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Why it is important:
- Reduce costs
- Increases revenue by increasing customer satisfaction
- Reduce investments
- Provide basis for future innovation
Process design
The design activity
Process design and product/service design should be considered together.
Process design should reflect process objectives (if an operation competes on its ability to
respond to customer request quickly, its processes need to be designed to give fast throughput
times).
Measures of process flow performance
- Throughput rate
- Throughput time the time for a unit to move through a process
- Work in process the number of units in the process
- Utilization ratio of the actual output from a process or facility to its design capacity
Process types the volume-variety effect on process design
Low volume operations processes high variety of products/services (vice versa)
Process types
- Project processes well defined start/finish; long time between projects. E.g.
shipbuilding, construction projects (low volume high variety).
- Jobbing processes each product share operations resources with others. E.g.
toolmaker, furniture restorers.
- Batch processes like jobbing but part of operation has periods when it is repeating
itself. E.g. machine tool manufacturing, gourmet frozen food.
- Mass processes high volume narrow (in terms of fundamentals of the product
design) variety. E.g. automobile plants.
- Continuous processes often products are inseparable. E.g. electricity utilities, steel
making.
- Professional services high contact organizations with high levels of customization.
E.g. management consultants.
- Service shops levels of customer contacts placed between professional and mass
services. E.g. banks.
- Mass services many customer transactions, limited contact time and little
customization. E.g. call centers.
Detailed process design
- Process mapping describes processes in terms of how the activities within the process
relates to each other. Several different symbols are used.
Fixed position layout the material or people being transformed do not move but the
transforming resources move around them. E.g. motorway construction.
Functional layout all similar transforming resources are grouped together in the
operation. E.g. tinned- and frozen goods as well as vegetables in a supermarket.
Cell layout the resources needed for a particular class of product are grouped together
in some way. E.g. a maternity unit at a hospital, who are unlikely to need the other
facilities of the hospital.
Product layout the transforming resources are located in sequence specifically for the
convenience of products or product types. E.g. automobile assembly.
Mixed layout a combination of elements of some or all of the basic layout types.
The higher the volume, and the lower the variety are, the more the layout type moves from
fixed position- to product layout .
Detailed design of the layout
Fixed position layout
The layout should allow all the transforming resources to maximize their contribution to the
transformation process by allowing them to provide an effective service to the transformed
resources. Resource location analysis is important when designing the layout.
Functional layout
It is about arranging working centers relative to each other, which lead to a very high number
of combinations for relatively small number of working centers. The task is to minimize the
distance traveled by the transformed resources through the operation.
Cell layout
The task is to group the products types such that convenient cells can be designed around their
needs.
Product layout
It includes a number of decisions:
- The cycle time to which the design must conform.
- The number of stages in the operation.
- The way tasks are allocated to the stages in the line.
- The arrangement of the stages in the line.
The cycle time of each part of the design, together with the number of stages, is a function of
where the design lies on the long thin to short fat spectrum
Service experience
The customers direct experience of the service process. It concerns the way the customer is
dealt with by the service provider.
Service outcome
The result for the customer of the service delivery. Involves tangible outcomes as well as
intangible outcomes, such as value, emotions, judgments and intentions.
Many service operations, compared to manufacturing operations, process customers.
Many challenges facing service operations managers
Managing multiple customers e.g. a nurserys customers include the child, parents,
authorities, staff etc. A service operations manager must: 1. understand who the customers
are; 2. understanding their needs and expectations; 3. developing relationships with them.
Understanding the service concept e.g. a nursery could be seen both as a babysitting service
or a critical educational experience. A service operations manager must: 1. articulate and
communicate the service concept; 2. ensure it can be delivered.
Managing the outcome and the experience e.g. a customer in a restaurant is buying both the
meal and the way it is served. A service operations manager must: 1. manage both outcome
and experience simultaneously; 2. clarify the experience which the organization is selling; 3.
develop performance measurements.
Managing the customer e.g. a restaurant where the customer is a part of the operation. A
service operations manager must: 1. develop a design that take account of how one customer
affects another customers experience; 2. develop a design that has a positive impact on
employees feelings; 3. create a good servicescape (atmosphere).
Managing in real time e.g. children screaming for attention in a nursery. A service
operations manager must: 1. in an appropriate way manage resources and staff; 2. create an
appropriate culture.
Coordinating different parts of the organization A service operations manager must: 1.
integrate marketing, resource- and people management etc; 2. understand the need of
customers; 3. oversee logistics of supply chain; 4. ensure that the operation supports the
strategic intent of the organization.
Understanding the relationship between operations decisions and business/organizational
success e.g. using a webcam in a nursery. A service operations manager must: 1. know how
operations decisions affect business performance; 2. conclude which improvements are
necessary.
Knowing, implementing and influencing strategy - A service operations manager must: 1.
understand their role not only in implementing strategy but also in contributing to it; 2.
provide a platform for competitive advantage.
Continually improving the operation - A service operations manager must often improve both
efficiency and quality.
Encouraging innovation e.g. the webcam at a nursery. A service operations manager must:
1. seek out new ideas; 2. have the will and support to assess new ideas carefully.
Managing short-term and long-term issues simultaneously the immediacy leads to shortterm focus. A service operations manager must pay attention to both strategy and the detail of
process to create and sustain a successful organization.
A service concept is a shared understanding of the nature of the service provided and
received. It should encapsulate information about:
- The organizing idea the essence of the service bought/used by the customer.
- The service experience the customers direct experience of the service process.
- The service outcome the result for the customer of the service.
- The service operation the way in which the service will be delivered.
- The value of the service the benefit that customers perceive to be inherent in the
service weighed against the cost of that service.
The service concept should make it clear what the organization is selling and what the
customer is buying.
- It guides operations staff and managers to know what to deliver and how to deliver it.
- It links operations and marketing.
- It needs to be well defined, so that operations and marketing can be aligned.
Service value
The cost of a service to a customer is a combination of the financial price and the cost
(inconvenience) of making the purchase. The service concept communicates the set of
benefits
- Outcome
- Experience
- Operation
- Psychological benefits
- to a customer in order to demonstrate the potential value of the service. Value can be added,
or even better, reinvented.
The service concept a shared view
- The organization business proposition (the way in which the organization would like
to have its service perceived).
- The customer perception of service.
The service concept should be a shared understanding of what the organization provides and
what the customer receives.
The DNA of the service concept
The service concept = the service product (all the different parts that form the service
outcome, experience and the servicescape; 4-, 7- and 8-Ps). An organization should identify
the parts, check them against customer needs, design and deliver them. The service concept is
also the mental picture held by the customer.
The service concept should be based upon the organizations:
- Vision
- Mission
- Service ideas
- Brand
- Brand values
Service processes
The whole interrelated chains of processes needs to be carefully designed, managed and
controlled to deliver value to customers. Processes depend on:
- Customization (management consulting; high variety low volume)
- Consistency (call centers; low variety high volume)
- Skill and knowledge of individual employees (medical doctors)
- Technology
Service processes and their importance
Service processes process:
- Customers
- Materials
- Information
- Staff
The service process is only one part of the service operation, but it is the glue that holds it all
together.
The service process: creating the service experience
The way the customer, materials and information are processed and how the link together
creates the experience. Some tasks take place in the presence of the customer, the front office.
Others take place in the back office remote from customers.
Front office
- Deal directly with customers
- Customers interact with either service employees or technology
- The customer plays an important role in service delivery and is an operational resource
- E.g. management consultancy; call center agent answering customer queries etc.
- Some processes have well-defined routines (call centers) whereas others depend on the
service providers skills (management consultant)
- One common problem: the unpredictability of the customer
Back office
- Operates at a distance from customers
- The lack of customers presence make back office more efficient
- E.g. preparation of food in a restaurant; cheque-clearing processes for a retail bank
Reasons for shifting activities from front- to back office
- Cost and consistency benefits
- Reduces the need for immediate response to customers requests
- Business operate close to customers, but the work is carried out by technology at a
remote, cheaper location
Shifting activities from back- to front office
- Customers require technical expertise
- Cheap minilabs for film processing
The service experience
The customers direct experience of the service process. Examples of interactions:
- Face-to-face
- Telephone cost effective but possibility of misunderstandings
- E-service
Customers may perceive some degree of risk in the service process. These are:
- Financial risk e.g. purchasing a pension plan for non-educated customers
- Physical risk e.g. an adventure holiday
- Psychological risk may come from customers lack of confidence or competence
(Social interaction perceived risk figure on p. 189)
Customer variables that complicate the service experience:
- Customer mindset a customer complaint process will not have the customer in a
helpful mindset
- Customer mood people complaining might be expected to be angry
- Personality clashes some people simply do not get on.
The need to manage the total chain of processes
Service operations managers need to be able to manage the total chain of processes, which
link together the back- and front office and finally the end user. Failure to manage end-to-end
(e2e) processes leads to:
- Lack of consistency
- Poor reliability
- Increased cost
A process manager must not only deal with the individual issues regarding front- and back
offices, but also deal with integrating these two. He should design the process from the point
of view of the thing being processed.
The process environment the servicescape
Servicescape the physical surroundings of the service operation. It includes both the
physical and informational environment in which a service is both created and delivered.
The servicescape can:
Affecting the customers experience
The choice and style of facilities should be in tune with the desired service experience (based
on the service concept). E.g. the style of Caesars Palace; the memorabilia of Hard Rock
cafs.
Influencing customer behavior
Customers behavior, and experience, can be determined by the servicescape; its ambience,
lightning or music. E.g. background music in a store can influence the pace of shopping.
Influencing employees
The physical and informational aspects of a service environment influence employees in the
same way as customers. An appropriate environment results in approach, and they become
more committed to the organization.
Understanding the nature of the service process
Processes need to be engineered and controlled. To do this, one need to understand the nature
of service processes. They are described by three themes:
Service product variety
Runners
- Standard activities and relatively predictable; easy to forecast demand.
- Lend themselves to efficient operations.
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Repeaters
- Standard activities but more complex and they occur less frequently.
- Absorb more resources than runners because lower volume and hence, less automation.
Strangers
- Non-standard activities and difficult to forecast demand.
- They are least well defined in terms of resource requirements.
Types of process: volume and variety
Capability processes (high variety-low volume)
- No service concept as high-volume services but more flexibility to change service
outcome.
- The capability resides with specific individuals, and may be lost when they leave the
organization.
- No consistency in processes.
- Many professional services are in this category.
- Strangers and runners dominate activities.
- E.g. lawyers, accountants, management consultants.
Commodity processes (low variety-high volume)
- The service concept is well-defined, and translated into a series of tightly controlled
processes little flexibility.
- Competing with price.
- Consistency in processes, to ensure customer expectations is met.
- Customer-facing staff is likely to be relatively junior.
- Usually mass services.
- Activities are typified by runners.
- E.g. restaurant chains, supermarkets, telephone banking.
Managers task is to create a planned environment where the various activities can be carried
out as efficiently as possible.
Profiling processes
When comparing companies on the capability-commodity spectrum, one must compare
different process types within the same sector.
Off-diagonal processes
The line of best fit between capability and commodity is in reality rather wider than just a
thin line.
Operating in the complexity area (high volume-high variety)
Mass customization provide customers with whatever they want, however and wherever
they want it, e.g. internet banking.
Operating in the simplicity area (low volume-low variety)
Usually inefficient operations because of the low volume. Might suit small niche companies
such as microbreweries.
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Process mapping
- Charting of a service process in order to assist in the evaluation, design and
development of processes.
- Capture all activities and relationships on paper, which is time consuming.
- Either micro- or macro level, created with different symbols.
Walk through audits
- Staff, managers and other acting as surrogate customers and evaluate the service.
- The audit should be based on a checklist of questions.
- Identifies critical elements of the customer experience from first contact to the exit.
Service transaction analysis
- Identifies the reason for the outcome of each transaction so that improvements can be
made.
Five key stages:
- The service concept needs to be agreed and specified.
- Mystery shoppers walk through the actual process to assess how customers assess the
transactions.
- Interpretation as to why the customer arrives at this evaluation.
- The assessments are joined to give a visible profile.
- Service designers and managers then working from the sheet to find improvements that
can be made.
Controlling service processes
An operations manager must try to achieve consistency of outcome for customers. The most
important factor when influencing customer satisfaction is reliability.
Capable processes
Uses statistical process control (SPC) to asses if the process is capable, and creates a normal
distribution to se if the process lies within the promised limit
- To deliver an item on time, is a capable process.
- If not delivered on time, the process is out of control.
If the process is out of control, there are two strategies management must consider:
- To invest in the process, so the customer is ensured the item is delivered on time.
- To relax the process specification (not make any promises).
The SPC is applicable to factory-like processes.
Quality systems
Quality assurance activity is usually focusing on preventing poor quality, but not encouraging
good quality. High volume commodity-type of services is best suited for quality system
approaches. They can be:
- Mapped
- Consistent standards can be established and monitored.
Standard operating procedures (SOPs) are used to make sure quality specifications are met.
Repositioning service processes
Commodity processes may want to be more flexible and customized, whereas capability
processes may want to increase volume and reduce cost.
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Account or client managers B2B services may use accounts to provide a closer
customer contact.
Change the nature of the service the process is repositioned from service partnership
to do-it-yourself service.
Change customer expectations if high volume-low flexibility companies need to
educate customers not to expect personalized service.
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Processes can be made so flexible that they achieve the JIT ideal of a batch size of
one.
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The concept
- The understanding of the nature, use and value of the service or product.
- E.g. patients are not concerned about the ingredients of a drug, but how they will use it
and the benefits it will provide.
The package of products and services
- Should provide those benefits defined in the concept.
- Both products and services are usually part of the package. E.g. a car with warranty.
The process
- The way in which products will be created and delivered to the customers.
- E.g. a car manufacturer designing a new assembly line.
The stages of design
- Concept generation
- Concept screening
- Preliminary design
- Evaluation and improvement
- Prototyping and final design
Concept generation
- Ideas from customers
- Listening to customers
- Ideas from competitor activity
- Ideas from staff
- Ideas from research and development
Concept screening
Evaluation of concept by asking three questions:
- Can we do it?
- Do we want to do it?
- Do we want to take the risk?
The design funnel
Reduces the number of possibilities until the final design is reached.
Balancing evaluation with creativity
The process of evaluation is important but it must be balanced by the need for design
creativity.
Preliminary design
First attempt at both specifying the component products and services in the package and
defining the processes to create the package.
1. Specifying the components of the package
2. Reducing design complexity
- Standardization minimize variety among products.
- Commonality the range of which products incorporates the same
components.
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Qualitative methods
Collecting and appraising judgments, options, best guesses and past performance from experts
to make predictions.
Panel approach
- Acts like a focus group allowing everyone to talk freely.
- Difficult to reach consensus and the loudest participants opinion may emerge.
Delphi method
- Questionnaires are posted to experts.
- The questionnaires are analyzed and then returned to the experts.
- The experts are asked to reconsider their original opinion.
- This is repeated several times to conclude either a consensus or a narrower range of
decisions.
Scenario planning
- Applied to long-range forecasting, using a panel.
- Panel members are asked to devise a range of future scenarios.
Quantitative methods
Two different methods:
- Time series analysis
- Casual models
Time series analysis
- Plots a variable over and removes underlying variations, such as seasonal variation, to
predict future behavior.
Casual models
- Employ complex techniques to understand the strength of relationships between the
network of variables and the impact they have on each other.
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What is strategy?
For example:
- Setting broad objectives that direct a firm towards its overall goal.
- Planning the path that will achieve these goals.
- Stressing long-term objectives.
- Dealing with the total picture.
Operations strategy operations is not always operational
- Operational means detailed, short-term, day-to-day etc.
- Operations strategy is concerned with the total transformation process (the business).
- It is concerned with how the competitive environment is changing.
- It is concerned with the long-term development of its operations resources.
- E.g. IKEA has a clear operations strategy.
Four perspectives on operations strategy
- The top-down perspective
- The bottom-up perspective
- The market requirements perspective
- The operations resources perspective
The top-down per. operations strategy should interpret higher-level strategy
- Three levels of strategies corporate, business and functional, which form a hierarchy.
- The corporate strategy forming the business strategy etc.
- The corporate strategy may consist of what type of business the group wants to be in, in
what parts of the world it wants to operate etc.
The bottom-up per. operations strategy should learn from day-to-day experience
- When reviewing the strategy, a business usually consult individual functions.
- By doing this, it can base its strategy on day-to-day experiences, which may incorporate
customers needs in a better way.
The market requirements per. operations strategy should satisfy the organizations markets
- Operations strategy must reflect the organizations market position.
- Must develop an understanding of what is required in order to support that position.
- The needs that define the market will shape the organizations attempt to satisfy those
needs.
- How the organization chooses to position itself will depend on how it feels it can
achieve an advantage over its competitors.
- The last stage in forming the strategy is to define performance objectives the aspects
of operations performance that satisfy market requirements and therefore that the
operation is expected to pursue.
Performance objectives (required performance)
- Quality
- Speed
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Dependability
Flexibility
Cost
The operations resource per. operations strategy should build on operations capabilities
- An organization needs to know what it has (resources) and then decide what actions to
take.
- To understand an operation, one need to examine the interaction between resources,
intangible resources included.
- Informal information flows make up the efficiency of an operation, and is a valuable
resource.
- The concept of routines (formal and informal processes) and intangible assets is the
resource-based view, and together they form the organizations competitive
advantage.
- E.g. Intel may posses a capability-based performance advantage over its competitors,
but it may be competed away quickly.
- However, the resource-based advantage is still valuable.
So what is operations strategy?
- Operations strategy is the attempt to reconcile all four perspectives.
- The tension between the market requirements (MRP) and the operations resource
perspective (ORP) is central to operations strategy.
- An organization cannot simply follow the market, but it must also develop long-term
capabilities which are inherent in the resources.
- It is a complex interaction which depends on the difficulty in clarifying the nature of
market requirements together with the difficulty in knowing the value, abilities etc. of
their own resources.
The content and process of operations strategy
- Content is concerned with the strategic decisions which shape and develop the longterm direction of the operation and form the building blocks of an operation.
- Process is the procedures which are used to formulate operations strategy.
- The process determines how an operation pursues the reconciliation between MRP and
ORP.
The content of operations strategy an overview
- Operations strategy attempts to influence the way it satisfies market requirements by
setting performance objectives and it attempts to influence the capabilities of its
operations resources through the decisions it takes in how those resources are deployed.
- Understanding the relative importance of the operations performance objectives and
the influence on them of the decision areas that determine resource deployment.
Performance objectives
- The purpose of performance objectives is to articulate market requirements.
- Ways for a company to articulate its position in the market: compare it to competitors;
associate itself with the needs of a particular group of customers.
- In this way, market position is defined by the dimensions price, quality, service etc.
(competitive factors).
- They describe the things that a customer can see or experience.
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Each company need to know what list of performance objectives that is appropriate to
their business, what competitive factors each represents and how each competitive
factor is to be defined.
Decision areas
The set of decisions needed to manage the resources of the operation.
- Capacity
- Supply networks
- Process technology
- Development and organization
Capacity strategy
- How capacity and facilities in general should be configured.
Supply network strategy, including purchasing and logistics
- How operation relate to its interconnected network of operations.
Process technology strategy
- The choice and development of the systems, machines etc. which act directly/indirectly
on transformed resources to convert them into finished products.
Development and organization
- Broad and long-term decisions governing how the operation is run on a continuing
basis.
Why these decision areas?
- ROA can be broken down into several ratio-measurements, to reflect the different
decision areas.
Structural and infrastructural decisions
- A distinction is drawn between strategic decisions that determine an operations
structure, and those that determine its infrastructure.
- Structural issues influence the physical arrangement of the operations resources.
- Infrastructural strategy areas influence the activities that take place within the
operations structure (compare hardware to software in a computer system).
The operations strategy matrix
- Describes operations strategy as the intersection of a companys performance
objectives with its decision areas.
- E.g. it should explain how flexibility is influenced by capacity, supply network, process
technology and development and organization decisions etc.
Appendix: the resource-based view of the firm
- Two schools: environmental and resource based and why some firms outperform
others.
Environmental
- A firms performance is related to industrial structure of its markets.
- Key strategic tasks centered on competitive positioning within industrial sectors.
- The firm is an allocator of resources between different market opportunities.
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Firm should analyze the forces present within the environment in order to assess the
profit potential of the industry, and then design a strategy that aligns the firm to the
environment.
Resource based
- Good performance is more likely to be the result of the core capabilities inherent in a
firms resources than its competitive advantage in its industry.
Operations performance
Operations performance objectives
- Perceived performance is a function of who you are and your objectives etc.
- For operations strategy to be effective, performance must be measured.
- Each group of stakeholders has different performance objectives.
The five generic performance objectives
Relates to an operations basic task in a better way than stakeholder objectives.
Quality
- Two concepts product specification and operations conformance to the particular
specification.
- Product specification hard and soft aspects of specification quality, e.g. features
and helpfulness respectively.
- Conformance quality operations ability to produce goods to their defined
specification.
Speed
- Time between the beginning of an operations process and its end.
- E.g. time between when materials enter an operation and when it leaves fully
processed.
Dependability
- Keeping delivery promises; honoring the delivery time given to a customer.
- Dependability = due delivery time actual delivery time
Flexibility
- First distinction to make is between range flexibility how much the operation can be
changed; and response flexibility how fast the operation can be changed.
- Next distinction is between the way we describe the flexibility of a whole operation and
the flexibility of the individual resources which, together, make up the system.
Cost
- The most important objective a financial input to the operation that enables it to
produce its products.
- Three categories of financial inputs: operating expenditure, capital expenditure and
working capital.
The internal and external effects of the performance objectives
- Must examine how each of the performance objectives affects market position outside
the operation and operations resources inside the operation.
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E.g. if the operation is focused on speed, the customers (market position) will get the
products quickly and throughput time as well as inventory will decrease (operations
resources).
Different businesses should apply different priorities to its performance objectives
depending on their message to customers.
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