OPERATIONS MANAGEMENT INTEGRATING MANUFACTURING AND SERVICES FIFTH EDITION Mark M. Davis Janelle Heineke Copyright ©2005, The McGraw-Hill Companies, Inc. PowerPoint Presentation by Charlie Cook, The University of West Alabama

CHAPTER PowerPoint Presentation by Charlie Cook The University of West Alabama Copyright © 2005 The McGraw-Hill Companies. All rights reserved. Process Measurement and Analysis 8

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–3 CHAPTER OBJECTIVES Illustrate how all activities within an organization are actually processes that need to be managed. Present the various measures of performance that can be used to evaluate a process. Show how process analysis can provide managers with an in-depth understanding of how a process is performing, while at the same time identifying areas for improvement. Present the concept of service blueprinting and illustrate how it is used to evaluate processes within a service environment.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–4 CHAPTER OBJECTIVES Introduce the concept of business processes and show how they provide managers with a broader perspective for managing their organizations. Present the concepts of benchmarking and reengineering, and show their roles in creating world- class operations.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–5 Managerial Issues Recognizing that every set of activities represents a process to be managed. Acknowledging that processes are linked to other processes in other functional areas. Choosing strategically critical performance measures by which to monitor processes so that corrective actions are taken when needed. Using benchmarking to identify ways in which to create or improve world-class design, production and delivery operations for products.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–6 Defining a Process Selecting a Process –Identifying the strengths and weaknesses of each process’s capability to support the strategic focus of the firm on particular market segments. Standardization Flexibility Customization Speed of delivery

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–7 Process Flowcharts for Making Hamburgers Exhibit 8.1

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–8 Process Flowcharts for Making Hamburgers (cont’d) Exhibit 8.1 (cont’d)

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–9 Process Measurement Importance of Measuring Processes –Is the basis for good management—“If you can’t measure it, you can’t manage it.” –Allows a firm to determine if its strategically important goals and standards are being met. –Allows for performance comparisons with other competing firms.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–10 Types of Performance Measures Productivity –The operational efficiency with which inputs are transformed (converted) into outputs. A relative measure that becomes meaningful when compared to itself over time, similar operations internally, or externally within its industry. –Partial measures of productivity can be taken using the various inputs (e.g., labor, energy, and materials) that are combined to create a product.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–11 Partial Measures of Productivity Exhibit 8.2

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–12 Types of Performance Measures (cont’d) Capacity –Output of a process in a given period of time—units of output per unit of time. –Design capacity The ideal output rate at which the firm would like to produce under normal circumstances and for which the system was designed. –Maximum capacity The maximum potential output rate that could be achieved when productive resources are used to their maximum.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–13 Types of Performance Measures (cont’d) Capacity Utilization –Percentage of available capacity actually used. Design capacity versus maximum capacity capacity Design output Actual Capacity Utilization  available hours machine Total used hours machine Actual  Capacity Utilization Homogeneous output Variable output

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–14 Measures of Capacity Exhibit 8.3

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–15 Types of Performance Measures (cont’d) Quality –Usually measured by the defect rate of the products produced. Speed of Delivery –Product’s lead time—amount of time from when product is ordered to when it is shipped. Inventoried versus customized products –Variability/Uncertainty in delivery time Less uncertainty in delivery times is better.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–16 Types of Performance Measures (cont’d) Flexibility –The measure of how readily a firm’s transformation process can adjust to changes in customer demand (i.e., agile manufacturing). Flexibility Measures –How quickly a process can convert from producing one product to another product. –How quickly a process can adjust to changes in volume (demand). –How capable is the process in producing more than one type of product.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–17 Types of Performance Measures (cont’d) Process Velocity (Manufacturing Velocity) –Ratio of total throughput time for a product to the value-added time. Throughput time—the time the product spends in the process. Value-added time—the time it takes to complete the product. Value-added time time throughput Total velocity Process =

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–18 Process Analysis: Definitions Multistage Process –A process that consists of more than one step. Hybrid Process –A multistage process that consists of more than one type of process. Make-to-Stock –Process for making highly standardized products for finished goods inventory. Make-to-Order –Process for making customized products to meet individual customer requirements.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–19 Manufacturing: Make-to-Stock Exhibit 8.4

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–20 Manufacturing: Make-to-Order Exhibit 8.4 (cont’d)

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–21 Process Analysis in Manufacturing Modularization –Use of standard components and subassemblies to produce customized products. Tightness and Dependence –The degree to which various process stages are related. Tight process are highly related, creating strongly dependence between the stages. –Buffer inventories can make a process “looser.”

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–22 Manufacturing: Modularization Exhibit 8.4 (cont’d)

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–23 Process Analysis in Manufacturing Bottleneck –A stage with the lowest output capacity that limits the total output of the process. Capacity versus Demand –Capacity is the firm’s output capability; demand is the level of output that the market requires to meet customer needs.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–24 Process Analysis in Manufacturing Process Flowcharts –A schematic diagram for describing a process. What the official or documented method is. How the work is actually being performed. What the proper procedures should be.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–25 Elements in a Process Flowchart Exhibit 8.5

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–26 Process Analysis in Services Service Blueprinting –The process of flowcharting for services that includes the customer: Identifying (mapping) processes Isolating fail points Establishing a time frame Analyzing profitability –Line of visibility Above the line: stages in process, in direct contact with customer, that focus on providing good service. Below the line: stages in the process, not in contact with the customer, that focus on process efficiency.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–27 Service Blueprint for a Cash Account at a Discount Brokerage Exhibit 8.6 Source: Reprinted by permission of Harvard Business Review. From G. Lynn Shostack, “Designing Services That Deliver,” Harvard Business Review 62, no. 1 (January–February 1984), p Copyright © 1984 by the Harvard Business School Publishing Corporation; all rights reserved.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–28 Blueprint for a Corner Shoeshine Source: Reprinted by permission of Harvard Business Review. Exhibit from Adapted from “Designing Services That Deliver” by G. Lynn Shostack, January–February 1984, p Copyright © 1984 by the President and Fellows of Harvard College; all rights reserved. Exhibit 8.7

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–29 Shoeshine Profitability Analysis Exhibit 8.8 Source: Reprinted by permission of Harvard Business Review. From G. Lynn Shostack, “Designing Services That Deliver,” Harvard Business Review 62, no. 1 (January–February 1984), p Copyright © 1984 by the Harvard Business School Publishing Corporation; all rights reserved.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–30 Process Analysis in Services (cont’d) Failsafing –Creating a control condition where the customer, server, or process can take only the correct (or desired) action while engaged in a service process.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–31 Business Processes Business Process –A logical set of tasks or activities that crosses functional boundaries and recognizes its interdependence with other processes or businesses. Examples of Business Processes Exhibit 8.9

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–32 Business Process Analysis Define the Process Boundaries –Identify where the process begins and where it ends (its boundaries). –Determine its inputs and outputs. –Recognize other processes that impact on the process under evaluation. Link the Process to the Corporate Strategy –Understand how the process contributes to the firm’s competitive advantage. –Identify key measures to be used evaluate the process.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–33 Business Process Analysis (cont’d) Map the Process –Develop a process flow chart to provide a visual context for analyzing the process: Specific ordering of the process steps Length of time each step takes Resources required by each step Cross-functional relationships Granularity –Describes the level of detail that is used in analyzing a process.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–34 Process Mapping with Functional Areas Exhibit 8.10

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–35 Benchmarking –Comparison of a company’s measures of performance with those of firms that are considered to be world class. “The search of the best practices that leads to superior performance.” –Involves continuous monitoring/measurement. –Applicable to all functional areas: Goods and services Business processes Performance measures

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–36 Key Steps in Benchmarking Planning –Determining where we should bench mark. Analysis –Obtaining an in-depth understanding of the firm. Integration –Defining target areas for change. Action –Incorporating findings into current processes. Maturity –Having best practices at all organizational levels.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–37 Types of Benchmarking Internal Benchmarking –Comparison of similar operations within the firm Competitive Benchmarking –Comparison with like operations of competitors Functional Benchmarking –Comparison with the “best of breed” in a specific function, regardless of industry Generic Benchmarking –Adopting the innovative processes of industry leaders in commonly-held practices

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–38 Business Process Reengineering Reengineering Defined –The process of rethinking and restructuring an organization. Characteristics of a Reengineered Process –Several jobs are combined into one. –Workers make decisions. –The steps in the process are performed in a natural order. –Processes have multiple versions (flexibility). –Work is performed where it makes the most sense.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–39 Comparison between Strategic and Tactical Deployment Techniques for Reengineering Exhibit 8.11 Source: Gateway Management Consulting.

Copyright © 2005 The McGraw-Hill Companies. All rights reserved. McGraw-Hill/Irwin 8–40 Business Process Reengineering Issues with Reengineering –Inability of management to link reengineering efforts to overall corporate strategy. –Regarding reengineering as a tactical program rather than as a strategy issue for the entire organization. –Lack of commitment and participation by top management.