1. Business Processes

2. Chapter Objectives Be able to:
Explain what a business process is and how the business perspective differs from a traditional functional perspective.
Create process maps for a business process and use these to understand and diagnose a process.
Calculate and interpret some common measures of process performance.
Discuss the importance of benchmarking and distinguish between competitive benchmarking and process benchmarking.
Describe the Six Sigma methodology, including the steps of the DMAIC process.
Use and interpret some common continuous improvement tools.
Explain what the Supply-Chain Operations Reference (SCOR) model is and why it is important to businesses.
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3. Business Processes Business processes defined
Mapping business processes
Managing and improving business processes
Measuring process performance
The SCOR Model
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4. Business Processes Defined
Logically related sets of tasks or activities geared toward some business outcome
Primary
Support
Development
What is the distinction? Examples of each? Are the dividing lines always clear?
Primary: Value-added work directly related to what the customer pays for.
Support: Purchasing, maintenance, transportation to point-of-sale, moving and tracking material between value-added steps, administration, etc.
Developmental: Design, assessment, and marketing efforts to provide new services or products, training new job skills.
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5. Versus the “functional” Perspective
Developing new products/services (Chapter 6)
Evaluating suppliers (Chapter 10)
Developing sales & operations plans (Chapter 13)
Suppliers Purchasing Engineering Operations Finance Marketing Customers
What are some of the challenges in managing such processes?
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6. Mapping Business Processes
Relationship maps
What are they?
What level of detail?
When are they most valuable?
Detailed process maps
‘Swim Lane’ process maps
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7. Example
Automotive OEM wanted to understand how the company’s needs were communicated to suppliers
First-tier supplier responsible for entire cockpit (all interior pieces)
Second-tier suppliers provide “families” of parts to first-tier supplier (e.g., plastic trim, gauges and wiring, etc.)
Comment on the flow of information as a separate process. How could it be done differently?
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8. Findings
OEM provided first-tier supplier with weekly demand forecast for next 10 weeks
First-tier supplier sent its ‘own’ demand forecasts to 10 second-tier suppliers
Second-tier suppliers delivered the requirements to first-tier supplier
Follow up on the flow of information process. What inefficiencies are exhibited here? What is required for second tier suppliers to see the OEM needs directly?
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9. Relationship Map
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10. Detailed Process Map
Identifies the specific activities that make up the process. Basic steps are:
Identify the entity that will serve as your focal point:
Customer?
Order?
Item?
2. Identify clear boundaries, starting and ending points
Keep it simple
Does this detail add any insight?
Do we need to map every exception condition?
Comment on how exceptions might be handled – separate process?
What about having a set of processes represented by a single step that can be expanded if that step is the one that appears to need the most improvement?
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11. Mapping Symbols Start or finishing point
Step or activity in the process
Decision point (typically requires a “yes” or “no”)
Input or output (typically data or materials)
Document created
Delay
Inspection
Move activity
Typical, but others may be used as appropriate
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12. Process mapping at a San Diego distribution center (DC)
Example*
Process mapping at a San Diego distribution center (DC)
*Textbook, pages
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN:

13. Facts of the Case I Process
Dealer faxes order to DC. One out of 25 orders lost because of paper jams.
Fax sits in “In Box” around 2 hours (up to 4) until internal mail picks it up.
Internal mail takes about one hour (up to 1.5 hours) to deliver to the picking area. One out of 100 faxes are delivered to the wrong place.
Order sits in clerk’s in-box until it is processed (0 to 2 hours). Processing time takes 5 minutes.
Pages 50 through 52 in the text.
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14. Facts of the Case II
If item is in stock, worker picks and packs order (average = 20 minutes, but up to 45 minutes).
Inspector takes 2 minutes to check order. Still, one out of 200 orders are completed incorrectly.
Transport firm delivers order (1 to 3 hours).
Pages 50 through 52 in the text.
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15. (No looking in chapter!)
Let’s Map the Process
(No looking in chapter!)
What is the focal point of the mapping effort?
What are the boundaries of the process map?
What detail is missing from this simple example?
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16. One Possible Solution
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17. Improving Business Processes: Guidelines
Attack each delay
What causes it?
How long is it?
How could we reduce its impact?
Examine each decision point
Is this a real decision or just a checking activity?
If the latter, can we automate or eliminate it?
Dematerialize documentation.
Can we do it electronically?
Eliminate multiple copies?
Share a common database?
Review differences between value-added and other activities. Good place to point out that unnecessary movement between value-added steps often requires tracking, counting, and storing of inventories.
Decision points do not add value, take time
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18. More Guidelines Look for loops Process steps Why is this loop here?
Would we need to loop if we didn’t have any failures in quality, planning, etc?
Process steps
What is the value of this activity, relative to its cost?
Is this a necessary activity (support or developmental?), or something else?
Loops take time, do not add value. Work to eliminate them, particularly if they occur frequently.
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19. Taking It Further ... All activities add costs and time
Not all value-added activities provide “net” value
“Underperformers”
Not all support and developmental activities are necessary
Necessary versus “symptomatic”
“Underperformers” that have poor yields, take too long, use unnecessary resources, etc.
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20. Symptomatic Activities ...
Inspecting or reworking goods
Expediting shipments or “fighting fires”
Overproducing, holding excessive inventories
Standard backorder process
Symptomatic – exist because of problems that shouldn’t be there.
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21. …and Typical Causes Poor quality “Flying blind,” poor planning
Poor controls, training, etc.
Excessive demand variability
Mismatches between an organization’s capabilities and market requirements
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22. Process Improvement Value Cost Description Action
Net Value-Added Activity ++ +
Adds net value
Find ways to increase value and lower costs further
Underperformer
Potential value-adding activity
Change to value-adding activity or eliminate
Necessary
Necessary business activity
Reduce cost of performing activity
Symptomatic
Activity caused by poor business practices
Eliminate practices that cause the activity
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23. Swim Lane Process Map*
* Adapted from map by John Grout, Campbell School of Business, Berry College, Mount Berry, Georgia
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24. Swim Lane Process Map Shows functional relationships versus time
Can help in measuring loading on various functional areas
Illustrates cross-function communication processes
Other names: cross-functional flowchart, Rummler-Brache diagram.
Useful for mapping MIS support for processes
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25. Process Measures Productivity Efficiency Cycle Time Benchmarking
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26. Productivity Measures
Outputs
Inputs
Productivity =
Single-factor, Multifactor, and Total measures of productivity
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN:

27. Examples Single-factor productivity ratio: Multifactor:
Batteries Produced
Machine Hours + Direct Labor Hours
Total Nightly Sales ($)
Total Nightly Costs ($)
Direct Labor Hours
Single-factor
productivity ratio:
Multifactor:
Total multifactor:
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28. Consider the following data . . .
Quantity
$/Unit
Car X
4000 cars
$8,000/car
Car Y
6000 cars
$9,500/car
Total labor for building X
20,000 hours
$12/hour
Total labor for building Y
30,000 hours
$14/hour
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29. What is the Labor Productivity in hours for Each Car?
Car X: (4,000 cars / 20,000 hrs) = ?
Car Y: (6,000 cars / 30,000 hrs) = ?
Car X: 0.2 cars/hour
Car Y: 0.2 cars/hour
How might these measures be affected by
capital substitution?
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30. What is the Labor Productivity in dollars for Each Car?
Car X: (4,000 × $8,000) = ?
(20,000 × $12)
Car Y: (6,000 × $9,500) = ?
(30,000 × $14)
Car X:
Car Y:
Impact of wage, price changes?
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31. Results (What are the Benefits? Caveats?)
Car X: (4,000 × $8,000) =
(20,000 × $12)
Car X: (4,000 units / 20,000 hrs.) = 0.2 units / hr
Productivity (hours)
Productivity ($)
Values for Car Y?
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32. Efficiency
A comparison of a company’s actual performance to some standard
Usually expressed as a percentage
Standard is an estimate of what should be produced based on studies or historical results
Efficiency = 100%(actual rate / standard rate)
OR: Efficiency = 100%(standard time/actual time) for one unit
Here the actual and standard values represent output or output rate.
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33. Cycle Time
Total time required to complete a process from start to finish.
The percent of cycle time spent on value-added activities is a measure of process effectiveness.
Called “takt” time in Germany. Can be considered as the “pulse” or “heartbeat” of the process.
Throughput is controlled by the cycle time, but is also affected by how many units can be processed together.
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34. Cycle Time Drivers Causes that increase cycle time are: Waiting times
Unneeded steps
Rework
Unnecessary controls or testing
Outmoded technology
Lack of information or training
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35. Benchmarking
A comparison of a company’s performance to the performance of:
Other firms in its industry (strategic)
Firms identified as “world-class” (process)
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36. Benchmarking Data from “The Machine That Changed The World”
Number of assembly defects per 100 vehicles (1989):
Average Japanese plant: 34.0
Average US plant:
Average European plant: 76.8
J. Womack, D. Jones, and D. Roos, The Machine That Changed the World: How Japan’s Secret Weapon in the Global Auto Wars Will Revolutionize Western Industry, New York, HarperPerennial, 1991.
Is this strategic or process benchmarking?
© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN:

37. More Benchmarking Data ...
Labor and machine hours per vehicle (1989):
Average Japanese plant: 16.9
Average US plant:
Average European plant: 57
What is the benefit of having both sets of figures?
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38. So what’s happened since?
Some new productivity figures.

39. From “The Harbour Report”, July 1998
“Labor hours needed for stamping, power train, and assembly operations”: (100%) Nissan hours (168%) GM hours (126%) Ford hours
"If GM could operate at Nissan's level of productivity, they'd save themselves about $4.4 billion a year," Measured another way, the report shows GM has about 55,000 more workers than it needs.
Harbour Report North America 1999,
Note changes since 1998 discussed in the text on page 61.
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40. Other Measures I Costs Quality Materials Labor Shipping etc.
Defects per million (ppm)
Number of returns
Time between failures (MTBF, reliability)
Costs
Quality
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41. Other Measures II Speed Flexibility Lead time to customer
Percent orders late
Changeover time
Volume to meet changes in demand
Speed
Flexibility
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42. Measurement Key Points
Can be situation-specific
Should be relative to past performance and future goals
Potential for conflicts. Consider:
# of Students Taught
Professor hours
% of Satisfied
Students
versus
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43. Six Sigma Methodology
Core value is having less than 3.4 defects per million opportunities (DPMO). Key elements are:
Understanding and managing customer requirements
Aligning key business processes to achieve those requirements
Using rigorous data analysis to understand and ultimately minimize variation in those processes
Driving rapid and sustainable improvement to business processes.
The core value defect level is based on allowing the mean of a process to drift to within about 4.5 standard deviations of either specification limit. A true six sigma variation around a mean centered within specifications would correspond to a defect level of 2 parts per billion.
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44. Six Sigma Methodology Two basic Six Sigma processes are:
DMAIC (Define-Measure-Analyze-Improve-Control) — an updated version of the PDCA process promoted by Deming.
DMADV (Define-Measure-Analyze-Design-Verify)
DMAIC is an updated version of the PDSA (Plan-Do-Study-Act) process developed by Walter Shewhart and later promoted by W. Edwards Deming as the PDCA (Plan-Do-Check-Act) process for improvement
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45. Do Plan Check Act The PDCA Cycle
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46. Common Improvement Tools
Cause and effect diagrams (aka “Fishbone” or Ishikawa diagrams)
Check sheets
Pareto analysis
Run charts and scatter plots
Bar graphs
Histograms
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47. Flight delays at Midway
A Services Example
Flight delays at Midway
Cause and Effect Diagrams
Check Sheets
Pareto Analysis
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48. Problem: Delayed Flights
No one is sure why, but plenty of opinions
“Management by Fact”
CI Tools we will use:
Fishbone diagram
Check sheets
Pareto analysis
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49. Cause and Effect Diagram
ASKS: What are the possible causes?
Root cause analysis — open and narrow phases
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50. Generic C&E Diagram
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51. Midway C&E diagram
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52. Check Sheets Event: Day 1 Day 2 Day 3 Late arrival II I Gate occupied
Too few agents
Accepting late passengers
III
(root cause analysis -- closed phase)
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53. Pareto Analysis (sorted histogram)
Late passengers
100
Late arrivals
Late baggage to aircraft 85 70
Weather 65
Other (160)
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54. Percent of each out of 480 total incidents ...
Late passengers 21%
Late arrivals 18%
Late baggage to aircraft 15%
Weather 14%
Other 33%
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55. Run Charts and Scatter Plots
Measure
Run
Time
Variable Y
Scatter
Variable X
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56. Histograms Frequency Measurements
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57. Supply-Chain Operations Reference (SCOR) Model
Five core processes for Level 1
Source
Make
Deliver
Return
Plan
Three expanded processes for Level 2
Planning
Execution
Enable
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58. SCOR Model www.supply-chain.org
Source: Supply-Chain Council,
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59. Business Processes Case Study
Zephtrex Fabric