Business Process Management

1. Business Process Management • Building block of Operations Management • System view • Process chart – Schematic representation • Value stream mapping • Evaluation and trade-offs • Make-to-order vs. Make-to-stock • Risk-pooling - in Waiting lines, in Inventory • Reducing Inventory and Centralization • Removing variability

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

3. Systems A set of parts with interrelationships between parts organized to achieve a goal How systems grow up Performance measure of Sub-systems must be linked to the performance measure of the total system

4. Systems approach Systems approach and • Sales • Purchasing • Production Link Performance of the subsystems to the performance of the total system.

5. Schematic Representation of the Process (Flow Charts) Customer places order Raw Material Finished Goods Cook Assemble Deliver Activity Storage Mc Donald's make-to-stock system. (Prior to 1999) Decision Flow

6. Value Stream Mapping • There are several key areas of concern in any product flow. • Points where processing times are large. • Activities that contains physical constraints – material or capacity constraints. • Points where there is a high degree of resource sharing. When the same resource is required to process a variety of products. • Divergence points where common materials are transformed into different product streams. • Convergence points where multiple materials must come together. • Points of excessive variation.

7. 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?

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

9. 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

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

11. More Servers + Specialization

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

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

14. Amazon.com: Delivering Books 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. 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

15. Lean Operations: The Real Cost of Inventory Inventory adversely affects all competing edges (P/Q/V/T) • Has cost • Physical carrying costs • Financial costs • Has risk of obsolescence • Due to market changes • Due to technology changes • Leads to poor quality • Feed back loop is long • Hides problems • Unreliable suppliers, machine breakdowns, long changeover times, too much scrap. • Causes long flow time

16. Inventory Centralization If centralization of stocks reduces inventory, why doesn’t everybody do it? • Longer response time • Higher shipping cost • Less understanding of customer needs • Less understanding of cultural, linguistics, and regulatory barriers These disadvantages my reduce the demand.

17. 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?

18. 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.

19. 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

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

21. 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.

22. 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

23. 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

24. 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)

25. 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)