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 (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 any costs incurred during the lifetime of the 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 level, 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 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 and
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 (External) Process Competency (Internal)

Cost Cost
Response time 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 the 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:

Durham Duplex Knives: 14000 Potential Variants