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    A 08) Heizer, Jay H. & Render, Barry. (1999). “Process strategy and capacity planning” en Principles of operations management. USA: Prentice Hall, pp. 225-259. mA LOO wea LEARNING OBJECTIVES CHAPTER OUTLINE When you complete GLOBALCOMPANY PROFILE: NUCOR Forecasting Capacty Requirements this chapter you ‘THREE PROCESS STRATEGIES Applying Decision Trees to Capacity should be able to: Process Focus Decisions lentiy or Define Repetitive Focus Managing Demand Process focus Product Focus BREAK-EVEN ANALYSIS Repetive focus Comparison of Process Choices Single-Product Case reenter ea PROCESS ANALYSIS AND DESIGN Muliproduct Caso tess Flow Diagrams STRATEGY-DRIVEN INVESTMENTS Treangineeting Process Chats Investment, Variable Cos, and Cash Eee sued Time-Function Mapping roe) Environmental issues Mot anes fine reserva Dearie o Expt PROCESS REENGINEERING Process analysi KEY TERMS: yas eet a a prea USING EXCEL OM FOR BREAK-EVEN Lean production SEINICEEROCESS) — wEoY ANALYSIS Green manufacturing Service Sector Considerations aerate SS a ioe omer teraction ard Frecess OyscusSION QUESTIONS Mom Oneeruntiosto improve CRTICALTHINKING EXERCISE Sores Procesees PROBLEMS SELECTION OF EQUIPMENT CASE STUDY: MATTHEW YACHTS, INC. Strategy-driven, ‘AND TECHNOLOGY VIDEO CASE 4: PROCESS STRATEGY en ENVIRONMENTAL ISSUES: AT WHEELED COACH capacity BIBLIOGRAPHY Defining Capacity INTERNET RESOURCES 225 ‘Material compitado confines académicos, se prohibe su reproduccion total o parcial sina autrizaciin de cada autor. Process Selection Yields a Competitive Advantage at Nucor This ladle. equipped with magnetie stirring aul vacaum degassing Features, pours steel via a ceramic nozole into a metering vessel valled a ‘undish and then into a special mel that can adjust the slab’s dimensions. Nucor steets very successful process strategy has boon to 8nd operste a type of stool mill Known asthe "mini ml This moans having 8 “product-orionted”felty thats raler, cheaper, less com- plex, and more efficient than a larger Integrated mil. ts lsc lowcost strategy. Nucors Crawford, Ind tna, plant makes steel in an innvar tive process that was designed and built to produce one product, sheet steal, However, by modest chenges in the steel mix, the supplemental al loys, and changes inthe size and fn- ish ofthe steel Nucor meets the neds ofa wide variety of markets fr high-quality sheet stech ‘Stool is produced in two phases at Here the shaped see exis the caster mold as a 2-ince-thck-by2-inch.wie Nucor. Firs, serep steels loaded into sls and enters the hot tunnel furnace were its temperatures wails raised two 125-tonelectic-arc fumaces.A tothe lee! needed for rlling. A highersqulty sheet cam be produced if sab massive electc charge with thu jenperature i anim: derous roar melts the scrp. Then an ‘= ‘Material compitado confines académicos, se prohibe su reproduccion total o parcial sin a autrizacion de cada autor analysis is made ofthe alloy, and 2 variety of additional ingredients are added, depending upon the nature ‘of the scrap and the product desired, ‘The molted steel, at about 3,000°F, is called a heat. itis poured into a ladle ‘and carried by an overhead crane to ‘casting machine. There steel solici- fies as a red-hot 2-inch-thick ribbon of steel and is cut into lengths as it cools. The lengths are called slabs, ‘each weighing about 25 tons In the second phase, the charac- teristics of the steel can be modified modestly, primarily determining shape and finish, This is accom- plished in @ rolling mill and related ‘operations. The rolling mal, with steel flying by st 30 miles per hour, pro- gressively presses the red-hot slabs into the desired shapes. ‘At Nucor, process strategy pro- Vides a competitive advantage in sev- ‘eral ways. First, Nucor casts steel close to the final shape of the prod- Uct, eliminating unnecessary capital ‘equipment and personnel. Second, the continuous process eliminates @ substantial amount of reheating prior tooling, yielding @ major savings in ‘energy cost. Third, an efficient process, combined with an effective ‘employee incentive system, yields the highest productivity of any steel mill in the world. Nucor’ labor-hours pperton of steel may be half that of some competitors, Fourth, the process technology used at Crave The coiling of rolled sheet stel results in rolls of about 25. fordsville results in high productivity Mi omen wn iia ‘and high quality. The process results rot only in excellent control of steel characteristics, but in reduced labor, energy, and work-in-process, 2s well ‘as anet savings in capital investment. 227 ‘Material compilado confines académicos, se prohibe su eproduccion total o parcial sin a autrizacin de cada autor 28 Carter 7 Process strategy An ‘organization's approach to transform resources into gaods and services. TEN DECISIONS OF OM Managing Quality, Design of Goods & Services Process Strategy Location Strategies Layout Strategies Human Resources ‘Supply-Chei Management Inventory Management Scheduling Maintenance PROCESS STRATEGY AND CAPACITY PLANNING In chapter 6, we examined the need forthe selection, definition, and design of goods and services. We now tur to their production. A major decision for the operations manager is finding the best way to produce. Let's Jook at ways to help managers design a process for achieving this goal, A process (or transformation) strategy is an organization's approach to transform resources into goods and services. We use both terms, process and transformation, to describe this strategy. The objective of a process strategy is to find way to produce goods and services that mect customer requirements and product specifications within cost and other managerial constraints. The process selected will have a long-term effect on efficiency and production. ax well as the flexibility, cost, and quality of the goods produced, Therefore, much of a firm's strategy is cletermined atthe time of this process decision, THREE PROCESS STRATEGIES Virtually every good or service is made by using some variation of one of three process (1) process focus, (2) repetitive focus, and (3) product focus. Notice the rele tionship of these thrce strategies to volume and variety shown in Figure 7.1. Although the figure shows only three strtegies, an innovative operations manager ean build processes anywhere on a continuum between these three to meet the necessary volume and variety requirements Lets look at each of these strategies with an example anda flow diagram, We exant- ine Standard Register as a process-focused fim, Harley-Davidson as a repetitive pro- ducer, and Nucor Stee! asa product-focused operatio vee Lenieune Resp Hg semana emtencome rte orn = ee units per run, projects, job shops (Fixed cost and cost of high variety (machine, print, changing to other (allows customization) carpentry) (products are high) ; & (Modest runs, Repetitive standardized modules {aulos, motorcycles) ; aeratg : one BRE ie Stench. Soentan FIGURE 7.1 m Process Selected Must it with Volume and Variety ‘Material compilado confines académicos, se prohibe su reproduccién total o parcial sina autorizacin de cada autor Taree PRocess STRATEGIES Process Focus Seventy-five percent of all global production is devoted to making fow-volume, kigh-vari- ty products in places called “job shops.” Such facilities are organized around performing processes. In factory, these processes might be departments devoted to welding, grind- ing, and painting. In an office, the processes might be accounts payable, sales, and pay- roll. In a restaurant, they might be bar, grill, and bakery. Such fecilties are process fo- cused in terms of equipment, layout, and supervision. They provide a high degree of produet flexibility as products move intermittently between processes. Each process is de- signed to perform a wide varity of activities and handle frequent changes. Consequently, they are also called intermittent processes. These facilities have high variable costs with extremely low utilization of faciliti as low as 5%, This isthe case for many restaurants, hospitals, and machine shops. How- ever, some manufacturing facilities do a little better through the use of equipment with clectronic controls. With the development of numerical-controlled equipment (machines controlled by computer software), it is possible to program machine tools and piece ‘movement, tool changing, and even automate placement of the parts on the machine and the movement of materials between machines. Example 1 shows how Standard Register, a billion-dollar printer and document processor headquartered in Dayton, Ohio, produces paper business forms. a Job Shop Process Focus at Standard Register + you've had pizza delivered to your bome recently, tere is a good chance tha Stan- dard Register printed th oder and delivery tag onthe box. You probably came in contact wi oe of Standards forms this week without knowing it. Thousands of ifferent prod © vas are made by the frm, a piel one beng a mulsheet 3 or 4lyer business fom. * Forms used fr student college applications, hospital patient admissions, bank drafts, store orders. and ob aplications are examples. The company has 11 U.S. plans in its Foms Division Figure 7.28 low digram of the etre production process from ode submission to shipment, at Standart’ Kirill, Missouri plant. This job shop groups people and ma chines that perform specific ative, such as printing. cuting, o Binding into depart + ments, Entire orders are processed in batches, moving from department 10 department, rater than na coninious ow (asa Nucor Stel) or one atte, ‘The process begins wih a sales rpresenitve helping the customer design the busi ses form. Once the form is established, te orders ansmitted electronically tthe Sales Support Department atthe manufacturing plant, An onder coorinator determines what materials wl be needed in production (nk paper, lbs te) computs the prodvcon time needed, and schedules the job ona paticular machine. {The Prepress Deparment ues computer-ided design (CAD) 1 convert the product design ino printing plates for the presses and then “burs the image ofthe form onto an alumina printing plate. Machine operators in he Printing Deparment install he plates and inks on their presses and print the forms. After leaving the presses, most rots ae called ons machin that places up to 14 copes together, posibly with carbon paper be- tween tem. Some products undergo additional processing (fr example, gluing, binding, sapling, o abeling) When the forms ae competed, most ae wrapped in polyethylene ing placed in cartons fr shipping. The ores shipped, a “jb ket” sent fo ing, and an invoice goes to the customer. 229 Process focus A production facility organized around processes to facilitate low-volume, high-variety process. Process focused (Intermittent process) ‘High variety of outputs ttt ttt ‘Material compitado confines académicos, se prohibe su reproduccién foal o parcial sin la autrizaotin de cada autor. 230 Cuarrer 7 Repetitive process A product-orionted production process thet uses modules. Modules Parts or ‘components of a product previously prepared, ‘often in a continuous process. Process STRATEGY AND CAPACITY PLANNING sees leformaton tow > Meet! tow Ragister's Plant in Kirksville, Missouri Sauce: Adapted tom 5. Maric Producvom ond Opeeron Manageme (New York: Soba Wile, 197. pp. 79-87 Repetitive Focus A repetitive process falls between the product and process focuses seen in Figure 7.1 Repetitive processes use modules. Modules are parts or components previously preparcd, often in a continuous process, ‘The repetitive process line isthe classic assembly line. Widely used in the assembly Of virtually all auiomobiles and household appliances, it has more structure and conse quently less flexibility than a process-focused facility. Fast-food firms are an example of a repetitive process using modules. This type of production allows more customizing than a continuous process; so modules (for example, meat, cheese, sauce, tomatoes, onions) are assembled to get a quasi-custom product, ‘cheeseburger. In this manner, the firm obtains both the economic advantages of the con- tinuous model (where many of the modules are prepared) and the custom advantage of the low-volume, high-varicty model. ‘Material compliado confines académicos, se prohibe su reproduccién total o parcial sina autorizacin de cada autor TuRee Process STRATEGIES 231 Example 2 shows the Harley-Davidson assembly turer located toward the eenter of Figure 7.1 Harley isa repetitive manui Repetitive focus: ‘Modules combined ED ccawese s cerry Repetitive Manufacturing at Harley-Davidson Harley-Davidson assembles modules, Most repetitive manufacturers produce on a form of, assembly ine where the end product ean take a variety of shapes depending on the mix of is the case at Harley, where the modules are motorcycle components snd ut meee nf company's York, Pennsylvania, plan. At York, Harley groups pts hat require similar proceses together int fale (sce the flow diagram in Figure 7.3). The reli work cells. Work cells perform in one location all the operations necessary for the production of specif onde, Thee work ol fxd the esembly lie THttttt fw ata ‘and module inputs FIGURE 7.3 m Flow Diagram Showing the Production Process at Harley- Davidson's York, Pennsylvania, Assembly Plant Harley-Davidson assembles 2 engine types in 3 displacement sizes for 20 street bike mod- cls, which are available in 13 colors and 2 wheel options adding up to 95 total combina- tions. Harley also produces 4 police, 2 Shriner, and many custom paint options, This strat ceny requires that no fewer than 20,000 different pieces be assembled into modules and thon into motorcycles ‘Material compliado confines académicos, se prohibe su reproduccion total o parcial sin a autrizaciin de cada autor 232 CHapTeR 7 Process STRATEGY AND CAPACITY PLANNING Product Focus Product focus A facility High-volume, low-variety processes are product focused. The facilities are organized organized around around products. They are also called continuous processes. because they have very lang, products; @ product- continuous production runs, Products such as glas, paper. tin shoes, lightbulbs. beer, and Criented, high-volume, ois are made via a continuous process. Some product, such as lightbulbs, are discrete: oth- lovw-varety process ers, suchas rolls of paper, are nandisrete. Sil thers, suchas epsired hernias at Shouldice Sco nme cetioes late ag penne oe ape ere Bas eee cede at oe is cides fn ens a fence nat Sh ners sen ly a sh men gly 9 men cn, ences ay ei et tne a Ye. he ms . = ee eee, | t t t Hi Product-Focused Production at Nucor Steel ee es en a a as a ee ol eon om Fow inputs FIGURE 7.4 @ A Flow Diagram Showing the Steelmaking Process at Nucor's Crawfordsville, Indiana, Plant ‘Material compilado confines académicos, se prohibe su reproduccién total o parcial sina autrizacin de cada autor. ‘THREE PRocess STRATEGIES 233 Ta this process low diagram, cold scrap steel is fist lowered into a furnace that uses an elec= tri ar 10 mel it in 20 seconds (A). Then meen stel pours from the fumace into a pee= bated ladle (B). The ladle moves on an ovethead:-track crane to the continuous easter (C). Te ladle then opens and steel exits into the easter (D). Shaped steel exis the caster mold as 42° x 52" slab (E). The slab exits the tunnel fumace (F) ata specific temperature needed for rolling. A higher-quality sheet can be produced if the slab temperature is uniform. The steel then enters the rolling mill (G), Water cools the hot-rolled see! befor itis coiled (H). The rolled sheet of ste! is eoiled into rolls of about 25 tons each (). Finally, a variety of finish ing operations can modify the characteristics ofthe shetstel to meet customer needs. ‘Nucor operates 24 hours a day, 6 days a week, with the seventh day reserved for Scheduled maimenance. Comparison of Process Choices ‘The characteristics ofthe tree processes are shown in Table 7.1 and Figure 7.5. Advan- tages exist cron the continuum of processes, and ims may find step wdvantage in any proces, Each ofthe processes, when properly matched 10 volume and variety. can TABLE 7.1 m Comparison of the Characteristics of Three Types of Processes Process Focus Repetitive Focus Product Focus (Low-Volume, High-Variety) (Modular) (High-Volume, Low-Variety) (e.g., Standard Register) (e.g., Harley-Davidson) (e.g,, Nucor Steel) 4. Small quantity and ange variety of 1. Long runs, usually a standardized Ay Large quantity and smal variety products are produced. product with options, are of products are produced. produced from modules. 2. Equipment used is general- 2, Special equipment aids in use of 2, Equipment used is special- purpose. an assembly line. purpose. A 13. Operators are broadly skilled. ‘3, Employees are modestly trained. 13, Operators are less broadly skilled. 4 There are many jab instructions 4, Repetitive operations reduce 4, Work orders and jo instructions because each job changes. training and changes in job are few, because they are inteuctions, standardized, . ‘8, Raw material inventories are high 5. Justincime procurement ‘5, Raw mattials inventories are low relative tothe value ofthe techniques are used, ‘elatve to the value ofthe product, product, 6. Work-in-process is high compared 6, Inventory of work-in-process is vo ouput. Tow compared to output. 7. Units move slowly through the 7, Movement is measured in hours, 7, Swift movement of units through plat. and days + the faciity is typical 8, Finished goods are usually made 8. Finished goods are made to 8, Finished goods are usvally made to order and not stored. requent forecasts, to forecast and stored. 9. Scheduling o orders is complex 9. Scheduling is based on building 9. Scheduling i relatively s ‘and concerned with the trade-off various models from a variety of ‘and concemed with establishing a between inventory availability, modules o forecasts, rate of output sufficient 10 meet ‘capacity, and customer service, sales forecasts, 10, Fixed costs tend tobe low and 10, Fixed costs are dependent on 10, Fixed cosis tend tobe high and variable costs high, flexibility ofthe facility. +f variable costs low: 11, Costing, often done by the job, is 11. Costs are usually known, because 11, Because fixed costs are high, costs ‘estimated prior to doing the job, of extensive prior experience. are highly dependent on but known only after the jb, ‘lization of capacity. ‘Material compliado confines académicos, se prohibe su reproduccion total o parcial sina autrizacin de cada autor. 74 Cuarrer 7 Manufactured housing is now 32% of all new homes sold in the U.S. ‘his industry has increased sales as it reduced costs. It did so as it moved production from a process focus to repetitive. Flexibility The ability to respond with fitle penalty in time, cost, oF customer value. Mass customization Rapid, low-cost production that caters to constantly changing Unique customer desires. Process STRATEGY AND CAPACITY PLANNING Repetitive Process focused focus Product focused (trermitent process) {assembiy tine) (continuous process) High variety, ow volume Modular Low variety, high volume Low ullization (5% 10 25%) Flexible equipment High utlization 70% 10 90%) General-purpose equipment ‘Specialized equipment FIGURE 7.5 m Process Continuum produce low-cost advantage. For instance, unit costs will be less in the continuous Process case if high volume (and high utilization) exits. However, we do not alway’ se the continuous process (that is, specialized equipment and facilities) because itis (00 ex- pensive when volumes are low or flexibility is required, A low-volume, unique. highly differientated good or service is more economical when produced under process focus: this is the way fine dining restaurants and hospitals are organized. Just as all three processes, when appropriately selected and well managed, cam yicld low cost, s0 00 can all thee be responsive and produce differientated products. Figure 7.5 indicates that equipment utilization in a process-focused facility is often in the range of 5% to 25%. When utilization goes above 15%, moving to the right on the process strategy continuum may be advantageous. A cost advantage usually exists by moving tothe right as far as possible to reduce costs, provided the ability to do the neces- sary product customization is maintained, MeDonald’s started an entirely new industry by moving from the left toward the right ofthe continuum. Modlern technology is allowing innovative operations managers to enlarge the scope (as measured on the horizantal axis of Figure 7.5) of their process. Processes should be built with as much Hlexibitity as possible. Flexibility is the abitity to respond with litle Penalty in time, cost, or customer value. This may mean modular, movable, even cheap ‘equipment, Flexibility may also mean the development of sophisticated electranie equip- ‘ment, For instance, electronie-controlled equipment in repetitive plants (such as autormo- hile assembly) and produci-focused plants (such as weaving and knitting), have expanded the scope of their offerings. Using electronic controls, ear makers build a xeger varity of automobiles on the same assembly line. For instance, Kansas. GM is now pro «ducing six different styles on onc assembly line. GM's robot well and other equipment are adjusted electronically as different models come down the assembly line, Similarly, clectronic controls allow designers inthe textile industry to rapidly revamp thei Hines and respond to seasonal changes. Mass customization—rapidly mass-producing products that cater to sundry unique customer desires—is another benefit of efficient use of computers and electronic con- {rols, National Bicycle (see photo), for example, produces custom bicycles in 3 hours, ‘The idea is (0 use imagination and technology aggressively to make producti processes so ugile that mass customization can take place. Under mass customization, Cour three process models become flexible and the distinctions among them blurred, making variety and volume issues less significant. Inthe supplement to this chapter, we will look at ways technology aids operations managers in their move toward mass cus- tomization, ‘Material compilado confines académicos, se prohibe su reproduccion total o parcial sin a autrizacin de cada autor. Process ANALYSIS AND DESIGN 235 Flesibte manufactnring can improve eustomer service and provide a competitive advange. National Bicycle's customized Panasonic bicycle praduetion process begins by defining inlividual enstomer needs. The customer mous the special frame ina Panasonic bicycle store from which measurements are taken. These custom measurements are then sent tothe factors. where CAD software produces a blueprint in about 3 minutes, AF the sane tine, a bar-code label is prepared that will identify bicyete componems as they niove through production. Time—from beginning 10 end—is onty 3 hows. ‘Changing the protucton system from one proces model to another is sill difficult Agile organizations are and expensive, In some cases, the change may mean staring over. Consider what would quick and flexible in their be required of a rather simple change—MeDonald's adding the flexibility necessary to response to ever- serve you a charbroited hamburger, What appears to be rather straightforward will require changing customer changes in many of our 10 OM decisions. For insane, changes may be necessary in (1) eturements. purchasing (a diferent quality of mea, perhaps with more fat content, and supplies such as charcoal; (2) quality standards (how Tong and at what temperature the patty will cook); (3) equipment (the charbroilr) (4) layout (space forthe new process and for new exhaust vents) and (5) training. Like most firms, MeDonald’s will find changing the process dif cult and expensive. Consequently. choosing where to operate on te process strategy con- Tinuum may determine the tansformation strategy for an extended period. This critical decision must be done right the ist time. PROCESS ANALYSIS AND DESIGN ‘When analyzing and designing processes to transform resources into goods and servi ‘we ask questions such as: + Is the process designed to achieve competitive advantage in terms of differentiation, 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? Each step of your + Will the process win orders? process must add value, A umber of tools help us understand the complexities of process design and redesign. They are simply ways of making sense of what happens or must happen in a proces Let's look at four of these tools ‘Material compitado confines académicos, se prohibe su reproduccion total o parcial sina autrizaciin de cada autor 236 Carrer 7 Flow diagram A drawing used to analyze movement of people or material Process charts Charts Using symbols to analyzo the movement of people terial PROCESS STRATEGY AND CAPACITY PLANNING Flow Diagrams “The first tol isthe low dingram, which is a schematic or drawing ofthe moverent of material. product, or people. For instance, Figures 7.2, 7.3, and 7.4 showed the processes for Standard Register, Harley-Davidson and Nucor Stee, respectively, Such diagrams can help understanding, analysis, and communialion ofa proces. Process Charts ‘The second tool is the process chart. Process charts use symbols and sometimes time and distance to provide an objective and structured way to analyze and record the activi- ties that make up a process.' They allow us to focus on value-added activities. For in- stance, the process chart shown in Figure 7.6, which includes the present method of ham- burger assembly at a fast-food restaurant, includes a value-added line to help us inguish between value-added activities and wast. Identifying all operational activities as value-added (as opposed to inspection, storage. delay, and transporiation, which add no value) allows us to determine the percent of value addled to total activities. We can see from the computation at the bottom of Figure 7.6 that the value added in this case is 85.7%. The operations manager's job is to reduce waste and increase the percent of value added. The nonvalue-added items are a waste: they are resources lost to the firm and 10 society forever, Present Metiod (2) PROCESS CHART Proposed Method [) suBvect cHARTED Hamburger Assembly Process pate_1/1/.98 cuant ey KH CHART NO, DEPARTMENT sueet no, Lor oer. | TNE = z PROCESS DESCRIPTION reer | uns = ‘Meat Fatty in Storage. ilo Transfer to Broiler 250 Broller 08 Visual Ingpection. 10 | OS | Transfer to Rack I Temporary Storage B10. Obtain Bune, Lettuce, eto, 20 ‘Assemble Order 5 [05 lace in Finish Rack 35) 36 roTAS ‘Vahi-aded ine = Operation timo/Tolal ime = (250s 20) 18 = 657% (© = operation; C= ranspertaion;["]= inspection; = delay; Y7= storage, FIGURE 7.6 m Process Chart Showing a Hamburger Assembly Process at 2 Fast- Food Restaurant * Adena examples of process chars ae shown in chapter 4,°Manaping Quy.” and cpr 10, "Hun Resources and J Desig.” ‘Material compitado confines académicos, se prohibe su reproduccién total o parcial sin a autrizaton de cada autor. PROCESS ANALYSIS AND DESIGN 237 a an FIGURE 7.7 m Time-Function Mapping (Process Mapping} for a Product Requiring Printing and Extruding Operations at American National Can Company This technique clearly shows thar waiting and order processing comtibyaed substantially to the 46 days that eun be eliminated in this operation. Source: Eline J. Labuh, "Faster, Bete, and Cheaper.” Target 7-9. 5 (wate 191): 43. Excerpted frm Targer wit permission ofthe ‘Association fr Manufacturing Exeelenee, 340 W. Palatine Road, Whcling 6000-5863, (847) 520-3202. Time-Function Mapping ‘A third 1001 for process analysis and design is a traditional low process chart, but with time added on the horizontal axis, Such charts are sometimes called time-function map- _Time-function mapping ping or process mapping. With time-function mapping, nodes indicate the activities and (oF process mapping) A the arrows indicate the flow direction, with time on the horizontal axis. As is the case with flow process chert but ‘process charts this type of snalysis allows users 10 identify and eliminate waste such as with time added on the extra steps duplication, and delay. Figure 7.7(, b) shows the use of process mapping be- _Po*ontal ai fore and after process improvement at American National Can Company. In this example, substantial reduction in waiting time and process improvement in order processing con- tributed toa savings of 46 days. Work-Flow Analysis {fourth technique, know as workyfonanalsis, mimics the way people communicate ‘The Wee tat ereeyne In an ergaiiton isa customer or u perfonne depending 00 the precise umsction. Work-low analysis documens a network of transactions be- Workflow analysis A Iween customers and performers. The objeive of ech ansction 1 achieve eutomer technique Yo documant 2 satisfaction. Work-flow analysis involves four phases: network of transactions between cutomers and 1. Request from a customer or an offer to provide services by a performer. performance. 2, Negotiation, allowing the customer and the performer to agree on how the work should be done and what will constitute customer satisfaction. 3. Performance of the assignment and completion. 4. Acceptance, closing the transaction provided the customer expresses satisfaction sand agrees that the conditions were met. ‘Material compllado confines académicos, se prohibe su reproduccion total o parcial sina autrizacon de cada autor. 238 CHaprer 7 PROCESS STRATEGY AND CAPACITY PLANNING REENGINEERING A SUCCESS AT WESTINGHOUSE To Westinghouse, the problems were clear: World- wide competition was increasing: the company was pressed to lower prices even though the cost of mate- fials, employees, and overhead kept increasing; and higher customer expectations demanded shorter cycle times, superior quality, and greater customer satisfaction. Reengineering was the answer. The phrose em- braces such techniques as work teams-—training em- ployees in multiple skls o that they can do more than ‘one job—and “empowerment,” which means pushing decision-making authority as far down in the organiza tion as possible. it also entails reorganizing processes, in both assembly lines and ofices, to simplify and speed the fiow of work. The company developed WESTIP (Westinghouse Technology to Improve Process), 8 method to radically Teengineer or improve business processes. Cross- functional employee teams used WESTIP to. per- form process analysis, redesign, and implementation Quickly and simply. ‘The result was a Baldrige Netionel Qualty Aware and these benefits: $22 milion in savings in 1 year, two-thirds reduction in material costs, reduced draw- ing time from 90 to 10 days, 30% lower manufacturing costs through improved cellular layout, a drop in the time it takes to handle purchase orders from 14 days to 6 hours, and reduced order cost from $86 to $12. 2a factory thet used to take 100,000 square feet ‘Westinghouse components now needs only 40,000 square feet. Sources: Industral Engineering (March, 1995) 20, and The Wall Sveet Journal March 16, 1993) A. ‘Transactions can be very complex in x large organization, with w multitude of loops be~ tween customers and performers, Therefore this type of analysis is often done with com= puter programs that help chart various work flows. (See photo of work-flow software by Sterling Sofiware, Inc.) ‘A number of computer software packages exists to help with work-flow modeling and business process reengineering. One such package is Key for Workgroup from Sterling Sofware, ne., Alama. ‘Material compliado confines académicos, se prohibe su reproduccién total o parcial sina autorizacin de cada autor. Process REENGINEERING PROCESS REENGINEERING Because the world is so dynamic, with changes in customer desires, product, product mix, and technology. processes change. The competitive marketplace demands it. Conse quently, processes are redesigned or, as itis sometimes called, reengineered. Process reengineering i the fundamental rethinking and radical redesign of business processes to bring aboot dramatic improvements in performance: Effective process reengineering relies on reevaluating the purpose ofthe process and questioning both purposes and underlying assumptions. It works only ifthe basic process and its objectives are reexamined. Often fim finds that the initial assumptions of is process are no longer valid. (See the Westinghouse OM in Action box.) Process rengincering focuses on those activities that cross functional lines. Because ‘managers are often in charge of specific “functions” or specialized areas of responsibility, those activities (processes) that ross from one function or specialty vo another may be ne= flected. Therefore, process reonginecring often finds a ferile ground in these areas. Reengineering casts aside all notions of how the process is currently being done and fo causes on dramatic improvements in cost time, and customer value. Any process isa can 4idate for radical redesign. The provess can be a factory layout, a purchasing procedure, ora new way of processing credit applications at IBM, as described in Example 4, @ EXAMPLE 4 ‘The traditional IBM credit application process took many steps. The firs step consisted of 4 people answering phones and logging cals from feld sales personnel requesting cred for customers. After receiving cals, phone personnel made paper notations that they sent ‘upstairs to eredit personnel for credit checks. Then the paper went down the hall to the business practice group where the data wese entered into a computer for determination of terms and interest rates. Fom there, the packet of data went 1 a clerical group. A week or to after the request, the results of the request were availabe, TBM tried to fix the process by keeping a log of each step of every request Although logging allowed credit personnel 10 know wherein the proces the application was, it added a day to the turnaround, Finally, two managers tried a radial approach. They ‘walked a loan request through exch step from office 1o office and found tha it ik only 90 minutes of actual work. The additional week was spent shutling the paperwork among, ‘departments. This meant that the work along the way was not the problem. Instead, the ‘process was at fault. Reengineering resulted in IBM replacing ll of its specialists wit ‘generalists, called caseworkers, who process applications from start to finish. The firm also developed software that uses the expertise of specialists to support caseworkers. The reengineered process reduced the number of employees and achieved better resus. The ‘weeksplus turnaround time for a eredit requests down 104 hours. The company now ha- 4les 100 times the number of loan requests tha it did under the old system, Source: Adapted fror Michael Hammer and James Campy, Reengineering the Corpora. tion: A Manifesto for Business Revolution (New York: HarperCollins, 1993) Moving toward Lean Production ‘The mission of lean producers is to achieve perfection through continuous learning. cre~ salvity, and teamwork.” Although this effort requires the full commitment and involvement * Michel lamer and Stven Stanon, The Reengineering Revolion (New York: HarperCollins, 1995) p 3 "Jota Krai is piven cre for coining the ten fan prducton. Aso sce Jes P. Womack sed Daniel T, “ones, Leon Thinking (New York: Simon & Schuster, 196). 239 rethinking and radical design of business processes to bring about ‘dramatic improvements in performance. Lean producers Repetitive producers who are world-class becouse they continuously drive out nonvalue-sdded activities. ‘Material compitado confines académicos, se prohibe su reproduccién total oparclal sin la autorizactin de cada autor. 240 Cuarrer 7 PROCESS STRATEGY AND CAPACITY PLANNING: UNIFORM PIGS CONTRIBUTE TO EFFICIENCY In the secluded hills of Princeton, Missouri, the life of a hog is brief, loveless, and focused on gaining weight. Meet the muttbilion-dollar business called “techno- Inside barn No. 5 of Premium Standard Farms inc’s sprawling complex, 1,100 hogs are being bred to a lean uniformity. Pellets rattle down plastic tubes when feed gets low. A computer closes curtains as the night ‘grows chily, and heaters whir nto action, (Because big- ‘ger pigs ike it cooler, a computer lowers the tempera~ ture a half degree per day as they age) Just when the ‘odor seems a bit ripe, @ whoosh of water flushes away ‘manure, ‘A door cracks open and suddenly the pigs grunt and turn in unison to face two men in spotless blue jumpsuits—the hogefarmer outfit of the twenty-first century. VP Dan Skadburg gently pokes the ribs of « 235-pounder, Five days to slaughter, he figures. Factorylike operations such as this, which bring to- ‘gether technology and finence, are changing the face (of the pork industry. Long a messy sideline for family farmers, pork population is characterized by an increas- Ing number of mega farms that can produce a healthy, lean hog for 10% less than their smaller counterparts. ‘And beceuse Premium Standard's hogs are 50 uni- form, its $50-milion slaughterhouse is mechanized as never before. Loins are pulled off by robots and disas- sembling heads, a job once requiring 9 dozen knife- ‘wielding workers, is automated. It all adds up to higher-quality, lower-priced pork at the market. Itis 0 lesson learned long ago in manufacturing: Standard- ized products can boost efficient processes. Sources: The Wal St tune (Oct. 14, 199 February, 1997) 2. oural (May 4, 1995): AI-A&; For ‘and Econamic Perspectives (January- Of all employees and the company’s suppliers, the rewards reaped by lean producers are spectacular. Lean producers share these attributes: + They focus on inventory reduction to remove waste. They use just-in-time tech- niques to eliminate virtually all inventory. The removal of inventory removes the safely nets that allow a poor product 10 make its way through the production process. + They build systems shat help employees produce a perfect par every time, + They reduce space requirements. The technique minimizes the distance a part travels and frees space for alternative uses. “They develop close relationships with suppliers helping them (o understand their needs and their customers’ needs. + They edueate suppliers to accept responsibilty for helping meet customer needs. + They strive for continually declining costs by eliztinaring cll but value-added activ ties. Material handling, inspection, inventory, and rework jobs are among the likely targets because these do not add value to the product. + They develop the workforce, They constantly improve job design, training, employee participation and commitment, and work teams, + They make jobs more challenging. pushing responsibility to the lowest level possible. ‘They reduce the numberof job classes and build workers exibility Lean producers set their sights on perfection: no bad parts and no inventory. Lean produe- tion requites a commitment to continuously remove those activities that do not add value to the product. Meanwhile, customary production techniques have limited goals. Tradi- tionally, for instance, managers have accepted the production of some defective parts and some safety stock inventory. ‘Material compliado confines académicos, se prohibe su reproduccién total o parcial sina autrizacin de cada autor. Service Process STRATEGY 241 SERVICE PROCESS STRATEGY Our process continuum, shown earl in Figure 7.5 applies to services as well as to goods. Much of the service industry is producing in very small lots. This is true for legal services, medical services, denal services, and restaurants. They are often pro- ducing in fot sizes as small as one. Such organizations would be to the left of Figure 15 Service-Sector Considerations ‘As Figure 7.5 indicates. equipment uilization is low in process-focused facilties—per- haps as low as 5%. This is true not only for manufacturing but also for services. An X- ray machine in a dentist's office and much of the equipment in a fine dining restaurant have low utilization. Hospitals, to0. can be expected to be in that range, which would suggest why their costs ate considered high. Why such low utilization? In part because excess capacity for peak loads is desirable. Hospital administrators, as well as managers of other service facilities and their patients and customers, expect equipment to be av able as needed. Another reason is poor scheduling (alihough substantial efforts have been made to forecast demand in the service industry) and the resulting imbalance in the use of facilities. The service industry moves (o the right of Figure 7.5 by establishing fast-food restaurants, egal clinics, auto lubrication shops, auto tune-up shops, and so on. As the variety of services is reduced, we would expect per-unit cost to drop. This is typically ‘what happens. Restaurans like Darden’ s Red Lobster are part ofthe service industry, but they are ‘also the end ofa tong production line, At the beginning of te line, raw material goes inmat Red Lobster that means 60 million pounds of seafood u year. The seafood is purchased from all over the world. The shrimp arrives in frozen boxes from Ecuador ‘and Thailnel ata Red Lobster processing plant in St. Petersburg, Florida, There the shrimp is loaded onto a conveyor belt to he peeled, deveined, cooked, uick-frozen (lef, sorted (righ, and repacked for ultimate delivery to individual restaurant. ‘Material compitado confines académicos, se prohibe su reproduccién total o parcial sina autrizacin de cada autor 242 Carrer 7 PROCESS STRATEGY AND CAPACITY PLANNING Customer Interaction and Process Strategy ‘Customer interaction is an important variable in process decisions. In a process that rectly interfaces with the customer, one expects the customer to affect efficiency ad- versely. Activities in the service seetor are a good example. In @ restaurant, a medical cility, «law office, oF a retail store, (0 much interaction between the customer and the process keeps the process from operating as smoothly as it otherwise might. Individual tention and customizing of the product or service forthe customer ean play havoc with a process. The more the process can be insulated from the customer's unigue requirements. the lower will be the cost ‘While services can be thought of as falling onthe process continuum shown in Figure 7.5, the four quadrants in Figure 7.8 provide additional insight into service processes. The 10 operations management decisions we introduced in Chapter 2 aro used witha different ‘emphasis in each of these quadrants. For instance: + In the upper sections (quadrants) of mass service and professional service. where labor intensity is high, we expect the manager to focus extensively on human re- sources. This is particularly tre in the quadrant with high interaction and custom tion, These quadrants require that managers find ways of addressing unique isstes that satisfy customers and win orders. Ths is often done with very personalized ser- vice, some of which requires high labor intensity and therefore significant selection and training issues in the human resources arca. +The quadrants with low interaction and low customisation may be able (1) to stan dardize or restrict some offerings of the service, as do fast-food restaurant tomate, as have some airlines that have ticket-vending machines, or (3) 0 remove some services, such as seat assignments, as has Southwest Airlines. Of-loading some aspect of the service through automation may require inmovations in process design as well as capital investment. Such was the case with aslne ticket vending and bank ATMs. This move to standardization and automation may require added capital ex- pPenditure, as well as putting operations managers uncer pressure (0 develop new skills for the purchase and maintenance of such equipment. A reduction in a cus- {omization capability will requite added strength in other areas. Low High Wass Service | Professional Service i] ee] ese es newt (rate, Ocean Changes within the Service eas on CD) GSD Ee] S| ‘Degree of labor intensity are Ape vat ope . Semcon Sere oa Fae eerie areuerareas Gzy pp. 21~32, Reprinted by permission. Degree ol nieracion and Customization ‘Material compitado confines académicos, se prohibe su reproduccién total o parcial sin a autorizaoton de cada autor. SERVICE PROCESS STRATEGY 243 += Because customer feedback is lower in the quadrants with low interaction, tight con- trol may be required to maintain quality standards. + Operations with fow labor intensity: may lend themselves particularly well wo innova tions in process, technology, and scheduling capability, ‘These service process strategies can be summarized as (1) identifying and separating unique customer requirements so the high-cost personal service can be reduced. (2) au- tomation, (3) excellent scheduling, and (4) outstanding training. Examples of some of these ideas are shown in Table 7.2. -More Opportunities to Improve Service Processes Layout Layout design is an integral part of any service process, particularly in retailing, ining and banking. In retling, layout can provide not only produt exposure but aso cuslomer education and product enhancement, In resiaurams, layout can enhance the dine ing experince an wll as provide an effective flow in bo the kitchen and dining are, tn banks, layout provides security as well as workflow and porsonal comfort, Because iy cut such an integral part of many services, it provides coninng opportunity for win- ning orders TABLE 7.2 @ Techniques for Improving Operations Productivity in Services Strategy Technique Example Separation Restricting the offerings ——_Limitod-menu restaurant Customizing at delivery Customizing vans at Selivery rather than at production Structuring service 30 Banks where customers ‘customers must go {0 toa manager to where the service is ‘open a new account, 10 offered Joan ofiers for loans, and to tellors for deposits Selfservice so Supermarkets and customers examine, ‘department stores ‘compar, ane evaluate their own pace ‘Modular selection of, Tavestment and service ‘insurance selection Productsfocus production Prepackaged foods with some modules of in yesturants the service Auomation Separating services that Awtomatic teller ‘may lend themselves to ‘machines some type of automation Scheduling Precise personnel ‘Scheduling ticket counter scheduling ‘personnel af 15-minute intervals at airines Training (Clarifying the service Investment counselor, ‘options funeral drostors Explaining problems ‘After-sale maintenance personnel ‘Material compilado confines académicos, se prohibe su reproduccién total o parcial sina autrizacin de cada autor. 244 CHarrer 7 Process STRATEGY AND CAPACITY PLANNING Human Resources Because so many services involve direct interaction with the cus- tomer (as the upper quadrants of Figure 7.8 suggest), the human resource issues of recruit- {ng and waining can be particularly important ingredients in service processes. Addition- ally, committed workforce that exhibits flexibility when schedules are made and is cross, trained to fill in when the process requires less than a full-time person, can have a tremen= ddous impact on overall process performance. Technology Technology cun also help improve services. Andersen Windows of Bay- port, Minnesota, the world’s largest maker of wooden windows and patio doors, is im- proving the service part of its manufacturing business through automation, Much in the ‘way automatic teller machines improve customer banking services. Andersen has devel- ‘oped computer software that enables customers to design their own window specific tions. The customer, with user-friendly software, cals up & product information guide, promotion material, a gallery of designs. and a sketch pad to create the designs desired. ‘The software also allows the customer to determine likely encray savings and sce graphic view of their home fitted with the new window. It even determines the product numbers and creates a price and order Tist that initiates the onder entry process. Similarly, ‘computers and electronic communications in retail stores downloud prices quickly to re- flect changing costs or market conditions, For instance, when devaluation struck Mexico, the drugstore chain Farmacias Benavides used computer systems to immediately stop the reorders of higher-priced items and (0 stock up instead on lower-cost generic product Hines. We will now deal with five additional topics that help managers choose the correct process. Those issues are selection of equipment, environmental issues. capacity, brea even analysis, and the investment itself SELECTION OF EQUIPMENT AND TECHNOLOGY Ultimately, the decisions about a particular process require decisions about equipment and technology, Those decisions can be complex because altemative methods of produc- tion ae present in virwaly all operations functions, be they hospitals, restaurants, or man Picking the best equipment means understanding the specific indus- ished processes and technology. That choice of equipment, be it an X-ray machine fora hospital. a omputer-controlled lathe fora factory, oF a new computer for an office, requires considering cost. quality, capacity, and tlexibility. To make this dei sion, operations personnel develop

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