Process Analysis

1. Process Analysis Chapter 5

2. How Process Analysis fits the Operations Management Philosophy Operations As a Competitive Weapon Operations Strategy Project Management Process Strategy Process Analysis Process Performance and Quality Constraint Management Process Layout Lean Systems Supply Chain Strategy Location Inventory Management Forecasting Sales and Operations Planning Resource Planning Scheduling

3. Omego • Omego is the leading provider of complete global trade management services, processing more than one million trades per day and servicing 6,000 broker-dealers, custodian banks and investment managers in more than 40 countries. • Through process analysis, it was able to reduce the typical trade expense from $10 or $12 down to between 20 cents and a dollar. • Trade processing time was reduced from 20 hours down to three hours. • These changes were the result of considerable customer contact and reflect more automation and process reengineering.

4. 2Define Scope 3Document Process 6Implement Changes 4Evaluate Performance 5Redesign Process Process Analysis • Process analysis is the documentation and detailed understanding of how work is performed and how it can be redesigned. 1Identify Opportunity

5. A Systematic Approach to Process Analysis • Suggestion system: a voluntary system by which employees submit their ideas on process improvements. • Design team: A group of knowledgeable, team-oriented individuals who work at one or more steps in the process, do the process analysis and make the necessary changes. • Metrics: Performance measures that are established for a process and the steps within it. • Flowcharts: A diagram that traces the flow of information, customers, equipment, or materials through the various steps of a process. • Service Blueprint: A special flowchart of a service process that shows which steps have high customer contact (line of visibility).

6. © 2007 Pearson Education Flowchart for the Sales Process of a Consulting Company Service Blueprint

7. Flowchart of aNested Subprocess Client Agreement & Service Delivery Step

8. © 2007 Pearson Education Showing the Handoffs Between Departments

9. Process Charts • Process chart: An organized way of documenting the activities performed by a person or group of people at a work station, with a customer, or on materials. • Five categories of process charts: • Operations that change, create or add something. • Transportation (materials handling): Moving something. • Inspection: Checking or verifying something. • Delays: Time spent awaiting further action. • Storage: When something is put away until a later time.

10. Summary Process: Emergency room admission Subject: Ankle injury patient Beginning: Enter emergency room Ending: Leave hospital Number Time Distance Activity of steps (min) (ft) Operation 5 23 — Transport 9 11 815 Insert Step Inspect 2 8 — Append Step Delay 3 8 — Store — — — Remove Step Step Time Distance Step description no. (min) (ft) 0.50 15 10.0 - 0.75 40 3.00 - 0.75 40 1.00 - 1.00 60 4.00 - 5.00 - 2.00 200 3.00 - 2.00 200 3.00 - 2.00 - 1.00 60 4.00 - 2.00 180 4.00 - 1.00 20 1 X Enter emergency room, approach patient window 2 X Sit down and fill out patient history 3 X Nurse escorts patient to ER triage room 4 X Nurse inspects injury 5 X Return to waiting room 6 X Wait for available bed 7 X Go to ER bed 8 X Wait for doctor 9 X Doctor inspects injury and questions patient 10 X Nurse takes patient to radiology 11 X Technician x-rays patient 12 X Return to bed in ER 13 X Wait for doctor to return 14 X Doctor provides diagnosis and advice 15 X Return to emergency entrance area 16 X Check out 17 X Walk to pharmacy 18 X Pick up prescription 19 X Leave the building © 2007 Pearson Education Process Chart for an Emergency Room Admission

11. Evaluating Performance • Checklist: A form used to record the frequency of occurrence of certain service or product characteristics related to performance. • Histogram: A summarization of data measured on a continuous scale, showing the frequency distribution of some quality characteristic (the central tendency and dispersion of the data). • Bar chart: A series of bars representing the frequency of occurrence of data characteristics measured on a yes-or-no basis. • Pareto Chart: A bar chart on which factors are plotted in decreasing order of frequency along the horizontal axis.

12. Bar ChartExample 5.1 The manager of a neighborhood restaurant is concerned about rising customer complaints. He would like to present his findings in a way that his employees will understand.

13. Pareto ChartExample 5.1

14. More Tools for Evaluating Performance • Scatter-diagram: A plot of two variables showing whether they are related. • Cause-and-effect diagram: A diagram that relates a key performance problem to it’s potential causes. • Sometimes called the fishbone diagram. • Graphs: Representation of data in a variety of pictorial forms, such as line charts and pie charts.

15. Personnel Equipment Passenger processing at gate Aircraft late to gate Late cabin cleaners Other Mechanical failures Unavailable cockpit crew Weather Late cabin crew Air traffic delays Delayed flight departures Late baggage to aircraft Poor announcement of departures Late fuel Weight/balance sheet late Late food service Delayed check-in procedure Contractor not provided updated schedule Waiting for late passengers Materials Procedures Checker Board AirlinesExample 5.2 Analyzing Flight Delays Using a Cause-And-Effect Diagram

16. Wellington Fiber Board Co.Example 5.3 The Wellington Fiber Board Company produces headliners, the fiberglass components that form the inner roof of passenger cars. Management wants to identify which defects were most prevalent and to find the cause. They decide to use the following tools: Step 1. Checklist Step 2. Pareto chart Step 3. Cause-and-effect diagram Step 4. Bar chart

17. Headliner Defects Defect type Tally Total A. Tears in fabric //// 4 B. Discolored fabric /// 3 C. Broken fiber board //// //// //// //// //// //// //// / 36 D. Ragged edges //// // 7 Total 50 Wellington Fiber Board Co. Example 5.3Checklist

18. 50 40 30 20 10 0 100 80 60 40 20 0 C Cumulative Percentage Number of Defects D A B Defect type Wellington Fiber Board Co. Example 5.3Pareto Chart

19. People Materials Training Absenteeism Communication Out of specification Not available Broken fiber board Machine maintenance Machine speed Wrong setup Humidity Schedule changes Other Process Wellington Fiber Board Co. Example 5.3Cause-and-Effect Diagram

20. 20 15 10 5 0 Number of Broken Fiber Boards First Second Third Shift Wellington Fiber Board Co. Example 5.3 Bar Chart

21. Entrance Buffer Work Station Buffer Door Line Teller Served Customers Process Simulation • Process simulation is the act of reproducing the behavior of a process using a model that describes each step. • It shows how a process dynamically changes over time. • Using SimQuick, the first step is to draw a flowchart of the process using SimQuick’s building blocks. Flowchart for one-teller bank

22. Work Station Teller 1 Entrance Buffer Buffer Door Line Served Customers Work Station Teller 2 Flowchart for two-teller bank

23. Bank Simulation Results

24. Redesigning the Process • Ideas for process redesign and improvement can be uncovered by asking six questions about each step in the process and about the process as a whole. 1.Whatis being done? 2. When is it being done? 3. Who is doing it? 4. Where is it being done? 5. How is it being done? 6. How well does it do on the various metrics of importance?

25. Redesigning the Process • Answers to the previous six questions are challenged by asking still another set of questions. • Why is the process even being done? • Why is it being done where it is being done? • Why is it being done when it is being done? • Brainstorming is letting a group of people, knowledgeable about the process, propose ideas for change by saying whatever comes to mind.

26. Benchmarking • Benchmarking is a systematic procedure that measures a firm’s processes, services, and products against those of industry leaders. • Benchmarking focuses on setting quantitative goals for improvement. • Competitive benchmarking is based on comparisons with a direct industry competitor. • Functional benchmarking compares functional areas in the firm with those of outstanding firms in any industry. • Internal benchmarking involves using an internal unit with superior performance as the benchmark for other units.

27. Benchmarking Steps • Planning: Identify the process, service or product to be benchmarked and the firm(s) to be used for comparison. Determine the performance metrics and collect the data. • Analysis: Determine the gap between the firm’s current performance and that of the benchmark firm(s). • Integration: Establish goals and obtain the support of managers who must provide the resources for accomplishing the goals. • Action: Develop cross-functional teams of those most affected by the changes, develop action plans, implement the plans and monitor progress.

28. Customer Relationship Process • Total cost of “enter, process, and track orders” per $1,000 revenue • System costs of process per $100,000 revenue • Value of sales order line item not fulfilled due to stockouts, as % of revenue • Percentage of finished goods sales value that is returned • Average time from sales order receipt until manufacturing or logistics is notified • Average time in direct contact with customer per sales order line item Order Fulfillment Process • Value of plant shipments per employee • Finished goods inventory turnover • Reject rate as percentage of total orders processed • Percentage of orders returned by customers due to quality problems • Standard customer lead time from order entry to shipment • Percentage of orders shipped on time © 2007 Pearson Education Illustrative Benchmarking Metrics by Type of Process

29. New Service/Product Development Process • Percentage of sales due to services/products launched last year • Cost of “generate new services/products” process per $1,000 revenue • Ratio of projects entering the process to projects completing the process • Time to market for existing service/product improvement project • Time to market for new service/product project • Time to profitability for existing service/product improvement project Supplier Relationship Process • Cost of “select suppliers and develop/maintain contracts” process per $1,000 revenue • Number of employees per $1,000 of purchases • Percentage of purchase orders approved electronically • Average time to place a purchase order • Total number of active vendors per $1,000 of purchases • Percentage of value of purchased material that is supplier certified © 2007 Pearson Education Illustrative Benchmarking Metrics by Type of Process

30. Support Process • Systems cost of finance function per $1,000 revenue • Percentage of finance staff devoted to internal audit • Total cost of payroll processes per $1,000 revenue • Number of accepted jobs as percentage of job offers • Total cost of “source, recruit, and select” process per $1,000 revenue • Average employee turnover rate © 2007 Pearson Education Illustrative Benchmarking Metrics by Type of Process

31. Process Management Mistakes • Not Connecting with Strategic Issues • Not Involving the Right People in the Right Way • Not Giving the Design Teams and Process Analysts a Clear Charter and Then Holding Them Accountable • Not Being Satisfied Unless Fundamental “Reengineering” Changes Are Made • Not Considering the Impact on People • Not Giving Attention to Implementation • Not Creating an Infrastructure for Continuous Process Improvement.

32. © 2007 Pearson Education Flowchart of Telephone Ordering ProcessSolved Problem 1 • Create a flowchart for the following telephone-ordering process at a retail chain that specializes in selling books and music CDs. It provides an ordering system via the telephone to its time-sensitive customers besides its regular store sales. • First, the automated system greets customers and identifies whether they have a tone or pulse phone. Customers choose 1 if they have a tone phone; otherwise, they wait for the first available service representative to process their request. If customers have a tone phone, they complete their request by choosing options on the phone. • The system checks to see whether customers have an existing account. Customers choose 1 if they have an existing account or choose 2 if they want to open a new account. Customers wait for the service representative to open a new account if they choose 2. • Next, customers choose between the options of making an order, canceling an order, or talking to a customer representative. If customers choose to make an order, then they specify the order type as a book or a music CD, and a specialized customer representative for books or music CDs picks up the phone to get the order details. If customers choose to cancel an order, then they wait for the automated response. By entering the order code via phone, customers can cancel the order. • The automated system says the name of the ordered item and asks for the confirmation of the customer. If the customer validates the cancellation of the order, then the system cancels the order; otherwise, the system asks the customer to input the order code again. • After responding to the request, the system asks whether the customer has additional requests; if not, the process terminates.

33. © 2007 Pearson Education

34. Automobile ServiceSolved Problem 2 • An automobile service is having difficulty providing oil changes in the 29 minutes or less mentioned in its advertising. • You are to analyze the process of changing automobile engine oil. • The subject of the study is the service mechanic. • The process begins when the mechanic directs the customer’s arrival and ends when the customer pays for the services.

35. Process Chart for Changing Engine Oil © 2007 Pearson Education

36. Vanishing Cream Analysis Solved Problem 4 Vera Johnson and Merris Williams manufacture vanishing cream. Their packaging process has four steps: mix, fill, cap, and label. They have had the reported defects analyzed, which shows the following. Draw a Pareto chart to identify the vital defects.

37. Defective labels account for 48.33 percent of the total number of defects: Improperly filled jars account for 30 percent of the total number of defects: 29 60 18 60 × 100% = 48.33% × 100% = 30.00% Lumps represent of defects; the cumulative percentage is 7 60 × 100% = 11.67% 78.33% + 11.67% = 90.00% Vanishing Cream Analysis Solution: The cumulative percent for the two most frequent defects is 48.33% + 30.00% = 78.33%

38. Pareto Chart Vanishing Cream Analysis 40 36 32 28 24 20 16 12 8 4 0 100 90 80 70 60 50 40 30 20 10 0 90% 100% 78% 48% Cumulative Percentage of Defects Frequency of Defects Label Fill Mix Seal