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Business Processes and Business Processes and their Improvementtheir Improvement

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Session ObjectivesSession Objectives

Develop an understanding of business processes

Review process modeling basics Introduce process management

concepts and best practices

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Supply Chain Management: Supply Chain Management: Key Activities and ProcessesKey Activities and Processes

NEW PRODUCT INTRODUCTION

ORDER FULFILLMENT

Design/Develop Market

Procure Produce Distribute

Supply Base

Supply Base

CustomerRequirements

CustomerSatisfaction

Corporate Strategy

Infrastructure, People, and Culture

Information and Technology

Forecasting

Supply/Demand Planning

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Order Fulfillment: Order Fulfillment: Key Supply Chain ProcessesKey Supply Chain Processes

SUPPLY OPERATIONS DEMAND

• Supply Planning and Scheduling

• Strategic Sourcing• Supplier Selection• Supplier

Development• Invoicing/Payment• Inbound Logistics• Warehousing• Inventory

Management

• Operations Planning and Scheduling

• Capacity Planning• Material Handling• Insourcing/

Outsourcing

• Demand Planning and Forecasting

• Sales• Order Entry• Outbound Logistics• Finished Goods

Inventory Management

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Why Focus On Why Focus On Business Processes?Business Processes?

Supports “systems view” of organization Helps organizations to understand and

effectively manage interrelationships, both internally and externally

Improves resource allocation decisions Provides the basis for performance

measurement system(Adapted from Harrington 1991)

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Five Phases of Five Phases of Process ImprovementProcess Improvement

1. Establish process improvement team2. Develop understanding of current

process3. Identify initial process improvement

efforts4. Establish measurements and controls5. Monitor performance and seek

continuous improvement (Adapted from Harrington 1991)

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Selecting Processes For Selecting Processes For ImprovementImprovement

Look for processes where: Frequent problems/complaints (internal or external) High-cost High-variability of output Long and/or variable cycle times A known “best practice” exists New and improved technologies are available

(Adapted from Harrington 1991)

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Selecting Processes For Selecting Processes For ImprovementImprovement

In evaluating process candidates the following critical factors need to be considered: Current performance of the process Business impact Supply chain impact

Suppliers and customers Ability to change the process Resources required for improvement

(Adapted from Harrington 1991)

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Process Modeling BasicsProcess Modeling Basics

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ModelingModeling

Model: A representation of reality Models can be

Physical Mathematical Schematic / graphical

We will focus on schematic or graphical modeling

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Business Process ModelingBusiness Process Modeling

Important part of process improvement efforts

Tool for understanding business processes Internal Supply chain

Flowcharting is the most commonly used technique (also known as “process mapping”)

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Types of FlowchartsTypes of Flowcharts

Block diagrams Advantage: Simplicity

Flow-process charts Advantage: Identifies both flow and activity

types American National Standard Institute

(ANSI) flow charts Advantage: Universal, flexible

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Process Flow Charting - Process Flow Charting - ConsiderationsConsiderations

First document the process as it IS, not as it’s supposed to be

Scope - how much of the process do you want to look at?

Detail - how finely do you want to break down the process?

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Process Flow Charting - Process Flow Charting - ConsiderationsConsiderations

Additional dimensions may be included in a flow chart: Information flows Time element

Operations, inspections, delays, transports Average time required, range, etc.

Distance moved Resources required Capacity

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Process Flow Chart:Process Flow Chart:Stores RequisitionStores Requisition

UserCompletesRequisition

Wait inInternal Mailavg.: 2 hrs

(0-4 hrs)

Deliver toStores

avg.: 1 hr(0.5-1.5 hrs)

Wait inStores In-Box

avg.: 1 hr(0-2 hrs)

ClerkEntersOrder

InStock?

NotifyUser

N

YPickOrder

FileRequisition

(0.1 hrs)

CheckOrder

(0.1 hrs)

Deliver toUser

avg.: 2 hrs(1-3 hrs)

(0.1 hrs)

avg.: 0.4 hrs(0.2 - 1.5 hrs)

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Process Flow Charting - BenefitsProcess Flow Charting - Benefits Gain a clear understanding of how the process

actually works Capacities Cycle times

Highlight potential improvement opportunities Unnecessary steps Redundant steps Inefficient sequencing of steps Identification of bottlenecks

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Process Management:Process Management:Key Concepts andKey Concepts and

Best PracticesBest Practices

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Process Management Process Management

Effective business processes can create a competitive advantage for the company and its supply chains

Effective business processes are not an accident

Processes do not improve on their own Effective processes are processes that

are effectively designed and managed

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Process ManagementProcess Management Effective process management requires an

understanding of: The process itself How and where the process fits into the

organization and/or supply chain Process performance requirements Process resource requirements Process capabilities Process capacities Process performance

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Performance RequirementsPerformance Requirements What must the process accomplish in order to

support organizational goals and objectives? Need to establish specific targets in terms of:

Cost Quality Time Customer service/support Others

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Customer Driven Process Customer Driven Process RequirementsRequirements

CUSTOMERREQUIREMENTS

PROCESSPERFORMANCE

TARGETS

REQUIRED PROCESS CAPACITY

REQUIRED PROCESS

CAPABILITIES

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Process CapabilitiesProcess Capabilities

Process capability addresses what a process can do and how well it can perform its function

All processes have a capability range Upper and lower performance limits

Process management must insure that process performance requirements are feasible given process capability range

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Process CapabilitiesProcess Capabilities

Example: Memphis-based customer requires airfreight services for product delivery to locations anywhere in Continental U.S. within four hours of shipper notification

Are standard FedEx transportation processes capable of meeting this requirement?

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Process CapabilitiesProcess Capabilities

Example: UPS customer wants to be able to access precise minute-by-minute tracking information on her package (exactly where is the truck or plane my package is on, right now?)

Is existing UPS tracking process capable of meeting this requirement?

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Determinants of Process Determinants of Process CapabilityCapability

PROCESSCAPABILITY

People• Skills• Experience• Training• Management

Methods• Work flow• Decision

making

Inputs• Information• Materials

Technology• Equipment• IS/IT

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Process CapacityProcess Capacity

Process capacity addresses the volume of work or product that can be performed by a process during a specified time period

Often viewed as the upper bound on the rate of output

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Process CapacityProcess Capacity

There are different ways of defining the capacity of a process: Design capacity -- maximum output that can

possibly be attained Effective capacity -- maximum output given

practical issues of product mix, scheduling, maintenance, quality factors, etc.

Demonstrated capacity -- the rate of output actually achieved

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Determinants of Process CapacityDeterminants of Process Capacity Quantity and type of resources available:

Human Equipment

Product/service mix Planned down time (e.g., breaks, preventive

maintenance, etc.) Unplanned down time (e.g., equipment

breakdowns, absenteeism, quality problems, etc.)

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Process CapacityProcess Capacity

Process management must insure that process performance requirements are feasible given process capacity

From a time perspective, overall process capacity is determined by the slowest activity or step in the process Need to focus improvement efforts on these

“bottleneck” activities

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Process PerformanceProcess Performance

Effective process management requires objective view of process performance for key performance areas

The performance measurement system should consider both effectiveness and efficiency measures Effectiveness - “doing the right thing” Efficiency - “doing things right”

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Process ManagementProcess Management“Best Practices”“Best Practices”

Clear accountability for process performance Need a “process owner”

Well-defined process boundaries Manageable scope

Clearly defined interfaces and responsibilities Documented procedures, work tasks, and

training requirements(Adapted from Harrington 1991)

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Process ManagementProcess Management“Best Practices”“Best Practices”

Formal performance measurement If you can’t measure it… Benchmark

Formal feedback controls Includes monitoring, evaluating, and adapting

Formal change procedures Introduces process discipline

Customer-related objectives(Adapted from Harrington 1991)

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It’s About TimeIt’s About Time

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Cycle Time DefinitionCycle Time Definition

Cycle Time -- The total elapsed time required to complete an organizational process or activity

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Why Focus on Time? Why Focus on Time?

Superior performance in cost, quality, delivery, and technology is not enough

Increasingly organizations are competing on the basis of time

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Why Focus on Time?Why Focus on Time?

The Three Percent Rule -- When examining organizational processes typically less than three percent of the total elapsed time is actually needed to complete the process

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Why Focus on Time?Why Focus on Time? Organizations that have focused on improving

performance from a time perspective also see significant improvements in other critical performance areas including: Cost Quality Delivery Customer service

A matter of focus -- not just time for the sake of time

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Why Focus on Time?Why Focus on Time?

Provides an excellent opportunity to be better than the competition Time has not been a high priority for many

organizations A basic, but highly effective achieve a

competitive advantage

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Critical Success Factors ForCritical Success Factors ForTime-Based CompetitorsTime-Based Competitors

Top management support Aggressive cycle time reduction goals Cross-functional teams Team members must have thorough process knowledge Training in key cycle time reduction concepts and tools Application of TQM tools Performance measurement system Collaborate with supply chain members

(Sources: Nichols 1995, Hendrick 1994)

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Causes Of Long Causes Of Long Process Cycle TimesProcess Cycle Times

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Causes Of Long ProcessCauses Of Long ProcessCycle TimesCycle Times

Waiting Serial versus parallel operations Performing an activity twice

(or more) Batching Excessive controls / bureaucracy Poorly designed procedures / forms

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Causes Of Long Process Causes Of Long Process Cycle TimesCycle Times

Unnecessary movement / travel of product or people

Long travel distances for products or people

Ambiguous goals and objectives Non-value-added processing steps Antiquated processes or technology

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Causes Of Long Process Causes Of Long Process Cycle TimesCycle Times

Process variability Lack of information Poor communication Limited coordination Lack of cooperation Lack of training

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SummarySummary

Many causes of long cycle times are present

Processes often have a combination of “causes” at work

Must have a thorough understanding of the process to determine the “causes”

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Reducing ProcessReducing ProcessCycle TimesCycle Times

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Techniques for Reducing Process Techniques for Reducing Process Cycle TimesCycle Times

Developed over last 8 years Observed both “best” and “worst” practices

Critical success factors Understand current process

Process mapping Commitment to improve Open communication

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Points of LeveragePoints of Leverage

Main idea: Identify areas where small changes have big impact

Consider the airplane... Where are the points of leverage in your

processes?

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Opportunities are EverywhereOpportunities are Everywhere

Management and organizational opportunities

Human resource opportunities Product management opportunities Operational opportunities Interorganizational opportunities

Source: “Principles of Cycle Time Reduction: You Can Have Your Cake and Eat It Too,” by Jim Wetherbe in Cycle Time Research 1995

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Management and Management and Organizational OpportunitiesOrganizational Opportunities

Visioning Front-ending Aligning Transforming Flattening Balancing

Investing Consolidating Distributing Implementing Benchmarking Learning

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Human Resource OpportunitiesHuman Resource Opportunities

Empowering JIT-Training Modeling Self-Directed

Teaming Cross-Functioning

Case Working Co-Locating Teleworking Measuring Rewarding

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Product ManagementProduct Management

Identifying Innovating Prototyping Time-Boxing

Mass-Customizing Platforming Deriving Postponing

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OperationsOperations

Conceptualizing Challenging Eliminating Integrating Paralleling

Anticipatory-Scheduling

Informating Simplifying Standardizing Automating

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InterorganizationalInterorganizational

Networking Partnering Virtualizing

Risk-Sharing Outsourcing

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SummarySummary Opportunities for cycle time

reduction are everywhere: Management and organizational Human resources Product management Operations Interorganizational

Look for the “points of leverage”