Process Strategy

Chapter 3
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03 -01
 What is Process Strategy?
Process Strategy

The pattern of
decisions made in
managing processes,
so that the processes
will achieve their
competitive
priorities.

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 Supply Chain Processes
Process Description Process Description

Outsourcing Customer
Service

Warehousing Logistics

Sourcing Cross-Docking

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Business Function Processes

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Process Strategy Decisions

03 -05
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 Customer Contact in Services

DIMENSIONS OF CUSTOMER CONTACT IN SERVICE PROCESSES

Dimension High Contact Low Contact

Physical presence Present Absent

What is processed People Possessions or information

Contact intensity Active, visible Passive, out of sight

Personal attention Personal Impersonal

Method of delivery Face-to-face Regular mail or e-mail

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 Process Structure in Services
Customer Contact

Customization

Process Divergence

Flexible Flow

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Service Customer-Contact Matrix

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 Process Structure in Manufacturing

• Job Process

• Batch

– Small or Large

• Line

• Continuous Flow

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Process Structure in Manufacturing

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 Production and Inventory Strategies
• Make-to-Order

• Assemble-to-Order
– Postponement
– Mass Customization

• Make-to-Stock
– Mass Production
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 Layout

• Layout - The physical arrangement of human

and capital resources
• Operation - A group of resources performing
all or part of one or more processes
• Layout involves three basic steps
1. Gather information
2. Develop a block plan
3. Design a detailed layout
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 Layout
• Gather information on:
– Space requirements
– Available space
– Closeness Factors

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 Layout
• Develop a Block Plan

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 Layout
• Use a Closeness Matrix

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 Layout
• Euclidian distance is the straight-line
distance between two possible points

d AB   x A  xB    y A  y B 
2 2

where
dAB = distance between points A and B
xA = x-coordinate of point A
yA = y-coordinate of point A
xB = x-coordinate of point B
yB = y-coordinate of point B
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 Layout
• Rectilinear distance measures the distance
between two possible points with a series
of 90-degree turns
d AB  x A  xB  y A  yB

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 Application 3.1
What is the distance between (20,10) and (80,60)?

Euclidian Distance

dAB = (20 – 80)2 + (10 – 60)2

= 78.1

Rectilinear Distance

dAB = |20 – 80| + |10 – 60| = 110

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 Example 3.1
Develop an acceptable block plan for the Office of Budget
Management that locates departments with the greatest
interaction as close to each other as possible.

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 Example 3.1
How much better is the proposed block than the
current block plan?
The following table lists pairs of departments that have a
nonzero closeness factor and the rectilinear distances
between departments for both the current plan and the
proposed plan

3 6 4 6 2 3

1 2 5 1 4 5

Current Block Plan Proposed Block Plan

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 Example 3.1
Current Plan Proposed Plan
Department Closeness Distance Weighted-Distance Distance Weighted-Distance
Pair Factor (w) (d) Score (wd) (d) Score (wd)
1, 2 3
1, 3 6
1, 4 5
1, 5 6
1, 6 10
2, 3 8
2, 4 1
2, 5 1
3, 4 3
3, 5 9
4, 5 2
5, 6 1

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 Example 3.1
Current Plan Proposed Plan
Department Closeness Distance Weighted-Distance Distance Weighted-Distance
Pair Factor (w) (d) Score (wd) (d) Score (wd)
1, 2 3 1 3 2 6
1, 3 6 1 6 3 18
1, 4 5 3 15 1 5
1, 5 6 2 12 2 12
1, 6 10 2 20 1 10
2, 3 8 2 16 1 8
2, 4 1 2 2 1 1
2, 5 1 1 1 2 2
3, 4 3 2 6 2 6
3, 5 9 3 27 1 9
4, 5 2 1 2 1 2
5, 6 1 2 2 3 3
Total 112 Total 82

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 Example 3.1

Excel Solver
evaluation
of solution

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 Application 3.2
Matthews and Novak Design Company has been asked to
design the layout for a newly constructed office building of
one of its clients. The closeness matrix showing the daily
trips between its six department offices is given below.
Departments Trips between Departments
1 2 3 4 5 6
1  25 90 165
2  105
3  125 125
4  25
5  105
6 

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03 - 24
 Application 3.2
Shown on the right is a block plan that has been suggested for
the building (original plan). Assume rectilinear distance and
complete the highlighted cells.
Department Closeness Distance Score
Pair Factor 3 6 1
1, 6 165 1 165 2 5 4
3, 5 125 2 250
3, 6 125 1 125
2, 5 105 1 105
5, 6 105 1 105
1, 3 90 2 180
1, 2 25 3 75
4, 5 25 1 25
Total 1030

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 Application 3.2

Department Closeness Distance Score

Pair Factor 3 6 1
1, 6 165 1 165 2 5 4
3, 5 125 2 250
3, 6 125 1 125 Based on the
2, 5 105 1 105 above results,
5, 6 105 1 105 propose a better
1, 3 90 2 180 plan and
1, 2 25 3 75 evaluate it in
4, 5 25 1 25 terms of the
Total 1030 load-distance
score.
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03 - 26
 Application 3.2

Department Closeness
Pair Factor Distance Score 4 6 1
1, 6 165 2 5 3
3, 5 125
3, 6 125
2, 5 105
5, 6 105
1, 3 90
1, 2 25
4, 5 25
Total

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03 - 27
 Application 3.2

Department Closeness
Pair Factor Distance Score 4 6 1
1, 6 165 1 165 2 5 3
3, 5 125 1 125
3, 6 125 2 250
2, 5 105 1 105
5, 6 105 1 105
1, 3 90 1 90
1, 2 25 3 75
4, 5 25 2 50
Total 965

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03 - 28
 Customer Involvement

• Possible Disadvantages
• Can be disruptive

• Managing timing and volume can be challenging

• Quality measurement can be difficult

• Requires interpersonal skills

• Layouts may have to be revised

• Multiple locations may be necessary

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 Customer Involvement
• Possible Advantages
• Increased net value to the customer

• Can mean better quality, faster delivery, greater

flexibility, and lower cost
• May reduce product, shipping, and inventory costs

• May help coordinate across the supply chain

• Processes may be revised to accommodate the

customers’ role
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 Resource Flexibility
• Workforce
– Flexible
workforce

• Equipment
– General-purpose
– Special-purpose

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 Application 3.3
BBC is deciding whether to weld bicycle frames manually or to
purchase a welding robot. If welded manually, investment costs for
equipment are only $10,000. The per-unit cost of manually
welding a bicycle frame is $50.00 per frame. On the other hand, a
robot capable of performing the same work costs $400,000. Robot
operating costs including support labor are $20.00 per frame.
Welded manually Welded by robot
(Make) (Buy)
Fixed costs $10,000 $400,000
Variable costs $50 $20

At what volume would BBC be indifferent to these alternative

methods?
Fm – Fb $10,000 – $400,000
Q = c –c = = 13,000 frames
b m $20 – $50

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 Capital Intensity
• Automation in • Automation in
Manufacturing Services
– Flexible Automation
– Fixed

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Decision Patterns for Service
Processes

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Link of Competitive Priorities to
Manufacturing Strategies

03 - 35
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Decision Patterns for Manufacturing
Processes

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 Process Reengineering

• Critical processes
• Strong leadership
• Cross-functional teams
• Information technology
• Clean-slate philosophy
• Process analysis

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 Solved Problem 1
A defense contractor is evaluating its machine shop’s current layout.
The figure below shows the current layout and the table shows the
closeness matrix for the facility measured as the number of trips
per day between department pairs. Safety and health regulations
require departments E and F to remain at their current locations.

a. Use trial and error to find a better layout

b. How much better is your layout than the current layout in
terms of the wd score? Use rectilinear distance.
Trips Between Departments
Department A B C D E F E B F
A ― 8 3 9 5
B ― 3
A C D
C ― 8 9
D ― 3
E ― 3
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 Solved Problem 1
a. In addition to keeping departments E and F at their current locations, a
good plan would locate the following department pairs close to each other:
A and E, C and F, A and B, and C and E.
The below figure was worked out by trial and error and satisfies all these
requirements.
• Start by placing E and F at their current locations.
• Then, because C must be as close as possible to both E and F, put C
between them. Place A below E, and B next to A.
• All of the heavy traffic concerns have now been accommodated.
Trips Between Departments
Department A B C D E F E C F
A ― 8 3 9 5
B ― 3
A B D
C ― 8 9
D ― 3
E ― 3
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 Solved Problem 1
b. The table reveals that the wd score drops from 92 for the
current plan to 67 for the revised plan, a 27 percent reduction.

Current Plan Proposed Plan

Department Number of wd Score wd Score
Pair Trips (1) Distance (2) (1)  (2) Distance (3) (1)  (3)
A, B 8 2 16 1 8
A, C 3 1 3 2 6
A, E 9 1 9 1 9
A, F 5 3 15 3 15
B, D 3 2 6 1 3
C, E 8 2 16 1 8
C, F 9 2 18 1 9
D, F 3 1 3 1 3
E, F 3 2 6 2 6
wd = 92 wd = 67

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