Business Processes Chapter 4
Dec 26, 2015
Business Processes
Chapter 4
Text: Introduction to Operations and Supply Chain ManagementCustom edition for Farmingdale State College
Authors: Cecil Bozarth & Robert Handfield
Where appropriate reference text page numbers will be on bottom of slides
OSC may be used as an abbreviation of Operations and Supply Chain
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.
Procter & Gamble
Page 44
Business Processes
• Business processes defined
• Mapping business processes
• Managing and improving business processes– Measuring process performance
• The SCOR Model
Business Processes DefinedLogically related sets of tasks or activities
geared toward some business outcome Primary
the main value-added activities
Supportnecessary, but not value-added activities
Developmentactivities that improve primary & support activities
What is the distinction? Examples of each? Are the dividing lines always clear?
Pg 46
Examples of processes
• Providing a service
• Educating Customers
• Manufacturing a product
• Evaluating suppliers
• Recruiting new workers
• Developing a sales & operating plan
Primary•Developing new products•Performing research on improving products•Training new workers
Support Development
• Prior to 1990s, attention was on activities within each business function (P&G)
• If focus was on individual functions and those functions ran well, then the business should do well
• Managing functions is not the same as managing what a business does
• The whole needs to be greater than the sum of it’s parts
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
To effectively manage, measure and improve something, it must
first be understood
Mapping Business Processes
• Creates common understanding of the activities, results and who performs the steps
• Defines the boundaries of the process• Can be a training tool• Provides baseline to measure improvement
An effective, simple way to improve understanding of the business process is by developing a graphic representation of all the activities and relationships with thin the process
Pg 48
Mapping Business Processes
• Relationship maps
• Detailed process maps
• ‘Swim Lane’ process maps
Relationship Map 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.)
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
Relationship Map
Family 1Supplier
Family 2Supplier
Family 3Supplier
Family 10Supplier
Supplier of“Cockpits”
AssemblyPlant
Tier 1
Tier 2
AutomotiveOEM
Physical andInformation
Flows
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
Segment of the process?
3. Keep it simple Does this detail add any insight? Do we need to map every exception condition?
Detailed Process Map
• Document the process “as is”, not how it should be or how it is remembered
• May be necessary to observe, monitor &/or follow the process
• Need to map in manageable, logical segments
• Keep the focus relatively small• Only areas which you have managerial control
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
Detailed Process Map Example
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.
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).
Let’s Map the Process
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?
One Possible Solution
ClerkProcesses
Order
Is ItemIn Stock?
Clerk NotifiesDealer and
Passes OrderOn to Plant
DealerReceives
Order
DealerFaxesOrder
PaperOrder
Created
Order SitsIn FaxIn Box
Internal MailDelivers Fax
Order SitsIn Clerk’s
In Box
Transport FirmDelivers Order
InspectorChecksOrder
WorkerPicksOrder
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
Is there room for improvement?
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
• Order spends 6.45 hrs in process
• 3 hrs is waiting
• 5% of orders are lost before picking
• 1 out of 200 will be shipped with wrong items or amounts
Detailed Process Map Example
Process mapping at a San Diego distribution center (DC)
*Textbook, pages 50-52.
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?
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?
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”
Symptomatic Activities ...
• Inspecting or reworking goods
• Expediting shipments or “fighting fires”
• Overproducing, holding excessive inventories
• Standard backorder process
…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
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
Swim Lane Process Map
In some situations, we may need to understand not only the process, but who, or which departments are involved and how they need to interact
Swim Lane Process Maps graphically arrange the process so that responsibility & interaction is clear.
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
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
Process Measures
There are countless ways of measuring a process. To be effective, they should be based upon some type of measurable information or data
Four Performance Dimensions
• Quality (performance, conformance, reliability)
• Time (delivery speed and reliability, development
speed)
• Flexibility (mix, changeover, volume)
• Cost (labor, material, engineering, quality-related)
What does the customer value?
Process Measures
ProductivityEfficiencyCycle TimeBenchmarking
Productivity Measures
Productivity = OutputsInputs
Single-factor, Multifactor, and Total measures of productivity
Productivity is the ratio of outputs to inputs
Variations of Productivity
Batteries ProducedMachine Hours + Direct Labor Hours
Total Nightly Sales ($)Total Nightly Costs ($)
Batteries ProducedDirect Labor Hours
Single-factorproductivity ratio:
Multifactor:
Total multifactor:
Measures output levels relative to a single input
Measures output levels relative to more than one input
Ratio of a total output factor to total input factor
Variations of Productivity
There are many common or standard productivity measures, typically a company will develop productivity ratios which are suited to their specific needs
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
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) = ?
0.2
0.2
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)
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?
EfficiencyA comparison of a company’s actualperformance to some standard output
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
Standard output – an estimate of what should be produced, given a certain level of resources
Efficiency
Measuring Efficiency at BMA Software
Text pages 56 thru 59
Cycle Time(throughput time)
Total time required to complete a process from start to finish.
• To reduce cycle time, organizations must perform well on other performance dimensions
• It is a straight forward measure; can be measured in absolute terms, no estimates
Percent Value Added Time – the percentage of cycle time which is spent on value-added activities
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
BenchmarkingA comparison of a company’s
performance to the performance of:
Other firms in its industry (strategic or competitive)
Firms identified as “world-class” (process)
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?
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.
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.
Other Measures I
Costs
Quality
• Materials• Labor• Shipping• etc.
• Defects per million (ppm)• Number of returns• Time between failures (MTBF,
reliability)
Other Measures II
Speed
Flexibility
• Lead time to customer• Percent orders late
• Changeover time• Volume to meet changes in
demand
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
Supply-Chain Operations Reference (SCOR) Model
A comprehensive model of the core management processes and individual processes that define the domain of SCM
• Reference model which provides a common language
• Provides a template to guide the design & implementation of SC processes
• Provides mechanism for better understanding of SCM
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
Supply-Chain Operations Reference (SCOR) Model
Five core processes for Level 1• Source
• Procure goods & services to meet planned or actual demand
• Make• Transform source material into finished good
• Deliver• Provides goods & services
• Return• Returning & receiving returned product
• Plan• Balance resources with requirements
Pg 72
Supply-Chain Operations Reference (SCOR) Model
Three expanded processes for Level 2• Planning
• Aligns expected resources to meet expected demand.
• Execution• Process triggered by planned or actual demand
requirements
• Enable• Prepares, maintains or manages information or
relationships on which planning & execution rely
SCOR Modelwww.supply-chain.org
Business Processes Case Study
Zephtrex Fabric