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UNIT I
Process Management
Dr. R. Raju
Professor and Head
DoIE, AU.
Production Function
Production function shows the relationship between the input and the
output of an organization.
Productivity :
The ratio between output and one of these factors of input is usually
known as productivity of the factor Considered.
TYPES OF PRODUCTIVITY:
Outputs
Goods and Services Provided
TPM =
---------------------or
----------------------------------------Inputs
All resources
used
EFFECTIVENESS VS EFFICIENCY:
PRODUCTION SYSTEM:
For all operations, the goal is to create some kind of value added, so
that the outputs are worth more to consumers than just the sum of the
individual inputs.
System discrimination
Stratum formulations
Specialization of functions
Increase of Entropy
ISO finality
CONTROL MECHANISMS:
Feed back
Feed forward
Quality concepts like TQM, ISO-9000, QFD, etc., are all examples of
this attitude of Management.
OPERATIONS STRATEGY
STRATEGY
Operations strategy
It
a primary task
Assessing
core competencies
Determining
qualifiers
order
winners
and
order
Positioning
the firm
215
Revenue growth
strategy
Improved
Increase customer value
share
holder
Improve cost structure
Improve Asset utilization
Productivity
strategy
value
2) Customer perspective
Product leadership
Customer intimacy
Operational excellence
5)
Developing a manufacturing
strategy
Segment the market according to the
product group
Identify the product requirements,
demand patterns, and profit margins of
each group.
Determine the order winners and order
qualifiers for each group.
Convert order winners into specific
performance requirements.
Operations Role in
Corporate Strategy
Operations
219
Strategic Management
Strategic
phases:
Strategic formulation
Defining the organization philosophy and mission
Establishing long and short-range objectives to achieve mission
Selecting the strategy to be used in achieving the objectives.
Strategy implementation
Aligning the organizational structure, system and processes with
the chosen strategy.
Hierarchy of Strategies
Mission
Defines its line or lines of business
Identifies its products and services
Specifies the markets it serves at present and
will serve with in a time frame of 3 to 5 years
Objectives
Long term objectives specify the result
desired in pursuing the mission
Short terms are performance targets to
measure the progress towards the
achievements of long term objectives
Corporate
strategies
Generic
competitive strategies
strategies
Marketing
Financial
Personal and production/ manufacturing
strategies
5)
Mass Production
8)
Flow Production
JOB PRODUCTION
In this, each job order stands alone end may not be repeated.
Examples :
Job sop has a lot of flexibility of operation, and hence general purpose
machines are required.
It deals with low volume and large variety production. It can cater to
specific customer order or job of one kind at a time.
ADVANTAGES:
Low risk of loss to the factory adopting this type of production. Due to
flexibility, there is no chance of failure of factory due to reduction in
demand. It can always get one or the other job orders to keep it
going.
DISADVANTAGES:
For handling different types of jobs, only workers with multiple skills
are needed. This increases the labour cost.
BATCH PRODUCTION:
A batch production turns into flow production when the rest period
vanishes.
ADVANTAGES:
It is flexible in the sense that it can go from one job to another with
almost zero cost. It needs general purpose machine having high
production rate.
DISADVANTAGES:
CONTINOUS PRODUCTION:
In Flow production, the plant, its equipment, and layout have been
chiefly designed to produce a particular type of product.
ADVANTAGES:
Wastage is minimum
Only a few skilled, and many semi-killed workers are required. This
reduces the labour cost substantially.
DISADVANTAGES:
Because all the machines are dedicated and special purpose type, the
system is not changeable to other type of production.
OBJECTIVES:
CORPORATE OBJECTIVES:
Profit
Return on Investment
Survival
Growth
Process Management
33
34
Scope of Process
Management
Process
Management: planning
and administering the activities
design, control, and
improvement necessary to
achieve a high level of
performance
Four types of key processes
Design processes
Production/delivery processes
Support processes
35
AT&T Process
Management Principles
Controlled
process
Improvement
New zone
of control
Time
37
Leading Practices
Translate
(1 of 2)
Leading Practices
(2 of 2)
Define
39
Product Development
Paradigms
Traditional
Approach
Design the
product
Make the product
Sell the product
Demings Approach
Design the product
Make it with
appropriate tests
Put it on the
market
Conduct consumer
research
Redesign with
improvements
40
Product Development
Process
Idea
Idea
generation
generation
Concept
Concept
development
development
Product &
process design
Full-scale
Full-scale
production
production
Product
Product
introduction
introduction
Market
Market
evaluation
evaluation
41
Quality Engineering
System
Design
Functional performance
Parameter
Design
Nominal dimensions
Tolerance
Design
Tolerances
42
Loss Functions
Traditional
View
loss
no loss
loss
nominal
tolerance
Taguchis
View
loss
loss
43
Design Objectives
Cost,
Manufacturability,
Quality, Public Concerns
Tools and Approaches
Design for Manufacturability
Design for Environment
45
Streamlining Product
Development
Competitive
House of Quality
Interrelationships
Customer
requirement
priorities
Technical requirements
Voice of
the
customer
Relationship
matrix
Technical requirement
priorities
Competitive
evaluation
47
Quality Function
Deployment
technical
requirements
component
characteristics
process
operations
quality plan
48
Motorolas Approach
to Process Design
1.
2.
3.
4.
5.
6.
Evaluating a Process
Are
50
Projects
Project
initiation direction,
priorities, limitations, and
constraints
Project plan blueprint and
resources needed
Execution produce deliverables
Close out evaluate customer
satisfaction and provide learning
for future projects
51
Basic Components of
Services
Physical
facilities, processes,
and procedures
Employee behavior
Employee professional
judgment
52
Labor intensity
Customization
53
Control
The
55
the strategic
importance of suppliers
Develop win-win relationships
through partnerships
Establish trust through
openness and honesty
56
Supplier Certification
Systems
Certified
supplier one
that, after extensive
investigation, is found to
supply material of such
quality that routine testing on
each lot received is
unnecessary
57
Reduced
costs
Faster time to market
Increased access to
technology
Reduced supplier risk
Improved quality
58
Process Improvement
Productivity
improvementTraditional
Work simplification
Industrial
Planned methods change
Engineering
Kaizen
New
approaches
Stretch goals
Benchmarking from the total
Reengineering quality movement
59
Kaizen
Gradual
Agility
Flexibility
61
Breakthrough
Improvement
Discontinuous
processes
radical redesign of
62
Process Management
in the Baldrige Award Criteria
The Process Management Category examines the
key aspects of an organizations process
management, including customer-focused design,
product and service delivery, key business, and
support processes. This Category encompasses all
key processes and all work units.
6.1 Product and Service Processes
a. Design Processes
b. Production/Delivery Processes
6.2 Business Processes
6.3 Support Processes
63
Outsourcing
The
PLANNING STAGE:
The project team assess the risk and the resourcing information and
management skills needed to mitigate those risks, while the
outsourcing advisor levels the playing field with the outsourcing
providers.
User perspectives and objectives are essential for setting the scope and
assessing the results.
Before selecting the project team and advisors the organization must
inform also the employees about the outsourcing initiative.
Marketing skills
Choosing
EVALUATION
STAGE:
Early in the outsourcing evaluation process, the customer must find
out and understand how outsourcing can fit with in the organizations
strategies.
To achieve long term growth, companies need to develop, protect, and
leverage their core competencies and consider out sourcing any
activities that do not confer a competitive advantage.
Core competencies are not strong candidate for outsourcing.
Companies that rush into outsourcing without fully understanding what
they hope to gain soon final themselves in a mire of contractual battle
or not receiving improved services.
It is essential to know and clearly define the objectives of the company
and to document what the company expects from outsourcing.
Clear objectives help lead to a sound decision on what to outsource
and what not to out- sourcing.
-Concentration on core- business
- Investment reduction
-Restructuring of the supply chain
- Cost reduction and service improvements.
ANALYSIS
STAGE:
The goals of this phase are to develop detailed cost analysis of the
target function.
When considering outsourcing part the following associate costs
need to be taken into account:
Salaries, benefits, training/Evaluation, specialized software, travel,
phone charges, depreciation, mail costs and postage, office
supplies, equipment, management time, information costs,
occupancy charges, etc.,
It is essential that the project team conducts activity- based
analysis in order to understand the current costs of the activities
that might be outsourced and those that are staying.
The project team must estimate which costs do not disappear with
outsourcing and what new costs will be incurred as a result of outsourcing.
Without a good idea of future needs and the costs of meeting
these needs, it is difficult to outsource effectively and efficiently.
Current performance should also be measured and analyzed, since
performance improvement is often a reason for out-sourcing.
Simple cost analysis, Economic analysis and Break- even analysis
are used for conducting analysis.
SELECTING
STAGE:
The ways in which the potential providers identified are
as follows:
Open a dialogue with outside organizations the
company is already doing business with use of the
organizations professional network
Direct Research
Use Consultants
The project team lists the criteria for qualified
providers based on the reasons for outsourcing.
Potential providers are identified and further
investigations are made to determine their qualification.
Short list the providers and form this short list the prime
provider is selected.
The final goal is to review the information gathered and
to consider the recommendation on whether service
should be made internally or outsourced.
Example 1.
An automobile company has extra capacity that
can be used to produce gears that the company
has been buying for Rs.300 each. If the
company makes the gears, it will incur materials
cost of Rs.90 per unit, labor cost of Rs.120 per
unit and variable overhead cost of Rs.30 per unit.
The annual fixed cost associated with the unused
capacity is Rs.240000. Demand over the next
year is estimated at 4000 units.
Would it be profitable for the company to make
the gears?
Suppose the capacity could be used by another
department for the production of some
equipment that would cover its fixed and
variable cost and contribute Rs.90000 to profit.
Which would be more advantages, gear
Solution.
Cost to make,
Variable cost/unit = Material cost + labour+ overhead
Rs.90+Rs.120+Rs.30 =Rs.240
Total Variable cost =(4000 units) * (Rs.240/unit)
=Rs.960000
Fixed Cost
Total cost
Cost to Buy,
Purchase cost
=Rs. 240000
=Rs.1, 200,000
= (4000 units) * (Rs.300/unit)
=Rs.1,200,000
Fixed Cost
=Rs. 240000
Total cost
=Rs.1, 440,000
Therefore cost of making the gears is less than that of
buying gears from outside. Hence, making is
advantages
Make Gears
960,000
240,000
1,200,000
1,200,000
Contribution to
profit (Rs.)
Net relevant cost
()Rs.
90,000
1,200,000
1,110,000
ECONOMIC ANALYSIS:
The following inventory models are considered to illustrate the
concept of economic analysis:
Purchase model
Manufacturing model
The formula for calculating economic order quantity and total cost
for each given below model are below:
Where,
D -demand/year
P-purchase price/unit
CC-carrying cost/unit/year
Co-ordering cost/order
S- setup cost/setup
EOQ economic order qty(size)
R- Production rate (units/year)
Q1-economic order size
Q2-economic production size
Purchase Model
Manufacturing Model
Q1 =
Q2 =)
TC = D*P+(DCo/Q1) + (Q1*Cc)/2
TC = D*P+(DS/Q2) + Cc(R-D)(Q2/
(2*R)
Example.
An item has yearly demand of 1000
units. The different costs with regard
to make and buy options, are as
follow:
Buy option,
D=1000
Co=Rs.10
Cc=Rs.1.32/unit/year
Q1 =(2*1000*10/1.32) =123 units
(approx.)
TC = D*P+(DCo/Q1) + (Q1*Cc)/2
= (1000*6)+ ((1000*10)/123)+
Buy
((123*1.32)/2)
Item cost/unit(Rs)
6
=Rs.6162.48
Make
5.90
Procurement
cost/order(Rs)
Setup cost/setup
10
50
Annual carrying
cost/item/year(22%
of item cost)
1.32
1.30
Production rate/
year
6000 units
Make option,
Q2 =(2SD/Cc(1-(D/R)))
= Q2 =(2*50*1000/1.3(1-(1000/6000))) = 304 (approx.)
TC = D*P+(DS/Q2) + Cc(R-D)(Q2/(2*R)
= (1000*5.90) +((1000*50)/304) + 1.3 (6000-1000) (304/
(2*6000))
= Rs. 6229.14
Result: The cost of buying is less than the cost of making. Hence,
go for the buy option.
Q2 =)
TC = D*P+(DS/Q2) + Cc(R-D)(Q2/(2*R)
Example:
A manufacturer of motor cycles buys side box at Rs.240 each. In
case he makes it himself, the fixed and variable cost would be
Rs.300,000 and Rs.90 per side box, respectively. Should the
manufacturer make or buy the side box if there is a demand for 2500
side boxes?
Solution:
Selling Price =Rs 240
Variable cost/unit=Rs.90
Fixed cost = Rs.300,000
B.E.P= 300000/(240-90) = 2000 units
Since the demand (2500 units) is more than the break-even point,
the company can manufacture the side boxes.
Example:
There are three alternatives available to meet the demand of a
particular product. They are as follows:
Making the product using process A
Making the product using process B
Buying the product
The details are as follows:
The annual demand for the product is 10,000 units.
Should be the company makes the product using process A or B, or
Buy it?
At what annual volume should the company switch from buying to
making using process A ?
At what annual volume should the company switch from process A
Making using
Buying
toCost
B? Elements Making using
Process A
Process B
Fixed
100,000
Cost/year (Rs.)
Variable
75
cost/unit(Rs.)
300,000
70
Purchase
price/unit (Rs.)
80
Solution:
a). compute the annual cost for each alternative.
Annual cost of process A = FC+(VC *Volume)
=100,000+(75*10,000)
=Rs.850,000
Annual cost of process B = FC+(VC *Volume)
=300,000+(70*10,000)
=Rs.1,000,000
Annual cost of buying
b).Let
Q be the volume at which the company switches from buying to
Q *80
100,000 5Q
5Q 100,000
Q 20,000 units
Thus, if the volume of the production is more than 20,000 units the
company should switch from buying to making option using process A.
c). Let Q be the volume at which the company switches from making
using process A to making using process B is preferable.
Total Annual cost of process A
process B
100,000+ (Q*75)
300,000+ (70*Q)
5Q 200,000
Q 40,000 units
Thus, if the volume of the production is more than 40,000 units the
What is BPR?
Business Process Re-engineering or BPR
is
the analysis and redesign of
workflow and processes
within and between
Organizations
- Michael Hammer & James Champy, 1993
Reengineering Is ...
Extremist's
Extremist'sView
View
Obliterate
A Definition of BPR
BPR is the
Fundamental rethinking and
Radical redesign of
Business Processes
to achieve Dramatic improvements in
critical measures of performance
.. such as Cost, Quality, Service and Speed.
What is a Business
Process (BP)?
BP
Examples
of BP:
Issuance of a Driving License or
Passport
Registration of a Company
Audit of a Tax Return
Release of a Grant
Reengineering is not .
Automation
of existing ineffective
processes
Sophisticated computerization of
obsolete processes
Playing with organization structures
Downsizing doing less with less
Effectiveness Vs Automation
Automation
: use technology to
automate the AS IS process to
make it happen faster - often
wrongly perceived as eGovernment.
Effectiveness:
To improve service
and satisfy customer needs, while
lowering costs.
is using technological
tools to perform OLD processes,
in a NEW way.
Like putting OLD Wine in a NEW
bottle.
BPR
is about Innovation
BPR
Why BPR?
Problem Statement
The Problem is that
we are governing in the 21st century
with Processes and Organizations
designed in the 19th Century
to work well in the 20th Century!
We need entirely different
PROCESSES & ORGANIZATIONS
for Governance in the 21st Century
Problem restated
All
Processes
Symptoms of Poor
Governance
Air
Outcome
is in Suspense
OK or NOT OK !
Gatekeepers
at every turn
Poor Quality of Service
Service is a Mercy - not a Right
Too many Intermediaries, Shortcuts
5 Symptoms of Poor
Processes
1.
2.
3.
4.
5.
Root Causes of
Poor Service Delivery
Legislative
Intent
Process
Problems
Delivery
Channel
Problems
Delivery
Problems
3 Goals of BPR
1.
Customer Friendliness
2.
Effectiveness
3.
Efficiency
Cost
Time
Effort
12 Attributes of
Customer-friendly Services
1.
2.
3.
4.
5.
Simple
Need-based
Certainty
Speed
Convenience
Place
Time
Channel
Equitable
7. Responsive
8. Customercentric
9. Quality of
Service
10. Cost-effective
11. Accessible
12. Assisted
6.
Principles &
Methodologies of BPR
3.
4.
5.
6.
7.
A 4-Pronged Approach to
Transformation
Transforming Process
Eliminate
Simplify
Automate
Base on Trust
Integrate
Join Up
Legislate
Transformation
Using Technology
Transforming Channels
Enterprise Architecture
Standards
Unified Databases
Unified Networks
SOA
Portals
Multiple Channels
24x7
Access
Common Service Centres
Mobile
Self-Service
Licensed Intermediaries
Transforming
People
Training
Change Management
CRM skills
Consultation
Empowerment
Education
Awareness
4 Steps in BPR
1.
2.
3.
4.
Change Management
Communication Strategy
BPR Methodology
Continuous Improvement
Core Processes
Without Issues
Strategy
Core Processes
With Issues
Reengineering - Breakthrough
Improved
Process
Improvement
Plan
Goals, Roles
Boundaries
Implementation
Plan
Challenges,
Critical Success Factors &
Critical Failure Factors
in BPR
Challenges in a BPR
Exercise
1.
2.
3.
4.
5.
6.
7.
8.
1.
9 Changes occasioned by
BPR
Work
Units change
2.
Jobs change
3.
9.
Values change
8.
7.
6.
5.
4.
Executives change
Examples of BPR
Purchasing
Purchasing
Vendor
Vendor
Purchase order
Receiving
Receiving
Goods
Copy of
purchase
order
Accounts
Accounts
Payable
Payable
Receiving
document
Invoice
?
PO = Receiving Doc. =
Payment
*Source: Adapted from Hammer and
Champy, 1993
Vendor
Vendor
Purchase order
Receiving
Receiving
Goods
Purchase
order
Goods
received
Data base
Accounts
Accounts
Payable
Payable
Payment
After
After
Citizens have to visit several offices & wait for months for
title changes
Buyer &
Seller
Registration of
deeds
Complete
Documents
Submit
Appln.
Pay fees
Cannot verify
ownership
Verify
documents
and register
Buyer &
Seller
Complete
application
Submit
Appln for
Mutation.
Verify and
change
records
Buyer
Buyer gets
ownership
records
Buyer
Buyer gets
boundary
info.
Land Surveyor
Buyer
Complete
appl.
Submit
Appln for
Sub-division
Sub-divide
the parcel
and change
records
Conclusion
BPR
BPR
BPR
Top
Thank You