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