PROCESS MANAGEMENT

Companies begin the process of organizing operations by setting competitive priorities. That is
they must determine which of the following eight priorities are to be emphasized as competitive
advantages:

1. Low-cost operations 2. High performance design

3. Consistent quality 4. Fast delivery time
5. On-time delivery 6. Development speed
7. Product customization 8. Volume flexibility

Although all eight are obviously desirable, it is usually not possible for an operation to perform
significantly better than the competition in more than one or two. The five key decisions in
process management are:

I. Process Choice
II. Vertical Integration
III. Resource Flexibility
IV. Customer Involvement
V. Capital Intensity

These decisions are critical to the success of any organization and must be based on determining
the best was to support the competitive priorities of the enterprise.

PROCESS CHOICE

The first choice typically faced in process management is that of process choice. Manufacturing
and service operations can be characterized as one of the following:

1. Project
2. Job Shop
3. Batch Flow
4. Line Flow
5. Continuous Flow

The nature of these processes are discussed below and summarized in the manufacturing
product-process matrix on page 8.

Project Process. Examples of a project process are building a shopping center, planning a major
event, running a political campaign, putting together a comprehensive training program,
constructing a new hospital, doing management consulting work, or developing a new
technology or product. A project process is characterized by a high degree of job customization,
the large scope of each project, and the release of substantial resources, once a project is
completed. A project process lies at the high-customization, low-volume end of the process-
choice continuum. The sequence of operations and the process involved in each one are unique
to each project, creating one-of-a-kind products or services made specifically to customer order.

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Job Shop Process. Next in the continuum of process choices is the job shop process. Examples
are custom metal processing shop, hospital emergency rooms, custom plastic injection molding
shop, or making customized cabinets. A job shop process creates the flexibility needed to
produce a variety of products or services in significant quantities. Customization is relatively
high and volume for any one product or service is low.

Batch Flow Process. Examples of a batch flow process are scheduling air travel, manufacturing
garments, furniture manufacturing, making components that feed an assembly line, processing
mortgage loans, and manufacturing heavy equipment. A batch flow process differs from the job
process with respect to volume, variety, and quantity. The primary difference is that volumes are
higher because the same or similar products or services are provided repeatedly. Another
difference is that a narrower range of products or services is provided. Variety is achieved more
through an assemble-to-order strategy than the job shop’s make-to-order strategy.

Line Flow Process. Products created by a line process include automobiles, appliances, personal
computers, and toys. Services based on a line process are fast-food restaurants and cafeterias. A
line flow process lies between the batch and continuous processes, volumes are high, and
products or services are standardized, which allows resources to be organized around a product
or service. Materials move linearly from one operation to the next according to a fixed sequence,
with little inventory held between operations. Each operation performs the same process over
and over with little variability in the products or services provided.

Continuous Flow Process. Examples are petroleum refineries, chemical plants, and plants
making beer, steel, and processed food items. Firms with such facilities are also referred to as the
process industry. An electric generation plant represents one of the few continuous processes
found in the service sector. A continuous process is the extreme end of high-volume,
standardized production with rigid line flows and tightly linked process segments. Its name
derives from how materials move through the process. Usually one primary material, such as a
liquid, gas, wood fibers, or powder, moves without stopping through the facility. The process
often is capital intensive and operated round the clock to maximize utilization and to avoid
expensive shutdowns are start-ups.

VERTICAL INTEGRATION

All businesses buy at least some inputs to their processes, such as professional services, raw
materials, or manufactured parts, from other producers. Management decides the level of
vertical integration by looking at all the activities performed between acquisition of raw
materials or outside services and delivery of finished products or services. The more processes in
the supply chain that the organization performs itself, the more vertically integrated it is. If it
doesn't perform some processes itself, it must rely on outsourcing, or paying suppliers and
distributors to perform those processes and provide needed services and materials. When
managers opt for more vertical integration, there is by definition less outsourcing. These
decisions are sometimes called make-or-buy decisions, with a make decision meaning more
integration and a buy decision meaning more outsourcing. After deciding what to outsource and
what to do in-house, management must find ways to coordinate and integrate the various
processes and suppliers.

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Vertical integration can be in two directions. Backward integration represents movement
upstream toward the sources of raw materials and parts, such as a major grocery chain having its
own plants to produce house brands of ice cream, frozen pizza dough, and peanut butter.
Forward integration means that the firm acquires more channels of distribution, such as its own
distribution centers (warehouses) and retail stores. It can also mean that the firm goes even
further, acquiring its industrial customers.

RESOURCE FLEXIBILITY

The choices that management makes concerning competitive priorities determine the degree of
flexibility required of a company's resources--its employees, facilities, and equipment. For
example, when new products and services call for short life cycles or high customization,
employees need to perform a broad range of duties and equipment must be general purpose.
This type of flexibility is product customization. A second type of flexibility is volume
flexibility and refers to the ability to operate a facility profitably over a wide range of demand
volumes. A good example, is a fast food restaurant that is open 24 hours a day.

CUSTOMER INVOLVEMENT

The fourth significant process decision is the extent to which customers interact with the process.
The amount of customer involvement may range from self-service to customization of product to
deciding the time and place that the service is to be provided.

Self-Service. Self-service is the process decision of many retailers, particularly when price is a
competitive priority. To save money, some customers prefer to do part of the process formerly
performed by the manufacturer or dealer. Manufacturers of goods such as toys, bicycles, and
furniture may also prefer to let the customer perform the final assembly because production,
shipping, and inventory costs frequently are lower, as are losses from damage. The firms pass the
savings on to customers as lower prices.

Product Selection. A business that competes on customization frequently allows customers to

come up with their own product specifications or even become involved in designing the
product. A good example of customer involvement is in custom-designed and -built homes: The
customer is heavily involved in the design process and inspects the work in process at various
times.

Time and Location. When services can't be provided in the customer's absence, customers may
determine the time and location that the service is to be provided. If the service is delivered to
the customer, client, or patient by appointment, decisions involving the location becomes part of
process design. Will the customer be served only on the supplier's premises, will the supplier's
employees go to the customer's premises, or will the service be provided at a third location?
Although certified public accountants frequently work on their clients' premises, both the time
and the place are likely to be known well in advance.

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CAPITAL INTENSITY

For either the design of a new process or the redesign of an existing one, an operations manager
must determine the amount of capital intensity required. 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. As the capabilities of technology increase and its costs decrease,
managers face an ever-widening range of choices, from operations utilizing very little
automation to those requiring task-specific equipment and very little human intervention.
Automation is a system, process, or piece of equipment that is self-acting and self-regulating.
Although automation is often thought to be necessary to gain competitive advantage, it has both
advantages and disadvantages. Thus the automation decision requires careful examination.

Professional Service. The professional service process demands high customization. Examples
of such services include management consultants, lawyers, physicians, and corporate bankers.
Professionals interact frequently with customers, often one-to-one, to understand and diagnose
each customer's individual needs. They must be able to relate well with the public, not just have
technical skills.

Service Shop. The work force and customer also interact frequently in the service shop.
Considerable attention is given to a customer's unique requirements and preferences. Hospitals,
repair shops, and gourmet restaurants are examples of such services. In contrast to professional
service, capital intensity in the service shop tends to be high and thus labor intensity low.
Equipment often is crucial for handling diverse and specialized service requirements. Because
customization of services continues to be high with this process, work-force skill levels also
must be high, compared to a mass service or service factory process. Workers must be able to
handle new or unique services on demand. When they are in close contact with the customer,
they also must have the training and people skills to deal effectively with customers.

Mass Service. Mass service processes are quite different from the first two processes because
customized customer involvement is low. Examples of such services include wholesalers, full-
service retailers, spectator sports, and large classes at schools. Service specifications are tightly
controlled. Standardizing services increases volumes and process repeatability. Line flows are
preferred, although the customer often moves through the facility. Capital intensity is low
because automation is difficult to achieve, so labor intensity is high. Skill levels may vary but
often are low to moderate because the need for customized service is less.

Service Factory. The service factory involves the least customized customer involvement.
Examples of such services include public transportation; movie theaters; the back-room
operations in banking, insurance, and postal service facilities; dry cleaners; airport baggage
handling; and catalogue stores. The little contact that occurs between workers and customers is
for standardized services. If the customer is involved in the process, it is in doing self-service

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 The Manufacturing Product-Process Matrix

PRODUCT MIX
MANAGEMENT
PROCESS CHALLENGES
PATTERN One of Low volume High volume Very high volume
a kind custom products standard products commodity products

Very jumbled flow, Scheduling, material

process segments handling, shifting
loosely linked PROJECT bottlenecks

JOB SHOP
Jumbled flow with Worker motivation,
dominant line maintaining capacity
balance and
BATCH
flexibility
FLOW
Process built
around a pacing LINE
line FLOW Capital expenses
for big chunk
capacity,
Highly automated,
CONTINUOUS technological
continuous process FLOW change, vertical
flow with tightly
integration
linked segments

MANAGEMENT Bidding, delivery, Product differentiation, Price

CHALLENGES product customization volume flexibility

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 The Service-Process Matrix

CUSTOMIZATION CAPITAL INTENSITY MANAGEMENT

AND CUSTOMER LOW HIGH CHALLENGES
INVOLVEMENT

Fighting cost increases,

maintaining quality,
reacting to customer
HIGH interventions in process,
PROFESSIONAL SERVICE managing employee
SERVICE SHOP advancement, managing
flat hierarchy with loose
subordinate-superior
relationships, binding
employees to firm

Marketing, making
service “warm”,
MASS SERVICE attention to physical
LOW SERVICE FACTORY surroundings,
managing rigid
hierarchy with need
for standard operating
procedures

Hiring, training, methods Capital decisions, technological

MANAGEMENT development and control, employee advances, scheduling delivery
CHALLENGES welfare, scheduling workforces, start- of service, leveling demand
up of new units

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 PRODUCT FLOWS BY PROCESS TYPE
PRODUCT A PRODUCT B PRODUCT C

JOB SHOP

BATCH FLOW PROCESS

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 PRODUCT FLOWS BY PROCESS TYPE
PRODUCT A PRODUCT B PRODUCT C

LINE FLOW PROCESS

CONTINUOUS FLOW PROCESS