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

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 3

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?
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 4

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?

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 5

Mapping Business Processes

Relationship maps
What are they? What level of detail? When are they most valuable?

Detailed process maps Swim Lane process maps

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 6

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.)
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 7

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
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 8

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

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 11

Example*

Process mapping at a San Diego distribution center (DC)

*Textbook, pages 50-52.

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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)

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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).

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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?
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 15

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

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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?
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 17

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?

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 19

Symptomatic Activities ...

Inspecting or reworking goods Expediting shipments or fighting fires Overproducing, holding excessive inventories Standard backorder process
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 20

and Typical Causes

Poor quality
Flying blind, poor planning Poor controls, training, etc. Excessive demand variability Mismatches between an organizations capabilities and market requirements
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 21

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

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 23

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
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 24

Process Measures
Productivity
Efficiency Cycle Time

Benchmarking
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 25

Productivity Measures
Outputs Inputs

Productivity =

Single-factor, Multifactor, and Total measures of productivity

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 26

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

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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?

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 29

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?

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 30

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?

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 31

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

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 32

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.

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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)
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 35

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?

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 36

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?

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 37

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.
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 39

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

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Other Measures II
Speed Flexibility
Lead time to customer Percent orders late

Changeover time Volume to meet changes in demand

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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.
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 43

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)

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Chapter 3, Slide 44

The PDCA Cycle

Do Plan Act
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 45

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
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 46

A Services Example
Flight delays at Midway Cause and Effect Diagrams

Check Sheets Pareto Analysis

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 48

Cause and Effect Diagram

ASKS: What are the possible causes?
Root cause analysis open and narrow phases

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Chapter 3, Slide 49

Generic C&E Diagram

Manpower

Methods

Effect

Materials

Machines

Measurements

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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)

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 52

Pareto Analysis
(sorted histogram)
Late passengers
100

Late arrivals
85

Late baggage to aircraft

70

Weather
65

Other (160)

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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%

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Chapter 3, Slide 54

Run Charts and Scatter Plots

Measure

Run
Time

Variable Y

Scatter
Variable X
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 55

Histograms
Frequency

Measurements
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 56

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
2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036 Chapter 3, Slide 57

SCOR Model
www.supply-chain.org

2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Chapter 3, Slide 58

Business Processes Case Study

Zephtrex Fabric