Operations Management Basics: Optimizing the design of business processes
Since the design phase of a process largely determines the later production costs, the question of how to reduce the negative effects of variety on process performance by clever process design is becoming more and more important.
One successful method of improving process design is the so-called delayed differentiation. This method allots keeping as many process steps identical as possible for all products before splitting the production process up. The decision, which variant of a certain product is actually produced is thus delayed until the very last possible point in the process. This process design is optimal for products that differ only mildly (e.g. t-shirts of different colour). Delayed differentiation is made easy, if variable elements of the product can be isolated (the so-called moduled product design).
An interesting example for delayed differentiation is the casing around the (otherwise completely identical) iPhones. The hype over the iPhone also shows, that even hugely successful products do not necessarily need to offer a lot of variation. The reason for this is, that customers can also be overwhelmed by too much choice. To understand this, one has to understand that most customers only care about the characteristics e.g. of a computer that provide utility for them – not about the actual technical specifications (e.g. gaming performance compared to the actual graphic card of a computer). Companies thus might want to think about limiting their product variety in order to not make customers nervous by offering too much choice and keeping them from purchasing a product.
These lecture notes were taken during 2013 installment of the MOOC “An Introduction to Operations Management” taught by Prof. Dr. Christian Terwiesch of the Wharton Business School of the University of Pennsylvania at Coursera.org.