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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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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
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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, 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.
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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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Introduction to BusinessProcesses
Input, Resources and Output
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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.
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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?
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Exercise (II): Calculating single-factor and
multi-factor productivity
Source: Heizer and Render
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
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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)
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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
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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 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)
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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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Introduction to BusinessProcesses
Information Structure
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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:
12% increase in profit
4% increase in profit
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
2% increase in profit
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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Introduction to BusinessProcesses
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
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
Source: Heizer and Render
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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
Source: Heizer and Render
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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
Source: Heizer and Render
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.