Process Management

Class 3: 2/2/11

Process Analysis

Process Flowcharting

Types of Processes

Process Performance Metrics

Manufacturing Processes

Service Processes

Business Process Reengineering

OBJECTIVES

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PROCESS MANAGEMENT

Processes relate to work that is ongoing and repetitive

Process management concepts and methods can be applied to improve manufacturing, service, and business processes

Effort is placed trying to reduce cost, increase throughput, and improve quality

PROCESS ANALYSIS TERMS

Process: Is any part of an organization that takes inputs and transforms them into outputs

Cycle Time: Is the average successive time between completions of successive units

Utilization: Is the ratio of the time that a resource is actually activated relative to the time that it is available for use

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PROCESS FLOWCHARTING

DEFINED

Process flowcharting is the use of a diagram to present the major elements of a process

The basic elements can include tasks or operations, flows of materials or customers, decision points, and storage areas or queues

It is an ideal methodology by which to begin analyzing a process

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Tasks or operationsExamples: Giving an admission ticket to a customer, installing a engine in a car, etc.

Examples: Giving an admission ticket to a customer, installing a engine in a car, etc.

Decision PointsExamples: How much change should be given to a customer, which wrench should be used, etc.

Examples: How much change should be given to a customer, which wrench should be used, etc.

Purpose and Examples

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Flowchart Symbols

Examples: Sheds, lines of people waiting for a service, etc.

Examples: Sheds, lines of people waiting for a service, etc.

Examples: Customers moving to a seat, mechanic getting a tool, etc.

Examples: Customers moving to a seat, mechanic getting a tool, etc.

Storage areas or queues

Flows of materials or customers

Purpose and Examples

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Flowchart Symbols

TYPES OF PROCESSES

Single-stage Process

Stage 1

Stage 1 Stage 2 Stage 3

Multi-stage Process

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TYPES OF PROCESSES (CONTINUED)

Stage 1 Stage 2

Buffer

Multi-stage Process with Buffer

A buffer refers to a storage area between stages where the output of a stage is placed prior to being used in a downstream stage

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OTHER PROCESS TERMINOLOGY

Blocking Occurs when the activities in a stage must

stop because there is no place to deposit the item just completed

If there is no room for an employee to place a unit of work down, the employee will hold on to it not able to continue working on the next unit

Starving Occurs when the activities in a stage must

stop because there is no work If an employee is waiting at a work station

and no work is coming to the employee to process, the employee will remain idle until the next unit of work comes

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OTHER PROCESS TERMINOLOGY (CONTINUED)

BottleneckOccurs when the limited capacity of a

process causes work to pile up or become unevenly distributed in the flow of a process

If an employee works too slow in a multi-stage process, work will begin to pile up in front of that employee. In this is case the employee represents the limited capacity causing the bottleneck.

PacingRefers to the fixed timing of the

movement of items through the process

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OTHER TYPES OF PROCESSES

Make-to-orderOnly activated in response to an

actual orderBoth work-in-process and finished

goods inventory kept to a minimumMake-to-stock

Process activated to meet expected or forecast demand

Customer orders are served from target stocking level

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PROCESS PERFORMANCE METRICS

Capacity: maximum output of a process or resource measured in units/time: a rate

Operation time = Setup time + Run time

Setup time: the length of time required to changeover from one product to another (assumes products are produced in batches)

Throughput time = Average time for a unit to move through the system

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PROCESS PERFORMANCE METRICS (CONTINUED)

Cycle time = Average time betweencompletion of units

Throughput rate = 1___

Cycle time

Utilization of an operation =

Demand/Capacity

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CYCLE TIME EXAMPLE

Suppose you had to produce 600 units in 80 hours to meet the demand requirements of a product. What is the cycle time to meet this demand requirement?

Suppose you had to produce 600 units in 80 hours to meet the demand requirements of a product. What is the cycle time to meet this demand requirement?

Answer: There are 4,800 minutes (60 minutes/hour x 80 hours) in 80 hours. So the average time between completions would have to be: Cycle time = 4,800/600 units = 8 minutes.

Answer: There are 4,800 minutes (60 minutes/hour x 80 hours) in 80 hours. So the average time between completions would have to be: Cycle time = 4,800/600 units = 8 minutes.

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BREAD-MAKING QUESTIONS

What is the bottleneck when one bread-making line is used? What is the capacity of the process? What is the utilization of packaging? What is the throughput time?

What happens to capacity and utilization when two bread-making lines are used? What is the bottleneck?

PROCESS THROUGHPUT TIME REDUCTION

Perform activities in parallel

Change the sequence of activities

Reduce interruptions

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BASIC WORK FLOW STRUCTURES

Project layout – fixed position; construction, movie lots

Workcenter (job shop) – similar equipment grouped together; machine shop

Manufacturing cell – similar set of processes for a limited range of products

Assembly Line – discrete parts move through workstations; toys, appliances, cars

Continuous process – flow vs discrete, flows a set sequence of steps; oil, rubber, chemicals

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PROCESS TYPES

Continuous Assembly Line Job Shop Cell Project

CONTINUOUS PROCESS

Highly standardized products in large volumes Often these products have become commodities Typically these processes operate 24 hours/day

seven days/week Objective is to spread fixed cost over as large a

volume as possible

CONTINUOUS PROCESS CONTINUED Starting and stopping a continuous process

can be prohibitively expensive Highly automated and specialized

equipment used Layout follows the processing stages Output rate controlled through equipment

capacity and flow mixture rates

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CONTINUOUS PROCESS CONTINUED Low labor

requirements Often one primary

input Initial setup of

equipment and procedures very complex

ASSEMBLY LINE

Similar to continuous process except discrete product is produced

Heavily automated special purpose equipment

High volume - low variety Both services and products can use flow

shop form of processing

A GENERALIZED ASSEMBLY LINE OPERATION

ADVANTAGES OF THE ASSEMBLY LINE

Low unit cost specialized high volume equipment bulk purchasing lower labor rates low in-process inventories simplified managerial control

DISADVANTAGES OF ASSEMBLY LINE

Variety of output difficult to obtain Difficult to change rate of output Minor design changes may require

substantial changes to the equipment Worker boredom and absenteeism Work not very challenging Vulnerable to equipment breakdowns

DISADVANTAGES OF ASSEMBLY LINE CONTINUED Line balanced to slowest element Large support staff required Planning, design, and installation very

complex task Difficult to dispose of or modify special

purpose equipment

ASSEMBLY LINE LAYOUT

Objective is to assign tasks to groups The work assigned to each group should

take about the same amount of time to complete

Final assembly operations with more labor input often subdivided easier

Paced versus unpaced lines

JOB SHOP

High variety - low volume Equipment and staff grouped based on

function Each output processed differently

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A GENERALIZED JOB SHOP OPERATION

ADVANTAGES OF THE JOB SHOP

Flexibility to respond to individual demands Less expensive general purpose equipment

used Maintenance and installation of general

purpose equipment easier General purpose equipment easier to modify

and therefore less susceptible to becoming obsolete

ADVANTAGES OF THE JOB SHOP CONTINUED Dangerous activities can be segregated from

other operations Higher skilled work leading to pride of

workmanship Experience and expertise concentrated Pace of work not dictated by moving line Less vulnerable to equipment breakdowns

DISADVANTAGES OF THE JOB SHOP

General purpose equipment is slower Higher direct labor cost High WIP inventories High material handling costs Management control very difficult

THE CELL FORM

Combines flexibility of job shop with low costs and short response times of flow shop

Based on group technology First identify part families Then form machine cells to produce part

families

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CONVERSION OF A JOB SHOP LAYOUT TO A CELLULAR LAYOUT

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ORGANIZATION OF MISCELLANEOUS PARTS INTO FAMILIES

ADVANTAGES OF CELLULAR PRODUCTION

Reduced machine setup times increased capacity economical to produce in smaller batch sizes smaller batch sizes result in less WIP less WIP leads to shorter lead times shorter lead times increase forecast accuracy and

provide a competitive advantage Parts produced in one cell

ADVANTAGES OF CELLULAR PRODUCTION CONTINUED Capitalize on benefits of using worker teams Minimal cost to move from job shop to

cellular production (e.g. EHC) Can move from cellular production to “mini-

plants”

DISADVANTAGES OF CELLULAR PRODUCTION

Volumes too low to justify highly efficient high volume equipment

Vulnerable to equipment breakdowns Balancing work across cells Does not offer the same high degree of

customization as the job shop

CELLULAR LAYOUT

Teams of workers and equipment to produce families of outputs

Workers cross-trained Nominal cells versus physical cells. Remainder cell Cell formation methods

production flow analysis

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PROJECT OPERATIONS Large scale Finite duration Nonrepetitive Multiple

interdependent activities

Offers extremely short reaction times

PRODUCT-PROCESS MATRIX

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SELECTION OF TRANSFORMATION SYSTEM BY STAGE OF LIFE CYCLE

BREAK-EVEN ANALYSIS

A standard approach to choosing among alternative processes or equipment

Model seeks to determine the point in units produced (and sold) where we will start making profit on the process or equipment

Model seeks to determine the point in units produced (and sold) where total revenue and total cost are equal

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BREAK-EVEN ANALYSIS (CONTINUED)

This formula can be used to find any of its components algebraically if the other parameters are known

Break-even Demand=Break-even Demand=

Purchase cost of process or equipment Price per unit - Cost per unit or Total fixed costs of process or equipment Unit price to customer - Variable costs per unit

Purchase cost of process or equipment Price per unit - Cost per unit or Total fixed costs of process or equipment Unit price to customer - Variable costs per unit

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BREAK-EVEN ANALYSIS (CONTINUED)

Example: Suppose you want to purchase a new computer that will cost $5,000. It will be used to process written orders from customers who will pay $25 each for the service. The cost of labor, electricity and the form used to place the order is $5 per customer. How many customers will we need to serve to permit the total revenue to break-even with our costs?

Break-even Demand: = Total fixed costs of process or equip.

Unit price to customer – Variable costs =5,000/(25-5) =250 customers

Example: Suppose you want to purchase a new computer that will cost $5,000. It will be used to process written orders from customers who will pay $25 each for the service. The cost of labor, electricity and the form used to place the order is $5 per customer. How many customers will we need to serve to permit the total revenue to break-even with our costs?

Break-even Demand: = Total fixed costs of process or equip.

Unit price to customer – Variable costs =5,000/(25-5) =250 customers

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MANUFACTURING PROCESS FLOW DESIGN

A process flow design can be defined as a mapping of the specific processes that raw materials, parts, and subassemblies follow as they move through a plant

The most common tools to conduct a process flow design include assembly drawings, assembly charts, and operation and route sheets

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EXAMPLE: ASSEMBLY CHART (GOZINTO) – PLUG ASSEMBLY

A-2SA-2

4

5

6

7

Lockring

Spacer, detent spring

Rivets (2)

Spring-detent

A-5Component/Assy Operation

Inspection

From Exhibit 7.4From Exhibit 7.4

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SERVICE BUSINESSES

Facilities-based services: Where the customer must go to the service facility

Field-based services: Where the production and consumption of the service takes place in the customer’s environment

A service business is the management of organizations whose primary business requires interaction with the customer to produce the service

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THE CUSTOMER CENTERED VIEW

TheCustomer

The ServiceStrategy

ThePeople

TheSystems

A philosophical view that suggests the organization exists to serve the customer, and the systems and the employees exist to facilitate the process of service.

A philosophical view that suggests the organization exists to serve the customer, and the systems and the employees exist to facilitate the process of service.

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SERVICE-SYSTEM DESIGN MATRIX

Mail contact

Face-to-faceloose specs

Face-to-facetight specs

PhoneContact

Face-to-facetotal

customization

Buffered core (none)

Permeable system (some)

Reactivesystem (much)

High

LowHigh

Low

Degree of customer/server contact

Internet & on-site

technology

SalesOpportunity

ProductionEfficiency

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CHARACTERISTICS OF WORKERS, OPERATIONS, AND INNOVATIONS RELATIVE TO THE DEGREE OF CUSTOMER/SERVICE CONTACT

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EXAMPLE OF SERVICE BLUEPRINTING

Brushshoes

Applypolish

Failpoint

BuffCollect

payment

Cleanshoes Materials

(e.g., polish, cloth)

Select andpurchasesupplies

Standardexecution time

2 minutes

Total acceptableexecution time

5 minutes

30secs

30secs

45secs

15secs

Wrongcolor wax

Seen bycustomer 45

secs

Line ofvisibility

Not seen bycustomer butnecessary toperformance

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SERVICE FAIL-SAFINGPOKA-YOKES (A PROACTIVE APPROACH)

Keeping a mistake from becoming a service defect

How can we fail-safe the three Ts?

Task

TangiblesTreatment

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THREE CONTRASTING SERVICE DESIGNS

The production line approach (ex. McDonald’s)

The self-service approach (ex. automatic teller machines)

The personal attention approach (ex. Ritz-Carlton Hotel Company)

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MANAGING CUSTOMER INTRODUCED VARIATION

•Arrival variability

•Request variability

•Capability variability

•Effort variability

•Subjective preference variability

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ACCOMMODATION STRATEGIES

Classic accommodation – extra employees or additional employee skills

Low cost accommodation – use low cost labor, outsource, self-service

Classic reduction – more self-service, reservations, adjust expectations

Uncompromised reduction – develop procedures for good service, minimizing variation impact

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CHARACTERISTICS OF A WELL-DESIGNED SERVICE SYSTEM

1. Each element of the service system is consistent with the operating focus of the firm

2. It is user-friendly

3. It is robust

4. It is structured so that consistent performance by its people and systems is easily maintained

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CHARACTERISTICS OF A WELL-DESIGNED SERVICE SYSTEM (CONTINUED)

5. It provides effective links between the back office and the front office so that nothing falls between the cracks

6. It manages the evidence of service quality in such a way that customers see the value of the service provided

7. It is cost-effective

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SERVICE GUARANTEES AS DESIGN DRIVERS

Recent research suggests:Any guarantee is better than no

guaranteeInvolve the customer as well as

employees in the designAvoid complexity or legalistic

languageDo not quibble or wriggle when a

customer invokes a guaranteeMake it clear that you are happy for

customers to invoke the guarantee

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BUSINESS PROCESS DESIGN (REENGINEERING)

DIVISION OF LABOR CONCEPT

Work broken down into its simplest most basic tasks Performing same task facilitates attaining

greater skill No time lost switching to another task Workers well positioned to improve tools and

techniques

DIVISION OF LABOR CONCEPT CONTINUED Division of labor concept not challenged

until recently despite dramatic changes in technology

Quality, innovation, service, and value more important than cost, growth, and control

PROCESS

Set of activities that taken together produce a result of value to the customer

Organizing on basis of processes Eliminate delays and errors when work is handed

off Capture information once and at source When people closest to process perform work,

there is little need for management overhead

BUSINESS PROCESS DESIGN (BPD)

The fundamental rethinking and radical redesign of business processes to bring about dramatic improvements in performance

Hammer, M. and Stanton, S. The Reengineering Revolution, Harper Business, 1995.

RADICAL

Profoundly change the way work performed Not concerned with making superficial

changes Get to root Get rid of old Reinventing, not improving

REDESIGN

BPD is about designing how work is done Smart, capable, well trained, highly

motivated employees mean little if the way work is performed is poorly designed

PROCESS

All organizations perform processes Customers not interested in individual

activities but rather overall results Few of them are organized on the basis of

processes Thus, processes tend to go unmanaged Team approach one way this addressed

DRAMATIC

Quantum leaps in performance, not marginal or incremental improvements

Breakthroughs in performance

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IBM CREDIT EXAMPLE

IBM CREDIT EXAMPLE CONTINUED Order logged by 1 of 14 people in conference

room Carted upstairs to credit department Information entered into computer to check

borrower’s creditworthiness Results written on piece of paper

IBM CREDIT EXAMPLE CONTINUED Business practices department modified

standard loan covenant in response to customer requests

Used its own computer system Pricer keyed data into PC to determine

appropriate interest rate Administrator converted to quote letter and

Fedexed to field sales rep.

IBM CREDIT EXAMPLE CONTINUED Average time to process a request was 6

days Could take as long as 2 weeks Actual processing time 90 minutes Deal Structurer

Turnaround time 4 hours Number of deals processed increased 100 times

with small reduction in head count