Operation Management

1. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 1
Operations
Management
Chapter 7 –
Process Strategy
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 7e
Operations Management, 9e
7 – 2
Outline
 Global Company Profile: Dell
Computer Corp.
 Four Process Strategies
 Process Focus
 Repetitive Focus
 Product Focus
 Mass Customization Focus
 Comparison of Process Choices

2. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 3
Outline – Continued
 Process Analysis and Design
 Flow Diagrams
 Time-Function Mapping
 Value-Stream Mapping
 Process Charts
 Service Blueprinting
7 – 4
Outline – Continued
 Service Process Design
 Customer Interaction and Process
Design
 More Opportunities to Improve
Service Processes
 Selection of Equipment and
Technology

3. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 5
Outline – Continued
 Production Technology
 Machine Technology
 Automatic Identification Systems
(AISs) and RFID
 Process Control
 Vision Systems
 Robots
7 – 6
Outline – Continued
 Production Technology (cont.)
 Automated Storage and Retrieval
Systems (ASRSs)
 Automated Guided Vehicles (AGVs)
 Flexible Manufacturing Systems
(FMSs)
 Computer-Integrated Manufacturing
(CIM)

4. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 7
Outline – Continued
 Technology in Services
 Process Redesign
 Ethics and Environmentally
Friendly Processes
7 – 8
Learning Objectives
When you complete this chapter you
should be able to:
1. Describe four production processes
2. Compute crossover points for
different processes
3. Use the tools of process analysis
4. Describe customer interaction in
process design
5. Identify recent advances in
production technology

5. OPERATION MANAGEMENT
Low
Volume
International Executive MBA PGSM
7 – 9
Dell Computer Company
Mass customization provides a
competitive advantage
 Sell custom-built PCs directly to consumer
 Lean production processes and good
product design allow responsiveness
 Integrate the Web into every aspect of its
business
 Focus research on software designed to
make installation and configuration of its
PCs fast and simple
7 – 10
Process, Volume, and Variety
Process Focus
projects, job shops
(machine, print,
carpentry)
Standard Register
Repetitive
(autos, motorcycles)
Harley-Davidson
Product Focus
(commercial
baked goods,
steel, glass)
Nucor Steel
High Variety
one or few
units per run,
high variety
(allows
customization)
Changes in
Modules
modest runs,
standardized
modules
Changes in
Attributes
(such as grade,
quality, size,
thickness, etc.)
long runs only
Mass Customization
(difficult to achieve,
but huge rewards)
Dell Computer
Poor Strategy
(Both fixed and
variable costs
are high)
Repetitive
Process
High
Volume
Figure 7.1 Volume

6. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 11
Process Strategies
 How to produce a product or provide
a service that
 Meets or exceeds customer
requirements
 Meets cost and managerial goals
 Has long term effects on
 Efficiency and production flexibility
 Costs and quality
7 – 12
Process Strategies
Four basic strategies
 Process focus
 Repetitive focus
 Product focus
 Mass customization
Within these basic strategies there are
many ways they may be implemented

7. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 13
Process Focus
 Facilities are organized around specific
activities or processes
 General purpose equipment and skilled
personnel
 High degree of product flexibility
 Typically high costs and low equipment
utilization
 Product flows may vary considerably
making planning and scheduling a
challenge
7 – 14
Process Focus
Many
inputs
Many
variety
of
outputs
Job Shop
Many departments and
many routings

8. OPERATION MANAGEMENT
Process Flow Diagram
Purchasing
Vendors PREPRESS DEPT
International Executive MBA PGSM
7 – 15
Accounting
Information flow
Material flow
Figure 7.2
COLLATING
DEPT
PRINTING DEPT
GLUING, BINDING,
STAPLING, LABELING
POLYWRAP DEPT
SHIPPING
Customer
Receiving
Warehouse
Customer
Customer sales
representative
7 – 16
Repetitive Focus
 Facilities often organized as
assembly lines
 Characterized by modules with parts
and assemblies made previously
 Modules may be combined for many
output options
 Less flexibility than process-focused
facilities but more efficient

9. OPERATION MANAGEMENT
Automobile Assembly Line
International Executive MBA PGSM
7 – 17
Repetitive Focus
Raw
materials
and
module
inputs
Modules
combined
for many
output
options
Few
modules
7 – 18
Process Flow Diagram
THE ASSEMBLY LINE
TESTING
28 tests
Oil tank work cell
Shocks and forks
Handlebars
Fender work cell
Air cleaners
Fluids and mufflers
Fuel tank work cell
Wheel work cell
Roller testing
Incoming parts
Engines and
transmissions
From Milwaukee
on a JIT arrival
schedule
Frame tube
bending
Frame-building
work cells
Frame
machining
Hot-paint
frame painting
Crating
Figure 7.3

10. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 19
Product Focus
 Facilities are organized by product
 High volume but low variety of
products
 Long, continuous production runs
enable efficient processes
 Typically high fixed cost but low
variable cost
 Generally less skilled labor
7 – 20
Product Focus
Few
inputs
Output
variations
in size,
shape,
and
packaging
Continuous Work Flow

11. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 21
Product Focus
Nucor Steel Plant
Continuous caster
Continuous cast steel
sheared into 24-ton slabs
Hot tunnel furnace - 300 ft
Hot mill for finishing, cooling, and coiling
D
E F
H G
I
Scrap
steel
Ladle of molten steel
Electric
furnace
A
C B
7 – 22
Mass Customization
 The rapid, low-cost production of
goods and service to satisfy
increasingly unique customer
desires
 Combines the
flexibility of a
process focus
with the efficiency
of a product focus

12. OPERATION MANAGEMENT
Table 7.1
Item 1970s 21st Century
International Executive MBA PGSM
7 – 23
Mass Customization
Number of Choices
Vehicle models 140 286
Vehicle types 18 1,212
Bicycle types 8 19
Software titles 0 400,000
Web sites 0 98,116,993
Movie releases 267 458
New book titles 40,530 77,446
Houston TV channels 5 185
Breakfast cereals 160 340
Items (SKUs) in 14,000 150,000
supermarkets
LCD TVs 0 102
7 – 24
Mass Customization
Mass Customization
Effective
scheduling
techniques
Rapid
throughput
techniques
Repetitive Focus
Flexible people
and equipment
Process-Focused
High variety, low volume
Low utilization (5% to 25%)
General-purpose equipment
Product-Focused
Low variety, high volume
High utilization (70% to 90%)
Specialized equipment
Figure 7.5
Modular techniques
Supportive
supply
chains

13. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 25
Comparison of Processes
Process
Focus
(Low volume,
high variety)
Repetitive
Focus
(Modular)
Product Focus
(High-volume,
low-variety)
Mass
Customization
(High-volume,
high-variety)
Small
quantity, large
variety of
products
Long runs,
standardized
product made
from modules
Large
quantity, small
variety of
products
Large
quantity, large
variety of
products
General
purpose
equipment
Special
equipment
aids in use of
assembly line
Special
purpose
equipment
Rapid
changeover
on flexible
equipment
Table 7.2
7 – 26
Comparison of Processes
Process
Focus
(Low volume,
high variety)
Repetitive
Focus
(Modular)
Product Focus
(High-volume,
low-variety)
Mass
Customization
(High-volume,
high-variety)
Operators are
broadly
skilled
Employees
are modestly
trained
Operators are
less broadly
skilled
Flexible
operators are
trained for the
necessary
customization
Many job
instructions
as each job
changes
Repetition
reduces
training and
changes in job
instructions
Few work
orders and job
instructions
because jobs
standardized
Custom
orders require
many job
instructions
Table 7.2

14. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 27
Comparison of Processes
Process
Focus
(Low volume,
high variety)
Repetitive
Focus
(Modular)
Product Focus
(High-volume,
low-variety)
Mass
Customization
(High-volume,
high-variety)
Raw material
inventories
high
JIT
procurement
techniques
used
Raw material
inventories
are low
Raw material
inventories
are low
Work-in-process
is
high
JIT inventory
techniques
used
Work-in-process
inventory is
low
Work-in-process
inventory
driven down
by JIT, lean
production
Table 7.2
7 – 28
Comparison of Processes
Process
Focus
(Low volume,
high variety)
Repetitive
Focus
(Modular)
Product Focus
(High-volume,
low-variety)
Mass
Customization
(High-volume,
high-variety)
Units move
slowly
through the
plant
Movement is
measured in
hours and
days
Swift
movement of
unit through
the facility is
typical
Goods move
swiftly
through the
facility
Finished
goods made
to order
Finished
goods made
to frequent
forecast
Finished
goods made
to forecast
and stored
Finished
goods often
build-to-order
(BTO)
Table 7.2

15. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 29
Comparison of Processes
Process
Focus
(Low volume,
high variety)
Repetitive
Focus
(Modular)
Product Focus
(High-volume,
low-variety)
Mass
Customization
(High-volume,
high-variety)
Scheduling is
complex,
trade-offs
between
inventory,
availability,
customer
service
Scheduling
based on
building
various
models from
a variety of
modules to
forecasts
Relatively
simple
scheduling,
establishing
output rate to
meet forecasts
Sophisticated
scheduling
required to
accommodate
custom orders
Table 7.2
7 – 30
Comparison of Processes
Process
Focus
(Low volume,
high variety)
Repetitive
Focus
(Modular)
Product Focus
(High-volume,
low-variety)
Mass
Customization
(High-volume,
high-variety)
Fixed costs
low, variable
costs high
Fixed costs
dependent on
flexibility of
the facility
Fixed costs
high, variable
costs low
Fixed costs
high, variable
costs must be
low
Costing
estimated
before job,
known only
after the job
Costs usually
known due to
extensive
experience
High fixed
costs mean
costs
dependent on
utilization of
capacity
High fixed
costs and
dynamic
variable costs
make costing
a challenge
Table 7.2

16. OPERATION MANAGEMENT
$ costs
Variable
$ costs
400,000
300,000
200,000
International Executive MBA PGSM
7 – 31
Crossover Charts
Variable
costs
Fixed costs
$
High volume, low variety
Process C
Variable
Fixed costs
Repetitive
Process B
Fixed costs
Low volume, high variety
Process A
Fixed cost
Process A
Fixed cost
Process B
Fixed cost
Process C
(2,857) V1 V2 (6,666)
Volume
$
Figure 7.6
7 – 32
Focused Processes
 Focus brings efficiency
 Focus on depth of product line
rather than breadth
 Focus can be
 Customers
 Products
 Service
 Technology

17. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 33
Changing Processes
 Difficult and expensive
 May mean starting over
 Process strategy determines
transformation strategy for an
extended period
 Important to get it right
7 – 34
Process Analysis and
Design
 Flow Diagrams - Shows the movement
of materials
 Time-Function Mapping - Shows flows
and time frame
 Value-Stream Mapping - Shows flows
and time and value added beyond the
immediate organization
 Process Charts - Uses symbols to show
key activities
 Service Blueprinting - focuses on
customer/provider interaction

18. OPERATION MANAGEMENT
Print
Order
product
Process
order
Wait
International Executive MBA PGSM
7 – 35
“Baseline” Time-Function Map
Customer
Sales
Production
control
Plant A
Warehouse
Plant B
Receive
product
Extrude
Wait
Transport Move
Move
Wait
Print
Wait
Order
product
Process
order
Wait
12 days 13 days 1 day 4 days 1 day 10 days 1 day 0 day 1 day
52 days
Figure 7.7
7 – 36
“Target” Time-Function Map
Customer
Sales
Production
control
Plant
Warehouse
Receive
product
Extrude
Wait
Transport Move
1 day 2 days 1 day 1 day 1 day
6 days
Figure 7.7

19. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 37
Value-Stream Mapping
Figure 7.8
7 – 38
Process Chart
Figure 7.9

20. OPERATION MANAGEMENT
Level
#1
Level
#2
F
International Executive MBA PGSM
7 – 39
Service Blueprint
 Focuses on the customer and
provider interaction
 Defines three levels of interaction
 Each level has different
management issues
 Identifies potential failure points
7 – 40
Customer departs
Customer pays bill
F
F
Notify
customer the
car is ready
Service Blueprint
Personal Greeting Service Diagnosis Perform Service Friendly Close
Level
#3
Figure 7.10
No
Notify
customer
and recommend
an alternative
provider
Customer arrives
for service
Warm greeting
and obtain
service request
Direct customer
to waiting room
F
Perform
required work
F
Prepare invoice
Yes Yes
F
Standard
request
Determine
specifics
No
Can
service be
done and does
customer
approve?
F F

21. OPERATION MANAGEMENT
Service Process Matrix
Degree of Customization
Low High
High
International Executive MBA PGSM
7 – 41
Process Analysis Tools
 Flowcharts provide a view of the
big picture
 Time-function mapping adds rigor
and a time element
 Value-stream analysis extends to
customers and suppliers
 Process charts show detail
 Service blueprint focuses on
customer interaction
7 – 42
Service Factory Service Shop
Degree of Labor
Low
Mass Service Professional Service
Commercial
banking
Private
banking
General-purpose
law firms
Law clinics
Specialized
hospitals
Hospitals
Full-service
stockbroker
Limited-service
stockbroker
Retailing
Boutiques
Warehouse and
catalog stores
Fast-food
restaurants
Fine-dining
restaurants
Airlines
No-frills
Figure 7.11 airlines

22. OPERATION MANAGEMENT
Mass Service and Professional Service
International Executive MBA PGSM
7 – 43
Service Process Matrix
 Labor involvement is high
 Selection and training highly important
 Focus on human resources
 Personalized services
Service Factory and Service Shop
 Automation of standardized services
 Low labor intensity responds well to
process technology and scheduling
 Tight control required to maintain
standards
7 – 44
Improving Service
Productivity
Strategy Technique Example
Separation Structure service so
customers must go
where service is
offered
Bank customers go to
a manager to open a
new account, to loan
officers for loans, and
to tellers for deposits
Self-service Self-service so
customers examine,
compare, and
evaluate at their own
pace
Supermarkets and
department stores,
Internet ordering
Table 7.3

23. OPERATION MANAGEMENT
Improving Service
Productivity
Improving Service
Productivity
International Executive MBA PGSM
7 – 45
Strategy Technique Example
Postponement Customizing at
delivery
Customizing vans at
delivery rather than at
production
Focus Restricting the
offerings
Limited-menu
restaurant
Modules Modular selection of
service, modular
production
Investment and
insurance selection,
prepackaged food
modules in
restaurants
Table 7.3
7 – 46
Strategy Technique Example
Automation Separating services
that may lend
themselves to
automation
Automatic teller
machines
Scheduling Precise personnel
scheduling
Scheduling ticket
counter personnel at
15-minute intervals at
airlines
Training Clarifying the service
options, explaining
how to avoid
problems
Investment counselor,
funeral directors, after-sale
maintenance
personnel
Table 7.3

24. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 47
Improving Service
Processes
 Layout
 Product exposure, customer
education, product enhancement
 Human Resources
 Recruiting and training
 Impact of flexibility
7 – 48
Equipment and Technology
 Often complex decisions
 Possible competitive advantage
 Flexibility
 Stable processes
 May allow enlarging the scope of the
processes

25. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 49
Production Technology
 Machine technology
 Automatic identification
systems (AISs)
 Process control
 Vision system
 Robot
 Automated storage and retrieval systems
(ASRSs)
 Automated guided vehicles (AGVs)
 Flexible manufacturing systems (FMSs)
 Computer-integrated manufacturing (CIM)
7 – 50
Technology in Services
Service Industry Example
Financial
Services
Debit cards, electronic funds transfer, ATMs,
Internet stock trading
Education Electronic bulletin boards, on-line journals,
WebCT and Blackboard
Utilities and
government
Automated one-man garbage trucks, optical
mail and bomb scanners, flood warning
systems
Restaurants and
foods
Wireless orders from waiters to kitchen,
robot butchering, transponders on cars that
track sales at drive-throughs
Communications Electronic publishing, interactive TV
Table 7.4

26. OPERATION MANAGEMENT
International Executive MBA PGSM
7 – 51
Technology in Services
Service Industry Example
Hotels Electronic check-in/check-out, electronic
key/lock system
Wholesale/retail
trade
ATM-like kiosks, point-of-sale (POS)
terminals, e-commerce, electronic
communication between store and supplier,
bar coded data
Transportation Automatic toll booths, satellite-directed
navigation systems
Health care Online patient-monitoring, online medical
information systems, robotic surgery
Airlines Ticketless travel, scheduling, Internet
purchases
Table 7.4
7 – 52
Process Redesign
 The fundamental rethinking of business
processes to bring about dramatic
improvements in performance
 Relies on reevaluating the purpose of the
process and questioning both the
purpose and the underlying assumptions
 Requires reexamination of the basic
process and its objectives
 Focuses on activities that cross
functional lines
 Any process is a candidate for redesign

27. OPERATION MANAGEMENT
Reduce the negative impact on the
environment
International Executive MBA PGSM
7 – 53
Ethics and Environmentally
Friendly Processes
 Encourage recycling
 Efficient use of resources
 Reduction of waste by-products
 Use less harmful ingredients
 Use less energy