MIS 181 Lecture Four 2013

7/29/2019 MIS 181 Lecture Four 2013

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Business Process Management

Bong Olpoc and Wilson Gan

Lecture Four


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Introduction to BusinessProcesses

Five Elements of a Process


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Bong Olpoc and Wilson Gan 2009

Multiple yet very similar definitions ofa

processexist

A chain of highly interconnected, repetitive activities utilizingan enterprises resources to refine an object, physical ormental, for the purpose of achieving specified and measurableresults, products for internal and external customers

A network of activities performed by resources that transformsinputs into outputs

A collection of tasks, connected by flows of goods andinformation that transforms various inputs into more valuableoutputs

It transforms inputs into outputs, and has the ff five keyelements:

Inputs and outputs Flow units Network of activities and buffers Resources Information Structure


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There are various ways to classify a process

Based on transformation involved

Physical

Locational

Exchange

Storage

Physiological

Informational

Based on existence of finished goods inventory

Make to Stock

Make-to-Order

Based on process strategy


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Five Elements of a Process (Part I of III)

INPUTS AND OUTPUTS environment Inputs tangible or intangible items that flow from the

environment into the process

There are two categories of inputs: materials and energy

Outputs whether information, material, energy, cash or

satisfied customers flow from the process back to theenvironment

FLOW UNITS

Can be a unit of input (e.g. customer), output (e.g. finishedproduct), an intermediate product (e.g. a seat in an autoassembly plant), or even a set of inputs or outputs in amultiproduct process

Important for process performance analysis and definition /design, as it directly affects capacity hence investment levels


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Five Elements of a Process (Part II of III)NETWORK OF ACTIVITIES AND BUFFERS

Identify the various flows inside a process that constitute thetransformation Activities building blocks of processes, mini-process Specific representation is a level of detail question Activities are ordered, becoming a network of activities that

described certain precedence relationships. Networks can provide multiple routes (especially in multi-

product organizations) Buffers (delay / storage / inventory) may be present

A flowchart depicts the network of activities and buffers.


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Five Elements of a Process (Part III of III)

RESOURCES While an input is consumed, a resource is utilized. Resources can be divided into 2 categories: capital and labor Resource allocation is critical in process management.

INFORMATION STRUCTURE Shows which information is needed and/or available to

manage activities or make managerial decisions Also known as feedback in the process Note: Information flow usually represented as dotted lines in

flow charts (versus physical flows in solid lines)

MIX BAKE PACKWIP

CONTROL

INITIATING ORDEROR REQUEST



The primary output of a business process is

either a product or a service Products have the following attributes

Cost Delivery-response time Variety Quality depends on the following:

Features what it can do Performance how well it can do it Reliability how consistently it performs over time

Goods vs services: Both are designed, produced, distributedand delivered by business processes; but service process hassome intricacies: Services are experiential. It transforms the customer. Cannot usually be produced in advanced or stored for

consumption Remember that most customer experiences are subjective.



Product attributes map to process attributes

Process cost

Process flow time totaltime needed to transforma flow unit from input into

output Process flexibility ability

of a process to meetproduct varietyrequirements

Process quality abilityof a process to produceand deliver qualityproducts

Cost

Delivery-responseTime

Variety

Quality

Process attributes are monitored through process measures.


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Input, Resources and Output



Business process efficiency is measured by

productivity.

Productivity Units producedInput and Resource(s) use

Different kinds of inputs or resources are used in business

processes Labor, Materials, Capital, Energy, etc.

There are two approaches to calculating productivity:

Single-factorproductivity only considers a specific resource,say labor hours or capital

Multi-factor productivity considers all resources used toproduce the output. It is also known as total factor productivity.

The productivity equation may be modified to considereffectiveness by replacing Units produced with Non-defective

units produced.



Exercise: Calculating single-factor and

multi-factor productivity

Source: Heizer and Render

Upton Company makes 1,000 Go-Kart tires per day with thefollowing resources:

Labor: 400 hours per day @ $12.50 per hour

Raw material: 20,000 pounds per day @ $1 per pound

Energy: $5,000 per day Capital: $10,000 per day

Answer the following questions

What is the labor productivity per labor hour for the tires?

What is the labor productivity per dollar?

What is the multifactor productivity for the tires?



Exercise (II): Calculating single-factor and

multi-factor productivity


A local bakery is worried about the increased cost of energy. The

owner does not believe that things have changed much since sheinvested an additional $3,000 for modifications at the start of theyear to the bakerys ovens to make them more energy efficient.

The modifications were supposed to make the ovens at least 15%more energy efficient.

The owner has asked you to check the energy savings of the newovens and also to look over other measures of the bakerys

productivity to see if the modifications were beneficial.

Last Year Now

Production (in dozen) 1,500 1,500

Labor (hours) 350 325

Capital investment ($) 15,000 18,000

Energy (BTU) 3,000 2,750



The Philippines lags behind in the elements

determining country productivity

Productivity is an excellent way toevaluate a countrys ability to improve

the standard of leaving of its people

Leads to sustainable level ofprosperity

Productivity increases depend on threevariables

Labor

Capital

Management World Economic Forums Global

Competitive index assesses acountrys institutions, policies and

factors that determine its level of

productivity

Global Competitiveness1 United States 5.74

2 Switzerland 5.61

3 Denmark 5.58

4 Sweeden 5.53

5 Singapore 5.53

9 Japan 5.38

10 Canada 5.37

11 Hong Kong 5.33

70 Vietnam 4.10

71 Philippines 4.09

72 Ukraine 4.09

134 Chad 2.85

Source: World Economic Forums Global Competitiveness Report (2008)



A countrys productivity level can be

analyzed through pillars of competitiveness

BasicRequirements

Institutions Infrastructure Macroeconomic Stability Health and primary education

Key forFactor-

dr iven

economies

EfficiencyEnhancers

Higher Education and Training Goods market efficiency

Labor market efficiency Financial market sophistication Technological readiness Market size

Key for

Eff ic iency-

dr iven

economies

Innovation andSophistication

Factors

Business sophistication Innovation

Key for

Innovat ion-

dr iveneconomies

Source: World Economic Forums Global Competitiveness Report (2008)

Pros and Cons of the Philippines

Large market size Poor quality of public institutions

Improving macroeconomic

stability

Lack of labor market efficiency



How about now?

2009 : 87th place

2010 : 85th place

Six Southeast Asian neighbors were ranked higher than the Philippines: Singapore,Malaysia, Brunei, Thailand, Indonesia, and Vietnam; and the Philippines wasranked higher than Cambodia only in some categories.

2012 : 65th Place Singapore (2), Malaysia (25), Brunei (28), Thailand (38), Indonesia (50),

Vietnam (75), Cambodia (85)

The Philippines' positive outcomes according to the report

Market size (overall ranking 37th); with Domestic market size ranked

at 33th and foreign market size at 43th

Extent of staff training (46th)

Availability of financial services (49); Affordability of financial services(37); and soundness of banks (38th)



The Philippines' main challenges

according to the report

In "Basic Requirements", the Philippines was ranked 99th. The fourpillars under this category are institutions, infrastructure,macroeconomic stability, health and primary education, where thecountry was ranked 125th, 104th, 68th and 90th, respectively.

For "Efficiency Enhancers" which includes, higher education andtraining, goods-market efficiency, labor-market efficiency, financial-market development, and technological readiness, the country wasranked overall at 78th and was ranked 73rd, 97th, 111th, 75th, and95th respectively on the categories mentioned above.

In the last category, "Innovation and Sophistication" factors, thePhilippines was ranked 75th. The pillars under this category arebusiness sophistication and innovation, where the country wasranked 60th and 111th, respectively.


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Information Structure



Why are measures important?

Importance of Measuring Performance

Is the basis for good management

If you cant measure it, you cant manage it.

Allows a firm to determine if its strategically important goalsand standards are being met.

Allows for performance comparisons with other competingfirms.

Better knowledge about processes can lead to betterperformance without incremental physical investments

When you can measure what you are speaking about, andexpress it in numbers, you know something about it

What counts get measured; what gets measured, gets doneWhat gets done gets rewarded; What gets rewarded, counts


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There are three types of process measures

TYPE EXAMPLES via Chicken Joy

INTERNAL Time, Volume,Cost

FTE per piece of Chicken Joy

Cost of making Chicken Joy

OUTPUT Quality, Delivery,Success

% conformance to Chicken Joystandards (crispiness, wait

time)

% increase in Chicken JoySales

SATISFACTION Perception % satisfied with Chicken Joytaste


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How do you think of measurementsA

stimulating chart (sample)

Process Type Characteristics Questions to PromptMeasurement

ServiceDelivery

(Intangible)

A process where the typicaloutput is advice, or guidance.Customers may not know what

they want, or if the output isgood, or bad. In some cases, thecustomer may not even haveasked for the output, but it isinitiated by the supplier.

Examples: Providing advice onHealth and Safety, Financialstandards or compliance.

Can, or do, thecustomers actually usethe output?

How often do they comeback for clarification?

What is asked forrepetitively?


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Process measures emanate from an

organizations strategy

CEO

PRESIDENT

FOR ASIA PAC

PRESIDENT

FOR EMEA

GENERAL MGR FOR

PHILIPPINES

SALES DIRECTOR

5 % increase in profit

profit share of growing markets >= 35%

# 1 or 2 position in all brands

For mature markets:

4% increase in profit

# 1 or 2 position in all brands

$ savings

For growing markets:



15% increase in revenue

capture 60% of teen market

$ savingsMKTG DIRECTOR

capture 60% of teen market

$ savings from advertising

70% successful initiatives

15% increase in revenue12% increase channel partners

90% partners compliant w/ policy

ACCOUNT OWNER

5% increase in revenue

all stores compliant w/ policy

12 joint promotions for the year

HR DIRECTOR

$ savings from benefits ration.

recruiting time of 30 days


90% of tier 1 stores carry product30% new business success rate


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This depicts the classic way to cascade

strategy into process measures

Mission Provide Filipinos with good food at a reasonable price

Vision Double earnings in eight years (2017)

Goals % increase in earnings% increase in customer base% increase in same store sales

% increase in repeat customer visit frequencyStrategy Launch Pilars Express (fast food)

Branch into other cuisines; Revamp food offeringBuy another chain (say Family Chicken)Provide superior customer serviceDrive out unnecessary operational costs

Project Pilot Pilars Express branchUnderstand drivers of customer satisfactionSupplier rationalization program

Process Improve cooking time for popular combos


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Network of Activities and Buffers


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Let us start with some basic process

vocabulary

Activity Time How long does the worker spend on a task

Cycle Time Average time between completion of successiveunits

The bottleneck is usually the activity with the longest cycletime. Sometimes, labor or material input may be the bottle

neck. Capacity How much can be produced or served within a

period of time. The capacity of the process is determined bythe bottleneck.

Capacity Utilization How much output was actually achievedrelative to capacity

Throughput Time Total length of time a flow unit (or lot size)spends in the process, includes waiting and storage times

Setup Time necessary for production but independent ofthe number of units to be producedSource: Gray and Leonard (2007)


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The process flowchart captures the current

design of the process.

This basic type of flowchart is also known as the ANSI diagram

TRANSFER TOBOILERSTART BOILER

VISUALINSPECTION

OBTAIN BUNS,LETTUCE, ETC.

TRANSFER TORACK

TEMPORARYSTORAGE

ASSEMBLEORDER

PLACE IN FINISHRACK END

Note: The symbols for Operation and Inspection have been interchanged in this diagram.


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These are the most frequently used symbols

in process diagramming.

OPERATION

INSPECTION

STORAGE

DECISIONPOINT

CONNECTOR

TRANSPORT

DELAY


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Other symbols in process diagramming

Paper Doc Transmission

Paperworkoperation tocreate a record

Paperworkoperation toadd info toa record

Annotation


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Exercise: Process Diagramming

Think of the way a Caltex gasoline station attendant fills a cars gas

talk with fuel. He first ensures that the gas tank cover has beenopened by the driver. If not, he asks the latter to release it. He thenproceeds to unscrew the gas cap. The attendant thereafter selectsthe right pump handle, depending on whether the driver wishes topurchase unleaded or leaded gas, and inserts the nozzle gun into the

gas tank. He would lift the lever that holds the nozzle on the pump tothe on position, and points out to the driver that the dials have reset

to zero. After which, he squeezes the trigger on the nozzle handle.

Once the tank is full, he replaces the nozzle gun, screws the gas capand closes the gas tank cover. Being trained in customer service, he

asks the driver if the latter desires a tire pressure check andsubsequently inquires about the mode of payment. Should the driverpresent a Caltex Starcard, the attendant takes the odometer readingas well. The final step is of course handing over receipt of paymentto the driver and saying a warm thank you.


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Flow Diagram / Geographic Flowchart:

Includes flow between locations (A)

Bldg A

Bldg B

Bldg C.

3 5

4

2

1

StartEnd


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Flow Diagram / Geographic Flowchart:

Includes flow between locations (B)


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Time-Function Mapping: Reflects who

performs and duration of each step

Customer

Sales

Production

control

Plant A

Warehouse

Plant B

Transport

OrderProduct

Process

Order

Print

Extrude

Receiveproduct

Order

Order

WIP

WIP

WIP

WIP

Product

Product

Product

12 days 1 day 1 day 1 day 1 day13 days 4 days 10 days 9 days

52 days

Wait

Wait Wait Wait



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Process Charts: Flow diagram in chart form!

May reflect distance and value-added time.

Dist.

(Ft)

Time

(Mins)

Chart

Symbols

Process Description

1.5 .05 Transfer to Broiler

2.50 Broiler

.05 Visual Inspection

1.0 .05 Transfer to Rack

.15 Temporary Storage

.5 .10 Obtain Buns, Lettuce, etc.

.20 Assemble Order

.5 .05 Place in Finish Rack

3.5 3.15 TOTALS

Value-added time = Operation time/Total time = (2.50+.20)/3.15= 85.7%

2 4 1 -- 1



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Each activity can be classified based on the

value it generates

Activity

Necessary toproduce output?

Contribute toCustomer Req?

Contribute toBus. Functions

Real Value AddBusinessValue Add

No Value Add

Activities that mustbe performed tomeet customer req.

Activities that do not contribute to meetingcustomer req. These can be eliminatedwithout deterioration on product/service

functionality.

Yes No

No

YesYes

No


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Value Stream Mapping: Includes value

added and non-value added time

Non-value added time = 118 mins

Value-added time = 47 mins

% Value-added = 47 / (47 + 118) =28.48%

CHECK-IN TREATMENT REST PAYMENT

II I

2 5 10

8 mins

5 mins

90 mins

10 mins 30 mins

0 20 mins

2 mins

VALUE-ADDED TIMENON-VALUE ADDED TIME


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Value Stream Mapping: Another Example


S i Bl i i I l d f l l


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Service Blueprinting: Includes of levels

describing customer-provider interaction

Customer arrivesfor service

Greet customerand obtain SRF

Customer fills upSRF1

1 S i R t F

Quickrepair?

Direct customer towaiting area

Get hardwarefrom customer

Verify issue withhardware

Provide customerwith claim stub

Notify customer toreturn

Perform repair

NO

YES

Customer departsfrom center

Initiation Diagnosis Repair

LEVEL ONE: Customer is in control.

Note:Duration for each step may also be added.

LEVEL TWO: Customer interacts with provider.

LEVEL THREE: Service removed from customerinteraction and control.

MIS 181 Lecture Four 2013

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