Transcript Process View & Strategy Based on the Book: Managing Business Process Flow. Processes Products or services must meet customer expectations; physical (comfort, safety, convenience), psychological.

Process View
&
Strategy
Based on the Book: Managing Business Process Flow.
Processes
Products or services must meet customer expectations; physical
(comfort, safety, convenience), psychological (relaxation, peace
of mind), social and spiritual; and they must do so within a
budget.
Business processes provide products and services: new car
financing, producing an engine, making a hamburger,
delivering a book from Amazon to a customer, teaching a
course.
How do organizations categorize customer expectations?
How do they develop processes capable to fulfill customer
expectations?
What Metrics are used to measure?
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
2
Process view
Process view: any organization or any part of an organization is
Input  Process  Output
Inputs: tangible or intangible items that flow into the process from
the environment: natural or processed resources, parts and
components, energy, data, customers, money, etc.
Outputs are any tangible or intangible items that flow from the
process back into the environment: products, energy,
information, served customers, cash, etc..
Raw material  Manufacturing Process  Finished goods
Data  Accounting Process  Financial Statements
Accounts Receivable  Billing Process  Cash
Unsatisfied customer demand  Transformation Process 
Satisfied customer demand
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
3
Five Elements of the Process View
Information
structure
Inputs
(natural or processed
resources, parts and
components, energy,
data, customers, cash,
etc.)
Process
Management
Network of
Activities and Buffers
Outputs
Goods
Services
Flow Unit
Human & Capital
Resources
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
4
Flow Unit: The Item to be analyzed
A flow unit may be a unit of input, such as a customer order, or
a unit of output such as a finished product, or the value of input
or output.
Process
Flow Unit
Input-Output Transformation
To
From
Order fulfillment
Orders
Receipt of an order
Delivery of product
Outbound logistics Products
End of production
Delivery to customer
Supply cycle
Supplies
Issuing a purchase order
Receipt of the supplies
Customer service
Customers Unsatisfied customer
Satisfied customer
Product R&D
Projects
Recognition of the need
Launching the project
Cash cycle
Cash
Expenditure (costs)
Collection of revenue
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
5
Systems approach
System: A set of parts with interrelationships between parts
organized to achieve a goal.
How systems grow?
The whole is greater
than the sum of the
parts. 2 > 1+1.
Systems approach and; Sales, Purchasing, and Production.
A serial system with two stations.
Principle: Performance measure of
Sub-systems must be linked to the
performance measure of the total system.
Performance of a sub-system must be measured in terms of its
impact on the performance of the total system
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
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Systems-Thinking
We do not have questions on these videos in our quizzes. You
may watch them at your own will.
Deming-Ackoff on Systems Thinking in Education
Three truth about Systems Thinking
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
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Product Attributes & Process Competencies
Customers  Define product attributes.
Operation Managers  Create process competencies to meet
and exceed customer expectations.
Product Attribute
(External)
Price
Process Competency
(Internal)
Cost
Response time
Flow time
Variety
Flexibility
Quality
Quality
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
8
Product Attributes
Product Price (cost for customer): purchase price, service, maintenance,
repair, insurance, and disposal costs. Total cost of ownership.
Product Delivery-response time: total time before receiving the product.
Is the product on shelves, in a distribution center, or somewhere
along the production line. Reliability in response time? Low
standard deviation.
Product Variety: the choices offered to the customer: At a lower level;
options offered for a particular model, colors, styles. At a higher
level; number of product lines and product families.
Product Quality: the degree of excellence, how well the product works.
Features (what it can do), Performance (how well it functions),
Reliability, Serviceability (how quickly), Aesthetics, Conformance to
expectations. Reliability in quality? Quality over time; consistent
quality.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
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Customer Value Proposition
Customer Value Proposition: a set of benefits (in four dimensional
space) that the firm offers to customers. Order Qualifiers:
Characteristics that convince customers to consider the
product. Order Winners: Characteristics (in four dimensional
space) that convince customers to buy the product. They differ
among market segments. Commercial airplane vs. private jets.
Customers purchase based on the value they derive from a
product. It is the greatest amount a customer is willing to pay
(the reservation price). If this value > price, the customer enjoys
positive net value (consumer surplus). Customers will buy the
products that offers highest consumer surplus.
Zara's business is design/manufacture/distribution/retailing.
Zara differentiates itself by timely fashion for the masses.
CVP  timely yet limited variety at modest cost and quality.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
10
Process Competencies: Cost
Process cost: the total cost of producing and delivering outputs.
Remove non-value adding activities and buffers (Business Process
Re-engineering). Allocation of appropriate recourses. Lower than
appropriate is cheap, but quality goes down. Higher than
appropriate, adds to the costs. High utilization. Division of labor.
Henry Ford
High standardization. Low variations.
Shouldice Hospital in Canada, focus on
hernia operations only. Standardized
repeatable outpatient surgical procedure,
very high quality at a low price. Do not
accept patients with any risk factor (blood
pressure, allergic, ..)
People of India are vulnerable to cataracts. Millions go blind in
their 50s. Aravind eye hospital started by treating paying patients
and using the profits to offer free care to the poor. To support
patients who could not afford transportation and required a
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
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High Utilization, Standardization, Low Variations
relative to accompany them, Aravind also added its own buses
and a group of assistants. To keep costs low, surgical equipment is
used all day, doctors focus only on performing surgery, pre- and
post-operative care handled by nurses. Aravind served 2.5 million
outpatients and performed 3 hundred thousands cataract
surgeries in less than one year. Despite providing 2/3 of the
outpatient visits and 3/4 of the surgeries as free service to the
poor, Aravind generated healthy profits that it used to fund its
growth.
The key concept in lowering production cost is to allocate
appropriate recourses to each operation. Appropriate? Lower
than appropriate is cheap, but quality goes down. Higher than
appropriate, adds to the costs.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
12
Process Competencies: Cost Flow Time
The cataract surgery at Aravind, the hernia surgery at Shouldice
are example of implementing Ford Production line in
healthcare.
Process flexibility: How Chevrolet got Ford. the ability to
produce and deliver a variety of products at high and low
production volumes.  cross trained workers + general
purpose equipment + short set-up time + delayed
differentiation, Job-Shop layout or U-shaped layout + small
batch size.
Process quality: How Japanese got US auto industry. the ability to
produce and deliver quality products. Effective design as well
as production that conforms to design. Quality at the source.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
13
Process Competencies: Flexibility, Quality
Process flow time: the total time to transform a flow unit from
input into output. Effective layout and smooth material flow.
Remove variability in arrival rate, processing rate, and quality.
No starvation or blockage. No defect and re-work.
If I am forced to define Operations Management in one line 
Create a Smooth Flow. Smooth flow means (i) low cost
production cost because flow units do not have time to collect
cost, (ii) high quality because as soon as quality problem is
observed, we must stop production, i.e., no smooth flow, and
(iii) system is flexible because we do not have too much
inventory and can easily respond to technological advances and
changes in customer preferences and switch to new products.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
14
Process Competencies: Flexibility, Quality
Corolla: flow shop, decentralized assembly plants close to market,
short flow time, low cost.
Ferrari: job shop, only a single plant in Italy, longer flow time,
high cost.
McMaster-Carr: a materials, repair, and operations (MRO)
product distributor, a process with high flexibility, high
quality, short response time, but at a high price
WalMart:
Operations Strategy: Short flow times, low inventory.
Operations Structure: Cross docking, Electronic Data
Interchange, Fast transportation system, Focused locations,
Communication between retail stores.
Inventory turns at retail stores: Wal-Mart: 9 times, Target: 6
Sales per square foot: Wal-Mart: $425/sqf, Target: $270/sqf
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
15
Operations Management
Operations management



Structure the process competencies in the direction of
the customer value proposition.
Develop measures to evaluate the effectiveness and
efficiency of the processes.
Apply methods and techniques to improve process
performance.
By measurement we find the relationship between controllable
process competencies and desired product attributes, and will
be able to set appropriate performance standards.



Financial performance measures
External performance measures
Internal performance measures
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
16
Process Competencies: Flexibility, Quality
If I am forced to provide another short definition for Operations
Management  OM is the concepts, ideas, methods, models,
and the whole body of knowledge to understand trade-offs.
If I am forced to provide still another short definition for
Operations Management  OM is the concepts, ideas,
methods, models, and the whole body of knowledge to
remove variability.
OM is the concepts, ideas, methodologies, models, and the
whole body of knowledge to create a smooth flow,
understand trade-off, and remove variability.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
17
The advantage of process view is
a. It can be adopted at a very broad level, such as the supply
chain, or at a very micro level, such as a workstation in both
manufacturing and service organizations.
b. By incorporating buffers, accounts for handoffs or interfaces
between different activities-typically the areas where most
improvements can be made.
c. Identifies value added and none-values added points, and
enables managers to improve the process and add value at every
step.
d. Represents any organization as a collection of interconnected
processes where its success requires alignment of effort across
all its processes.
*e. All of the above
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
18