©The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin Chapter 4 Processes: Turning Resources into Capabilities

4-2 Process Definition A set of logically related tasks or activities performed to achieve a defined outcome.* A process is a collection of tasks and activities that together, and only together, transform inputs to outputs. Processes are organizing structures for resources, which provide the bridge between resources and capabilities. *APICS – American Production Inventory Control Society

4-3 Process Process could result in physical, informational, or monetary change - Physical – manufacturing and/or movement of goods - Informational – registering students for courses or ordering products online - Monetary – payment for services or cashing a customer’s check

4-4 Process Primary Process – a value added activity such as delivering service and manufacturing products. Support Process – may or not be value added, such as sending bills to customers, sending bank statements to clients. Development Process – activities that improve the performance of primary or support process Now much attention is paid to the processes rather than functional areas. The emphasize is on how to manage resources to create value rather than managing functions.

4-5 Process Decisions and Process Choice Process decisions are strategic Requires long-term investments Affects the firm’s ability to compete

Process Strategies Involve determining how to produce a product or provide a service Objective – Meet or exceed customer requirements – Meet cost & managerial goals Has long-run effects – Product & volume flexibility – Costs & quality

Types of Process StrategiesContinuum ¨Process strategies follow a continuum ¨Within a given facility, several strategies may be used

Types of Process Strategies Continuum Repetitive- Focused Product- Focused Process- Focused The strategies are often classified as:

Process-Focused Strategy ¨Facilities are organized by process ¨Similar processes are together ¨ Example: All drill presses are together ¨Low volume, high variety products ¨‘Jumbled’ flow Operation Product A Product B ¨Other names ¨ Intermittent process ¨ Job shop

Process-Focused Strategy Examples Bank © 1995 Corel Corp. Machine Shop © 1995 Corel Corp. Hospital © 1995 Corel Corp.

Process Focused Strategy - Pros & Cons Advantages – Greater product flexibility – More general purpose equipment Disadvantages – More highly trained personnel – More difficult production planning & control – Low equipment utilization (5% to 25%) – Higher initial capital investment

4-12 Repetitive Focused Strategy Facilities often organized by assembly lines Characterized by modules – Parts & assemblies made previously Modules combined for many output options Other names – Assembly line – Production line

Repetitive Focused Strategy - Considerations More structured than process-focused, less structured than product focused Enables quasi-customization Using modules, it enjoys economic advantage of continuous process

Repetitive-Focused Strategy - Examples Truck © 1995 Corel Corp. Clothes Dryer © 1995 Corel Corp. Furnace

Product-Focused Strategy ¨Facilities are organized by product ¨High volume, low variety products ¨Where found ¨ Discrete unit manufacturing ¨ Continuous process manufacturing Operation Products A & B ¨Other names ¨ Line flow production ¨ Continuous production

4-16 Product-Focused Strategy Pros & Cons Advantages – Lower variable cost per unit – Lower but more specialized labor skills – Easier production planning and control – Higher equipment utilization (70% to 90%) Disadvantages – Lower product flexibility – More specialized equipment – Usually higher capital investment

Product-Focused Examples © 1995 Corel Corp. Light Bulbs (Discrete) Paper (Continuous) © T/Maker Co. © 1995 Corel Corp. Soft Drinks (Continuous, then Discrete)

4-18 Choices for Manufacturers: The Product/Process Matrix Process Types Project – Unique, one-of-a-kind, products or customers. Generally large in size (building a bridge, installing a software system, implementing a major improvement effort) Job Shop – manufacturing, high customization and flexibility, but higher volume than project.

4-19 Process Types (continued) Assembly Line – Narrowly defined processes, made up of equipment with limited flexibility. Much higher volume. Still the possibility of some flexibility. Continuous Flow – Equipment and workstations dedicated to a single thing. Very high volume. Very low flexibility. Best chance for automation. Choices for Manufacturers: The Product/Process Matrix

4-20 Process flow selection and the Product Process Matrix Tend to be product- oriented Can be either Tend to be process- oriented

CAPACITY CALCULATION How to Calculate capacity? Required Information - Need demand forecast - Working days - Number of shifts - Hours needed to produce a unit - Efficiency, Effectiveness, and Utilization

Definition and Measures of Capacity Capacity: Designed Capacity: Effective capacity or Expected Capacity: Rated Capacity: The maximum output of a system in a given period The maximum capacity that can be achieved under ideal conditions Maximum possible output given a mix, schedule difficulties, machine maintenance, quality factors, and so on. Maximum usable capacity RC = (Capacity x Utilization x Efficiency)

CAPACITY ACTUAL OUTPUT : the rate of output actually achieved. EFFECTIVENESS: EXPECTED CAPACITY DESIGNED CAPACITY

Measure of planned or actual capacity usage of a facility, work center, or machine Utilization ACTUALCAPACITY DESIGNED CAPACITY  Utilization

Measure of how well a facility or machine is performing when used Efficiency ACTUAL OUTPUT EXPECTEDCAPACITY  Efficiency

4-26 Manufacturers match output to demand in different ways Make-to-stock (MTS) –Process activated to meet expected or forecast demand –Customer orders are served from target stocking level –Shorter lead time for stocked items Much longer for out of stock items Risk of obsolescence, shrink, etc. Make-to-order (MTO) –Process activated in response to an actual order May be either standard or custom product –WIP and finished goods inventory kept to a minimum –Tends to have longer response time Other Process Choices: Demand Linkage

4-27 Other Process Choices: Demand Linkage Assemble-to-order (ATO) –Partially manufactured and held in unfinished state –Customer order dictates final configuration –Quicker response than MTO (make-to-order); More flexible than MTS (make-to-stock) Example: deluxe or standard interior, and color of a car are determined at the end of the production line.

LEAN AND VALUE STREAM Lean approaches waste elimination by determining first what customers value and improves processes by targeting those activities not contributing to the customer value. A value stream is an end-to-end business process which delivers a product or service to a customer or consumer. The tasks within a process along the way may both use and produce intermediate goods, services and information to reach that primary end. NEW

4-29 Process Improvement Tools (continued) Value stream mapping is a lean manufacturing technique used to analyze the flow of materials and information currently required to bring a product or service to a consumer. At Toyota, where the technique originated, it is known as "material and information flow mapping"lean manufacturingToyota Value Stream Mapping –A common “lean systems” tool –Examines entire value stream for waste

4-30 Supply Chain and Mapping Supply chain must create value. If supply chain is not structure properly will result in late delivery, poor quality, high cost, unpredictable lead time, and unhappy customers. To create effective supply chain, one should use extended value stream mapping. It focuses on how product and information together bring value through the supply chain to consumer. new

4-31 Mapping Business Processes Before one can improve a process, one must understand the process. It requires mapping. Mapping means developing graphic representation of the organizational relationship and/or activities that make up a business process. The advantages of mapping are: - helps understand the content of the process; its activities; its results, and the relationship of activities and people. - helps identifies boundaries - helps develops goals for performance

4-32 What is Process Mapping? Process mapping is a workflow diagram to bring forth a clearer understanding of a process or series of parallel processes. Process Mapping is also known as Process Charting or Flow Charting. It is one of the oldest, simplest and most valuable techniques for streamlining work. It requires experienced facilitators for best results. A process map visually depicts the sequence of events to build a product or produce an outcome. It may include additional information such as cycle time, inventory, and equipment information.

4-33 Relationship Maps (Process Map) It shows the major organizational activities involved in a process and how they connect through physical, informational, or monetary flow. For one to understand process of customer order requires identifying people, functional areas, and other outside parties involved.

4-34 Common Process mapping Symbols

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4-36 Steps of Mapping Box represents potential participants – functions, department, individual etc. Linking (use arrows) boxes shows flow and directions Remove boxes that have no link.

4-37 Steps in Mapping Organize the customer and supplier team Draw the current state extended value stream map Draw the future-state extended value stream map Write implementation plan Execute the implementation plan

4-38 Process Improvement Tools Process Maps –A visual model of a process

4-39 Process Improvement Tools (continued) Service Blueprints

4-40 Business Process Analysis –Focus on processes that cross functional boundaries and transitions between departments –Identified nonvalue-adding activities Other Process Improvement Tools

4-41 Process Mapping Once mapped, it helps: - identify major players involved – use relationship mapping - shows all activities involved in the process

4-42 Advantages of Mapping Easier communication between supply and consumer Ensures management commitment and willingness to reveal waste Aligns customer and supplier improvement activities Helping the supplier to understand customers Achieves value for customers

4-43 A Company’s results of Mapping Results Metric Original State Today’s State % Improv. Lead time % Work-in-process % Flexibility Limited 25% 100% Unit Price $6,440 $5,860 9% New Source –APICS – The performance Advantage, October 2004

4-44 Other Process Improvement Tools Poka-Yoke (fail safe) –Mistake-proofing products and services –Preventing errors, reducing costs and improving quality –Design to prevent doing it any but the correct way Car won’t start unless transmission is in “Park” “Deadman switch” on lawn mower