Business Processes and their Improvement

Session Objectives Develop an understanding of business processes Review process modeling basics Introduce process management concepts and best practices Read objectives

Supply Chain Management: Key Activities and Processes Corporate Strategy Infrastructure, People, and Culture Information and Technology NEW PRODUCT INTRODUCTION Supply Base Design/Develop Market Customer Requirements Customer Satisfaction Procure Produce Distribute Supply Base ORDER FULFILLMENT Forecasting Supply/Demand Planning

Order Fulfillment: Key Supply Chain Processes OPERATIONS DEMAND Supply Planning and Scheduling Strategic Sourcing Supplier Selection Supplier Development Invoicing/Payment Inbound Logistics Warehousing Inventory Management Operations Planning and Scheduling Capacity Planning Material Handling Insourcing/ Outsourcing Demand Planning and Forecasting Sales Order Entry Outbound Logistics Finished Goods Inventory Management

Why Focus On Business Processes? Supports “systems view” of organization Helps organizations to understand and effectively manage interrelationships, both internally and externally Improves resource allocation decisions Provides the basis for performance measurement system (Adapted from Harrington 1991)

Five Phases of Process Improvement 1. Establish process improvement team 2. Develop understanding of current process 3. Identify initial process improvement efforts 4. Establish measurements and controls 5. Monitor performance and seek continuous improvement (Adapted from Harrington 1991)

Selecting Processes For Improvement Look for processes where: Frequent problems/complaints (internal or external) High-cost High-variability of output Long and/or variable cycle times A known “best practice” exists New and improved technologies are available (Adapted from Harrington 1991)

Selecting Processes For Improvement In evaluating process candidates the following critical factors need to be considered: Current performance of the process Business impact Supply chain impact Suppliers and customers Ability to change the process Resources required for improvement (Adapted from Harrington 1991)

Process Modeling Basics

Modeling Model: A representation of reality Models can be Physical Mathematical Schematic / graphical We will focus on schematic or graphical modeling

Business Process Modeling Important part of process improvement efforts Tool for understanding business processes Internal Supply chain Flowcharting is the most commonly used technique (also known as “process mapping”)

Types of Flowcharts Block diagrams Flow-process charts Advantage: Simplicity Flow-process charts Advantage: Identifies both flow and activity types American National Standard Institute (ANSI) flow charts Advantage: Universal, flexible

Process Flow Charting - Considerations First document the process as it IS, not as it’s supposed to be Scope - how much of the process do you want to look at? Detail - how finely do you want to break down the process?

Process Flow Charting - Considerations Additional dimensions may be included in a flow chart: Information flows Time element Operations, inspections, delays, transports Average time required, range, etc. Distance moved Resources required Capacity

Process Flow Chart: Stores Requisition User Completes Requisition Clerk Enters Order Wait in Internal Mail avg.: 2 hrs (0-4 hrs) Deliver to Stores avg.: 1 hr (0.5-1.5 hrs) Wait in Stores In-Box avg.: 1 hr (0-2 hrs) (0.1 hrs) In Stock? Pick Order Y Deliver to User avg.: 2 hrs (1-3 hrs) File Requisition (0.1 hrs) Check Order (0.1 hrs) avg.: 0.4 hrs (0.2 - 1.5 hrs) N Notify User

Process Flow Charting - Benefits Gain a clear understanding of how the process actually works Capacities Cycle times Highlight potential improvement opportunities Unnecessary steps Redundant steps Inefficient sequencing of steps Identification of bottlenecks

Process Management: Key Concepts and Best Practices

Process Management Effective business processes can create a competitive advantage for the company and its supply chains Effective business processes are not an accident Processes do not improve on their own Effective processes are processes that are effectively designed and managed

Process Management Effective process management requires an understanding of: The process itself How and where the process fits into the organization and/or supply chain Process performance requirements Process resource requirements Process capabilities Process capacities Process performance

Performance Requirements What must the process accomplish in order to support organizational goals and objectives? Need to establish specific targets in terms of: Cost Quality Time Customer service/support Others

Customer Driven Process Requirements REQUIRED PROCESS CAPACITY REQUIRED PROCESS CAPABILITIES CUSTOMER REQUIREMENTS PROCESS PERFORMANCE TARGETS

Process Capabilities Process capability addresses what a process can do and how well it can perform its function All processes have a capability range Upper and lower performance limits Process management must insure that process performance requirements are feasible given process capability range

Process Capabilities Example: Memphis-based customer requires airfreight services for product delivery to locations anywhere in Continental U.S. within four hours of shipper notification Are standard FedEx transportation processes capable of meeting this requirement?

Process Capabilities Example: UPS customer wants to be able to access precise minute-by-minute tracking information on her package (exactly where is the truck or plane my package is on, right now?) Is existing UPS tracking process capable of meeting this requirement?

Determinants of Process Capability People Skills Experience Training Management Methods Work flow Decision making PROCESS CAPABILITY Inputs Information Materials Technology Equipment IS/IT

Process Capacity Process capacity addresses the volume of work or product that can be performed by a process during a specified time period Often viewed as the upper bound on the rate of output

Process Capacity There are different ways of defining the capacity of a process: Design capacity -- maximum output that can possibly be attained Effective capacity -- maximum output given practical issues of product mix, scheduling, maintenance, quality factors, etc. Demonstrated capacity -- the rate of output actually achieved

Determinants of Process Capacity Quantity and type of resources available: Human Equipment Product/service mix Planned down time (e.g., breaks, preventive maintenance, etc.) Unplanned down time (e.g., equipment breakdowns, absenteeism, quality problems, etc.)

Process Capacity Process management must insure that process performance requirements are feasible given process capacity From a time perspective, overall process capacity is determined by the slowest activity or step in the process Need to focus improvement efforts on these “bottleneck” activities

Process Performance Effective process management requires objective view of process performance for key performance areas The performance measurement system should consider both effectiveness and efficiency measures Effectiveness - “doing the right thing” Efficiency - “doing things right”

Process Management “Best Practices” Clear accountability for process performance Need a “process owner” Well-defined process boundaries Manageable scope Clearly defined interfaces and responsibilities Documented procedures, work tasks, and training requirements (Adapted from Harrington 1991)

Process Management “Best Practices” Formal performance measurement If you can’t measure it… Benchmark Formal feedback controls Includes monitoring, evaluating, and adapting Formal change procedures Introduces process discipline Customer-related objectives (Adapted from Harrington 1991)

It’s About Time

Cycle Time Definition Cycle Time -- The total elapsed time required to complete an organizational process or activity

Why Focus on Time? Superior performance in cost, quality, delivery, and technology is not enough Increasingly organizations are competing on the basis of time

Why Focus on Time? The Three Percent Rule -- When examining organizational processes typically less than three percent of the total elapsed time is actually needed to complete the process

Why Focus on Time? Organizations that have focused on improving performance from a time perspective also see significant improvements in other critical performance areas including: Cost Quality Delivery Customer service A matter of focus -- not just time for the sake of time

Why Focus on Time? Provides an excellent opportunity to be better than the competition Time has not been a high priority for many organizations A basic, but highly effective achieve a competitive advantage

Critical Success Factors For Time-Based Competitors Top management support Aggressive cycle time reduction goals Cross-functional teams Team members must have thorough process knowledge Training in key cycle time reduction concepts and tools Application of TQM tools Performance measurement system Collaborate with supply chain members (Sources: Nichols 1995, Hendrick 1994)

Causes Of Long Process Cycle Times

Causes Of Long Process Cycle Times Waiting Serial versus parallel operations Performing an activity twice (or more) Batching Excessive controls / bureaucracy Poorly designed procedures / forms

Causes Of Long Process Cycle Times Unnecessary movement / travel of product or people Long travel distances for products or people Ambiguous goals and objectives Non-value-added processing steps Antiquated processes or technology

Causes Of Long Process Cycle Times Process variability Lack of information Poor communication Limited coordination Lack of cooperation Lack of training

Summary Many causes of long cycle times are present Processes often have a combination of “causes” at work Must have a thorough understanding of the process to determine the “causes”

Reducing Process Cycle Times

Techniques for Reducing Process Cycle Times Developed over last 8 years Observed both “best” and “worst” practices Critical success factors Understand current process Process mapping Commitment to improve Open communication

Points of Leverage Main idea: Identify areas where small changes have big impact Consider the airplane... Where are the points of leverage in your processes?

Opportunities are Everywhere Management and organizational opportunities Human resource opportunities Product management opportunities Operational opportunities Interorganizational opportunities Source: “Principles of Cycle Time Reduction: You Can Have Your Cake and Eat It Too,” by Jim Wetherbe in Cycle Time Research 1995

Management and Organizational Opportunities Visioning Front-ending Aligning Transforming Flattening Balancing Investing Consolidating Distributing Implementing Benchmarking Learning

Human Resource Opportunities Empowering JIT-Training Modeling Self-Directed Teaming Cross-Functioning Case Working Co-Locating Teleworking Measuring Rewarding

Product Management Identifying Innovating Prototyping Time-Boxing Mass-Customizing Platforming Deriving Postponing

Operations Conceptualizing Challenging Eliminating Integrating Paralleling Anticipatory-Scheduling Informating Simplifying Standardizing Automating

Interorganizational Networking Partnering Virtualizing Risk-Sharing Outsourcing

Summary Opportunities for cycle time reduction are everywhere: Management and organizational Human resources Product management Operations Interorganizational Look for the “points of leverage”