WEEK 1
COURSE OVERVIEW AND
INTRODUCTION
TO THE PROCESS VIEW OF
T H E O R G A N I Z AT I O N
A S S O C . P R O F. K A N N A N S E T H U R A M A N
A BRIEF INTRO ABOUT ME
•
•
•
•
B.Tech from IIT (BHU),Varanasi, India.
PGDM from IIM, Calcutta, India.
A.M. and Ph.D. from Wharton, specialising in operations management
Have held academic appointments at the University of Michigan business
school at Ann Arbor, IIM, Ahmedabad prior to MBS.
• Teach core course on Managing processes and an elective on supply chain
management.
• Teach many executive programs on supply chain management, lean and six
sigma initiatives and process management to executives.
• Currently researching on how to apply and extend lean practices in service
sector, in particular, in health care services. Also researching on green
supply chains and their link with lean.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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CONTACT
DETAILS
• Office: 153
• Phone: 9349-8159
• Office Hours: By appointment
through Zoom
• Preferred email:
s.kannan1964@gmail.com
Week 1: Course Overview and Introduction to Process View of the Organization Assoc. Prof. Kannan Sethuraman
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GUIDING PHILOSOPHY IN PEDAGOGY
"Tell me and I forget,
Teach me and I remember,
Involve me and I learn"
- Benjamin Franklin
“A teacher hasn’t taught
until a student has
learned”.
- Dr. Henrietta Mears
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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COURSE PHILOSOPHY
• The course philosophy is that the effective management of
operations is central to all industries (whether it is in manufacturing
or in services), and is an essential expertise required from all
executives.
• Emphasizes the integration of various organizational functions.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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COURSE OBJECTIVES
– To provide the fundamentals to improve one’s understanding of
business processes.
– Focus on managerial tools and concepts necessary to perform a
structured analysis of existing business processes and prepare the
managers to use the results of their analyses to continuously
improve the firm's operational performance.
– Effective operations management is about effectively matching
supply with demand. This course will provide tools and concepts
to achieve this elusive goal.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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THE ECONOMIC CONSEQUENCES OF THE
SUPPLY-DEMAND MISMATCH ARE SEVERE
Air travel
Emergency room
Retailing
Iron ore plant
Pacemakers
Supply
Seats on specific
flight
Medical service
Consumer
electronics
Iron ore
Medical equipment
Demand
Travel for specific
time and destination
Urgent need for
medical service
Consumers buying a
new video system
Steel mills
Heart surgeon
requires pacemaker
at exact time and
location
Supply
exceeds
demand
Empty seat
Doctors, nurses, and
infrastructure are
under-utilized
High inventory costs;
few inventory turns
Prices fall
Pacemaker sits in
inventory
Demand
exceeds
supply
Overbooking;
customer has to take
different flight (profit
loss)
Crowding and delays
in the ER, potential
diversion of
ambulances
Foregone profit
opportunity;
consumer
dissatisfaction
Prices rise
Foregone profit
(typically not
associated with
medical risk)
Actions to
match supply
and demand
Dynamic pricing;
booking policies
Staffing to predicted
demand; priorities
Forecasting; quick
response
If prices fall too low,
production facility is
shut down
Distribution system
holding pacemakers
at various locations
Managerial
importance
About 30% of all
seats fly empty; a 12% increase in seat
utilization makes
difference between
profits and losses
Delays in treatment or
transfer have been
linked to death;
Per unit inventory
costs for consumer
electronics retailing
commonly exceed
net profits.
Prices are so
competitive that the
primary emphasis is
on reducing the
cost of supply
Most products
(valued $20k) spend
4-5 months waiting in
a trunk of a sales
person before being
used
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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THE DILEMMA OF ALMOST EVERY FIRM:
MISMATHC BETWEEN SUPPLY AND DEMAND
• Mismatch can take one of the following two forms
Demand exceeds supply
(inventory=waiting customers)
Supply exceeds demand
(inventory=goods or resources)
• Analyzing processes helps us to create a better match.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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IMPACT OF THE CORONA VIRUS CRISIS ON GLOBAL MANUFACTURING
• At a time like this, the mismatch crisis worsens even more.
• https://www.forbes.com/sites/willyshih/2020/03/20/global-manufacturing-supply-shock-meetsdemand-shock/#2c2861b0729b
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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COURSE TOPICS
• Session 1:
Course overview and Introduction to the
Process View of the Organization
• Case: Kristen Cookies
• Session 2:
Process Analysis I: Evaluating Process
Capacity and Performing Detailed Process Analysis
• Case: Donner Company
• Session 3:
Process Analysis II: Continuation of case analysis and Finding
bottlenecks in the multiproduct case
• Case: Donner Company
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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COURSE TOPICS (CONTINUED)
• Session 4:
Process Analysis III: Analysis of assembly operations
and Batch Processes
• Session 5:
Process Analysis IV: Continuation of the analysis of Batch
Processes and Capstone case on Process analysis and
Case: National Cranberry Coop, 1996
• Session 6:
Inventory Models: Deterministic and Stochastic Inventory
Models
• In-class problem solving exercises
• Session 7:
Continuation of inventory management and the Impact of
variability on Process Performance: Waiting Line Issues
• In-class problem solving exercises
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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COURSE TOPICS (CONTINUED)
• Session 8:
Continuation of our discussion on the impact of
variability on process performance:
• Case: Manzana Insurance-Fruitvale Branch
• Session 9:
Strategic Quality Management and Foundations of Six
Sigma Quality Initiatives.
• Hank Kolb Case
• Session 10:
The Toyota Production System and Course
Wrapup
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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COURSE MATERIALS
• Materials on Canvas: Canvas website contains
cases, technical notes and reprints of articles
from different business journals. I will also
update the site with copies of the slides and
answers to problems assigned.
• Required custom text: “Managing Processes –
4th Edition” compiled by Kannan.This
customised text is based on the text
“Matching Supply with Demand: An
Introduction to Operations Management,” 4th
Edition, by Cachon and Terwiesch, 2019,
McGraw-Hill.
• You are welcome to purchase the entire text,
but I decided to create a custom text that
includes only the relevant chapters that we
will cover in this course. The custom ebook is
available for $39.95.
The eBook Managing Processes 4e is live and
available for student purchase at:
https://www.mheducation.com.au/ebook-managingprocesses-4e-customised-9781307561197-aus
The eBook is priced at AUD$39.95 (GST included),
Orders placed within Australia and New Zealand
include Goods and Services Tax (GST).
If you experience any problems with the process
please do not hesitate to contact McGraw-Hill’s
Customer Care staff at www.mhhe.com/support.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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COURSE ASSESSMENT
Class participation and Contributions to
Canvas Forums (20%)
Syndicate Case Assignments (40%)
Final Examination (3.5 hr) (40%)
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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SYNDICATE CASE ASSESSMENTS
1. National cranberry (20%) - The report is
due electronically by noon on 15 Feb
2. Manzana Insurance: Fruitvale Branch (20%)
– Due electronically by noon on 8 March
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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EXPECTATIONS
• Please come to class fully prepared
• Inform if you are planning to be late or absent.
• Switch off mobile phones/beepers.
• Spend about 2 hours outside of class in preparation for
each hour in class.
• Try to pull your weight in group exercises.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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EXPECTATIONS
• If you have any difficulty with the course, please approach me as
early in the course as possible.
• I will try my best to make this course a valuable experience for all of
you.
• Please feel free to provide any feedback that would help me improve
the course.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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LEARNING OBJECTIVES FOR WEEK 1’S SESSION
• Highlight the need for internal consistency and fit between operations
strategy and the overall corporate strategy for achieving sustainable
competitive advantage.
• To illustrate the different dimensions along which the operating system and
its constituent processes, might be measured.
• Introduce a broad set of operating processes and give concepts and a set of
analytic tools to describe and analyze them to assess their performance
along the dimensions mentioned earlier.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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P R E P A R AT O R Y
M AT E R I A L S F O R
WEEK 1 CLASS
COURSE OVERVIEW AND INTRODUCTION
TO THE PROCESS VIEW OF THE ORGANIZATION
Case:
Readings: Text: Ch 2 (2.1 &
2.2); Ch 3 (3.1 & 3.2)
Process
Outputs
Goods
Services
Inputs
Resources Labor & Capital
Week 1: Course Overview and Introduction to
Process View of the Organization - Assoc. Prof.
Kannan Sethuraman
KRISTEN COOKIES
19
A BRIEF INTRO
Tools of OM can be applied in different ways:
1.
OM tools can be applied to ensure that resources are used as efficiently
as possible; that is, the most is achieved with what we have.
2.
OM tools can be used to make desirable trade-offs between competing
objectives.
3.
OM tools can be used to redesign or restructure our operations so that
we can improve along multiple dimensions simultaneously.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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CONSIDER A CALL CENTER …
• A common problem in the industry is to find an
appropriate number of customer service
representatives to answer incoming calls.
• The more representatives you hire, the less likely
incoming calls will have to wait; thus the higher
will be the level of service we provide.
• However, the labour is the single largest driver
of cost in a call center, so, obviously, having more
reps on duty will increase the costs per call.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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1. IDENTIFY OPPPORTUNITIES FOR LOCAL
IMPROVEMENT OF OPERATIONS THROUGH
ELIMINATION OF INEFFICIENCIES
Responsiveness
High
Competitor A
Eliminate
inefficiencies
Competitor C
Low
Current frontier
In the industry
Competitor B
Low labor
productivity
High labor
productivity
Labor Productivity
(e.g. $/call)
Ref: Notes from Prof. Gerard Cachon, Wharton.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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2. HELP EVALUATE DESIRABLE TRADE-OFFS.
Responsiveness
High
Shorter waiting times,
but more operator idle time
Current position
on the frontier
Longer waiting times,
yet operators are more
fully utilized
Low
Low labor
productivity
High labor
productivity
Labor Productivity
(e.g. $/call)
Ref: Notes from Prof. Gerard Cachon, Wharton.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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3. EVALUATE PROPOSED NEW REDESIGNS/NEW
TECHNOLOGIES
Responsiveness
High
Redesign
process
New frontier
Current frontier
In the industry
Low
Low labor
productivity
High labor
productivity
Labor Productivity
(e.g. $/call)
Ref: Notes from Prof. Gerard Cachon, Wharton.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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WHAT ROLE SHOULD OPERATIONS PLAY IN AN
ORGANIZATION?
“A company’s operations
function is either a competitive
weapon or a corporate
millstone. It is seldom neutral.”
Ref: Skinner, Wickham, “Manufacturing – Missing link in
corporate strategy”, HBR, May-June, 1969.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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WHAT IS OPERATIONS MANAGEMENT?
• Operations Management deals with the design, management and continuous
improvement of the transformation processes for creating goods and services
that are valued by customers and society.
Inputs
Transformational
processes
Outputs
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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OM skills are needed in industries
as diverse as health care,
education, telecommunications,
food service, banking, consulting
and manufacturing.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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UNDERSTANDING GOODS AND SERVICES
• A good is a physical product that you can see, touch, or possibly
consume.
• A service is any activity that does not directly produce a physical
product. It represents the non goods part of a transaction between
a buyer and seller.
– Hotels, airlines are common examples of services.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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GOODS AND SERVICES
Pure Goods
Pure Services
• Some
operations
produce just
goods
• For Example,
Crude oil
manufacturer
• Some
operations
offer just
services.
• For Example,
Psychotherapy
clinic
Mixture of goods
and services
• But, most
operations
offer a mixture
of the two.
• E.g. Restaurant
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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SIMILARITIES BETWEEN GOODS AND SERVICES
1. Both goods and services are aimed to
provide value and satisfaction to customers
who purchase and use them.
2. They both can be standardized or
customized to meet individual requirements.
3. Irrespective of the type of product,
Operations Management skills will be critical
for efficiently producing those goods or
services.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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SERVICES AND MANUFACTURING: THREE FUNDAMENTAL
DIFFERENCES
• Service may include tangible goods as some of its components. Eg. Food in a
restaurant.
• However, the overall product offering such as a dining experience is primarily
intangible.
1.Nature of their
• Intangibility makes quality more difficult to assess in case of services.
output
• Most distinctive difference is the involvement of customer in the production
process.
• Services often require the participation of a customer in the production process.
2. Degree of
• Due to the active participation of customer in the value creation process, the
Customer contact degree of variability in the quality of service is much higher.
and coproduction
• Services are often produced and consumed at the same time.
• It is almost impossible to inventory services the way one can store finished
goods.
3. Simultaneous • Also, production capacity in many services is also perishable. E.g. airline seats,
production and
hotel rooms.
consumption
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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Input-transformation-output model: Examples
• Consider an example from
manufacturing sector, a bakery may
be…
– What are the inputs that go in?
– What are the operational processes
that help transform inputs into
outputs?
– What are the outputs that come out?
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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INPUTS, PROCESSES AND OUTPUTS INVOLVED IN A
BAKERY
Transforming
processes
Inputs
• Buildings,
• equipment,
• Food
ingredients,
• packaging
materials,
• energy,
• recipes and
• people.
•
•
•
•
•
•
Mixing,
proofing,
baking,
packaging,
maintenance,
distribution.
Outputs
• Range of
packed
bakery
products
delivered to
warehouses
and retail
outlets that
are fresh and
in line with the
needs of the
customers.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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AN EXAMPLE FROM THE SERVICE SECTOR..
• Let us look at Air passenger transport.
• What would be the inputs, operations
processes and outputs in the air passenger
transport?
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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INPUTS, PROCESSES AND OUTPUTS INVOLVED IN THE AIR
PASSENGER TRANSPORT
Inputs
•
•
•
•
•
•
•
Airports,
Booking systems,
aircrafts,
aircrews,
ground staff,
fuel,
food.
Transformational
processes
• Passenger
reservations
• flight schedules,
• aircraft maintenance
• aircraft cleaning and
refueling,
• meals and crew
scheduling,
• boarding
procedures,
• in-flight procedures,
• baggage claim
Outputs
• Customers booked
on appropriate
flights in terms of
timing and
convenience
• Customers
progressed through
pre-boarding phase
of the service
delivery system
• Customers
transported safely
and on time to
chosen destinations.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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IT WOULD BE USEFUL TO THINK ABOUT YOUR FIRM AND
ITS OPERATIONS
• What are the inputs that go in? What transformational processes help you to convert them
into outputs? What outputs are generated from your system?
• May be put them in an input-transformation-output diagram.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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LINKING OPERATIONS TO OTHER FUNCTIONAL AREAS
• Activities in the areas of Marketing, Purchasing, Finance and Human
Resources interface between Operations management and the
external product, factor, capital, and labor markets respectively.
• OM must manage these interfaces successfully to achieve its value
producing mission.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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Capital Markets
FINANCE
Input
Product
Markets
P
U
R
C
H
A
SI
N
G
Operations Management
resides at the
technological core of the
firm
HUMAN
M
A
R
K
E
T
T
I
N
G
Output
Product
Markets
RESOURCES
Labor Markets
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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S T R AT E G Y,
FIT
AND
CONSISTENCY
STRATEGY – DON’T KEEP IT TOO CLOSE TO
YOUR CHEST
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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INTERACTION BETWEEN CORPORATE STRATEGY
AND THE OPERATIONS STRATEGY
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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Basis on which BU will
achieve and maintain
competitive advantage
What must operations
do particularly well?
Which capabilities must
operations develop?
Operations Structure
Acquisition & allocation
of key corporate
resources to each
business
Scope of the business
(product/market/service
segments)
Operations Strategy
Businesses in which the
operations will
participate
Business Unit Strategy
Corporate Strategy
A STRATEGIC FRAMEWORK FOR OPERATIONS
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
How should operations
processes be structured
to develop capabilities
to support operations
strategy?
43
MARKETING – MANUFACTURING: AREAS OF NECESSARY
COOPERATION BUT POTENTIAL GOAL CONFLICT
Goal Conflict
MARKETING
Operative goal is
customer satisfaction
Conflict Area
Typical Comment
Typical Comment
Breadth of product line
“Our customers
“The product line is too
demand variety.”
broad, all we get are
short, uneconomical runs.”
New product introduction
“New products are our
lifeblood.”
“Unnecessary design changes
are prohibitively expensive.”
Production scheduling
“We need faster response.
Lead times are too long.”
“We need realistic customer
commitments that don’t
change like the wind direction
Physical distribution
“Why don’t we ever have
the right merchandise
in inventory?”
“We can’t keep everything in
inventory.”
Quality
“Why can’t we have
reasonable quality
at low cost?”
“Why must we always offer
options that are too
expensive and offer little
customer utility?”
Ref: Can marketing and manufacturing
coexist?, B. Shapiro, HBR, 1977
VS.
MANUFACTURING
Operative goal is
production efficiency
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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A WORD OF CAUTION
Be market-led and not marketing-led
• Substituting business (market) perspective with a functional
(marketing) perspective will lead to distorted strategies and eventually
result in corporate disadvantage.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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EXAMPLES OF
OPERATIONAL
EXCELLENCE
ALASKA AIRLINES – REDESIGN AT SEATTLE- TACOMA
AIRPORT
• Alaska Airlines’ airport of the future project at Seattle-Tacoma
Airport.
– Process redesign has helped to dramatically reduce passenger turn
around times at the airport check-in time from 30 minutes to less than
8 minutes.
– It has also improved agent productivity.
• “During my two hours of observation in Seattle, an Alaska agent
processed 46 passengers, while her counterpart at United managed just
22.”
– Source: https://www.fastcompany.com/705004/hustle-flow
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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WALT DISNEY - WORLD CLASS IN OPERATIONS
MANAGEMENT
Walt Disney clearly put us
on the path toward things
like quality, great guest
service, creativity and
innovation,” said Mr. Bruce
Jones, programming director
for the Disney Institute.
Disney theme parks and
resorts are designed to
“create happiness by
providing the finest in
entertainment for people of
all ages, everywhere.”
• How do they accomplish this?
• By meticulous attention to the
management of operations!
• Source:
• http://business.financialpost.com/executive
/business-education/the-business-strategybehind-disneys-magical-experiences
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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CHANGI AIRPORT
• Voted as the best airport in the world for
the sixth straight year.
• Source:
• https://www.channelnewsasia.com/news/si
ngapore/changi-voted-world-s-bestairport-for-6th-consecutive-year-10065554
• http://www.changiairport.com/corporate/a
bout-us/our-belief.html
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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WAL-MART PERFORMANCE SNAPSHOT
Wal-Mart performance
• Nearly 2.2 million associates worldwide.
• 11,000 stores and wholesale clubs across
28 countries.
• Most admired retailer according to
Fortune magazine survey.
• $485.65 billion in revenue in fiscal year
2015.
• $16.343 billion in net income in fiscal
year 2015.
• Best-in-class profits over an extended
period of time.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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WAL-MART – GOOD FIT BETWEEN FUNCTIONAL
STRATEGIES AND OVERALL CORPORATE STRATEGY
Corporate Strategy
• Gain Competitive advantage by providing customers access to
quality goods, when and where needed, in the quantities they
are needed, at competitive prices.
Operations Strategy
• Short flow times
• Low inventory levels.
Operations Structure
•
•
•
•
EDI
Fast transportation system
Communication between retail stores and suppliers
Cross docking
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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HOW DID WAL-MART SUCCEED?
– Relentless focus on satisfying customer
needs.
– Developed cost structures that enable
competitive pricing.
– Partnered with key suppliers and managed
inventory better than its competition.
– Techniques such as cross-docking helps
them to continuously replenish inventory
without the material ever sitting as
inventory at the warehouses.
Week 1: Course Overview and Introduction to Process
View of the Organization - Assoc. Prof. Kannan Sethuraman
52
CURRENT OM CHALLENGES
• Reducing product development time
• Developing production systems to enable mass customization of products
and services
• Managing global production networks
• Developing and integrating new process technologies into existing
production systems ....
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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CURRENT OM CHALLENGES (CONTINUED)
• Achieving high quality quickly and maintaining it in the face of
restructuring
• Managing an increasingly diverse workforce
• Conforming to environmental constraints, ethical standards, and
government regulations
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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FUNDAMENTALS
OF
P R O C E S S A N A LY S I S
Process Fundamentals
• A process is a collection of tasks connected by a flow of goods and
information that transforms various inputs into more valuable
outputs.
• People, machines and procedures are generally involved in the
transformation.
• Process Flow Diagram is a pictorial representation of a business
process.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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PROCESS FLOW DIAGRAM
• The most helpful tool in analyzing business processes is the process
flow diagram.
• It is a pictorial way to describe the process and will help you to
structure the information you find.
• In any consulting project, you need to focus on a part of the process
that you wish to analyze in greater detail.
• Placement of the boundaries will depend on the project you are
working on.
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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Process Flow Diagram – An example
Tasks in a process are shown as small rectangles, flows as arrows, and the storage
of goods as inverted triangles.
Mix
Bake
WIP
RM
Pack
Mix
Bake
FG
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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PROCESS FLOW CHART SYMBOLS
– Inventory holding points
• Raw material inventory (RM)
• Work-in-process inventory (WIP)
• Finished goods inventory (FG)
– Flow of material or work
– Processing steps
– Decision points
Week 1: Course Overview and Introduction to Process View of the Organization - Assoc. Prof. Kannan Sethuraman
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KEY STEPS IN PROCESS ANALYSIS
1.
2.
3.
4.
5.
6.
Choose the process boundaries and the flow unit.
Understand how the physical process works and draw a process flow
diagram. Show process steps, inventory holding points, and arrows
depicting the flow of the product.
Determine the capacity of each step in the process expressed as the
number of flow units of product that can be processed per unit time.
Identify the bottleneck. This is the step with least capacity.
Once the bottleneck is identified, think about how the bottleneck
influences other process steps. Calculate different performance
measures such as the process capacity, flow time, work in process
inventory, and labor utilization.
Consider changes to improve system performance.
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THREE MEASURES OF PROCESS PERFORMANCE
Cycle Time
• Average time between completion of successive units. It is directly related to the
output rate.
• Note that the flow rate or the throughput rate or the rate at which the
processing is delivering output (units/unit of time) is the inverse of the cycle time.
Flow time or manufacturing lead time or service lead time
• The amount of time it takes a unit to get through the process. This includes time
spent actively being worked upon at each step of the process as well as the time
the unit may spend in waiting to be processed.
Inventory or Work in process (WIP)
• Number of units in the process at any point in time. These include the units in
process as well as the ones waiting to be processed.
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HOW ARE THESE MEASURES LINKED TO COST AND
PROFIT?
• These measures have a direct impact on cost and even better, on
profit.
– Shorter flow times will make it easier to rapidly respond to customers
better (especially in make-to-order environments and service operations).
– Typically, shorter flow time will result in additional unit sales and/or higher
prices.
– Lower inventory results in lower working capital requirements as well as
many quality advantages that we will explore later in the course.
– Higher inventory is also related to longer flow time.
– Higher flow rate translates into more revenues if you are capacity
constrained and you have sufficient demand for your product.
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BOTTLENECKS
• The overall capacity of process is determined by the resource with the smallest capacity and such a
resource is called a bottleneck.
Supply constrained
Demand constrained
Bottleneck
(Capacity)
Input
Bottleneck
(Capacity)
Input
Flow Rate
Flow Rate
Demand
Excess
capacity
Excess
capacity
Demand
• Flow rate = Minimum{available input, demand, process capacity}
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HOW DO YOU IDENTIFY A BOTTLENECK IN YOUR
BUSINESSES?
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HOW TO IMPROVE A PROCESS?
• Add capacity to the bottleneck
– This is an improvement if the value of the extra capacity exceeds the
cost of the extra capacity.
• Improve balance by moving work from the bottleneck activity to a
non bottleneck activity.
• Determine the best span of control for a worker, e.g. do we have a
cell with a single worker who builds the entire product or do we
have an assembly line on which each worker performs a narrow set
of tasks.
• If a process is demand rather than capacity constrained, stimulate
demand by offering additional value to the customer; e.g. higher
quality, more variety or shorter lead time.
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HOW TO APPROACH OM CASES? – A useful recipe
1.
2.
3.
First determine, what the operating unit has to do well to compete in
the market?
Then ask what’s wrong with current operations - Look at symptoms
that are causing concern.
Perform a thorough diagnosis of the underlying causes of the
symptoms.
Use appropriate tools such as process analysis, information flow analysis to
determine the causes.
4.
5.
6.
7.
Once you understand the root causes, try to determine what actions
can be taken to mitigate them.
Perform further analysis to see whether the changes will fix the
problem.
Step back. Look at strategic implications of the proposed changes.
Make sure they are consistent with the strategic objectives of the
organization.
Set your plan of action.
(Source: Roger Bahn, “How to approach OM Cases?”, Harvard Business School Note)
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RECOMMENDED FURTHER READING
• What is strategy? By Michael Porter, HBR, Nov-Dec., 1996
• Can marketing and manufacturing coexist? By Benson Shapiro, HBR
Sep-Oct, 1977.
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P R E P A R AT O R Y
M AT E R I A L S F O R
NEXT WEEK’S
CLASS
Process analysis I:
evaluating process capacity and performing
detailed process analysis
Case:
Donner
Readings:
Textbook: Ch 2 (2.3-2.4)
Attempt practice problems:
Q 2.1-2.5; Q 2.10; If you don’t
have time to do all, please
attempt 2.5 and 2.10. We will
be discussing these two
problems in class.
Week 1: Course Overview and Introduction to
Process View of the Organization - Assoc. Prof.
Kannan Sethuraman
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