process strategy topics: process choice

Process Strategy

Topics:Process choiceMass customizationService process designProcess technology

Could you try to produce all Honda Accords in a custom-car shop?

0%0%

1. Yes

2. No

1 2 3 4 5

Could you try to produce custom racing cars on a traditional assembly line?

0%0%

1. Yes

2. No

1 2 3 4 5

Should you do either of these?A=Honda Accords in custom car shopB=custom race car on traditional assembly line

0% 0%0%0%

1. Yes for A, no for B

2. No for A, yes for B

3. Yes for both

4. No for both

1 2 3 4 5

Why or why not?

Process Strategy

Process must: meet customer requirements & product specs operate within cost and other constraints

Long-term effect on efficiency flexibility cost quality

Inputs Transformation Outputs

Process Strategy

What affects the process strategy selected? variety of products volume of production technology

Volume

Vari

ety

Tech

nolo

gy

King Sooper’s Bakery

Continuous Flow Batch Job shop

Product Bread Pastries Custom cakes

Volume

Very high

7,000 loaves/hr or

14,000 loaves/batch

Moderate

<1,000 units/batch

Low

250-1,200 cakes /day

Product variety

Very low

(slight change in ingredients)

ModerateHigh

(custom cakes)

King Sooper’s BakeryContinuous Flow Batch Job shop

Process flexibility

Low or none ModerateHigh

Equipment “Specialized” Moderate General purpose

AutomationFixed automation

Automated mat’l handling

Manual mat’l handling Very little

Skills requirement

Limited skills Moderate skills Highly skilled

Capacity change

Very difficult and expensive since fixed

automation

Focus on equipment

Done in large increments

Moderate difficulty and expense

Focus on equipment & labor (but neither

highly sophisticated)

Done in moderate increments

Relatively easy and not very expensive

Focus on people

Done in smaller increments

Product - Process Matrix

Volume per Product (Run)

Low volume

Moderate volume

High volumeVery high volume

High varietyCake dept

Moderately high variety Pastry line

Moderate variety

Low varietyBread lineP

rod

uct

Vari

ety



Low volume

Moderate volume


High variety Process focus

Moderately high variety Batch

Moderate variety Repetitive

Low variety Product focus

Pro

du

ct V

ari

ety Mass

customization



Low volume

Moderate volume


High variety Wedding invitation

Moderately high variety

B&J ice cream

Bakery

Moderate variety

Big Macs

Motorcycles

Low variety Beer

Paper

Pro

du

ct V

ari

ety



Low volume

Moderate volume


High variety Wedding invitation

Moderately high variety

B&J ice cream

Bakery

Moderate variety

Big Macs

Motorcycles

Low variety Beer

Paper

Pro

du

ct V

ari

ety Wedding

invitation

technology

One Extreme

Process focus Repetitive Product focus

Low volume, high variety Focus?

Organized by process or activity – group like machines or activities

General purpose equipment High labor requirement, broadly skilled

labor High inventory levels Make to order Slow, jumbled movement Very low utilization Low fixed cost, high variable cost

ER LabX-ray

Surgery Maternity

One Extreme


Low volume, high variety Focus?

Organized by process or activity – group like machines or activities

General purpose equipment High labor requirement, broadly skilled

labor High inventory levels Make to order Slow, jumbled movement Very low utilization Low fixed cost, high variable cost

Drillpresses

SandingLathes

Grinders Welding

The Other Extreme


Very high volume, very low variety Focus?

Organized based on product Specialized equipment (fixed automation) Low labor requirement, less skill required Low inventory levels Make to stock based on forecast Fast, linear movement Very high utilization High fixed cost, low variable cost

MachineA

MachineC

MachineB

MachineD

MachineE

In Between


High volume, moderate variety Focus?

Organized by product and process Specialized equipment (flexible

automation) Low labor requirement, low to high skill

required Low inventory levels (JIT) Make to frequent forecast Relatively fast, linear Moderate to high utilization High fixed cost, low variable cost

TaskA

TaskD

TaskC

TaskF

TaskE

TaskH

TaskG

TaskB

Cost Perspective on Process Choice

$

fixed cost

total cost

variable costs

Volume

A

General-purpose equipmentHighly skilled labor

High material handling


variable costs$

fixed cost

total cost

Volume

B

Flexible automationModerate skill requirementsModerate material handling


$fixed costvariable costs

total cost

Volume

C

Fixed automationLow skill requirementsLow material handling


$

Volume

A B

C

variable costs$

fixed cost

total cost


total cost

$

fixed cost

total cost

variable costs

Volume VolumeVolume

A B C

In-class example

Making decisions about new business that you are opening. One important decision is what type of process to use. Choices: General-purpose equipment, manual material handling, higher labor

content, higher skills required; costs = $30,000 fixed and $40/unit (labor and manual material handling)

Flexible automation, moderate manual material handling, moderate labor content, moderate skills required; costs = $300,000 fixed and $22/unit (labor and manual material handling)

Fixed automation, automated material handling, low labor content, few skills required; costs = $1,140,000 fixed and $8/unit (labor and manual material handling)

Answer the following: What are the “cross-over” points? What do you recommend if you have forecasted demand at 40,000 units


$

Volume

A B

C

variable costs$

fixed cost

total cost


total cost

$

fixed cost

total cost

variable costs

Volume VolumeVolume

A B C

A: TC=30,000+40xB: TC=300,000+22xC: TC=1,140,000+8x


$

Volume

A B

C

variable costs$

fixed cost

total cost


total cost

$

fixed cost

total cost

variable costs

Volume VolumeVolume

A B C

A: TC=30,000+40xB: TC=300,000+22xC: TC=1,140,000+8x

15,000 60,000

Mass Customization

“manufacturers are using technology to mix the characteristics of these processes [continuous flow and job shop] with the objective of gaining the cost

advantage associated with continuous flow processes and the product variety of job shops”

Mass Customization

“manufacturers are using technology to mix the characteristics of these processes with the objective of gaining the cost advantage associated with continuous flow processes and the product variety of job shops”

What facilitates Mass Customization

Use of technology for rapid data transfer (ordering, scheduling)

Use of technology for rapid throughput (e.g., CNC machines)

Modular design Make-to-order (lean or JIT) or delay customization Tight linkage between sales, production and logistics

within an organization Tight supply chain relationships (suppliers, carriers)

Levi’sNikeIDDell

Results of Mass Customization

Make-to-order rather than make-to-stock Don’t need to rely on forecasts Reduced inventory levels

Designing for Services

What makes services different? Customer involvement

Higher labor content Greater customization Designing process with customer in mind

What might be done? Training and focus on HR Pay attention to layout Limit choices (more standard offerings) Automate where possible Self-service

Technology

General purposeequipment

Fixedautomation

Flexible Automation

Production Process & Technology Alternatives

# Di

ffere

nt P

rodu

cts

or P

arts

# Di

ffere

nt P

rodu

cts

or P

arts

CIMCIM

Flexible Manufacturing

System

Low HighHigh

General Purpose,General Purpose,NC, CNCNC, CNC

Volume of Products or PartsVolume of Products or Parts

Low

HighHigh

DedicatedDedicatedAutomationAutomation

Demo

Technology

General purposeequipment

Fixedautomation

Flexible Automation

CNC machines RobotsASRS AGV FMS

CIM

AIS

process strategy topics: process choice

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