3 Process Strategy

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 3–1

 PROCESS DESIGN:

Process design is the selection of the inputs,

resources, workflows and methods that
transforms inputs into outputs.

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Process Strategy

 Principles of process strategy

1. Make choices that fit the situation and that
make sense together, that have a close
strategic fit
2. Individual processes are the building blocks
that eventually create the firm’s whole supply
chain
3. Management must pay particular attention to
the interfaces between processes

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Process Strategy

 There are four basic process decisions

1. Process structure including layout
2. Customer involvement
3. Resource flexibility
4. Capital intensity

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Process Strategy Decisions
Process Structure
• Customer-contract position
(services)
• Product-process position
(manufacturing)
• Layout
Customer Involvement Resource Flexibility
• Low involvement • Specialized
• High involvement • Enlarged

Capital Intensity
• Low automation
• High automation

Strategy for Change

• Process reengineering
• Process improvement

Effective Process
Design
Figure 3.1 – Major Decisions for
Effective Processes
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Process Structure in Services

 Customer contact is the extent to which

the customer is present, actively involved,
and receives personal attention during the
service process
 Face-to-face interaction is sometimes
called a moment of truth or a service
encounter

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Process Structure in Services

TABLE 3.1 | 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

 The three elements of the customer-

contact matrix are
1. The degree of customer contact
2. Customization
3. Process characteristics
 Process characteristics include
1. Process divergence deals with customization
and the latitude as to how tasks are performed
2. Flow is how customers, objects, or information
are process and can be either line of flexible

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Service Process Structuring
Less customer contact and customization

(1) (2) (3)

Less processes divergence and more line flows

High interaction with Some interaction with Low interaction with

Process customers, highly customers, standard customers, standardized
Characteristics customized service services with some options services

(1)
Flexible flows with
Individual
Front office
processes

(2)
Flexible flows with
some dominant
paths, with Hybrid office
some exceptions
to how work
performed

(3)
Line flows, routine Back office
work same with all
customers

Figure 3.2 – Customer-Contact Matrix for Service Processes

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Product-Process Matrix

 For manufacturing organization it brings

together
1. Volume
2. Product customization
3. Process characteristics
 Process choices include job, batch, line,
and continuous flow processes
 Production and inventory strategies
include make-to-order, assemble-to-order,
and make-to-stock

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Product-Process Matrix
Less customization and higher volume
(1) (2) (3) (4)
Low-volume Multiple products with low Few major High volume, high
Process products, made to moderate volume products, standardization,
to customer higher commodity
Characteristics
order volume products
Less complexity, less divergence, and more line flows

(1)
Customized process, Job
with flexible and process
unique sequence of
tasks

Small batch
process
(2)
Disconnected line Batch processes
flows, moderately
complex work Large batch
process

(3)
Connected line, highly Line
repetitive work process

(4) Continuous
Continuous flows process

Figure 3.3 – Product-Process Matrix for Processes

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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

 A flexible workforce can often require

higher skills and more training and
education
 Worker flexibility can help achieve reliable
customer service and alleviate bottlenecks
 Resource flexibility helps absorb changes
in workloads
 The type of workforce may be adjusted
using full-time or part-time workers

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Resource Flexibility

 The volume of business may affect the type

of equipment used
 Break-even analysis can be used to
determine at what volumes changes in
equipment should be made

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Capital Intensity

 Automation is one way to address the mix

of capital and labor
 Automated manufacturing processes
substitute capital equipment for labor
 Typically require high volumes and costs
are high
 Automation might not align with a
company’s competitive priorities

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Capital Intensity

 Fixed automation produces one type of

part or product in a fixed sequence
 Typically requires large investments and is
relatively inflexible
 Flexible automation can be changed to
handle various products
 Industrial robots are classic examples of
flexible automation

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Capital Intensity

 Capital equipment may be used to

automate service processes
 Investment can be justified by cost
reduction and increased task divergence
through expanded customer choice
 May impact customer contact
 May be used in both front and back-office
operations

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Capital Intensity

 Economies of scope reflect the ability to

produce multiple products more
inexpensively in combination than
separately
 Applies to manufacturing and services
 Requires sufficient collective volume

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Strategic Fit

 The process chosen should reflect the

desired competitive priorities
 The process structure has a major impact
on customer involvement, resource
flexibility, and capital intensity

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