education Electronic bulletin boards, online journals
Utilities and government Automated one-man garbage trucks, optical mail and bomb
scanners, flood-warning systems
Restaurants and foods Wireless orders from waiters to the kitchen, robot-
butchering, transponders on cars that track sales at drive-
throughs
Communications Electronic publishing, interactive TV
Hotels Electronic check-in/check-out, electronic key/lock systems
Wholesale/retail trade Point-of-sale(POS) terminals, e-commerce, electronic
communication between store and supplier, bar-coded data
Transportation Automatic toll booths, satellite-directed navigation systems
Health care Online patient-monitoring systems, online medical
information systems, robotic surgery
Airlines Ticketless travel, scheduling, Internet purchases

Process redesign – the fundamental rethinking of business processes to bring about dramatic
improvements in performance.

ETHICS AND ENVIRONMENTALLY FRIENDLY PROCESSES

Many firms have found opportunities in their production processes to reduce the
negative impact on the environment. The opportunities range from activities that society
perceives as ethical and socially responsible to actions that are legally required, such as
pollution prevention. These activities include a focus on such issues s efficient use of resources,
reduction of waste by-products, emission controls, and recycling.
Operations managers can be environmentally sensitive and still achieve a differentiation
strategy – and even a low-cost strategy.
Processes can be ethical, environmentally friendly, and socially responsible while still
contributing to profitable strategies.

Reference: An Introduction to Operations Management 8th Edition

By Jay Heizer and Barry Render