Chapter
2 Process Strategy and Analysis
DISCUSSION QUESTIONS
1. Many processes at manufacturing facilities involve customer contact. Internal
customers would include those employees whose operation(s) are subsequent.
Quality Control could be considered an internal customer as could design
engineering or sales. Quality Control, design engineering, marketing, sales and
other organizations represent the customer at various stages of any process.
Customer contact can be very high, especially between production and engineering
and production and quality control.
2. Some students may see this as a difference in competitive priorities. Others may see
a difference in management styles. Ritz-Carlton empowers their employees and the
local restaurant does not seem to empower. Ritz-Carlton believes that by having
employees treat customers and other employees with respect, customer service is
enhanced. A restaurant that does not allow employees to resolve a customer issue
may not see enhanced customer service. The restaurant may believe that the to-go
customer will be better satisfied with fast and accurate orders. The in-store
customer gets the chips and salsa to utilize the time while waiting for an order to be
prepared. The to-go customer has already placed that order and it is ready when the
customer arrives at the pickup window.
3. eBay has considerable arrival and request variability, because its customers do not
want service at the same time or at times necessarily convenient to the company.
They have request variability, seeking to buy and sell an endless number of items.
Their process strategy allows significant customer involvement. Their customers
perform virtually all of the selling and buying processes. McDonald’s instead offers
a considerable variety of foods, but from a standard menu. Staffing varies,
depending on the time of day. Customization is not encouraged, and the hours
during which a store is open can be controlled. Its processes have virtually no
customer involvement, other than placing the order, picking up condiments or
napkins, and possibly disposing of plates and containers when exiting. eBay
accomodates customer-introduced variability, whereas McDonald’s reduces it.
4. Student answers will vary. One idea that they may come up with is the use of
electronic files. The printing industry is undergoing a shift to pdf files. Medical
imaging and electronic file sharing is on the immediate horizon. The trick would be
to convince physicians that want to keep their pads and pencils, that their
"blackberries" are their pads and pencils.
2-1
Copyright © 2016 Pearson Education, Inc.
,2-2 l PART1 l Managing Processes
5. Selling financial services would involve considerable customer contact, and thus be
a front office. Likely activities would be to work with the customer to undertand
customer needs, make customized presentation to the customer, and maintain a
continuing relationship with the customer to react to changing customer needs.
Producing monthly client fund balance reports involves little customer contact, and
thus be a back office. Likely activities would be to obtain data electronically, run the
report using a standardized process, forward the hard copies and electtonic files to
analysts, and repeat the process monthly with little variation.
6. The process of call center services is rated in the table below. The combined score is
5.6 if each is given a weight of 0.20. Arguments could be made to give more weight
to a dimension such as contact intensity, although more would need to be known
about the exact process. The process’s alignment on the customer-contact matrix
seems to fit a front office, with more jumbled work flows and process divergence.
To be properly aligned, there should be considerable resource flexibility in terms of
both the employees and their equipment.
Dimension of Explanation Score
Customer
Contact
q Physical q The customer is present for such steps as working to understand 1
presence customer needs and answering specific questions. Other steps such
as researching product information do not involve as direct contact.
q What is q The customer is the focus of what is being processed in certain 6
processed steps, such as the specific product explanation. However,
researching product information lies more in the category of
information–based service rather than people-processing services.
q Contact q The customer is actively involved and there is high service 7
intensity customization process
q Personal q There is considerable personal attention and confiding in working 7
attention to understand customer needs and in maintaining a continuing
relationship with the customer. .
q Method of q Much of the delivery is through phone-to-phone contact . 7
delivery
7. The answer can be debated. On one hand, relentless pressure to improve can create
considerable benefits over time, and could well put a company at the top of the
industry. On the other hand, small improvements do not lead to break-through
solutions that might be what is needed to remain competitive, particularly in an
industry marked by rapid change. However, radical change and process
reengineering is strong medicine and not always needed or successful.
8. This question was inspired by a similar situation faced by Ontario Hydro-Electric.
Today electricity is a commodity that competes on the basis of low-cost operations
and reliability. If the environmental protection equipment is installed, HEC must
either absorb the costs as a loss (immediate bankruptcy) or attempt to pass on the
costs to customers and see further erosion of their market (eventual bankruptcy).
HEC would probably decide to delay investment in environmental protection
Copyright © 2016 Pearson Education, Inc.
, Process Strategy and Analysis l CHAPTER 2 l 2-3
equipment for as long as possible. Some discussion may focus on the issue of
whether customers, as users of both electricity and the environment, are better
served by competition (lower cost of electricity) or by regulated monopolies (better
environment).
9. For background reading, see: Paul O’Neill, “Why the U.S. Healthcare System Is So
Sick and What O.R. Can Do To Cure It.” OR/MS Today (December, 2007).
a. Although many ideas are possible, a typical response is some kind of computer
order-entry system. Although we asked for blue sky ideas, these systems do cost
a medium-sized hospital about $10 million, They also solve only half of the
problems, but the remaining half can become complicated and less tractable than
the ones you started with.
b. Same set of ideas possible here as well.
c. Fill carts on a daily basis, more computerized information system, and so forth.
d. Ideas could include more nurses, or one of several ways to remind nurses when
a drug is to be administered.
e. Many ideas are possible, ranging from mattresses on the floor to more nurse
check-ins during the night.
f. Better sterilization procedures, better training on patient care, research on the
causes of the infections, and more thorough house cleaning are just a few ideas.
Students will come up with more.
PROBLEMS
Process Strategy Decisions
1. Dr. Gulakowicz
Fixed cost, F = $150,000
Revenue per patient, p = $3,000
Variable cost per unit, c = $1000
F $150,000
Break-even volume, Q = = = 75 patients
p − c $3,000 − $1000
2. Two manufacturing processes
a. F1 + c1Q = F2 + c2Q
$50,000 + $700Q = $400,000 + $200Q
($700 − $200) Q = ($400,000 − $50,000)
$350, 000
Q= = 700 units
$500
b. Choose the second process, because 800 exceeds the break-even volume.
3. Sebago Manufacturing
Copyright © 2016 Pearson Education, Inc.
, 2-4 l PART1 l Managing Processes
The point of indifference (at which the proposals yield the same annual cost)
between:
Proposal One and Two: 0.00 + 22x = 150,000 +14x
X = 18,750 components per year
Proposal Two and Three: 150,000 +14x = 450,000 + 12.50x
X = 200,000 components per year
Proposal One and Three 0.00 + 22x = 450,000 +12.50x
X = 47,368.4 components per year
Proposal one will provide the lowest annual cost if between 0 and 18,750
components are required annually, proposal two will provide the lowest annual
cost if between 18,750 and 200,000 components are required annually, and
Proposal three will provide the lowest annual cost if greater than 200,000
components are required annually.
Documenting and Evaluating the Process
4. Custom Molds
5. Process chart for Custom Molds with metrics
Copyright © 2016 Pearson Education, Inc.
2 Process Strategy and Analysis
DISCUSSION QUESTIONS
1. Many processes at manufacturing facilities involve customer contact. Internal
customers would include those employees whose operation(s) are subsequent.
Quality Control could be considered an internal customer as could design
engineering or sales. Quality Control, design engineering, marketing, sales and
other organizations represent the customer at various stages of any process.
Customer contact can be very high, especially between production and engineering
and production and quality control.
2. Some students may see this as a difference in competitive priorities. Others may see
a difference in management styles. Ritz-Carlton empowers their employees and the
local restaurant does not seem to empower. Ritz-Carlton believes that by having
employees treat customers and other employees with respect, customer service is
enhanced. A restaurant that does not allow employees to resolve a customer issue
may not see enhanced customer service. The restaurant may believe that the to-go
customer will be better satisfied with fast and accurate orders. The in-store
customer gets the chips and salsa to utilize the time while waiting for an order to be
prepared. The to-go customer has already placed that order and it is ready when the
customer arrives at the pickup window.
3. eBay has considerable arrival and request variability, because its customers do not
want service at the same time or at times necessarily convenient to the company.
They have request variability, seeking to buy and sell an endless number of items.
Their process strategy allows significant customer involvement. Their customers
perform virtually all of the selling and buying processes. McDonald’s instead offers
a considerable variety of foods, but from a standard menu. Staffing varies,
depending on the time of day. Customization is not encouraged, and the hours
during which a store is open can be controlled. Its processes have virtually no
customer involvement, other than placing the order, picking up condiments or
napkins, and possibly disposing of plates and containers when exiting. eBay
accomodates customer-introduced variability, whereas McDonald’s reduces it.
4. Student answers will vary. One idea that they may come up with is the use of
electronic files. The printing industry is undergoing a shift to pdf files. Medical
imaging and electronic file sharing is on the immediate horizon. The trick would be
to convince physicians that want to keep their pads and pencils, that their
"blackberries" are their pads and pencils.
2-1
Copyright © 2016 Pearson Education, Inc.
,2-2 l PART1 l Managing Processes
5. Selling financial services would involve considerable customer contact, and thus be
a front office. Likely activities would be to work with the customer to undertand
customer needs, make customized presentation to the customer, and maintain a
continuing relationship with the customer to react to changing customer needs.
Producing monthly client fund balance reports involves little customer contact, and
thus be a back office. Likely activities would be to obtain data electronically, run the
report using a standardized process, forward the hard copies and electtonic files to
analysts, and repeat the process monthly with little variation.
6. The process of call center services is rated in the table below. The combined score is
5.6 if each is given a weight of 0.20. Arguments could be made to give more weight
to a dimension such as contact intensity, although more would need to be known
about the exact process. The process’s alignment on the customer-contact matrix
seems to fit a front office, with more jumbled work flows and process divergence.
To be properly aligned, there should be considerable resource flexibility in terms of
both the employees and their equipment.
Dimension of Explanation Score
Customer
Contact
q Physical q The customer is present for such steps as working to understand 1
presence customer needs and answering specific questions. Other steps such
as researching product information do not involve as direct contact.
q What is q The customer is the focus of what is being processed in certain 6
processed steps, such as the specific product explanation. However,
researching product information lies more in the category of
information–based service rather than people-processing services.
q Contact q The customer is actively involved and there is high service 7
intensity customization process
q Personal q There is considerable personal attention and confiding in working 7
attention to understand customer needs and in maintaining a continuing
relationship with the customer. .
q Method of q Much of the delivery is through phone-to-phone contact . 7
delivery
7. The answer can be debated. On one hand, relentless pressure to improve can create
considerable benefits over time, and could well put a company at the top of the
industry. On the other hand, small improvements do not lead to break-through
solutions that might be what is needed to remain competitive, particularly in an
industry marked by rapid change. However, radical change and process
reengineering is strong medicine and not always needed or successful.
8. This question was inspired by a similar situation faced by Ontario Hydro-Electric.
Today electricity is a commodity that competes on the basis of low-cost operations
and reliability. If the environmental protection equipment is installed, HEC must
either absorb the costs as a loss (immediate bankruptcy) or attempt to pass on the
costs to customers and see further erosion of their market (eventual bankruptcy).
HEC would probably decide to delay investment in environmental protection
Copyright © 2016 Pearson Education, Inc.
, Process Strategy and Analysis l CHAPTER 2 l 2-3
equipment for as long as possible. Some discussion may focus on the issue of
whether customers, as users of both electricity and the environment, are better
served by competition (lower cost of electricity) or by regulated monopolies (better
environment).
9. For background reading, see: Paul O’Neill, “Why the U.S. Healthcare System Is So
Sick and What O.R. Can Do To Cure It.” OR/MS Today (December, 2007).
a. Although many ideas are possible, a typical response is some kind of computer
order-entry system. Although we asked for blue sky ideas, these systems do cost
a medium-sized hospital about $10 million, They also solve only half of the
problems, but the remaining half can become complicated and less tractable than
the ones you started with.
b. Same set of ideas possible here as well.
c. Fill carts on a daily basis, more computerized information system, and so forth.
d. Ideas could include more nurses, or one of several ways to remind nurses when
a drug is to be administered.
e. Many ideas are possible, ranging from mattresses on the floor to more nurse
check-ins during the night.
f. Better sterilization procedures, better training on patient care, research on the
causes of the infections, and more thorough house cleaning are just a few ideas.
Students will come up with more.
PROBLEMS
Process Strategy Decisions
1. Dr. Gulakowicz
Fixed cost, F = $150,000
Revenue per patient, p = $3,000
Variable cost per unit, c = $1000
F $150,000
Break-even volume, Q = = = 75 patients
p − c $3,000 − $1000
2. Two manufacturing processes
a. F1 + c1Q = F2 + c2Q
$50,000 + $700Q = $400,000 + $200Q
($700 − $200) Q = ($400,000 − $50,000)
$350, 000
Q= = 700 units
$500
b. Choose the second process, because 800 exceeds the break-even volume.
3. Sebago Manufacturing
Copyright © 2016 Pearson Education, Inc.
, 2-4 l PART1 l Managing Processes
The point of indifference (at which the proposals yield the same annual cost)
between:
Proposal One and Two: 0.00 + 22x = 150,000 +14x
X = 18,750 components per year
Proposal Two and Three: 150,000 +14x = 450,000 + 12.50x
X = 200,000 components per year
Proposal One and Three 0.00 + 22x = 450,000 +12.50x
X = 47,368.4 components per year
Proposal one will provide the lowest annual cost if between 0 and 18,750
components are required annually, proposal two will provide the lowest annual
cost if between 18,750 and 200,000 components are required annually, and
Proposal three will provide the lowest annual cost if greater than 200,000
components are required annually.
Documenting and Evaluating the Process
4. Custom Molds
5. Process chart for Custom Molds with metrics
Copyright © 2016 Pearson Education, Inc.
