Note_Product Attribute to Process Competency

From Product Attributes to Process Competency When customers evaluate products (the desired set of process outputs), they weigh its perceived value against the asking price. Marketers have focused much of their time and energy on managing the price side of that equation, since raising prices can immediately boost profits. But that’s the easy part and not sustainable in the long run. What consumers truly value, however, can be difficult to pin down and psychologically complicated. The amount and nature of value in products always lie in the eye of the beholder. Universal building blocks of value do exist, creating opportunities for companies to improve their performance in current markets or break into new ones. A rigorous model of consumer value allows a company to come up with new combinations of value that its products could deliver. The value of a product to the customer is measured by the utility utilit y (in economic terms) that he or she derives from buying the combination of some attributes. In operations management we define, product value or utility as a complex function of the four product attributes, these are Product Cost, Product delivery response time, Product Variety and Product Quality. 1. Product cost  is the total cost that a customer incurs in order to own and experience the  product. It includes the purchase price plus plus any costs incurred during the lifetime of the product, product, such as costs for service, maintenance, insurance, and even final disposal. Cost is important  because customers usually make purchase decisions within budget constraints. 2. Product delivery-response time   is the total time that a customer must wait for, before receiving a product for which he or she has expressed a need to the provider. Response time is closely related to product availability and accessibility, sometimes called Lead Time i.e the time between the placement of an order and delivery. If a manufactured good is on store shelves, the response time is effectively zero (Make To Stock). If it is stocked in a warehouse or a distribution centre, response time consists of the transportation time needed to get it to the customer. If a firm does not stock the product and produces only to order, response time will also include the time required to produce the product (Make To Order). With services, response time is determined by the availability of resources required to serve the customer. If resources are not immediately available, the customer must wait. For example, in the absence of an idle checkout clerk, a customer has to wait in a checkout line for service. Customers prefer short response times, as immediate gratification of needs is typically preferred over delayed gratification. In many instances, the reliability of the response time is at least as important as its duration. 3. Product variety is the range of choices offered to the customer to meet his or her needs. Variety can be interpreted and measured at different levels. At the lowest l evel, we can measure variety regarding the level of customization offered for a product. This includes options offered for a particular car model or the number of colours and sizes for a style of jeans. At a higher level, variety can be measured in terms of the number of product lines or families offered by a firm. For example, a car manufacturer ma nufacturer like General Motors offering a full range of automobiles like compacts, sports cars, luxury sedans, and sport-utility vehicles (SUVs) provides a greater variety than a manufacturer like Ferrari that offers only sports cars. Similarly, a retail store offering the full range of apparel from casual to business to formal wear offers more variety than a store focused on providing only tuxedoes. Whereas standard, commodity products have the little variety, custom products may be one-of-a-kind items tailored specifically to customers’ unique needs or wishes. For example, when purchasing apparel in a department store, customers must choose from a limited selection. In contrast, when ordering a suit at a

custom tailor, each customer can provide different specifications that meet personal needs a nd desires that constitute, in effect, an almost endless range of product variety. 4. Product quality is the degree of excellence that determines how well the product performs. Product quality is a function of effective design as well as production that conforms to the design. It may refer to tangible, intangible, and even transcendental characteristics of product experience. Product quality is often the most difficult product attribute to define and measure  because subjective judgment and perception play important roles in a customer ’s assessment of quality. From the customer ’s perspective, quality depends on a product ’s features (what it can do), performance (how well it functions), reliability (how consistently it functions over time), serviceability (how quickly it can be restored), aesthetics, and conformance to expectations. Whereas product features and performance are influenced by quality of design, reliability is more heavily influenced by how well the production process conforms to the design. The styling, size, options, and engine rating of an automobile are its features. Acceleration, emergency handling, ride comfort, safety, and fuel efficiency are aspects of  performance, while durability and failure-free performance over time represent its reliability. These above four attributes are also called Competitive Priorities. Competitive Product Space is a representation of the firm’s product portfolio as measured along the four dimensions or product attributes/competitive priorities (product cost, response time, variety and quality). However, the position in Competitive Product Space  is always dynamic and firms wants to remain always competitive by positioning their product strategically. Strategic Positioning defines those positions that the firm wants to occupy in its competitive product space. In order to do that firms need to focus on Operational Effectiveness . Operational Effectiveness means  possessing process competencies that support the given strategic position. Developing process competencies requires designing suitable business processes and operating policies. There are four dimensions of process competencies corresponding to four product attributes.

Product Attribute (E xternal)

Process Competency (I nternal)

Cost Response time

Cost Flow time

Variety

Flexibility

Quality

Quality

Process cost  is the total cost incurred in producing and delivering outputs. It includes the cost of raw materials and both the fixed and the variable costs of operating the process. (For our  purposes, this is as specific as we need to be about the ways accounting practices allocate costs to time periods and products.) Process flow time  is the total time needed to transform a flow unit from input into output. It includes the actual processing time as well as any waiting time a flow unit spends in buffers. Process flow time depends on several factors including the number of resource units as well as the speed of processing by each resource unit.

Process flexibility measures the ability of the process to produce and deliver the desired product variety. Process flexibility depends on the flexibility of its resources: Flexible resources (such as flexible technology and cross-trained workers or “generalists”) can perform multiple different activities and produce a variety of products. Dedicated or specialized resources, in contrast, can perform only a restricted set of activities, typically those designed for one product.

Another dimension of process flexibility is its ability to deal with fluctuating demand. A steel mill cannot readily alter the amount of steel it produces at a time. An auto repair shop, in contrast, finds it easier to change the number of cars repaired each day. Process quality refers to the ability of the process to produce and deliver quality products. It includes  process accuracy (precision) in producing products that conform to design specifications, as well as reliability, and maintainability of the process Product Process Matrix: Focused operations make it easier for a firm to match its processes with the products that it produces and a useful tool for matching processes to products is the product –   process matrix proposed by Hayes and Wheelwright (1979). A model of this matrix is shown in Figure.

Since process decisions are dynamic processes evolve overtime. Further process decisions are closely related to product decision. Ideally, each process type fits a specific product demand: Job shops, for instance, are ideally suited to  produce custom products in low volumes, while flow shops work best for more standardized products demanded in high volumes. Effective product –   process matches occur on the diagonal of the product –   process matrix. According to Hayes and Wheelwright, rational firms match their product structural decisions with the  process structural decisions and hence stay along the diagonal of the product-process matrix. A match  between the product choices and process decisions would remove inefficiencies from the system and could provide competitive advantage to the firm. An off diagonal position represents a mismatch that can result in unnecessarily high costs. Thus, a flexible job shop that produces only one product results in opportunity costs of not producing a wider variety. Similarly, a specialized flow shop that produces

several products in low volumes undergoes numerous equipment changeovers, resulting in out-of pocket costs. A diagonal position corresponds to a proper match between the desired product variety and the necessary process flexibility. Note that the product– process matrix connects only one product attribute with one process competency. There is also a correlation between process flexibility and  product cost: standardization typically results in economies of scale and thus lower variable product cost. Likewise, there is a correlation between process flexibility and product response time: flow shops typically have shorter flow times than job shops. Product quality, however, bears no direct correlation to layout of resources and connecting routes. Both job shops and flow shops can produce high quality In other perspective, one can also look t he horizontal axis as a life cycle of the product ranging from a unique, one of a kind product to a high volume standardized product. A product typically evolves from left to right. Auto were made in Job Shop before Henry Ford made moving assy line. Hayes and Wheelwright argued that it is profitable for firms to operate along the diagonal of the product-process matrix. Justify the reason surrounding their argument. Can you think of situations in which firms could move away from the diagonal and yet remain  profitable? However, the advent of Advanced Manufacturing Technologies (AMT) and Flexible Manufacturing Technologies (FMT) has created situations wherein firms could move away from the diagonal and remain competitive Mass Customisation:  Some companies can move to a middle ground that occupies more space on the  product process matrix by adopting flexible manufacturing and modular product design. These companies can simultaneously produce both low volume and high volume product using same process. Mass customisation is the ability to make customised product at approximately the same cost as a mass  produced product. At first blush, mass customisation appears to be oxymoron, two words that are incompatible, like deafening silence. But the dichotomy between mass production and customisation can be overcome by using modern technologies. CAD/CAM, modular design and 3D Printing is now making it more practical. Traditionally Mass Production is built on Economies of Scale. However, mass customisation depends on Economies of Scope — High Variety of products from a single process. Example:

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