T4. Enterprise systems analysis and improvement Fall 2013 Chin-Sheng Chen Florida International University

T4. Enterprise systems analysis and improvement Classic enterprise operations The diamond PDCA DMAIC PFMEA BPR

Classic Enterprise Operations Source The Wealth of Nations By Adam Smith Principles Division of labor Economies of scale Hierarchical control

The business system dynamics (diamond) Values and beliefs Business processes Jobs and structures Management and measurement systems

The PDCA Cycle (ISO 9000) Plan Do Check Act

TQM/Lean 6 Sigma (DMAIC) Define Measure Analyze Improve Control

PFMEA Process Failure Mode and Effects Analysis (PFMEA) for process analysis A structured methodology to assist engineers in identifying potential failure modes for a new or changed business process, typically applied to study of a manufacturing process.

Business process reengineering (BPR) Reference Reengineering the Corporation by M Hammer and J Champy, 2009 Definition Fundamental rethinking and radical redesign of business processes to achieve dramatic improvement in critical, contemporary measures of performance, such as cost, quality, service, and speed.

Four key words in enterprise re-engineering Fundamental Radical Dramatic processes

Business processes A business process is a set of organized activities for a business objective or That delivers value to a customer. Enterprise operation is a business process A process may have sub-processes Processes are usually invisible, unnamed, and unmanaged Because like-activities are grouped into functional departments And processes go through various departments.

Typical business process types Manufacturing From procurement to shipment Product development From concept to prototype Concept formulation From need to concept design Order fulfillment From order to payment Service From inquiry to resolution

Business process re-engineering cycle Identify processes Review, update, and analyze as-is. Design to-be Test and implement to-be

An Re-engineering example - Ford Motors (1) Background Accounts payable department of 500 workers in 80’s Set a goal to reduce 20% head counts It acquired 25% interest in Mazda at the time and found out it had only five workers.

An Re-engineering example - Ford Motors (2) Effort Re-engineer the process (not an org. unit) of procurement (including the accounts payable) Eliminate invoice via an on-line database, so that payment authorization is shifted to the receiving dock from the account payable, who had to match PO with invoice and receiving documents.

An Re-engineering example - Ford Motors (3) Result The new process A buyer in the purchase department issues a PO to a vendor and enters it to an online database. Vendors send goods to the receiving dock At the dock, a receiving clerk checks at the computer terminal if the received shipment correspond to an outstanding in the database. If so, the goods are recorded and the computer will automatically issue and send a check to the vendor at the appropriate time. It ended up with 125 workers in vendor payment at the end. Handling only exceptions (Pareto 80-20 rules)

An Re-engineering example - Ford Motors (4) Lessons learned Reverse the industrial revolution (division of labor) Flatten the organization to eliminate fragmentation and bureaucracy Process orientation Ambition Rule-breaking Creative use of information technology

Information Technology – BPR enabler · Shared database · Expert systems · Telecommunication networks · Decision support tools · Portable & wireless data communication ·  Interactive videodisk ·  Automatic ID and tracking systems ·  High performance computing

Common themes in re-engineered processes Several jobs are combined into one Workers make decisions Processes have multiple versions Work is performed where it makes the most sense. Checks and controls are reduced Reconciliation (consolidating redundant papers) is minimized. Hybrid centralized/decentralized operations are prevalent.

Changes in re-engineered business processes Work units changes – from functional departments to process teams Jobs change – from simple to multi-dimensional work People’s role change – from controlled to empowered Job preparation changes – from training to education Focus of performance measures and compensation shifts – from activity to results Advancement criteria change – from performance to ability Values change – from protective to productive Managers change – from supervisors to coaches organizational structures change – from hierarchical to flat Executives change – from score keepers to leaders

What re-engineering is NOT: Automation More efficient way of doing wrong things Software re-engineering Use more sophisticated computer system) Downsizing Reduce capacity to meet lower demand Other re-s Restructuring re-organizing Flattening De-layering Quality improvement (TQM) Kaizen: continuous incremental improvement

Who re-engineer leader steering committee reengineering czar reengineering team process owner

Three criteria to identify re-engineering opportunities Dysfunction the processes that are in deepest trouble Importance the processes with the greatest impact on the company’s customers Feasibility the processes most susceptible to successful redesign

Broken processes (1) Observation Problem Solution extensive information exchange, data redundancy, and re-keying Problem arbitrary fragmentation of a natural process Solution consolidate fragmented tasks, when feasible

Broken processes (2) Observation Problem Solution inventory, buffers, and other assets Problem system slack to cope with uncertainty Solution structure processes such that suppliers and customers plan and schedule their respective work together.

Broken processes (3) Observation Problem Solution High ratio of checking and control to value adding Problem Fragmentation Solution Eliminate managers’ mistrust and incompetence that come from fragmentation

Broken processes (4) Observation Problem Solution rework and iteration inadequate feedback along chains Solution eliminate mistakes

Broken processes (5) Observation Problem Solution complexity, exceptions, and special cases Problem growth onto a simple base (simple process grows complex). Solution develop simple processes with decision points

Important business processes From customer’s point of view product quality and features product cost on-time delivery Customer service Product life cycle

Factors for choosing feasible processes for re-engineering Likelihood of success Commitment of the process owner Strength of the re-engineering team Cost Lead time

The re-engineering process identify a process to reengineer understand the current process what and why including input & output, but not how understand how the customer uses the output of the process by watching how it does Redesign try to avoid benchmarking, as it may limit the team’s innovation

BPR Principles Work is best organized around outcomes, not tasks As few people as possible should be involved in the performance of a process Identify and destroy assumptions Look for opportunities for creative application of information technology

Additional BPR principles as role players You don’t need to be an expert to redesign a process Being an outsider helps Your have to discard preconceived notions It’s important to see things through the customer’s eyes. Redesign is best done in teams. Your don’t need to know much about the current process It’s not hard to have great ideas Redesign can be fun.

Avoidance in BPR (1) Try to fix a process instead of changing it Don’t focus on business processes Ignore everything except process redesign (as it affects others). Neglect people’s values and beliefs Be willing to settle for minor results Quit too early Place prior constraints on the definition of the problem and the scope of the reengineering effort Allow existing corporate cultures and management attitudes to prevent reengineering from getting started. Try to make reengineering happen from the bottom up.

Avoidance in BPR (2) Assign someone who doesn’t understand reengineering to lead the effort Skimp on the resources devoted to reengineering Bury reengineering in the middle of the corporate agenda Dissipate energy across a great many reengineering projects Attempt to reengineer when the CEO is 2 years from retirement Fail to distinguish reengineering from other business improvement programs Concentrate exclusively on design Try to make reengineering happen without making anybody unhappy Pull back when people resist making re-engineering’s changes Drag the effort out (should not longer than 12 months)

Nature of the business environment Knowledge intensive product/service Innovation Consumer’s market Individuality Mass customization Very dynamic and short product lifecycle Concurrent engineering/operations Highly mobile labor market Agile manufacturing Free product or service

Enterprise characteristics Innovation First in the market (market pre-emption) Mass customization Quick response No inventory Virtual resources (collaborative via SCM) Scalability Agility Process & knowledge management

Business process & intelligence Business knowledge Product & mfg. process Production Business process Business process knowledge mgt. Knowledge warehouse (& ISO) vs. Process embedded with knowledge