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Process Measurement and Analysis

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Presentation on theme: "Process Measurement and Analysis"— Presentation transcript:

1 Process Measurement and Analysis
DAVIS AQUILANO CHASE PowerPoint Presentation by Charlie Cook F O U R T H E D I T I O N chapter 5 Process Measurement and Analysis © The McGraw-Hill Companies, Inc., 2003

2 Chapter Objectives Illustrate how all activities within an organization are actually processes that need to be managed. Present the various measures of performance that can be used to evaluate a process. Show how process analysis can provide managers with an in-depth understanding of how a process is performing, while at the same time identifying areas for improvement. Present the concept of service blueprinting and illustrate how it is used to evaluate processes within a service environment. Fundamentals of Operations Management 4e

3 Chapter Objectives (cont’d)
Introduce the concept of business processes and show how they are providing managers with a broader perspective for managing their organizations. Present the concepts of benchmarking and reengineering and show their roles in creating world-class operations. Fundamentals of Operations Management 4e

4 Managerial Issues Recognizing that every set of activities represents a process to be managed. Acknowledging that processes are linked to other processes in other functional areas. Choosing strategically critical performance measures by which to monitor processes so that corrective actions are taken when needed. Using benchmarking to identify ways in which to create or improve world-class design, production and delivery operations for products. Fundamentals of Operations Management 4e

5 Defining a Process Selecting a Process
Identifying the strengths and weaknesses of each process’s capability to support the strategic focus of the firm on particular market segments. Standardization Flexibility Customization Speed of delivery Fundamentals of Operations Management 4e

6 Process Flowcharts for Making Hamburgers
Exhibit 5.1a Fundamentals of Operations Management 4e

7 Process Flowcharts for Making Hamburgers
Exhibit 5.1b Fundamentals of Operations Management 4e

8 Relative Comparison of Hamburger Preparation Processes
Exhibit 5.2 Fundamentals of Operations Management 4e

9 Process Measurement Importance of Measuring Processes
Is the basis for good management—“If you can’t measure it, you can’t manage it.” Allows a firm to determine if its strategically important goals and standards are being met. Allows for performance comparisons with other competing firms. Fundamentals of Operations Management 4e

10 Types of Performance Measures
Productivity The operational efficiency with which inputs are transformed (converted) into outputs. A relative measure that becomes meaningful when compared to itself over time, similar operations internally, or externally within its industry. Partial measures of productivity can be taken using the various inputs (e.g., labor, energy, and materials) that are combined to create a product. Fundamentals of Operations Management 4e

11 Partial Measures of Productivity
Exhibit 5.3 Fundamentals of Operations Management 4e

12 Types of Performance Measures (cont’d)
Capacity Output of a process in a given period of time—units of output per unit of time. Design capacity The ideal output rate at which the firm would like to produce under normal circumstances and for which the system was designed. Maximum capacity The maximum potential output rate that could be achieved when productive resources are used to their maximum. Fundamentals of Operations Management 4e

13 Types of Performance Measures (cont’d)
Capacity Utilization Percentage of available capacity actually used. Design capacity versus maximum capacity Homogeneous output capacity Design output Actual Capacity Utilization = Variable output available hours machine Total used Actual = Capacity Utilization Fundamentals of Operations Management 4e

14 Measures of Capacity Exhibit 5.4
Fundamentals of Operations Management 4e

15 Types of Performance Measures (cont’d)
Quality Usually measured by the defect rate of the products produced. Speed of Delivery Product’s lead time—amount of time from when product is ordered to when it is shipped. Inventoried versus customized products Variability/Uncertainty in delivery time Less uncertainty in delivery times is better. Fundamentals of Operations Management 4e

16 Types of Performance Measures (cont’d)
Flexibility The measure of how readily a firm’s transformation process can adjust to changes in customer demand (i.e., agile manufacturing). Flexibility Measures How quickly a process can convert from producing one product to another product. How quickly a process can adjust to changes in volume (demand). How capable is the process in producing more than one type of product. Fundamentals of Operations Management 4e

17 Types of Performance Measures (cont’d)
Process Velocity (Manufacturing Velocity) Ratio of total throughput time for a product to the value-added time. Throughput time—the time the product spends in the process. Value-added time—the time it takes to complete the product. Value-added time time throughput Total velocity Process = Fundamentals of Operations Management 4e

18 Process Analysis in Manufacturing
Multistage Process A process that consists of more than one step. Hybrid Process A multistage process that consists of more than one type of process. Make-to-Stock Process for making highly standardized products for finished goods inventory. Make-to-Order Process for making customized products to meet individual customer requirements. Fundamentals of Operations Management 4e

19 Manufacturing: Make-to-Stock
Exhibit 5.5a Fundamentals of Operations Management 4e

20 Manufacturing: Make-to-Order
Exhibit 5.5b Fundamentals of Operations Management 4e

21 Process Analysis in Manufacturing
Modularization Use of standard components and subassemblies to produce customized products. Tightness and Dependence The degree to which various process stages are related. Tight process are highly related, creating strongly dependence between the stages. Buffer inventories can make a process “looser.” Fundamentals of Operations Management 4e

22 Manufacturing: Modularization
Exhibit 5.5c Fundamentals of Operations Management 4e

23 Process Analysis in Manufacturing
Bottleneck A stage with the lowest output capacity that limits the total output of the process. Capacity versus Demand Capacity is the firm’s output capability; demand is the level of output that the market requires to meet customer needs. Fundamentals of Operations Management 4e

24 Process Analysis in Manufacturing
Process Flowcharts A schematic diagram for describing a process. What the official or documented method is. How the work is actually being performed. What the proper procedures should be. Fundamentals of Operations Management 4e

25 Elements in a Process Flowchart
Exhibit 5.6 Fundamentals of Operations Management 4e

26 Process Analysis in Services
Service Blueprinting The process of flowcharting for services that includes the customer: Identifying (mapping) processes Isolating fail points Establishing a time frame Analyzing profitability Line of visibility Above the line: stages in process, in direct contact with customer, that focus on providing good service. Below the line: stages in the process, not in contact with the customer, that focus on process efficiency. Fundamentals of Operations Management 4e

27 Service Blueprint for a Cash Account at a Discount Brokerage
Source: Adapted from G. Lynn Shostack, “Designing Services That Deliver,” Harvard Business Review 62, no. 1 (January–February 1984), p. 138. Exhibit 5.7 Fundamentals of Operations Management 4e

28 Blueprint for a Corner Shoeshine
Source: Reprinted by permission of Harvard Business Review. Exhibit from Adapted from “Designing Services That Deliver” by G. Lynn Shostack, January–February 1984, p Copyright © 1984 by the President and Fellows of Harvard College; all rights reserved. Exhibit 5.8 Fundamentals of Operations Management 4e

29 Shoeshine Profitability Analysis
Source: Reprinted by permission of Harvard Business Review. Exhibit from Adapted from “Designing Services That Deliver” by G. Lynn Shostack, January–February 1984, p Copyright © 1984 by the President and Fellows of Harvard College; all rights reserved. Exhibit 5.9 Fundamentals of Operations Management 4e

30 Process Analysis in Services (cont’d)
Failsafing Creating a control condition where the customer, server, or process can take only the correct (or desired) action while engaged in a service process. Fundamentals of Operations Management 4e

31 Business Processes Business Process Examples of Business Processes
A logical set of tasks or activities that crosses functional boundaries and recognizes its interdependence with other processes or businesses. Examples of Business Processes Exhibit 5.10 Fundamentals of Operations Management 4e

32 Business Process Analysis
Define the Process Boundaries Identify where the process begins and where it ends (its boundaries). Determine its inputs and outputs. Recognize other processes that impact on the process under evaluation. Link the Process to the Corporate Strategy Understand how the process contributes to the firm’s competitive advantage. Identify key measures to be used evaluate the process. Fundamentals of Operations Management 4e

33 Measures of Performance for Specific Business Processes
Exhibit 5.11 Fundamentals of Operations Management 4e

34 Business Process Analysis (cont’d)
Map the Process Develop a process flow chart to provide a visual context for analyzing the process: Specific ordering of the process steps Length of time each step takes Resources required by each step Cross-functional relationships Granularity Describes the level of detail that is used in analyzing a process. Fundamentals of Operations Management 4e

35 Process Mapping with Functional Areas
Exhibit 5.12 Fundamentals of Operations Management 4e

36 Benchmarking Benchmarking
Comparison of a company’s measures of performance with those of firms that are considered to be world class. “The search of the best practices that leads to superior performance.” Involves continuous monitoring/measurement. Applicable to all functional areas: Goods and services Business processes Performance measures Fundamentals of Operations Management 4e

37 Key Steps in Benchmarking
Planning Determining where we should bench mark. Analysis Obtaining an in-depth understanding of the firm. Integration Defining target areas for change. Action Incorporating findings into current processes. Maturity Having best practices at all organizational levels. Fundamentals of Operations Management 4e

38 Types of Benchmarking Internal Benchmarking Competitive Benchmarking
Comparison of similar operations within the firm Competitive Benchmarking Comparison with like operations of competitors Functional Benchmarking Comparison with the “best of breed” in a specific function, regardless of industry Generic Benchmarking Adopting the innovative processes of industry leaders in commonly-held practices Fundamentals of Operations Management 4e

39 Benchmarking Process Steps
Source: Robert C. Camp, Benchmarking: The Search for Industry Best Practices That Lead to Superior Performance, (Milwaukee, WI: ASQC Quality Press, 1989). Exhibit 5.12 Fundamentals of Operations Management 4e

40 Business Process Reengineering
The process of rethinking and restructuring an organization Characteristics of a Reengineered Process Several jobs are combined into one. Workers make decisions. The steps in the process are performed in a natural order. Processes have multiple versions (flexibility). Work is performed where it makes the most sense. Fundamentals of Operations Management 4e

41 Business Process Reengineering
Issues with Reengineering Inability of management to link reengineering efforts to overall corporate strategy. Reengineering is regarded as a tactical program rather than as a strategy issue for the entire organization. Lack of commitment and participation by top management. Fundamentals of Operations Management 4e

42 Comparison between Strategic and Tactical Deployment Techniques for Reengineering
Exhibit 5.13 Source: Gateway Management Consulting Fundamentals of Operations Management 4e


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