1 Process Management and Strategy Introduction Product or services must meet customer expectations, whether physical ( comfort, safety, convenience), psychological (relaxation, peace of mind), social and spiritual, and they must do so within a budget. How do organizations categorize customer expectations they seek to fulfill? Four product attributes. What types of metrics do they use to monitor and mange process performance? The need of internal operational measures to guide the manager on a daily basis towards the ultimate financial and external measures How do organizations structure their processes to deliver superior financial performances?

2 Process Management and Strategy The Process view Process view: any organization or any part of an organization is Input  Process  Output Inputs: tangible or intangible items that flow into the process from the environment: raw material, component parts, energy, data, and customers. Outputs are any tangible or intangible items that flow from the process back into the environment: products, energy, information, served customers, and cash. Raw material  Manufacturing Process  Finished goods Data  Accounting Process  Financial Statements Accounts Receivable  Billing Process  Cash Unsatisfied customer demand  Transformation Process  Satisfied customer demand

3 Process Management and Strategy Five Elements of the Process View Inputs Outputs Goods Services Human & Capital Information structure Network of Activities and Buffers Flow units (customers, data, material, cash, etc.) Resources Process Management

4 Process Management and Strategy Flow Unit: The Item to be analyzed A flow unit may be a unit of input, such as customer order, or a unit of output such as finished product, or the value of input or output ProcessFlow UnitInput-Output Transformation FromTo Order fulfillmentOrdersReceipt of an orderDelivery of product Outbound logisticsProductsEnd of productionDelivery to customer Supply cycleSuppliesIssuing a purchase orderReceipt of the supplies Customer serviceCustomersCustomer arrivalCustomer departure Product R&DProjectsRecognition of the needLaunching the project Cash cycleCashExpenditure (costs)Collection of revenue

5 Process Management and Strategy What is Operations Management? How to structure the processes and manage resources to develop the appropriate capabilities to convert inputs to outputs. –What is appropriate? –The market + your strategy determine criteria for appropriate. Management by fact not by intuition or emotion.  Count what is countable.  Measure what is measurable.  What is not measurable, make it measurable.  In God we trust, every one else must bring data

6 Process Management and Strategy Performance measures By measurement we find the relationship between controllable process competencies and desired product attributes, and will be able to set appropriate performance standards. Performance measures –Financial measures –External measures –Internal measures

7 Process Management and Strategy What defines a “good process”? Performance: Financial Measures Absolute measures: –revenues, costs, operating income, net income –Net Present Value (NPV) = Relative measures: –ROI, ROE –ROA = Survival measure: –cash flow Weakness: are lagging, aggregate, and result than action oriented. Remedy: link financial measures with external measures which track customer satisfaction with output and internal measure that track operational efficiencies.

8 Process Management and Strategy External measures Measure customer satisfaction / dissatisfaction Customer satisfaction: does the product meet and exceed customer expectations in the four dimensions. Customer dissatisfaction: number of warranty repairs, product recalls, field failures. Weakness: are aggregate (not on individual customers), result oriented (not action oriented), lagging (not leading). External measures help process manager identify key product attributes – those properties that define customer expectations. External measures must be linked to internal measures that the process manager can control.

9 Process Management and Strategy Internal measures Process managers do not directly control either customer satisfaction or financial performance. They need internal operational measures that are detailed, can be controlled, and are linked with product and financial performance. Internal performance can then become the predictor of customer satisfaction/dissatisfaction, and financial performance. Internal measures must be directly controllable by the process manager

10 Process Management and Strategy Internal measures linked with External Measures Product response time and availability [lead time as well as reliability in lead time (standard deviation of lead time)] Customers: on time flight Internal goal: average arrival/departure delays not exceed 15 minutes. Customer: Answer the phone Internal goal: answer in less than 30 second in 95% of times Customers: Variety (internal: flexibility; variety and volume) Internal goal: 30 minutes set up time to switch from one product to another. Internal goal: cross trained workers can do two primary tasks. Customer: Quality Internal goal: Failure rate less than 1 in 10000

11 Process Management and Strategy Firms compete on product attributes. This requires process competencies. Product Attribute (External)Process Competency (Internal) PriceCost Response timeFlow time VarietyFlexibility Quality

12 Process Management and Strategy Product and Process Attributes External measures help a process manager identify the key product attributes-those properties that customers consider important- that define customer expectations. Product Price (cost for customer): purchase price plus cost for service, maintenance, repair, insurance, and disposal. Product delivery-response time: total time before receiving the product. Is the product on shelves, in a warehouse, in a distribution center, or somewhere along the production line.

13 Process Management and Strategy Product Attributes Product variety: the range of choices offered to the customer to meet his/her needs. At a lower level; can measure variety in terms of options offered for a particular model, colors, styles. At a higher level; number of product lines and families, General motor vs. Ferrari Product quality: the degree of excellence, how well the product works. Quality: features (what it can do), performance (how well it functions), reliability (quality over time), serviceability (how quickly), aesthetics, conformance to expectations.

14 Process Management and Strategy Process Competencies Process cost: the total cost incurred in producing and delivering outputs. Process flow time: the total time needed to transform a flow unit from input to output. Process flexibility: the ability of the process to produce and deliver a variety of products at high and low production volume.  general purpose equipment + cross trained workers + a flexible layout. Process quality: the ability of the process to produce and deliver quality products. Product quality is a function of effective design as well as production that conforms to design.

15 Process Management and Strategy Process Competencies McMaster-Carr, a materials, repair, and operations (MRO) product distributor, a process with high flexibility, high quality, short response time, but at a high price Shouldice Hospital in Canada, focus on hernia operations. Standardized repeatable surgical procedure, in an outpatient environment, very high quality at a low price. Do not accept patients with any risk factor or for any thing except hernia.