Company Name: Erewhon Company URL: https://www.erewhonmarket.com/. This is the company to use for the below prompt. I have also attached the slides from class for reference to use
STEP 1: Discussion #4 – Posting (Due by 10 PM on the day stated in the course SCHEDULE). Answer the following questions:
List company name and URL
List one production process and provide the following descriptions: (a) steps involved in the process, (b) which of the five process strategies characterize the process and why?
List one service process and provide the following descriptions: (a) steps involved in the process, (b) which of the Service Process Strategies characterize the process and why?
 In case of pure service business, list/describe two service processes & In case of pure manufacturing company, list/describe two production processes]
Chapter 7:
Process Strategy and Sustainability
©All Rights Reserved by Dr. Vish Hegde
1
Process Strategies
• Involve determining how to produce a product or provide a service
• Objectives
– Meet or exceed customer requirements
– Meet cost & managerial goals
• Has long-run effects
– Product & volume flexibility
– Costs & quality
• Factors Affecting Process Alternatives
– Flexibility (Product volume & Product variety)
– Cost
– Technology
– Human resources
– Quality
– Reliability
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2
1
High
Types of Process Strategies
Variety
Process Focus
Projects, Job shops
Ex: Hospitals, Restaurants
High Variety one/few units per run,
(allows customization)
Repetitive Focus
Batch, Assembly line
Ex: Appliances, Computers
Changes in Modules
modest runs, standardized modules
Low
Poor Strategy
(Both fixed and
variable costs are
high)
Product Focus
Ex: Steel, Glass, Beer)
Changes in Attributes (such as
grade, quality, size
Volume
Low
High
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3
Process-Focused Strategy
• Other names
? Projects
? Job shops
• Examples
? Hospitals, Printing shops
? COOKIE: Gourmet cookie shops
• Important Features
?
?
?
?
?
Facilities are organized around specific activities or processes
General purpose equipment and skilled personnel
High degree of product flexibility
Typically high costs and low equipment utilization
Product flows may vary considerably making planning and scheduling a
challenge
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2
Process-Focused Strategy
Many inputs
(surgeries, sick patients,
baby deliveries, emergencies)
(low volume, high variety,
intermittent processes)
Many departments and
many routings
Arnold Palmer Hospital
Many different outputs
(uniquely treated patients)
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5
Repetitive Focused Strategy
• Other names
? Batch production
? Assembly line
• Examples
? Appliances, Computers
? COOKIE: MotherÂ’s Cookie
• Important Features
?
?
?
?
Facilities often organized as assembly lines
Characterized by modules with parts and assemblies made previously
Modules may be combined for many output options
Less flexibility than process-focused facilities but more efficient
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3
Repetitive Focused Strategy
Raw materials and
module inputs
(multiple engine models,
wheel modules)
Few
modules
(modular)
Harley Davidson
Modules combined for many
Output options
(many combinations of motorcycles)
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7
Product Focused Strategy
• Examples
?
?
?
?
Steel, Beer, rubber
Oil refineries
Frito-Lay chips, PlanterÂ’s peanuts
COOKIE: Oreo cookie
? Important features
– Facilities are organized by product
– High volume but low variety of products
– Long, continuous production runs enable efficient processes
– Typically high fixed cost but low variable cost
– Generally less skilled labor
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4
Product Focused Strategy
Few Inputs
(corn, potatoes, water,
seasoning)
(low-volume, high variety,
continuous process)
Frito-Lay
Output variations in size,
shape, and packaging
(3-oz, 5-oz, 24-oz package
labeled for each material)
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Product Focused Strategy
D
Continuous caster
C
Scrap
steel
A
Nucor Steel Plant
B
Ladle of molten steel
Electric
furnace
Continuous cast steel sheared
into 24-ton slabs
Hot tunnel furnace – 300 ft
E
F
Hot mill for finishing, cooling, and coiling
H
G
I
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10
5
High
Types of Process Strategies
Variety
Process Focus
Projects, Job shops
Ex: Hospitals, Restaurants
High Variety one/few units per run,
(allows customization)
Mass Customization
Ex: Dell Computer
Coldstone ice cream
Repetitive Focus
Batch, Assembly line
Ex: Appliances, Computers
Changes in Modules
modest runs, standardized modules
Low
Poor Strategy
(Both fixed and
variable costs are
high)
Low
Product Focus
Ex: Steel, Glass, Beer
Changes in Attributes (such as
grade, quality, size
Volume
©All Rights Reserved by Dr. Vish Hegde
High
11
Mass Customization
• Important features
? The rapid, low-cost production of goods and service to satisfy increasingly
unique customer desires
? Combines the flexibility of a process focus with the efficiency of a product
focus
• Examples
? Dell computers
? Coldstone Ice Cream
? Paint sold in Home Depot/Lowes
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12
6
Mass Customization
Many parts and component inputs
(chips, hard drives, software, cases)
(high-volume, high-variety)
Many
modules
Dell Computer
Many output versions
(custom PCs and notebooks)
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13
Comparison of Processes (Refer textbook for details)
Process Focus
Repetitive Focus
Product Focus
Small quantity, large
variety of products
Long runs, standardized
product made from
modules
Large quantity, small
variety of products
Large quantity, large
variety of products
General purpose
equipment
Special equipment
Special purpose
equipment
Rapid changeover on
flexible equipment
Employees are broadly
skilled
Employees are modestly
trained
Employees are less
broadly skilled
Flexible operators are
necessary
Fixed costs low, variable
costs high
Fixed costs dependent on
the level of flexibility
Fixed costs high, variable
costs low
Fixed costs high,
variable costs low
Many job instructions as
each job changes
Repetition reduces the
changes in job instructions
Few work orders and job
instructions
Custom orders require
many job instructions
Finished goods made to
order
Finished goods made to
frequent forecast
Finished goods made to
forecast and stored
Finished goods often
made to order
Scheduling is complex,
trade-offs between
inventory, availability,
customer service
Scheduling based on
building various models
from modules to forecasts
Relatively simple
scheduling, establishing
output rate to meet
forecasts
Sophisticated scheduling
required to
accommodate custom
orders
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Mass Customization
14
7
Cost Functions of Processing Alternatives
Variable
cost
$
Variable
cost
$
Variable
cost
$
Fixed cost
Fixed cost
Fixed cost
Low volume, high
variety process
Repetitive process
High volume, low
variety process
Total cost for low
volume high variety
Total cost for repetitive process
Total cost for high volume,
low variety process
B1
B2
B3
A
B
Volume
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15
Selecting Production Process
Three production processes – repetitive (R), batch manufacturing (B), and job shop (J) – have
the following cost structure:
Process
Fixed cost/Year
(F)
Variable/Unit
(V)
R
$120,000
$2
B
$80,000
$4
J
$70,000
$5
a. What is the most economical process for a volume of 10,000 units per year?
b. At what volume each of the processes be preferred?
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16
8
Selecting Production Process
Process
Fixed cost/Year
(F)
Variable/Unit
(V)
R
$120,000
$2
B
$80,000
$4
J
$70,000
$5
a. What is the most economical process for a volume of 15,000 units per year?
Total Cost = Fixed Cost + Variable Cost = F + V x
Total Cost J = 70,000 + 5*X
= 70,000+ 5*15,000 = $145,000
Total Cost B = 80,000 + 4*X
= 80,000+ 4*15,000 = $140,000
Process B is the least cost alternative
Total Cost R = 120,000 + 2*X
= 120,000+2*15,000 = $150,000
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17
Selecting Production Process
b. At what volume each of the processes be preferred?
250000
TCJ = 70,000 + 5*X
TCB = 80,000 + 4*X
225000
TCR = 120,000 + 2*X
Total Cost
200000
175000
150000
125000
100000
75000
50000
0
5000
10000
15000
20000
25000
30000
Volume
©All Rights Reserved by Dr. Vish Hegde
18
9
Selecting Production Process
b. At what volume each of the processes be preferred?
250000
TCJ = 70,000 + 5*X
225000
J
Need to find two points that are
on the line
Total Cost
Let X = 25000, TC = 195,000
(25000, 195000) falls on the line
200000
175000
150000
125000
Let X = 0, TC = 70,000
(0, 70000) falls on the line
100000
75000
50000
0
5000
10000
15000
20000
25000
30000
Volume
©All Rights Reserved by Dr. Vish Hegde
19
Selecting Production Process
b. At what volume each of the processes be preferred?
250000
TCB = 80,000 + 4*X
225000
Let X = 25000, TC = 180,000
(25000, 195000) falls on the line
J
B
Total Cost
200000
175000
150000
125000
Let X = 0, TC = 80,000
(0, 80000) falls on the line
100000
75000
50000
0
5000
10000
15000
20000
25000
30000
Volume
©All Rights Reserved by Dr. Vish Hegde
20
10
Selecting Production Process
b. At what volume each of the processes be preferred?
TCR = 120,000 + 2*X
250000
225000
J
Let X = 25000, TC = 170,000
(25000, 170000) falls on the line
B
200000
Total Cost
R
175000
150000
125000
Let X = 0, TC = 120,000
(0, 120000) falls on the line
100000
75000
50000
0
5000
10000
15000
20000
25000
30000
Volume
©All Rights Reserved by Dr. Vish Hegde
21
Selecting Production Process
b. At what volume each of the processes be preferred?
250000
225000
Cross-over point
TCB = TCR
80,000 + 4X = 120,000 + 2X
X = 20,000
J
200000
B
Total Cost
R
175000
150000
125000
Cross-over point
TCJ = TCB
70,000 + 5X = 80,000 + 4X
X = 10,000
100000
75000
50000
0
5000
10000
15000
20000
25000
30000
Volume
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11
Selecting Production Process
b. At what volume each of the processes be preferred?
250000
225000
Process Choice
Process J
Process B
Process R
J
B
200000
R
Total Cost
Volume
0 – 10000
10000 – 20000
20000 – more
175000
150000
125000
R
100000
B
75000
J
50000
0
5000
10000
15000
20000
25000
30000
Volume
©All Rights Reserved by Dr. Vish Hegde
23
End of this part
©All Rights Reserved by Dr. Vish Hegde
24
12
Chapter 7:
Process Strategy and Sustainability
©All Rights Reserved by Dr. Vish Hegde
1
Process Analysis and Design
• Business Process Reengineering
– The fundamental rethinking and radical redesign of business processes to
bring about dramatic improvements in performance
– Relies on reevaluating the purpose of the process and questioning both the
purpose and the underlying assumptions
– Requires reexamination of the basic process and its objectives
– Focuses on activities that cross boundaries
• Changing Processes
– Difficult and expensive
– May mean starting over
– Process strategy determines transformation strategy for an extended period
– Important to get it right
©All Rights Reserved by Dr. Vish Hegde
2
1
Process Analysis and Design
• Important objectives
– Is the process designed to achieve a competitive advantage?
– Does the process eliminate steps that do not add value?
– Does the process maximize customer value?
– Will the process win orders?
• Process design tools/techniques
– Flow Charts – Shows the movement of materials
– Time-Function Mapping – Shows flows and time frame
– Value-Stream Mapping – Shows flows and time and value added beyond the
immediate organization
– Process Charts – Uses symbols to show key activities
– Service Blueprinting – focuses on customer/provider interaction
©All Rights Reserved by Dr. Vish Hegde
3
Process Flow Diagram
Customer
Purchasing
Customer sales
representative
Vendors
PREPRESS DEPT
Accounting
Receiving
PRINTING DEPT
Warehouse
COLLATING
DEPT
Information flow
Material flow
GLUING, BINDING,
STAPLING, LABELING
POLYWRAP DEPT
SHIPPING
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4
2
Time Function Map – (Baseline)
Receive
product
Order
Product
Sales
Process
Order
WIP
WIP
Plant B
Wait
Transport
Wait
Extrude
Product
Wait
WIP
Warehouse
Product
Print
WIP
Plant A
Product
Wait
Order
Production
control
Order
Customer
Move
12 days
13 days
1 day
4 days
1 day
Move
10 days
1 day
9 days
1 day
52 days
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5
Time Function Map – (Target)
Sales
Process
Order
Wait
Order
Production
control
Receive
product
WIP
Print
Extrude
Warehouse
Wait
Transport
Product
Plant
Product
Order
Product
Order
Customer
Move
1 day
1 day
1 day
2 days
1 day
6 days
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6
3
Process Chart
©All Rights Reserved by Dr. Vish Hegde
7
Service Blueprinting
•
•
•
•
Focuses on the customer and provider interaction
Defines three levels of interaction
Each level has different management issues
Identifies potential failure points
©All Rights Reserved by Dr. Vish Hegde
8
4
Service Blueprinting
Personal Greeting
Level
#1
Service Diagnosis
Perform Service
Customer arrives
for service
Warm greeting
and obtain
service request
Customer departs
Determine
specifics
No
Standard
request
Level
#2
Friendly Close
Direct customer
to waiting room
Can
service be
done and does
customer
approve?
Yes
Level
#3
Potential failure point
©All Rights Reserved by Dr. Vish Hegde
Yes
Notify
customer
and recommend
an alternative
provider
Customer pays bill
No
Notify
customer the
car is ready
Perform
required work
Prepare invoice
9
Special Considerations for Service Process Design
• Some interaction with customer is necessary, but this often affects
performance adversely
• The better these interactions are accommodated in the process
design, the more efficient and effective the process
• Find the right combination of cost and customer interaction
©All Rights Reserved by Dr. Vish Hegde
10
5
Service Process Matrix
Degree of Customization
High
Low
Mass Service
Professional Service
Private
banking
Commercial
banking
Degree of Labor
High
Full-service
stockbroker
Boutiques
Generalpurpose law firms
Retailing
Service Factory
Limited-service
stockbroker
Low
Warehouse and
catalog stores
Law clinics
Service Shop
Specialized
hospitals
Fast food
restaurants
Fine-dining
restaurants
Hospitals
Airlines
No frills
airlines
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11
Service Process Matrix
• Mass Service and Professional Service
– Labor involvement is high
– Selection and training highly important
– Focus on human resources
– Personalized services
• Service Factory and Service Shop
– Automation of standardized services
– Low labor intensity responds well to process technology and scheduling
– Tight control required to maintain standards
©All Rights Reserved by Dr. Vish Hegde
12
6
Improving Service Productivity
Strategy
Separation
Technique
Example
Structure service so customers Bank customers go to a manager to
must go where service is offered open a new account, to loan
officers for loans, and to tellers for
deposits
Supermarkets and department
Self-service
Self-service so customers
examine, compare, and evaluate stores, Internet ordering
at their own pace
Postponement Customizing at delivery
Customizing vans at delivery rather
than at production
Focus
Modules
Restricting the offerings
Modular selection of service,
modular production
Limited-menu restaurant
Investment and insurance selection,
prepackaged food modules in
restaurants
©All Rights Reserved by Dr. Vish Hegde
13
Improving Service Productivity
Strategy
Automation
Scheduling
Training
Technique
Separating services that may lend
themselves to automation
Precise personnel scheduling
Clarifying the service options,
explaining how to avoid problems
©All Rights Reserved by Dr. Vish Hegde
Example
Automatic teller machines
Scheduling ticket counter
personnel at 15-minute intervals
at airlines
Investment counselor, funeral
directors, after-sale maintenance
personnel
14
7
Sustainability in Production Processes
• Resources
– Operations is primary user
– Reducing use is win-win
• Recycling
– Burn, bury, or reuse waste
– Recycling begins at design
• Regulations
– Laws affect transportation, waste, and noise
– Increasing regulatory pressure
• Reputation
– Leadership may be rewarded
– Bad reputation can have negative consequences
©All Rights Reserved by Dr. Vish Hegde
15
End of this part
©All Rights Reserved by Dr. Vish Hegde
16
8
