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

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

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

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

The PDCA Cycle (ISO 9000) Plan Plan Do Do Check Check Act Act

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

PFMEA Process Failure Mode and Effects Analysis (PFMEA) for process analysis 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. 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 Reference –Reengineering the Corporation by M Hammer and J Champy, 2009 Definition 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 Fundamental Radical Radical Dramatic Dramatic processes processes

Business processes A business process is a set of organized activities 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 Enterprise operation is a business process A process may have sub-processes A process may have sub-processes Processes are usually invisible, unnamed, and unmanaged 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 Manufacturing –From procurement to shipment Product development Product development –From concept to prototype Concept formulation Concept formulation –From need to concept design Order fulfillment Order fulfillment –From order to payment Service Service –From inquiry to resolution

Business process re-engineering cycle 1. Identify processes 2. Review, update, and analyze as-is. 3. Design to-be 4. Test and implement to-be

An Re-engineering example - Ford Motors (1) Background Background Accounts payable department of 500 workers in 80’s Accounts payable department of 500 workers in 80’s Set a goal to reduce 20% head counts 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. 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 Effort Re-engineer the process (not an org. unit) of procurement (including the accounts payable) Re-engineer the process (not an org. unit) of procurement (including the accounts payable) Eliminate invoice via an on-line database, 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 Result The new process 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. It ended up with 125 workers in vendor payment at the end. –Handling only exceptions (Pareto rules)

An Re-engineering example - Ford Motors (4) Lessons learned 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 Several jobs are combined into one Workers make decisions Workers make decisions Processes have multiple versions Processes have multiple versions Work is performed where it makes the most sense. Work is performed where it makes the most sense. Checks and controls are reduced Checks and controls are reduced Reconciliation (consolidating redundant papers) is minimized. Reconciliation (consolidating redundant papers) is minimized. Hybrid centralized/decentralized operations are prevalent. Hybrid centralized/decentralized operations are prevalent.

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

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

Who re-engineer 1. leader 2. steering committee 3. reengineering czar 4. reengineering team 5. process owner

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

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

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

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

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

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

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

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

BPR Principles Work is best organized around outcomes, not tasks Work is best organized around outcomes, not tasks As few people as possible should be involved in the performance of a process As few people as possible should be involved in the performance of a process Identify and destroy assumptions Identify and destroy assumptions Look for opportunities for creative application of information technology 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 You don’t need to be an expert to redesign a process Being an outsider helps Being an outsider helps Your have to discard preconceived notions Your have to discard preconceived notions It’s important to see things through the customer’s eyes. It’s important to see things through the customer’s eyes. Redesign is best done in teams. Redesign is best done in teams. Your don’t need to know much about the current process Your don’t need to know much about the current process It’s not hard to have great ideas It’s not hard to have great ideas Redesign can be fun. Redesign can be fun.

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

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

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

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

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