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.