Process Strategy Topics: Process choice Mass customization Service process design Process technology
Process Strategy
Topics:Process choiceMass customizationService process designProcess technology
Could you try to produce all Honda Accords in a custom-car shop?
0%0%
1. Yes
2. No
1 2 3 4 5
Could you try to produce custom racing cars on a traditional assembly line?
0%0%
1. Yes
2. No
1 2 3 4 5
Should you do either of these?A=Honda Accords in custom car shopB=custom race car on traditional assembly line
0% 0%0%0%
1. Yes for A, no for B
2. No for A, yes for B
3. Yes for both
4. No for both
1 2 3 4 5
Why or why not?
Process Strategy
Process must: meet customer requirements & product specs operate within cost and other constraints
Long-term effect on efficiency flexibility cost quality
Inputs Transformation Outputs
Process Strategy
What affects the process strategy selected? variety of products volume of production technology
Volume
Vari
ety
Tech
nolo
gy
King Sooper’s Bakery
Continuous Flow Batch Job shop
Product Bread Pastries Custom cakes
Volume
Very high
7,000 loaves/hr or
14,000 loaves/batch
Moderate
<1,000 units/batch
Low
250-1,200 cakes /day
Product variety
Very low
(slight change in ingredients)
ModerateHigh
(custom cakes)
King Sooper’s BakeryContinuous Flow Batch Job shop
Process flexibility
Low or none ModerateHigh
Equipment “Specialized” Moderate General purpose
AutomationFixed automation
Automated mat’l handling
Manual mat’l handling Very little
Skills requirement
Limited skills Moderate skills Highly skilled
Capacity change
Very difficult and expensive since fixed
automation
Focus on equipment
Done in large increments
Moderate difficulty and expense
Focus on equipment & labor (but neither
highly sophisticated)
Done in moderate increments
Relatively easy and not very expensive
Focus on people
Done in smaller increments
Product - Process Matrix
Volume per Product (Run)
Low volume
Moderate volume
High volumeVery high volume
High varietyCake dept
Moderately high variety Pastry line
Moderate variety
Low varietyBread lineP
rod
uct
Vari
ety
Product - Process Matrix
Volume per Product (Run)
Low volume
Moderate volume
High volumeVery high volume
High variety Process focus
Moderately high variety Batch
Moderate variety Repetitive
Low variety Product focus
Pro
du
ct V
ari
ety Mass
customization
Product - Process Matrix
Volume per Product (Run)
Low volume
Moderate volume
High volumeVery high volume
High variety Wedding invitation
Moderately high variety
B&J ice cream
Bakery
Moderate variety
Big Macs
Motorcycles
Low variety Beer
Paper
Pro
du
ct V
ari
ety
Product - Process Matrix
Volume per Product (Run)
Low volume
Moderate volume
High volumeVery high volume
High variety Wedding invitation
Moderately high variety
B&J ice cream
Bakery
Moderate variety
Big Macs
Motorcycles
Low variety Beer
Paper
Pro
du
ct V
ari
ety Wedding
invitation
technology
One Extreme
Process focus Repetitive Product focus
Low volume, high variety Focus?
Organized by process or activity – group like machines or activities
General purpose equipment High labor requirement, broadly skilled
labor High inventory levels Make to order Slow, jumbled movement Very low utilization Low fixed cost, high variable cost
ER LabX-ray
Surgery Maternity
One Extreme
Process focus Repetitive Product focus
Low volume, high variety Focus?
Organized by process or activity – group like machines or activities
General purpose equipment High labor requirement, broadly skilled
labor High inventory levels Make to order Slow, jumbled movement Very low utilization Low fixed cost, high variable cost
Drillpresses
SandingLathes
Grinders Welding
The Other Extreme
Process focus Repetitive Product focus
Very high volume, very low variety Focus?
Organized based on product Specialized equipment (fixed automation) Low labor requirement, less skill required Low inventory levels Make to stock based on forecast Fast, linear movement Very high utilization High fixed cost, low variable cost
MachineA
MachineC
MachineB
MachineD
MachineE
In Between
Process focus Repetitive Product focus
High volume, moderate variety Focus?
Organized by product and process Specialized equipment (flexible
automation) Low labor requirement, low to high skill
required Low inventory levels (JIT) Make to frequent forecast Relatively fast, linear Moderate to high utilization High fixed cost, low variable cost
TaskA
TaskD
TaskC
TaskF
TaskE
TaskH
TaskG
TaskB
Cost Perspective on Process Choice
$
fixed cost
total cost
variable costs
Volume
A
General-purpose equipmentHighly skilled labor
High material handling
Cost Perspective on Process Choice
variable costs$
fixed cost
total cost
Volume
B
Flexible automationModerate skill requirementsModerate material handling
Cost Perspective on Process Choice
$fixed costvariable costs
total cost
Volume
C
Fixed automationLow skill requirementsLow material handling
Cost Perspective on Process Choice
$
Volume
A B
C
variable costs$
fixed cost
total cost
$fixed costvariable costs
total cost
$
fixed cost
total cost
variable costs
Volume VolumeVolume
A B C
Cost Perspective on Process Choice
$
Volume
A B
C
variable costs$
fixed cost
total cost
$fixed costvariable costs
total cost
$
fixed cost
total cost
variable costs
Volume VolumeVolume
A B C
In-class example
Making decisions about new business that you are opening. One important decision is what type of process to use. Choices: General-purpose equipment, manual material handling, higher labor
content, higher skills required; costs = $30,000 fixed and $40/unit (labor and manual material handling)
Flexible automation, moderate manual material handling, moderate labor content, moderate skills required; costs = $300,000 fixed and $22/unit (labor and manual material handling)
Fixed automation, automated material handling, low labor content, few skills required; costs = $1,140,000 fixed and $8/unit (labor and manual material handling)
Answer the following: What are the “cross-over” points? What do you recommend if you have forecasted demand at 40,000 units
Cost Perspective on Process Choice
$
Volume
A B
C
variable costs$
fixed cost
total cost
$fixed costvariable costs
total cost
$
fixed cost
total cost
variable costs
Volume VolumeVolume
A B C
A: TC=30,000+40xB: TC=300,000+22xC: TC=1,140,000+8x
Cost Perspective on Process Choice
$
Volume
A B
C
variable costs$
fixed cost
total cost
$fixed costvariable costs
total cost
$
fixed cost
total cost
variable costs
Volume VolumeVolume
A B C
A: TC=30,000+40xB: TC=300,000+22xC: TC=1,140,000+8x
15,000 60,000
Mass Customization
“manufacturers are using technology to mix the characteristics of these processes [continuous flow and job shop] with the objective of gaining the cost
advantage associated with continuous flow processes and the product variety of job shops”
Mass Customization
“manufacturers are using technology to mix the characteristics of these processes with the objective of gaining the cost advantage associated with continuous flow processes and the product variety of job shops”
What facilitates Mass Customization
Use of technology for rapid data transfer (ordering, scheduling)
Use of technology for rapid throughput (e.g., CNC machines)
Modular design Make-to-order (lean or JIT) or delay customization Tight linkage between sales, production and logistics
within an organization Tight supply chain relationships (suppliers, carriers)
Levi’sNikeIDDell
Results of Mass Customization
Make-to-order rather than make-to-stock Don’t need to rely on forecasts Reduced inventory levels
Designing for Services
What makes services different? Customer involvement
Higher labor content Greater customization Designing process with customer in mind
What might be done? Training and focus on HR Pay attention to layout Limit choices (more standard offerings) Automate where possible Self-service
Technology
General purposeequipment
Fixedautomation
Flexible Automation
Production Process & Technology Alternatives
# Di
ffere
nt P
rodu
cts
or P
arts
# Di
ffere
nt P
rodu
cts
or P
arts
CIMCIM
Flexible Manufacturing
System
Low HighHigh
General Purpose,General Purpose,NC, CNCNC, CNC
Volume of Products or PartsVolume of Products or Parts
Low
HighHigh
DedicatedDedicatedAutomationAutomation
Demo
Technology
General purposeequipment
Fixedautomation
Flexible Automation
CNC machines RobotsASRS AGV FMS
CIM
AIS