OM-PROCESS

MANAGEMENT
Mahr Irfan Ahmad Tahir
B.Sc., ACFMA(Pak), MIPA(Aus), AFA(UK)
OM-PROCESS STRUCTURE IN
MANUFACTURING
 Many processes at a manufacturing firm are
actually services to internal or external
customers. Similarly, manufacturing processes
can be found in service firms.
 The product–process matrix, shown at page 76,
brings together three elements:(1) volume, (2)
product customization, and (3) process
characteristics. It synchronizes the product to
be manufactured with the manufacturing
process itself.
 A good strategy for a manufacturing process
depends first and foremost on volume.
OM-PROCESS STRUCTURE IN
MANUFACTURING
 Process choice is the way of structuring the process by
organizing resources around the process or organizing them
around the products.
 The manager has four process choices, which form a continuum,
to choose from: (1) job process, (2) batch process, (3) line
process, and (4) continuous-flow process.
 A job process creates the flexibility needed to produce a wide
variety of products in significant quantities, with considerable
divergence in the steps performed. Customization is high and
volume for any one product is low. The workforce and
equipment are flexible to handle considerable task divergence
 The batch process is by far the most common process choice
found in practice, leading to terms such as small batch or large
batch to further distinguish one process choice from another. A
batch process differs from the job process with respect to
volume, variety, and quantity.
OM-PROCESS STRUCTURE IN
MANUFACTURING
 A line process 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 or line
flows, and little inventory is held between the
processing steps.
 A continuous-flow process is the extreme
end of high-volume standardized production,
with rigid line flows. Process divergence is
negligible.
OM-PRODUCTION AND
INVENTORY STRATEGY
 Strategies for manufacturing processes differ
from those in services not only because of
low customer contact and involvement but
also because of the ability to use inventories
not only as purchased materials but also in
the form of subassemblies or finished
products.
 Four approaches (Design-to-order, make-to-
order, assemble-to-order, and make-to-stock
strategies) to inventory that should be
coordinated with process choice.
OM-PRODUCTION AND
INVENTORY STRATEGY
 Design-to-Order Strategy A firm uses a design-
to-order strategy when it can design new
products that do not currently exist, and then
manufacture them to meet unique customer
specifications. Typically a job process is
employed to create a highly customized product,
such as a designer pair of shoes for a particular
client.
 Make-to-Order Strategy Manufacturers that
make products to customer specifications in low
volumes tend to use the make-to-order strategy,
coupling it with job or small batch processes.
OM-PRODUCTION AND
INVENTORY STRATEGY
 Assemble-to-Order Strategy The assemble-to-order
strategy is an approach to producing a wide variety of
products from relatively few subassemblies and
components after the customer orders are received.
 Make-to-Stock Strategy Manufacturing firms that hold
items in stock for immediate delivery, thereby minimizing
customer delivery times, use a make-to-stock strategy.
This strategy is feasible for standardized products with
high volumes and reasonably accurate forecasts.
 A layout is the physical arrangement of operations (or
departments) created from the various processes and puts
them in tangible form.
 An operation is a group of human and capital resources
performing all or part of one or more processes.
OM-PROCESS STRATEGY
DECISIONS
 Three major process strategy decisions shown in Page
73 customer involvement, resource flexibility, and
capital intensity.
 Customer involvement reflects the ways in which
customers become part of the process and the extent
of their participation.
 The advantages of a more customer-focused process
might increase the net value to the customer. Some
customers seek active participation in and control over
the service process, particularly if they will enjoy
savings in both price and time. The manager must
assess whether advantages outweigh disadvantages,
judging them in terms of the competitive priorities and
customer satisfaction.
OM-PROCESS STRATEGY
DECISIONS
 Possible Disadvantages Customer
involvement is not always a good idea. In
some cases, giving the customer more active
contact in a service process will just be
disruptive, making the process less efficient.
Managing the timing and volume of customer
demands becomes more challenging if the
customer is physically present and expects
prompt delivery.
OM-PROCESS STRATEGY
DECISIONS
 Resource Flexibility Just as managers must
account for customer contact when making
customer involvement decisions, so must they
account for process divergence and diverse
process flows when making resource flexibility
decisions in Figure 2.1. For example, high task
divergence and flexible process flows require
more flexibility of the process’s resources—its
employees, facilities, and equipment. Employees
need to perform a broad range of duties, and
equipment must be general purpose. Otherwise,
resource utilization will be too low for
economical operations.
OM-PROCESS STRATEGY
DECISIONS
 Workforce Operations managers must decide whether
to have a flexible workforce. Members of a flexible
workforce are capable of doing many tasks, either at
their own workstations or as they move from one
workstation to another. However, such flexibility often
comes at a cost, requiring greater skills and thus more
training and education.
 Equipment Low volumes mean that process designers
should select flexible, general-purpose equipment.
Page 80 illustrates this relationship by showing the
total cost lines for two different types of equipment
that can be chosen for a process. Each line represents
the total annual cost of the process at different
volume levels.
OM-PROCESS STRATEGY
DECISIONS
 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 is the capital intensity.
 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.
 Automating Manufacturing Processes Substituting labor-saving
capital equipment and technology for labor has been a classic
way of improving productivity and quality consistency in
manufacturing processes. If investment costs are large,
automation works best when volume is high, because more
customization typically means reduced volume. Gillette, for
example, spent $750 million on the production lines and
robotics that gave it a capacity to make 1.2 billion razor
cartridges a year. The equipment is complicated and expensive.
OM-PROCESS STRATEGY
DECISIONS
 Manufacturers use two types of automation: (1) fixed and (2)
flexible (or programmable).
 Fixed automation produces one type of part or product in a fixed
sequence of simple operations.
 Flexible (or programmable) automation can be changed easily to
handle various products. The ability to reprogram machines is useful
for both low-customization and high-customization processes.
 An industrial robot, which is a versatile, computer-controlled
machine programmed to perform various tasks, is a classic example
of flexible automation.
 Automating Service Processes Using capital inputs as a labor-saving
device is also possible for service processes. In educational services,
for example, long-distance learning technology now can supplement
or even replace the traditional classroom experience by using books,
computers, Web sites, and videos as facilitating goods that go with
the service.
OM-PROCESS STRATEGY
DECISIONS
 Economies of Scope If capital intensity is high,
resource flexibility usually is low. In certain types
of manufacturing operations, such as machining
and assembly, programmable automation breaks
this inverse relationship between resource
flexibility and capital intensity. It makes possible
both high capital intensity and high resource
flexibility, creating economies of scope.
Economies of scope reflect the ability to produce
multiple products more cheaply in combination
than separately. In such situations, two
conflicting competitive priorities —customization
and low price—become more compatible.
OM-PROCESS STRATEGY
DECISIONS
 The process should reflect its desired competitive priorities. Front offices
generally emphasize top quality and customization, whereas back offices are
more likely to emphasize low-cost operation, consistent quality, and on-time
delivery. The process structure selected then points the way to appropriate
choices on customer involvement, resource flexibility, and capital intensity.
High customer contact at a front-office service process means:
 1. Process Structure. The customer (internal or external) is present,
actively involved, and receives personal attention. These conditions create
processes with high divergence and flexible process flows.
 2. Customer Involvement. When customer contact is high, customers are
more likely to become part of the process. The service created for each
customer is unique.
 3. Resource Flexibility. High process divergence and flexible process flows
fit with more flexibility from the process’s resources—its workforce, facilities,
and equipment.
 4. Capital Intensity. When volume is higher, automation and capital
intensity are more likely. Even though higher volume is usually assumed in the
back office, it is just as likely to be in the front office for financial services.
Information technology is a major type of automation at many service processes,
which brings together both resource flexibility and automation.
OM-DECISION PATTERNS FOR MANUFACTURING
PROCESSES
 The process structure selected once again points the way to
appropriate choices on customer involvement, resource flexibility,
and capital intensity. High volumes per part type at a manufacturing
process typically mean:
 1. Process Structure. High volumes, combined with a standard
product, make a line flow possible. It is just the opposite where a
job process produces to specific customer orders.
 2. Customer Involvement. Customer involvement is not a factor in
most manufacturing processes, except for choices made on product
variety and customization. Less discretion is allowed with line or
continuous-flow processes to avoid the unpredictable demands
required by customized orders.
 3. Resource Flexibility. When volumes are high and process
divergence is low, flexibility is not needed to utilize resources
effectively, and specialization can lead to more efficient processes.
 4. Capital Intensity. High volumes justify the large fixed costs of
an efficient operation. Page 83
OM-PROCESS REENGINEERING
 There are two different but complementary
philosophies for process design and change:
(1) process reengineering and (2) process
improvement.
 Process Reengineering is the fundamental
rethinking and radical redesign of processes
to improve performance dramatically in
terms of cost, quality, service, and speed.
Process reengineering is about reinvention
rather than incremental improvement.
 Key elements of reengineering;
OM-PROCESS REENGINEERING
 KEY ELEMENTS OF REENGINEERING;
 Critical processes-The emphasis of reengineering should be on core business processes.
Normal process-improvement activities can be continued with the other processes.
 Strong leadership-Senior executives must provide strong leadership for reengineering
to be successful. Otherwise, cynicism, resistance (“we tried that before”), and
boundaries between departments can block radical changes.
 Cross-functional teams-A team, consisting of members from each functional area
affected by the process change, is charged with carrying out a reengineering project.
Self-managing teams and employee empowerment are the rule rather than the
exception.
 Information technology-Information technology is a primary enabler of process
engineering. Most reengineering projects design processes around information flows,
such as customer order fulfillment.
 Clean-slate philosophy-Reengineering requires a “clean-slate” philosophy—that is,
starting with the way the customer wants to deal with the company. To ensure a
customer orientation, teams begin with internal and external customer objectives for
the process.
 Process analysis-Despite the clean-slate philosophy, a reengineering team must
understand things about the current process: what it does, how well it performs, and
what factors affect it. The team must look at every procedure involved in the process
throughout the organization.
OM-PROCESS IMPROVEMENT
 Process Improvement is the systematic study of
the activities and flows of each process to
improve it. Its purpose is to “learn the numbers,”
understand the process, and dig out the details.
Once a process is really understood, it can be
improved.
 Process Analysis is the documentation and
detailed understanding of how work is performed
and how it can be redesigned. Looking at the
strategic issues can help identify opportunities for
improvement. Do gaps exist between a process’s
competitive priorities and its current competitive
capabilities
OM-PROCESS IMPROVEMENT
 Six Sigma Process Improvement Model page
85 shows the Six Sigma Process
Improvement Model, a five-step procedure
that leads to improvements in-process
performance. This model can be applied to
projects involving incremental improvements
to processes or to projects requiring major
changes, including a redesign of an existing
process or the development of a new
process.