Process Decision

8/2/2019 Process Decision

1/31

When process decisions made?

New or modified product/service to be offered

Quality to be improved

Competitive priorities have changed

Demand for product/service is changing

Cost/availability of inputs have changed


2/31

Positioning

The positioning strategy - whether

resources are organised around the product

or process.


3/31

Key variables

Factors

Vertical

integrationCustomer

involvement

Resource

flexibilityCapitalintensity


4/31

Volume of production

Degree of customisation

Key variables


5/31

Vertical Integration (VI)

The degree to which a firm owns (production)

system to handle the entire chain of processes.

Higher degree of handling, greater VI

Types of VI:

Backward integration: Firm moves towards sources of

raw materials and parts (e.g. buying out suppliers)

Forward integration: Firm acquires more channels of

distribution (e.g. own warehouse, distribution centres)

Rao


6/31

Vertical Integration: Consider

Cost of producing resources

Efficiency in producing resources

Market penetration (see the IBM-Mitsubishi story)

Need for Resource flexibility (investmenttied up)

Tolerance of low range of acceptablebusiness opportunities


7/31

Resource flexibility (RF)

The ease for employees and equipment to

be able to handle a wide variety of

products, output levels, duties and

functions.- Higher degree of ease, greater

flexibility

RF can be affected by vertical integration

when more resources are tied up in

covering new tasks.


8/31

Customer involvement

The extent of involvement in the

production process


9/31

Capital intensity

The degree of mixture of equipment and

skill in the production process.

The greater the relative cost of equipment,the greater is capital intensity.


10/31

PROCESS STRATEGIES


11/31

Process strategies

Involves determination of how to produce aproduct or provide a service

Objective

Meet or exceed customer requirements

Meet cost & managerial goals

Has long-run effects

Product & volume flexibility Costs & quality


12/31

Fit ofProcess, Volume, and Variety

Process focus

projects, jobshops,(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 perrun, 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 Co.

Poor strategy

Low-Volume

(Intermittent)

Repetitive Process

(Modular)High-Volume

(Continuous)


13/31

Types of process strategies

Process strategies follow a continuum. Within a

given facility, several strategies may be used

Continuum

Repetitive-Focused

Product-Focused

Process-Focused


14/31

Process focused strategies

Facilities are organized by process

Similar processes are together

Example: All drill presses are together

Low volume, high variety products

Jumbled flow

Other names

Intermittent process

Job shop

OperationProduct A

Product B

11 22 33


15/31

Process focused strategies: Example

Bank

1995 Corel Corp.

Machine

Shop 1995 Corel Corp.

Hospital 1995

Corel

Corp.


16/31

Process Focused Strategy: Pros & Cons

Advantages

Greater product flexibility

More general purpose equipment

Lower initial capital investment

Disadvantages

More highly trained personnel More difficult production planning & control

Low equipment utilization (5% to 25%)


17/31

Repetitive Focused Strategy

Facilities often organized by assembly lines

Characterized by modules

Parts & assemblies made previously

Modules combined for many outputoptions

Other names

Assembly line

Production line


18/31

Repetitive Focused Strategy: Considerations

More structured than process-focused, less

structured than product focused

Enables quasi-customization

Using modules, it enjoys economic

advantage of continuous process, and

custom advantage of low-volume, high-variety model


19/31

Repetitive-Focused Strategy: Examples

Truck

ClothesDryer

1995 Corel Corp.

FastFood

McDonaldsover 95 billion served

.


20/31

Product-Focused Strategy

Facilities are organized by product

High volume, low variety products

Where found

Discrete unit manufacturing

Continuous process manufacturing

Other names

Line flow production Continuous production

Operation

Products A & B

1 2 3


21/31

Product-Focused Strategy:

Pros & Cons

Advantages

Lower variable cost per unit

Lower but more specialized labor skills

Easier production planning and control

Higher equipment utilization (70% to 90%)

Disadvantages

Lower product flexibility More specialized equipment

Usually higher capital investment


22/31

Product-Focused Examples

Light Bulbs

(Discrete)

Paper(Continuous)

.

1995 Corel

Corp.

Soft Drinks(Continuous,

thenDiscrete)

MassFlu Shots

(Discrete)


23/31

Mass Customization

Using technology and imagination torapidly mass-produce products that cater tosatisfy unique customer desires.

Under mass customization the threeprocess models become so flexible thatdistinctions between them become blur,making variety and volume issues less

significant.


24/31

Table of Summary

Process Focus

(Low volume,

High variety)

Repetitive

Focus

(Modular)

Product focus

(High-volume,

low-variety)

Mass

Customization

(High-volume,

high-variety)1. Small quantity,

large variety of

products

Long runs,

standardized

product, from

modules

Large quantity,

small variety of

products

Large quantity,

large variety of

products

2. Generalpurpose

equipment

Specialequipment aids

in use of

assembly line

Specialpurpose

equipment

Rapidchangeover on

flexible

equipment


25/31

Table of Summary (contd)

Process Focus Repetitive

Focus

Product

focus

Mass

Customization

3 Broadly skilled

operators

Modestly

trained

employees

Operators

less broadly

skilled

Flexible operators

trained for

customization

4 Many

instructions

because of

change in jobs

Reduced

training and

number of job

instructions

Few work

orders and job

instructions

Custom orders

require many

instructions

5 Raw material

high relative to

product value

JIT techniques

used

Raw material

low relative to

product value

Raw material low

relative to product

value


26/31


Process Focus Repetitive Focus Product focus Mass

Customization

6 WIP high

relative to output

JIT techniques

used

WIP low relative

to output

WIP driven

down by JIT,

kanban, lean

production

7 Units move

slowly thru plant

Movement

measured in

hours & days

Units move

swiftly thru

facility

Goods move

swiftly thru

facility

8 Finished goods

made to order,

not stored

Finished goods

made to frequent

forecasts

Finished goods

made to forecast,

then stored

Finished goods

made to order


27/31

Process

Focus

Repetitive

Focus

Product focus Mass

Customization

9 Scheduling

complex and

concerned withtrade-off

between

inventory,

capacity, and

customer

service

Scheduling

based on

buildingmodels from a

variety of

forecasts

Scheduling

relatively

simple,concerns

establishing

sufficient rate

of output to

meet forecasts

Scheduling

sophisticated to

accommodatecustomization

10 Fixed costs

low, variable

costs high

Fixed costs

dependent on

flexibility of

facilities

Fixed costs

high, variable

costs low

Fixed costs high;

variable costs

must be low



28/31

Process Focus Repetitive

Focus

Product focus Mass

Customization

11 Costing, done

by job, isestimated prior to

doing job but

only known after

doing job

Costs usually

known based onexperience

Because of high

fixed costs, costdependent on

utilization of

capacity

High fixed costs

and dynamicvariable costs



29/31

Process Continuum

Process Focused

(intermittent process)

Repetitive

Focus

(assembly

line)

Product Focused

(continuous

process)

Continuum

High variety, low volume

Low utilization (5% - 25%)

General-purpose equipment

Low variety, high volume

High utilization (70% - 90%)

Specialized equipment

Modular

Flexible equipment


30/31

Volume and Variety ofProducts

ProductsVariety Process Process Low Variety

units per lot ProjectsVery small runs, high Job Shops

Modest runs, modestRepetitive

variations RepetitiveVery long runs, Continuous

Equipment utilization 20%-75% 70%-80%

Poor Strategy

(High variable

costs)

MassCustomization

One or very few

variety

variety

changes inattributes

Long runs, modest

5%-25%

Volume and Low Volume High Repetitive High VolumeVariety of

(Intermittent) (Modular)(Continuous)

Process


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Rapid throughputtechniques

Mass Customization

Modular techniques

Repetitive FocusModular design

Flexible equipment

Product-focusedLow variety, high volumeHigh utilization (70% - 80%)

Specialized equipment

Process-focusedHigh variety, low volumeLow utilization (5% - 20%)

General purpose equipment

Effective schedulingtechniques

Process Strategies

Documents

Process Decision