BUSINESS SYSTEMS

Successful business 0 0 systems engineering

Part 2 The time commession paradigm and how shulation supports good BSE Part 1 of this article (February 1997 EMJ argued that business systems engineering (BSE) is no more, and no less, than achieving a high standard of ‘engineering the business process’ linking customer need to customer satisfaction by careful total process analysis, design and impleimentation to enable a win-win scenario. In this second part the importance of the time compression paradigm as a leveraging tool within BSE is highlighted. The role of simulation as a means whereby both tactical and ‘big picture’ BSE propobsals may be evaluated prior to implementation is described. The article concludes; with some typical industrial results and a checklist to help ensure that BSE ideas are properly implemented.

by Prof. Denis R. Towill, FEng

Business systems engineering and the time compression paradigm

dvocates of ‘lean thinking’ (doing more with less resources or, preferably, doing A much more with the same resources)

talk of improving business performance via ‘pursuit of the zeros’. For example a good shopping list is to target:

zero waste time zero waste materials zero waste labour zero waste capacity zero waste computing power zero waste management effort

as ongoing focal points especially for BPI (business process improvement) activities. Such a list of trigger points is useful in guiding the process teams responsible for BPI in their quest

for continuous improvement in business performance. But is there a single parameter which we can use in BSE in the sure knowledge that it will bring bottom-line benefits to the business? The answer is ‘yes’, and it is total cycle time (TCT) compression.

Now we have already seen from eqn. 1 in Part 1 that lead time is an important metric for assessing thc performance of a business process. However, there is considerable industrial evidence that time may be used in an even wider context in business systems engineering. Specifically, total cycle time (TCT), which is defined by Philip Thomas as the elapsed time between customer inquiry and customer need being met, is shown to be a fundamental driver in achieving enhanced business performance. He quotes the results for a range of parameters shown in Fig. 6 as typical of those to be expected from successful BSE programmes

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scrap

delivery lead times

time to market

return on assets

0 20 40 60 BO 100

% improvement

Fig. 6 How reducing total cycle time leverages the company ‘bottom line’; a range of industrial results reported by Philip Thomas (1 990)

across a range of industries. Note that all the important business metrics listed have been significantly improved. Consequently we may have considerable confidence in ranking the effectiveness of BSE proposals by estimating the expected reduction in TCT.

So powerful is this approach that it has become known as the time compression paradigm (dictionary definition of paradigm: an example or pattern, especially an oucstandingly clear or archetypical one). The iiiiportant consequence of this paradigm is that, by concentrating on reducing the TCT required to perform a business process, we have a guarantee of leveraging total performance in such a way that the ‘bottom line’ will be greatly improved. Also, we need not perform complex calcula- tions in order to project exact financial benefits: we simply need to predict, monitor and systematically seek to reduce cycle times. As an initial strategy it is enough to target TCT reduction via BSE knowing that if done properly substantial business benefits will ensue. The TCT compression paradigm is now widespread and because of its universal appeal and strategic leverage is sometimes known by the alternative name of time based management (TBM), as coined by the Boston Consulting Group.

The crucial fact is that the time compression

Table 4 Progressive reduction in replenishment lead times: results of an ELA study across a selection of market sectors

year marke

food and beverages 5 4 3

fast moving consumer goods 9 6 4

petrochemicals 16 11 6

automotive 28 20 12

90

paradigm works at all levels, from individual work proccsses through business processes to total supply chains. Consequently TCT is a fundamental business lever to be exploited within a BSE framework. This is clearly illustrated in the results of an ELA survey of replenishment lead times summarised in Table 4 It is manifest from the Table that there is continuous and market sector independent pressure to reduce lead times often by factors which would have been impossible to compre- hend back in 1987. An important consequence of the use of TCT as a performance driver is that it is unambiguous and simple to measure. The only question to be answered is how long did it take between customer request and for that need to be satisfied? In itself this lead time is a direct measure of business performance but even more importantly it significantly leverages the ‘bottom line’ metrics.

Industrial example of time compression The way in which the replenishment lead

times in Table 4 are reduced is via the successful application of BSE. An industrial example is the supply of automotive seat covers manufactured via a four-echelon demand chain. Fig, 7 shows the bar chart resulting from the mapping of the original process. The Boston Consultancy Group undertaking this BSE found that the delivery cycle time was 71 days, but only 19 days were actually spent adding value to the product. Their ultimate goal is seen as achieving a 20 day cycle time. 28 days have already been taken out of the cycle by adopting a bettcr system for information flow resulting in the transparency of the OEM schedule throughout the chain, plus action to reduce raw material vendor lead times. At the time of reporting these results the task force estimated that a further 10 days remain to be removcd by reducing value-added lead times via reduction in set-up times etc. Most importantly, this supply chain is visibly on track to achieve the 20 day target having already achieved a TCT improvemenr: of 1.65:l across threc business interfaces (i.e. 71/43 days).

The range of the metrics improved by adopting total cycle time reduction strategies is impressive, as confirmed by the Lucas Group results we have already seen in Table 2. Since both blue collar and white collar productivity is enhanced it confirms that TCT should be equally valid in a wide range of market sectors. It is therefore not surprising that BSE has impacted on and revolutionised industries as

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DO

total cycle time = 71 days

3 Select improvement opportunity

4 Design work /process

yarn supplier

fabric maker

seat maker

auto assembly plant (OEM)

0 10 20 30 40 50 60 70

physical flow time, days

inventory, queues, rework etc. (non-value-added time = 52 days)

value-adding time (value added time = 19 days)

apparently diverse as electronic products, insurance, banking, automotive and aerospace. Note that, because design lead times are typically halved, we can bring new products to market much earlier, and because manufac- turing lead times are typically halved we have much more flexibility to meet customer demand. But BSE should not necessarily be interpreted as a means of halving the capacity required to meet customer demand followed by disposal of the remnants. The forward-looking enterprise will immediately utilise the newly ueated spare capacity to increase the product range needed to impact market share.

A word of caution: to achieve meaningful improvement in competitiveness, TCT reduc- tion must be embedded within a BSE programme. It is no good slavishly but blindly reducing TCT by taking out critical value- added time, but leaving in non-critical non- value-added time. Thus to arbitrarily ask for an x% reduction in TCT without performing a comprehensive process analysis is as bad as the traditional instruction to arbitrarily and ineffectively reduce costs across the board by y% in the hope (rather than expectation) that the business will become more competitive. There is thus no justification whatsoever for cxempting TCT reduction programmes from the standard BSE stepping stones of the ‘understand-document-simplify-optimise’ routine which has its origin in the quality movement and W. Edwards Deming. The resulting description and process of imple- menting BSE devised by Gregory Watson and shown in Table 5 emphasises the point we made previously that time compression via BSE is the application of sound engineering principles to the operation of the business.

Fig. 7 Bar chart showing distribution of value-added and non-value-added time recorded by the Boston Consulting Group when analysing a four-echelon automotive seat supply chain

Simulation as a support tool in business systems engineering

Simulation has an important contribution to make in evaluating the relative merits of competing design scenarios as was done by the task force responsible for the BSE programme and reported in Table 2. However, there is a distinct difference in the distribution of effort required in re-engineering a business process compared with re-engineering the equivalent technological process. Thus for solving a mechanical problem (say design of an uprated gearbox) the design contribution may dominate both the diagnostichpecification and the imple- mentation phases. O n the other hand, for a business process the simulation/design evalua- tion phase, although import.int, may be less time consuming than the areas of diagnostic/ specification (what is the r ~ a l problem?), and implementation (how do w e ensure that the projected benefits actually occur?). As we have seen in Fig. 5, there is an ‘art’ to getting the most

Table 5 ‘Plan-do-check-act’ cycle developed to aid the BSE process (Gregory Watson, 1994)

1 Establish process ownership PLAN PLAN

I 2 Assess Drocess oerformance I

5 Document work process LEARN --i----- 6 Determine process capability

7 Implement improved process

8 Inspect process performance

9 Evaluate test results

CHECK

10 Operate work process

11 Monitor, control, streamline and improve work process

IMPLEMENT

- ACT I

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I 1

Fig. 8 Block schematic of the exploitation of the ‘to

useful information from costly data sources! It is also usuallv the case that in simulations

make’ model to achieve target customer service level (CSL)

i

supporting BSE it is much more important to be approximately right than exactly wrong. The reasons for this viewpoint have been well documented by Jay Forrester. Hence in business systems it is essential to understand that feedback structures, delays, multiple loop interaction and unintentional nonlinearities determine system behaviour. Because of business system complexity, behavioural results Fig. 9 Typical trade-off

curve output from the are often counter-intuitive, so that apparently good design ‘hunches’ may actually make simulation of the ‘to make’

model applied to the healthcare industry things worse. The best known such

50

40

30 2 Y 0

- - - 2 s 20

10

0 90 92 94 96 98 100

phenomenon is the inducement via poor system design of product demand patterns which appear to be seasonal but are in fact due to the wrong structure being chosen and/or unsuitable parameter settings. So there is an additional incentive for mapping business processes in such a way that a simulation model is a natural output against which our hunches may be tested.

As an example of the use of simulation as a BSE support tool we consider the problems of achieving a high customer service level (CSL) simultaneously with setting the minimum reasonable inventory (MRI) level needed to give the company the required guarantee of client satisfaction. A BSE project in a company with a 6000 active product catalogue required the design of the ‘to make’ model, which is shown in Fig. 8. This model interfaces between the CSL targets set by the marketing depart- ment and the MRP (manufacturing resource planning) system so as to control the orders placed on the factory. This is a dynamic problem in which lead times for each product are variable due to ‘interference’ between competing orders. Here BSE required a two- pronged approach. The first route is to re- engineer the shop floor operations so as to reduce lead times and make them more consistent; the second route is to reconfigure the algorithm of the ‘to make’ model so as to achieve ‘best’ CSL/MRI trade-off for any expected lead time distribution.

Some typical simulation results are shown in Fig. 9. The trade-off curves yield considerable insight into the expected improvement in performance. Even more importantly they highlight for us the benefits to be obtained via good system design (improving the algorithm), and via lead time reduction improving scheduling and shop floor operations. Also shown is the idealistic curve for the zero lead time scenario, i.e. perfection all round. How- ever, good system design should not be fixed forever. Instead it requires periodic review according to the marketplace and operational circumstances. Lead time reduction and better lead time consistency (the ‘time compression’ paradigm) must become a way of life. Note that this particular company varies the target CSLaccording to the Pareto curve ranking of the product concerned. Provided that the occasional customer is prepared to wait for the goods, this variable CSL set according to the marketplace avoids ‘over engineering’ the system.

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original retune improved reduce integrated remove design existing pipeline all lead information distributor

controls controls times flow echelon

Simulation for business systems engineering of the ‘big picture’

As well as using simulation to rank various alternative design scenarios appropriate to an individual business it is also possible to use the output to prioritise the preferred sequence in which a string of businesses should be re- engineered. Consider the case where the business process under review is an extended enterprise covering many process ‘owners’. An example is a complete supply chain from raw material supplier to end customer, with value being added at a number of discrete businesses along the route including component suppliers, sub-assemblers, assemblers, main system manufacturers, distributors and retailers. For such a supply chain (which is the order fulfilment business process of Fig. 2) to be maximally competitive then the complete system must be designed and operated from a total systems viewpoint. This requires taking a ‘big picture’ approach to decide what the

supply chain design and operations strategy should be.

Fig. 10 shows the output from an idealised supply chain model of a particular enterprise; the results were obtained vLa a system dynamics simulation. To focus attention on strategic issues the simulation results have been aggre- gated into a composite metric which may be displayed as a bar chart. The chart is plotted in the sequence of the effect of different improve- ment strategies on the perceived reduction in factory on-costs and provides one simple visual means of comparing the all ernative redesign scenarios. It gives an especially good insight as to which actions may be really worth taking, since they significantly affect the ‘big picture’ compared to those which, although straight- forward to implement, may have little effect on competitiveness.

However, for BSE purposes it is necessary to further use such results as a strategic analysis tool. One way is to draw up the supply

Table 6 ‘Big picture’ supply chain improvement strategy matrix based in part on systems dynamics simulation of the order fulfilment business process

include remove move redluc local internal

pipeline echelons information -

key attribute to algorithmic logistical systems acquisition systems partnerships achieve change engineering engineering

technological low high medium low hi!gh medium

attitudinal low low high high high high

financial low low medium hiqh hiqh medium

organisational low medium medium medium medium low

individual business low medium medium high high high

supply chain system low low low high high high -

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Fig. 10 Using systems dynamics simulation to produce a ‘big picture’ comparison of alternative proposals for BSE of a four-level supply chain

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chain improvement strategy matrix shown equals power’, the right data is simply not sent in Table 6. The matrix is split into two parts: through the necessary channels, sophisticated those elements highlighting implementation ED1 or otherwise. difficulty (i.e. the ‘inputs’) and those elements The tremendous advantage predicted from highlighting business benefits (i.e. the the simulation from ‘delayering’ the supply ‘outputs’). The latter is further segmented chain by removing one particular ‘player’ to cover both the total supply deserves further comment. chain and individual com- In fact it results from a two- panies. Implementational fold beneficial impact on difficulties considered in the limination of systems behaviour. Firstly, a matrix include technological, potential and substantial organisational, attitudinal intermediate source of time delay is ” and financial elements.

Although it may be argued levels is a removed; secondly, a potential and substantial

that, broaYdly speaking,” the powerful way to source of information higher the expected benefit distortion is removed. Hence the greater the difficulty in improve total TCT is achieved simul- achieving the change, Table 6 taneously with streamlined is still meaningful in setting. system information flow. This

U ” simple (theoretical) idea put forward by Tay Forrester in erformance executive priorities, es-

pecially with regard to best use of scarce management resources. For example, it is clear that ‘internal’ fine tuning, although cheap, is of relatively little business value across the chain. Reducing lead times and making them stick is not possible without significant attitudinal change. O n the other hand if this change is forthcoming, then as predicted from the time compression paradigm the positive attitudinal changes needed can be used to leverage improvements in other areas. Nor is the benefit of using ED1 (electronic data interchange) maximised unless there is genuine sharing of market place information and ‘system’ states throughout the chain. All too often in wpply chains, since ‘information

Table 7 The ‘seven deadly sins’ which oppose successful business systems engineering (Geary Rummler and Alan Brache, 1995)

characteristic

Failure to relate process improvement to business strategy 1

2

3

4

5

6

7

Failure to involve the right people (especially top management) in the right way

Failure to give task forces a clear brief and accountability for achieving it

Failure to realise that endless reorganisation is no substitute for effective BSE

Failure to understand how changes affect the people who work the ess and to empower them to make performance continuous

Failure to understand that the focus must be on implementation, and not on redesign

Failure to ensure task forces leave adequate monitoring systems in place

I “ ,

1961 is nowadays widely used in practice, often without the BSE prac-

titioners being aware of its origin. Perhaps the best known example of delayering the ‘big picture’ is that of Toyota becoming dis- enchanted with their distributors’ performance (i.e. it used to take twice as long to sell a car as to make one!). So they bought the distributors and comprehensively integrated them within the Toyota supply chain business process. The expected time compression associated with this re-engineering was subsequently achieved by Toyota.

We may thus conclude from both theory and practice that, always provided the core business processes are adequately supported within the streamlined supply chain, elimination of inter- mediate levels is a powerful way to improve total system performance. A final advantage of using simulation and process mapping tech- niques is that, despite apparent supply chain complexity, there is an opportunity to develop a family of generic results from a suitable set of simulation models. This provides an infra- structure tool which greatly helps knowledge transfer especially across market sectors and consequently accelerates the growth of best practice.

Taking steps to ensure that business systems engineering really works

BPR advocates in particular have been extremely persuasive in encouraging companies to accept the view that adopting a re-

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technology engineering programme is the only way to achieve (or remain) internationally competitive. Yet the fact remains that many BPR prog- rammes have been reported as unsuccessful. Some have only achieved a fraction of the performance improvemcnt anticipated, while others have regrettably followed the path shown in Fig. 4 with initial gains followed by long-term regression plus the usual associated recriminations.

Of course some BPR programmes may well have been marketed on an over-optimistic basis in terms of what might be achieved, but this does not explain the 50% dissatisfaction rate sometimes quoted in the media. How do we avoid the dual trap of wasting resources and, even worse, wasting calendar time which is lost for evcr?

Perhaps the best way to ensure success is to analyse potential pitfalls in the application of IZSE. Table 7 lists seven deadly sins which react against effective business systems engineering and covers all three components of BSE. Basically the Table is a shopping list of key ‘enabling’ actions which must be taken and must involve all ‘players’ in the programme. Thus process mapping and process redesign steps are seen as essential but merely only necessary. In theinselves they are far from sufficient conditions for the successful execution of change. The focus has to be on implementation and not on just the earlier phases of the BSE process such as understand and documentation. Nevertheless companies should start seeing some early benefits from BSE once simplzfication is skilfully enabled prior to the enaction of full-blown business optimisation.

Table 7 also emphasises the need for attitudinal change at all levels in the enterprise, and the importance of ensuring that horizontal organisational structures are in place to emphasise the need to satisfy the end customer. However, we may bring together the enterprise ‘outputs’ defined in eqn. 1, and relate these to the ‘enabling’ inputs which must be present so as to permit change. The result is the summary of what is rcally essential to achieve and main- tain international competitiveness as shown in input-output diagram format in Fig. 11. The role of business processes in transforming customer need to customer satisfaction is now self-evident, since Fig. 11 is the means whereby thc process model of Fig. 2 is activated. New tcchnology such as IT may have an important role in increasing our competitiveness. How-

leadtimes - ( [ p y2ry CUSTOMER 1 I( E [ 1 oraariisation total cost 2 S

finance FOCUSED service - BUSINESS

ever, Fig. 11 highlights the futility of seeking solutions which are based on throwing money diagram the at tcchnology without consideration of the

Fig. 11 I n W - o u t W

customer-focused integration required business in the supporting infrastructure.

In this article, we clearly regard the present industrial revolution as emanating from a process viewpoint with an inevitable associated move towards the customer-focused business. This integrates all the steps which transform customer need right through to customer satisfaction. To achieve success it is necessary to concentrate on a relatively sniall number of key performance metrics which really do need benchmarking and enhancement. (Total cost - lead time - quality - custorner service level) is a set that provides the necessary focus and which finds widespread support in many market sectors.

The way in which performance improve- ment is ‘engineered’ is hy utilising the systems approach based on 1 he application of sound engineering principles to key business processcs (hence the context of business systems engineering). The practical mechanism is via the concentration on enhancing value- added processes. However, these BSE ideas are doomed to failure without the right inputs to our process engineering programme. It is critical that management enable and encourage the right culture throughout the company. In turn they must: create and continually update a flexible adaptive business process targeted organisation; use, master and exploit the appropriate technology; and have in place a sound financial plan to support the enterprise. This should be aimed at progressively beating the competition over a finite planning horizon.

Conclusions Business systems engineering is a very

effective methodology for increasing the international competitiveness of companies. It works virtually irrespective of the nature of the concerned market sector. Essentially BSE adopts a systems approach to the key business processcs which link customer need right through to customer satisfaction. The fact is

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that business processes must bc designed, implemented and operated with considerable vision and skill: it is good business process engineering which gives the company the competitive edge over its peers which may well have equally good R&D, design, marketing and production capabilities. Total cycle time (TCT) compression is seen as a powerful leverage tool

All too frequently

top management

has given little thought to the design

of business processes

within BSEli t is easy to vGualise and easy to monitor, and always delivers bo t tom line improve- ments.

All too frequently top management has given little thought t o the design of business processes, i.e. the ‘how’ w e do things. Consequently key business proceasea have ‘grown like Nellie’, i.e. often out of control and with no singlc executivc being in a position to leverage added value out of the system. The answer is t o ‘engineer’ the process via the usual steps of understanding, documen- tation, simplification and optimi- sation (via redesign). To this end process mapping is a n essential tool which needs careful sifting of data. In optimising the per- -

formance of the re-engineered business process the use of simulation as a decision support tool is highly recommended both at the tactical and ‘big picture’ levels.

Finally, it is helpful t o visualise business processes as forming a multi-inpm/multi- ou tput customer focused orgdiiisdLiori which emphasises the added value t o the customer and all ‘players’ within the total system. T h e key inputs are the attitudinal, technological, financial and organisational knowledge and resources which the world-class company has to extend, maximise and integrate. It is recommended that the important outputs t o monitor are few in number. The parameters of total cost, lead time, quality and customer service level form a reasonable set which have a direct bottom-line impact. Thus the ‘business revolution’ towards process orientation is seen as an adaptive multivariable control problem with company executives maximising added value by enabling good business systems eiigineeriiig to achieve a win-win scenario.

Acknowledgments This particular synthesis of ideas took place

while the author was a member of thr Royal

Academy of Engincering Construction Sector Steering Group. H e gratefully acknowledges the stimulating environment created by the Steering G r o u p and the support of the EPSRC Innovative Manufacturing Initiative.

Bibliography and Further Reading, Part 2 BURBIDGE, J. L.: ‘Back to production manage- ment’, Manufacturing Engineer, April 1995,74, ( 2 ) ,

CHAMPY, J.: ‘Re-engineering management’ (Harper-Collins, London, 1995) DEMING, W. E.: ‘Out of the crisis’ (MIT Press, Cambridge, Mass., 1986) EVANS, -G. S., TOWILL, D. R., and CHEEMA, P. S.: ‘Analysis and design of an adaptive minimum reasonable inventory control system’, to be published in Ini. Jnl. Prod. Plan and Conl., 1996 FORRESTER, J. W.: ‘Industrial dynamics’ (MIT Press, Cambridge, MA, 1961) LUECKE, R.: ‘Scuttle your ships before advancing and other lessons from history on leadership and change for today’s managers’ (Oxford University Press, 1Y94) LYNCH, R. L., and CROSS, K. E: ‘Measure up- the essential guide to measuring business perform- ance’ (Blackwell Publications, London, 159 1) RUMMLER, G. E., and BRACHE, A. I?: ‘Improving performance: how to manage the white space on the organisation chart’ (Jossey Bass, San Francisco, 1995) SCHONBERGER, R. J.: ‘Building a chain of customen’ (Hurchinson Businesb Books, London, 1990) SCOTT, C., and WESTBROOK, R.: ‘New strategic tools for supply chain management’, Int. /nl. Phys. Dist. and Log. Man., 1991,21, (I), pp.23-33 STALK (Jr.), G. H., and HOUT, T. M.: ‘Competing against time: how time based competition is reshaping global markets’ (Free Press, New York, 1990) THOMAS, P. R.: ‘Competitiveness through total cycle time’ (McGraw-Hill, New York, 1990) TOWILL, D. R.: ‘The seamless supply chain-the predator’s strategic advantage’, to be published in the Int. JL. of the Technology of Management, 1956 TOWILL, D. R.: ‘Time compression in supply chain management-a guided tour’, Znr. Jnl of Supply Chain Management, 1996,1, (I), pp.35-27 WIKNER, J., TOWILL, D. R., and NAIM, M. M.: ‘Smoothing supply chain dynamics’, Int. 11. Prod. Econ., 1991,22, pp.231-248 MOMACK, J. P., and JONES, D. T.: ‘Lean thinking-banish waste and create wealth in your corporation’ (Simon and Schuster, New York, 1996)

pp.66-71

0 IEE: 1997 Prof. Towill is University of Wales Lucas Research Professor, Logistics Systems Dynamics Group, University of Wales Cardiff, PO Box 924, Cardiff CF1 3TS, UK. He is an IEE Fellow

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