Operations and Supply

Chain Management, 2e
Chapter 7: Process Selection,
Design, and Improvement
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Learning Objectives
1. Describe the three major types of goods and services
2. Explain the logic and use of the product-process matrix.
3. Explain the logic and use of the service-positioning matrix.
4. Explain how to improve process designs with the use of the process design
techniques: flowcharting, bottleneck analysis, resource utilization, and process
reengineering
5. Compute output and utilization rates to support bottleneck analysis.
6. Identify the factors involved in process selection, design, and analysis.
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7.1 Process Choice Designs
• Firms generally produce either in response to customer orders and demand or in
anticipation of them. This leads to three major types of goods and services:
custom, option-oriented, and standard.
• Custom or make-to-order, goods and services are generally produced and
delivered as one of a kind or in small quantities and are designed to meet specific
customers’ specifications. Examples include ships, internet sites, weddings, estate
plans, buildings and surgery. Because custom goods and services are produced on
demand, the customer must wait for them.
• Option or assemble-to-order, goods and services are configurations of standard
parts, subassemblies, or services that can be selected by customers from a limited
set. Common examples are Dell Computers, Subway sandwiches, machine tools,
and travel agent services
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7.1 Process Choice Designs
• Standard or make-to-stock, good and services are made according to a fixed
design, and the customer has no options from which to choose. Appliances, shoes,
sporting goods, credit cards, and bus services are some examples.
• Standard goods are made in anticipation of customer demand and stocked in
inventory, and therefore are usually available, although in some cases the proper
color or size might be out of stock.
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7.1 Process Choice Designs
• We note that manufacturing systems often use the terms make-to-order, assemble-
to-order and make-to-stock to describe the type of systems used to manufacture
goods. The terminology is not as standardized in service industries, although the
concepts are similar. Four principal types of processes are used to produce goods
and services.
• Projects are large scale, customized initiatives that consist of many smaller tasks
and activities that must be coordinated and completed to finish on time and within
budget. Some examples of projects are legal defense preparation, construction,
and software development. Projects are often used for custom goods and services.
• Job shop processes are organized around particular types of general-purpose
equipment that are flexible and capable of customizing work for individual
customers. Job shops produce a wide variety of goods and services, often in small
quantities. Thus, they are often used for custom or option type products
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7.1 Process Choice Designs
• Flow shop processes are organized around a fixed sequence of activities and
process steps, such as an assembly line, to produce a limited variety of similar
goods or services. An assembly line is a common example of a flow shop process.
Many large volume, option-oriented and standard goods and services are produced
in flow shop settings. Common examples are automobiles, appliances, insurance
policies
• Continuous Flow Processes create highly standardized goods or services usually
around the clock in very high volumes. Examples of continuous flow processes are
automated car washes, paper and steel mills, paint factories, and many electronic,
information-intensive services such as credit card authorizations and security
systems
• Exhibit 7.1 (next slide) summarizes these different process types and their
characteristics
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Exhibit 7.1 Characteristics of Different Process Types
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7.1 Process Choice Designs: Product Life Cycle
• A product life cycle is a characterization of product growth, maturity, and
decline over time. It is important to understand product life cycles because
when goods and services change and mature, so must the processes and value
chains that create and deliver them.

• The traditional PLC generally consists of four phases – introduction, growth,

maturity, and decline and turnaround. Each phase is briefly explained in future
slides
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7.1 Process Choice Designs: Product Life Cycle
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7.1 Process Choice Designs: Product Life Cycle
• The introduction phase is the first-time customers are introduced to the
new product. A company must generally include a substantial investment
in advertising and a marketing campaign focused on making consumers
aware of the product and its benefits, especially if it is broadly unknown
what the item will do.

• During the introduction stage, there is often little-to-no competition for a

product, as competitors may just be getting a first look at the new offering.
However, companies still often experience negative financial results at this
stage as sales tend to be lower, promotional pricing may be low to drive
customer engagement, and the sales strategy is still being evaluated.
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7.1 Process Choice Designs: Product Life Cycle
• If the product is successful, it then moves to the growth stage. This is characterized by
growing demand, an increase in production, and expansion in its availability. The amount of
time spent in the introduction phase before a company's product experiences strong growth
will vary from between industries and products.

• During the growth phase, the product becomes more popular and recognizable. A company
may still choose to invest heavily in advertising if the product faces heavy competition.
However, marketing campaigns will likely be geared towards differentiating its product from
others as opposed to introducing the goods to the market. A company may also refine its
product by improving functionality based on customer feedback.

• Financially, the growth period of the product life cycle results in increased sales and higher
revenue. As competition begins to offer rival products, competition increases, potentially
forcing the company to decrease prices and experience lower margins.
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7.1 Process Choice Designs: Product Life Cycle
• The maturity stage of the product life cycle is the most profitable stage, the time
when the costs of producing and marketing decline. With the market saturated with
the product, competition now higher than at other stages, and profit margins starting
to shrink, some analysts refer to the maturity stage as when sales volume is "maxed
out".

• Depending on the good, a company may begin deciding how to innovate its product
or introduce new ways to capture a larger market presence. This includes getting
more feedback from customers and researching their demographics and their needs.

• During the maturity stage, competition is at the highest level. Rival companies have
had enough time to introduce competing and improved products, and competition
for customers is usually highest. Sales levels stabilize, and a company strives to have
its product exist in this maturity stage for as long as possible.
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7.1 Process Choice Designs: Product Life Cycle
• As the product takes on increased competition as other companies emulate its
success, the product may lose market share and begin its decline. Product sales begin
to drop due to market saturation and alternative products, and the company may
choose to not pursue additional marketing efforts as customers may already have
determined whether they are loyal to the company's products or not.

• Should a product be entirely retired, the company will stop generating support for it
and will entirely phase out marketing endeavors. Alternatively, the company may
decide to revamp the product or introduce a next-generation, completely overhauled
model. If the upgrade is substantial enough, the company may choose to re-enter the
product life cycle by introducing the new version to the market.

• The stage of a product's life cycle impacts the way in which it is marketed to
consumers. A new product needs to be explained, while a mature product needs to be
differentiated from its competitors.
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7.2: Product-Process Matrix
• The product-process matrix is a model that describes the alignment of process choice
with characteristics of the manufactured good. The most appropriate match between the
type of product and process is achieved along the diagonal in the product-process matrix.
• As one moves down the diagonal, the emphasis on both product and process structure
shifts from low volume and higher flexibility to higher volumes and more standardization.
If product and process characteristics are not well matched, the firm will be unable to
achieve its competitive priorities effectively.
• We will review an example in the next slide….
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7.2: Product-Process Matrix - An example
• For example, consider a firm that manufactures only a few products with high volumes
and low customization using a flow shop process structure. This process choice best
matches the product characteristics.
• However, now suppose that as time goes on and customer needs evolve, marketing and
engineering functions develop more product options and add new products to the mix.
This results in a larger number and variety of products to make, lower volumes, and
increased customization.
• The firm will find itself “off the diagonal” and in the lower left-hand corner of the matrix
(denoted by position A in Exhibit 7.2). There is a mismatch between product characteristics
and process choice. If the firm continues to use the flow ship process, it may find itself
struggling to meet delivery promises and incur unnecessary costs because of low
efficiencies.
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7.2: Product-Process Matrix - Positioning Strategy
• Consciously positioning a business off the diagonal of the product-process matrix
• Helps a company stand out from its competitors
• Advanced manufacturing technologies enables companies to produce lower
volumes of products in greater varieties at lower costs

Allows for mass-customization strategies and capabilities

• Helps companies achieve success even when they are positioned off the
diagonal
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Exhibit 7.2:Product-Process Matrix
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7.3: The Service-Positioning Matrix (SPM)

• A pathway is a unique route through a service system. Pathways can be customer driven
or provider driven, depending on the level of control that the service firm wants to
ensure. Pathways can be physical in nature, as in walking around Disney World or a golf
course; procedural, as in initiating a transaction via the telephone with a brokerage firm
• Customer-routed services are those that offer customers broad freedom to select the
pathways that are best suited for their immediate needs and wants from many possible
pathways through the service-delivery system. The customer decides what path to take
through the service-delivery system with only minimal guidance from management.
Searching the internet to purchase an item from Amazon or visiting a park are examples.
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7.3: The Service-Positioning Matrix (SPM)

• Provider-routed services constrain customers to follow a very small number of possible

and pre-defined pathways through the service system. An ATM is an example. A limited #
of pathways exist – for example, getting cash, making a deposit, checking an account
balance, and moving from one account to another.
• The service-positioning matrix (SPM) as shown in Exhibit 7.3 (next slide), is roughly
analogous to the product-process matrix for manufacturing. The SPM focuses on the
service-encounter level and helps management design a service system that best meets
the technical and behavioral needs of customers. The position along the horizontal axis
is described by the sequence of service encounters.
• The service-encounter activity sequence consists of all the process steps and
associated service encounters that are necessary to complete a service transaction and
fulfill a customer’s wants and needs.
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7.3: The Service-Positioning Matrix (SPM)
• It depends on:
o Degree of customer discretion, freedom, and decision-making power in selecting the
service-encounter activity sequence. Customers may want the opportunity to design
their own unique service-encounter.
− Degree of repeatability of the service-encounter activity sequence. Service encounter
repeatability refers to the frequency that a specific service-encounter activity
sequence is used by customers. Service-encounter repeatability provides a
measures analogous to product volume for goods-producing firms.
• The more unique the service encounter, the less repeatable it is. A high degree of
repeatability encourages standardized process and equipment design and dedicated
service channels, and results in lower costs and improved efficiency. A low degree of
repeatability encourages more customization and more flexible equipment and process
designs, and typically results in higher relative cost per transaction and lower efficiency.
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Exhibit 7.3:Service Positioning Matrix
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7.4: Process Design
• The goal of process design is to create the right combination of equipment, labor, software,
work methods, and environment to produce and deliver goods and services that satisfy
internal and external customer requirements.

• Process design can have a significant impact on cost (and hence profitability), flexibility
(the ability to produce the right types and amounts of products as customer demand or
preferences change), and the quality of the output.

• We can think about work at four hierarchical levels:

− Task
− Activity
− Process
− Value Chain
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7.4: Process Design: Levels of Process Design
• A task is a specific unit of work required to create an output. Examples are inserting a
circuit board into an iPad subassembly or typing the address on an invoice.

• An activity is a group of tasks needed to create and deliver and intermediate or final
output. Examples include all the tasks necessary to build an iPad; for example connecting
the battery and assembling the cover pieces, or inputting all the information correctly on
an invoice, such as items ordered.

• A process is a sequence of activities. An example of a process would be manufacturing an

iPad or fulfilling a customer order.

• The value chain is a network of processes. For example, the value chain for an iPad would
include acquiring the materials and components, manufacturing and assembly,
distribution, retail sales, and face-to-face and web-based customer support.
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7.4a: Process and Value Stream Mapping
• Understanding process design objectives focuses on answering the question: “What is the
process intended to accomplish? An example process objective might be “to create and
deliver the output to the customer in 48 hours.” Another key question to consider is: “What
are the critical customer and organizational requirements that must be achieved?”

• Designing a goods-producing or service-providing process requires six (6) major activities:

1. Define the purpose and objectives of the process.
2. Create a detailed process or value stream map that describes how the process is
currently performed.
3. Evaluate alternative process designs. That is, create process or value stream maps that
describe how the process can best achieve customer and organizational objectives.
4. Identify and define appropriate performance measures for the process
5. Select appropriate equipment and technology
6. Develop an implementation plan to introduce a new or revised process design. This
includes developing process information
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7.4a: Process and Value Stream Mapping: Process Map (Flowchart)
• A process map (flowchart) describes the sequence of all process activities and tasks necessary to
create and deliver a desired output or outcome. It documents how work either is or should be
accomplished, and how the transformation process creates value. We usually first develop a
“baseline” map of how the current process operates in order to understand it and identify
improvements for redesign.

• Process maps delineates (describes) process boundaries of a process. A process boundary is the
beginning or end of a process. The advantages of a clearly defined process boundary are that it
makes it easier to obtain senior management support, assign process ownership to individuals or
teams, identify key interfaces with internal or external customers, and identify where performance
measurements should be taken.

• Exhibit 7.5 (next slide) shows a flowchart for an automobile repair process using the typical
symbols used for process maps. Process maps clearly delineate the process boundaries.
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Exhibit 7.5: Automobile Repair Flowchart
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7.4a: Process and Value Stream Mapping: Process Map (Flowchart)
• In service applications, flowcharts generally highlight the points of contact with the customer and
are often called service blueprints or service maps. Such flowcharts often show the separation
between the back office and the front office with a “line of customer visibility” such as the one
shown in Exhibit 7.5.

• Non-value activities such as transferring materials between two non-adjacent workstations,

waiting for service, or requiring multiple approvals for a low-cost electronic transaction simply
lengthen processing time, increasing costs, and often increase customer frustration.

• Eliminating non-value-added activities in a process design is one of the most important

responsibilities of Operations Managers. This is often accomplished using Value Stream Mapping.
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7.4a: Process and Value Stream Mapping: Value Stream

• The value stream refers to all value-added activities involved in designing, producing, and
delivering goods and services to customers.

• A value stream map (VSM) shows the process flows in a manner similar to an ordinary process
map; the difference lies in that the value stream map highlights value-added versus non-
value-added activities and includes costs associated with work activities for both value- and
non-value-added activities.

• To illustrates this, consider a process map for the order fulfillment process in a restaurant, as
shown in Exhibit 7.6 (next slide). From the times on the process map, the “service standard”
order posting, and fulfillment time is an avg of 30 minutes per order (5+1+4+12+3+5). The
restaurant’s service guarantee requires that if the order posting and fulfillment time is >40
minutes, the customer’s order is free.
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Exhibit 7.6: Restaurant Order Posting and Fulfillment Process
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7.4a: Process and Value Stream Mapping: Value Stream

• The chef’s time is valued at $30 per hour, oven operation at $10 per hour, precooking order
waiting time at $5 per hour, and post-cooking order waiting time at $60 per hour. The $60
estimate reflects the cost of poor quality for a dinner waiting too long that might be delivered
to the customer late (and cold).

• Exhibit 7.7 (next slide) illustrates a value stream map for the order posting and fulfillment
process in Exhibit 7.6. Exhibit 7.7 is one of many formats for value stream mapping. Here non-
value-added time (NVA) is 33.3% (10/30 minutes) of the total order posting and fulfillment
time, and non-value-added cost is 31.7% ($5.417/$17.087).
Exhibit 7.7: Value Stream Map for Restaurant Order Posting and (Collier & Evans, 2021)
Fulfillment Process
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7.4a: Process and Value Stream Mapping: Value Stream
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7.5: Mistake-Proofing Processes
• Humans tend to make mistakes inadvertently. Typical mistakes in production are omitted
steps in a process, setup errors, missing parts, wrong parts, or incorrect adjustments. Such
errors can arise from the following factors:
− Forgetfulness due to lack of reinforcement or guidance
− Misunderstanding or incorrect identification because of the lack of familiarity with a
process or procedure
− Lack of experience
− Absentmindedness and lack of attention, especially when a process is automated
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7.5: Mistake-Proofing Processes
• Good Designs can eliminate many defects and errors, but still cannot account for the human
factor. Poka-yoke (POH-kah YOH-kay) is an approach for mistake-proofing processes using
automatic devices or simple methods to avoid human errors.

• Poka-yoke is focused on two aspects: (1) prediction, or recognizing that a defect is about to
occur and providing a warning and (2) detection, or recognizing that a defect has occurred
and stopping the process.

• Many applications of poka-yoke are deceptively simple, inexpensive to implement, and are
often creative. Some examples include: (1) many machines have sensors that would be only
activated only if the part was placed in the correct position. (2) A device on a drill counts the
number of holes drilled in a work piece.; a buzzer sounds if the work piece is removed before
the correct number of holes has been drilled.
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7.6: Process Improvement
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7.6: Process Improvement
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7.6: Process Improvement
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7.6: Process Improvement: Reengineering
• Reengineering is the fundamental rethinking and radical redesign of business processes to
achieve improvements in critical and contemporary measures of performance such as cost,
quality, service, and speed. Examples of reengineering include:

• Intel Corporation had previously used a 91-step process costing thousands of dollars to
purchase ballpoint pens—the same process used to purchase forklift trucks! The improved
process was reduced to eight steps.
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7.6: Process Improvement: Reengineering
• In rethinking its purpose as a customer-driven, retail service company, rather than a
manufacturing company, Taco Bell eliminated the kitchen from its restaurants.
− Meat and beans are cooked outside the restaurant at central commissaries and reheated.

− Other food items such as diced tomatoes, onions, and olives are prepared off-site.

• This innovation saved about 11 million hours of work and $7 million per year over the entire
chain.
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SUMMARY
• Goods and services can be custom-based, option-based, or standard-based
• Product life cycle has important implications in terms of process design and choice
• Product-process matrix is similar to service-positioning matrix
• Process design activities involve redesigning an existing process to improve performance
Reference

• Collier, D. A., & Evans, J. R. (2021). Operations and Supply Chain Management. Cengage.

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