Chapter 3 10ED - notes PDF

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MGMT 4363 CHAPTER 3 PROCESS STRATEGY Chapter Outline • 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. • Three particularly important principles concerning process strategy a. Successful process decisions require choices that fit the situation and make sense together (strategic fit). b. Individual processes are the building blocks that eventually create the firm’s whole supply chain. c. 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. A.

Process Design Strategy across the Organization • Processes are found in accounting, finance, human resources, management information systems, marketing, and operations. • Managers must see to it that processes in all departments are adding as much customer value as possible.

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Process Strategy Decisions • Four common process decisions 1. Process structure including layout 2. Customer involvement 3. Resource flexibility 4. Capital intensity

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Process Structure in Services 1. Nature of service processes: Customer contact • Customer contact is the extent to which the customer is present, is actively involved, and receives personal attention during the service process. • Dimensions of customer contact:  Physical presence – present vs. absent  What is processed – people vs. possessions vs. information  Contact intensity – active, visible vs. passive, out of sight  Personal attention – personal vs. impersonal  Method of delivery – face to face vs. regular mail or email 2. Customer-contact matrix: three elements—degree of customer contact, customization, and process characteristics. See Figure 3.2 a. Customer contact and customization • A key competitive priority is how much customization is needed

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Process divergence and flow • Process divergence: extent to which the process is highly customized with considerable latitude as to how its tasks are 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. Service process structuring (three process structures forming a continuum) a. Front office: a process with high customer contact where the service provider interacts directly with the customer. b. Hybrid office: a process with moderate levels of customer contact and standard services with some options available. c. Back office: a process with low customer contact where the service provider interacts little with the customer.

Process Structure in Manufacturing 1. Product-process matrix • It brings together three elements: volume, product design, and process. See Figure 3.3 2. Manufacturing process structuring • Process choice is the way of structuring the process by organizing resources around the process or organizing them around the products. • Four basic choices: a. Job process, high variety of products. i. Flexible-flow layout: Organizes resources around the process and groups work stations or departments according to function. b. Batch process, higher volumes, batching of customer orders. Further differentiated as small batch and large batch processes. i. Hybrid layout: Combines elements of both divergent and lineflow processes c. Line process, high volumes, standardized products or services, dedicated resources, repetitive manufacturing d. Continuous process, high volumes, rigid line flows i. Both c and d have a line-flow layout: A layout in which workstations or departments are arranged in a linear path 3. Production and inventory strategies a. Make-to-order strategy • Most required materials are ordered after the customer places the order. • Make products to customer specifications in low volumes • Matches up with flexibility (customization) and top quality

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Assemble-to-order strategy • Assemblies and components held in stock • Final assembly is completed after customer selects options. • A very large number of final configurations are possible. • Supports variety (flexibility) and fast delivery time as competitive priorities • The principle of postponement is applied. • This strategy is also linked to mass customization. Make-to-stock strategy • Finished-goods items held in stock for immediate delivery • High volumes, standard products, linear flow – mass production • Production based on forecasted demand • Supports low cost, delivery speed and consistent quality as competitive priorities

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Customer Involvement • It reflects the ways in which customers become part of the process and the extent of their participation. 1. Possible disadvantages • Can be disruptive, making the process less efficient • Can make the process too divergent • Quality measurement becomes more difficult • Requires more interpersonal skills • Layouts may have to be revised • Can require many smaller decentralized facilities closer to the customer 2. Possible advantages • Improved competitive capabilities • Can increase value to customer • Can improve quality for some services if the customer seeks to be more active and to receive more attention • Can mean better quality and speed up delivery, or at least reduce the perceived waiting time • Might help when customization and high variety are highly valued • Costs can be reduced, e.g., customers can perform final assembly: bicycles, toys for example • Can also help coordinate across the supply chain.

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Resource Flexibility 1. Workforce • Implications of a flexible work force  Requires more education and training  Capable of many tasks  Benefits: Alleviates capacity bottlenecks, reliable customer service, increased job satisfaction

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Volume flexibility and needed skills determine the type of work force.  Steady volume, high skills – permanent work force  Variable volume, low skills – part-time or temporary employees to supplement permanent work force  Variable volume, high skills – trained flexible force that can be moved to produce whatever the market demands Equipment • General purpose versus special purpose • Resource flexibility is crucial to the success of a process-focused flexible flow strategy. •

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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. 1. Automating manufacturing processes a. Advantage • Classic way of improving productivity when volume is high b. Disadvantages • Automated (capital intensive) operations must have high utilization. • Automation may not fit with competitive priorities being emphasized. • More capital intensity is not always best. c. Fixed automation favored when • High demand volume • Stable product design • Long life-cycle d. Flexible automation • Useful in both flexible flow and line flow operations • Can be quickly set up to make a variety of products in small batches • Flexible manufacturing systems  Capital intensive  Allow more flexibility in the product produced  Shorter design and manufacturing lead time  Efficient while producing low-volume, customized products 2. Automating service processes • Beyond cost and variety considerations, the process designer must understand the customer and how much close contact is valued. • The need for volume to justify expensive automation is just as valid for service processes as for manufacturing processes. 3. Economies of scope • It breaks the inverse relationship between resource flexibility and capital intensity. • Reflect the ability to produce multiple products more cheaply in combination than separately – low cost and customization. • Requires a family of products having enough collective volume to utilize equipment fully.

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Strategic Fit 1. When there is more of a strategic fit, the process will be more effective. See Figures 3.8 - 3.10. 2. Gaining focus a. Focus by process segments segments – e.g., King Soopers  Plant within plants (PWPs) – different operations within a facility with individualized competitive priorities, processes, and workforces under the same roof. b. Focused service operations c. Focused factories – splitting large plants that produced all the company’s products into several specialized smaller plants.

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Strategies for Change 1. Process reengineering Reengineering is the fundamental rethinking and radical redesign of processes to improve performance dramatically in terms of cost, quality, service, and speed. a. Critical processes • Emphasis is placed on core business processes. • Processes are broadly defined in terms of new-product development and customer value. b. Strong leadership • Senior executives must provide a strong leadership for reengineering success. c. Cross-functional teams • Reengineering works best at high-involvement workplaces. d. Information technology • Restructuring around information flows e. Clean slate philosophy • Start with the way the customer wants to deal with the company f. Process analysis • Understanding current processes can reveal areas where new thinking will provide the biggest payoff. 2. Process improvement • The systematic study of the activities and flows of each process to improve it. • The purpose is to understand the process.

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