Business Process Management

Bong Olpoc and Wilson Gan Lecture Four

Introduction to Business Processes

Five Elements of a Process

Multiple yet very similar definitions of a process exist

A chain of highly interconnected, repetitive activities utilizing an enterprises resources to refine an object, physical or mental, for the purpose of achieving specified and measurable results, products for internal and external customers A network of activities performed by resources that transforms inputs into outputs A collection of tasks, connected by flows of goods and information that transforms various inputs into more valuable outputs It transforms inputs into outputs, and has the ff five key elements: 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 the environment FLOW UNITS Can be a unit of input (e.g. customer), output (e.g. finished product), an intermediate product (e.g. a seat in an auto assembly plant), or even a set of inputs or outputs in a multiproduct 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 the transformation 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 multiproduct 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

WIP

PACK

INITIATING ORDER OR REQUEST

CONTROL

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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, distributed and delivered by business processes; but service process has some 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.
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Product attributes map to process attributes

Process cost Process flow time total time needed to transform a flow unit from input into output Process flexibility ability Variety of a process to meet product variety requirements Quality Process quality ability of a process to produce and deliver quality products Process attributes are monitored through process measures.

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Cost Delivery-response Time

Introduction to Business Processes

Input, Resources and Output

Business process efficiency is measured by productivity.

Units produced Productivity Input and Resource(s) used

Different kinds of inputs or resources are used in business processes Labor, Materials, Capital, Energy, etc. There are two approaches to calculating productivity: Single-factor productivity only considers a specific resource, say labor hours or capital Multi-factor productivity considers all resources used to produce the output. It is also known as total factor productivity. The productivity equation may be modified to consider effectiveness by replacing Units produced with Non-defective units produced.
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Exercise: Calculating single-factor and multi-factor productivity

Upton Company makes 1,000 Go-Kart tires per day with the following 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?

Source: Heizer and Render Bong Olpoc and Wilson Gan 2009

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 she invested an additional $3,000 for modifications at the start of the year to the bakerys ovens to make them more energy efficient. The modifications were supposed to make the ovens at least 15% more energy efficient. The owner has asked you to check the energy savings of the new ovens and also to look over other measures of the bakerys productivity to see if the modifications were beneficial.
Last Year Production (in dozen) Labor (hours) Capital investment ($) Energy (BTU)
Source: Heizer and Render Bong Olpoc and Wilson Gan 2009

Now 1,500 325 18,000 2,750

1,500 350 15,000 3,000

The Philippines lags behind in the elements determining country productivity

Global Competitiveness Productivity is an excellent way to 1 United States 5.74 evaluate a countrys ability to improve the standard of leaving of its people 2 Switzerland 5.61 Leads to sustainable level of 3 Denmark 5.58 prosperity 4 Sweeden 5.53 Productivity increases depend on three 5 Singapore 5.53 variables 9 Japan 5.38 Labor 10 Canada 5.37 Capital 11 Hong Kong 5.33 Management 70 Vietnam 4.10 World Economic Forums Global 71 Philippines 4.09 Competitive index assesses a 72 Ukraine 4.09 countrys institutions, policies and 134 Chad 2.85 factors that determine its level of Source: World Economic Forums Global Competitiveness Report (2008) productivity

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A countrys productivity level can be analyzed through pillars of competitiveness

Basic Requirements Institutions Infrastructure Macroeconomic Stability Health and primary education Higher Education and Training Goods market efficiency Labor market efficiency Financial market sophistication Technological readiness Market size Business sophistication Innovation Key for Factordriven economies Key for Efficiencydriven economies Key for Innovationdriven economies

Efficiency Enhancers Innovation and Sophistication Factors

Pros and Cons of the Philippines Large market size

Poor quality of public institutions

Improving macroeconomic Lack of labor market efficiency stability Source: World Economic Forums Global Competitiveness Report (2008)
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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 was ranked 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)
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The Philippines' main challenges according to the report

In "Basic Requirements", the Philippines was ranked 99th. The four pillars under this category are institutions, infrastructure, macroeconomic stability, health and primary education, where the country was ranked 125th, 104th, 68th and 90th, respectively. For "Efficiency Enhancers" which includes, higher education and training, goods-market efficiency, labor-market efficiency, financialmarket development, and technological readiness, the country was ranked overall at 78th and was ranked 73rd, 97th, 111th, 75th, and 95th respectively on the categories mentioned above. In the last category, "Innovation and Sophistication" factors, the Philippines was ranked 75th. The pillars under this category are business sophistication and innovation, where the country was ranked 60th and 111th, respectively.

Bong Olpoc and Wilson Gan 2009

 Bong Olpoc and Wilson Gan 2009

 Bong Olpoc and Wilson Gan 2009

Introduction to Business Processes

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 goals and standards are being met. Allows for performance comparisons with other competing firms. Better knowledge about processes can lead to better performance without incremental physical investments When you can measure what you are speaking about, and express it in numbers, you know something about it
What counts get measured; what gets measured, gets done What gets done gets rewarded; What gets rewarded, counts

Bong Olpoc and Wilson Gan 2009

There are three types of process measures

TYPE INTERNAL Time, Volume, Cost EXAMPLES via Chicken Joy FTE per piece of Chicken Joy Cost of making Chicken Joy

OUTPUT

Quality, Delivery, % conformance to Chicken Joy Success standards (crispiness, wait time) % increase in Chicken Joy Sales Perception % satisfied with Chicken Joy taste

SATISFACTION

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How do you think of measurementsA stimulating chart (sample)

Process Type Service Delivery (Intangible) Characteristics
A process where the typical output is advice, or guidance. Customers may not know what they want, or if the output is good, or bad. In some cases, the customer may not even have asked for the output, but it is initiated by the supplier. Examples: Providing advice on Health and Safety, Financial standards or compliance.

Questions to Prompt Measurement

Can, or do, the customers actually use the output? How often do they come back for clarification? What is asked for repetitively?

Bong Olpoc and Wilson Gan 2009

Process measures emanate from an organizations strategy

CEO
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: 12% increase in profit 4% increase in profit 15% increase in revenue capture 60% of teen market $ savings 15% increase in revenue 12% increase channel partners 90% partners compliant w/ policy 5% increase in revenue all stores compliant w/ policy 12 joint promotions for the year

PRESIDENT FOR ASIA PAC

PRESIDENT FOR EMEA

2% increase in profit 90% of tier 1 stores carry product 30% new business success rate

GENERAL MGR FOR PHILIPPINES

MKTG DIRECTOR
capture 60% of teen market $ savings from advertising 70% successful initiatives

SALES DIRECTOR

HR DIRECTOR
$ savings from benefits ration. recruiting time of 30 days

ACCOUNT OWNER

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This depicts the classic way to cascade strategy into process measures
Mission Vision Goals Provide Filipinos with good food at a reasonable price Double earnings in eight years (2017) % increase in earnings % increase in customer base % increase in same store sales % increase in repeat customer visit frequency

Strategy

Launch Pilars Express (fast food) Branch into other cuisines; Revamp food offering Buy another chain (say Family Chicken) Provide superior customer service Drive out unnecessary operational costs Pilot Pilars Express branch Understand drivers of customer satisfaction Supplier rationalization program
Improve cooking time for popular combos
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Project

Process

Introduction to Business Processes

Network of Activities and Buffers

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 successive units The bottleneck is usually the activity with the longest cycle time. 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 by the bottleneck. Capacity Utilization How much output was actually achieved relative 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 of Source: Gray and Leonard (2007) the number of units to be produced Bong Olpoc and Wilson Gan 2009

The process flowchart captures the current design of the process.

START
TRANSFER TO BOILER BOILER VISUAL INSPECTION

TRANSFER TO RACK

TEMPORARY STORAGE

OBTAIN BUNS, LETTUCE, ETC.

ASSEMBLE ORDER

PLACE IN FINISH RACK

END

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

Note: The symbols for Operation and Inspection have been interchanged in this diagram. Bong Olpoc and Wilson Gan 2009

These are the most frequently used symbols in process diagramming.

OPERATION CONNECTOR

INSPECTION

DECISION POINT

DELAY

STORAGE

TRANSPORT

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Other symbols in process diagramming

Paper Doc Transmission

Paperwork operation to create a record

Paperwork operation to add info to a 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 been opened by the driver. If not, he asks the latter to release it. He then proceeds to unscrew the gas cap. The attendant thereafter selects the right pump handle, depending on whether the driver wishes to purchase 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 to the 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 cap and closes the gas tank cover. Being trained in customer service, he asks the driver if the latter desires a tire pressure check and subsequently inquires about the mode of payment. Should the driver present a Caltex Starcard, the attendant takes the odometer reading as well. The final step is of course handing over receipt of payment to the driver and saying a warm thank you.
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Flow Diagram / Geographic Flowchart: Includes flow between locations (A)

Bldg B 3 5

Bldg A 4 1 2 Bldg C.

Start

End

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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 Order Product Process Order
Order

Receive product

Wait
Order

Plant A
Warehouse Plant B Transport
12 days

Print
WIP

Wait
WIP WIP

Wait
WIP

Product

Wait
Product

Extrude

13 days

1 day

4 days

1 day

10 days

1 day

9 days

1 day

52 days
Source: Heizer and Render Bong Olpoc and Wilson Gan 2009

Product

Process Charts: Flow diagram in chart form! May reflect distance and value-added time.
Dist. (Ft)
1.5

Time (Mins)
.05 2.50 .05

Chart Symbols

Process Description Transfer to Broiler Broiler Visual Inspection Transfer to Rack Temporary Storage Obtain Buns, Lettuce, etc. Assemble Order Place in Finish Rack

1.0

.05 .15

.5

.10 .20

.5 3.5

.05 3.15

TOTALS 2 4 1 -- 1 Value-added time = Operation time/Total time = (2.50+.20)/3.15= 85.7%

Source: Heizer and Render Bong Olpoc and Wilson Gan 2009

Each activity can be classified based on the value it generates

Activity Yes

Necessary to produce output?

No Yes Business Value Add

No

Contribute to Customer Req? Yes Real Value Add Activities that must be performed to meet customer req.

Contribute to Bus. Functions No No Value Add

Activities that do not contribute to meeting customer req. These can be eliminated without deterioration on product/service functionality.
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Value Stream Mapping: Includes value added and non-value added time

CHECK-IN
I
2 8 mins 5 mins NON-VALUE ADDED TIME

TREATMENT I
5 90 mins 0

REST
I
10 20 mins

PAYMENT

10 mins

30 mins

2 mins

VALUE-ADDED TIME

Non-value added time = 118 mins Value-added time = 47 mins % Value-added = 47 / (47 + 118) = 28.48%
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Value Stream Mapping: Another Example

Source: Heizer and Render Bong Olpoc and Wilson Gan 2009

Service Blueprinting: Includes of levels describing customer-provider interaction

Initiation Customer arrives for service Customer fills up SRF1 Diagnosis Repair

Note: Duration for each step may also be added.

LEVEL ONE: Customer is in control.

Get hardware from customer Verify issue with hardware

Customer departs from center

Greet customer and obtain SRF

Notify customer to return

Provide customer with claim stub LEVEL TWO: Customer interacts with provider. LEVEL THREE: Service removed from customer interaction and control.
1 Service Request Form

NO Quick repair? YES

Direct customer to waiting area

Perform repair

Bong Olpoc and Wilson Gan 2009