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2007 Pearson Education

Process Strategy

Chapter 4

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Process Strategy

Process strategy is the pattern of decisions made in

managing processes so that they will achieve their

competitive priorities.

A process involves the use of an organizationsresources to provide something of value.

Major process decisions include:

Process Structure

Customer Involvement

Resource Flexibility

Capital Intensity

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Major Decisions forEffective Process Design

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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.

People

People What is processed

What is processed Possessions

Possessions

Active, visible

Active, visible Contact intensity

Contact intensity Passive, out of sight

Passive, out of sight

Personal

Personal Personal attention

Personal attention Impersonal

Impersonal

Face-to-face

Face-to-face Method of delivery

Method of delivery Regular mail

Regular mail

Present

Present Physical presence

Physical presence Absent

Absent

High ContactHigh Contact DimensionDimension Low ContactLow Contact

Process Structures in Services

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Customer-Contact Matrix forService 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 withcustomers, highly customers, standard customers, standardized customized service services with some options services

Process

Characteristics

(1)Flexible flows,

complex work withmany exceptions

(2)Flexible flows with

some dominant

paths, moderate

job complexity withsome exceptions

(3)Line flows, routine

work easily

understood by

employeesLessCo

mplexit y

,LessDiverge

nce,MoreLine

Flow

s

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Product-Process Matrix for Processes

(1)(1) (2)(2) (3)(3) (4)(4)Low-volumeLow-volume Multiple products with lowMultiple products with low Few majorFew major High volume, highHigh volume, highproducts, madeproducts, made to moderate volumeto moderate volume productsproducts standardization,standardization,to customerto customer higherhigher Continuous FlowContinuous Floworderorder volumevolume

ProcessProcess

CharacteristicsCharacteristics

(1)(1)

Complex and highlyComplex and highlycustomized process,customized process,unique sequence ofunique sequence of

taskstasks

(2)(2)

Disconnected lineDisconnected lineflows, moderatelyflows, moderatelycomplex workcomplex work

(3)(3)

Connected line, ,Connected line, ,highly repetitive workhighly repetitive work

(4)(4)

Continuous flowsContinuous flows

LessCom

plexity,LessDiv

ergence

,M

oreLineFlows

LessCom

plexity,

LessDivergence

,M

oreLineFlows

Less Customization and Higher VolumeLess Customization and Higher Volume

Product DesignProduct Design

Continuous

process

Job

process

Line

process

Large batch

process

Small batch

process

Batch

Proce

sses

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Production and

Inventory Strategies

Make-to-order strategy: A strategy used bymanufactures that make products to customerspecifications in low volume.

Assemble-to-orderstrategy: A strategy forproducing a wide variety of products from relativelyfew assemblies and components after the customerorders are received.

Make-to-stockstrategy: A strategy that involves

holding items in stock for immediate delivery,thereby minimizing customer delivery times.

Mass production: A term sometimes used in thepopular press for a line process that uses the make-to-stock strategy.

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2007 Pearson Education 2007 Pearson Education

Links of Competitive Priorities withManufacturing Strategy

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Customer Involvement

Good or Bad?

Improved Competitive Capabilities: More customer

involvement can mean better quality, faster delivery, greater

flexibility, and even lower cost.

Customers can come face-to-face with the service providers,

where they can ask questions, make special requests on the spotand provide additional information.

Self-service is the choice of many retailers.

However customer involvement can be disruptive and make

the process less efficient.

Greater interpersonal skills are required. Quality measurement becomes more difficult.

Emerging Technologies: Companies can now engage in an

active dialogue with customers and make them partners in

creating value.

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Resource Flexibility

Flexible workforce: A workforce whose members are

capable of doing many tasks, either at their own

workstations or as they move from one workstation to

another. Worker flexibility can be one of the best ways to achieve

reliable customer service and alleviate capacity bottlenecks.

This comes at a cost, requiring greater skills and thus more

training and education.

Flexible equipment: Low volumes mean that processdesigners should select flexible, general-purpose

equipment.

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Relationship between Process

Costs and Product Volume

FF22

FF11

Process 1:Process 1:

General-purposeGeneral-purposeequipmentequipment

Process 2:Process 2:Special-purposeSpecial-purposeequipmentequipment

Break-evenBreak-evenquantityquantity

Units per year (Units per year (QQ))

Totalcost(d

ollars

)

Totalc

ost(dollars

)

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Capital Intensity

Capital Intensity is the mix of equipment and human

skills in the process; the greater the relative cost of

equipment, the greater is the capital intensity.

Automation is a system, process, or piece ofequipment that is self-acting and self-regulating.

Fixed automation is a manufacturing process that

produces one type of part or product in a fixed

sequence of simple operations.Flexible (or programmable) automation is a

manufacturing process that can be changed easily to

handle various products.

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Economies of Scope

In certain types of manufacturing, such as machiningand assembly, programmable automation breaks theinverse relationship between resource flexibility andcapital intensity.

Economies of scope are economies that reflect theability to produce multiple products more cheaply incombination than separately.

With economies of scope, the often conflicting

competitive priorities of customization and low pricebecome more compatible.

Taking advantage of economies of scope requiresthat a family of parts or products have enoughcollective volume to fully utilize equipment.

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Decision Patterns forService Processes

Front office

Hybrid office

Back office

Low High

Low customer-contactprocess

Less complexity, lessdivergence, more line flows

Less customer involvement

Less resource flexibility

Capital intensity varies withvolume..

High customer-contactprocess

More complexity, moredivergence, more flexible flows

More customer involvement More resource flexibility

Capital intensity varies withvolume.

Major process decisions

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Decision Patterns forManufacturing Processes

Major process decisions

Continuous

process

Job

process

Line

process

Large batch

process

Small batch

process

Batch

Proce

sses

High-Volume,make-to-stock process

Less complexity, lessdivergence, more line flows

Less customer involvement

Less resource flexibility

More capital intensity

Low-Volume,make-to-order process

More complexity, moredivergence, more flexible

flows More customer involvement

More resource flexibility

Less capital intensity

Low High

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Focus by

Process Segment

A facilitys process often can neither be

characterized nor actually designed for one set of

competitive priorities and one process choice.

At a services facility, some parts of the process mightseem like a front office and other parts like a back office.

Plants within plants (PWPs) are different

operations within a facility with individualized

competitive priorities, processes, and workforces

under the same roof.

Focused factories are the result of a firms splitting

large plants that produce all the companys products

into several specialized smaller plants.

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Strategies for Change

Process Reengineering is a fundamental

rethinking and radical redesign of processes

to improve performance dramatically in

terms of cost, quality, service, and speed.

Process improvement is the systematic

study of the activities and flows of eachprocess to improve it.

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