1. Business Processes Chapter 4

2. Text: Introduction to Operations and Supply Chain Management
Custom edition for Farmingdale State College
Authors: Cecil Bozarth & Robert Handfield
Where appropriate reference text page numbers will be on bottom of slides
OSC may be used as an abbreviation of Operations and Supply Chain

3. 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.

4. Procter & Gamble
Page 44

5. Business Processes Business processes defined
Mapping business processes
Managing and improving business processes
Measuring process performance
The SCOR Model

6. Business Processes Defined
Logically related sets of tasks or activities geared toward some business outcome
Primary the main value-added activities
Support necessary, but not value-added activities
Development activities that improve primary & support activities
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.
Pg 46

7. Examples of processes Primary Support Development Providing a service
Educating Customers
Manufacturing a product
Evaluating suppliers
Recruiting new workers
Developing a sales & operating plan
Developing new products
Performing research on improving products
Training new workers

8. Managing functions is not the same as managing what a business does
Prior to 1990s, attention was on activities within each business function (P&G)
If focus was on individual functions and those functions ran well, then the business should do well
Managing functions is not the same as managing what a business does
The whole needs to be greater than the sum of it’s parts

9. 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?

10. To effectively manage, measure and improve something, it must first be understood

11. Mapping Business Processes
An effective, simple way to improve understanding of the business process is by developing a graphic representation of all the activities and relationships with thin the process
Creates common understanding of the activities, results and who performs the steps
Defines the boundaries of the process
Can be a training tool
Provides baseline to measure improvement
Pg 48

12. Mapping Business Processes
Relationship maps
Detailed process maps
‘Swim Lane’ process maps

13. Relationship Map 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?

14. 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?

15. Relationship Map

16. 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?
Identify clear boundaries, starting and ending points
Segment of the process?
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?

17. Detailed Process Map
Document the process “as is”, not how it should be or how it is remembered
May be necessary to observe, monitor &/or follow the process
Need to map in manageable, logical segments
Keep the focus relatively small
Only areas which you have managerial control

18. 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

19. Detailed Process Map Example

20. 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.

21. 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.

22. Let’s Map the Process 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?

23. One Possible Solution Internal Mail Delivers Fax Paper Order Created
Dealer
Faxes
Order
Order Sits
In Fax
In Box
Order Sits
In Clerk’s
In Box
Clerk
Processes
Order
5 minutes
4% of
orders lost
0 to 4 hours
2 hours on average
0 to 2 hours
1 hour on average
0.5 to 1.5 hours
1 hour on average
1% of orders lost
10 to 45 minutes
20 minutes on average
Transport Firm
Delivers Order
Inspector
Checks
Order
Dealer
Receives
Order
Worker
Picks
Order
YES
Is Item
In Stock? NO
2 minutes
0.5% of orders incorrect
1 to 3 hours
2 hours on average
No history of lost,
damaged, or incorrect
deliveries
Clerk Notifies
Dealer and
Passes Order
On to Plant

24. Is there room for improvement?
Dealer
Faxes
Order
Paper
Created
Order Sits
In Fax
In Box
Internal Mail
Delivers Fax
In Clerk’s
Clerk
Processes
Is Item
In Stock?
Worker
Picks
Clerk Notifies
Dealer and
Passes Order
On to Plant
Inspector
Checks
Transport Firm
Delivers Order
Receives
2 minutes
0.5% of orders incorrect
1 to 3 hours
2 hours on average
No history of lost,
damaged, or incorrect
deliveries
YES NO
10 to 45 minutes
20 minutes on average
0 to 2 hours
1 hour on average
0.5 to 1.5 hours
1% of orders lost
0 to 4 hours
4% of
orders lost
5 minutes
Order spends 6.45 hrs in process
3 hrs is waiting
5% of orders are lost before picking
1 out of 200 will be shipped with wrong items or amounts

25. Detailed Process Map Example
Process mapping at a San Diego distribution center (DC)
*Textbook, pages

27. 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

28. 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.

29. 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.

30. 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.

31. …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

32. 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

33. Swim Lane Process Map
In some situations, we may need to understand not only the process, but who, or which departments are involved and how they need to interact
Swim Lane Process Maps graphically arrange the process so that responsibility & interaction is clear.

34. 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

35. Swim Lane Process Map*
* Adapted from map by John Grout, Campbell School of Business, Berry College, Mount Berry, Georgia

36. Process Measures
There are countless ways of measuring a process. To be effective, they should be based upon some type of measurable information or data

37. Four Performance Dimensions
Quality (performance, conformance, reliability)
Time (delivery speed and reliability, development speed)
Flexibility (mix, changeover, volume)
Cost (labor, material, engineering, quality-related)
What does the customer value?

38. Process Measures
Productivity
Efficiency
Cycle Time
Benchmarking

39. Productivity Measures
Outputs
Inputs
Productivity =
Productivity is the ratio of outputs to inputs
Single-factor, Multifactor, and Total measures of productivity

40. Variations of Productivity
Batteries Produced
Machine Hours + Direct Labor Hours
Total Nightly Sales ($)
Total Nightly Costs ($)
Direct Labor Hours
Single-factor
productivity ratio:
Multifactor:
Total multifactor:
Measures output levels relative to a single input
Measures output levels relative to more than one input
Ratio of a total output factor to total input factor

41. Variations of Productivity
There are many common or standard productivity measures, typically a company will develop productivity ratios which are suited to their specific needs

42. 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

43. 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) = ?
0.2
0.2
Car X: 0.2 cars/hour
Car Y: 0.2 cars/hour

44. 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?

45. 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?

46. A comparison of a company’s actual performance to some standard output
Efficiency
A comparison of a company’s actual performance to some standard output
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.
Standard output – an estimate of what should be produced, given a certain level of resources

47. Measuring Efficiency at BMA Software
Text pages 56 thru 59

48. Cycle Time (throughput time)
Total time required to complete a process from start to finish.
To reduce cycle time, organizations must perform well on other performance dimensions
It is a straight forward measure; can be measured in absolute terms, no estimates
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.
Percent Value Added Time – the percentage of cycle time which is spent on value-added activities

49. 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

50. Benchmarking
A comparison of a company’s performance to the performance of:
Other firms in its industry (strategic or competitive)
Firms identified as “world-class” (process)

51. 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?

52. 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?

53. So what’s happened since?
Some new productivity figures.

54. 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.

55. Other Measures I Costs Quality Materials Labor Shipping etc.
Defects per million (ppm)
Number of returns
Time between failures (MTBF, reliability)
Costs
Quality

56. Other Measures II Speed Flexibility Lead time to customer
Percent orders late
Changeover time
Volume to meet changes in demand
Speed
Flexibility

57. 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

58. Supply-Chain Operations Reference (SCOR) Model
A comprehensive model of the core management processes and individual processes that define the domain of SCM
Reference model which provides a common language
Provides a template to guide the design & implementation of SC processes
Provides mechanism for better understanding of SCM

59. 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

60. Supply-Chain Operations Reference (SCOR) Model
Five core processes for Level 1
Source
Procure goods & services to meet planned or actual demand
Make
Transform source material into finished good
Deliver
Provides goods & services
Return
Returning & receiving returned product
Plan
Balance resources with requirements
Pg 72

61. Supply-Chain Operations Reference (SCOR) Model
Three expanded processes for Level 2
Planning
Aligns expected resources to meet expected demand.
Execution
Process triggered by planned or actual demand requirements
Enable
Prepares, maintains or manages information or relationships on which planning & execution rely

62. SCOR Model www.supply-chain.org
Source: Supply-Chain Council,

64. Business Processes Case Study
Zephtrex Fabric