1. Business Processes

2. Chapter 3, Slide 2 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Business Processes Business processes defined Mapping business processes Improving business processes Measuring process performance

3. Chapter 3, Slide 3 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Mapping Business Processes Relationship maps –What are they? –What level of detail? –When are they most valuable? Detailed process maps

4. Chapter 3, Slide 4 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Example Automotive OEM wanted to understand how 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.)

5. Chapter 3, Slide 5 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Findings A.OEM provided first-tier supplier with weekly demand forecast for next 10 weeks B.First-tier supplier sent its own demand forecasts to 10 second-tier suppliers C.Second-tier suppliers delivered the requirements to first-tier supplier

6. Chapter 3, Slide 6 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Relationship Map

7. Chapter 3, Slide 7 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Detailed Process Map Identifies the specific activities that make up the process. Basic steps are: 1.Identify the entity that will serve as your focal point:  Customer?  Order?  Item? 2.Identify clear boundaries, starting and ending points 3.Keep it simple  Does this detail add any insight?  Do we need to map every exception condition?

8. Chapter 3, Slide 8 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Mapping Symbols Typical, but others may be used as appropriate 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

9. Chapter 3, Slide 9 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Example Process mapping at a San Diego distribution center (DC)

10. Chapter 3, Slide 10 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Facts of the Case I Process 1)Dealer faxes order to DC. One out of 25 lost to paper jams. 2)Fax sits in “in box” around 2 hours (up to 4) until internal mail picks it up. 3)Internal mail takes about one hour (up to 2) to deliver to the picking area. One out of 100 delivered to the wrong place. 4)Order sits in clerk’s in-box until it is processed (0 to 2 hours). Processing time takes 5 minutes.

11. Chapter 3, Slide 11 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Facts of the Case II 5)If item is in stock, worker picks and packs order (average = 20 minutes, but up to 45 minutes). 6)Inspector takes 2 minutes to check order. Still, one out of 200 are wrong. 7)Transport firm delivers order (1 to 3 hours).

12. Chapter 3, Slide 12 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield 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?

13. Chapter 3, Slide 13 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield One Possible Solution

14. Chapter 3, Slide 14 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield 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?

15. Chapter 3, Slide 15 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield More Guidelines Look for loops –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?

16. Chapter 3, Slide 16 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield 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”

17. Chapter 3, Slide 17 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Symptomatic Activities... Inspecting or reworking goods Expediting shipments or “fighting fires” Overproducing, holding excessive inventories

18. Chapter 3, Slide 18 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield …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

19. Chapter 3, Slide 19 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Process Improvement ValueCostDescriptionAction Net Value- Added Activity +++ Adds net valueFind ways to increase value and lower costs further Underperformer+++ Potential value- adding activity Change to value- adding activity or eliminate Necessary0+ Necessary business activity Reduce cost of performing activity Symptomatic0+ Activity caused by poor business practices Eliminate practices that cause the activity

20. Chapter 3, Slide 20 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Process Measures Productivity Efficiency Cycle Time Benchmarking

21. Chapter 3, Slide 21 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Productivity Measures Productivity = Outputs Inputs Partial, Multifactor, and Total measures of productivity

22. Chapter 3, Slide 22 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Examples Batteries Produced Machine + Direct Labor Hours Total Nightly Sales ($) Total Nightly Costs Batteries Produced Direct Labor Hours Single factor productivity ratio: Multifactor: Total multifactor:

23. Chapter 3, Slide 23 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Consider the following data... Quantity$/Unit Car X4000 cars$8,000/car Car Y6000 cars$9,500/car Total labor for building X 20,000 hours$12/hour Total labor for building Y 30,000 hours$14/hour

24. Chapter 3, Slide 24 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield 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) = ? How might these measures be affected by capital substitution?

25. Chapter 3, Slide 25 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield What is the Labor Productivity in dollars for Each Car? Impact of wage, price changes? Car X:(4,000 × $8,000)=? (20,000 × $12) Car Y:(6,000 × $9,500)=? (30,000 × $14)

26. Chapter 3, Slide 26 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Results (What are the Benefits? Caveats?) Car X:(4,000 × $8,000)=$133.33 (20,000 × $12) Car X:(4,000 units / 20,000 hrs.) = 0.2 Productivity (hours) Productivity ($)

27. Chapter 3, Slide 27 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield 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/standard)

28. Chapter 3, Slide 28 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield 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.

29. Chapter 3, Slide 29 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield 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

30. Chapter 3, Slide 30 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Benchmarking A comparison of a company’s performance to the performance of: Other firms in its industry (strategic) Firms identified as “world-class” (process)

31. Chapter 3, Slide 31 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield 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:64.6 Average European plant:76.8 Is this strategic or process benchmarking?

32. Chapter 3, Slide 32 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield More Benchmarking Data... Labor and machine hours per vehicle (1989): Average Japanese plant:16.9 Average US plant:35.7 Average European plant:57 What is the benefit of having both sets of figures?

33. Chapter 3, Slide 33 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield So what’s happened since? Some new productivity figures.

34. Chapter 3, Slide 34 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield From “The Harbour Report”, July 1998 “Labor hours needed for stamping, power train, and assembly operations”: (100%) Nissan 27.6 hours (168%) GM 46.5 hours (126%) Ford 34.7 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.

35. Chapter 3, Slide 35 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Other Measures I Costs Quality Materials Labor Shipping etc. Defects per million (ppm) Number of returns Time between failures (MTBF,reliability),

36. Chapter 3, Slide 36 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield Other Measures II Speed Flexibility Lead time to customer Percent orders late Changeover time Volume to meet changes in demand

37. Chapter 3, Slide 37 ©2006 Pearson Prentice Hall — Introduction to Operations and Supply Chain Management — Bozarth & Handfield 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