Process ImprovementMonitoring and changing business processes.

Process ManagementA business process is a series of steps that are followed in order to carry out some task in a business.

Traditional PushManufacturing Company

Traditional push manufacturingTraditional PushManufacturing CompanyLarge inventoriesFinished goodsRaw materialsWork in process

Lean ProductionThe five step process results in a pull manufacturing system that reduces inventories, decreases defects, reduces wasted effort, and shortens customer response times.Lean Production is often called Just-In-Time (JIT) production.

Lean ProductionBecause lean thinking only allows production in response to customer orders, the number of units produced tends to equal the number of units sold. The lean approach also results in fewer defects, less wasted effort, and quicker customer response times than traditional production methods.

A constraint (also called a bottleneck) is anything that prevents you from getting more of what you want. The Theory of Constraints (TOC) is based on the observation that effectively managing the constraint is the key to success.

The constraint in a system is determined by the step that has the smallest capacity.Theory of Constraints

4. Recognize that the weakest link is stronger.1. Identify the weakest link.2. Allow the weakest link to set the tempo.3. Focus on improving the weakest link.Only actions that strengthen the weakest link in the chain improve the process.Theory of Constraints

Six SigmaA process improvement method relying on customer feedback and fact-based data gathering and analysis techniques to drive process improvement.Refers to a process that generates no more than 3.4 defects per million opportunities.

Six SigmaExhibit1-8

Sheet1

The Six Sigma DMAIC Framework

StageGoals

Define Establish the scope and purpose of the project.

Diagram the flow of the current process.

Establish the customer's requirements for the

process.

Measure Gather baseline performance data related to

the existing process.

Narrow the scope of the project to the most

important problems.

Analyze Identify the root cause(s) of the problems

identified in the Measure stage.

Improve Develop, evaluate, and implement solutions

to the problems.

Control Ensure that problems remain fixed.

Seek to improve the new methods over time.

Sheet2

Sheet3

Measurement SkillsA good manager complements an understanding of strategy, risks, and business processes with data-driven analysis.The key to effective analysis is to understand that the question you are addressing defines what you measure and how you analyze the data.

Measurement SkillsWhat net income should my company report to its stockholders?Measure and report historical data that complies with applicable rules.How will my company serve its customers?Measure and analyze mostly non-financial, process-oriented data.Will my company need to borrow money?Measure and analyze estimated future cash flows.

A business process is a series of steps that are followed in order to carry out some task in a business.A value chain consists of the major business functions that add value to a companys products and services.

*In a traditional manufacturing company, work is pushed through the system in order to produce as much as possible and to keep everyone busyeven if products cannot be immediately sold.

*Part I.This almost inevitable results in large inventories of raw materials, work in process and finished goods.

Part IIRaw materials are the materials that are used to make a product.

Part III.Work in process inventories consist of units of product that are only partially complete and will require further work before they are ready for sale to the customer.

Part IV.Finished goods consist of units of product that have been completed but have not yet been sold to customers.

*The result of this five step process is to lower inventories, decrease defects, reduce wasted effort, and shorten customer response times.

Because lean thinking only allows production in response to customer orders, the number of units produced tends to equal the number of units sold.

The lean approach also results in fewer defects, less wasted effort, and quicker customer response times than traditional production methods.A constraint (also called a bottleneck) is anything that prevents you from getting more of what you want. The constraint in a system is determined by the step that has the smallest capacity.

The Theory of Constraints (TOC) is based on the insight that effectively managing the constraint is the key to success. The goal is to manage the constraint with the intent of generating more business rather than cutting the workforce.The Theory of Constraints offers a four-step approach to process improvement:

Identify the weakest link in the chain, which is the constraint.

Do not place a greater strain on the system than the weakest link can handle if you do, the chain will break.

Concentrate improvement efforts on strengthening the weakest link.

If the improvement efforts are successful, eventually the weakest link will improve to the point that it is no longer the weakest link. At this point, a new weakest link must be identified and the improvement process starts over again.*Six Sigma is a process improvement method that relies on customer feedback and fact-based data gathering and analysis techniques to drive process improvement.

The term Six Sigma refers to a process that generates no more than 3.4 defects per million opportunities.

Because this rate of defects is so low, Six Sigma is sometimes associated with the term zero defects.

*The DMAIC (Define, Measure, Analyze, Improve, and Control) framework has five stages:

The define stage identifies the scope and purpose of the project, the flow of the current process, and the customers requirements.

The measure stage gathers baseline performance data concerning the existing process and narrows the scope of the project to the most important problems.

The analyze stage identifies the root causes of the problems that were identified during the measure stage. The analyze stage often reveals non-value-added activities that should be eliminated, wherever possible.

The improve stage is where potential solutions are developed, evaluated, and implemented to eliminate non-value-added activities and any other problems uncovered in the analyze stage.

The control stage ensures that problems remain fixed and that the new methods are improved over time.

The question you are trying to answer defines what youll measure and how you analyze it. Consider the following examples.If the question you wish to answer is what net income should my company report to its stockholders, then youll be measuring and reporting historical financial data that complies with applicable rules.

If you are trying to determine how your company is serving its customers, then youll be measuring and analyzing mostly non-financial, process-oriented data.

If you want to predict whether your company will need to borrow money, then your measurement efforts will focus on estimating future cash flows.