Process Strategy Written Report

7/28/2019 Process Strategy Written Report

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PROCESS STRATEGY

Product and service choices, capacity planning, process selection and layout offacilities are among the basic decisions managers make because they have long term

consequences for business organizations. Process selection affects the entireorganization and its ability of achieve its mission, as well as its supply chain. Differentprocess strategies have different capacity ranges, and once a process type isfunctioning, changing it can be difficult, time consuming and costly.

PROCESS SELECTION

Process refers to the way an organization chooses to produce its goods orprovide its services. Essentially it involves choice of technology and related issue, and ithas major implications for capacity planning, layout facilities, equipment, and design ofwork systems.

The very first step in process planning is to consider whether to make or buysome or all of a product or to subcontract some or all of a service. If a decision is madeto buy or contract, this lessens or eliminates the need for process selection. In make orbuy decisions, a number of factors are usually considered:

1. Available capacity - If an organization has available capacity, it often makessense to produce an item or perform a service in house. The additional costswould be relatively small compared with those required to buy items orsubcontract services.

2. Expertise - If a firm lacks the expertise to do a job satisfactorily, buying might bea reasonable alternative

3. Quality considerations - Some specialized companies may provide higherquality; otherwise, if a strict quality control is essential, self-production maybecome the choice.

4. The nature of demand - When demand for an item is high and steady, theorganization is often better off doing the work itself. However, wide fluctuations indemand or small orders are usually better handled by others who are able tocombine orders from multiple sources which results in higher volume and tends

to offset individual buyer fluctuations.

5. Cost This is the most important factor, linked to all of the above. Cost savingsmight come from the item itself or from transportation cost savings.


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The following chart illustrates how the process characteristics vary with structure.

Comparison of Process Structures and Characteristics

ProjectJob

Shop

Batch

Process

Assembly

Line

Continuous

FlowFlow None Continuous

Flexibility High Low

Variety High Low

CapitalInvestment

Low High

Variable Cost High Low

Labor Content High Low

Labor Skill High Low

Volume Low High

The following sections describe each of the architectures, highlighting theirdifferentiating characteristics.

JOB SHOP

Flow - jumbled flow Flexibility - high

Products - many Capital investment - low Variable cost - high Labor content and skill - high Volume low

When a highly specialized product is needed in a low volume, a job shop isgenerally used. A job shop is a flexible operation that has several activities throughwhich work can pass. In a job shop, it is not necessary for all activities to be performedon all products, and their sequence may be different for different products.

To illustrate the concept of a job shop, consider the case of a machine shop. In amachine shop, a variety of equipment such as drill presses, lathes, and millingmachines is arranged in stations. Work is passed only to those machines required by it,and in the sequence required by it. This is a very flexible arrangement that can be usedfor wide variety of products.


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A job shop uses general purpose equipment and relies on the knowledge ofworkers to produce a wide variety of products. Volume is adjusted by adding orremoving labor as needed. Job shops are low in efficiency but high in flexibility. Ratherthan selling specific products, a job shop often sells its capabilities.

Since every project is custom-made, the equipment must be flexible enough tochange with each new job. That is why higher volume for this kind of process is notnecessary.

Aside from machine shop, other examples are hospital and veterinary clinicwhich process various kinds of patients / pets, illnesses and others in low volume.

BATCH PROCESS

Flow - disconnected, with some dominant flows Flexibility - moderate Products - several Capital investment - moderate Variable cost - moderate Labor content and skill - moderate Volume moderate

When a higher volume of specialized product and the product design is morestandardized, a batch process is normally used. A batch process is similar to a jobshop, except that the sequence of activities tends to be in a line and is less flexible. In abatch process, dominant flows can be identified. The activities, while in-line, aredisconnected from one another. Products are produced in batches, for example, to fillspecific customer orders.

A batch process executes different production runs for different products. Thedisadvantage is the setup time required to change from one product to the other, but theadvantage is that some flexibility in product mix can be achieved.

The production of Caterpillar construction equipment uses this kind of process.Caterpillar manufactures 28 various models of reloaders, compactors, excavators andagricultural tractors, all in the same facility. Specifications for each vehicle vary, that iswhy the equipment must be adjustable for multiple tasks.

Bakery, movie theater and airline also use this kind of process. Other examplesof products that lend themselves to batch production are paint, ice cream, soft drinks,beer, magazines and books.


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REPETITIVE-FOCUSED PROCESS (ASSEMBLY LINEPROCESS)

Flow - connected line

Flexibility - low Products - a few Capital investment - high Variable cost - low Labor content and skill - low Volume - high

When a higher volume of more standardized product is required, the repetitive-focused process or assembly line process is generally used. The standardized outputmeans only slight flexibility of equipment is needed. Skill of workers is generally low.Like a batch process, an assembly line processes work in fixed sequence. However, the

assembly line connects the activities and paces them, for example, with a conveyor belt.

Familiar products made by this system include automobiles, television sets,pencils, crayons, and computers.

A service example is an automatic carwash.

CONTINUOUS FLOW PROCESS

Flow - continuous Flexibility - very low Products - one Capital investment - very high Variable cost - very low Labor content and skill - very low, but with skilled overseers Volume - very high

When a very large volume of highly standardized product is desired, the

continuous flow process is normally used. Like the assembly line, a continuous flow

process has a fixed pace and fixed sequence of activities. Rather than being processed

in discrete steps, the product is processed in a continuous flow; its quantity tends to bemeasured in weight or volume. The direct labor content and associated skill is low, but

the skill level required to oversee the sophisticated equipment in the process may be

high. Petroleum refineries, steel manufacturing and sugar processing facilities use a


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continuous flow process. Continuous services include air monitoring, supplying electricity tohomes and businesses and the internet.

PROJECT

Flow - no flow Flexibility - very high Products - unique Capital investment - very low Variable cost - very high Labor content and skill - very high Volume one

Project is a complex job, consisting of unique and non-repetitive activities withlimited life spans. In aproject, the inputs are brought to the project location as they areneeded; there is no flow in the process. Technically, a project is not a process flowstructure since there is no flow of product - the quantity produced usually is equal toone. It is worthwhile, however, to treat it as a process structure here since it representsone extreme of the spectrum.

Projects are suitable for unique products that are different each time they areproduced. The firm brings together the resources as needed, coordinating them usingproject management techniques.

Examples are construction of building, road / asphalt layering and construction ofparking lot.


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MATCH THE PROCESS AND PRODUCTAND

PROCESS SELECTION

The primary determinants of the optimal process are the product variety andvolume. The amount of capital that the firm is willing or able to invest also may be animportant determinant, and there often is a trade-off between fixed and variable cost.

The choice of process may depend on the firm's marketing plans and businessstrategy for developing a competitive advantage. From a marketing standpoint, a jobshop allows the firm to sell its capabilities, whereas flow-shop production emphasizesthe product itself. From a competitive advantage perspective, a job shop helps a firm tofollow a differentiation strategy, whereas a flow shop is suited for a low cost strategy.

The process choice may depend on the stage of the product life cycle. In 1979Robert H. Hayes and Steven C. Wheelwright put forth a product-process matrix relatingprocess selection to the product life cycle stage. For example, early in a product's lifecycle, a job shop may be most appropriate structure to rapidly fill the early demand andadjust to changes in the design. When the product reaches maturity, the high volumesmay justify an assembly line, and in the declining phase a batch process may be moreappropriate as product volumes fall and a variety of spare parts is required.

The optimal process also depends on the local economics. The cost of labor,energy, equipment, and transportation all can impact the process selection. A break-even analysis may be performed to assist in process selection. A break-even chartrelates cost to levels of demand in various processes and the selection is made basedon anticipated demand.


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AUTOMATION

Automation is the substitution of machinery for human labor. The machineryincludes sensing and control devices that enable it to operate automatically. A keyquestion in process planning is whether to automate. If the decision is made to

automate, the next question is how much. Automation can range from factories that arecompletely automated to a single automated operation.

Advantages:

1. Higher production rates2. Increased productivity3. More efficient use of materials4. Better product quality5. Improved safety6. Shorter workweeks for labor, and

7. Reduced factory lead times.

Disadvantages:

1. High capital expenditure required to invest in automation (an automated systemcan cost millions of pesos to design, fabricate, and install)

2. A higher level of maintenance needed than with a manually operated machine3. Generally lower degree of flexibility in terms of the possible products as

compared with a manual system (even flexible automation is less flexible thanhumans, the most versatile machines of all).

4. Worker displacement

The issue whether to automate or the degree to which automation should beused must be carefully examined so that decision makers clearly understand all theramifications.

Computer-Aided Manufacturing (CAM) refers to the use of computers in processcontrol, ranging from robots to automated quality control. They have the advantage ofreducing labor; handling dangerous, dirty or boring tasks and yielding high consistentquality. Such equipment can be very expensive.

Numerically controlled machines (N/C) are programmed to follow a set of processinginstructions based on mathematical relationships that tell the machine the details of theoperations to be performed.


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ROBOTS

The use of robot in manufacturing process is sometimes an option. Robotsconsist of three parts: mechanical arm, power supply, and a controller. Japanesemanufacturing firms are major users of robots.

Robots differentiate by task complexity:- Follow instruction;- Programmable robots, going a sequence of tasks;- Computer-operated robots;- Robots with object recognition and simple decision-making.

Flexible manufacturing system (FMS) is a group of machines that include supervisorycomputer control, automatic material handling, and robots or other automatedequipment. Reprogrammable controllers enable these systems to produce a variety of

similar products.

Computer-integrated manufacturing (CIM) is a system of linking a broad range ofmanufacturing activities through an integrating computer system, including engineeringdesign, flexible manufacturing systems, and production planning and control.

MASS CUSTOMIZATION

Using technology and imagination to rapidly mass-produce products that caters

to sundry unique customer desires.

Under mass customization the three process models become so flexible thatdistinctions between them blur, making variety and volume issues lesssignificant.


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Above is an example of a cross-over chart.

Cross-over Analysis lets you identify the point where you should switch from

one product or service to another one that has similar benefits, but different fixed andvariable costs. Example, machine 1 is leased for $8,000 per year (which is the fixedcost) and you sell the copy for 10 (Selling price) but it costs 3 for the paper and inkper copy (the variable cost), and machine 2 costs $4,000 with variable costs of 5 acopy, the formula would be: Crossover units = (machine 2s fixed cost machine 1sfixed cost) (machine 1s variable cost machine 2s fixed cost). The result would be:

Crossover units = (4,000 - 8,000) (.03 - .05) or (-4,000) (-0.02) which wouldequal 200,000. This means that at 200,000 copies, the total cost of each of the twomachines is equal. If you expect to sell more than 200,000 copies then machine 1would be the best choice. If you expect to sell less than 200,000 copies then machine 2

would be the best choice.


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PROCESS ANALYSIS AND DESIGN

Questions you might discuss when choosing a strategy are the following:

Is the process designed to achieve competitive advantage in terms ofdifferentiation, response, or low cost?

Does the process eliminate steps that do not add value?

Does the process maximize customer value as perceived by the customer?

Will the process win orders?

TOOLS FOR PROCESS DESIGN

1. FLOW DIAGRAMS

Flow Diagram is a drawing used to analyzed movement or materials.


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2. PROCESS CHARTS

Process chart uses symbols to analyze the movement of people or materials


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3. TIME FUNCTION / PROCESS MAPPING

Time-Function/Process Mapping is a flow diagram but with time added onthe horizontal axis


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4. SERVICE BLUEPRINTING

Service Blueprinting - is a process analysis technique that lends itself well to afocus on the customer and the providers interaction with the customer

PROCESS RE-ENGINEERING

The fundamental rethinking and radical redesign of business processes to bringabout dramatic improvements in performance

Relies on reevaluating the purpose of the process and questioning both thepurpose and the underlying assumptions

Requires reexamination of the basic process and its objectives Focuses on activities that cross boundaries


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References

Operations Management, 8th edition by Jay Heizer (TexasLutheran University) and Barry Render (Graduate School ofBusiness, Rollins College)

Operations Management, 11th edition by William J. Stevenson,Rochester Institute of Technology

http://www.masterclassmanagement.com/BusinessManagementC

ourse-BasicDecisionMakingTools.html

Process Strategy Written Report

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