1 Process Management and Strategy Introduction 1Ardavan Asef-Vaziri Sep-09 Process -1 Processes A business process is a recurring network of activities with specific precedence relationships to transform inputs into desired outputs. Providing new car financing Producing an engine Making a hamburger Delivering a book from Amazon to a customer Teaching a course Others?

2 Process Management and Strategy Introduction 2Ardavan Asef-Vaziri Sep-09 Process -1 Why learn OM? OM defines the competitiveness of the corporations OM enables a systematic view at organizational processes OM provides the concepts and tools used in business decision making OM presents promising career opportunities

3 Process Management and Strategy Introduction 3Ardavan Asef-Vaziri Sep-09 Process -1 Systems approach “The whole is greater than the sum of the parts.” Suboptimization 2 > 1+1

4 Process Management and Strategy Introduction 4Ardavan Asef-Vaziri Sep-09 Process -1 Systems approach Systems approach and Sales Purchasing Production

5 Process Management and Strategy Introduction 5Ardavan Asef-Vaziri Sep-09 Process -1 Systems A set of parts with interrelationships between parts organized to achieve a goal How systems grow up

6 Process Management and Strategy Introduction 6Ardavan Asef-Vaziri Sep-09 Process -1 Operations Management Key questions: –How to design processes to improve performance? –How to reduce cost? –How to deliver goods and services faster? –How to improve quality? –How to provide more variety and advance customer satisfaction?

7 Process Management and Strategy Introduction 7Ardavan Asef-Vaziri Sep-09 Process -1 Operations Management What is operations management’s philosophy to decision- making? –Describe the processes relevant to producing and delivering goods and services. –Develop measures to evaluate the efficiency and effectiveness of processes. –Apply methods and tools to improve process performance.

8 Process Management and Strategy Introduction 8Ardavan Asef-Vaziri Sep-09 Process -1 Business Process Management Building block of Operations Management –System view –Flowchart »A tool to describe the business process –Evaluation and trade-offs »Make-to-order vs. Make-to-stock –First peek on the risk-pooling effect

9 Process Management and Strategy Introduction 9Ardavan Asef-Vaziri Sep-09 Process -1 Process Selection (Trade-off) Will different companies intentionally choose different processes to accomplish the same goal? Let us describe the process of making a hamburger –in McDonald –in In & Out

10 Process Management and Strategy Introduction 10Ardavan Asef-Vaziri Sep-09 Process -1 McDonald’s (Prior to 1999) Raw Material Cook Finished Goods AssembleDeliver Customer places order This is a make-to-stock system. Activity Decision Storage Flow

11 Process Management and Strategy Introduction 11Ardavan Asef-Vaziri Sep-09 Process -1 Make To Stock (MTS) Advantages: –Fast (customers get the hamburger right away). Disadvantages: –Hamburger quality may suffer. –Some hamburgers may not be sold; have to be discarded.

12 Process Management and Strategy Introduction 12Ardavan Asef-Vaziri Sep-09 Process -1 In & Out’s Raw Material CookAssembleDeliver Customer places order This is a make-to-order system. What are the advantages and disadvantages?

13 Process Management and Strategy Introduction 13Ardavan Asef-Vaziri Sep-09 Process -1 Make-to-stock vs. Make-to-order MTSMTO Costprob Responsiveness X Variety (customization) X Quality ? ?

14 Process Management and Strategy Introduction 14Ardavan Asef-Vaziri Sep-09 Process -1 Process Analysis Process Evaluation –Different processes lead to different advantages and disadvantages. –Is there a simply better process, i.e., no trade-offs?

15 Process Management and Strategy Introduction 15Ardavan Asef-Vaziri Sep-09 Process -1 Analysis of Tradeoffs Tradeoffs What are the pros and cons of models?

16 Process Management and Strategy Introduction 16Ardavan Asef-Vaziri Sep-09 Process -1 Analysis of tradeoffs Buying a new machine Additional Investment Having more inventory Higher Carrying Costs More Obsolescence Higher Productivity Better Quality More Flexibility Better Customer Service

17 Process Management and Strategy Introduction 17Ardavan Asef-Vaziri Sep-09 Process -1 How can McDonald improve its quality (taste)? (Prior to 1999) Raw Material Cook Finished Goods AssembleDeliver Customer places order This is a make-to-stock system.

18 Process Management and Strategy Introduction 18Ardavan Asef-Vaziri Sep-09 Process -1 McDonald’s New Hybrid Process (After 1999) Raw Material Cook WIP AssembleDeliver Customer places order This is a hybrid system. (Patties can be kept for up to 30 minutes.)

19 Process Management and Strategy Introduction 19Ardavan Asef-Vaziri Sep-09 Process -1 Advantages and Disadvantages Advantages: –Customized hamburger, tailored to customer preferences –Fast Disadvantages: –High investment cost –Need to manage inventory of cooked hamburgers

20 Process Management and Strategy Introduction 20Ardavan Asef-Vaziri Sep-09 Process -1 Polling: Selling a ticket We are interested in the management of processes. Selling a ticket seems easy, but …

21 Process Management and Strategy Introduction 21Ardavan Asef-Vaziri Sep-09 Process -1 Processes: Selling a ticket

22 Process Management and Strategy Introduction 22Ardavan Asef-Vaziri Sep-09 Process -1 Processes: Selling a ticket

23 Process Management and Strategy Introduction 23Ardavan Asef-Vaziri Sep-09 Process -1 Uncertainty: Potential Solution Inventory –How many inventories? –If too many … opportunity cost, spoilage cost –If too few …loss of sales –It is costly to solve uncertainty using inventory.

24 Process Management and Strategy Introduction 24Ardavan Asef-Vaziri Sep-09 Process -1 Amazon.com: Delivering Books Notice that: –It is not difficult to deliver books very fast –It is not difficult to deliver books at a very low cost –But, it is very difficult to deliver book fast and at a low cost ?

25 Process Management and Strategy Introduction 25Ardavan Asef-Vaziri Sep-09 Process -1 Potential Solutions How do we deal with uncertainty Inventory Transfer/Share the uncertainty Eliminate the uncertainty Transfer the inventory to a distributor Print on demand

26 Process Management and Strategy Introduction 26Ardavan Asef-Vaziri Sep-09 Process -1 Potential Solutions: Transfer the inventory to the distributor Example: In the early days of Amazon.com the company did not keep any inventory of books. –The supplier Ingram kept the books for Amazon. –Once Amazon received an order it was transmitted to Ingram. –Ingram would ship the book directly to the consumer.

27 Process Management and Strategy Introduction 27Ardavan Asef-Vaziri Sep-09 Process -1 Potential Solutions: Transfer the inventory to the distributor Ingram’s Book Inventory Ingram’s Order Ingram’s Post Order Process Amazon’s Order Amazon’s Post Order Process

28 Process Management and Strategy Introduction 28Ardavan Asef-Vaziri Sep-09 Process -1 Potential Solutions: Transfer the inventory to the distributor What are the advantages for such an arrangement for Amazon and Ingram? –Risking pooling (less inventory is needed) What are the disadvantages of this arrangement for Amazon and Ingram? –Allocation priority