Business Process Management

1. Business Process Management • Building block of Operations Management • System view • Process Chart • A tool to describe the business process • Evaluation and trade-offs • Make-to-order vs. Make-to-stock • Risk-pooling • Multi-server queues, central ordering , central safety stock • Dealing with variability

2. Systems approach “The whole is greater than the sum of the parts.” Suboptimization 2 > 1+1

3. Systems approach Systems approach and • Sales • Purchasing • Production

4. Systems A set of parts with interrelationships between parts organized to achieve a goal How systems grow up

5. Process Chart. Ex. McDonald’s Customer places order Raw Material Finished Goods Cook Assemble Deliver Activity Storage This is a make-to-stock system. Decision Flow (Prior to 1999)

6. Trade-Off; Ex. Make to Stock vs. Make to Order • Will different companies intentionally choose different processes to accomplish the same goal? • in McDonald • in In & Out • Process Evaluation • Different processes lead to different advantages and disadvantages. • Is there a simply better process, i.e., no trade-offs?

7. Analysis of Tradeoffs Tradeoffs What are the pros and cons of models?

8. Buying a new machine Additional Investment Integration with existing system Training Having more inventory Higher Carrying Costs More Obsolescence Higher Productivity Better Quality More Flexibility Analysis of tradeoffs Lower Ordering Cost Purchasing Discount Product Availability

9. Processing Time, Waiting Time; Long Waiting Line We are interested in the management of processes. Selling a ticket seems easy, but …

10. More Servers + Specialization

11. Polling: Lower Waiting Time, Longer Processing Time (Perhaps)

12. Uncertainty: Potential Solution • Inventory • How many inventories? • If too many … opportunity cost, spoilage cost • If too few … loss of sales • It is costly to solve uncertainty using inventory.

13. Potential Solutions: Transfer the inventory to the distributor • Example: In the early days of Amazon.com the company did not keep any inventory of books. • The supplier Ingram kept the books for Amazon. • Once Amazon received an order it was transmitted to Ingram. • Ingram would ship the book directly to the consumer.

14. Amazon.com: Delivering Books • Notice that: • It is not difficult to deliver books very fast • It is not difficult to deliver books at a very low cost • But, it is very difficult to deliver book fast and at a low cost ?

15. Potential Solutions Inventory How do we deal with uncertainty Eliminate the uncertainty Print on demand Transfer/Share the uncertainty Transfer the inventory to a distributor

16. Potential Solutions: Transfer the inventory to the distributor • Example: In the early days of Amazon.com the company did not keep any inventory of books. • The supplier Ingram kept the books for Amazon. • Once Amazon received an order it was transmitted to Ingram. • Ingram would ship the book directly to the consumer.

17. Potential Solutions: Transfer the inventory to the distributor Amazon’s Order Ingram’s Order Ingram’s Book Inventory Amazon’s Post Order Process Ingram’s Post Order Process

18. Potential Solutions: Transfer the inventory to the distributor • What are the advantages for such an arrangement for Amazon and Ingram? • Risking pooling (less inventory is needed) • What are the disadvantages of this arrangement for Amazon and Ingram? • Allocation priority

19. Pareto phenomenon (ABC analysis) • Classifying items, activities, or tasks according to some measure of importance and allocating efforts and resources accordingly • A vital few things are important for reaching an objective or solving a problem • 80/20 rule – 80% of the problems are caused by 20% of the activities How do we identify the vital few?

20. Pareto phenomenon, ABC analysis, & Recognition of Priorities Acknowledging the fact that certain aspects of any management situation are more important than others is called Recognition of Priorities.

21. Models -Representations • A model is an abstraction of reality • Narrative • Tabular • Schematic (Some times Physical) • Mathematical • Linear programming • Transportation model • Inventory models • Waiting line models • Statistical models

22. Recent Trends • Global Competition • Operations Strategy • Flexibility • Cycle Time Reduction • Business Process Re-engineering • Supply Chain Management • Workers Involvement • Lean Manufacturing • Total Quality Management

23. Recent Trends • Global Competition • Global Market • Global Suppliers • Operations Strategy • Quality based • Time based • Flexibility • Variety of products • High Volume as well as Low Volume • Cycle Time Reduction • The less time RM (Raw Material), WIP (Work In Process), FG (Finished Goods) spend in the Manufacturing and Logistics process, the less opportunity they have to absorb costs.

24. Recent Trends • Business Process Re-engineering • Value added and NVA activities • Supply Chain Management • NOT from RM storage to FG warehouse, but from the original suppliers to final consumers • Under separate ownerships • Workers Involvement • Workers are not costs, they are assets • Lean Manufacturing • Inventory is waste • Variability is evil • Total Quality Management

25. Examples of Exam Questions 1. The following activities are all a part of system operations as opposed to system design • long term forecasting, product design, capacity planning, inventory management. • short term forecasting, product design, capacity planning, inventory management • short term forecasting, production planning, capacity planning, inventory management • short term forecasting, production planning, quality assurance, inventory management • none of the above 2. Pareto Phenomenon is the same as • ABC analysis • analysis of trade-off • systems analysis • quantitative approaches • none of the above

26. Review Questions (cont.) 3. In ABC analysis • 25% of items form 25% of the measure of importance • 10% of items form 10% of the measure of importance • 90% of items form 90% of the measure of importance • 50% of items form 50% of the measure of importance • 15% of items form 75% of the measure of importance 4. Given: (I) Lean operations, (II) Operations strategy, (III) Business process re-engineering (A) Inventory is waste, (B) Time based operations, (C) High Volume as well as Low Volume, (D) Value-added and NVA activities Which of the following selections is correct? • (I) matches with (D), (II) matches with (C), (III) matches with (B) • (I) matches with (A), (II) matches with (B), (III) matches with (C) • (I) matches with (A), (II) matches with (B), (III) matches with (D) • (I) matches with (A), (II) matches with (D), (III) matches with (C) • (I) matches with (C), (II) matches with (D), (III) matches with (B)

27. Review Questions (cont.) 5. Given (I) supply chain management, (II) Flexibility, (III) Operations strategy (A) Quality based operations, (B) Workers are asset, (C) Value added and NVA activities, (D) from suppliers to consumers, (E) High Volume as well as low volume Which of the following selections is correct? • (I) matches with (D), (II) matches with (E), (III) matches with (C) • (I) matches with (D), (II) matches with (E), (III) matches with (A) • (I) matches with (A), (II) matches with (E), (III) matches with (D) • (I) matches with (C), (II) matches with (D), (III) matches with (E) • (I) matches with (E), (II) matches with (B), (III) matches with (D)