midterm prep - operation management

7/23/2019 Midterm Prep - Operation management

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Business Process - A process is a series of activities or tasks which transforms inputs into outputs

Transformations are classified as:

Physical - The transformation of raw materials to a finished product

Locational - The transportation service provided by an airline

Transactional - Banking and transformation of cash into stocks by a brokerage firm

informational - The tranformational of financial data into information in the form of

financial statements

A business process describes how something is done in an organization

A business process is an activity which is conducted in an organization in order to achieve a

specific outcome

A business process is a collection of related activities or tasks that produce a specific service or

product for a customer

A business process consists of a series of steps each of which must be completed in order to

achieve a specific outcome

Types of Business Processes

Management Processes - The processes that govern the operation of a company as a system

Examples of management processes:

Corporate governance

Strategic Management

Operational processes - The processes that comprise the business and create value.

Examples of operational processes are:

Purchasing, Manufacturing, Marketing , Sales

Core Processes - The operational processes that are directly related to themission of

the company.

Examples of core processes are: Order fulfillment process, Manufacturing, Consulting,

Claims processing, Tax preparation

Support Processes - The processes that support the core processes

Examples of support processes are: Accounting, Recruitment, Technical support



Examples of Business Processes: Claims process, Course registration, Filing a job application, Applying

for a passport, Requesting a cash refund or product exchange, Order fulfillment, Credit approval, Billing,

Admissions, Budget planning, Order fulfillment, New employee training

Business Process Decomposition - When a business process is divided up into separate activities, each

activity is called a sub-process.

Each activity may has its own attribute: Processing time, Buffer, Unit flow

Process Types and Hierarchies

Process are categorized according to their scope within an organization into three types:

Individual Processes - This process is carried out by separate individuals

Vertical or functional processes - This process is contained within a specific functional unit ordepartment

Horizontal or cross functional processes - This process cuts across several functional units

Core processes are cross-functional processes

Process Architecture/Process Structure

Inputs and outputs

Inputs and outputs and entry and exit points of the process

Inputs are transformed into outputs

Establish the process boundaries

Flow units

A flow unit is a transient entity that proceeds through various activities and finally exits

the process as a finished product

Examples; files, documents, cash, forms, orders, requests

Network of activities and buffers

Series process activities

Buffers – Wait times

Through which flow units pass in order to be transformed from inputs to outputs



Resources - Resources are tangible assets that are necessary to perform activities within the

process.

Information structure - Information structure specifies which information is required and which

is available in order to make the decisions necessary for performing a process.

System Thinking:

Conceptualizing a set of entities, activities, or organizations as systems

Focusing on how elements relate to each other and depend on each other

The different components of a company work together to achieved the desired outcome based

on the mission.

Systems View of an Organization

Organizations have customers, products, and suppliers

Work occurs in organizations

Inputs are converted to outputs in organizations

Outputs flow to customers

Business Model – The term business model is used for broad range of informal and formaldescriptions to represent

core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational

structures, trading practices, operational processes, and policies

A business model is a framework for creating value:

Economic value

Social value

Other forms of value

There are two views of organizations

a)

Traditional View of an Organization

Focus: Boss



Primary Relationships: Chain of Command

Orientation: Hierarchical

Decision Maker: Management

Style: Authoritarian

b)

Process View of an Organization

Focus: Customer

Primary Relationship: Customer-supplier

Orientation: Process

Decision Maker: Employees

Style: Participative

Process view follows work as it moves across the organization

Emphasis is placed on work output

Output must meet customer requirements

Process structure is clear to everyone – increase transparency

Employees understand how their efforts fit into the big picture

Employee involvement and participation increases

Barriers among departments breakdown

Process Management - A collection of basic principles used to manage, control, and improve

processes

Managers are responsible for specific processes or activities.

Managers are responsible for organizing the process, securing the resources needed to

execute it, measuring the results, providing rewards or corrective feedback, changing

and improving it when possible

Key issues of Business Process Management:

Strategic Focus and Customer Focus

Continuous learning and improvement



Performance Excellence and Benchmarking

Appropriate IT Support

Lean Process with Knowledge Visibility

Successful Process Management - 3 Phases:

1.

Initialization – process authority, scope, interfaces and handoffs are determined

• assign process ownership

•

analyze boundaries and interfaces

2. Definition – workflow documentation / baseline for process evaluation is defined

•

Define the process by documenting its workflow

•

Establish control points and measurement

•

Identify the process boundaries, input, and output

• Document process, activities, workflow

3.

Control – means and procedures for processing monitoring, feedback and control are

established

• establish control points (inspection, verification, auditing, measuring, counting)

•

Develop and implement measures

• Take corrective action and providing feedback and control

•

Means and procedures for process monitoring, feedback, and control are established

Measurements

Measures of conformance: verification that work conforms to a given requirement

Measures of response time: time is takes to complete work (cycle time, lead time)

Measures of service levels: the degree to which a service or resource is available to a customer

Measures of repetition: frequency of recurring events

Measures of cost: cost of waste- prevention costs, appraisal costs, failure costs.

Types of Costs

Prevention costs are associated with preventing future nonconformance



Appraisal cost are associated with detecting nonconformities

Failure costs deal with nonconformities, example scrap and rework warranties.

Rich Picture - A rich picture is a tool which is used to for recording and reasoning about aspects of the

work context.

A rich picture is a graphical representation that identifies

identifies all the stakeholders

depicts their concerns

Shows some of the structure underlying the work context.

Structure, process and concerns

Process Strategy - The pattern of decisions made in managing processes so that they will achieve their

competitive priorities is called a process strategy.

Process strategy guides a variety of process decisions, and in turn is guided by the operations

strategy and the organization’s ability to obtain the resources necessary to support them.

A process involves the use of an organization’s resources to provide something of value.

No service can be provided and no product can be made without a process.

No process can exist without at least one service or product.

Managing processes involves answering a key question such as: How to provide services ormake products?

And making a decision

Many different choices are made in selecting human resources, equipment, outsourced

services, materials, workflows, and methods that transform inputs into outputs

Another choice is which processes are to be done in-house, and which processes are to be

outsourced – that is, done outside the firm and purchased as material and services.

This decision helps to define the value chain

Process improvement decisions are needed when:

A gap exists between competitive priorities and competitive capabilities

A new or modified service or product is being offered

Quality must be improved



Demand for a service or product is changing

Current performance is inadequate

The cost or availability on inputs has changed

Competitors are gaining by using a new process

New technologies are available

Competitive priorities have changed

Someone has a better idea

Major Process Decisions – Operations managers must consider four common process decisions to

ensure effective process design:

Process structure

how processes are designed relative to the kinds of resources needed,

how resources are partitioned between them,

how their key characteristics are classified

Customer involvement - The ways in which customers become part of the process and the

extent of their participation

Operations managers make more of the process visible to the customers (workers may

be observed working)

Resources flexibility - The ease with which employees and equipment can handle a wide variety

of products, output levels, duties, and functions

Operations Managers decide whether to have flexible workforce (workers who are

capable of doing many tasks)

Capital intensity - The mix of equipment and human skills in the process;

As the capabilities of technology increase and its costs decrease, managers face an ever-

widening range of choices, from operations utilizing very little automation to those

requiring task-specific equipment and little human intervention

The automation decision requires careful examination of the type of capital needed for

the process

Front Office - A front office process is a process with high customer contact where the service

interacts directly with the internal or external customer



Example: the process of the sale of financial services to municipalities

The process is customized to meet specific customer needs.

Hybrid Office - A hybrid office process is a process with moderate levels of customer contact and

standards with some options available

The workflow progresses from one workstation to the next, with dominant paths

Example; the process of evaluating employee performance on a quarterly basis

Back Office - The back office process has a low customer contact and little service customization. The

work is standardized and routine, with flows from one service provider to the next until the service is

completed.

Example the monthly production of client fund balance reports

Two strategies for change are:

Process reengineering - Process reengineering also called business process reengineering (BPR)

is the fundamental rethinking and radical redesign of processes to improve performance

dramatically in terms of cost, quality, service, and speed

BPR is about reinvention, rather than incremental improvement

estimates suggest 50-70% of all BPR projects have failed due to:

lack of top mgmt support

poor understanding of org/infrastructure needed to support new design

inability to deliver on technology

lack of guidance and motivation

Fundamental Argument upon which BPR rests - Information technology can be used to enable

new ways of doing work which are more time and cost efficient and effective than old/existing

ways of working

Business Process Re-engineering uses concepts: Business strategy, Accounting, Organization

Design, Information Systems, Industrial Engineering

Approach of BPR

Core business processes

Elimination of unnecessary work and supervisory activities



Strong leadership

Cross-functional teams (high involvement workplace, self-managing teams, employee

empowerment)

Top-down performance targets, bottom-up deciding how to achieve them

IT is a primary enabler of BPR

BPR projects are initiated by the need for strategic change

BPR team must determine who needs the information, when they need it, and where

BPR requires a “clean-slate” philosophy (starting with the way the customer wants to

deal with the company)

Process improvement - BPR team must understand the current process (AS-IS process), what it

does, how well it performs, and what factors affect it

BPR team must examine every activity involved in the process throughout the

organization, recording each step, questioning why it is done, and then eliminating

unnecessary activities

Strategic Fit - The process strategist should understand how the four major process decisions tie

together, so as to identify ways of improving poorly designed processes

The choices should fit the situation and each other

When the fit is more strategic, the process will be more effective

Process Choice – A way of structuring the process by organizing resources around the process of

organizing them around the products

Job process – A process with the flexibility needed to produce a wide variety of productsin significant quantities, with considerable complexity and divergence in the steps performed

Batch process – A process that differs from the job process with respect to volume,variety, and quantity

Line process – A process that lies between the batch and continuum; volumes are highand products are standardized, which allows resources to be organized around particular products

Continuous Process – The extreme end of high volume standardized production and rigid

line flows, with production not starting and stopping for long time intervalsProduction and inventory strategies

Make to order strategy - A strategy used by manufacturers that make products tocustomer specification in low volumes



Assemble to order strategy – a strategy for producing a wide variety of products fromrelatively few assemblies and components after the customer orders are received

Make to stock strategy – a strategy that involves holding items in stock for immediatedelivery, thereby minimizing customer delivery times

Mass production – a term sometimes used in the popular press for a line process that uses

the make to stock strategy

Strategy Maps show cause and effect

◦

…faster process cycle times will increase retention of customers

A common visual framework

Embeds the elements of the balanced score card into a cause and effect chain

Connects desired outcomes with the drivers of those results

Common language

Businesses must create and deploy intangible assets

◦

Employee skills and knowledge

◦ Information technology

◦ Corporate culture that encourages innovation, problem solving, and organizational

improvement

Strategy maps are a tool to describe intangible assets

Cycle Time - Cycle time is the total amount of time which elapsed during the completion of a process

(Harrington, 1991, 114)

Example the bread-making process

Cycle time totals several hours even though the bakers are directly involved in only a fraction of

that time

Cycle time is composed of two components:

Processing time - Processing Time: includes activities that transforms inputs to outputs

Non-processing time - Non-processing Time: includes activities such as waiting and

storing



The cycle time of a process may be prolonged by many different factors

Improvement efforts dedicated to reducing cycle time focus on the identification and analysis

of:

Value-adding activities - Activities that contribute to transforming the product or service to better

conform to the customer’s requirements have the potential to add value.

For example, installing the hard drive in a new computer brings the product closer to value-

adding

Value-adding activities are use a minimum of resources and are carried out correctly

Business value-added activities - Business value-added (BVA) includes processes/activities that are:

installed by management and deemed necessary to support, control, and monitor internal

business functions but have little or no perceived value to the customer

Examples: Scheduling, invoicing, auditing, record keeping

Non- value-added activities - Non-value-added activities (NVA) includes non-essential

processes/activities that contribute to neither customer satisfaction nor improved business operations

Non-value-added processes/activities increase cycle time and add costs rather than value

Examples: redundant inspections, rework, waiting, storage

Efficiency Ratio - Overall efficiency can be calculated by determining the cycle-time efficiency ratio

T= BVA+NVA

Further Improvements in Cycle Time

Improvements in cycle time are gained through streamlining the stream lining essential activities

by:

Eliminate all non-value-added activities

Streamline the business value-added activities

Economies of scope – economies that reflect the ability to produce multiple products more cheaply in

combination than separately

Plants with plants (PWPs) – Different operations within a faculty with individualized competitive

priorities, processes, and workforces under the same roof

Focused factories – The result of a firm’s splitting large plants that produces all the company’s products

into several specialized smaller plants



Process complexity – The number and intricacy of the steps required to perform the process

Process Divergence – The extent to which the process is highly customized with considerable latitude as

how it is performed

Active contact – The customer is very much part of the creation of the service and affects the service

process itself

Passive contact – The customer is not involved in tailoring the process to meet special needs or in how

the process is performed

Flexible flow – the customers, materials or information move in diverse ways with the path of one

customer or job often crisscrossing the path that the next one will take

Line flow – The customers, materials, or information move linearly from one operation to the next,

according to a fixed sequence



Financial

Perspective

Customer

Perspective

Internal

Perspective

Learning and

Growth Perspective

Long Term

Shareholder Value

Strategy

Map for RIM

Productivity Strategy Growth Strategy

Improve Cost

Structure

Increase Asset

Utilization

Expand Revenue

OpportunitiesGoing Worldwide

Customer Value Proposition

Price Quality Availability Selection Functionality Service Partnership Brand

Operations

Management

Process

Customer

Management

Process

Innovation

Process

Regulatory and

Social Process

- Supply

-Production

-Distribution

-Risk Management

-Selection

-Tech Support

-Retention

-Growth

-Design/Develop

-Launch

-Environment

-Safety and Health

-Employment

Culture Leadership Diversity Teamwork

Human

Capital

Information

Capital

Organization

Capital



Rules for Describing / Documenting Processes

No “rules” only guidelines

No absolute rights or wrongs – context is everything

The appropriate tools and technique to describe, document and analyse a process depends on

◦ Why the analysis is being performed

◦ What problem is being solved

“Gut Feel” on the root cause of the problem

Many many techniques for describing and documenting process

Business process modelling is a means of representing the steps, participants and decision logic in

business processes.

There are three main types of process models:

Active models: a working model that represents the processes (eg. computer simulations)

Diagrammatical models: a diagram that shows the processes and the relationships between

them (eg. process maps and flowcharts.)

Descriptive models: written explanations of the processes

A process map is…

◦ A drawing that shows a sequence of steps or activities from beginning to the end of a

process

◦ A “Road map” for how to get from “here” to there

◦ A good tool for identifying improvement opportunities

◦ Process mapping is a technique of diagrammatical modelling.

◦ The diagram represents a series of processes and how they are related.

◦

Process mapping provides a representation of who does what and in what order.

For existing processes a process map can…

Help a team come to a common understanding of a process

Educate the team on the steps in the process



Find unnecessary or redundant steps in the current process

Find missing steps in the process

Find efficiencies in the process flow

Look in more detail at the current methods being used in each part of

the process

Identify the supplier and customers of the process (both internal and

external)

Be used as a powerful communication tool

Uses: For new processes

◦ Aid in planning for successful implementation of any new approach

◦ Used as a method to keep track of the proposed process

Process mapping helps to clarify the steps involved in a particular process.

It is used for: understanding the current processes, clarifying responsibilities, identifying

process inefficiencies, designing new procedures, training

Useful to identify the departments, functions, or disciplines involved with the process. This

process map format allows the workgroup to…

Determine all critical interfaces

Overlay the time to complete various sub-processes on the map

Identify disconnects

Identify extraneous steps

Identify illogical handoffs

Departments or functions is on the left side of the page. Flows go right to left.

A formal method for identifying and integrating processes between departments and teams

◦

can ensure the connections, communications and hand-offs are well-designed and well

managed.

◦ "Swim Lane Diagrams," also known as "Rummler-Brache Diagrams.“

(www.mindtools.com)

Swim Lane Diagrams



Swim Lane Diagrams were proposed by Geary Rummler and Alan Brache in their book Improving

Processes (1990).

◦

allows you to quickly and easily plot processes and the interconnections between

processes, departments and teams.

Process diagrams help spot processing gaps and inefficiencies.

◦ The added advantage of the Rummler-Brache or Swim Lane Diagram approach is that it

focuses on the high risk interconnections between departments and teams, and helps

you spot more clearly issues and risks associated with these.

Once the diagram is complete, it is easy to see who is responsible for what and it is also easy to

start identifying potential inefficiencies.

◦ helps you break down your process so you can spot the bottlenecks, redundancies, and

other causes of inefficiency

The first step to spotting inefficiencies and making improvements

Break down your organization’s processes into manageable pieces

◦ Determine your scope

If you are trying to find strategic inefficiencies, then analyzing every process in detail is

unnecessary and cumbersome.

you might assign each main functional area to a swim lane and look at the interchanges in and

between them.

this would help you spot disconnects between functional areas of the business.

If you were trying to diagnose inefficiencies in your hiring and recruitment process then you

would look at specific roles, departments and perhaps some key individuals and assign these to

the swim lanes.

Tips for process models

Define the current practices of the process- start by clearly specifying the beginning and end

points.

Understand and define the stakeholders in the process.

Understand where and how the process fits into the organization.

◦

How will changes in the process impact either processes or stakeholders. (Relationship

Map)



Levels of Process Modelling

A decision that must be made – What is the level of process modelling needed?.

◦ Macro or First Level – identifies the steps in a process such that a team

can watch a product or service flow through the business cycle

◦ Mid or Second Level – is a more detailed flowchart of a step identified in

the macro level. This drill down is only done when a better

understanding of the overall process will be gained by further analysis

of a particular step.

◦

Micro or Third Level – is a very detailed level of flowcharting which

maps out the task in an activity identified in the mid or second level.



Supply Chain – The network of services, materials, and information flows that link a form’s customer

relationship, order fulfillment, and supplier relationship process to those of its suppliers and customers

Supply chain management – Developing a strategy to organize, control, and motivate the resources

involved in the flow of services and materials within the supply chain

Supply chain strategy – Designing a firm’s supply chain to meet the competitive priorities of the firm’s

operations strategy

Weeks Of supply – An inventory measure obtained by dividing the aggregate inventory value by sales

per week at cost

Inventory Turnover – An inventory turnover measure obtained by dividing annual sales at cost by the

average aggregate inventory value maintained during the year

Average aggregate inventory value – the total value of all items held in inventory for a firm

Bullwhip effect – The phenomenon in supply chains whereby ordering patterns experience increasing

variance as you proceed upstream in the chain

E-commerce – the application of information and communication technology anywhere along the value

chain process

Centralized placement – keeping all the inventory of a product at a single location such as firm’s

manufacturing plant or a warehouse and shipping directly to each of its customers

Inventory pooling – a reduction in inventory and safety stock because of the merging of variable

demands from customers

Forward placement – locating stock to customers at a warehouse, DC, wholesaler, or retailers

Vendor managed inventories – An extreme application of the forward placement tactic, which involves

locating the inventories at the customer’s faculties

Continuous replenishment program – A VMI method which the supplier monitors the customer’s

inventory levels and replenishes the stock as needed

Radio frequency identification – A method for identifying items through the use of radio signals from a

tag attached to an item

Cross-docking – The packing of products on incoming shipments so that they can be easily sorted at

intermediate warehouses for outgoing shipments based on their final destinations; the items are carried

from the incoming vehicle docking point to the outgoing vehicle docking point without being stored in

inventory at the warehouse



Competitive orientation – a supplier relation that views negotiations between buyer and seller as a zero

sum game: Whatever one side loses the other side gains and short term advantages are prized over long

term commitments

Cooperative orientation – a supplier relation in which the buyer and seller are partner, each helping the

other as much as possible

Sole sourcing – the awarding of a contract for a service or item to only one supplier

Electronic data interchange – a technology that enabled transmission of routine business documents

having a standard format from computer over telephone or direct leased lines

Catalog hubs – a system where By suppliers post their catalog of items on the internet and buyers elect

what they need and purchase them electronically

Exchange – an electronic marketplace where buying firms and selling firms come together to do

business

Auction – a marketplace where firms place competitive bids to buy something

Value analysis – a systematic effort to reduce the cost or improve the performance of services or

products, either purchased or produced

Early supplier involvement –a program that includes suppliers in the design phase of a service or product

Pre-sourcing – a level of supplier involvement in which suppliers are selected early in a product’s

concept development stage and are given significant if not total, responsibility for the design of certain

components or systems of the product

Postponement – an organizational concept whereby some of the final activities in the provision of a

service or product are delayed until the orders are received.

Channel assembly – The process of using members of the distribution channel as if they were assembly

stations in the factory

Make or buy decision – a managerial choice between whether to outsource a process or do it in house

Backward integration – a firm’s movement upstream toward the sources of raw materials, parts and

services through acquisitions

Forward integration – acquiring more channels of distribution, such as distribution centers

(warehouses_ and retail stores, or even business customers

midterm prep - operation management

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