4 Process Management: Types of Process and its implication in operation strategy

Sudhanshu Joshi

Learning Objectives:

Quadrant-I

The Learning objectives of the module are to address the following questions:

1. To know about process management and its importance in business

2. To increase awareness about various concepts of process management

3. Enhance understanding of the learner about different tools and types of process management.

1. Introduction: 

A key aspect of operations management is process management. A process consists of one or more actions that transform inputs into outputs. In essence, the central role of all management is process management.

Businesses are composed of many interrelated processes. Generally speaking, there are three categories of business processes:

1. Upper-management processes. These govern the operation of the entire organization. Examples include organizational governance and organizational strategy.
2. Operational processes. These are the core processes that make up the value stream. Examples include purchasing, production and/or service, marketing, and sales.
3. Supporting processes. These support the core processes. Examples include accounting, Human Resources, and IT (Information Technology).

Figure 1 : Business processes form a sequence of suppliers and customers

Business processes, large and small, are composed of a series of supplier– customer relationships, where every business organization, every department,  and every individual operation is both a customer of the previous step in the process and a supplier to the next step in the process. Figure 1.8 illustrates this concept.

A major process can consist of many sub-processes, each having its own goals that contribute to the goals of the overall process. Business organizations and supply chains have many such processes and sub- processes, and they benefit greatly when management is using a process perspective. Business process management (BPM) activities include process design, process execution, and process monitoring. Two basic aspects of this for operations and supply chain management are managing processes to meet demand and dealing with process variability.

2. Definition: 

2.1 Process: One or more actions that transform inputs into outputs.

2.2 Process management means planning and monitoring the performance of a business process. The term usually refers to the management of business processes and manufacturing processes. It includes defining, visualizing, measuring, controlling, reporting and improving business processes with the goal to meet customer requirements profitably. To meet such customer requirements it utilizes knowledge, skills, tools, techniques and systems.

2.2 Business process refers to a network of activities performed by available resources that transforms inputs into outputs. Process management is a set of managerial  policies  specifying  how  a  process  should be operated more efficiently and effectively over time so that organization will be able to achieve its objectives optimally.

Following figure shows a process management perspective:

Figure 2 : Business processes form a sequence of suppliers and customers

2. Process Management as tool for competitive advantage 

Companies begin the process of organizing operations by setting competitive priorities. They must determine which of the following eight priorities are to be emphasized as competitive advantages:

1. Low-Cost Operations

2. High Performance Design

3. Consistent Quality

4. Fast delivery time

5. On-time Delivery

6. Development Speed

7. Product Customization

8. Volume Flexibility

Although all eight are obviously desirable, it is usually not possible for an operation to perform significantly better than the competition in more than one or two.

2.1  Managing Process to Meet Demand 

Ideally, the capacity of a process will be such that its output just matches demand. Excess capacity is wasteful and costly; too little capacity means dissatisfied customers and lost revenue. Having the right capacity requires having accurate forecasts of demand, the ability to translate forecasts into capacity requirements, and a process in place capable of meeting expected demand. Even so, process variation and demand variability can make the achievement of a match between process output and demand difficult. Therefore, to be effective, it is also necessary for managers to be able to deal with variation.

2.1.2 Process Variation 

Variation occurs in all business processes. It can be due to variety or variability. For example, random variability is inherent in every process; it is always present. In addition, variation can occur as the result of deliberate management choices to offer customers variety. There are four basic sources of variation:

2.1.2.1 The variety of goods or services being offered. The greater the variety of goods and services, the greater the variation in production or service requirements.

2.1.2.2. Structural variation in demand. These variations, which include trends and seasonal variations, are generally predictable. They are particularly important for capacity planning.

2.1.2.3. Random variation. This natural variability is present to some extent in all processes, as well as in demand for services and products, and it cannot generally be influenced by managers.

2.1.2.4. Assignable variation. These variations are caused by defective inputs, incorrect work methods, out-of-adjustment equipment, and so on. This type of variation can be reduced or eliminated by analysis and corrective action.

Variations can be disruptive to operations and supply chain processes, interfering with optimal functioning. Variations result in additional cost, delays and shortages, poor quality, and inefficient work systems. Poor quality and product shortages or service delays can lead to dissatisfied customers and can damage an organization’s reputation and image. It is not surprising, then, that the ability to deal with variability is absolutely necessary for managers.

3. Decisions in Process Management 

The five key decisions in process management are:

(a) Process Choice

(b) Vertical Integration

(c) Resource Flexibility

(d) Customer Involvement

(e) Capital Intensity

Figure 3: Decisions in Process Management

These decisions are very important and critical to the success of any organization.

We also need to understand various terminology including Process choice, Project process, Job shop Process, Batch flow process, Line flow process, Continuous flow process

3.1 Process Choice 

The first step in process management is process choice. Manufacturing and service operations can be characterized as one of the following:

1. Project Process
2. Job Shop
3. Batch Flow
4. Line Flow
5. Continuous Flow

3.1.1. Project Process 

A project process lies at the high-customization, low volume end of the process-choice continuum. Examples of project process are building a shopping center, planning a major event, constructing a new hospital, doing management consulting work, or developing a new technology or product. Once a project is completed it can be characterized by a high degree of job customization, scope of the project, and the release of substantial resources. Different projects have different sequence of operations and process as per their requirement. In manufacturing and service sector the process must be customer specific.

Firms with project processes sell themselves on the basis of their capabilities rather than on specific products or services. Projects are large, complex and take a long time. There are many interrelated tasks in a project which requires close coordination. Therefore, firms need to focus on coordination between various interrelated tasks. Projects typically make heavy use of certain skills and resources at particular stages and then have little use for them the rest of the time. A project process is based on a flexible flow strategy. Work flows are redefined with each new project.

3.1.2. Job Shop Process 

Job shop process is a kind of manufacturing process in which small batch of a variety of custom products are made. Job shops are typically small manufacturing systems that handle job production. Job production means, custom or semi-custom manufacturing processes such as small to medium size customer orders or batch jobs. Job shops typically move on to different jobs (possibly with different customers) when each job is completed. In job shops machines are aggregated in shops by the nature of skills and technological processes involved, each shop therefore may contain different machines. Job shop process is basically a manufacturing process which produces piece goods in small batches. A job shop is a flexible operation that has several activities through which work can pass. In a job shop, it is not necessary for all activities to be performed on all products, and their sequence may be different for different products. To illustrate the concept of a job shop, consider the case of a machine shop. In a machine shop, a variety of equipment such as drill presses, lathes, and milling machines is arranged in stations. Work is passed only to those machines required by it, and in the sequence required by it. This is a very flexible arrangement that can be used for wide variety of products. A job shop uses general purpose equipment and relies on the knowledge of workers to produce a wide variety of products. Volume is adjusted by adding or removing labor as needed. Job shops are low in efficiency but high in flexibility. Rather than selling specific products, a job shop often sells its capabilities. A job shop process creates the flexibility needed to produce a variety of products or services in significant quantities. 

Customization is relatively high and volume for any one product or service is low. The work force and equipment are flexible and handle various tasks. A job shop process primarily involves the use of flexible flow strategy, with resource organized around the process. Most jobs have a different sequence of processing steps.

3.1.3. Batch Flow Process 

A batch process is similar to a job shop, except that the sequence of activities tends to be in a line and is less flexible. In a batch process, dominant flows can be identified. The activities, while in-line, are disconnected from one another. It means, a batch process executes different production runs for different products. The disadvantage is the setup time required to change from one product to the other, but the advantage is that some flexibility in product mix can be achieved. As its name indicates, products are produced in batches. Batch production is most common in bakeries and in the manufacture of sports shoes, pharmaceutical ingredients, water purifying, inks, paints etc. A batch flow process differs from the job process with respect to volume, variety, and quantity. The primary difference is that volumes are higher because the same or similar products or services are provided repeatedly.

3.1.4. Line Flow Process 

A line flow process lies between the batch and continuous processes, volumes are high, and products or services are standardized, which allows resources to be organized around a product or service. Products created by a line process include  automobiles,  appliances,  personal  computers,  and  toys.  Services based on a line process are fast-food restaurants and cafeterias. Materials move linearly from one operation to the next according to a fixed sequence, with little inventory held between operations. Each operation performs the same process over and over with little variability in the products or services provided. Production orders are not directly linked to customer orders, as is the case with project and job processes. Manufacturers with line flow processes often follow a make-to-stock strategy, with standard products held in inventory so that they are ready when a customer places an order. This use of a line flow process is sometimes called mass production. There is a possibility of product variety in line flow process by careful control of the addition of standard options to the main product or service. The speed of production may be either machine oriented or worker oriented.

3.1.5. Continuous Flow Process 

A continuous flow process has fixed pace and fixed sequence of activities. Rather than being processed in discrete steps, the product is processed in a continuous flow. The quantity of the products is measured in weight or volume. In continuous flow process, the requirement of direct labor content and associated skill is low, but the skill level required to oversee the sophisticated equipment in the process may be high. Petroleum refineries and sugar processing facilities use a continuous flow process. Firms with such facilities are also referred to as the process industry. An electric generation plan represents one of the few continuous processes found in the service sector. A continuous  process  is  the  extreme  end  of  high-volume, standardized production with rigid line flows and tightly linked process segments. We can summarize various characteristics of continuous flow as follows:

(a) Flow                                –       Continuous

(b) Flexibility                       –       Very low

(c) Products                         –       One

(d) Capital Investment       –       Very high

(e) Variable Cost                  –       Very low

(f) Labour Content & Skill –       Very low

(g) Volume                           –       Very high

4. Structure of Processes 

The structure of above described processes differs in several respects such as:

4.1. Flow: Ranging from a large number of possible sequences of activities to only one possible sequence.

4.2 Flexibility: A process is flexible to the extent that the process performance and cost is independent of changes in the output. Changes may be changes in production volume or changes in the product mix.

4.3. Number of Products: It means the capability of producing a multitude of different products to producing only one specific product.

4.4 Capital Investment: It involves investment in equipments. Equipments range starts from lower cost general purpose equipment to expensive specialized equipment.

4.5. Variable Cost: It ranges from a high unit cost to a low unit cost.

4.6 Labor content and skill: It ranges from high labor content with high skill to low labor content and low skill.

4.7. Volume: It ranges from a quantity of one to large scale mass production.  It is interesting to note that these aspects generally increase or decrease monotonically as one move between the extremes of process structures. The

Figure 2: Characteristics of Different types of Processes

4.8 Vertical Integration: 

Vertical integration is a strategy that many companies use to gain control over their industry’s value chain. This strategy is one of the major considerations when developing corporate level strategy. Vertical integration is a strategy used by a company to gain control over its suppliers or distributors in order to increase the firm’s power in the marketplace, reduce transaction costs and secure supplies or distribution channels.

All businesses buy at least some inputs to their processes, such as professional services, raw materials, or manufactured parts, from other producers. The level of vertical integration is decided by the management after looking at all the activities performed between acquisition of raw materials or outside services and delivery of finished products or services. The organization will be more vertically integrated, when the organization performs more processes in their supply chain activity. The organization relies on outsourcing on those processes which are not performed by the organization itself. When managers opt for more vertical integration, there is by definition less outsourcing. These decisions are sometimes called make or buy decisions. Make decision means more integration and a buy decision meaning more outsourcing. After deciding what to outsource and what to do in-house, management must find ways to coordinate and integrate the various processes and suppliers.

4.8.1. Types of Vertical Integration 

There are mainly three types of vertical integration namely, backward integration, forward integration and balanced integration.

4.8.1.1 Backward Integration: 

Backward integration is also known as upstream integration. Backward vertical integration means the company has control over its subsidiaries that provides some of the inputs used in the production of its products. For example, an automobile company may own a tire company, a glass company and a metal company. If the automobile company has control over these three subsidiaries then it will be known as backward vertical integration. The main reason behind adopting backward vertical integration is to create a stable supply of inputs and ensure a consistent quality in their final product. It was the main business approach of Ford and other car companies in the 1920s.

4.8.1.2. Forward Integration: 

Forward vertical integration is also known as downstream vertical integration. Forward vertical integration means a company tends to control over its distribution centers and retailers where its products are sold.

4.8.1.2.1 Balanced Vertical Integration: 

It is another important type of vertical integration. Balanced vertical integration is a combination of both backward vertical integration and forward vertical integration. In balanced vertical integration, the firms tend to create a balance between backward and forward vertical integration.

4.9  Advantages of Vertical Integration: 

A firm can get following advantages through vertical integration:

(I) More vertical integration can sometimes improve market share and allow a firm to enter foreign markets more easily than it could otherwise.

(II) It improves the quality of products and the firm achieve more timely delivery of products objective

(III) It increases savings and lower costs due to eliminated market transaction costs.

4.10. Disadvantages of Vertical Integration: 

Some of the disadvantages of vertical integration are as under:

(I) If the company is not capable in managing new activities efficiently then it results into higher cost.

(II) The ownership of supply and distribution channels may lead to lower quality products and reduced efficiency because of the lack of competition.

5. Resource Flexibility: 

The degree of flexibility required of a company resources i.e. its employees, facilities, and equipment is determine by the choices that management makes after concerning competitive priorities. For example, when new products and services call for short life cycles or high customization, employees need to perform a broad range of duties and equipment must be general purpose. This type of flexibility is known as product customization. A second type of flexibility is volume flexibility and refers to the ability to operate a facility profitably over a wide range of demand volumes. A good example of volume flexibility is a fast food restaurant that is open 24 hours a day.

When managers make decision regarding resource flexibility then they must consider the following two factors:

5.1  Work Force 

Operations managers must decide whether to have a flexible workforce or not. Members of a flexible work force are capable of doing many tasks, either at their own workstations or as they move from one workstation to another. However, such flexibility often occur a cost to the firm as it requires greater skills. Such kind of skills achieved by the work force after training and education which requires investment.

The type of work force required also depends on the need for volume flexibility. When conditions allow for a smooth, steady rate of output, the likely choice is a permanent work force that expects regular full-time employment and vice-versa.

5.2  Equipment 

When a firm product or service has a short life cycle and a high degree of customization, low production volumes mean that a firm should select flexible, inexpensive, general-purpose equipment. When volumes are low then the equipments require low fixed cost and high variable unit cost. On the other hand, higher cost equipment is the best choice when volumes are high and customization is low. Its advantage is low variable unit cost. This efficiency is possible when customization is low because the equipment can be designed for a narrow range of products or tasks. Its disadvantage is high equipment investment and thus high fixed costs.

6. Customer Involvement:

The fourth significant component of process decision is the customer involvement. It means the extent to which customers interact with the process. The amount of customer involvement may range from self-service to deciding the time and place that the service is to be provided.

6.1 Self Service: Self service is the process decision of many retailers, particularly when price is a competitive priority. To save money, some customers prefer to do part of the process formerly performed by the manufacturer or dealer. Manufacturers of goods such as toys, bicycles, and furniture may also prefer to let the customer perform the final assembly because production, shipping and inventory costs frequently are lower, as are losses from damage. The firms pass the savings on to customers as lower prices.

6.2 Product Selection: A business that competes on customization frequently allows customers to come up with their own product specifications or even become involved in designing the product. A good example of customer involvement is in custom-designed and built homes. The customer is heavily involved in the design process and inspects the work in process at various times.

6.3 Time and Location: It is another important factor. When services can’t be provided in the customer’s absence, customers may determine the time and location. If the service is delivered to the customer by appointment, the decision regarding the location becomes part of process design. Several issues are involved in process design regarding time and location such as will the customer be served only on the supplier’s premises, will the supplier’s employees go to the customer’s premises, or will the service be provided at a third location?

7. Capital Intensity 

Capital intensity is the mix of equipment and human skills in the process. The capital intensity is  high if the relative cost of equipment is high. As the capabilities of technology increases and its costs decreases, the manager has a wide range of choices, from operations utilizing very little automation to those requiring task-specific equipment and very little human intervention. Automation is a system, process or piece of equipment that is self-acting and self-regulating. Although automation is often thought to be necessary to gain competitive advantage, it has both advantages and disadvantages. Thus the automation decision requires careful examination.

One advantage of automation is that adding capital intensity can significantly increase productivity and improve quality. However, the disadvantage of capital intensity can be the prohibitive investment cost for low volume operations. Generally, capital intensive operations must have high utilization to be justifiable. Also, automation doesn’t always align with a company’s competitive priorities. If a firm offers a unique product or high quality service, competitive priorities may indicate the need for skilled servers, hand labor, and individual attention rather than new technology.

7.1 Types of Automation 

There are two types of automation:

7.1.1 Fixed  Automation:  It  is  also  known  as  hard  automation.  A  fixed automation is designed to perform a specific, highly repetitive task. Fixed automation refers to the use of special purpose equipment to automate a fixed sequence of processing or assembly operations.

7.1.2 Flexible Automation: It is also known as soft automation. It includes equipment that has been designed to accommodate a variety of product configurations. In flexible automation, the production equipment is designed with the capability to change the sequence of operations to accommodate different product configurations.

Suggested Readings:

a) Slack and Brandon-Jones (2015): Operations and Process Management. Pearson.

b) Dumas and Rosa (2013): Fundamentals of Business Process Management. Springer.

c) Brocke and Roseman (2014): Handbook on Business Process Management1: Introduction, Methods and Information Systems. Springer.

d) Damij and Damij (2013): Process Management: A Multi-disciplinary Guide to Theory, Modeling, and Methodology. Springer

e) Anupindi and Chopra (2013): Managing Business Process Flows: Principles of Operations Management. Pearson Education.

f) Larson and Gray (2014): Project Management: The Managerial Process. McGraw Hill Education.

g) Chandrasekaran (2010): Supply Chain Management: Process, System & Practice. Oxford University Press.

h) Wisner and Stanley (2008): Process Management. Cengage Learning.

i) Crum and Palmatier (2003): Demand Management Best Practices: Process, Principles and Collaboration. Ross Publishing.

j) Palvarini andQuezado (2008), Process Management-Results-oriented Approach.