Process Strategy and

Analysis
Chapter 2

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 Process Strategy and Process
Analysis
• Process Strategy:
The pattern of decision made in managing processes
so that they will achieve their competitive priories.

• Process Analysis:
The documentation and detailed understanding of
how work is performed and how it can be registered.

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 Major Decisions for Effective
Process Design
Customer Involvement Resource Flexibility
• Low involvement • Specialized
• High involvement • Enlarged

Process Structure Strategy for Change

• Customer-contact • Process Effective
Matrix (services) Reengineering Process
• Product-process • Process Design
Matrix (manufacturing) Improvement

Vertical Integration Capital Intensity

• In-house • Low automation
• Outsource • High automation
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 Major Decisions for Effective
Process Design
1.Process Structure- It determines how processes are designed relative to
the kinds of resources needed, how resources are partitioned between
them, and their key characteristics.

2.Customer Involvement- It refers to the ways in which customers become

part of the process and the extent of their participation.

3.Vertical Integration- It refers to the degree to which the firm’s own

production system or service facility handles the entire value chain.

4.Resource flexibility- It is the ease with which employees and equipment

can handle a wide variety of products, output levels, duties, and
functions.

5.Capital intensity- It is the mix of equipment and human skills in a

process. The greater the cost of equipment relative to the cost of labor,
the greater is the capital intensity.
 Process Structure in Services
• One of the first decisions a manager makes in designing a
well functioning process is to choose a process type that best
achieves the competitive priorities for that process. A good
service process strategy depends first and foremost on the
type and amount of customer contact. This process structure
in service includes two parts. They are-
• Customer-Contact Matrix
• Service Process Structuring

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 Process Structures in Services
High Contact Dimension Low Contact

Present Physical presence Absent

People What is processed Possessions

Active, visible Contact intensity Passive, out of sight

Personal Personal attention Impersonal

Face-to-face Method of delivery Regular mail

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 Customer-Contact Matrix
• Customer contact is the extent to which the customer is
present and actively involve and receive personal attention
during the service processes. It includes three elements. They
are-
1. The degree of customer contact
2. Customization
3. Process characteristics
• Customer contact and Customization- The horizontal
dimension of the matrix represents the service provided to
the customer I terms of customer contact and competitive
priorities. A key competitive priority is how much
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 Customer-Contact Matrix
customization is needed. Positions on the left side of the
matrix represent high customer contact and highly customized
services. The customer is more likely to be present and active.
The right side of the matrix represents low customer contact,
passive involvement, less personalized attention and a process
out of customer's sight.
• Process divergence and Flow- the vertical dimensions of the
matrix deals with two characteristic of the process itself.
First, process divergence which is the extent to which the
process is highly customized with considerable latitude as to
how its takes are performed. Second, flexible flow means
that the customers, materials or information move in diverse
ways, with path of one customer or job often crisscrossing
the path that the next one takes.
.
 Customer-Contact Matrix for
Service Processes
Less Customer Contact and Customization
Less Complexity, Less Divergence, More Line Flows

Service Package
(1) (2) (3)
Process High interaction with Some interaction with Low interaction with
customers, highly customers, standard customers, standardized
Characteristics customized service services with some options services

(1)
Jumbled flows,
complex work with Front office
many exceptions

(2)
Flexible flows with
some dominant
paths, moderate Hybrid office
job complexity with
some exceptions

(3)
Line flows, routine Back office
work easily
understood by
employees
 Service Process Structuring
The manager has three process structure which from a
continuum to choose from are-
1. Front Office-This process has high customer contact where
service provider interacts directly with the internal or
external customers. Because the customization, verity,
steps in production of the services have considerable
divergence. The work flow is flexible.
2. Hybrid Office- A process with moderate levels of
customer contact and standard services with some options
available. The work flow progresses from one workstation
to next with some dominant paths.

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 Service Process Structuring
3. Back Office-A process that has low customer
contact and little service customization. The work is
standardized and routine with line flows from one
service provider to the next until the service is
completed.

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 Process Structure in
Manufacturing
Many processes of manufacturing firms are actually
services to customers and many service firms have
manufacturing process. Clarity comes when we see
the work from process view. Because of the
difference between service and manufacturing
process we need a different view on process structure.
It includes the followings:
• Product – Process Matrix
• Manufacturing Process Structuring

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 Product-Process Matrix
• This matrix has three elements. They are:
1. Volume- A good strategy for a manufacturing process
depends first and foremost on volume.
2. Product Customization- For many manufacturing process,
high product customization means lower volumes for
many od the steps in the process.
3. Process Characteristics- The vertical dimension of the
product- process matrix deals with the same two
characteristics in the customer contact matrix’s divergence
and flow.

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 Manufacturing Process
Structuring
• Process choice is the way of structuring the process
by organizing resources around the process or
organizing them around the product. There are five
process choices for manufacturing. They are-
1. Project process
2. Job process
3. Batch process
4. Line process
5. Continuous-Flow process
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 Product-Process Matrix for Processes
Less Customization and Higher Volume

Product Design

One-of-a-kind Low volume, Multiple Few major High volume,

products, made low products, products, high
Less Complexity, Less Divergence, More Line Flows

Process to customer standardization moderate higher volume standardization

Characteristics order volume

(1)
Complex and highly
customized process,
Project
unique sequence of process
tasks
Job
(2) process
Disconnected line
flows, moderately
complex work Batch
process

(3) Line
Connected line, , process
highly repetitive work

(4) Continuous
Continuous flows process
 Manufacturing Process
Structuring
 Project Process: A process characterized by a high degree
of customization, the large scope of each product, and the
release of substantial resources once it is completed.
 Job Process: A process with the flexibility needed to produce
a wide variety of products in significant quantities, with
considerable complexity and divergence in the steps
performed. Customization is high, volume for any one
product is low and resources can handle flexible.
 Batch Process: A process that differs from the job process
with respect to volume, variety and quantity. It could me in
small or large batch. The main difference volume of
products. It has average or moderate volume but process
 Manufacturing Process
Structuring
divergence is still to great and a separate process for each
product.
 Line Process: A process that lies between the batch and
continuous processes on the continuum; volumes are high
and products are standardized, which allows resources to
be organized around particular products. Divergence is
minimal in the process and little inventory is held between
processing steps.
 Continuous Flow: The extreme end of high-volume,
standardized production and rigid line flows, with
production not starting and stopping for long time
intervals.
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 Production and Inventory
Strategies
 Design-to-Order strategy: A firm use it when it can design new products
that do not currently exist and the manufacture them to meet unique
customer specifications. Example- a pair of design shoes.
 Make-to-order strategy: A strategy used by manufactures that make
products to customer specifications in low volume. This strategy
provides high degree of customization and use small batch process.
 Assemble-to-order strategy: A strategy for producing a wide variety of
products from relatively few assemblies and components after the
customer orders are received. Typical competitive priorities are verity
and fast delivery time.
 Make-to-stock strategy: A strategy that involves holding items in stock
for immediate delivery, thereby minimizing customer delivery times.
Example- Soft drinks
 Mass production: A term sometimes used in the popular press for a line
process that uses the make-to-stock strategy.
 Other Major Process Strategy
Decisions
After deciding the process structure of service and
manufacturing organizations, now the operation
managers other three elements of operation strategy.
They are-
• Customer Involvement
• Resource Flexibility
• Capital Intensity

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 Customer Involvement
Customer involvement reflects the ways in which customers
become part of the process and the extent of their
participation. It has both advantages and disadvantages. They
are-
Advantages:
• The advantages of a more customer-focused process might
increase the net value to customer. More customer
involvement can mean better quality, faster delivery, greater
flexibility and even lower cost.
• Manufacturer of many products let their customers to
assembly the final products because it will reduce the cost.
• Customer involvement can also help coordinate across the
supply chain.
 Customer Involvement
• Emerging technologies allow companies to engage in an
active dialog with the customers and make them partners in
creating values and forecasting future demand.
Disadvantages:
• In some cases customer involvement is not a good idea
because giving customer more active contact in service
process will disturbed the process and it will make the
process less efficient
• Managing the timing and column of customer demand
becomes more challenging if customer is physically present
and expects prompt delivery.
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 Resource Flexibility
Managers account for process divergence and diverse process
flows when making resource flexibility decisions. High task
divergence and flexible process flows require more flexible
resources which is employees, facilities and equipment. These
resources must be used for general purpose otherwise
resources utilization will be zero to economical operations.
• Workforce- Operation managers make decisions about
flexible workforce which is a workforce whose members are
capable of doing many tasks, either at their own workstation
or as they move from one workstation to another. This type
of workforce depends on the volume flexibility.

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 Resource Flexibility
• Equipment- Low volume means the process
designers should select flexible, general purse
equipment which make investment in equipment
low and make the fixed cost small but its variable
cast it high. For high volume where customization is
low fixed cost will be high because the equipment
will be design for narrow range of products and the
organization can take the advantage of low variable
cost.

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 Capital Intensity
Capital intensity is the mix of equipment and human skills in
the process. The greater the cost of equipment relative to the
cost of labor the greater the capital intensity. Improvement of
technology reduce the cost of equipment and labor as a result
of automation.
• Automation- It is a system, process or piece of equipment
that is self-acting and self-regulating. It is often thought to be
necessary to gain competitive advantage. It has both
advantages and disadvantages for manufacturing and service
process. They are-

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 Capital Intensity
1. Automating Manufacturing Processes: There are two types
of automation used in manufacturing process. They are
• Fixed automation is a manufacturing process that produces
one type of part or product in a fixed sequence of simple
operations.
• Flexible automation is a manufacturing process that can be
changed easily to handle various products.
2. Automating Service Processes: Using capital inputs as a
labor-saving device is also possible for service processes. For
example long distance learning processes are replacing the
traditional classroom learning.
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 Vertical Integration
Raw materials
(eggs, flour, sugar)

Backward
integration

King In-house
Soopers processes

Forward
integration

Customers
(grocery stores)
Figure 3.9
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 Types of Vertical Integration
There are two types of vertical integration system can be used
to design the processes of the organization. They are:
1. Forward Integration- In this type of integration a company
in the supply chain merges with a distribution channel.
2. Backward Integration- It is a type of vertical integration
which is considered an ‘upstream ; business move because
it involves a company expanding backward by purchasing
and controlling earlier stages of the supply chain. It allows
them to control the raw materials needed to create the final
product.

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 Strategies for Change
Decision made by the operation managers must be seen in the
actual process design and redesign. There are two different but
complementary philosophies for this. They are:
 Process Reengineering is a fundamental rethinking and drastic
redesign of processes to improve performance dramatically in
terms of cost, quality, and speed.

 Process improvement is the systematic study of the activities and

flows of each process to improve it. Its purpose is to ‘learn the
number’, understand the process and dig out the details. ‘Learn
the number’ means once the process really understand then it can
be improved. There is a constant pressure of providing better
quality at a lower price which means the company should
continuously review all aspects of operation.
Key Elements of Reengineering