Process Management

1. Process Management

2. Process Definition • What is a process? • Inputs • Raw material and other resources • Information • Specifications • Outputs • Products/services • Output rate and format • Flows • Material, information, payments • Rules • How is the process performed? • What conditions must hold?

3. Process Differentiation • McDonald’s processes • Burger King’s processes

4. Burger King SERVERS/ COUNTERS OPERATIONS

5. Broadly Defined Processes

6. Processes Implications (Job and Line) • Delays in the system • Inventory • Worker skills and training • Flexibility • Automation • Throughput • Technology investment • Response to contingencies • Cost

7. Flows • Flow of Material • Inventory • Component coordination • Price Incentives • Flow of Information (Business Processes) • Information Format Inconsistency (EDI, Internet, Intranet/Extranet) • Information Content • Information Transparency • Payments (Business Processes) • Online payments • Security

8. Processes Coordination • Information mismatch • Format, standards, device specificity • Cost of coordination • Compromises, delays, congestion, inventory, waste • Cost of inflexibility • Economy of scope • Value and cost of standardization

9. Process Design • Process Choice • Job, line, project, continuous • Throughput • Quality of Output • Integration • Vertical, horizontal, outsourcing • Flexibility • Work-force, volume, equipment • Customer, labor, or capital intensive • Self-service, automation

10. Costs and Volume Process 2: Special-purpose equipment Break-even quantity Total cost (dollars) Process 1: General-purpose equipment F2 F1 Units per year (Q)

11. Break Even Analysis • Fixed cost = F • Variable cost = C per unit • Quantity produced = Q • Sales price = p per unit • Total cost = F + CQ • Revenue = PQ

12. Break-even Quantity • Profit, P = p Q – (F + CQ)  • Q = • Break-even  P = 0 •  That is Q = • What if p decreases with Q?

13. Evaluating Two Processes Process subscripts: n, m Cost Basis • Process n is preferred to m if Fn + CnQ < Fm + CmQ • That is, Q (Cn Cm) < Fm Fn • Demand = Q < , if Cn > Cm • Demand = Q > , if Cn < Cm

14. Profit Basis • Q (Pn Cn)  Fn > Q (Pm Cm)  Fm • Q {(Pn Cn)  (Pm Cm)} > Fn Fm • That is, Q > , if (Pn Cn) > (Pm Cm) • Q < , if (Pn Cn) < (Pm Cm)

15. BBC is deciding whether to weld bicycle frames manually or to purchase a welding robot. If welded manually, investment costs for equipment are only $10,000. The per-unit cost of manually welding a bicycle frame is $50.00 per frame. On the other hand, a robot capable of performing the same work costs $400,000. Robot operating costs including support labor are $20.00 per frame. At what volume would BBC be indifferent to these alternative methods?

17. Volume and Process Decisions Batch process Low High Volume Low Volume, make-to-order process Project process • Less vertical integration • More resource flexibility • More customer involvement • Less capital intensity/automation Process design choices Job process High Volume, make-to-stock process • More vertical integration • Less resource flexibility • Less customer involvement • More capital intensity/automation Line process Continuous process

18. Flow Chart Service visible to customer Service not visible to customer Repair authorized Parts available Discuss needed work with customer* Customer drops off car Mechanic makes diagnosis* Check parts availability† Perform work† Parts not available Inspect/ test and repair Order parts Repair not authorized Corrective work necessary Repair complete Customer departs with car Perform corrected work Collect payment Notify customer * = Points critical to the success of the service † = Points at which failure is most often experienced

19. New Business Processes • Linking all inputs and outputs • Modification of decision rules controlling flows • Housekeeping modifications • Flexibility to incorporate new processes

20. New Components: • Catalog Personalization • Product configuration • Recommend Alternatives • Express Order • Talk to CSR Authentication Personal Greeting Personal Catalog & Pricing Verify Order Config Rules Select Product Compute Tax & Ship Express Order Ship to Address In Stock Place Order Shipping Option Check Inventory Recommend Alternatives Talk to CSR Out of Stock

21. Process Chart

22. Old Business Model Process Reengineering (Car Buying) Buying/Selling Factory ships vehicles to dealers as forecast (up to 8 weeks) Vehicle awaits Buyers (up to 3 months) Customer arrives at a dealership Buys an existing car in the dealer’s lot Waits for a matching vehicle (6 weeks) Buys a car with a Different option package Dealer obtains a car from another dealer

23. The New Business Model (Car Buying) Customer orders online (minutes) Order is transmitted To Dealer (minutes) To Factory (minutes) Factory orders components (hours) Dealer arranges Financing (one day) Manufactured by Assembling Modules (Days) Car shipped to Dealer (Few days) Customer is informed Dealer is informed Customer visits Dealer to pick-up car

24. Process Variability • Natural process variation • Inherent fluctuations in the process • Fluctuation around a basketball player’s long-run percentage of free throws made • Special cause variation • Caused by some problem or extraordinary occurrence • A hand injury might cause the basketball player to miss a larger than usual number of free throws.

25. Process Control

26. Trends Linear Oscillatory