Pom Lecture (12)

Unit 2 Management of Conversion System Chapter 4: Product and process design Lesson 13:- Process design Cont’d Learning Objectives After reading this lesson you will be able to understand Vertical integration Resource flexibility Process reengineering Dear students, all of us should appreciate that no organization in this world is self sufficient to run the business independently. It has to depend on others for: Either raw materials or For delivering the product. It is hence time now to introduce the concept of vertical integration. What is vertical integration? All business buy at least some inputs to their processes, such as professional services, raw materials, or manufactured parts, from other producers. An organization which performs more processes in the supply chain by itself, the more vertically integrated it is. If it doesn’t perform some processes itself, it must rely on outsourcing. 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. Let’s brush up our knowledge of two other integration processes, i.e. Backward integration Forward integration Vertical integration can be in two directions, as shown in the Figure4.8. 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 by acquiring its business customers. Raw materials Backward integration In-house processes

Forward integration Customers

Figure 4.8 Vertical integration The advantages of vertical integration are the disadvantages of more outsourcing. Similarly, the advantages of more outsourcing are disadvantages of more vertical integration.

More vertical integration can sometimes improve market share and allow a firm to enter foreign markets more easily than it could otherwise. Extensive vertical integration is generally attractive when input volumes are high because high volumes allow task specialization and greater efficiency. For performing operations you need equipments as resources. In this regard question arise – is the equipment needed are general purpose or specialpurpose? Should the workforce flexible enough? To answer these we need to understand resource flexibility. What is resource flexibility? Flexible workforce – operations manager must decide whether to have flexible workforce. A flexible workforce means workforce whose members are capable of doing many tasks, either at their own workstations or as they move from one workstation to another. Equipment When products or services have a short life cycle and a high degree of customization, low volumes mean that process managers should select flexible, general-purpose equipment

Another vital question regarding process design is how much customer involvement will be allowed in the process? The amount of customer involvement may range from self-service to customization of product to decide the time and place of the service to be provided. Customer involvement can be categorized as Self service – self-service is the process decisions of many retailers, particularly when price is a competitive priority. 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 Time and location – when services cannot 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 become part of process design. Another question regarding process design is how much should a firm depend on machinery and automated processes? The operation manager must determine the amount of capital intensity required. Dear students, let us now examine the issue of capital intensity.

What is 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 is the relative cost of equipment, the greater is the capital intensity. Let us understand now the concept of fixed automation. Fixed automation – Fixed automation is a manufacturing process that produces one type of part or product in a fixed sequence of simple operations. Operations managers favour fixed automation when demand volumes are high, product designs are stable, and product life cycles are long. These conditions compensate for the process’s two primary drawbacks; large initial investment cost and relative inflexibility. The investment cost is particularly high when a single, complex machine must be capable of handling many operations. However, fixed automation maximizes efficiency and yields the lowest variable cost per unit volumes are high. Let us ponder over the issue of Flexible automation now. Flexible automation – It is a manufacturing process that can be changed easily to handle various products. The ability to reprogram machines is useful for both low customization and high customization processes. In the case of high customization, a machine that makes a variety of products in small batches can be programmed to alternate between products. When a machine has been dedicated to a particular product or family of products, as in the case of low customization and a line flow, and the product is at the end of its life

cycle, the machine can simply be reprogrammed with a new sequence of operations for a new product. How these decisions are coordinated for manufacturing process is illustrated diagrammatically in Figure 4.10

Figure 4.11 illustrates the same for services

Figure 4.11 Major process decision in services Before 1970, many firms were willing to endure the additional complexities that came with size. New products or services were added to a facility as a better utilization of fixed costs and keeping everything under one roof. The result was a jumble of competitive priorities, process choices, and technologies. In the effort to do everything, nothing was done well. Hewlett-Packard, Richo and Mitsubishi are some of the firms that have created focused factories splitting large plants that produced all the company’s products into several specialized smaller plants. The theory is that narrowing the range of demands on a facility will lead a workforce toward a single goal. The five main process decisions discussed represent broad strategic issues. The next issue in process management is determining exactly how each process will be performed. Three techniques – flow diagrams, process charts, and simulation – are widely used to study current process and proposed changes. We now focus on these three concepts. What is a flow diagram? A flow diagram traces the flow of information, customers, employees, equipment, or materials through a process. There is no precise format, and

the diagram can be drawn simply with boxes, lines, and arrows. Figure 4.12 illustrates a flow diagram for a automobile repair.

Figure 4.12 Flow diagram for automobile repair

What is a process chart? A process chart is an organized way of recording all the activities performed by a person, by a machine, at a workstation, with a customer, or on materials. These activities can be grouped to five categories. Operation Changes, creates, or adds something. Transportation Moves the study’s subject from one place to another. The subject can be a person, a material, a tool, or a piece of equipment. Inspection

Checks or verifies something but does not change it. Delay Occurs when the subject is held up awaiting further action. Time spent waiting for materials or equipment, cleanup time, and time that workers, machines, or workstations are idle because there is nothing for them to do are examples of delays. Storage Occurs when something is put away until a later time. Supplies unloaded and placed in a storeroom as inventory, equipment put away after use, and papers put in a file cabinet are examples of storage. Figure 4.13 illustrates process chart for emergency room admission

Fig 4.13 Process chart for emergency room admission

The third one is simulation model. Simulation model Simulation is an act of reproducing the behaviour of a process using a model that describes each step of the process. Once the current process is modeled, the analyst can make changes in the process to measure the impact on certain performance measures, such as response time, waiting lines, resource utilization, etc. Flow diagrams, process charts, and simulation models are means to an end – continually improving the process. After a chart has been prepared for either a new or existing process, brainstorming is needed for improvement ideas. To make a process more efficient, the analyst should question each delay and then analyze the operation, transportation, inspection, and storage activities to determine whether they can be combined, rearranged, or eliminated. There is always a scope of doing things in better way. Improvements in productivity, quality, time, and flexibility can be significant. Once the process is designed next comes to evaluate the process and see is there any scope for improvement or is there any need to change the process? Process reengineering addresses these questions. What is process reengineering? Process reengineering Process reengineering is the fundamental rethinking and radical redesign of business processes to bring about dramatic improvements in performance. Reengineering asks questions as: Is the process designed to create customer value?

Do we achieve competitive advantage in terms of quality, product, speed of delivery, or price? Does the process help us to win orders? Does the process maximize the customer’s perception of value? Process reengineering means revaluating the purpose of the process and questioning those purposes and assumptions. Process reengineering only works if the basic process and objectives are reexamined. Often a firm finds that the initial assumptions of its process are no longer valid. Reengineering focuses on dynamic improvements in cost, time, or customer service irrespective of how the process is currently being done. Any process can be considered for radical redesign. It could be a factory layout, a purchasing procedure or a new way of processing credit applications as described in the POM in practice below. POM in Practice – IBM credit application* The traditional IBM credit application process took many steps. The first step consisted of 14 people answering phones and logging calls from field sales personnel who were requesting credit for their customers. After receiving the calls, the phone personnel made paper notations that they sent upstairs to credit personnel for a credit check. Then the paper went down the hall to the business practice’s group where they entered the data into a computer for determination of terms and interest rates. From there the packet of data went to a clerical group. A week or two after the request, the results of the request were available. IBM tried to fix the process by keeping a log of each step of every request. But while this logging allowed them to know where in the process the

application was, it added a day to the turnaround. Finally, two managers tried a radical approach. They walked a loan request through each step from office to office, and found that it took only 90 minutes of actual work. The additional week was spent shuttling the paperwork among the departments. This means that the work along the way was not the problem. Instead, the process was at fault. Reengineering resulted in IBM replacing all of its specialists with generalists, called case workers, who process an application from start to finish. The firm also developed software that uses the expertise of specialists to support case workers. The reengineered process reduced the number of employees and achieved better results. The week-plus turnaround time for a credit request is down to four hours. The company now handles 100 times the number of loan request than it did under the old system. *Taken from: Principles of Operations management, Barry Render and Jay Heizer, Prentice Hall, pp. 179-180 Dear students, towards the end of the discussion, let us examine the process of Choosing a service process strategy Choosing a service process strategy Five processes choice considered are applicable to service as well as manufacturing. In process-focused facilities (project and job process) equipment utilization is low – perhaps as low as 5%. This is true not only for manufacturing but also for services. An x-ray machine in a dentist’s office and much of the equipment in a fine dining restaurant have low utilization. Hospitals can also be expected to be in that range, which would suggest why their costs are considered high.

Why such low utilization? In part because excess capacity for peak loads is desirable. Hospital administrators, as well as managers of other service facilities and their patients and customers, expect equipment to be available as needed. Another reason of low utilization is poor scheduling. The service industry moves to apply continuous process by establishing fastfood restaurants, auto lubrication shops, and so on. As the variety of services is reduced, per –unit cost is also expected to drop. The following figure provides more insight into service processes.

Mass Service:

Professional Service

High labour intensity

High labour intensity

Low customer interaction

High customer interaction

Low product customization

High product customization

Examples:

Examples:

- Retailing, wholesaling - Retail aspects of commercial banking

- Doctors, lawyers, tax accountants - Architects, financial advisors

Service Factory:

Service shop

Low labour intensity

Low labour intensity

Low customer interaction

High customer interaction

Low product customization

High product customization

Examples:

Examples:

- Airlines, trucking

- Hospitals

- Hotels, recreation

- Auto repair, other repair

- Fast-food restaurants

services - Fine dining restaurants

Points to ponder