Ch 1: Products, Processes, & Performance

I. Intro
1. Succ if achieve strong finan perf by providing products that meet customer expectations as prod & delivery cost
sig lower than value perceived by customers
i. Walmart: purchase & distr ops result in availability of products, at low cost; $12.7B profits best-in-class
profits
ii. eBay: allows seller to set up auction in min at fraction of cost of action house; $1.8B profits
iii. Aravind Eye Hospital: high utilization of its $$$ resources can give away free surgeries to poor while
earning profits
iv. Netflix: many movie options at fraction of video rental fee; $1.67B revenues, $115M profits
2. Unsucc if cant provide greater value to customers than cost of prod & delivery
i. Blockbuster

II. Process View of Organizations

1. Process: any transf that converts inputs to outputs
2. Elements of a Process that Characterize the Transf: How to Adopts Process View
i. Inputs & outputs:
a. Inputs: tangible/intangible items that flow into process from
enviro; ex. raw materials, components, energy, data, customers in
TAKEAWAY
need of service Processview:seesorganiztobeprocess
b. Outputs: tangible/intangible items that flow from process back into consistingofinterconnectedsubprocesses
enviro; ex. finished products, pollution, processed info, satisfied Succoforganizdeterminedbyperfofall
customers itsprocesses
ii. Flow units: item analyzed; ex. unit of input (customer order), unit of
output (finished product), financial value of input/output
 i. Absolute
perf
(revenues,
costs, net
iii. Network of actvs & buffers: process actvs linked so that output of 1 Actv: simplest form ofincome, transf; building
becomes input into another, often through an intermediate buffer block of process profit)
a. Describes specific precedence rels among actvsthe sequential Buffer: stores flowii.units Perf that have
Inf time perf finished w/ 1 actv but are waiting
rels that determine which actv must be finished before another can relative to for
begin next actv to start; can crrsp
asset to
b. Can have multiple routes, each of which indicates precedence rels physical location where goods stored
utilization
o Inventory: total # of flow units
iv. Resources: tangible assets usually divided into 2 categories (1) capital, (ROA, ROI,
present within process boundaries
(2) labor inventory
a. Facilitate transf of inputs into outputs turns)
b. Actvs require multiple resources; resources can perform multiple iii. Survival
actvs strength
Customer
objective, dissatisfaction
(cash product
flow)
v. Info structure: shows what info needed & available to whom in order to lagging, warranty repairs, field failures,
recalls,
perform actvs or make managerial decisions PROCESSVIEWADVTG
aggregate, 4. External product
complaints
3. Business process: network of actvs separated by buffers & performed by Decr customermeasures:
results-oriented retention track
Convenienttoolforrepresentingcross decr
revenues, incrcustomer
costs; lose 20%
functionalprocesseswithinorganiz(prod,
resources that transform inputs into outputs
expectations
dissatisfied customers in new
forever;
finance,marketing,supplier)bcbuffers
i. Process design: specifies structure of a bus process in terms of inputs,
terms of 4
accountforhandoffs/interfaces product
outputs, network of actvs & buffers, & resources used
attributes of
ii. Process flow mgmt: set of managerial policies that specify how process CanbebroadANDmicrolevel
should be operated over time & which resources should be allocated to Customeraware output (cost,
response time,
which actvs Maintoolfor(1)evaluatingprocesses,(2)
variety, quality),
4. Value stream mapping (value chain mapping): tool used to map the network studyingwaysinwhichprocessescanbe
customer
of actvs & buffers in a process identifying actvs that add value & those like designed,restructured,&managedto
satisfaction
waiting that are wasteful improveperf i. Customer
i. Goal: enable designers & managers to focus on process imprv made by satisfaction
adding value linked to
whether perf
III. Performance Measures Processmgmtrequires: of product
along 4
1. Financial perf based on diff btwn value that outputs of process (S/P) provide to Externalmeasuresthattrackcustomer
customers & their cost of prod & delivery expectations attributes
meets or
i. Depends on ability of process to effectively meet customer expectations Internalmeasuresthatgaugeeffectiveness
exceeds
2. Perf measures essential in designed & implementing incentives for improving ofprocessinmeetingthem
customer
products & process & for assessing result of our improvements Effectivenessofprocessdeterminedby:
expectations
lagging, 3. Financial measures: track diff btwn value provided to customers & cost of Evaluation&measurementoffirmscurrent
aggregate, producing and delivering S/P; lagging, aggregate, results-oriented &pastperf
results-oriented Futuregoalsasexpressedbyfirmsstrategy
 Quality dimensions: product features,
ii. IDS competitive benchmarks at which process manager can aim perf, reliability, serviceability,
5. Internal process
aesthetics measures: track
Measures: failureperfrate p of failure),
of (process in
mean time btwn failures (MTBF),
terms of processing
mean time tocost,repairflow
(MTTR)
time,
process flexibility,
and output quality
i. Predictor of
external
measures of
customer
satisfaction
ii. Directly
controllable
by process
manager

IV. Products &

Product
Attributes
1. Products: desired
set of process
outputs
i. Goods:
tangible, can
be stored
(produced in
advance)
ii. Services:
tangible/inta
Response time closely related
ngible, cant
If manufactured goodbe is on store
stored
shelves, response time =0
(produce &
If its stocked in warehouse/distr
consume
center, response time simultaneous
= transp time
ly)
If firm doesnt stock product &
produces only to order,attributes
2. Product response time
/
will also include
4-Dtime required
matrix / to
product space:
 i. Cost: total cost customer incurs in order to own and experience the
ii. product; purchase price + any costs incurred during product lifetime
Well-defined iii. Delivery-response time: total time customer must wait for, before
external receiving a product for which he has expressed a need to provider
measures track iv. Variety: range of choices offered to customer to meet his needs
product perf a. Lower level: customization
along product b. Higher level: # of product lines or families offered
spac, relative to v. Quality: degree of excellence that determines how well product performs
competition & a. Customers perspective: quality depends on products features,
customer performance, reliability, serviceability, aesthetics, and conformance
expectations to expectations
a. Features & performance influenced by quality of design TAKEAWAY
b. Reliability influenced by how well prod process conforms to
Strategicbusdecision:selectrightcombo
design
ofattributesthatllresultinproductthat
3. Product value measured by utility customer derives from buying attributes appealstopart.segmentofmarket
i. High quality, available in wide variety, delivered quickly, low cost Improvevariety,quality; cost,time
ii. Estimated by WTP max price customer willing to pay for product

V. Processes & Process Competencies

1. Manufacturing: process of producing physical goods
2. Service operations: processes that perform services; i.e. hospital
i. Require physical customer presence who undergoes/participates in part of
process importance of attractiveness of process enviro &
friendliness of labor resources
ii. Harder to ID internal measures of perf
3. Operations: business processes that design, produce, and deliver goods and
services
4. Product processes crrsp to attributes:
i. Process cost: total cost incurred in producing & delivering outputs; cost
of raw materials + VC + FC of operating process
ii. Process flow time: total time needed to transform a flow unit from input Depends on # resource units, speed of
into output; includes actual processing time + waiting time a flow unit processing by each
iii. unit
Process
spends in buffers flexibility:
measures
ability of
 process to produce & deliver desired product variety + deal with Depends on flexiblei. resources
Functional(i.e.
fluctuating demand flexible tech, cross-trained
layoutworkers or
iv. Process quality: ability of process to produce & deliver quality products; generalists) can perform multiple
(process
process accuracy (precision) in producing products that conform to design diff actvs and producelayout): of
a variety
specifications + reliability + maintainability of process products groups
o Vs. dedicated or specialized
5. Process competencies determine product attributes that process is good at organizal
supplying TAKEAWAY resources by
i. McMaster-Carrs [distributor of materials, repair & ops] process: high processing
Asleadingindicatorsofperf,mgmtmust
flexibility, short flow time, high quality, high cost actvs or
a. Process competencies allow co to supply large variety of MRO internallymanageprocesscompetencyin
functions in
products quickly & reliably, while charging premium price termsofcost,flowtime,flexibility,quality
depts.
ii. Shouldice hospitals process: low flexibility, high quality, low cost ii. Network of
iii. Emergency rooms process: high flexibility, quick resp, high quality resources
has many
VI. Enabling Process Success products
1. Process design: select process architecture that best dev competencies that simultaneous
will meet customer expectations of product ly flowing
i. Decisions: plant location/capacity, product & process design, resource through
choice & investment, scale of op process
2. Metric identification: ID measurable dimensions along which perf will be a. Rectan
tracked gles A,
i. Process metrics: derived from customer expectations & co strategic D, B
goals Managerial policies specify op perfor
of
3. Process plan: ID targets for various metrics & specify mgmt policies that process & use of resources m to best
support achievement of these targets actvs
4. Process control: tactical aspect of process mgmt; focused on continually on
ensuring that in short run, actual process perf conforms to planned perf product
i. Decisions: correct product cost, delivery time, inventory levels, quality 1
defects b. Routes
5. Process improvement: mgmt ID metrics that need to be improved in long run rep
& work on changes in process design/planning that are required to achieve this preced
improvement ence
rel
VII. Basic Process Architectures Most architectures fall btwn 2
1. Process architecture: defined by types of resources used to perform actvs & extremes: flexible job shop
their physical layout in processing network (early/end) & specialized flow shop
2. Job shops: use flexible (general-purpose) resources to produce low volumes of
highly customized, variety products
 i. High
processing
capacity
high
FC BUT
spread over
large
volumes
low var.
processing
costs
[economies
of scale]
ii. Resources
arranged
according to
sequence of
actvs needed
to produce
part. product;
limited
storage
space btwn
actvs
iii. Product
layout:
location of
resources
dictated by
processing
req. of
TAKEAWAY product;
iii. Jumbled work flows w/ large amounts of storage buffers & waiting btwn Jobshops:highprocessflexibility,high
each product
actvs sequence of actvs required to process each product varies from produced on
processingcosts,customization,long
job flowtimes its own
Discrete flow shop:
iv. Resources need setups before they can be changed over from actvs production
Ford, products Flowshops:consistentqualityathigh
required for 1 product to those required to another delays, loss of line w/
produced by part volumes,lowprocessingcosts,low
prod, fluctuating workload product-
3. Flow shops: use resources that perform limited tasks w/ high precision & speed variety,standardization,shortflowtimes
dedicated
Continuous flow resources
shop: oil plants,
products prod cont.
a. Advtg: limiting product variety allows specialization of dedicated
resources
b. Disadvtg: may necessitate duplication of resource pool