Module 2 Process Analysis PDF - Operations Management

**MODULE 2 -- PROCESS ANALYSIS** **INTRODUCTION** Process decisions are tactical in nature. In making process decisions, managers focus on monitoring such competitive priorities as quality, flexibility, time, and cost. Process management is a continuing activity, with the identical principles appl...

**MODULE 2 -- PROCESS ANALYSIS** **INTRODUCTION** Process decisions are tactical in nature. In making process decisions, managers focus on monitoring such competitive priorities as quality, flexibility, time, and cost. Process management is a continuing activity, with the identical principles applying to both first-time and redesign choices. Furthermore, many important innovations over the past several decades include work-simplification or better-methods programs, statistical process control, optimization techniques, statistical forecasting techniques, material requirements planning, flexible automation, lean manufacturing, total quality management, reengineering, Six Sigma programs, enterprise resource planning, and e-commerce. This module focuses on process strategy, which specifies the pattern of decisions made in managing processes so that the processes will achieve their competitive priorities. Process strategy guides a variety of process decisions, and in turn is guided by operations strategy and the organization's ability to obtain the resources necessary to support them. This module will also discuss a systematic approach for analyzing a process that identifies opportunities for improvement, documents the current process, evaluates the process to spot performance gaps, redesigns the process to eliminate the gaps, and implements the desired changes. The goal is continual improvement. **LEARNING OUTCOMES:** After reading this module, the learner should be able to: 1. Explain why processes exist everywhere in all organizations 2. Discuss the four major process decisions. 3. Position a process on the customer-contact matrix or product-process matrix 4. Define customer involvement, resource flexibility, capital intensity, and economies of scope 5. Define process reengineering and process improvement 6. Explain a systematic way to analyze processes. 7. Define flowcharts, swim lane flowcharts, and service blueprints. 8. Describe the various work measurement techniques 9. Identify metrics for process evaluation 10. Describe Pareto charts, cause-and-effect diagrams, and process simulation 11. Create better processes using benchmarking **TIME:** The time allotted for this module is three hours. **LEARNER DESCRIPTION** The participants in this module are 3^rd^ year BSA and BSBA students. **MODULE CONTENTS:** Processes are found in accounting, finance, human resources, management information systems, and marketing. Organizational structure throughout the many diverse industries varies, but for the most part, all organizations perform similar business processes. All of these processes must be managed. Furthermore, a process involves the use of an organization's resources to provide something of value. No service can be provided and no product can be made without a process, and no process can exist without at least one service or product **LESSON 2.1:** **Process Structure in Services** Strategies for designing processes can be quite different, depending on whether a service is being provided or a product is being manufactured. We begin with service processes, given their huge implication for workforce resources in industrialized countries. Here are the types of office processes used by different kinds of businesses. 1. **Front-office process** - has high customer contact where the service provider interacts directly with the internal or external customer. Work flows are flexible, and they vary from one customer to the next. The high-contact service process tends to be adapted or tailored to each customer. 2. **Hybrid-office process** - has moderate levels of customer contact and standard services, with some options available from which the customer chooses. The work flow progresses from one workstation to the next, with some dominant paths apparent. 3. **Back-office process** - has low customer contact and little service customization. The work is standardized and routine, with line flows from one service provider to the next until the service is completed. Preparing the monthly client fund balance reports in the financial services industry is a good example. It has low customer contact, low divergence, and a line flow Figure 1. Customer-Contact Matrix for Service Processes (Krajewski, Ritzman, and Malhotra 2016) **LESSON 2.2: Process Structure in Manufacturing** Figure 2. Product-Process Matrix for Manufacturing Processes (Krajewski, Ritzman, and Malhotra 2016) 1. **Job process** creates the flexibility needed to produce a wide variety of products in significant quantities, with considerable divergence in the steps performed. Customization is high and volume for any one product is low. The workforce and equipment are flexible to handle considerable task divergence. Companies choosing job processes often bid for work. Typically, they make products to order and do not produce them ahead of time. Each new order is handled as a single unit---as a job. Examples are machining a metal casting for a customized order or producing customized cabinets. 2. **Batch process** is by far the most common process choice found in practice, leading to terms such as small batch or large batch to further distinguish one process choice from another. A **batch** process differs from the job process with respect to volume, variety, and quantity. The primary difference is that volumes are higher because the same or similar products or parts going into them are produced repeatedly. Some of the components going into the final product may be processed in advance. Production lots are handled in larger quantities (or batches) than they are with job processes. A batch of one product (or component part going into it or perhaps other products) is processed, and then production is switched to the next one. 3. **Line process** lies between the batch and continuous processes on the continuum; volumes are high and products are standardized, which allows resources to be organized around particular products. Divergence is minimal in the process or line flows, and little inventory is held between the processing steps. 4. **Continuous flow** process is the extreme end of high-volume standardized production, with rigid line flows. Process divergence is negligible. Its name derives from the way materials move through the process. Usually, one primary material (such as a liquid, a gas, or a powder) moves without stopping through the process. A continuous-flow process differs from a line process in one important respect: Materials (be they undifferentiated or discrete) flow through the process without stopping until the whole batch is finished. The time span can be several shifts or even several months. 1. Manufacturers that make products to customer specifications in low volumes tend to use the **make-to-order strategy,** coupling it with job or small batch processes. It is a more complex process than assembling a final product from standard components. This strategy provides a high degree of customization and typically uses job or small batch processes. The processes have high divergence. Specialized medical equipment, castings, and expensive homes are suited to the make-to-order strategy. 2. The **assemble-to-order strategy** is an approach to producing a wide variety of products from relatively few subassemblies and components after the customer orders are received. The assemble-to-order strategy often involves a line process for assembly and a batch process for fabrication. Because they are devoted to manufacturing standardized components and subassemblies in high volumes, the fabrication processes focus on creating appropriate amounts of component inventories for the assembly processes. Stocking finished products would be economically prohibitive because the numerous possible options make forecasting relatively inaccurate. Thus, the principle of postponement is applied, whereby the final activities in the provision of a product are delayed until the orders are received. The **assemble-to-order strategy** is also linked to **mass customization**, where highly divergent processes generate a wide variety of customized products at reasonably low costs. 3. Manufacturing firms that hold items in stock for immediate delivery, thereby minimizing customer delivery times, use a **make-to-stock strategy**. This strategy is feasible for standardized products with high volumes and reasonably accurate forecasts. It is the inventory strategy of choice for line or continuous-flow processes. Examples of products produced with a make-to-stock strategy include garden tools, electronic components, soft drinks, and chemicals. Combining a line process with the make-to-stock strategy is sometimes called mass production. It is what the popular press commonly envisions as the classical manufacturing process, because the environment is stable and predictable, with workers repeating narrowly defined tasks with low divergence **LESSON 2.3: Process Design Strategies** Process decisions directly affect the process itself and indirectly the services and the products that it provides. Whether dealing with processes for offices, service providers, or manufacturers, operations managers must consider four common process decisions. These four decisions are best understood at the process or subprocess level, rather than at the firm level. 1. **Process structure** determines the process type relative to the kinds of resources needed, how resources are partitioned between them, and their key characteristics. A layout, which is the physical arrangement of operations created from the various processes, puts these decisions into tangible form 2. **Customer involvement** reflects the ways in which customers become part of the process and the extent of their participation. Managing the timing and volume of customer demands becomes more challenging if the customer is physically present and expects prompt delivery. Exposing the facilities and employees to the customer can have important quality implications (favorable or unfavorable). Despite these possible disadvantages, the advantages of a more customer-focused process might increase the net value to the customer. Some customers seek active participation in and control over the service process, particularly if they will enjoy savings in both price and time. Emerging technologies allow companies to engage in an active dialogue with customers and make them partners in creating value and forecasting future demand. 3. **Resource flexibility** is the ease with which employees and equipment can handle a wide variety of products, output levels, duties, and functions. Members of a flexible workforce are capable of doing many tasks, either at their own workstations or as they move from one workstation to another. However, such flexibility often comes at a cost, requiring greater skills and thus more training and education. 4. **Capital intensity** is the mix of equipment and human skills in a process. The greater the relative cost of equipment, the greater is the capital intensity. As the capabilities of technology increase and its costs decrease, managers face an ever-widening range of choices, from operations utilizing very little automation to those requiring task specific equipment and little human intervention. Automation is a system, process, or piece of equipment that is self-acting and self regulating. Although automation is often thought to be necessary to gain competitive advantage, it has both advantages and disadvantages. Thus, the automation decision requires careful examination. The four major process decisions represent broad, strategic issues. Decisions that are made must be translated into actual process designs or redesigns. Here are two different but complementary philosophies for process design: 1. **Reengineering** is the fundamental rethinking and radical redesign of processes to improve performance dramatically in terms of cost, quality, service, and speed. Process reengineering is about reinvention, rather than incremental improvement. It is strong medicine and not always needed or successful. Pain, in the form of layoffs and large cash outflows for investments in information technology, almost always accompanies massive change. Key elements of reengineering include the following: a. Critical Processes b. Strong Leadership c. Cross-functional teams d. Information Technology e. Clean-state philosophy f. Process Analysis 2. **Process improvement** is the systematic study of the activities and flows of each process to improve it. Its purpose is to "learn the numbers," understand the process, and dig out the details. Once a process is really understood, it can be improved. The relentless pressure to provide better quality at a lower price means that companies must continually review all aspects of their operations. Process improvement goes on, whether or not a process is reengineered. There is always a better way **LESSON 2.4: Process Analysis Across the Organization** Process analysis is the documentation and detailed understanding of how work is performed and how it can be redesigned. Process analysis begins with identifying a new opportunity for improvement and ends with implementing a revised process. The last step goes back to the first step, thus creating a cycle of continual improvement. This includes the following steps: 1. **Identify Opportunities** - Managers must pay particular attention to the four core processes: (1) supplier relationship, (2) new service/product development, (3) order fulfillment, and (4) the customer relationship. Another way to identify opportunities is by looking at the strategic issues. Furthermore, employees who actually perform the process or internal suppliers or customers should be encouraged to bring their ideas to managers and staff specialists (such as industrial engineers), or perhaps pass on their ideas through a formal suggestion system. 2. **Define the Scope** -- This establishes the boundaries of the process to be analyzed. The resources that management assigns to improving or reengineering a process should match the scope of the process. 3. **Document the Process** - Documentation includes making a list of the process's inputs, suppliers (internal or external), outputs, and customers (internal or external). This information then can be shown as a diagram, with a more detailed breakdown given in a table. 4. **Evaluate Performance** - It is important to have good performance measures to evaluate a process for clues on how to improve it. Metrics are performance measures for the process and the steps within it. A good place to start is with competitive priorities, but they need to be specific. 5. **Redesign the Process** - Using analytical and creative thinking, the design team generates a long list of ideas for improvements. The new design should be documented "as proposed." Combining the new process design with the documentation of the current process gives the analysts clear bfore and after pictures 6. **Implement Changes** - Implementation is more than developing a plan and carrying it out. Many processes have been redesigned effectively, but never get implemented. Implementation brings to life the steps needed to bring the redesigned process online. Management or the steering committee must make sure that the implementation project goes according to schedule. **Process Documentation** A stakeholder can see how a process operates, at any level of detail, and how well it is performing. Techniques for documenting the process lend themselves to finding performance gaps, generating ideas for process improvements, and documenting the look of a redesigned process. Five techniques are effective for documenting and evaluating processes: **Tool \#1: Flowchart** A **flowchart** traces the flow of information, customers, equipment, or materials through the various steps of a process. Flowcharts are also known as flow diagrams, process maps, relationship maps, or blueprints. You can create flowcharts with several programs. Microsoft PowerPoint offers many different formatting choices for flowcharts. Other powerful software packages for flowcharting and drawing diagrams (such as organization charts and decision trees) are SmartDraw (www.smartdraw.com), Microsoft Visio (www.microsoft.com/office/visio), and Micrografx ([www.micrografx.com](http://www.micrografx.com)). Figure 3. Flowchart of the Sales Process for a Consulting Company (Krajewski, Ritzman, and Malhotra 2016) **Tool \#2: Cross-Functional (Swim Lane) Flowchart** The swim lane flowchart is a visual representation that groups functional areas responsible for different sub-processes into lanes. It is most appropriate when the business process spans several department boundaries, and where each department or a functional area is separated by parallel lines similar to lanes in a swimming pool.  Figure 4. Example of a Swim-Lane Flowchart (Krajewski, Ritzman, and Malhotra 2016) **Tool \#3: Service Blueprint** A service blueprint is a special flowchart of a service process that shows which steps have high customer contact. It uses a line of visibility to identify which steps are visible to the customer (and thus. more of a front-office process) and those that are not (back office process). Note that the pink-colored processes are visible to the bank; the green-colored ones are visible to the company; and lastly, the purple-colored boxes are performed by the consulting company and nont visible to external customers. Figure 5. Example of a Service Blueprint (Krajewski, Ritzman, and Malhotra 2016) **Tool \#4: Work Measurement Techniques** Time estimates are needed not just for process improvement efforts, but for capacity planning, constraint management, performance appraisal, and scheduling. Formal techniques are also available that rely on the judgment of skilled observers: 1. **Time study** uses a trained analyst to perform four basic steps in setting a time standard for a job or process: (1) selecting the work elements (steps in a flowchart or process chart) within the process to be studied, (2) timing the elements, (3) determining the sample size, and (4) setting the final standard. 2. **Elemental standard data** is a database of standards compiled by a firm's analysts for basic elements that they can draw on later to estimate the time required for a particular job. 3. The **predetermined data approach** divides each work element even more, into a series of micromotions that make up the element. The analyst then consults a published database that contains the normal times for the full array of possible micromotions. 4. **Work sampling** estimates the proportion of time spent by people or machines on different activities, based on observations randomized over time. Examples of these activities include working on a service or product, doing paperwork, waiting for instructions, waiting for maintenance, or being idle. 5. With instruction and repetition, workers learn to perform jobs more efficiently, process improvements are identified, and better administration methods are created. These learning effects can be anticipated with a **learning curve**, a line that displays the relationship between processing time and the cumulative quantity of a product or service produced. 6. A **process chart** is an organized way of documenting all the activities performed by a person or group of people at a workstation, with a customer, or working with certain materials. It analyzes a process using a table, and provides information about each step in the process. Here, we group the type of activities for a typical process into five categories: a. **Operation.** Changes, creates, or adds something. Drilling a hole or serving a customer are examples of operations. b. **Transportation.** Moves the study's subject from one place to another (sometimes called materials handling). c. **Inspection.** Checks or verifies something but does not change it. d. **Delay.** Occurs when the subject is held up awaiting further action. e. **Storage.** Occurs when something is put away until a later time. **Evaluating Performance** The specific metrics analysts choose depends on the process being analyzed and on the competitive priorities. Good starting points are the per-unit processing time and cost at each step, and the time elapsed from beginning to end of the process. Capacity utilization, environmental issues, and customer (or job) waiting times reveal where in the process delays are most likely to occur. Customer satisfaction measures, error rates, and scrap rates identify possible quality problems. Metrics may reveal a performance gap. Various tools are available to help you understand the causes of the problem.1 Here we present six tools: 1. A **checklist** is a form used to record the frequency of occurrence of certain process failures. A process failure is any performance shortfall, such as error, delay, environmental waste, rework, and the like. 2. A **histogram** summarizes data measured on a continuous scale, showing the frequency distribution of some process failure (in statistical terms, the central tendency and dispersion of the data). Oh the other hand, a bar chart is a series of bars representing the frequency of occurrence of data characteristics measured on a yes-or-no basis. The bar height indicates the number of times a particular process failure was observed. 3. **Pareto's concept**, called the 80--20 rule, is that 80 percent of the activity is caused by 20 percent of the factors. By concentrating on the 20 percent of the factors (the "vital few"), managers can attack 80 percent of the process failure problems. Of course, the exact percentages vary with each situation, but inevitably relatively few factors cause most of the performance shortfalls 4. A **scatter diagram**, which is a plot of two variables showing whether they are related, can be used to verify or negate the suspicion. Each point on the scatter diagram represents one data observation. 5. One way to identify a design problem is to develop a **cause-and-effect diagram** that relates a key performance problem to its potential causes. First developed by Kaoru Ishikawa, the diagram helps management trace disconnects directly to the operations involved. Processes that have no bearing on a particular problem are not shown on the diagram. The cause-and-effect diagram sometimes is called a fishbone diagram. The main performance gap is labeled as the fish's "head," the major categories of potential causes as structural "bones," and the likely specific causes as "ribs." 6. **Graphs** represent data in a variety of pictorial formats, such as line charts and pie charts. Line charts represent data sequentially with data points connected by line segments to highlight trends in the data. Pie charts represent process factors as slices of a pie; the size of each slice is in proportion to the number of occurrences of the factor. **Generating Ideas: Questioning and Brainstorming** Creativity can also be stimulated by **brainstorming**, letting a group of people knowledgeable about the process propose ideas for change by saying whatever comes to mind. A facilitator records the ideas on a flipchart, so that all can see. Participants are discouraged from evaluating any of the ideas generated during the session. **Benchmarking** Benchmarking is a systematic procedure that measures a firm's processes, services, and products against those of industry leaders. Companies use benchmarking to better understand how outstanding companies do things so that they can improve their own processes. Competitive benchmarking is based on comparisons with a direct industry competitor. On the other hand, functional benchmarking compares areas such as administration, customer service, and sales operations with those of outstanding firms in any industry. Lastly, internal benchmarking involves using an organizational unit with superior performance as the benchmark for other units. Benchmarking consists of four basic steps: 1. **Planning**. Identify the process, service, or product to be benchmarked and the firm(s) to be used for comparison; determine the performance metrics for analysis; collect the data. 2. **Analysis.** Determine the gap between the firm's current performance and that of the benchmark firm(s); identify the causes of significant performance gaps. 3. **Integration**. Establish goals and obtain the support of managers who must provide the resources for accomplishing the goals. 4. **Action**. Develop cross-functional teams of those most affected by the changes; develop action plans and team assignments; implement the plans; monitor progress; recalibrate benchmarks as improvements are made **ONLINE READING MATERIALS:** - Read an article on "A Complete Breakdown for Business Process Analysis" at - Read an article about "The Seven Steps of Business Process Analysis at - Read an article about "Business Process Reengineering" by Ben Janse at - Read an article about "The Importance of Benchmarking" by Scott Lenet at **ONLINE VIDEO LINKS AND MATERIALS:** - Watch the online video lecture of the course instructor uploaded at NEO LMS and to the class shared Google drive (if applicable). - Watch a Youtube Video by Fox News about the McDonald's Production Processes - Watch a Youtube Video by Wired UK about "How Boeing Builds a 737 Plane in Just 9 Days" - Watch a Youtube Video by How to about "How Amazing is Car Manufacturing in Factory" - Watch a Youtube Video by HarvardX about "How to create cause and effect diagram" and by GEM Global about "Fishbone (Cause & Effect/Ishikawa Diagram) at - Watch a Youtube Video by HarvardX about "How to create a Pareto Chart" and by Better Than Yesterday about "The Pareto Principle -- 80/20 Rule -- Do More by Doing Less" at - Watch a Youtube Video by UttanaOnline about "Understanding Time and Motion Study" at - Watch a Youtube Video by Bloomberg about "How Ford's Assembly Line Has Changed Overtime at and Business Casual about "How Ford Built America -- The Man Behind The Automobile" at **TEST YOUR KNOWLEDGE:** **EXERCISE 2.1. ESSAY** 1. Consider the range of processes in the financial services industry. What position on the customer-contact matrix would the process of selling financial services to municipalities occupy? The process of preparing monthly fund balance reports? Explain why they would differ. 2. How do the process strategies of BDO and McDonald's differ, and how do their choices relate to customer introduced variability? 3. How can flowcharts and process charts be used to study and improve operations? Include descriptions of these two tools, the types of questions that can be addressed with them, and the extent to which teams can be used. 4. You have been hired as an external consultant to improve processes at a business. You are unfamiliar with exactly how the work is currently done but are intimately familiar with charting techniques and data analysis tools. What is a general sequence for use of these tools and why should you use them in the sequence you specify? **EXERCISE 2.2. PROBLEM SOLVING QUESTIONS** 1\. A discount store is experiencing an unacceptable number of dissatisfied customers leaving from the checkout process. Information from customer complaints about the checkout process was collected and is found in the following table. Construct a Pareto chart to identify the significant problems. +-----------------------------------+-----------------------------------+ | **Problem Type** | Total Problems | | ================ | -------------- | +===================================+===================================+ | Cashier slow | 15 | +-----------------------------------+-----------------------------------+ | Price check required | 9 | +-----------------------------------+-----------------------------------+ | Line too long | 22 | +-----------------------------------+-----------------------------------+ | Cashier unfriendly | 4 | +-----------------------------------+-----------------------------------+ 2\. Create a fishbone diagram about the University's problem of Low passing rate in CPALE for the last 5 years. 3\. Create a flowchart of your activities upon waking up and preparing to go to school. The process will end when you leave your house. **MODULE REFERENCES:** Stevenson, William (2018), *Project Management; the managerial process 7^th^ ed.* Stevenson, William (2018), *Operations Management 13^th^ Edition* Zani, Rosliza (2018), *Operation management* Krajewski, Lee J. (2016) *Operation management: sustainability and supply chain management 12^th^ ed.* Verma, A.P. (2016). *Industrial Engineering and Management*