Bozarth ch03

Business Processes
Chapter Objectives
Be able to:
Explain what a business process is and how the business perspective differs from a traditional functional perspective. Create process maps for a business process and use these to understand and diagnose a process. Calculate and interpret some common measures of process performance. Discuss the importance of benchmarking and distinguish between competitive benchmarking and process benchmarking. Describe the Six Sigma methodology, including the steps of the DMAIC process. Use and interpret some common continuous improvement tools. Explain what the Supply-Chain Operations Reference (SCOR) model is and why it is important to businesses.
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 2
Business Processes
Business processes defined Mapping business processes Managing and improving business processes
Measuring process performance
The SCOR Model

Business Processes Defined

Logically related sets of tasks or activities geared toward some business outcome Primary Support Development
What is the distinction? Examples of each? Are the dividing lines always clear?
Versus the functional Perspective

Suppliers Purchasing Engineering Operations Finance Marketing Customers
Developing new products/services (Chapter 6)

Evaluating suppliers (Chapter 10)
Developing sales & operations plans (Chapter 13)
What are some of the challenges in managing such processes?

Mapping Business Processes

Relationship maps
What are they? What level of detail? When are they most valuable?
Detailed process maps Swim Lane process maps

Example
Automotive OEM wanted to understand how the companys 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.)
Findings
1) OEM provided first-tier supplier with weekly demand forecast for next 10 weeks
2) First-tier supplier sent its own demand forecasts to 10 second-tier suppliers 3) Second-tier suppliers delivered the requirements to first-tier supplier
Relationship Map
Tier 2
Family 1 Supplier Family 2 Supplier Family 3 Supplier
Tier 1
Supplier of Cockpits
Automotive OEM
Assembly Plant
Family 10 Supplier
Physical and Information Flows

Chapter 3, Slide 9
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036
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?
Chapter 3, Slide 10
Mapping Symbols
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 Typical, but others may be used as appropriate
Example*
Process mapping at a San Diego distribution center (DC)
*Textbook, pages 50-52.
Chapter 3, Slide 12
Facts of the Case I

Process
1) 2) 3) Dealer faxes order to DC. One out of 25 orders lost because of paper jams. Fax sits in In Box around 2 hours (up to 4) until internal mail picks it up. Internal mail takes about one hour (up to 1.5 hours) to deliver to the picking area. One out of 100 faxes are delivered to the wrong place. Order sits in clerks in-box until it is processed (0 to 2 hours). Processing time takes 5 minutes.
Chapter 3, Slide 13
4)
Facts of the Case II

5) 6) 7) If item is in stock, worker picks and packs order (average = 20 minutes, but up to 45 minutes). Inspector takes 2 minutes to check order. Still, one out of 200 orders are completed incorrectly. Transport firm delivers order (1 to 3 hours).
Chapter 3, Slide 14
Lets 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?
One Possible Solution

Dealer Faxes Order Paper Order Created
4% of orders lost
Order Sits In Fax In Box

0 to 4 hours 2 hours on average
Internal Mail Delivers Fax
Order Sits In Clerks In Box

0 to 2 hours 1 hour on average
Clerk Processes Order

5 minutes
0.5 to 1.5 hours 1 hour on average 1% of orders lost
10 to 45 minutes 20 minutes on average
Dealer Receives Order
Transport Firm Delivers Order
Inspector Checks Order
Worker Picks Order
YES
Is Item In Stock? NO Clerk Notifies Dealer and Passes Order On to Plant
1 to 3 hours 2 hours on average No history of lost, damaged, or incorrect deliveries
2 minutes 0.5% of orders incorrect
Chapter 3, Slide 16
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?
Dematerialize documentation.
Can we do it electronically? Eliminate multiple copies? Share a common database?
More Guidelines
Look for loops
Why is this loop here? Would we need to loop if we didnt 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?
Chapter 3, Slide 18
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
Symptomatic Activities ...

Inspecting or reworking goods Expediting shipments or fighting fires Overproducing, holding excessive inventories Standard backorder process
and Typical Causes

Poor quality
Flying blind, poor planning Poor controls, training, etc. Excessive demand variability Mismatches between an organizations capabilities and market requirements
Process Improvement
Value Net ValueAdded Activity ++ Cost + Description
Adds net value
Action
Find ways to increase value and lower costs further Change to valueadding activity or eliminate Reduce cost of performing activity
Underperformer
Necessary
+
0
++
+
Potential valueadding activity Necessary business activity
Symptomatic
++
Activity caused Eliminate practices by poor business that cause the practices activity
Chapter 3, Slide 22
Swim Lane Process Map*

SURGICAL PROCEDURE
PATIENT
APPT
PHYSICAL
CONSULT
GENERAL PRACTITIONER
APPT
MAMMOGRAM
RECEIVE
CONSULT
RADIOLOGY
APPT
DEVELOP
SEND
SURGEON
APPT
* Adapted from map by John Grout, Campbell School of Business, Berry College, Mount Berry, Georgia
Swim Lane Process Map

Shows functional relationships versus time Can help in measuring loading on various functional areas Illustrates cross-function communication processes Other names: cross-functional flowchart, Rummler-Brache diagram. Useful for mapping MIS support for processes
Process Measures
Productivity
Efficiency Cycle Time
Benchmarking
Productivity Measures
Outputs Inputs
Productivity =
Single-factor, Multifactor, and Total measures of productivity

Examples
Single-factor productivity ratio: Multifactor:
Batteries Produced Direct Labor Hours
Batteries Produced Machine Hours + Direct Labor Hours
Total multifactor:
Total Nightly Sales ($) Total Nightly Costs ($)

Chapter 3, Slide 27
Consider the following data . . .

Quantity
Car X Car Y 4000 cars 6000 cars
$/Unit
$8,000/car $9,500/car
Total labor for building X Total labor for building Y
20,000 hours
30,000 hours
$12/hour
$14/hour
Chapter 3, Slide 28
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?

What is the Labor Productivity in dollars for Each Car?
Car X: Car Y:
(4,000 $8,000) = (20,000 $12) (6,000 $9,500) = (30,000 $14)
? ?
Impact of wage, price changes?

Results
(What are the Benefits? Caveats?)
Productivity (hours) Car X: (4,000 units / 20,000 hrs.) = 0.2 units / hr
Productivity ($) Car X: (4,000 $8,000) (20,000 $12) = 133.33
Values for Car Y?

Efficiency
A comparison of a companys 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 rate / standard rate)
OR: Efficiency = 100%(standard time/actual time) for one unit

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.
Chapter 3, Slide 33
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
Chapter 3, Slide 34
Benchmarking
A comparison of a companys performance to the performance of: Other firms in its industry (strategic) Firms identified as world-class (process)
Benchmarking Data from The Machine That Changed The World
Number of assembly defects per 100 vehicles (1989): Average Japanese plant: Average US plant: Average European plant: 34.0 64.6 76.8
Is this strategic or process benchmarking?

More Benchmarking Data ...

Labor and machine hours per vehicle (1989): Average Japanese plant: Average US plant: Average European plant: 16.9 35.7 57
What is the benefit of having both sets of figures?

So whats happened since?
Some new productivity figures.
From The Harbour Report, July 1998

Labor hours needed for stamping, power train, and assembly operations: (100%) (168%) (126%) Nissan 27.6 hours GM 46.5 hours 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.
Other Measures I
Costs
Materials Labor Shipping etc.
Quality
Defects per million (ppm) Number of returns Time between failures (MTBF, reliability)
Chapter 3, Slide 40
Other Measures II
Speed Flexibility
Lead time to customer Percent orders late
Changeover time Volume to meet changes in demand
Chapter 3, Slide 41
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 versus % of Satisfied Students
Chapter 3, Slide 42
Six Sigma Methodology

Core value is having less than 3.4 defects per million opportunities (DPMO). Key elements are: Understanding and managing customer requirements Aligning key business processes to achieve those requirements Using rigorous data analysis to understand and ultimately minimize variation in those processes Driving rapid and sustainable improvement to business processes.
Six Sigma Methodology

Two basic Six Sigma processes are: DMAIC (Define-Measure-AnalyzeImprove-Control) an updated version of the PDCA process promoted by Deming. DMADV (Define-Measure-AnalyzeDesign-Verify)
Chapter 3, Slide 44
The PDCA Cycle
Do Plan Act
Check
Common Improvement Tools

Cause and effect diagrams (aka Fishbone or Ishikawa diagrams) Check sheets Pareto analysis Run charts and scatter plots Bar graphs
Histograms
A Services Example
Flight delays at Midway Cause and Effect Diagrams
Check Sheets Pareto Analysis
Chapter 3, Slide 47
Problem: Delayed Flights

No one is sure why, but plenty of opinions
Management by Fact CI Tools we will use:
Fishbone diagram Check sheets Pareto analysis
Cause and Effect Diagram

ASKS: What are the possible causes?
Root cause analysis open and narrow phases
Chapter 3, Slide 49
Generic C&E Diagram
Manpower
Methods
Effect
Materials
Machines
Measurements
Chapter 3, Slide 50
Midway C&E diagram

Personnel
Pay Turnover Number of Agents Cleaning Crews Policy Late Passengers
Procedures
Delayed Flights
Gate Occupied Maintenance Problems
Equipment
We can further subdivide these by asking Why? until we get to the root cause
Chapter 3, Slide 51
Check Sheets
Event:
Late arrival Gate occupied Too few agents Accepting late passengers I II III I II
Day 1
II
Day 2
II
Day 3
I
(root cause analysis -- closed phase)

Pareto Analysis
(sorted histogram)
Late passengers
100
Late arrivals
85
Late baggage to aircraft
70
Weather
65
Other (160)
Chapter 3, Slide 53
Percent of each out of 480 total incidents ...

Late passengers 21% Late arrivals 18%
Late baggage to aircraft 15%

Weather 14%
Other 33%
Chapter 3, Slide 54
Run Charts and Scatter Plots

Measure
Run
Time
Variable Y
Scatter
Variable X
Histograms
Frequency
Measurements
Supply-Chain Operations Reference (SCOR) Model

Five core processes for Level 1 Source Make Deliver Return Plan Three expanded processes for Level 2 Planning Execution Enable
SCOR Model
www.supply-chain.org
Chapter 3, Slide 58
Business Processes Case Study
Zephtrex Fabric

Bozarth ch03

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Business Processes

The SCOR Model

Business Processes Defined

Versus the functional Perspective

Developing new products/services (Chapter 6)

Developing sales & operations plans (Chapter 13)

What are some of the challenges in managing such processes?

Mapping Business Processes

Detailed process maps Swim Lane process maps

First-tier supplier responsible for entire cockpit (all interior pieces)

Physical and Information Flows

Detailed Process Map

2. Identify clear boundaries, starting and ending points 3. Keep it simple

Process mapping at a San Diego distribution center (DC)

*Textbook, pages 50-52.

Facts of the Case I

Facts of the Case II

Lets Map the Process

One Possible Solution

Order Sits In Fax In Box

Internal Mail Delivers Fax

Order Sits In Clerks In Box

Clerk Processes Order

0.5 to 1.5 hours 1 hour on average 1% of orders lost

10 to 45 minutes 20 minutes on average

Dealer Receives Order

Transport Firm Delivers Order

Inspector Checks Order

Worker Picks Order

Is Item In Stock? NO Clerk Notifies Dealer and Passes Order On to Plant

1 to 3 hours 2 hours on average No history of lost, damaged, or incorrect deliveries

2 minutes 0.5% of orders incorrect

Improving Business Processes: Guidelines

Examine each decision point

Taking It Further ...

Not all support and developmental activities are necessary

Symptomatic Activities ...

and Typical Causes

Potential valueadding activity Necessary business activity

Swim Lane Process Map*

Swim Lane Process Map

Single-factor, Multifactor, and Total measures of productivity

Batteries Produced Machine Hours + Direct Labor Hours

Total Nightly Sales ($) Total Nightly Costs ($)

Consider the following data . . .

Total labor for building X Total labor for building Y

What is the Labor Productivity in hours for Each Car?

(4,000 cars / 20,000 hrs) = ?

(6,000 cars / 30,000 hrs) = ?

How might these measures be affected by capital substitution?

What is the Labor Productivity in dollars for Each Car?

(4,000 $8,000) = (20,000 $12) (6,000 $9,500) = (30,000 $14)

Impact of wage, price changes?

Productivity ($) Car X: (4,000 $8,000) (20,000 $12) = 133.33

Values for Car Y?

OR: Efficiency = 100%(standard time/actual time) for one unit

Cycle Time Drivers

Benchmarking Data from The Machine That Changed The World

Is this strategic or process benchmarking?

More Benchmarking Data ...

What is the benefit of having both sets of figures?

So whats happened since?