Process Strategy PDF

PROCESS STRATEGY Dr Mrinalini Shah For OSCM @ IIM Kashipur Review : Productivity Calculation Units produced: 5,000 Standard price: $30/unit Labor input: 500 hours Cost of labor: $25/hour Cost of materials: $5,000 Cost of overhead:...

PROCESS STRATEGY Dr Mrinalini Shah For OSCM @ IIM Kashipur Review : Productivity Calculation Units produced: 5,000 Standard price: $30/unit Labor input: 500 hours Cost of labor: $25/hour Cost of materials: $5,000 Cost of overhead: 2× labor cost What is the multifactor productivity? Dr Mrinalini Shah for OSCM @IIM Kashipur 2-2  Solution Output Multifactor Productivity = Labor +Material +Overhead 5,000 units  $30/unit = (500 hours  $25/hour) + $5,000 + (2(500 hours  $25/hour))  $150,000 = $42,500 = 3.5294 What is the implication of an unitless measure of productivity? Dr Mrinalini Shah for OSCM @IIM Kashipur 2-3  Productivity Growth Current productivity - Previous productivity Productivity Growth = 100% Previous productivity Example: Labor productivity on the ABC assembly line was 25 units per hour in 2014.  In 2015, labor productivity was 23 units per hour. What was the productivity growth from 2014 to 2015? 23- 25 Productivity Growth = 100% = −8% 25  Dr Mrinalini Shah for OSCM @IIM Kashipur 2-4 Objective To learn process flow mapping Understand different kind of process Little’s law Four Process Strategies Dr Mrinalini Shah for OSCM @IIM Kashipur Harley-Davidson The only major U.S. motorcycle company Emphasizes quality and lean manufacturing Materials as Needed (MAN) system Many variations possible Tightly scheduled repetitive production Dr Mrinalini Shah for OSCM @IIM Kashipur  Process Flow Diagram Dr Mrinalini Shah for OSCM @IIM Kashipur Learning Objectives 7.1 Describe four process strategies 7.2 Compute crossover points for different processes 7.3 Use the tools of process analysis Dr Mrinalini Shah for OSCM @IIM Kashipur Process Strategy The objective is to create a process to produce offerings that meet customer requirements within cost and other managerial constraints A process is any part of the organisation that takes input and transforms them into outputs that, it is hoped , are of greater value to the organization than the original input. Dr Mrinalini Shah for OSCM @IIM Kashipur 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 Dr Mrinalini Shah for OSCM @IIM Kashipur Process Management Process - one or more actions that transform inputs into outputs Three Categories of Business Processes: Upper-management processes These govern the operation of the entire organization. Operational processes These are core processes that make up the value stream. Supporting processes These support the core processes. Dr Mrinalini Shah for OSCM @IIM Kashipur 1-11 Process Variation Four Sources of Variation: Variety of goods or The greater the variety of goods and services offered, services being offered the greater the variation in production or service requirements. Structural variation in These are generally predictable. They are important for demand capacity planning. Random variation Natural variation that is present in all processes. Generally, it cannot be influenced by managers. Assignable variation Variation that has identifiable sources. This type of variation can be reduced, or eliminated, by analysis and corrective action. Variations can be disruptive to operations and supply chain processes. They may result in additional costs, delays and shortages, poor quality, and inefficient work systems. Dr Mrinalini Shah for OSCM @IIM Kashipur 1-12 Process, Volume, and Variety Process Selected Must Fit with Volume and Variety Dr Mrinalini Shah for OSCM @IIM Kashipur Process Strategies Four basic strategies 1. Process focus 2. Repetitive focus 3. Product focus 4. Mass customization Within these basic strategies there are many ways they may be implemented 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 Dr Mrinalini Shah for OSCM @IIM Kashipur Process Focus (low-volume, high-variety, intermittent processes) Hospital Dr Mrinalini Shah for OSCM @IIM Kashipur 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 Dr Mrinalini Shah for OSCM @IIM Kashipur Repetitive Focus (modular) Harley Davidson Dr Mrinalini Shah for OSCM @IIM Kashipur 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 Dr Mrinalini Shah for OSCM @IIM Kashipur Product Focus (high-volume, low-variety, continuous process) Frito-Lay Dr Mrinalini Shah for OSCM @IIM Kashipur  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 Dr Mrinalini Shah for OSCM @IIM Kashipur Mass Customization (high-volume, high-variety) Dell Computer Dr Mrinalini Shah for OSCM @IIM Kashipur Mass Customization Imaginative product design Flexible process design Tightly controlled inventory management Tight schedules Responsive partners in the supply-chain Dr Mrinalini Shah for OSCM @IIM Kashipur  Process Selection Projects one-of-a-kind production of a product to customer order Batch production process many different jobs at the same time in groups or batches Mass production produce large volumes of a standard product for a mass market Continuous production used for very-high volume commodity products Dr Mrinalini Shah for OSCM @IIM Kashipur Product-Process Matrix  Types of Processes PROJECT BATCH MASS CONT. Made-to- Made-to- Type of product Unique order stock Commodity (customized) (standardized ) One-at-a- Few Type of Mass Mass customer time individual market market customers Product demand Infrequent Fluctuates Stable Very stable Dr Mrinalini Shah for OSCM @IIM Kashipur  Types of Processes PROJECT BATCH MASS CONT. Demand Low to volume Very low High Very high medium No. of Infinite different Many, varied Few Very few products variety Repetitive, Continuous, Production Long-term Discrete, job system assembly process project shops lines industries Dr Mrinalini Shah for OSCM @IIM Kashipur  Types of Processes PROJECT BATCH MASS CONT. Equipment Varied General- Special- Highly purpose purpose automated Mixing, Primary type Specialized of work Fabrication Assembly treating, contracts refining Experts, Limited Worker skills crafts- Wide range Equipment range of of skills monitors persons skills Dr Mrinalini Shah for OSCM @IIM Kashipur  Types of Processes PROJECT BATCH MASS CONT. Efficiency, Highly efficient, Advantages Custom work, Flexibility, latest technology speed, large capacity, quality low cost ease of control Capital Non-repetitive, Costly, slow, Difficult to change, Dis- investment; small customer difficult to far-reaching errors, advantages lack of base, expensive manage limited variety responsiveness Machine shops, Automobiles, Construction, print shops, televisions, Paint, chemicals, Examples shipbuilding, bakeries, computers, foodstuffs spacecraft education fast food Dr Mrinalini Shah for OSCM @IIM Kashipur Comparison of Processes (1 of 4) Comparison of the Characteristics of Four Types of Processes Process Focus Repetitive Focus Product Focus Mass (Low-volume, (Modular (High-volume, Customization High-variety Harley-Davidson) Low-variety (High-volume, Arnold Palmer Frito-Lay) High-variety Hospital) Dell Computer) 1. Small quantity 1. Long runs, a 1. Large quantity 1. Large quantity and and large variety standardized and small large variety of of products product from variety of products modules products 2. Broadly skilled 2. Moderately trained 2. Less broadly 2. Flexible operators operators employees skilled operators Dr Mrinalini Shah for OSCM @IIM Kashipur Comparison of Processes (2 of 4) Process Focus Repetitive Focus Product Focus Mass (Low-volume, (Modular (High-volume, Customization High-variety Harley-Davidson) Low-variety (High-volume, Arnold Palmer Frito-Lay) High-variety Hospital) Dell Computer) 3. Instructions for 3. Few changes in the 3. Standardized job 3. Custom orders each job instructions instructions requiring many job instructions 4. High inventory 4. Low inventory 4. Low inventory 4. Low inventory relative to the value of the product Dr Mrinalini Shah for OSCM @IIM Kashipur Comparison of Processes (3 of 4) Process Focus Repetitive Focus Product Focus Mass Customization (Low-volume, (Modular (High-volume, (High-volume, High-variety Harley-davidson) Low-variety High-variety Arnold Palmer Frito-lay) Dell Computer) Hospital) 5. Finished goods are 5. Finished goods are 5. Finished goods 5. Finished goods are made to order and made to frequent are made to a build-to-order (BTO) not stored forecasts forecast and stored 6. Scheduling is 6. Scheduling is 6. Scheduling is 6. Sophisticated complex routine routine scheduling accommodates custom orders Dr Mrinalini Shah for OSCM @IIM Kashipur Comparison of Processes (4 of 4) Process Focus Repetitive Focus Product Focus Mass (Low-volume, (Modular (High-volume, Customization High-variety Harley-davidson) Low-variety (High-volume, Arnold Palmer Frito-lay) High-variety Hospital) Dell Computer) 7. Fixed costs are low 7. Fixed costs are 7. Fixed costs are 7. Fixed costs tend to and variable costs dependent on high and variable be high and high flexibility of the costs low variable costs low facility Dr Mrinalini Shah for OSCM @IIM Kashipur Process Selection With Break-Even Analysis Study cost trade-offs based on demand volume Cost Fixed costs constant regardless of the number of units produced Variable costs vary with the volume of units produced Revenue price at which an item is sold Dr Mrinalini Shah for OSCM @IIM Kashipur Process Selection With Break-Even Analysis Total revenue price times volume sold Profit difference between total revenue and total cost Dr Mrinalini Shah for OSCM @IIM Kashipur Process Selection With Break-Even Analysis Total cost = fixed cost + total variable cost TC = cf + vcv Total revenue = volume x price TR = vp Profit = total revenue - total cost Z = TR – TC = vp - (cf + vcv) cf = fixed cost V = volume (i.e., number of units produced and sold) cv = variable cost per unit p = price per unit Dr Mrinalini Shah for OSCM @IIM Kashipur Process Selection With Break-Even Analysis TR = TC vp = cf + vcv vp - vcv = cf v(p - cv) = cf cf v= p-c v Solving for Break-Even Point (Volume) Dr Mrinalini Shah for OSCM @IIM Kashipur Break-Even Analysis Fixed cost = cf = $2,000 Variable cost = cv = $50 per unit Price = p = $100 per unit Break-even point is cf v= p- c = v Dr Mrinalini Shah for OSCM @IIM Kashipur Break-Even Analysis Fixed cost = cf = $2,000 Variable cost = cv = $50 per unit Price = p = $100 per unit Break-even point is cf 2000 v= p- c = = 40 units v 100 - 50 Dr Mrinalini Shah for OSCM @IIM Kashipur Break-Even Analysis: Graph Dollars $3,000 — Total cost line $2,000 — $1,000 — Total revenue line 40 Units Break-even point Dr Mrinalini Shah for OSCM @IIM Kashipur Process Selection – Multiple Processes Process A Process B $2,000 + $50v = $10,000 + $30v Dr Mrinalini Shah for OSCM @IIM Kashipur Process Selection – Multiple Processes Process A Process B $2,000 + $50v = $10,000 + $30v $20v = $8,000 v = 400 units Below or equal to 400, choose A Above or equal to 400, choose B Dr Mrinalini Shah for OSCM @IIM Kashipur Multiple Processes – Indifference Point Dr Mrinalini Shah for OSCM @IIM Kashipur Process Selection in Excel Dr Mrinalini Shah for OSCM @IIM Kashipur Crossover Chart Example Evaluate three different accounting software products Calculate crossover points between software A and B and between software B and C Blank Total Fixed Cost Dollars Required Per Accounting Report Software A $200,000 $60 Software B $300,000 $25 Software C $400,000 $10 Dr Mrinalini Shah for OSCM @IIM Kashipur  Crossover Charts Dr Mrinalini Shah for OSCM @IIM Kashipur Little's Law Little's Law states that the average number of items in a process is the product of the average rate at which items leave the process and the average time each item spends in the process. Little's Law can be expressed as an equation that can be used to balance capacity with demand. The equation states: Throughput Volume Per Unit of Time = Items-In-Process/Cycle Time Or, solving for the other components: Items-In-Process = Throughput Volume Per Unit of Time*Cycle Time Or: Cycle Time = Items-In-Process/Throughput Volume Per Unit of Time Dr Mrinalini Shah for OSCM @IIM Kashipur Hospital example Little’s Law says that regardless of how one defines the boundaries of a system (the ED, the observation unit, or the entire hospital; it does not matter), and regardless of whether flows are random, the long run average number of patients in any system (I = average patient inventory) equals the product of the long run average throughput rate for the system (R = patients/time) and the long run average time each patient spends in the system (T = LOS). The mathematical expression for Little’s Law is I = R × T. Dr Mrinalini Shah for OSCM @IIM Kashipur  Little’s Law Flow Analysis of Observation Unit Impact and Sizing Academic Emergency Medicine, Volume: 18, Issue: 2, Pages: 183-189, First published: 11 February 2011, DOI: (10.1111/j.1553-2712.2010.00969.x)  Example of hospital operations 25% quit 4 patients/hour Patients Doctor Initial 75% enters suggeste system Wait consultation d test 5 minute 2 patients 12 minute 5 minute Wait 1 patients Nurse conduct test Dr Mrinalini Shah for OSCM @IIM Kashipur 30 minute Dr Mrinalini Shah for OSCM @IIM Kashipur  Crossover Chart Example (2 of 2) 200,000 + ( 60 )V1 = 300,000 + ( 25 )V1 35V1 = 100,000 V1 = 2,857 Software A is most economical from 0 to 2,857 reports 300,000 + ( 25 )V2 = 400,000 + (10 )V2 15V2 = 100,000 V2 = 6,666 Software B is most economical from 2,857 to 6,666 reports Dr Mrinalini Shah for OSCM @IIM Kashipur Process Plans Set of documents that detail manufacturing and service delivery specifications assembly charts operations sheets quality-control check-sheets Dr Mrinalini Shah for OSCM @IIM Kashipur  Assembly Chart Dr Mrinalini Shah for OSCM @IIM Kashipur Process Analysis Systematic study of all aspects of a process make it faster more efficient less costly more responsive Basic tools process flowcharts diagrams maps Dr Mrinalini Shah for OSCM @IIM Kashipur Building a Flowchart Determine objectives Define process boundaries Define units of flow Choose type of chart Observe process and collect data Map out process Validate chart Dr Mrinalini Shah for OSCM @IIM Kashipur Flow Charts in Microsoft Visio Dr Mrinalini Shah for OSCM @IIM Kashipur Process Flowcharts Look at manufacture of product or delivery of service from broad perspective Incorporate nonproductive activities (inspection, transportation, delay, storage) productive activities (operations) Dr Mrinalini Shah for OSCM @IIM Kashipur Dr Mrinalini Shah for OSCM @IIM Kashipur Process Flowchart Symbols Operation Inspection Transportation Delay Storage Process Flowchart of Apple Processing Dr Mrinalini Shah for OSCM @IIM Kashipur Dr Mrinalini Shah for OSCM @IIM Kashipur Flowcharts in Excel Process Map or Swimlane Chart of Restaurant Service Dr Mrinalini Shah for OSCM @IIM Kashipur Dr Mrinalini Shah for OSCM @IIM Kashipur Simple Value Chain Flowchart Process Innovation Total redesign of a process for breakthrough improvements Continuous improvement refines the breakthrough Breakthrough Improvement Continuous improvement activities peak; time to reengineer process Dr Mrinalini Shah for OSCM @IIM Kashipur Dr Mrinalini Shah for OSCM @IIM Kashipur From Function to Process Product Development Manufacturing Purchasing Accounting Order Fulfillment Sales Supply Chain Management Customer Service Function Process Dr Mrinalini Shah for OSCM @IIM Kashipur Process Strategic Innovation Directives Baseline Data Customer Goals for Process Benchmark Requirements Performance Data High - level Innovative Process map Ideas Design Principles Detailed Model Process Map Validation Key Performance Measures Pilot Study of New Design Goals Full Scale No Met? Yes Implementation Dr Mrinalini Shah for OSCM @IIM Kashipur Principles for Redesigning Processes Remove waste, simplify, and consolidate similar activities Link processes to create value Let the swiftest and most capable enterprise execute the process Flex process for any time, any place, any way Capture information digitally at the source and propagate it through process Dr Mrinalini Shah for OSCM @IIM Kashipur Principles for Redesigning Processes Provide visibility through fresher and richer information about process status Fit process with sensors and feedback loops that can prompt action Add analytic capabilities to the process Connect, collect, and create knowledge around process through all who touch it Personalize process with preferences and habits of participants Focused Processes Focus brings efficiency Focus on depth of product line rather than breadth Focus can be Customers Products Service Technology Dr Mrinalini Shah for OSCM @IIM Kashipur  Selection of Equipment Decisions can be complex as alternate methods may be available Important factors may be – Cost – Cash flow – Market stability – Quality – Capacity – Flexibility Dr Mrinalini Shah for OSCM @IIM Kashipur Flexibility Flexibility is the ability to respond with little penalty in time, cost, or customer value May be a competitive advantage May be difficult and expensive Without it, change may mean starting over Dr Mrinalini Shah for OSCM @IIM Kashipur Process Analysis and Design Is the process designed to achieve a competitive advantage? Does the process eliminate steps that do not add value? Does the process maximize customer value? Will the process win orders? Dr Mrinalini Shah for OSCM @IIM Kashipur Process Analysis and Design Flowchart Shows the movement of materials Harley-Davidson flowchart Time-Function Mapping Shows flows and time frame Dr Mrinalini Shah for OSCM @IIM Kashipur  “Baseline” Time-Function Map Dr Mrinalini Shah for OSCM @IIM Kashipur  “Target” Time-Function Map Dr Mrinalini Shah for OSCM @IIM Kashipur Process Chart Process Chart Showing a Hamburger Assembly Process at a Fast-Food Restaurant Dr Mrinalini Shah for OSCM @IIM Kashipur Improving Service Productivity (1 of 2) Techniques for Improving Service Productivity Strategy Technique Example Separation Structuring service so Bank customers go to a customers must go where the manager to open a new service is offered account, to loan officers for loans, and to tellers for deposits Self-service Self-service so customers Supermarkets and examine, compare, and department stores evaluate at their own pace Internet ordering Postponement Customizing at delivery Customizing vans at delivery rather than at production Focus Restricting the offerings Limited-menu restaurant Dr Mrinalini Shah for OSCM @IIM Kashipur Improving Service Productivity Strategy Technique Example Modules Modular selection of service Investment and insurance Modular production selection Prepackaged food modules in restaurants Automation Separating services that may Automatic teller machines lend themselves to some type of automation Scheduling Precise personnel scheduling Scheduling ticket counter personnel at 15-minute intervals at airlines Training Clarifying the service options Investment counselor, funeral Explaining how to avoid directors problems After-sale maintenance personnel Dr Mrinalini Shah for OSCM @IIM Kashipur Process Control Real-time monitoring and control of processes Sensors collect data Devices read data on periodic basis Measurements translated into digital signals then sent to a computer Computer programs analyze the data Resulting output may take numerous forms Dr Mrinalini Shah for OSCM @IIM Kashipur 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 Dr Mrinalini Shah for OSCM @IIM Kashipur THANK YOU ! Dr Mrinalini Shah for OSCM @IIM Kashipur