Process and Product Strategies

MBA 570
Summer 2011
 Thinking Challenge
Consider McDonald’s
restaurants. Fact #1:
Franchisees of McDonald’s
have to go to ‘Hamburger McDonald’s
McDonald’s
U.’ They protest, ‘But, I’ve
over 95 billion served
over 95 billion served

been in the restaurant

business 20 years – I know
the restaurant business!’
‘Yes, but you don’t know
OUR business.’
© 1984-1994 T/Maker Co.
 Thinking Challenge
Fact #2: A typical
McDonald’s restaurant is
run by unskilled teenagers,
whose mothers can’t even McDonald’s
McDonald’s
get them to make their beds
over 95 billion served
over 95 billion served

in the morning.
What do these facts & your
own experiences suggest
about McDonald’s
operations?
© 1984-1994 T/Maker Co.
 Solution*
 McDonald’s is not in the business of selling
haute cuisine, but ‘fuel’ – a standardized
product.
 The new franchisee has to learn the
McDonald’s production system – a typical
assembly line.
 An assembly line requires low labor skills, but
high mechanization. Hence, unskilled
teenagers are used.
 Product and Service Design

 Major factors in design strategy

◦ Cost
◦ Quality
◦ Time-to-market
◦ Customer satisfaction
◦ Competitive advantage

Product and service design – or redesign – should be

closely tied to an organization’s strategy
Product or Service Design Activities

 Translate customer wants and needs into

product and service requirements
 Refine existing products and services
 Develop new products and services
 Formulate quality goals
 Formulate cost targets
 Construct and test prototypes
 Document specifications
Reasons for Product or Service Design

 Economic
 Social and demographic
 Political, liability, or legal
 Competitive
 Technological
Objectives of Product and Service
Design
 Main focus
◦ Customer satisfaction
 Secondary focus
◦ Function of product/service
◦ Cost/profit
◦ Quality
◦ Appearance
◦ Ease of production/assembly
◦ Ease of maintenance/service
Designing For Operations

 Taking into account the capabilities of

the organization in designing goods
and services
Legal, Ethical, and Environmental Issues
 Legal
◦ FDA, OSHA, IRS
◦ Product liability
◦ Uniform commercial code
 Ethical
◦ Releasing products with defects
 Environmental
◦ EPA
Regulations & Legal Considerations
 Product Liability - A manufacturer is liable for
any injuries or damages caused by a faulty
product.
 Uniform Commercial Code - Products carry an
implication of merchantability and fitness.
Order Losers, Qualifiers, and
Winners
Order Loser: a product or service
characteristic that repels customers.
Order Qualifier: a product or service
characteristic that is necessary, but
not sufficient to win the order.
Order Winner: a product or service
characteristic most important to a
particular customer.

Beware Order Winners Becoming Order Qualifiers!!

Other Issues in Product and Service
Design

 Product/service life cycles

 How much standardization
 Product/service reliability
 Range of operating conditions
Standardization
 Standardization
◦ Extent to which there is an absence of variety in a
product, service or process
 Standardized products are immediately
available to customers
Advantages of Standardization
 Fewer parts to deal with in inventory &
manufacturing
 Design costs are generally lower
 Reduced training costs and time
 More routine purchasing, handling, and
inspection procedures
Advantages of Standardization (Cont’d)

 Orders fillable from inventory

 Opportunities for long production runs
and automation
 Need for fewer parts justifies increased
expenditures on perfecting designs and
improving quality control procedures.
Delayed Differentiation
 Delayed differentiation is a
postponement tactic
◦ Producing but not quite completing a product
or service until customer preferences or
specifications are known
Reverse Engineering

Reverse engineering is the

dismantling and inspecting
of a competitor’s product to
discover product improvements.
Introduction
to Process Strategies
 Process Choice:
The Product/Process Matrix
Process Types
Project – Unique, one-of-a-kind, products or
customers. Generally large in size (building a
bridge, installing a software system, implementing a
major improvement effort)

Job Shop –Manufacturing and Service high

customization and flexibility, but higher volume
than project.

Batch Production – Groups of identical products or

customers processed together through one step and
then moved together to the next step. More limited
product variety, higher production volume.
 Process Choice:
The Product/Process Matrix
Process Types
Assembly Line – Narrowly defined processes, made up
of equipment with limited flexibility. Much higher
volume. Still the possibility of some flexibility.

Continuous (Repetitive) Processing – Equipment and

workstations dedicated to a single thing. Very high
volume. Very low flexibility. Best chance for
automation.
 Process Decisions
 Involve determining how to produce a
product or provide a service
 Objective

◦ Meet or exceed customer requirements

◦ Meet cost & managerial goals
 Has long-run effects
◦ Product & volume flexibility
◦ Costs & quality
 Types of
Process Strategies
 Process strategies follow a continuum
 Within a given facility, several strategies may be

used

Continuu
m
 Types of
Process Strategies
 The strategies are often classified as:
Process- Product-
Focused Focused

Continuu
m
Process-Focused Strategy
 Process-Focused Strategy
 Facilities are organized by process
 Similar processes are together

◦ Example: All drill presses are together

 Low volume, high variety products
 ‘Jumbled’ flow
 Other names

◦ Intermittent process Product A

◦ Job shop Oper.
11 22 33

Product B
 Process-Focused Strategy
Examples

Bank
© 1995

Hospital Corel Corp.

Machine
© 1995 Corel Corp.
Shop
© 1995 Corel Corp.
 Process-Focused Strategy Pros &
Cons

 Advantages
◦ Greater product flexibility
◦ More general purpose equipment
◦ Lower initial capital investment
 Disadvantages
◦ More highly trained personnel
◦ More difficult production planning & control
◦ Low equipment utilization (5% to 25%)
 Process Oriented Layout
Process-oriented
(“functional”) Layout
 Organized by
function
 Steps completed in
any sequence
Advantages
Flexibility and
customization
Disadvantages
Higher cost per unit
Higher skilled, high cost
employees
Transport/wait time
between departments
Less consistency across
products or services
Product-Focused Strategy
 Product-Focused Strategy
 Facilities are organized by product
 High volume, low variety products
 Other names

◦ Line flow production Products A & B

◦ Continuous production Oper.
11 22 33
 Where found
◦ Discrete unit manufacturing
◦ Continuous process manufacturing
 Product-Focused Strategy
Examples
Soft Drinks
(Continuous,
then Discrete)

Light Bulbs
© 1995 Corel
Corp. (Discrete)© 1995 Corel Corp.

Fast
Food
© 1984-1994 T/Maker Co.

Paper
(Continuous) (Discrete)
McDonald’s
McDonald’s
over 95 billion served
over 95 billion served
 Product Oriented Layout
Advantages Disadvantages
Efficient production of Lack of flexibility or
standardized goods and services customization
High processing speed Employee boredom/
Low cost per unit dissatisfaction
Quality problems
 Product-Focused Strategy
Pros & Cons

 Advantages
◦ Lower variable cost per unit
◦ Lower but more specialized labor skills
◦ Easier production planning & control
◦ Higher equipment utilization (70% to 90%)
 Disadvantages
◦ Lower product flexibility
◦ More specialized equipment
◦ Usually higher capital investment
 Product vs. Process Layouts
Transition from Process to Product Layout
may be triggered by age of the product
Early in life-cycle
 Not much information
on what customers want
 Adopt process-
orientation to remain
flexible and produce
many varieties

Late in life-cycle
 Much better
understanding of what
customers want
 Shift to product-
orientation with fewer
 Process Continuum

Process Focused Repetitive Focus Product Focused

(intermittent process) (assembly line) (continuous process)

Continuum

High variety, low volume Modular Low variety, high volume

Low utilization (5% - 25%) Flexible equipment High utilization (70% - 90%)
General-purpose equipment Specialized equipment
 Factors Affecting
Process Alternatives
 Production flexibility
These
These factors
factors
◦ Product volume
reduce
reduce the
the number
number
◦ Product variety
of
of alternatives!
alternatives!
 Technology
 Cost

 Human resources

 Quality

 Reliability

© 1984-1994 T/Maker Co.

Process Investment Evaluation
 Long-term factors
◦ Fit with company strategic plan
◦ Competitive advantage
◦ Product life cycle
◦ Operating factors (e.g., scrap, training)
 Financial return
◦ Break-even analysis
◦ Cash flow analysis (IRR, NPV)
Questions for Process
Analysis and Design
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?
Will the process win orders?
 Volume and Variety of
Products
Volume and Low Volume High Repetitive High Volume
Variety of Variety Process Process Low Variety
Products (Intermittent) (Modular) Process
(Continuous)
One or very Projects
units per lot
few
Mass
Very small runs, high Job Shops Customization
variety
Modest runs, modest Disconnected
variety Repetitive
Long runs, modest Poor Strategy Connected
variations Repetitive
(High variable
Very long runs, Continuous
changes in costs)
attributes
Equipment utilization 5%-25% 20%-75% 70%-80%
Mass Customization
 Mass customization:
◦ A strategy of producing standardized goods
or services, but incorporating some degree
degree of customization
◦ Delayed differentiation
◦ Modular design
 Mass Customization

Using technology and

imagination to rapidly mass-
produce products that cater to
sundry unique customer desires.
Under mass customization the
three process models become
so flexible that distinctions
between them blur, making
variety and volume issues less
significant.
 Service-System Design Matrix
Degree of customer/server contact
Buffered Permeable Reactive
High core (none) system (some) system (much) Low
Face-to-face
total
customization
Face-to-face
Sales loose specs Production
Face-to-face
Opportunity tight specs Efficiency
Phone
Internet & Contact
on-site
Mail contact technology

Low High
Phases in Service Design
1. Conceptualize
2. Identify service package components
3. Determine performance specifications
4. Translate performance specifications into
design specifications
5. Translate design specifications into delivery
specifications
Service Blueprinting
Process Mapping

 Service blueprinting
◦ A method used in service design to describe
and analyze a proposed/existing service
 A useful tool for conceptualizing a service
delivery system
 Excellent tool for continuous improvement
 Process mapping provides a graphical
representation of a process, using arrows,
boxes and other tools to indicate the ‘flow’ of
the process, what steps are taken, what
decisions are made and what records are
created. It is a methodology used in systems
design.
 Using a process map may assist in graphically
documenting your analysis of the work flow
produced by different activities. The value of
a process map is in building a picture of
activities with which you are less familiar,
helping you to identify the different steps in
the process and what records should result.
Creating a Process Map

 To create a process map, it is important to

determine the start and stop points because you
will create the process map between those points.
The Once you have determined the beginning and
ending activity steps, start mapping what is done
between the two. Make sure to:
 Keep it simple.
 Start at a high level first.
 Involve the people closest to the process.
 Walk through the process yourself.
 Think end to end.
 Work with a small group of 3-7 people. A larger
group can make the activity unwieldy.
Major Steps in Service
Blueprinting/Mapping
 Choose a process. You have to first decide what you want to improve.
Some examples are the process of making reservations at a corporate
travel center, handling a customer's repair order at a car dealership, or
registering students at a college. The best bet is a process which is
time-consuming, error-prone, or critical to success; starting where
there is a strong potential for improvement will build morale and help
launch later mapping projects.
 Assemble a team. Preferably, the team will include people from the
lowest and highest levels directly involved in the operation, such as
customer service agents, their supervisors and managers, and the
head of operations. The team must be empowered (given the
responsibility and sufficient authority or leeway) to make significant
changes in the work flow.
 Map out the way work is currently done. Diagram each step, showing
decision branches, time spent, any distances traveled or people
contacted, and other important aspects of the work. It is often be
easier to sketch out the individual tasks first, then go back and fill in
the details.
 Identify problem areas. These are areas where people feel there are
currently major issues to be resolved, such as poor customer
satisfaction, "dropping the ball," large expenses, or significant delays.
Where there are many areas to choose from, try to follow the 80/20 rule:
work on the 20% of the areas that cause 80% of the problems.
 Brainstorm solutions. Identify all possible action steps for each problem
area, without evaluating them.
 Evaluate action steps. Set up a set of "final" action steps by group
consensus.
 Assign responsibilities. Ask people to volunteer to take responsibility for
each action step judged to be worthwhile by the group, and to set
deadlines.
 Create a master plan. Summarize who has responsibility for what actions
and the deadlines. Distribute the plan and make sure everyone agrees
with it and that it accurately reflects the decisions made during the
sessions.
 Follow through. The meetings are useless without appropriate follow-
through. Try meeting again every two weeks to see what went well and
what did not. When the time is right, try having another brainstorming
session. This is where having a detailed, clear, and well communicated
master plan is invaluable.
Characteristics of Well Designed
Service Systems

1. Consistent with the organization mission

2. User friendly
3. Robust
4. Easy to sustain
5. Cost effective
6. Value to customers
7. Effective linkages between back
operations
8. Single unifying theme
9. Ensure reliability and high quality
Challenges of Service Design

 Variable requirements
 Difficult to describe
 High customer contact
 Service – customer encounter
Mapping Tools
Tools Continued
Example of Service Blueprinting
Standard Brush Apply Collect
execution time Buff
shoes polish payment
2 minutes
30 30 45 15
secs secs secs secs
Total acceptable
execution time
Wrong
5 minutes
color wax
Clean Fail
shoes point Materials
Seen by
(e.g., polish, cloth)
customer 45
secs

Line of Not seen by

visibility customer but Select and
necessary to purchase
performance supplies
Process Map of Training Authorization
Service Blueprint of Luxury
Hotel
 Service Blueprinting
(Bank Lending Operation
Example)
Loan application Branch Officer Pay book
30min--1hr.
===
==== ===== $ 0 $ ==== =====
====
w
w
Line of visibility
Receive Final
Decline Notify Payment payment
customer
Issue
F Deny Confirm
check F
Verify
Print
income Credit Close
Accept payment Delinquent
data check account
1 day 2 days book
3 days
Initial F
screening
Confirm

Verify
payer
Employer Credit
F Branch
bureau
records
Bank F
accounts F
Accounting
Data base
records

F Fail point Customer wait Employee

W
decision
 Process Mapping Mistakes

Map all the details, losing track of the big picture.  

Focus on the seller, instead of the customer.  

Map the process without showing how the

results will be measured.  

Buy somebody else's "ideal" process.

 
 Strategic Positioning
Through Process Structure
Degree of Complexity: Measured by the
number of steps in the service blueprint.
For example a clinic is less complex than
a general hospital.
Degree of Divergence: Amount of
discretion permitted the server to
customize the service. For example the
activities of an attorney contrasted with
those of a paralegal.
 Customer Contact View of
Services
Degree of Customer Contact
Influences Potential Efficiency of
Service

Separate High- and Low-Contact

Operations

Consider Sales Opportunity and

Production Efficiency Tradeoff