Operations Management: Processes and

Supply Chains
Twelfth Edition

Chapter 2
Process Strategy and
Analysis

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Learning Objectives (1 of 2)
2.1 Understand the process structure in services and how
to position a service process on the customer-contact
matrix.
2.2 Understand the process structure in manufacturing and
how to position a manufacturing process on the product-
process matrix
2.3 Explain the major process strategy decisions and their
implications for operations.
2.4 Discuss how process decisions should strategically fit
together.

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Learning Objectives (2 of 2)
2.5 Compare and contrast two commonly used strategies
for change, and understand a systematic way to analyze
and improve processes.
2.6 Discuss how to define, measure, and analyze
processes.
2.7 Identify the commonly used approaches for effectively
improving and controlling processes.

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
What is Process Strategy?
• Process Strategy
– The pattern of decisions made in managing
processes so that they will achieve their competitive
priorities

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Process Strategy
Figure 2.1 Major Decisions for Effective Processes

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Process Structure in Services (1 of 2)
• Customer Contact
– The extent to which the customer is present, is actively involved,
and receives personal attention during the service process
• Customization
– Service level ranging from highly customized to standardized
• Process Divergence
– The extent to which the process is highly customized with
considerable latitude as to how its tasks are performed
• Flow
– How the work progresses through the sequence of steps in a
process

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Process Structure in Services (2 of 2)
Table 2.1 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 e-mail

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Customer-Contact Matrix
Figure 2.2 Customer-Contact Matrix for Service Processes

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Service Process Structuring
• Front Office
• Hybrid Office
• Back Office

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Process Structure in Manufacturing (1 of 2)
• Process Choice
– A way of structuring the process by organizing
resources around the process or organizing them
around the products.
• Job Process
• Batch Process
– Small or Large
• Line Process
• Continuous-Flow Process

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Process Structure in Manufacturing (2 of 2)
Figure 2.3 Product-Process Matrix for Manufacturing Processes

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Production and Inventory Strategies
• Design-to-Order Strategy
• Make-to-Order Strategy
• Assemble-to-Order Strategy
– Postponement
– Mass Customization
• Make-to-Stock Strategy
– Mass Production

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Layout
• Layout
– The physical arrangement of operations (or
departments) created from the various processes and
put in tangible form.
• Operation
– A group of human and capital resources performing
all or part of one or more processes

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Process Strategy Decisions
• Customer Involvement
• Resource Flexibility
• Capital Intensity

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Customer Involvement (1 of 2)
• Possible Advantages
– Increased net value to the customer
– Better quality, faster delivery, greater flexibility, and
lower cost
– Reduction in product, shipping, and inventory costs
– Coordination across the supply chain

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Customer Involvement (2 of 2)
• Possible Disadvantages
– Can be disruptive
– Managing timing and volume can be challenging
– Could be favorable or unfavorable quality implications
– Requires interpersonal skills
– Multiple locations may be necessary

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Resource Flexibility
• Workforce Figure 2.4 Relationship between
– Flexible workforce Process Costs and Product Volume

• Equipment
– General-purpose
– Special-purpose

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Capital Intensity
• Automating Manufacturing Processes
– Fixed Automation
– Flexible (Programmable) Automation
• Automating Service Processes
• Economies of Scope

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Decision Patterns for Manufacturing
Processes
Figure 2.5 Links of Competitive Priorities with Manufacturing
Strategy

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Gaining Focus
• Focus by Process Segments
– Plant Within Plants (PWPs)
▪ Different operations within a facility with
individualized competitive priorities, processes,
and workforces under the same roof.
– Focused Service Operations
– Focused Factories
▪ The result of a firm’s splitting large plants that
produced all the company’s products into several
specialized smaller plants.

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Process Reengineering (1 of 2)
• Reengineering
– The fundamental rethinking and radical redesign of
processes to improve performance dramatically in
terms of cost, quality, service, and speed

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Process Reengineering (2 of 2)
• Key elements
– Critical processes
– Strong leadership
– Cross-functional teams
– Information technology
– Clean-slate philosophy
– Process analysis

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Process Improvement
• Process Improvement
– The systematic study of the activities and flows of
each process to improve it

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
What is Process Analysis?
• Process Analysis
– The documentation and detailed understanding of
how work is performed and how is can be redesigned

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Six Sigma Process Improvement Model (1 of 2)
Figure 2.6 Six Sigma Process Improvement Model

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Six Sigma Process Improvement Model (2 of 2)
• Define - The scope and boundaries of the process to be
analyzed are first established
• Measure - The metrics to evaluate how to improve the process
are determined
• Analyze - A process analysis is done, using the data on
measures, to determine where improvements are necessary
• Improve - The team uses analytical and critical thinking to
generate a long list of ideas for improvement
• Control - The process is monitored to make sure that high
performance levels are maintained

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Defining, Measuring, and Analyzing the
Process (1 of 3)
• Flowcharts
• Work Measurement Techniques
• Process Charts
• Data Analysis Tools

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Defining, Measuring, and Analyzing the
Process (2 of 3)
Flowchart
• A diagram that traces the flow of information, customers,
equipment, or materials through the various steps of a
process
Service Blueprint
• A special flowchart of a service process that shows which
steps have high customer contact

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Swim Lane Flowchart
Swim Lane Flowchart – A visual representation that groups functional areas
responsible for different subprocesses into lanes.

Figure 2.7 Swim Lane Flowchart of the Order-Filling Process Showing

Handoffs between Departments

Source: D. Kroenke, Using MIS, 4th ed., © 2012. Reprinted and electronically reproduced by
permission of Pearson Education, Inc., Upper Saddle River, New Jersey.
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Defining, Measuring and Analyzing the
Process (3 of 3)
• Work Measurement Techniques
– Time Study
– Work Sampling Method
– Learning Curve Analysis

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Work Measurement Techniques (2 of 2)
Learning Curves
Figure 2.9 Learning Curve with 80% Learning Rate Using O M
Explorer’s Learning Curves Solver

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Process Charts (5 of 6)
• The annual cost of an entire process can be estimated as:

Annual  Time to perform   Variable costs   Number of times process 

   
labor cost  the process in hours   per hour   performed each year 

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Process Charts (6 of 6)
• For example:
– Average time to serve a customer is 4 hours
– The variable cost is $25 per hour
– 40 customers are served per year
• The total labor cost is:

4 hrs customer $25 hr 40 customers yr = $ 4, 000

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Data Analysis Tools
• Checklists
• Histograms and Bar Charts
• Pareto Charts
• Scatter Diagrams
• Cause-and-Effect Diagrams (Fishbone)
• Graphs

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Example 2 (1 of 3)
The manager of a neighborhood restaurant is concerned about the
smaller numbers of customers patronizing his eatery. Complaints have
been rising, and he would like to find out what issues to address and
present the findings in a way his employees can understand.
The manager surveyed his customers over several weeks and
collected the following data:

Complaint Frequency
Discourteous server 12
Slow service 42
Cold dinner 5
Cramped table 20
Atmosphere 10

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Example 2 (2 of 3)
Figure 2.11 Bar Chart

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Example 2 (3 of 3)
Figure 2.12 Pareto Chart

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Example 3 (1 of 4)
A process improvement team is working to improve the
production output at the Johnson Manufacturing plant’s
header cell that manufactures a key component, headers,
used in commercial air conditioners.
Currently the header production cell is scheduled
separately from the main work in the plant.

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Example 3 (2 of 4)
• The team conducted extensive on-site observations
across the six processing steps within the cell and they
are as follows:
1. Cut copper pipes to the appropriate length
2. Punch vent and sub holes into the copper log
3. Weld a steel supply valve onto the top of the copper log
4. Braze end caps and vent plugs to the copper log
5. Braze stub tubes into each stub hole in the copper log
6. Add plastic end caps to protect the newly created header

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Example 3 (3 of 4)
• To analyze all the possible causes of that problem, the
team constructed a cause-and-effect diagram.
• Several suspected causes were identified for each major
category.

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Example 3 (4 of 4)
Figure 2.13 Cause-and-Effect Diagram for Inadequate Header
Production

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Example 4 (1 of 3)
The Wellington Fiber Board Company produces headliners, the fiberglass
components that form the inner roof of passenger cars. Management wanted to
identify which process failures were most prevalent and to find the cause.
• Step 1: A checklist of different types of process failures is constructed from
last month’s production records.
• Step 2: A Pareto chart prepared from the checklist data indicated that broken
fiber board accounted for 72 percent of the process failures.
• Step 3: A cause-and-effect diagram for broken fiber board identified several
potential causes for the problem. The one strongly suspected by the
manager was employee training.
• Step 4: The manager reorganizes the production reports into a bar chart
according to shift because the personnel on the three shifts had varied
amounts of experience.

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Example 4 (2 of 3)
Figure 2.14 Application of the Tools for Improving Quality

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Example 4 (3 of 3)
Figure 2.14 [continued]

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Redesigning and Managing Process
Improvements (1 of 4)
• Questioning and Brainstorming
• Benchmarking
• Implementing

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Redesigning and Managing Process
Improvements (2 of 4)
• Questioning and Brainstorming
• Ideas can be uncovered by asking six questions:
1. What is being done?
2. When is it being done?
3. Who is doing it?
4. Where is it being done?
5. How is it being done?
6. How well does it do on the various metrics of importance?
Brainstorming – Letting a group of people, knowledgeable
about the process, propose ideas for change by saying whatever
comes to mind
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Redesigning and Managing Process
Improvements (3 of 4)
• Benchmarking
– A systematic procedure that measures a firm’s
processes, services, and products against those of
industry leaders

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Redesigning and Managing Process
Improvements (4 of 4)
• Implementing
– Avoid the following seven mistakes:
1. Not connecting with strategic issues
2. Not involving the right people in the right way
3. Not giving the Design Teams and Process Analysts a
clear charter, and then holding them accountable
4. Not being satisfied unless fundamental “reengineering”
changes are made
5. Not considering the impact on people
6. Not giving attention to implementation
7. Not creating an infrastructure for continuous process
improvement
Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Solved Problem 1 (1 of 3)
Create a flowchart for the following telephone-ordering process at a
retail chain that specializes in selling books and music C Ds. It provides
an ordering system via the telephone to its time-sensitive customers
besides its regular store sales.
The automated system greets customers, asks them to choose a tone
or pulse phone, and routes them accordingly.
The system checks to see whether customers have an existing
account. They can wait for the service representative to open a new
account.
Customers choose between order options and are routed accordingly.
Customers can cancel the order. Finally, the system asks whether the
customer has additional requests; if not, the process terminates.

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Solved Problem 1 (2 of 3)
Figure 2.16 Flowchart of Telephone Ordering Process

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Solved Problem 1 (3 of 3)
Figure 2.16 [continued]

Copyright © 2019, 2016, 2014 Pearson Education, Inc. All Rights Reserved