krajewski om9 ppt 03
TRANSCRIPT
3 – 1Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
Process Strategy3
For Operations Management, 9e by Krajewski/Ritzman/Malhotra © 2010 Pearson Education
PowerPoint Slides by Jeff Heyl
3 – 2Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
Process Strategy
This chapter focuses on process strategy, which specifies the pattern of decisions made in managing processes so that the processes will achieve their competitive priorities assigned to it, such as quality, flexibility, time, and cost.
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Process Strategy Across the Organization
1) Emphasize that processes are everywhere, in all functional areas of the enterprise.As explained in Chapter 1: processes are found in
accounting, finance, human resources, management information systems, marketing, and operations.
They are the basic unit of work. 2) Managers must see to it that processes in all departments
are adding as much customer value as possible.
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Process Strategy Across the Organization
3) Three particularly important principles concerning process strategy:Successful process decisions require choices that fit the
situation and make sense together (strategic fit).Individual processes are the building blocks that
eventually create the firm’s whole supply chain.Management must pay particular attention to the
interfaces between processes whether they are performed internally or externally by outside suppliers or customers. These interfaces underscore the need for cross-functional coordination.
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Process Strategy Decisions
Process strategy is the pattern of decisions made in managing processes so that they will achieve their competitive priorities. Process strategy is the selection of the human resources, equipment, work flows, and methods that transform inputs into outputs. It begins with deciding what to do in-house and what to outsource.They underlie all work activity throughout the
organization.They are nested within other processes along an
organization’s supply chains.The recurring question is how to provide a service or
make a product.
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Process Strategy Decisions
Four common process decisions Process structure: determines the process type
relative to the kinds of resources needed, how resources are partitioned between them, and their key characteristics. A layout, which is the physical arrangement of operations created from the various processes, puts these decisions into tangible form.
Customer involvement: reflects the ways in which customers become part of the process and the extent of their participation.
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Process Strategy Decisions
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 process. The greater the relative cost of equipment, the greater is the capital intensity.
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Process Strategy Decisions
Figure 3.1 – Major Decisions for Effective Processes
Process Structure• Customer-contract position
(services)• Product-process position
(manufacturing)• Layout
Resource Flexibility• Specialized• Enlarged
Customer Involvement• Low involvement• High involvement
Effective Process Design
Strategy for Change• Process reengineering• Process improvement
Capital Intensity• Low automation• High automation
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Process Structure in Services
1. Nature of Service Processes: Customer Contact
A. A good process strategy for a service process:Depends on the type and amount of
customer contact.Customer contact: the extent to which the
customer is present, is actively involved, and receives personal attention during the service process.
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Process Structure in Services
B. Dimensions of customer contactPhysical presence (face-to-face interaction
is sometimes called a moment of truth, or service encounter)
What is processedPeople-processing servicesPossession-processing servicesInformation-based services
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Process Structure in Services
Contact intensityActive contact: the customer is very
much a part of the creation of the service, and affects the service process itself. Dental, psychiatric services for example.
Passive contact: the customer is not involved in tailoring the process to meet special needs, or in how the process is performed. Public transportation, theaters, for example.
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Process Structure in Services
Personal attentionWhen contact is more personal, the
customer “experiences” the service rather than just receiving it.
Method of delivery usedFace-to-face or telephone versus regular
mail or standardized e-mail message
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Process Structure in Services
2. Customer-contact matrix (fitting the service processes with customer contact)
A. Customer contact and customizationA key competitive priority is how much
customization is neededCompetitive priorities require more
customization, the more the customer is present and actively involved.
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Process Structure in Services
B. Process divergence, and flowProcess divergence: is the extent to which
the process is highly customized with considerable latitude as to how it is performed
High divergence involves much judgment and discretion. Consulting and law, for example
Low divergence is more repetitive and standardized
Process flow, closely related to divergence, may range from highly diverse to linear.
Flexible flow means movements in diverse ways. Line flow means movement in fixed sequence.
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Process Structure in Services
TABLE 3.1 | DIMENSIONS OF CUSTOMER CONTACT IN SERVICE | PROCESSES
Dimension High Contact Low Contact
Physical presence Present Absent
What is processed People Possessions or information
Contact intensity Active, visible Passive, out of sight
Personal attention Personal Impersonal
Method of delivery Face-to-face Regular mail or e-mail
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Process Structure in Services
3. Service process structuring (three process structures forming a continuum)Front office: a process with higher customer
contact where the service provider interacts directly with the customer
Hybrid office: a process with moderate levels of customer contact and standard services with some options available
Back office: a process with low customer contact where the service provider interacts little with the customer
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Service Process Structuring
Front office
Hybrid office
Back office
Less customer contact and customization
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ence
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low
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(1) (2) (3)High interaction with Some interaction with Low interaction withcustomers, highly customers, standard customers, standardizedcustomized service services with some options services
ProcessCharacteristics
(1)Flexible flows withIndividual processes
(2)Flexible flows withsome dominantpaths, withsome exceptions to how work performed
(3)Line flows, routinework same with all customers
Figure 3.2 – Customer-Contact Matrix for Service Processes
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Process Structure in Manufacturing
Many processes in a manufacturing setting are actually services to internal (or
external) customers, so the previous section applies also to manufacturing.
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Process Structure in Manufacturing
Manufacturing processes convert materials into goods that have a physical form.
1. Product-process matrix
A. Three elementsVolumeProduct customizationProcess characteristics
B. A good strategy for a manufacturing structure depends first on volume.
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Process Structure in Manufacturing
C. Customer contact is not normally a consideration for manufacturing processes, although it is a factor for the service processes in manufacturing organizations.
D. Vertical dimension deals with the same two characteristics in the customer-contact matrix: divergence and flow
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Process Structure in Manufacturing
2. Manufacturing process structuringA. Process choice: A way of structuring the process by
organizing resources around the process or organizing them around the products
B. Four process choices, forming a continuumJob process: A process with the flexibility needed to
produce a wide variety of products in significant quantities, with considerable divergence in the steps performed.
Batch process, higher volumes, batching of customer orders. Further differentiated as small batch and large batch processes.
Line process, high-volumes, standardized products, dedicated resources, repetitive manufacturing
Continuous flow process, the extreme end of high-volumes, rigid line flows. Primary material moves without stopping.
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Process Structure in Manufacturing
3. Production and inventory strategiesA. Make-to-order strategy
Make products to customer specifications in low volumes with job or small batch processes,
Matches up with flexibility (customization) and top quality
B. Assemble-to-order strategyProducing a wide variety of products from relatively few
subassemblies and components after the customers orders are received
Allows delivery speed and high process divergencePrinciple of postponement (the strategy of delaying final
activities in the provision of a product until the orders are received).
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Process Structure in Manufacturing
C. Make-to-stock strategyFeasible for standardized products with high volumes
and reasonably accurate forecasts with line or continuous flow processes
Holding items in stock for immediate deliveryCombined with line process, it is sometimes called mass
productionChoice for delivery speed and low cost
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Product-Process Matrix
Continuousprocess
Jobprocess
Lineprocess
Large batchprocess
Small batchprocess
(1) (2) (3) (4)Low-volume Multiple products with low Few major High volume, highproducts, made to moderate volume products, standardization,to customer higher commodity order volume products
ProcessCharacteristics
(1)Customized process, with flexible and unique sequence of tasks
(2)Disconnected line flows, moderately complex work
(3)Connected line, highly repetitive work
(4)Continuous flows
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, a
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ine
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Less customization and higher volume
Batch processes
Figure 3.3 – Product-Process Matrix for Processes
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Process Structure in Manufacturing
4. LayoutA. Human and capital resources used by processes
at an operation that must be arranged physically within their facilities.
B. One approach to layout design seeks to give form to process structure. The objective is to position those operations close together that have strong interactions between them. It involves three basic steps, whether the design is for a new layout or for revising an existing layout.
3 – 26Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
Process Structure in Manufacturing
Step 1: gather information Space requirements by operation
Tie space requirements to capacity and staffing plans. Calculate specific equipment and space needs for each operation Add “circulation” space such as aisles. Consult with the managers and employees involved
Available space and current block plan Closeness factors
Which items need to be close to each other, and which should not be close to each other?
Closeness Matrix A table that gives the relative importance of each pair of centers being
located close together. Closeness factors are indicators of the need for proximity based on an
analysis of information flows and the need for face-to-face meetings.
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Process Structure in Manufacturing
For the general case of n centers in a layout, there are n-1 closeness factors found either in the row or column assigned to the center.
At a manufacturing plant, the closeness factor could be the number of trips between each pair of operations per day.
Other considerations Absolute location criteria—departments fixed in place: relocation costs,
foundations, noise levels, and so forth.
Department Area Needed (ft2)
1. Administration 3,500
2. Social services 2,600
3. Institutions 2,400
4. Accounting 1,600
5. Education 1,500
6. Internal audit 3,400
Total 15,000
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Layout
Department Area Needed (ft2)
1. Administration 3,500
2. Social services 2,600
3. Institutions 2,400
4. Accounting 1,600
5. Education 1,500
6. Internal audit 3,400
Total 15,000
Gather information on space requirements, available space, and closeness factors
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150’
100’
Block Plan
1 2
3 4
5
6
Figure 3.4 – Current Block Plan for the Office of Budget Management
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Closeness Matrix
Closeness Factors
Department 1 2 3 4 5 6
1. Administration ― 3 6 5 6 10
2. Social services ― 8 1 1
3. Institutions ― 3 9
4. Accounting ― 2
5. Education ― 1
6. Internal audit ―
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Requirements
There are two absolute requirements for the new layout
1. Education should remain where it is
2. Administration should remain where it is
Closeness Factors
Department 1 2 3 4 5 6
1. Administration ― 3 6 5 6 10
2. Social services ― 8 1 1
3. Institutions ― 3 9
4. Accounting ― 2
5. Education ― 1
6. Internal audit ―
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Developing a Block Plan
EXAMPLE 3.1
Develop an acceptable block plan for the Office of Budget Management that locates departments with the greatest interaction as close to each other as possible.
SOLUTION
Using closeness ratings of 8 and above, you might plan to locate departments as follows:
a. Departments 1 and 6 close together
b. Departments 3 and 5 close together
c. Departments 2 and 3 close together
Departments 1 and 5 should remain at their current locations
Closeness Factors
Department 1 2 3 4 5 6
1. Administration ― 3 6 5 6 10
2. Social services ― 8 1 1
3. Institutions ― 3 9
4. Accounting ― 2
5. Education ― 1
6. Internal audit ―
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150’
100’
Developing a Block Plan
Figure 3.5 – Proposed Block Plan
1 54
6 32
a. Departments 1 and 6 close togetherb. Departments 3 and 5 close togetherc. Departments 2 and 3 close together
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The Weighted-Distance Method
The weighted-distance method can be used to compare alternative block plans when relative locations are important
Euclidian distance is the straight-line distance between two possible points
22BABAAB yyxxd
wheredAB = distance between points A and BxA = x-coordinate of point AyA = y-coordinate of point AxB = x-coordinate of point ByB = y-coordinate of point B
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The Weighted-Distance Method
Rectilinear distance measures the distance between two possible points with a series of 90-degree turns
BABAAB yyxxd
The objective is to minimize the weighted-distance score (wd)
A layout’s wd score is calculated by summing the products of the proximity scores and distances between centers
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Application 3.1
Rectilinear Distance
dAB = |20 – 80| + |10 – 60| =
Euclidian Distance
What is the distance between (20,10) and (80,60)?
dAB = (20 – 80)2 + (10 – 60)2
=
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Application 3.1
Rectilinear Distance
dAB = |20 – 80| + |10 – 60| =
Euclidian Distance
dAB = (20 – 80)2 + (10 – 60)2
What is the distance between (20,10) and (80,60)?
110
= 78.1
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Calculating the WD Score
EXAMPLE 3.2
How much better is the proposed block than the current block plan?
SOLUTION
The following table lists pairs of departments that have a nonzero closeness factor and the rectilinear distances between departments for both the current plan and the proposed plan
6
1
2
4 5
33
1 2
6
5
4
Current Block Plan Proposed Block Plan
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Calculating the WD Score
Current Plan Proposed Plan
Department Pair
Closeness Factor (w)
Distance (d)
Weighted-Distance Score (wd)
Distance (d)
Weighted-Distance Score (wd)
1, 23
1, 36
1, 45
1, 56
1, 610
2, 38
2, 41
2, 51
3, 43
3, 59
4, 52
5, 61
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3 15
2 12
2 20
2 16
2 2
1 1
2 6
3 27
1 2
2 2
Total 112
Calculating the WD Score
2 6
1 6
1 3
3 18
1 5
2 12
1 10
1 8
1 1
2 2
2 6
1 9
1 2
3 3
Total 82
Current Plan Proposed Plan
Department Pair
Closeness Factor (w)
Distance (d)
Weighted-Distance Score (wd)
Distance (d)
Weighted-Distance Score (wd)
1, 23
1, 36
1, 45
1, 56
1, 610
2, 38
2, 41
2, 51
3, 43
3, 59
4, 52
5, 61
3 – 41Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
OM Explorer Analysis
Figure 3.6 – Second Proposed Block Plan (Analyzed with Layout Solver)
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Application 3.2
Matthews and Novak Design Company has been asked to design the layout for a newly constructed office building of one of its clients. The closeness matrix showing the daily trips between its six department offices is given below.
Departments Trips between Departments
1 2 3 4 5 6
1 25 90 165
2 105
3 125 125
4 25
5 105
6
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DepartmentPair
ClosenessFactor
Distance Score
3 6 1
1, 6 165 1 165 2 5 4
3, 5 125
3, 6 125
2, 5 105 1 105
5, 6 105 1 105
1, 3 90
1, 2 25 3 75
4, 5 25 1 25
Total 1030
Application 3.2
Shown below on the right is a block plan that has been suggested for the building (original plan). Assume rectilinear distance. Students complete highlighted cells.
Based on the above results, propose a better plan and evaluate it in terms of the load-distance score.
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DepartmentPair
ClosenessFactor
Distance Score
3 6 1
1, 6 165 1 165 2 5 4
3, 5 125
3, 6 125
2, 5 105 1 105
5, 6 105 1 105
1, 3 90
1, 2 25 3 75
4, 5 25 1 25
Total 1030
2 250
1 125
2 180
Application 3.2
Shown below on the right is a block plan that has been suggested for the building (original plan). Assume rectilinear distance. Students complete highlighted cells.
Based on the above results, propose a better plan and evaluate it in terms of the load-distance score.
3 – 45Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.
DepartmentPair
ClosenessFactor Distance Score
4 6 1
1, 6165
2 5 3
3, 5125
3, 6125
2, 5105
5, 6105
1, 390
1, 225
4, 525
Total
Application 3.2
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DepartmentPair
ClosenessFactor Distance Score
4 6 1
1, 6165
2 5 3
3, 5125
3, 6125
2, 5105
5, 6105
1, 390
1, 225
4, 525
Total
1165
1125
2250
1105
1105
190
375
250
965
Application 3.2
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A Detailed Layout
Once a block plan has been selected, a detailed representation is created showing the exact size and shape of each center
Elements such as desks, machines, and storage areas can be shown
Drawings or models can be utilized
Options can be discussed and problems resolved
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Customer Involvement
Possible disadvantagesCan be disruptive, making the process less
efficient Managing timing and volume can be
challenging Quality measurement can be difficult Requires interpersonal skills Layouts may have to be revised Multiple locations may be necessary
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Customer Involvement
Possible advantages Increased net value to the customer Can mean better quality, faster delivery, greater
flexibility, and lower cost May reduce product, shipping, and inventory
costs May help coordinate across the supply chain Processes may be revised to accommodate the
customers’ role
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Resource Flexibility
WorkforceImplications of a flexible workforce
Requires more education and trainingAlleviates capacity bottlenecks, volume flexibilityOften increased job satisfaction
Volume flexibility and needed skills determine the type of workforce.
Steady volume, high skills—permanent workforceVariable volume, low skills—part-time or temporary
employees to supplement permanent workforceVariable volume, high skills—trained flexible force
that can be moved to produce whatever the market demands
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Resource Flexibility
EquipmentManagers must account for process divergence
and diverse process flows when making resource flexibility decisions. Break-even analysis can be useful.
Break-even analysis can be used to determine at what volumes changes in equipment should be made.
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Break-Even Analysis
Process 2: Special-purpose equipment
Process 1: General-purpose equipment
Break-even quantity
Tota
l co
st (
do
llars
)
Units per year (Q)
F2
F1
Figure 3.7 – Relationship Between Process Costs and Product Volume
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Application 3.3
Q = Fm – Fb
cb –
cm
BBC is deciding whether to weld bicycle frames manually or to purchase a welding robot. If welded manually, investment costs for equipment are only $10,000. the per-unit cost of manually welding a bicycle frame is $50.00 per frame. On the other hand, a robot capable of performing the same work costs $400,000. robot operating costs including support labor are $20.00 per frame.
At what volume would BBC be indifferent to these alternative methods?
welded manually (Make)
welded by robot (Buy)
Fixed costs $10,000 $400,000
Variable costs $50 $20
=
$10,000 – $400,000
$20 – $50 = 13,000 frames
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Capital IntensityCapital 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.
1. Automating manufacturing processesAdvantage
Classic way of improving productivity when volume is high
DisadvantagesAutomated (capital intensive) operations must have high
utilization. Automation may not fit with competitive priorities being
emphasized.More capital intensity is not always best.
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Capital Intensity
Fixed automationHigh demand volumeStable product designLong life cycleFixed automation produces one type of part or
product in a fixed sequenceTypically requires large investments and is
relatively inflexible
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Capital Intensity
Flexible automation. Useful in both low-customization and high-
customization Can be quickly set up to make a variety of
products in small batchesPerhaps show photos of the JustBorn robotsFlexible automation can be changed to handle
various productsIndustrial robots are classic examples of
flexible automation
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Capital Intensity
2. Automating service processesCapital equipment may be used to automate
service processes. Examples:Long-distance learning technologyATMsFinancial services
Investment can be justified by cost reduction and increased task divergence through expanded customer choice
May impact customer contactMay be used in both front and back-office
operations
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Capital Intensity
3. Economies of scope reflect the ability to produce multiple products
more inexpensively in combination than separately
Applies to manufacturing and servicesRequires sufficient collective volume
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Strategic Fit
The process chosen should reflect the desired competitive priorities
The process structure has a major impact on customer involvement, resource flexibility, and capital intensity
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Decision Patterns for Services
Front office
Hybrid office
Back office
Low customer-contact process
• Less complexity, less divergence, more line flows
• Less customer involvement• Less resource flexibility• Capital intensity varies with
volume
High customer-contact process
• More complexity, more divergence, more flexible flows
• More customer involvement• More resource flexibility• Capital intensity varies with
volume
Figure 3.8 – Decision Patterns for Service Processes
LowHighCustomer contact and customization
Maj
or
pro
ces
s d
ecis
ion
s
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Decision Patterns for Manufacturing
Processes can be adjusted for the degree of customization and volume
Process flows can be made more or less linear
Competitive priorities must be considered when choosing processes
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Decision Patterns for Manufacturing
Competitive Priorities Process Choice
Competitive Priorities Production and Inventory Strategy
(b) Links with Production and Inventory Strategy
Top-quality, on-time delivery, and flexibility
Job process or small batch process
(a) Links with Process Choice
Low-cost operations, consistent quality, and delivery speed
Large batch, line, or continuous flow process
Top-quality, on-time delivery, and flexibility Make-to-order
Delivery speed and variety Assemble-to-order
Low-cost operation and delivery speed Make-to-stock
Figure 3.9 – Links of Competitive Priorities with Manufacturing Strategy
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Decision Patterns for Manufacturing
Continuousprocess
Jobprocess
Lineprocess
Large batchprocess
Small batchprocess
Batch processes
Figure 3.10 – Decision Patterns for Manufacturing Processes
Ma
jor
pro
ce
ss
d
ec
isio
ns
Low HighVolume
High-Volume, make-to-stock process
• Less process divergence and more line flows
• Less customer involvement• Less resource flexibility• More capital intensity
Low-Volume, make-to-order process
• More process divergence and more flexible flows
• More customer involvement• More resource flexibility• Less capital intensity
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Gaining Focus
Operations can be focused by process segments when competitive priorities differ
Plants within plants (PWPs) are different operations under the same roof
Service can be focused in much the same way
Focused factories can be created by splitting a large plant into several smaller plants dedicated to narrower product lines
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Strategies for Change
Process reengineering is the fundamental rethinking and radical redesign of a process to improve performance
Can be successful but it is not simple or easy
The people who are involved with the process each day are the best source of ideas on how to improve it
Process improvement is the systematic study of activities and flows of a process to find ways to improve it
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Process Reengineering
TABLE 3.2 | KEY ELEMENTS OF REENGINEERING
Element Description
Critical processes Emphasis on core business processes, normal process improvement activities can continue with other processes
Strong leadership Strong leadership from senior executives to overcome resistance
Cross-functional teams A team with members from each functional area charged with carrying out the project
Information technology Primary enabler of the project as most reengineering projects involve information flows
Clean-slate philosophy Start with the way the customer wants to deal with the company and includes internal and external customers
Process analysis Must understand the current processes throughout the organization
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Solved Problem 1
A defense contractor is evaluating its machine shop’s current layout. Figure 3.11 shows the current layout and the table shows the closeness matrix for the facility measured as the number of trips per day between department pairs. Safety and health regulations require departments E and F to remain at their current locations.
a. Use trial and error to find a better layout
b. How much better is your layout than the current layout in terms of the wd score? Use rectilinear distance.
Trips Between Departments
Department A B C D E F
A ― 8 3 9 5
B ― 3
C ― 8 9
D ― 3
E ― 3
F ―
E
A
B
C D
F
Figure 3.11 – Current Layout
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Solved Problem 1
SOLUTION
a. In addition to keeping departments E and F at their current locations, a good plan would locate the following department pairs close to each other: A and E, C and F, A and B, and C and E. Figure 3.12 was worked out by trial and error and satisfies all these requirements. Start by placing E and F at their current locations. Then, because C must be as close as possible to both E and F, put C between them. Place A below E, and B next to A. All of the heavy traffic concerns have now been accommodated.
Trips Between Departments
Department A B C D E F
A ― 8 3 9 5
B ― 3
C ― 8 9
D ― 3
E ― 3
F ―
E F
A B
C
D
Figure 3.12 – Proposed Layout
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Solved Problem 1
Current Plan Proposed Plan
Department Pair
Number of Trips (1) Distance (2)
wd Score (1) (2) Distance (3)
wd Score (1) (3)
A, B 8 2 16 1 8
A, C 3 1 3 2 6
A, E 9 1 9 1 9
A, F 5 3 15 3 15
B, D 3 2 6 1 3
C, E 8 2 16 1 8
C, F 9 2 18 1 9
D, F 3 1 3 1 3
E, F 3 2 6 2 6
wd = 92 wd = 67
b. The table reveals that the wd score drops from 92 for the current plan to 67 for the revised plan, a 27 percent reduction.