Business Processes. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036.

Business Processes

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Chapter 3, Slide 2

Chapter Objectives

Be able to: Explain what a business process is and how the business

perspective differs from a traditional functional perspective. Create process maps for a business process and use these to

understand and diagnose a process. Calculate and interpret some common measures of process

performance. Discuss the importance of benchmarking and distinguish

between competitive benchmarking and process benchmarking.

Describe the Six Sigma methodology, including the steps of the DMAIC process.

Use and interpret some common continuous improvement tools.

Explain what the Supply-Chain Operations Reference (SCOR) model is and why it is important to businesses.


Chapter 3, Slide 3

Business Processes

• Business processes defined

• Mapping business processes

• Managing and improving business processes– Measuring process performance

• The SCOR Model


Chapter 3, Slide 4

Business Processes Defined

Logically related sets of tasks or activities geared toward some business outcome Primary Support Development

What is the distinction? Examples of each? Are the dividing lines always clear?


Chapter 3, Slide 5

Versus the “functional” Perspective

What are some of the challenges in managing such processes?

Developing new products/services (Chapter 6)

Evaluating suppliers (Chapter 10)

Developing sales & operations plans (Chapter 13)

Suppliers Purchasing Engineering Operations Finance Marketing Customers


Chapter 3, Slide 6

Mapping Business Processes

• Relationship maps– What are they?– What level of detail?– When are they most valuable?

• Detailed process maps

• ‘Swim Lane’ process maps


Chapter 3, Slide 7

Example

Automotive OEM wanted to understand how the company’s needs were communicated to suppliers

First-tier supplier responsible for entire cockpit (all interior pieces)

Second-tier suppliers provide “families” of parts to first-tier supplier (e.g., plastic trim, gauges and wiring, etc.)


Chapter 3, Slide 8

Findings

1) OEM provided first-tier supplier with weekly demand forecast for next 10 weeks

2) First-tier supplier sent its ‘own’ demand forecasts to 10 second-tier suppliers

3) Second-tier suppliers delivered the requirements to first-tier supplier


Chapter 3, Slide 9

Relationship Map

Family 1Supplier

Family 2Supplier

Family 3Supplier

Family 10Supplier

Supplier of“Cockpits”

AssemblyPlant

Tier 1

Tier 2

AutomotiveOEM

Physical andInformation

Flows


Chapter 3, Slide 10

Detailed Process Map

Identifies the specific activities that make up the process. Basic steps are:

1. Identify the entity that will serve as your focal point: Customer? Order? Item?

2. Identify clear boundaries, starting and ending points

3. Keep it simple Does this detail add any insight? Do we need to map every exception condition?


Chapter 3, Slide 11

Mapping Symbols

Typical, but others may be used as appropriate

Start or finishing point

Step or activity in the process

Decision point (typically requires a “yes” or “no”)

Input or output (typically data or materials)

Document created

Delay

Inspection

Move activity


Chapter 3, Slide 12

Example*

Process mapping at a San Diego distribution center (DC)

*Textbook, pages 50-52.


Chapter 3, Slide 13

Facts of the Case I

Process1) Dealer faxes order to DC. One out of 25 orders lost

because of paper jams.

2) Fax sits in “In Box” around 2 hours (up to 4) until internal mail picks it up.

3) Internal mail takes about one hour (up to 1.5 hours) to deliver to the picking area. One out of 100 faxes are delivered to the wrong place.

4) Order sits in clerk’s in-box until it is processed (0 to 2 hours). Processing time takes 5 minutes.


Chapter 3, Slide 14

Facts of the Case II

5) If item is in stock, worker picks and packs order (average = 20 minutes, but up to 45 minutes).

6) Inspector takes 2 minutes to check order. Still, one out of 200 orders are completed incorrectly.

7) Transport firm delivers order (1 to 3 hours).


Chapter 3, Slide 15

Let’s Map the Process

(No looking in chapter!)

What is the focal point of the mapping effort?

What are the boundaries of the process map?

What detail is missing from this simple example?


Chapter 3, Slide 16

One Possible Solution

DealerFaxesOrder

PaperOrder

Created

Order SitsIn FaxIn Box

Internal MailDelivers Fax

Order SitsIn Clerk’s

In Box

ClerkProcesses

Order

Is ItemIn Stock?

WorkerPicksOrder

Clerk NotifiesDealer and

Passes OrderOn to Plant

InspectorChecksOrder

Transport FirmDelivers Order

DealerReceives

Order

2 minutes0.5% of orders incorrect1 to 3 hours

2 hours on averageNo history of lost,damaged, or incorrectdeliveries

YES

NO

10 to 45 minutes20 minutes on average

0 to 2 hours1 hour on average0.5 to 1.5 hours

1 hour on average1% of orders lost

0 to 4 hours2 hours on average

4% oforders lost

5 minutes


Chapter 3, Slide 17

Improving Business Processes: Guidelines

• Attack each delay– What causes it?– How long is it?– How could we reduce its impact?

• Examine each decision point– Is this a real decision or just a checking activity?– If the latter, can we automate or eliminate it?

• Dematerialize documentation. – Can we do it electronically?– Eliminate multiple copies?– Share a common database?


Chapter 3, Slide 18

More Guidelines

• Look for loops– Why is this loop here?– Would we need to loop if we didn’t have any failures

in quality, planning, etc?

• Process steps– What is the value of this activity, relative to its cost?– Is this a necessary activity (support or

developmental?), or something else?


Chapter 3, Slide 19

Taking It Further ...

• All activities add costs and time

• Not all value-added activities provide “net” value– “Underperformers”

• Not all support and developmental activities are necessary– Necessary versus “symptomatic”


Chapter 3, Slide 20

Symptomatic Activities ...

• Inspecting or reworking goods

• Expediting shipments or “fighting fires”

• Overproducing, holding excessive inventories

• Standard backorder process


Chapter 3, Slide 21

…and Typical Causes

• Poor quality

• “Flying blind,” poor planning

• Poor controls, training, etc.

• Excessive demand variability

• Mismatches between an organization’s capabilities and market requirements


Chapter 3, Slide 22

Process Improvement

Value Cost Description Action

Net Value-Added Activity

++ + Adds net value Find ways to increase value and lower costs further

Underperformer + ++ Potential value-adding activity

Change to value-adding activity or eliminate

Necessary 0 + Necessary business activity

Reduce cost of performing activity

Symptomatic 0 ++ Activity caused by poor business practices

Eliminate practices that cause the activity


Chapter 3, Slide 23

Swim Lane Process Map*SURGICAL PROCEDURE

SUR

GEO

NR

AD

IOLO

GY

GEN

ERA

LPR

AC

TITI

ON

ERPA

TIEN

T

APPT

APPT

PHYSICAL

APPT SEND

MAMMOGRAM

DEVELOP

RECEIVE

CONSULT

APPT

CONSULT

* Adapted from map by John Grout, Campbell School of Business, Berry College, Mount Berry, Georgia


Chapter 3, Slide 24

Swim Lane Process Map

• Shows functional relationships versus time• Can help in measuring loading on various

functional areas• Illustrates cross-function communication

processes• Other names: cross-functional flowchart,

Rummler-Brache diagram.• Useful for mapping MIS support for

processes


Chapter 3, Slide 25

Process Measures

Productivity

Efficiency

Cycle Time

Benchmarking


Chapter 3, Slide 26

Productivity Measures

Productivity = OutputsInputs

Single-factor, Multifactor, and Total measures of productivity


Chapter 3, Slide 27

Examples

Batteries ProducedMachine Hours + Direct Labor Hours

Total Nightly Sales ($)Total Nightly Costs ($)

Batteries ProducedDirect Labor Hours

Single-factorproductivity ratio:

Multifactor:

Total multifactor:


Chapter 3, Slide 28

Consider the following data . . .

Quantity $/Unit

Car X 4000 cars $8,000/car

Car Y 6000 cars $9,500/car

Total labor for building X

20,000 hours $12/hour

Total labor for building Y

30,000 hours $14/hour


Chapter 3, Slide 29

What is the Labor Productivityin hours for Each Car?

Car X: (4,000 cars / 20,000 hrs) = ?

Car Y: (6,000 cars / 30,000 hrs) = ?

How might these measures be affected bycapital substitution?


Chapter 3, Slide 30

What is the Labor Productivityin dollars for Each Car?

Impact of wage, price changes?

Car X: (4,000 × $8,000) = ?(20,000 × $12)

Car Y: (6,000 × $9,500) = ?(30,000 × $14)


Chapter 3, Slide 31

Results(What are the Benefits? Caveats?)

Car X: (4,000 × $8,000) = 133.33(20,000 × $12)

Car X: (4,000 units / 20,000 hrs.) = 0.2 units / hr

Productivity (hours)

Productivity ($)

Values for Car Y?


Chapter 3, Slide 32

Efficiency

A comparison of a company’s actualperformance to some standard

Usually expressed as a percentageStandard is an estimate of what should be produced

based on studies or historical resultsEfficiency = 100%(actual rate / standard rate)

OR: Efficiency = 100%(standard time/actual time) for one unit


Chapter 3, Slide 33

Cycle Time

Total time required to complete a process from start to finish.

– The percent of cycle time spent on value-added activities is a measure of process effectiveness.


Chapter 3, Slide 34

Cycle Time Drivers

Causes that increase cycle time are:Waiting times

Unneeded steps

Rework

Unnecessary controls or testing

Outmoded technology

Lack of information or training


Chapter 3, Slide 35

Benchmarking

A comparison of a company’s performance to the performance of:

Other firms in its industry (strategic)

Firms identified as “world-class” (process)


Chapter 3, Slide 36

Benchmarking Data from“The Machine That Changed The World”

Number of assembly defects per 100 vehicles (1989):

Average Japanese plant: 34.0

Average US plant: 64.6

Average European plant: 76.8

Is this strategic or process benchmarking?


Chapter 3, Slide 37

More Benchmarking Data ...

Labor and machine hours per vehicle (1989):

Average Japanese plant: 16.9

Average US plant: 35.7

Average European plant: 57

What is the benefit of having both sets of figures?

So what’s happened since?

Some new productivity figures.


Chapter 3, Slide 39

From “The Harbour Report”, July 1998

“Labor hours needed for stamping, power train, and assembly operations”:

(100%) Nissan 27.6 hours (168%) GM 46.5 hours (126%)

Ford 34.7 hours "If GM could operate at Nissan's level of productivity, they'd

save themselves about $4.4 billion a year," Measured another way, the report shows GM has about 55,000 more workers than it needs.


Chapter 3, Slide 40

Other Measures I

Costs

Quality

• Materials• Labor• Shipping• etc.

• Defects per million (ppm)• Number of returns• Time between failures (MTBF,

reliability)


Chapter 3, Slide 41

Other Measures II

Speed

Flexibility

• Lead time to customer• Percent orders late

• Changeover time• Volume to meet changes in

demand


Chapter 3, Slide 42

Measurement Key Points

• Can be situation-specific

• Should be relative to past performance and future goals

• Potential for conflicts. Consider:

# of Students TaughtProfessor hours

% of SatisfiedStudentsversus


Chapter 3, Slide 43

Six Sigma Methodology

Core value is having less than 3.4 defects per million opportunities (DPMO). Key elements are:

Understanding and managing customer requirements

Aligning key business processes to achieve those requirements

Using rigorous data analysis to understand and ultimately minimize variation in those processes

Driving rapid and sustainable improvement to business processes.


Chapter 3, Slide 44

Six Sigma Methodology

Two basic Six Sigma processes are:DMAIC (Define-Measure-Analyze-

Improve-Control) — an updated version of the PDCA process promoted by Deming.

DMADV (Define-Measure-Analyze-Design-Verify)


Chapter 3, Slide 45

The PDCA Cycle

Plan

Do

Check

Act


Chapter 3, Slide 46

Common Improvement Tools

Cause and effect diagrams (aka “Fishbone” or Ishikawa diagrams)

Check sheets

Pareto analysis

Run charts and scatter plots

Bar graphs

Histograms


Chapter 3, Slide 47

A Services Example

Flight delays at Midway

• Cause and Effect Diagrams• Check Sheets• Pareto Analysis


Chapter 3, Slide 48

Problem: Delayed Flights

• No one is sure why, but plenty of opinions

• “Management by Fact”

• CI Tools we will use:– Fishbone diagram– Check sheets– Pareto analysis


Chapter 3, Slide 49

Cause and Effect Diagram

ASKS: What are the possible causes?

Root cause analysis — open and narrow phases


Chapter 3, Slide 50

Generic C&E Diagram

Effect

MethodsManpower

MeasurementsMachinesMaterials


Chapter 3, Slide 51

Midway C&E diagram

Delayed Flights

ProceduresPersonnel

Equipment

Maintenance Problems

Gate Occupied

Turnover

Number of Agents

Cleaning Crews

PayPolicy

Late Passengers

We can furthersubdivide these

by asking“Why?” until weget to the root

cause


Chapter 3, Slide 52

Check Sheets

(root cause analysis -- closed phase)

Event: Day 1 Day 2 Day 3

Late arrival II II I

Gate occupied

Too few agents I I

Accepting late passengers

II III II


Chapter 3, Slide 53

Pareto Analysis(sorted histogram)

Late passengers

Late arrivals

Late baggage to aircraft

Weather

Other (160)

100

85

7065


Chapter 3, Slide 54

Percent of each out of 480 total incidents ...

Late passengers 21%

Late arrivals 18%

Late baggage to aircraft 15%

Weather 14%

Other 33%


Chapter 3, Slide 55

Run Charts and Scatter Plots

Time

Measure

Variable Y

Variable X

Run

Scatter


Chapter 3, Slide 56

Histograms

Frequency

Measurements


Chapter 3, Slide 57

Supply-Chain Operations Reference (SCOR) Model

Five core processes for Level 1• Source• Make• Deliver• Return• PlanThree expanded processes for Level 2• Planning• Execution• Enable


Chapter 3, Slide 58

SCOR Modelwww.supply-chain.org

Business Processes Case Study

Zephtrex Fabric

Business Processes. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036.

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