The Process View of the Organization Chapter 1 & 2 The Process View of the Organization

Operations & the Process View: What is a Process? Chapter 1 Operations & the Process View: What is a Process? Architectures Customer interface Competency

The Product-Process Matrix Low Volume (unique) Medium Volume (high variety) High Volume (lower variety) Very high volume (standardized) Utilization of fixed capital generally too low Unit variable costs generally too high Surgery Exec. Shirt Toshiba Toyota National Cranberry Manzana Insurance Job Shop Batch Process Worker-paced line Machine-paced Continuous process Jumbled Flow. Process segments loosely linked. Disconnected Line Flow/Jumbled Flow but a dominant flow exists. Categorizes processes into one of five clusters Similar processes tend to have similar problems There exists a long-term drift from the upper left to the lower right Connected Line Flow (assembly line) Continuous, automated, rigid line flow. Process segments tightly linked.

The Matrix: Reloaded Process Flexibility Opportunity Costs Chapter 2 The Matrix: Reloaded Process Flexibility Jumbled Flow. Process segments loosely linked. Disconnected Line Flow/Jumbled Flow but a dominant flow exists. JOB SHOP (Commercial Printer, Architecture firm) BATCH (Baking, Instruction) LINE FLOWS (Auto Assembly, Loan Application) CONTINUOUS FLOW (Oil Refinery) Product Variety Low Low Standardization One of a kind Low Volume Many Products Few Major Products High volume High Standardization Commodity Products Connected Line Flow (assembly line) Continuous, automated, rigid line flow. Process segments tightly linked. Opportunity Costs Out-of-pocket High

Focus and the Frontier In the health-care sector Chapter 2 Focus and the Frontier In the health-care sector Cost efficiency Responsiveness World-class Emergency Room (non-emergency) Hospital One general facility operations frontier Operational tradeoffs – balance responsiveness w/efficiency Tools to identify & eliminate inefficiencies Evaluate designs prior to implementation Develop appropriate capabilities iaw your strategy

Processes: how to describe them? Inputs and Outputs Flow Unit Process flow chart (activities and buffers) Resources Activity 2 Activity 3 Finished Units Pass Inspection Rework Fail Inspection Raw Material Inventories Activity 1 Activities Flow unit = 1 guitar flow

Inventory, Rate, and Time Flow Time Flow Rate Who cares about it? Economic impact - Air travel – Retailing – Emergency Room – Iron Ore - Pacemakers Causes: Rigidity & Variability Types Pipeline, Seasonal, Cycle, Decoupling/Buffer, Safety

Little’s law: It’s more powerful than you think... What it is: Inventory (I) = Flow Rate (R) * Flow Time (T) Examples: Indirect measurement of flow time Inventory turns: compute right from financial data Rate: 5000kg/week Inventory: 2500kg Rate: 1500 customers/day Inventory: 25 customers Burger King: Out of the three fundamental performance measures (I,R,T), two can be chosen by management, the other is GIVEN by nature Hold throughput constant: Reducing inventory = reducing flow time

Inventory Turns in Retailing : Link to Inventory Costs Retailer A Retailer B Inventory Cost Computation Example: Annual inventory costs=30% Inventory turns=6 Per unit Inventory costs=

Measuring Your Process Chapter 1 Measuring Your Process Operational Measures Flow time Inventory / turns Fill rate Scrap rate % shipped on time Financial Measures Absolute measures: revenues, costs, operating income, net income Net Present Value (NPV) Relative measures: ROI, ROE ROA Survival measure: cash flow

Measurement Models Balanced Scorecard Organization Balanced Scorecard Discussion Baldrige National Quality Program

Balanced Scorecard

Baldrige Criteria & Balanced Scorecard Malcolm Baldrige Balanced Scorecard Leadership Learning & Growth Perspective Human Resource Capital Learning & Growth Perspective Business Results Financial Perspective Process Management Internal Process Perspective Strategic Planning Strategy Map Customer Focus Stakeholder / Customer Perspective