OMC5-REVIEWERNITALA PDF

Chapter 5: Process Selection, Design, and Analysis 5-1 Process Choice Decisions Firms generally produce either in response to customer orders and demand or in anticipation of them. This leads to three major types of goods and services: custom, option-oriented, and standard. Custom, or ma...

Chapter 5: Process Selection, Design, and Analysis 5-1 Process Choice Decisions Firms generally produce either in response to customer orders and demand or in anticipation of them. This leads to three major types of goods and services: custom, option-oriented, and standard. Custom, or make-to-order, goods and services are generally produced and delivered as one of a kind or in small quantities, and are designed to meet customers' specifications. Examples include ships, Internet sites, weddings, taxi service, estate plans, buildings, and surgery. Because custom goods and services are produced on demand, the customer must wait for them for a long time because the good or service must be designed, created, and delivered. Option, or assemble-to-order, goods and services are configurations of standard parts, subassemblies, or services that can be selected by customers from a limited set. Common examples are Dell computers, Subway sandwiches, machine tools, and travel agent services. Although the customer chooses how the goods and services are configured, any unique technical specifications or requirements cannot generally be accommodated. Standard, or make-to-stock, goods and services are made according to a fixed design, and the customer has no options from which to choose. Appliances, shoes, sporting goods, credit cards, online Web-based courses, and bus service are examples. Standard goods are made in anticipation of customer demand and stocked in inventory, and therefore are readily available, although in some cases the proper color or size might be out of stock. We note that manufacturing systems often use the terms make-to-order, assemble-to-order, and make-to-stock to describe the types of systems used to manufacture goods. This terminology is not as standardized in service industries, although the concepts are similar. Four principal types of processes are used to produce goods and services: 1. Projects. 2. Job shop processes. 3. Flow shop processes. 4. Continuous flow processes. Projects are large-scale, customized initiatives that consist of many smaller tasks and activities that must be coordinated and completed to finish on time and within budget. Some examples of projects are legal defense preparation, construction, and software development. Projects are often used for custom goods and services, and occasionally for standardized products such as "market homes" that are built from a standard design. Job shop processes are organized around particular types of general-purpose equipment that are flexible and capable of customizing work for individual customers. Job shops produce a wide variety of goods and services, often in small quantities. Thus, they are often used for custom or option type products. In job shops, customer orders are generally processed in batches, and different orders may require a different sequence of processing steps and movement to different work areas. Flow shop processes are organized around a fixed sequence of activities and process steps, such as an assembly line, to produce a limited variety of similar goods or services. An assembly line is a common example of a flow shop process. Many large-volume, option-oriented and standard goods and services are produced in flow shop settings. Some common examples are automobiles, appliances, insurance policies, checking account statements, and hospital laboratory work. Flow shops tend to use highly productive, specialized equipment and computer software. Continuous flow processes create highly standardized goods or services, usually around the clock in very high volumes. Examples of continuous flow processes are automated car washes, paper and steel mills, paint factories, and many electronic, information-intensive services such as credit card authorizations and security systems. The sequence of work tasks is very rigid and the processes use highly specialized, automated equipment that is often controlled by computers with minimal human oversight. Exhibit 5.1 summarizes these different process types and their characteristics. A product life cycle is a characterization of product growth, maturity, and decline over time. It is important to understand product life cycles because when goods and services change and mature, so must the processes and value chains that create and deliver them. The traditional product life cycle (PLC) generally consists of four phases—introduction, growth, maturity, and decline and turnaround. A product's life cycle has important implications in terms of process design and choice. For example, new products with low sales volume might be produced in a job shop process; however, as sales grow and volumes increase, a flow shop process might be more efficient. As another example, a firm might introduce a new product that is produced with a flow shop process, but as the market matures, the product might become more customized. In this case, a job shop process might be more advantageous. What often happens in many firms is that product strategies change, but managers do not make the necessary changes in the process to reflect the new product characteristics. Two approaches to help understand the relationships between product characteristics for goods and services and process choice decisions are the product-process matrix and service-positioning matrix, which we introduce in the following sections. 5-2 The Product-Process Matrix The product-process matrix was first proposed by Hayes and Wheelwright and is shown in Exhibit 5.2. The product-process matrix is a model that describes the alignment of process choice with the characteristics of the manufactured good. The most appropriate match between type of product and type of process occurs along the diagonal in the product-process matrix. As one moves down the diagonal, the emphasis on both product and process structure shifts from low volume and high flexibility to higher volumes and more standardization. If product and process characteristics are not well matched, the firm will be unable to achieve its competitive priorities effectively.  On the other hand, by selectively and consciously positioning a business off the diagonal of the product-process matrix (often called a "positioning strategy"), a company can differentiate itself from its competitors. However, it must be careful not to get too far off the diagonal, or it must have a market where high prices absorb any operational inefficiencies. For example, Rolls-Royce produces a small line of automobiles, using a process similar to a job shop rather than the traditional flow shop of other automobile manufacturers. Each car requires about 900 hours of labor. For Rolls-Royce this strategy has worked, but its target market is willing to pay premium prices for premium quality and features. The theory of the product-process matrix has been challenged by some who suggest that advanced manufacturing technologies may allow firms to be successful even when they position themselves off the diagonal. These new technologies provide manufacturers with the capability to be highly flexible and produce lower volumes of products in greater varieties at lower costs. Therefore, off- diagonal positioning strategies are becoming more and more viable for many organizations and allow for "mass-customization" strategies and capabilities. 5-3 The Service-Positioning Matrix The product-process matrix does not transfer well to service businesses and processes. The relationship between volume and process is not found in many service businesses. For example, to meet increased volume, service businesses such as retail outlets, banks, and hotels have historically added capacity in the form of new stores, branch banks, and hotels to meet demand but they do not change their processes. These limitations are resolved by introducing the service-positioning matrix. To better understand it, we first discuss the concept of a pathway in a service-delivery system. A pathway is a unique route through a service system. Pathways can be customer driven or provider driven, depending on the level of control that the service firm wants to ensure. Pathways can be physical in nature, as in walking around Disney World or a golf course; procedural, as in initiating a transaction via the telephone with a brokerage firm; or purely mental and virtual, as in doing an Internet search. Customer-routed services are those that offer customers broad freedom to select the pathways that are best suited for their immediate needs and wants from many possible pathways through the service delivery system. The customer decides what path to take through the service-delivery system with only minimal guidance from management. Searching the Internet to purchase an item or visiting a park are examples. Provider-routed services constrain customers to follow a very small number of possible and predefined pathways through the service system. An automatic teller machine (ATM) is an example. A limited number of pathways exist—for example, getting cash, making a deposit, checking an account balance, and moving money from one account to another. Mailing and processing a package using the U.S. Postal Service, Federal Express, or UPS is another example of a provider-routed service. Designs for customer-routed services require a solid understanding of the features that can delight customers, as well as methods to educate customers about the variety of pathways that may exist and how to select and navigate through them. The service-positioning matrix (SPM), as shown in Exhibit 5.3, is roughly analogous to the product-process matrix for manufacturing. The SPM focuses on the service-encounter level and helps management design a service system that best meets the technical and behavioral needs of customers. The position along the horizontal axis is described by the sequence of service encounters. The service-encounter activity sequence consists of all the process steps and associated service encounters necessary to complete a service transaction and fulfill a customer's wants and needs. It depends on two things: 1. The degree of customer discretion, freedom, and decision-making power in selecting the service-encounter activity sequence. Customers may want the opportunity to design their own unique service-encounter activity sequence, in any order they choose. 2. The degree of repeatability of the service-encounter activity sequence. Service-encounter repeatability refers to the frequency that a specific service-encounter activity sequence is used by customers. Service-encounter repeatability provides a measure analogous to product volume for goods-producing firms. The more unique the service encounter, the less repeatable it is. A high degree of repeatability encourages standardized process and equipment design and dedicated service channels, and results in lower costs and improved efficiency. A low degree of repeatability encourages more customization and more flexible equipment and process designs, and typically results in higher relative cost per transaction and lower efficiency. The position along the vertical axis of the SPM reflects the number of pathways built into the service system design by management. That is, the designers or management predefine exactly how many pathways will be possible for the customer to select, ranging from one to an infinite number of pathways. The SPM is similar to the product-process matrix in that it suggests that the nature of the customer's desired service-encounter activity sequence should lead to the most appropriate service system design and that superior performance results by generally staying along the diagonal of the matrix. Like the product-process matrix, organizations that venture too far off the diagonal create a mismatch between service system characteristics and desired activity sequence characteristics. As we move down the diagonal of the SPM, the service-encounter activity sequence becomes less unique and more repeatable with fewer pathways. Like the product-process matrix, the midrange portion of the matrix contains a broad range of intermediate design choices. 5-4 Process Design The goal of process design is to create the right combination of equipment, labor, software, work methods, and environment to produce and deliver goods and services that satisfy both internal and external customer requirements. Process design can have a significant impact on cost (and hence profitability), flexibility (the ability to produce the right types and amounts of products as customer demand or preferences change), and the quality of the output. We can think about work at four hierarchical levels: 1. Task. 2. Activity.  3. Process. 4. Value chain. A task is a specific unit of work required to create an output. Examples are inserting a circuit board into an iPad subassembly or typing the address on an invoice. An activity is a group of tasks needed to create and deliver an intermediate or final output. Examples include all the tasks necessary to build an iPad; for example, connecting the battery and assembling the cover pieces, or inputting all the information correctly on an invoice, such as the items ordered, prices, discounts, and so on. An example of a process would be manufacturing an iPad or fulfilling a customer order. The value chain for an iPad would include acquiring the materials and components, manufacturing and assembly, distribution, retail sales, and face-to-face and Web-based customer support. Table 5.4 shows an example for the production of antacid tablets. The value chain shows an aggregate view focused on the goods- producing processes (supporting services such as engineering, shipping, accounts payable, advertising, and retailing are not shown). The next level in the hierarchy of work is at the production process level where tablets are made. The third level focuses on the mixing workstation (or work activities) where the ingredients are unloaded into mixers. The mixer must be set up for each batch and cleaned for the next batch because many different flavors, such as peppermint, strawberry-banana, cherry, and mandarin orange, are produced using the same mixers. The fourth and final level in the work hierarchy is the flavoring tasks, which are defined as three tasks, each with specific procedures, standard times per task, and labor requirements. These three tasks could be broken down into even more detail if required. 5-4a Process and Value Stream Mapping Understanding process design objectives focuses on answering the question: What is the process intended to accomplish? An example process objective might be “to create and deliver the output to the customer in 48 hours.” Another key question to consider is: What are the critical customer and organizational requirements that must be achieved? Designing a goods-producing or service-providing process requires six major activities: 1. Define the purpose and objectives of the process. 2. Create a detailed process or value stream map that describes how the process is currently performed (sometimes called a current state or baseline map). Of course, if you are designing an entirely new process, this step is skipped. 3. Evaluate alternative process designs. That is, create process or value stream maps (sometimes called future state maps) that describe how the process can best achieve customer and organizational objectives. 4. Identify and define appropriate performance measures for the process. 5. Select the appropriate equipment and technology. 6. Develop an implementation plan to introduce the new or revised process design. This includes developing process performance criteria and standards to monitor and control the process. A process map (flowchart) describes the sequence of all process activities and tasks necessary to create and deliver a desired output or outcome. It documents how work either is or should be accomplished, and how the transformation process creates value. We usually first develop a “baseline” map of how the current process operates in order to understand it and identify improvements for redesign. Process maps delineate the boundaries of a process. A process boundary is the beginning or end of a process. The advantages of a clearly defined process boundary are that it makes it easier to obtain senior management support, assign process ownership to individuals or teams, identify key interfaces with internal or external customers, and identify where performance measurements should be taken. Thus, each of the levels in Exhibit 5.4 represents a process map defining different process boundaries. Typical symbols used for process maps are the following: Exhibit 5.5 shows a flowchart for an automobile repair process. Process maps clearly delineate the process boundaries. In service applications, flowcharts generally highlight the points of contact with the customer and are often called service blue- prints or service maps. Such flowcharts often show the separation between the back office and the front office with a “line of customer visibility,” such as the one shown in Exhibit 5.5. Non-value-added activities such as transferring materials between workstations, waiting for service, or requiring multiple approvals for a low-cost electronic transaction simply lengthen processing time, increase costs, and often increase customer frustration. Eliminating non-value-added activities is important. This is often accomplished using value stream mapping, a variant of more generic process mapping. The value stream refers to all value-added activities involved in designing, producing, and delivering goods and services to customers. A value stream map (VSM) shows the process flow in a manner similar to an ordinary process map; the difference lies in that value stream maps highlight value-added versus non-value-added activities and include costs associated with work activities for both value- and non-value-added activities. To illustrate this, consider a process map for the order fulfillment process in a restaurant, as shown in Exhibit 5.6. From the times on the process map, the “service standard” order posting and fulfillment time is an average of 30 minutes per order (5 + 1 + 4 + 12 + 3 + 5). The restaurant’s service guarantee requires that if this order posting and fulfillment time is more than 40 minutes, the customer’s order is free of charge. 5-5 Process Analysis and Improvement Few processes are designed from scratch. Many process design activities involve redesigning an existing process to improve performance. Management strategies to improve process designs usually focus on one or more of the following:  increasing revenue by improving process efficiency in creating goods and services and delivery of the customer benefit package; increasing agility by improving flexibility and response to changes in demand and customer expectations; increasing product and/or service quality by reducing defects, mistakes, failures, or service upsets; decreasing costs through better technology or elimination of non-value-added activities; decreasing process flow time by reducing waiting time or speeding up movement through the process and value chain; and decreasing the carbon footprint of the task, activity, process, and/or value chain. Process and value stream maps are the foundation for improvement activities. Typical questions that need to be evaluated during process analysis include: Are the steps in the process arranged in logical sequence? Do all steps add value? Can some steps be eliminated, and should others be added in order to improve quality or operational performance? Can some be combined? Should some be reordered? Are capacities of each step-in balance; that is, do bottlenecks exist for which customers will incur excessive waiting time? What skills, equipment, and tools are required at each step of the process? Should some steps be automated? At which points in the system (sometimes called process fail points) might errors occur that would result in customer dissatisfaction, and how might these errors be corrected? At which point or points in the process should performance be measured? What are appropriate measures? Where interaction with the customer occurs, what procedures, behaviors, and guidelines should employees follow that will present a positive image? What is the impact of the process on sustainability? Can we quantify the carbon footprint of the current process? Sometimes, processes grow so complex that it is easier to start from a “clean sheet” rather than try to improve incrementally. Reengineering has been defined as “the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed.” 1 Reengineering was spawned by the revolution in information technology and involves asking basic questions about business processes: Why do we do it? Why is it done this way? Such questioning often uncovers obsolete, erroneous, or inappropriate assumptions. Radical redesign involves tossing out existing procedures and reinventing the process, not just incrementally improving it. The goal is to achieve quantum leaps in performance. All processes and functional areas participate in reengineering efforts, each requiring knowledge and skills in operations management. 5-6 Process Design and Resource Utilization Idle machines, trucks, people, computers, warehouse space, and other resources used in a process simply drain away potential profit. Utilization is the fraction of time a workstation or individual is busy over the long run. It is difficult to achieve 100 percent utilization. For example, utilization in most job shops ranges from 65 to 90 percent. In flow shops, it might be between 80 and 95 percent, and for most continuous flow processes, above 95 percent. Job shops require frequent machine changeovers and delays, whereas flow shops and continuous flow processes keep equipment more fully utilized. Service facilities have a greater range of resource utilization. Movie theaters, for example, average 5 to 20 percent utilization when seat utilization is computed over the entire week. Similar ranges apply to hotels, airlines, and other services. Two ways of computing resource utilization are; Utilization (U) = Resources Used / Resources Available [5.1] Utilization (U) = Demand Rate / [Service Rate × Number of Servers] [5.2] The average number of entities completed per unit time—the output rate—from a process is called throughput. Throughput might be measured as parts per day, transactions per minute, or customers per hour, depending on the context. A logical question to consider is what throughput can be achieved for the entire process. A bottleneck is the work activity that effectively limits the throughput of the entire process. A bottleneck is like the weakest link of a chain; the process in Exhibit 5.11 can never produce more than 20 orders/hour—the output rate of work activity #3 (assuming all five activities must be completed). Identifying and breaking process bottlenecks is an important part of process design and improvement, and will increase the speed of the process, reduce waiting and work-in-process inventory, and use resources more efficiently. 5-6a Little's Law At any moment, people, orders, jobs, documents, money, and other entities that flow through processes are in various stages of completion and may be waiting in queues. Flow time, or cycle time, is the average time it takes to complete one cycle of a process. It makes sense that the flow time will depend not only on the actual time to perform the tasks required but also on how many other entities are in the work-in-process stage. Little's Law is a simple formula that explains the relationship among flow time (T), throughput (R), and work-in-process (WIP): Work-in-process = Throughput × Flow time Little's Law provides a simple way of evaluating average process performance. If we know any two of the three variables, we can compute the third using Little's Law. Little's Law can be applied to many different types of manufacturing and service operations. (See the accompanying Solved Problems.) It is important to understand that Little's Law is based on simple averages for all variables. Such an analysis serves as a good baseline for understanding process performance on an aggregate basis, but it does not take into account any randomness in arrivals or service times, or different probability distributions.