1 Process Management and Strategy Introduction 1Ardavan Asef-Vaziri Sep-09 Process -1 Business Process Management Building block of Operations Management –System view –Process Chart »A tool to describe the business process –Evaluation and trade-offs »Make-to-order vs. Make-to-stock –Risk-pooling »Multi-server queues, central ordering, central safety stock –Dealing with variability

2 Process Management and Strategy Introduction 2Ardavan Asef-Vaziri Sep-09 Process -1 Systems approach “The whole is greater than the sum of the parts.” Suboptimization 2 > 1+1

3 Process Management and Strategy Introduction 3Ardavan Asef-Vaziri Sep-09 Process -1 Systems approach Systems approach and u Sales u Purchasing u Production

4 Process Management and Strategy Introduction 4Ardavan Asef-Vaziri Sep-09 Process -1 Systems A set of parts with interrelationships between parts organized to achieve a goal How systems grow up

5 Process Management and Strategy Introduction 5Ardavan Asef-Vaziri Sep-09 Process -1 Process Chart. Ex. McDonald’s (Prior to 1999) Raw Material Cook Finished Goods AssembleDeliver Customer places order This is a make-to-stock system. Activity Decision Storage Flow

6 Process Management and Strategy Introduction 6Ardavan Asef-Vaziri Sep-09 Process -1 Trade-Off; Ex. Make to Stock vs. Make to Order Will different companies intentionally choose different processes to accomplish the same goal? –in McDonald –in In & Out Process Evaluation –Different processes lead to different advantages and disadvantages. Is there a simply better process, i.e., no trade-offs?

7 Process Management and Strategy Introduction 7Ardavan Asef-Vaziri Sep-09 Process -1 Analysis of Tradeoffs Tradeoffs What are the pros and cons of models?

8 Process Management and Strategy Introduction 8Ardavan Asef-Vaziri Sep-09 Process -1 Analysis of tradeoffs Buying a new machine Additional Investment Integration with existing system Training Having more inventory Higher Carrying Costs More Obsolescence Higher Productivity Better Quality More Flexibility Lower Ordering Cost Purchasing Discount Product Availability

9 Process Management and Strategy Introduction 9Ardavan Asef-Vaziri Sep-09 Process -1 Processing Time, Waiting Time; Long Waiting Line We are interested in the management of processes. Selling a ticket seems easy, but …

10 Process Management and Strategy Introduction 10Ardavan Asef-Vaziri Sep-09 Process -1 More Servers + Specialization

11 Process Management and Strategy Introduction 11Ardavan Asef-Vaziri Sep-09 Process -1 Polling: Lower Waiting Time, Longer Processing Time (Perhaps)

12 Process Management and Strategy Introduction 12Ardavan Asef-Vaziri Sep-09 Process -1 Uncertainty: Potential Solution Inventory –How many inventories? –If too many … opportunity cost, spoilage cost –If too few …loss of sales –It is costly to solve uncertainty using inventory.

13 Process Management and Strategy Introduction 13Ardavan Asef-Vaziri Sep-09 Process -1 Potential Solutions: Transfer the inventory to the distributor Example: In the early days of Amazon.com the company did not keep any inventory of books. –The supplier Ingram kept the books for Amazon. –Once Amazon received an order it was transmitted to Ingram. –Ingram would ship the book directly to the consumer.

14 Process Management and Strategy Introduction 14Ardavan Asef-Vaziri Sep-09 Process -1 Amazon.com: Delivering Books Notice that: –It is not difficult to deliver books very fast –It is not difficult to deliver books at a very low cost –But, it is very difficult to deliver book fast and at a low cost ?

15 Process Management and Strategy Introduction 15Ardavan Asef-Vaziri Sep-09 Process -1 Potential Solutions How do we deal with uncertainty Inventory Transfer/Share the uncertainty Eliminate the uncertainty Transfer the inventory to a distributor Print on demand

16 Process Management and Strategy Introduction 16Ardavan Asef-Vaziri Sep-09 Process -1 Potential Solutions: Transfer the inventory to the distributor Example: In the early days of Amazon.com the company did not keep any inventory of books. –The supplier Ingram kept the books for Amazon. –Once Amazon received an order it was transmitted to Ingram. –Ingram would ship the book directly to the consumer.

17 Process Management and Strategy Introduction 17Ardavan Asef-Vaziri Sep-09 Process -1 Potential Solutions: Transfer the inventory to the distributor Ingram’s Book Inventory Ingram’s Order Ingram’s Post Order Process Amazon’s Order Amazon’s Post Order Process

18 Process Management and Strategy Introduction 18Ardavan Asef-Vaziri Sep-09 Process -1 Potential Solutions: Transfer the inventory to the distributor What are the advantages for such an arrangement for Amazon and Ingram? –Risking pooling (less inventory is needed) What are the disadvantages of this arrangement for Amazon and Ingram? –Allocation priority

19 Process Management and Strategy Introduction 19Ardavan Asef-Vaziri Sep-09 Process -1 Pareto phenomenon (ABC analysis)  Classifying items, activities, or tasks according to some measure of importance and allocating efforts and resources accordingly  A vital few things are important for reaching an objective or solving a problem  80/20 rule – 80% of the problems are caused by 20% of the activities How do we identify the vital few?

20 Process Management and Strategy Introduction 20Ardavan Asef-Vaziri Sep-09 Process -1 Pareto phenomenon, ABC analysis, & Recognition of Priorities Acknowledging the fact that certain aspects of any management situation are more important than others is called Recognition of Priorities.

21 Process Management and Strategy Introduction 21Ardavan Asef-Vaziri Sep-09 Process -1 Models -Representations A model is an abstraction of reality Narrative Tabular Schematic (Some times Physical) Mathematical –Linear programming –Transportation model –Inventory models –Waiting line models –Statistical models

22 Process Management and Strategy Introduction 22Ardavan Asef-Vaziri Sep-09 Process -1 Recent Trends  Global Competition  Operations Strategy  Flexibility  Cycle Time Reduction  Business Process Re-engineering  Supply Chain Management  Workers Involvement  Lean Manufacturing  Total Quality Management

23 Process Management and Strategy Introduction 23Ardavan Asef-Vaziri Sep-09 Process -1 Recent Trends  Global Competition  Global Market  Global Suppliers  Operations Strategy  Quality based  Time based  Flexibility  Variety of products  High Volume as well as Low Volume  Cycle Time Reduction  The less time RM (Raw Material), WIP (Work In Process), FG (Finished Goods) spend in the Manufacturing and Logistics process, the less opportunity they have to absorb costs.

24 Process Management and Strategy Introduction 24Ardavan Asef-Vaziri Sep-09 Process -1 Recent Trends  Business Process Re-engineering  Value added and NVA activities  Supply Chain Management  NOT from RM storage to FG warehouse, but from the original suppliers to final consumers  Under separate ownerships  Workers Involvement  Workers are not costs, they are assets  Lean Manufacturing  Inventory is waste  Variability is evil  Total Quality Management

25 Process Management and Strategy Introduction 25Ardavan Asef-Vaziri Sep-09 Process -1 Examples of Exam Questions 1. The following activities are all a part of system operations as opposed to system design a)long term forecasting, product design, capacity planning, inventory management. b)short term forecasting, product design, capacity planning, inventory management c)short term forecasting, production planning, capacity planning, inventory management d)short term forecasting, production planning, quality assurance, inventory management e)none of the above 2. Pareto Phenomenon is the same as a)ABC analysis b)analysis of trade-off c)systems analysis d)quantitative approaches e)none of the above

26 Process Management and Strategy Introduction 26Ardavan Asef-Vaziri Sep-09 Process -1 Review Questions (cont.) 3. In ABC analysis a)25% of items form 25% of the measure of importance b)10% of items form 10% of the measure of importance c)90% of items form 90% of the measure of importance d)50% of items form 50% of the measure of importance e)15% of items form 75% of the measure of importance 4. Given: (I) Lean operations, (II) Operations strategy, (III) Business process re-engineering (A) Inventory is waste, (B) Time based operations, (C) High Volume as well as Low Volume, (D) Value-added and NVA activities Which of the following selections is correct? a) (I) matches with (D), (II) matches with (C), (III) matches with (B) b) (I) matches with (A), (II) matches with (B), (III) matches with (C) c) (I) matches with (A), (II) matches with (B), (III) matches with (D) d) (I) matches with (A), (II) matches with (D), (III) matches with (C) e) (I) matches with (C), (II) matches with (D), (III) matches with (B)

27 Process Management and Strategy Introduction 27Ardavan Asef-Vaziri Sep-09 Process -1 Review Questions (cont.) 5. Given (I) supply chain management, (II) Flexibility, (III) Operations strategy (A) Quality based operations, (B) Workers are asset, (C) Value added and NVA activities, (D) from suppliers to consumers, (E) High Volume as well as low volume Which of the following selections is correct? a)(I) matches with (D), (II) matches with (E), (III) matches with (C) b)(I) matches with (D), (II) matches with (E), (III) matches with (A) c)(I) matches with (A), (II) matches with (E), (III) matches with (D) d)(I) matches with (C), (II) matches with (D), (III) matches with (E) e)(I) matches with (E), (II) matches with (B), (III) matches with (D)