Value-Focused Process
Engineering
Porter & Millar [1985] – value chain
Keeney [1992] – value-focused thinking
Rossi et al. [2005] supply chain network a complex system
SUPPLY CHAIN RISK MANAGEMENT:
reducing supply chain vulnerability
Identify and correct malfunctions & disruptions
Finland 2010
Supply Chain Risk Management
Areas of vulnerability & risk (in supply chains)
• Identification – Hallikas et al. [2002; 2004]
– Recognize future uncertainties
– Identify organizational exposure to uncertainty
– Known, unknown, unknowable risks
• Assessment
• Analysis
• Treatment
Finland 2010
Supply Chain Risk Identification
Methodology
• Value-Focused Process Engineering (Neiger et
al. [2003; 2004, 2006])
• Neiger, D.; Churilov, L.; zur Muehlen, M.; Rosemann, M., Integrating risks in
business process models with value focused process enginnering,
Proceedings of the 2006 European Conference on Information Systems
(ECIS2006), Goteborg, Sweden 12-14 June 2006
– Reduce level of uncertainty
– Identify process-based risks
– Holistic perspective
• Supply chain a set of interconnected value-adding processes
• Risk reduction expressed as business objectives
• Process, Objectives, Risk Source
Finland 2010
Risk Identification
• Use Organizational objectives to identify, assess risk
– Treat risks as natural attributes of organizational value-adding
mechanisms
• Include risks as part of objectives structure
– They claim not adequately implemented
• Link risks to Supply Chain activities
• Link risks to individual risk sources
• Quantify risks
– Fault tree analysis; Event tree analysis
• Enable cross-organizational risk visibility
– They claim not adequately implemented
• Decompose risk by process flow
Finland 2010
Value-Focused Process
Engineering
• Systems methodology
– Holistic representation of business
– Value-Focused Thinking (Keeney 1992)
• Link business processes, objectives
• Fundamental objectives – hierarchy of business purposes
• Means objectives – methods to achieve ends
– Extended Event-driven Process Chain process
modeling methodology (Scheer 1999)
• Intuitive graphical business process description in terms of
business logic
• VFPE ties objectives & processes
Finland 2010
VFPE
Neiger & Churilov [2004]
• Company values
– Hierarchy of fundamental objectives
– What do you mean by that?
• DECISION MAKER VALUES
– 1st Level means objectives (how can you achieve?)
– What objectives, activities aim to accomplish this?
• VALUE ADDED CHAIN
• Means of Achieving
– Network of means objectives
– What objectives, activities aim to accomplish this?
• HIERARCHY OF DECOMPOSED PROCESSES
Finland 2010
Risk Identification Process
1. Activity driven identification or risk
objectives
2. Objective driven identification of risk
objectives
3. Synchronized decomposition
4. E-EPC taxonomy of risk sources
5. Joining events structure to objectives
structure
Finland 2010
Example
Actor
Event
Function
Customer
Demand
Submit PO
Enterprise
Receive PO
Fill PO
Max efficiency
Select supplier
Define criteria
Cost
Risk
Delivery
Supplier
Receive CFP
Develop bid
Do business
Payment delay
Enterprise
Receive bids
Select
Modify terms
...
Finland 2010
Objective
Example
• 1. Activity-based risk identification
– Each high level functional objective separated into
risk, performance-based objectives
– Put risk in context of other performance dimensions
• 2. Objectives-driven risk identification
–
–
–
–
–
–
Min risk of supplier non-conformance
Min poor supplier collaboration
Min supplier financial instability
Min nonstandard workflow
Min dependence on supplier
Min risk of supplier becoming competitor
Finland 2010
Tie each decomposed function to
objectives in 2.
• 3. Synchronized decomposition
–
–
–
–
–
–
–
–
–
Choose contracting out method
Choose basis for contract reimbursement
Define supplier selection criteria
Involve authorized suppliers
Involve external suppliers
Weight selection criteria
Send Request for Proposal
Provide quote
Evaluate offers
Finland 2010
4. Apply e-EPC taxonomy of risk
sources
Min conformance risk
Avoid overdependence
Environmental
data
Supplier technical
capability
Monopolistic market
Application
software
Error in selecting supplier
Supplier gains access to
customer database
Human output
Skill gaps
Bad personal relationships
Organizational
Poor control in
purchasing
Inaccurate forecasts
Machine
Inaccurate supply
Single source – multiple
components
Hardware
Flood, etc.
Too much supplier access
Decision
Unstructured method,
wrong decision
Dependence on supplier
not considered
Output
Finland 2010
Poor product quality
Price escalation
…
5. Join Events to Objectives
• Paper emphasized identification aspect
• Another methodology of thinking of all
possible things that can go wrong
• Good
– Systems view
– Consideration of organizational objectives
– Supply chain view (interorganizational)
Finland 2010
Value Hierarchy for Supply Chain Risk
TOP LEVEL
SECOND LEVEL
THIRD LEVEL
PRODUCT
Quality
Cost
TOYOTA
Price, Investment
Holding cost/service level
On-time
SERVICE
Manufacturability
Deliverability
Outsourcing cost/risk
Transportation system/insurance
MANAGEMENT
Communication
Flexibility
Safety
Labor
Bullwhip/forecast accuracy
Agility, ease to replace outsourced
Plant disaster
Strikes, disputes
POLITICAL
Government
War/Terrorism
Customs/regulations
ECONOMIC
Overall
Regional
Economic downturn/exchange rate
Labor cost/price fluctuation
NATURAL DISASTER
Nature, diseases, epidemics
Finland 2010
MAUT Plant Siting – group 1
Location Plant
UnitCost Quality
Labor
Trans
Expand
Alabama
$20 m
$5.50
High
Moderate
$0.30
Good
Utah
$23 m
$5.60
High
Good
$0.28
Poor
Oregon
$24 m
$5.40
High
Low
$0.31
Moderate
Mexico
$18 m
$3.40
$0.25
Good
Crete
$21 m
$6.20
$0.85
Poor
Indonesia
$15 m
$2.80
$0.70
Fair
Vietnam
$12 m
$2.50
Good
Good
$0.75
Good
India
$13 m
$3.00
Good
Good
$0.80
Good
China #1
$17 m
$3.10
Good
Good
$0.60
Fair
China #2
$15 m
$3.20
Good
Good
$0.55
Good
Moderate Moderate
High
Low
Moderate Moderate
Finland 2010
MAUT Plant Siting – group 2
Location Agility
IS Link
Insurance Tax
Alabama
2 mos
Very good
$400
$1000
Very good Hurricane
Utah
3 mos
Very good
$350
$1200
Very good
Drought
Oregon
1 mo
Very good
$450
$1500
Good
Flood
Mexico
4 mos
Good
$300
$1800
Fair
Quake
Crete
5 mos
Good
$600
$3500
Good
Quake
Indonesia
3 mos
Poor
$700
$800
Fair
Monsoon
Vietnam
2 mos
Good
$600
$700
Good
Monsoon
India
3 mos
Very good
$700
$900
Very good
Monsoon
China #1
2 mos
Very good
$800
$1200
Very good
Quake
China #2
3 mos
Very good
$500
$1300
Very good
Quake
Finland 2010
Govt
Disaster
Value Scores – group 1
Location Plant
UnitCost Quality
Labor
Trans
Expand
Alabama
0.60
0.40
0.90
0.30
0.90
1.00
Utah
0.30
0.35
0.90
0.80
0.95
0
Oregon
0.10
0.45
0.90
0.10
0.86
0.50
Mexico
0.70
0.80
0.40
0.30
1.00
1.00
Crete
0.50
0.20
0.90
0.10
0.30
0
Indonesia
0.80
0.90
0.40
0.30
0.55
0.30
Vietnam
0.90
0.95
0.60
0.80
0.50
1.00
India
0.85
0.87
0.60
0.80
0.40
1.00
China #1
0.75
0.85
0.60
0.80
0.60
0.30
China #2
0.80
0.83
0.60
0.80
0.70
1.00
Finland 2010
Value Scores – group 2
Location Agility
IS Link
Insurance Tax
Govt
Disaster
Alabama
0.80
1.00
0.70
0.80
1.00
0.50
Utah
0.60
1.00
0.80
0.70
1.00
0.90
Oregon
1.00
1.00
0.60
0.60
0.80
0.80
Mexico
0.40
0.70
1.00
0.40
0.40
0.40
Crete
0.20
0.70
0.50
0
0.80
0.30
Indonesia
0.60
0
0.30
0.90
0.40
0.70
Vietnam
0.80
0.70
0.50
1.00
0.80
0.70
India
0.60
1.00
0.30
0.85
1.00
0.70
China #1
0.80
1.00
0.10
0.70
1.00
0.80
China #2
0.60
1.00
0.55
0.65
1.00
0.40
Finland 2010
Weight Development
1- rank order
Rank
Criteria
Rating (sum 600) Proportion
1
Quality
100
0.167
2
Unit cost
80
0.133
3
Disaster
70
0.117
4
Agility
65
0.108
5
Transportation
60
0.100
6
Expandability
58
0.097
7
Government stability
40
0.067
8
Tax structure
35
0.058
9
Insurance structure
32
0.053
10
Acquisition & Building (Plant)
30
0.050
11
IS linkage
20
0.033
12
Labor strike propensity
10
0.017
Finland 2010
Value Ranking
Rank
Alternative
Value Score
1
Vietnam
0.762
2
Alabama
0.754
3
India
0.721
4
China #2
0.710
5
Oregon
0.706
6
China #1
0.679
7
Utah
0.674
8
Mexico
0.626
9
Indonesia
0.557
10
Crete
0.394
Finland 2010