BIZ Production & Operations Management. Sung Joo Bae, Assistant Professor. Yonsei University School of Business

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1 BIZ Production & Operations Management Process Design Sung Joo Bae, Assistant Professor Yonsei University School of Business Disclaimer: Many slides in this presentation file are from the copyrighted material in 2010 by Pearson Education, Inc. Publishing as Prentice Hall. A Process View Departments have their own objectives and resources to achieve them. Processes may cross different department boundaries, and require resources from several departments. External environment Internal and external customers Inputs Workers Managers Equipment Facilities Materials Land Energy 1 2 Processes and operations Outputs Goods Services Information on performance Figure 1.2 1

2 Process Strategy Principles of process strategy 1. Make choices that fit the situation and that make sense together, that have a close strategic fit 2. Individual processes are the building blocks that eventually create the firm s whole supply chain 3. Management must pay particular attention to the interfaces between processes (crossfunctional coordination) Process Strategy Decisions There are four basic process decisions: Customer Involvement Low involvement High involvement Process Structure Customer-contract position (services) Product-process position (manufacturing) Layout Resource Flexibility Specialized Enlarged Capital Intensity Low automation High automation Strategy for Change Process reengineering Process improvement Figure 3.1 Major Decisions for Effective Processes Effective Process Design 2

3 Process Structure in Services Customer contact is the extent to which the customer is present, actively involved, and receives personal attention during the service process Face-to-face interaction is sometimes called a moment of truth or a service encounter Process Structure in Services TABLE 3.1 DIMENSIONS OF CUSTOMER CONTACT IN SERVICE PROCESSES Dimension High Contact Low Contact Physical presence Present Absent What is processed People Possessions or information Contact intensity Active, visible Passive, out of sight Personal attention Personal Impersonal Method of delivery Face-to-face Regular mail or 3

4 Task Characteristics and Its Implications Adapted from Daft and Lengel s work (1986) Low Unanalyzable Unanalyzable, Low Variety Craft Technology Task Variety Unanalyzable, High Variety NonroutineTechnology High Task Analyzability Analyzable Structure - Rich media to resolve unanalyzable issues - Small amount of information Examples: Occasional face-to-face and scheduled meetings, planning, telephone Analyzable, Low Variety Routine Technology Structure - Media of low richness - Small amount of information Examples: Rules, standard procedures, standard information system reports, memos, bulletins Structure - Rich media to resolve unanalyzable issues - Large amount of information to handle exceptions Examples: Frequent face-to-face and group meetings, unscheduled meetings, special studies and reports Analyzable, High Variety Engineering Technology Structure - Media of low richness - Large amount of information to handle exceptions Examples: Quantitative databases, plans, schedules, statistical reports, a few meetings Process Structure in Services The three elements of the customer-contact matrix are 1. The degree of customer contact 2. Customization 3. Process characteristics Process characteristics include 1. Process divergence deals with customization and the latitude as to how tasks are performed 2. Flow is how customers, objects, or information are processed and can be either line or flexible 4

5 Service Process Structuring Less customer contact and customization Less processes divergence and more line flows Process Characteristics (1) Flexible flows with Individual processes (2) Flexible flows with some dominant paths, with some exceptions to how work performed (3) Line flows, routine work same with all customers (1) (2) (3) High interaction with Some interaction with Low interaction with customers, highly customers, standard customers, standardized customized service services with some options services Front office Hybrid office Back office Figure 3.2 Customer-Contact Matrix for Service Processes Product-Process Matrix For manufacturing organization it brings together 1. Volume 2. Product customization 3. Process characteristics Process choices include job, batch, line, and continuous flow processes Production and inventory strategies include make-to-order, assemble-to-order, and make-to-stock 5

6 Less complexity, less divergence, and more line flows Product-Process Matrix Process Characteristics (1) Customized process, with flexible and unique sequence of tasks (2) Disconnected line flows, moderately complex work (3) Connected line, highly repetitive work (4) Continuous flows (1) (2) (3) (4) Low-volume Multiple products with low Few major High volume, high products, made to moderate volume products, standardization, to customer higher commodity order volume products Job process Less customization and higher volume Small batch process Batch processes Large batch process Line process Continuous process Figure 3.3 Product-Process Matrix for Processes Layout The physical arrangement of human and capital resources An operation is a group of resources performing all or part of one or more processes Layout involves three basic steps 1. Gather information 2. Develop a block plan 3. Design a detailed layout 6

7 Layout Gather information on space requirements, available space, and closeness factors - Example of OBM, 120 emp + 30 new emp Department Area Needed (ft 2 ) 1. Administration 3, Social services 2, Institutions 2, Accounting 1, Education 1, Internal audit 3,400 Total 15,000 Block Plan Figure 3.4 Current Block Plan for the Office of Budget Management 15,000 Sq. Ft. 7

8 Closeness Matrix Closeness Factors Department Administration Social services Institutions Accounting 2 5. Education 1 6. Internal audit Requirements There are two absolute requirements for the new layout 1. Education should remain where it is 2. Administration should remain where it is Closeness Factors Department Administration Social services Institutions Accounting 2 5. Education 1 6. Internal audit 8

9 Developing a Block Plan EXAMPLE 3.1 Develop an acceptable block plan for the Office of Budget Management that locates departments with the greatest interaction as close to each other as possible. SOLUTION Using closeness ratings of 8 and above, you might plan to locate departments as follows: Closeness Factors a. Departments 1 and 6 close together b. Departments 3 and 5 close together c. Departments 2 and 3 close together Departments 1 and 5 should remain at their current locations 2. Social services 3. Institutions 4. Accounting Department Administration Education 1 6. Internal audit Developing a Block Plan a. Departments 1 and 6 close together b. Departments 3 and 5 close together c. Departments 2 and 3 close together Figure 3.5 Proposed Block Plan 9

10 The Weighted-Distance Method The weighted-distance method can be used to compare alternative block plans when relative locations are important Euclidian distance is the straight-line distance between two possible points where d AB = distance between points A and B x A = x-coordinate of point A y A = y-coordinate of point A x B = x-coordinate of point B y B = y-coordinate of point B The Weighted-Distance Method Rectilinear distance measures the distance between two possible points with a series of 90-degree turns The objective is to minimize the weighteddistance score (wd) A layout s wd score is calculated by summing the products of the proximity scores and distances between centers 10

11 Application 3.1 What is the distance between (20,10) and (80,60)? Euclidian Distance d AB = (20 80) 2 + (10 60) 2 = Rectilinear Distance d AB = = Application 3.1 What is the distance between (20,10) and (80,60)? Euclidian Distance d AB = (20 80) 2 + (10 60) 2 = 78.1 Rectilinear Distance d AB = =

12 Calculating the WD Score EXAMPLE 3.2 How much better is the proposed block than the current block plan? SOLUTION The following table lists pairs of departments that have a nonzero closeness factor and the rectilinear distances between departments for both the current plan and the proposed plan Current Block Plan Proposed Block Plan Calculating the WD Score Department Pair Closeness Factor (w) 1, 2 3 1, 3 6 1, 4 5 1, 5 6 1, , 3 8 2, 4 1 2, 5 1 3, 4 3 3, 5 9 4, 5 2 5, 6 1 Distance (d) Current Plan Weighted-Distance Score (wd) Distance (d) Proposed Plan Weighted-Distance Score (wd) 12

13 Calculating the WD Score Department Pair Closeness Factor (w) 1, 2 3 1, 3 6 1, 4 5 1, 5 6 1, , 3 8 2, 4 1 2, 5 1 3, 4 3 3, 5 9 4, 5 2 5, 6 1 Distance (d) Current Plan Weighted-Distance Score (wd) Total 112 Distance (d) Proposed Plan Weighted-Distance Score (wd) Total 82 Application 3.2 Matthews and Novak Design Company has been asked to design the layout for a newly constructed office building of one of its clients. The closeness matrix showing the daily trips between its six department offices is given below. Departments Trips between Departments

14 Application 3.2 Shown below on the right is a block plan that has been suggested for the building (original plan). Assume rectilinear distance. Students complete highlighted cells. Department Closeness Distance Score Pair Factor , , , , , Based on the above 1, 3 90 results, propose a better plan and 1, evaluate it in terms 4, of the load-distance Total 1030 score. Application 3.2 Department Pair 1, , , , , , , , 5 25 Closeness Factor Distance Score Total 14

15 A Detailed Layout Once a block plan has been selected, a detailed representation is created showing the exact size and shape of each center Elements such as desks, machines, and storage areas can be shown Drawings or models can be utilized Options can be discussed and problems resolved Customer Involvement Possible disadvantages Can be disruptive Managing timing and volume can be challenging Quality measurement can be difficult Requires interpersonal skills Layouts may have to be revised Multiple locations may be necessary 15

16 Customer Involvement Possible advantages Increased net value to the customer Can mean better quality, faster delivery, greater flexibility, and lower cost May reduce product, shipping, and inventory costs May help coordinate across the supply chain Processes may be revised to accommodate the customers role Customer Involvement via Web? Possible advantages & disadvantages? Possible advantages Disadvantages reduced? Increased net value to the customer Can be less disruptive Can mean better quality, faster Managing timing and volume delivery, greater flexibility, and lower can be less challenging cost May reduce product, shipping, and inventory costs Requires no interpersonal May help coordinate across the skills supply chain Layouts no need to be Processes may be revised to revised accommodate the customers role Quality measurement can be done efficiently Multiple locations not necessary 16

17 Resource Flexibility A flexible workforce can often require higher skills and more training and education Worker flexibility can help achieve reliable customer service and alleviate bottlenecks Resource flexibility helps absorb changes in workloads The type of workforce may be adjusted using full-time or part-time workers Resource Flexibility The volume of business may affect the type of equipment used Break-even analysis can be used to determine at what volumes, changes in equipment should be made 17

18 Break-Even Analysis Total cost (dollars) F 2 Process 2: Special-purpose equipment Process 1: General-purpose equipment Break-even quantity F 1 Units per year (Q) Figure 3.7 Relationship Between Process Costs and Product Volume Application 3.3 BBC is deciding whether to weld bicycle frames manually or to purchase a welding robot. If welded manually, investment costs for equipment are only $10,000. the per-unit cost of manually welding a bicycle frame is $50.00 per frame. On the other hand, a robot capable of performing the same work costs $400,000. robot operating costs including support labor are $20.00 per frame. welded manually (Make) welded by robot (Buy) Fixed costs $10,000 $400,000 Variable costs $50 $20 At what volume would BBC be indifferent to these alternative methods? 18

19 Application 3.3 BBC is deciding whether to weld bicycle frames manually or to purchase a welding robot. If welded manually, investment costs for equipment are only $10,000. the per-unit cost of manually welding a bicycle frame is $50.00 per frame. On the other hand, a robot capable of performing the same work costs $400,000. robot operating costs including support labor are $20.00 per frame. welded manually (Make) welded by robot (Buy) Fixed costs $10,000 $400,000 Variable costs $50 $20 At what volume would BBC be indifferent to these alternative methods? Q = F m F b c b c m = $10,000 $400,000 $20 $50 = 13,000 frames Custom Molds, Inc. Case 19

20 Strategic Fit The process chosen should reflect the desired competitive priorities The process structure has a major impact on customer involvement, resource flexibility, and capital intensity Different competitive priorities and related processes Mold Fabrication CP: Product flexibility, quality, design Price and delivery is OQs, but not OWs Job process High customer contact Highly skilled labor Divergent processes Parts Manufacturing CP: Volume flexibility, cost (price), delivery speed Line (batch) process More capital intensive Less skilled labor Less divergent processes 20

21 Changing focus Molds Fabricated 722(2006) 684(2007) 591(2008) Parts Manufactured o 47,200(2006) 67,150(2007) 114,850(2008) 13 machinists x 250 days/year 5 days/mold = appx. 650 molds/year Decision Patterns for Manufacturing Competitive Priorities Top-quality, on-time delivery, and flexibility Process Choice Job process or small batch process Low-cost operations, consistent quality, and delivery speed Large batch, line, or continuous flow process (a) Links with Process Choice Competitive Priorities Top-quality, on-time delivery, and flexibility Production and Inventory Strategy Make-to-order Delivery speed and variety Assemble-to-order Low-cost operation and delivery speed Make-to-stock (b) Links with Production and Inventory Strategy Figure 3.9 Links of Competitive Priorities with Manufacturing Strategy 21

22 Processes shown in flow chart Lead time: 9 weeks 2-4 weeks assigned 3-5 days 1 day 1 day Lead time: 3 weeks 1 week 1 day 1 week 2 days Gaining Focus Operations can be focused by process segments when competitive priorities differ Plants within plants (PWPs) are different operations under the same roof Service can be focused in much the same way Focused factories can be created by splitting a large plant into several smaller plants dedicated to narrower product lines HP, S.C. J&J, Ricoh, Mitsubishi 22

23 Capital Intensity Automation is one way to address the mix of capital and labor Automated manufacturing processes substitute capital equipment for labor Typically require high volumes and costs are high Automation might not align with a company s competitive priorities Fixed automation produces one type of part or product in a fixed sequence Typically requires large investments and is relatively inflexible Flexible automation can be changed to handle various products Industrial robots are classic examples of flexible automation Decision Patterns for Manufacturing Low-Volume, make-to-order process More process divergence and more flexible flows More customer involvement More resource flexibility Less capital intensity Job process Small batch process Batch processes Major process decisions Large batch process High-Volume, make-to-stock process Less process divergence and more line flows Less customer involvement Less resource flexibility More capital intensity Low Volume Line process Continuous process High Figure 3.10 Decision Patterns for Manufacturing Processes 23

24 Gaining Focus Operations can be focused by process segments when competitive priorities differ Plants within plants (PWPs) are different operations under the same roof Service can be focused in much the same way Focused factories can be created by splitting a large plant into several smaller plants dedicated to narrower product lines HP, S.C. J&J, Ricoh, Mitsubishi Strategies for Change Process reengineering is the fundamental rethinking and radical redesign of a process to improve performance Can be successful but it is not simple or easy The people who are involved with the process each day are the best source of ideas on how to improve it Process improvement is the systematic study of activities and flows of a process to find ways to improve it 24