Krm9 Irm in Ch03

Chapter 3: Process Strategy
120
Chapter
Process Strategy
TEACHING TIP
This chapter focuses on process strategy, which specifies the pattern of decisions made in
managing processes so that the processes will achieve their competitive priorities assigned to it,
such as quality, flexibility, time, and cost.
A. Process Strategy Across the Organization

TEACHING TIP
Introduce with a business example, such as eBay. It illustrates one way to accommodate
customer-introduced variability found in the customer contact process. Such variability could
complicate workforce scheduling. eBay uses customer involvement in the auctions, which results
in the right amount of labor provided at the right moment.
1. Emphasize that processes are everywhere, in all functional areas of the enterprise.
a. As explained in Chapter 1: processes are found in accounting, finance, human resources,
management information systems, marketing, and operations.
b. They are the basic unit of work.
2. Managers must see to it that processes in all departments are adding as much customer value
as possible.
3. Three particularly important principles concerning process strategy
a. Successful process decisions require choices that fit the situation and make sense together
(strategic fit).
b. Individual processes are the building blocks that eventually create the firms whole
supply chain.
c. Management must pay particular attention to the interfaces between processes whether
they are performed internally or externally by outside suppliers or customers. These
interfaces underscore the need for cross-functional coordination.
B. Process Strategy Decisions

1. Process strategy is the pattern of decisions made in managing processes so that they will
achieve their competitive priorities. Process strategy is the selection of the human resources,
equipment, work flows, and methods that transform inputs into outputs. It begins with
deciding what to do in-house and what to outsource.
a. They underlie all work activity throughout the organization.
b. They are nested within other processes along an organizations supply chains.
c. The recurring question is how to provide a service or make a product.
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
121 Chapter 3: Process Strategy
2. Four common process decisions

a. Process structure, including layout
b. Customer involvement
c. Resource flexibility
d. Capital intensity
C. Process Structure in Services

TEACHING TIP
One of the first decisions a manager makes in designing a well-functioning process is to choose a
process type that best achieves the relative importance of quality, time, flexibility, and cost for
that process.
1. Nature of Service Processes: Customer Contact
a. A good process strategy for a service process:
Depends on the type and amount of customer contact.
Customer contact: the extent to which the customer is present, is actively involved,
and receives personal attention during the service process.
b. Dimensions of customer contact
Physical presence (face-to-face interaction is sometimes called a moment of truth, or

service encounter)
What is processed
People-processing services
Possession-processing services
Information-based services
Contact intensity
Active contact: the customer is very much a part of the creation of the service,
and affects the service process itself. Dental, psychiatric services for example.
Passive contact: the customer is not involved in tailoring the process to meet
special needs, or in how the process is performed. Public transportation, theaters,
for example.
Personal attention
When contact is more personal, the customer experiences the service rather
than just receiving it.
Method of delivery used

Face-to-face or telephone versus regular mail or standardized e-mail message
2. Customer-contact matrix (fitting the service processes with customer contact)

a. Customer contact and customization
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122
Strategy
A key competitive priority is how much customization is needed
Competitive priorities require more customization, the more the customer is present
and actively involved.
b. Process divergence, and flow
Process divergence: extent to which the process is highly customized with

considerable latitude as to how it is performed
High divergence involves much judgment and discretion. Consulting and law, for
example
Low divergence is more repetitive and standardized
Process flow, closely related to divergence, may range from highly diverse to linear.
Flexible flow means movements in diverse ways.
Line flow means movement in fixed sequence.
3. Service process structuring (three process structures forming a continuum)

a. Front office: a process with higher customer contact where the service provider interacts
directly with the customer
b. Hybrid office: a process with moderate levels of customer contact and standard services
with some options available
c. Back office: a process with low customer contact where the service provider interacts
little with the customer
TEACHING TIP
The Ritz-Carlton Hotel Company targets the top 1 to 3 percent of luxury traveler, and so gives a
huge emphasis on customization and top quality. The associates at the front desk characterize a
front office, because the customers are present, take an active part in creating the service, receive
personal attention, and have face-to-face contact.
D. Process Structure in Manufacturing

TEACHING TIP
Emphasize that many processes in a manufacturing setting are actually services to internal (or
external) customers, so the previous section applies also to manufacturing.
Manufacturing processes convert materials into goods that have a physical form.
1. Product-process matrix
a. Three elements
Volume
Product customization
Process characteristics
b. A good strategy for a manufacturing structure depends first on volume.
c. Customer contact is not normally a consideration for manufacturing processes, although

it is a factor for the service processes in manufacturing organizations.
d. Vertical dimension deals with the same two characteristics in the customer-contact
matrix: divergence and flow
2. Manufacturing process structuring
a. Process choice: A way of structuring the process by organizing resources around the
process or organizing them around the products
b. Four process choices, forming a continuum
Job process, high variety of products
Batch process, higher volumes, batching of customer orders. Further differentiated as

small batch and large batch processes.
Line process, high-volumes, standardized products, dedicated resources, repetitive

manufacturing
Continuous flow process, the extreme end of high-volumes, rigid line flows. Primary
material moves without stopping.
3. Production and inventory strategies

a. Make-to-order strategy
Make products to customer specifications in low volumes with job or small batch
processes,
Matches up with flexibility (customization) and top quality
b. Assemble-to-order strategy
Producing a wide variety of products from relatively few subassemblies and

components after the customers orders are received
Allows delivery speed and high process divergence
Principle of postponement
c. Make-to-stock strategy
Feasible for standardized products with high volumes and reasonably accurate
forecasts with line or continuous flow processes
Holding items in stock for immediate delivery
Combined with line process, it is sometimes called mass production
Choice for delivery speed and low cost
4. Layout
a. Human and capital resources used by processes at an operation that must be arranged
physically within their facilities.
b. One approach to layout design seeks to give form to process structure. The objective is
to position those operations close together that have strong interactions between them. It
involves three basic steps, whether the design is for a new layout or for revising an
existing layout.
Chapter 3: Process
124
Strategy
Step 1: gather information

Space requirements by operation
Tie space requirements to capacity and staffing plans.
Calculate specific equipment and space needs for each operation
Add circulation space such as aisles.
Consult with the managers and employees involved
Available space and current block plan

Closeness factors
Which items need to be close to each other, and which should not be close to
each other?
Closeness Matrix
A table that gives the relative importance of each pair of centers being
located close together.
Closeness factors are indicators of the need for proximity based on an

analysis of information flows and the need for face-to-face meetings.
For the general case of n centers in a layout, there are n-1 closeness factors
found either in the row or column assigned to the center.
At a manufacturing plant, the closeness factor could be the number of trips

between each pair of operations per day.
Other considerations
Absolute location criteriadepartments fixed in place: relocation costs,

foundations, noise levels, and so forth.
Step 2: develop a block plan

Most elementary way is trial and error, looking for patterns.
Use Example 3.1 Developing a Block Plan for the Office Budget
Management (OBM) using trial and error.
Applying the weighted-distance method
Distance measures
(i) Euclidean distance is the straight-line, shortest distance between two points
as the crow flies, so to speak.
(ii) Rectilinear distance assumes that the trip between two points is made with a
series of 90 turns.
Use Example 3.2 Calculating the Weighted-Distance Score
Tutor 3.1 in myomlab provides an example to calculate both Euclidean and

rectangular distance measures.
Active Model 3.1 in myomlab allows evaluation of the impact of swapping OBM
departmental positions.
Distance Measures. Use Application 3.1:
What is the distance between (20, 10) and (80, 60)?
Euclidean distance:
d AB
x A xB 2 y A y B 2
20 80 2 10 - 60 2
78.1
Rectilinear distance
d AB x A x B y A y B 20 80 10 60 110
Developing a Layout. Use 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.
Trips between Departments
Departments
1
25
90
6
165
105
125
25
125
105
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
Pair
1, 6
3, 5
3, 6
2, 5
5, 6
1, 3
1, 2
4, 5
Closeness
Factor
165
125
125
105
105
90
25
25
Distance
Score
1
2
1
1
1
2
3
1
Total
165
250
125
105
105
180
75
25
1030
3
2
6
5
1
4
Chapter 3: Process
Strategy
126
Based on the above results, propose a better plan (students fill in the distance and score
columns), and evaluate it in terms of the load-distance score.
Department
Pair
1, 6
3, 5
3, 6
2, 5
5, 6
1, 3
1, 2
4, 5
Closeness
Factor
165
125
125
105
105
90
25
25
Distance
Score
1
1
2
1
1
1
3
2
Total
165
125
250
105
105
90
75
50
965
4
2
6
5
1
3
Calculating a weighted-distance score
Seek to minimize the weighted-distance (wd) score by locating centers that have
high-closeness ratings close together.
Use either of the distance measures and simply multiply the proximity scores by
the distances between centers.
The sum of those products becomes the layouts final wd scorethe lower the
better.
The location of a center is defined by its x-coordinate and y-coordinate.
Step 3: design a detailed layout

Translate block design into a detailed representation
More exact sizes, shapes, and detail; show aisles, stairs, machines, desks, and the
like
E. Customer Involvement
TEACHING TIP
While eBay devised one way to accommodate the variability created by customer involvement,
Starbucks faces a different kind of customer variability. Starbucks attempts to teach customers its
ordering protocol. First, it provides a guide-to-ordering pamphlet for customers. Second, it
trains clerks to repeat the order in the correct sequence for the beverage makers, which may not
be how the customer presented it. This process not only makes it easier for the beverage makers,
but also indirectly trains the customer in how to place their orders.
1. Possible disadvantages
a. Can be disruptive, making the process less efficient
b. Can make the process too divergent
Chapter 3: Process
128
Strategy
c. Quality measurement becomes more difficult

d. Requires more interpersonal skills
e. Layouts may have to be revised
f.
Can require many smaller decentralized facilities closer to the customer or a mobile
service capability
2. Possible advantages
a. Improved competitive capabilities
Can increase value to customer
Can improve quality for some services if the customer seeks to be more active and to
receive more attention
Can mean better quality and speed up delivery, or at least reduce the perceived
waiting time
Might help when customization and high variety are highly valued
Costs can be reduced
Customers can perform final assembly: bicycles, toys for example
Can also help coordinate across the supply chain.
b. Emerging technologies: in a market where customers are technology-enabled, companies

can now engage in an active dialogue with customers and make them partners in creating
value.
F. Resource Flexibility
1. Workforce
a. Implications of a flexible workforce
Requires more education and training
Alleviates capacity bottlenecks, volume flexibility
Often increased job satisfaction
b. Volume flexibility and needed skills determine the type of workforce.
Steady volume, high skillspermanent workforce
Variable volume, low skillspart-time or temporary employees to supplement

permanent workforce
Variable volume, high skillstrained flexible force that can be moved to produce
whatever the market demands
2. Equipment
a. Managers must account for process divergence and diverse process flows when making
resource flexibility decisions. Break-even analysis can be useful.
b. Use Application 3.3: Break-Even Analysis in Process Choice.
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. At what volume would BBC be indifferent to these
alternative methods?
Fixed costs
Variable costs
Fm Fb
=
cb c m
If welded
manually
(Make)
$10,000
$50
If welded by
robot
(Buy)
$400,000
$20
10,000 300,000 13,000

20 50
frames
c. Tutor 3.2 in myomlab demonstrates how to do a break-even analysis for equipment

selection.
G. Capital Intensity
Capital intensity is the mix of equipment and human skills in the process; the greater the relative
cost of equipment, the greater is the capital intensity.
1. Automating manufacturing processes
a. Advantage
Classic way of improving productivity when volume is high
b. Disadvantages
Automated (capital intensive) operations must have high utilization.
Automation may not fit with competitive priorities being emphasized.
More capital intensity is not always best.
TEACHING TIP
Give business example, such as Gillettes package customization.
c. Fixed automation
High demand volume
Stable product design
Long life cycle
Chapter 3: Process
130
Strategy
TEACHING TIP
Mention chemicals and oil.
d. Flexible automation.
Useful in both low-customization and high-customization
Can be quickly set up to make a variety of products in small batches
Perhaps show photos of the JustBorn robots
TEACHING TIP
Mention Managerial Practice 3.1 Flexible Automation at R.R. Donnelly demonstrates that by
receiving books digitally and preparing them for press electronically allows the company to put
books on press quicker and print in smaller quantities.
2. Automating service processes
a. Using capital inputs as a labor-saving device is also possible for service processes.
Examples:
Long-distance learning technology
ATMs
Financial services
Need volume to justify expensive automation, just as in manufacturing
May be front or back office
3. Economies of Scope
a. Requires a family of products having enough collective volume to utilize equipment
fully.
H. Strategic Fit
The process strategist should understand how the four major process decisions tie together.
1. Decision patterns for service processes
a. Process structure
2. Decision patterns for manufacturing processes
3. Decision patterns for manufacturing processes

4. Gaining focus
a. Focus by process segments
b. Focused service operations
c. Focused factories
I. Strategies for Change

1. Process reengineering
TEACHING TIP
Mention Bell Atlantic reengineered its telephone business. After 5 years, it cut the time to
connect new customers from 16-days to just hours.
a. Critical processes
Emphasis is placed on core business processes.
Processes are broadly defined in terms of costs and customer value.
b. Strong leadership
Senior executives must provide a strong leadership for reengineering success
c. Cross-functional teams
Reengineering works best at high-involvement workplaces.
d. Information technology
e. Clean-slate philosophy
f.
Process analysis. Understanding current processes can reveal areas where new thinking
will provide the biggest payoff
2. Process Improvement
a. The systematic study of the activities and flows of each process to improve it.
b. The purpose is to understand the process.
Chapter 3: Process
132
Strategy
Note: As a general rule, Video Notes are in this Instructors Resource Manual whereas
the Case Notes (not accompanied with videos) are given in the Instructors Solution
Manual. The following case is the exception to this rule.
CASE: CAR LUBE OPERATIONS*

A. Synopsis
Professor Smith, a proponent of timely preventive maintenance, cannot seem to bring himself to
practice what he preaches. The distasteful chore of taking his car for an oil change takes him to two
quite different providers of this service. Smiths experiences and observations at these two
companies reveal some deeper underlying differences in their operations. This case contrasts two
different processes for doing a car lube relative to process structure, competitive priorities, and
layout.
B. Purpose
This case is designed to be used as either a cold-call case for class discussion or an
assigned homework reading. Major points to be brought out in the discussion include:
1. Process structure
2. Competitive priorities
3. Layout
4. How these decisions fit together in creating an overall strategy
C. Analysis
1. What are the competitive priorities of Instant Lube and Tireco? How well do these
priorities match their customers needs?
a. The names of these two companies are disguised, but both have national brand
names. It is apparent from the case that the companies provide quite different
services, and serve different market segments, notwithstanding some overlap.
b. The first question that needs to be answered is that of Who is the customer, and why
does the customer shop at this company?
For Instant Lube, the customer is someone who does not look forward to the oil
change experience, and perhaps even dislikes it as much as Smith does. This
customer would like to get the job done as fast as possible, at a time of his/her
choosing, even if that means paying a higher price.
For Tireco, the typical customer is there to buy tires. Oil changes are also a part
of Tirecos business, but a smaller part. A tire customer may find a low priced oil
change particularly attractive. Since he/she is already there for new tires, the
additional time required is minimal. Meanwhile, a customer who comes there
solely for the oil change also does not seem time sensitive. Such a customer is
willing to set up an appointment several days in advance. He/she does not balk
or renege (see Supplement C, Waiting Lines) when informed that the service
will take 45 minutes despite the appointment. Further, in the case of a repeat
customer, he/she is willing to forgive the fact that the service went 30 minutes
beyond the original 45 minute estimate. In return for such patience, the customer
expects a bargain price for the service, together with the reputable brand name.
*
This case was prepared by Dr. Narendar Sumukadas, University of Hartford, as a basis for classroom
discussion.
c. The next step is to translate the above information into competitive priorities for
each companys oil change operations, in terms of cost, quality, time and flexibility.
A useful analysis is to look at how each company attracts its customers, or
alternatively, why its customers choose it over others.
Cost: Price appears to be the primary reason that (oil change) customers
patronize Tireco. Instant Lube, on the other hand, charges a higher price.
Quality: Instant Lube offers customers the convenience of dropping in
unscheduled, which might represent top quality in the customers eyes. Instant
Lube also provides a more pleasurable service interaction, as exemplified in
their handling of Smiths coolant top up. Tireco perhaps offers the convenience
of one-stop service. However, that convenience is of little attraction to oil
change customers unless they are also seeking new tires.
Neither Instant Lube nor Tireco appears to draw its customers based solely
on consistent quality, i.e., better conformance to specifications. However, given
the two companies brand names, the customer clearly would expect consistent
quality from both.
Time: Delivery speed is an important reason why the customer chooses Instant
Lube, even at a higher price. Tireco, on the other hand, does not draw its oil
change customers based on quick delivery. Another factor important to the
customer in this case is on-time delivery, for which the customer is willing to pay
Instant Lube a higher price. Tireco, on the other hand, was unable, by a large
margin, to meet its stated delivery time. Despite Tirecos failing in that regard, it
is arguable that on-time delivery should still be a competitive priority, although
it is not a competitive capability.
The case does not provide much information related to new product/service
development speed. Neither Instant Lube nor Tireco appears to draw its
customers based on this priority. However, given their national brand names,
customers would expect both to offer a reasonably up-to-date menu of new
products/services. Further, given Instant Lubes exclusive focus on oil changes,
the customer might expect a more innovative product line. Indeed, some pure
oil change companies even tout their specialization as implying state of the art,
high performance lubricants not available elsewhere.
Flexibility: The customer does not expect a wide variety of services from Instant
Lube. Tireco appears to offer somewhat more variety, in terms of one-stop
shopping for oil change and tires together. However, this variety does not seem
likely to be an important draw for the customer. Given that an average oil change
lasts 3 months, while a tire change lasts years, it is not often that a customers
need for the two services coincides. Likewise, customization also does not seem
to be a draw for either company. Volume flexibility, i.e., the ability to meet
fluctuating customer demand, appears to be an important distinguishing factor
between the two companies. Tireco is unable to accommodate unscheduled
customer demand. Instant Lube, on the other hand, offers a drop-in service that
appears to be an important factor in attracting its customers.
Exhibit TN.1 summarizes the above discussion of competitive priorities.
Instant Lube attracts its customers primarily based on quick and on-time
delivery, together with unscheduled drop-ins. Tireco attracts its customers based
on low price (in the oil change segment), and perhaps consistent quality and ontime delivery. (Tirecos failure to achieve these priorities could mean a gap that
needs to be closed with process improvements.)
Chapter 3: Process
134
Strategy
Exhibit TN.1
COMPETITIVE PRIORITY
INSTANT LUBE
TIRECO
Cost
Top quality
Consistent quality
Delivery speed
On-time delivery
Development speed
Variety
Customization
Volume flexibility
Exhibit TN.1 allows us to analyze the two competing oil change companies in terms
of how well each operations processes are focused on its competitive priorities.
2. What process structure has each company selected? How well does each companys
process structure match its competitive priorities?
a. Instant Lubes process: Instant Lube has adopted a line flow process. Such a process
is well suited to producing large quantities of low variety outputs. A line flow
process is also better able to offer quick delivery and on-time delivery, both of which
are important to Instant Lubes customers.
On the other hand, a line flow process is not well suited to offering volume
flexibility, which is also important to Instant Lubes customers. In addition, a line
flow process is well suited to producing output at a low cost, which appears to be at
odds with their higher price. However, low cost operations and high prices are not
incompatible. Low cost operations can deliver a greater profit margin in such a
situation.
Both of these apparent anomalies can be reconciled. To offer drop-in scheduling,
i.e. to jump when the customer says jump, Instant Lube needs to operate its
facilities with a relatively high capacity cushion (low utilization). (see Chapter 6,
Capacity Planning). That way, even with a line flow process, it can cater to
fluctuating customer demand. As the case indicates, this capacity cushion consists of
maintaining fully staffed shop bays, idle if necessary, waiting for the customers
arrival. Capacity may also be varied, and flexibly deployed, by increasing or
decreasing the team size within each bay, and moving employees to bottleneck areas
as needed. Such a capacity cushion, however, means that it must charge a higher
price than would be expected for a line flow process for a service without the
competitive priority of delivery speed.
b. Tirecos process: Tireco has adopted a flexible flow process of sorts, in that some
cars are moved from one bay to another, such as those requiring wheel alignment.
Also, while most cars are assigned a single workstation, and are serviced at that same
workstation, the key difference relative to Instant Lube is that the workstation is
flexible and can perform a variety of services. The workforce also has multiple
skills. Such a process is well suited to producing multiple outputs in small quantities.
Accordingly, the process would be able to perform different tire related jobs as well
as oil changes.
A flexible flow process is not well suited to producing output at a low cost.
Tirecos process, therefore, appears to be mismatched with its low price offering.
However, Tirecos process is not really a flexible flow process in the traditional
sense. It can be capable of low cost operations because it involves simple tasks.
Further, in the case of a combo tire and oil change, economies of scale and scope
become possible (see economies of scale, Chapter 6, Capacity Planning).
Tireco does have a dilemma of how to effectively handle the oil-change-only
customers. These customers typically want fast service, and just mixing them in with
the tire customers causes processing problems because of uncertainties that often
crop up when tires are replaced (shock absorbers need replacing, a wheel alignment
is needed, leaks are discovered). One approach is to devote a bay to do just oil
changes. In other words, Tireco could redesign their processes to allow for some
focus.
Another approach is to develop a complementary stream of business that can be
scheduled for non-peak hours (see Chapter 14, Operations Planning and
Scheduling). Further, to the extent that this secondary demand is less time
sensitive, it can be wait-listed if necessary to give priority to the primary demand.
An analogous arrangement may be found in the airline industry, where less time
sensitive passengers are sometimes offered lower fares to fly standby. Tirecos oil
change customers, looking for a good deal on price, represent such a complementary
business that can be scheduled for the non-peak hours, and afforded lower priority.
Tireco need only charge these customers a little more than is enough to cover its
variable costs. This is the approach that Tireco is attempting to implement with the
use of an appointment system. However, the execution of that process is lacking, and
the customers suffer.
D. Teaching Strategy
1. The case is short enough that it may be handed out for a quick read in class. Yet, it is
also general enough to be assigned for a take home written case analysis, adopting a big
picture perspective. Students may be asked to throw the textbook at the case, and
explain how they would expect the two companies in the case to differ with regard to
every textbook concept. The assignment questions could then be more general and open
ended: How do the operations of Instant Lube and Tireco differ? What is each of the
companies attempting to achieve? How well is its delivery system designed to fulfill that
purpose?
2. As an in-class handout, the case is particularly suited for use in conjunction with the
topics of operations strategy and process management. It is useful if the students have
been exposed to the customer-contact matrix, the product-process matrix, and the major
process flow strategies, namely line flow, flexible flow, and hybrid. Students should also
be able to discuss the compatibility of the different flow strategies with the nine possible
competitive priorities.
3. The instructor can begin the class discussion with an analysis of the competitive
priorities for the two companies oil change operations. If students are yet to fully
comprehend the competitive priorities, it is sometimes useful to work through each of the
nine competitive priorities. A good method is to discuss whether each priority is the
reason that the customer chooses Instant Lube versus Tireco. Once the class develops a
list of the important competitive priorities for each company (see Exhibit TN.1), the
discussion can turn to the customer-contact matrix.
4. Students can be asked to position each companys process along the diagonal of the
customer-contact matrix. To simplify the discussion (for a class session relatively early in
Chapter 3: Process
136
Strategy
the course), the instructor can limit the matrix to just the two ends of the diagonal,
labeled as line flow and flexible flow. Such a simplification serves to highlight the
contrast between the two companies.
5. The class discussion can then turn to how well each companys process is suited for
focusing on that companys competitive priorities. This part of the discussion will reveal
how a line flow process is consistent with Instant Lubes focus on quick and on-time
delivery, but inconsistent with its higher pricing. The discussion will also reveal how
Tirecos flexible flow process is inconsistent with its focus on low price, as far as the oil
change business is concerned.
6. As the discussion progresses further and the above anomalies are examined, students will
develop a good understanding of the linkages between the customer-contact matrix and
competitive priorities. Students can also be prompted to better appreciate the linkages
between different topics in the course. For example, Instant Lubes higher price may
have to do with a higher capacity cushion to provide higher volume flexibility, whereas
simply looking at a line flow process would suggest otherwise. Likewise, Tirecos low
price may not be consistent with its flexible flow process, but it may make sense in the
larger context, for a complementary business.

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Chapter 3: Process Strategy

A. Process Strategy Across the Organization

B. Process Strategy Decisions

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

121 Chapter 3: Process Strategy

2. Four common process decisions

C. Process Structure in Services

Depends on the type and amount of customer contact.

b. Dimensions of customer contact

Physical presence (face-to-face interaction is sometimes called a moment of truth, or

Method of delivery used

2. Customer-contact matrix (fitting the service processes with customer contact)

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

A key competitive priority is how much customization is needed

b. Process divergence, and flow

Process divergence: extent to which the process is highly customized with

3. Service process structuring (three process structures forming a continuum)

D. Process Structure in Manufacturing

b. A good strategy for a manufacturing structure depends first on volume.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

123 Chapter 3: Process Strategy

c. Customer contact is not normally a consideration for manufacturing processes, although

Job process, high variety of products

Batch process, higher volumes, batching of customer orders. Further differentiated as

Line process, high-volumes, standardized products, dedicated resources, repetitive

3. Production and inventory strategies

Matches up with flexibility (customization) and top quality

Producing a wide variety of products from relatively few subassemblies and

Allows delivery speed and high process divergence

Holding items in stock for immediate delivery

Combined with line process, it is sometimes called mass production

Choice for delivery speed and low cost

Step 1: gather information

Tie space requirements to capacity and staffing plans.

Calculate specific equipment and space needs for each operation

Add circulation space such as aisles.

Consult with the managers and employees involved

Available space and current block plan

Closeness factors are indicators of the need for proximity based on an

At a manufacturing plant, the closeness factor could be the number of trips

Absolute location criteriadepartments fixed in place: relocation costs,

Step 2: develop a block plan

Applying the weighted-distance method

Use Example 3.2 Calculating the Weighted-Distance Score

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125 Chapter 3: Process Strategy

Tutor 3.1 in myomlab provides an example to calculate both Euclidean and

Developing a Layout. Use Application 3.2:

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

127 Chapter 3: Process Strategy

Calculating a weighted-distance score

The location of a center is defined by its x-coordinate and y-coordinate.

Step 3: design a detailed layout

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

c. Quality measurement becomes more difficult

Can increase value to customer

Costs can be reduced

Customers can perform final assembly: bicycles, toys for example

Can also help coordinate across the supply chain.

b. Emerging technologies: in a market where customers are technology-enabled, companies

Requires more education and training

Alleviates capacity bottlenecks, volume flexibility

Often increased job satisfaction