Introduction to Business
Processes
BU1193
Business Process
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Every organization -public, private, non profit, etc.- has to manage a number
of processes
A process could be defined as a “chain of events, activities and decisions”
to accomplish specific goals
Most common business processes are referred to:
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Order-to-cash (selling)
Quote-to-order (buying)
Sourcing-to-manufacture (production)
Customer complain-to-resolution (customer service)
Business Process (Cont.)
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Business processes are what organizations do whenever they deliver a
service or a product to customers
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The way processes are designed and executed affects both the “quality”
(from customer view) and the efficiency (from the organization view)
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A business process includes: people (inside/outside the company); physical
resources (machines, devices, etc) and non-physical resources (software,
information system, etc)
Components of a Business Process
A business process involves:
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A number of events, activities and decision points
Events are usually used to describe how the process starts and ends
(Message, timer)
An activity is a set of single unit of work, also known as tasks
A decision point is when a decision is made and affects the way the
process is executed
Components of a Business Process (Cont.)
A business process also involves:
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A number of people executing activities and/or monitoring the process. There
could be automated processes (AI) where people are not included
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Physical resources such as equipment, machinery, materials, tools,
documents, etc.
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Non-physical resources such as information technology, specialized
software, electronic records, etc
Business Process Outcomes
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The execution of a business process usually leads to one or several
outcomes (results)
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Ideally the final outcome delivers value to the actors involved in the process.
But in some cases the final outcome could be negative
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Among actors involved in the process, the one who consumes the output
plays special role, usually as a consumer
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Sometime the same process serves to more than one customer
simultaneously
Business Process, Concept
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Business process is a collection of interrelated events, activities and
decision points that involve a number of actors and resources that
collectively lead to an outcome that is of value to either a single or a group of
consumers
Business Process Management
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Business process management (BPM) is a body of methods, techniques
and tools to describe, analyze, redesign, execute and monitor business
processes
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The BPM is not about improving the way individual activities are performed.
Rather it is about conducting entire chain of events, activities and
decision points that ultimately add value to the organization
Questions
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How the globalization, information technology and artificial intelligence can
affect business processes inside the organizations?
What kind of business processes can be controlled and what kind of business
processes cannot be controlled by organizations? Why?
Business Processes Management Cycle
There are six phases:
1.
2.
Process identification/description
Process documentation
3.
4.
5.
6.
Process analysis
Process redesign
Process implementation
Process monitoring and controlling
BPM Cycle: Identification/Description
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In this phase, a process directly or indirectly related to a business problem is
identified, described and delimited
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The outcome of process identification is a detailed description about the
process architecture that provides and overall view of the process
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The identification/description of the process can be done either: a) by
isolating the process or b) by describing it in parallel with performance
BPM Cycle: Documentation
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At this stage, each relevant process component is documented in detail
typically in the form of graphics, flowchart and any other resource to
better understand the real situation of the process
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This stage is also known as process modelling because it is typically
executed in the form of “as-is” models (process reproduction)
BPM Cycle: Analysis
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In this phase, discrepancies and/or deficiencies in the process are
identified, and if possible quantified using performance indicators
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The output of this phase is an structured collection of issues, discrepancies
or deficiencies
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All issues are typically prioritized in terms of their impact and sometimes
also in terms of estimate effort required to resolve the problem
BPM Cycle: Redesign
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It is also called process improvement. The goals is to identify changes to
the process that would help to solve the issues identified in the previous
phase and allow the organization to improve its performance
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At this point, multiple change options are analyzed and compared in terms
of performance using process analysis techniques
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The best change options are combined and the process is accordingly
redesigned
BPM Cycle: Implementation
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In this phase, the changes are required to move from “as-is” process (old) to
the “to-be” process (new)
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Process implementation may include two aspects: Organizational change
management and process automation
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Organizational change management refers to the activities required to
change the way of working of all participants in the process
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Process automation refers to the development and deployment of specific
technology (robots, software) to support the new process
BPM Cycle: Monitoring and Controlling
● Once the new process is running, relevant data is collected and analyze to
determine how well the process is performing
● Bottlenecks, unexpected errors or deviations are identified and corrected
immediately
● New issues may arise in the same process or in other related processes,
requiring the cycle to be repeated on a continuous basis
Business Process Stakeholders
They are: Management team, process owners, process participants, process
analysts, system experts
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Management team, is responsible for overseeing all processes inside the
business, looking for new initiatives and providing strategic guidance in all
the phases of the process lifecycle
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Process owners, is responsible for the efficient and effective operation of a
given process. The process owner is involved in all the phases of the BPM
cycle
BPM: Stakeholders (Cont.)
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Process participants are the human actors who perform the activities in
the business processes. They are the main source of information to describe,
document and redesign the process
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Process analysts, are experts that have either business background
(focused on organizational development) or system engineering (focused on
process efficiency)
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System experts, may include experts on specific areas such as production,
construction, human resources, marketing, etc. which are selected based on
the nature and specific characteristics of the business processes
Questions
1.
2.
3.
4.
How information technology, robotics and artificial intelligence can be applied
to design and/or improve business processes?
Why it is important to monitor business processes on a continuous basis?
What kind of factors, from inside the organization, can affect business
processes?
What kind of factor, from outside the organization, can affect business
processes?
Game: Design the Process
Based on the following activities, identify and design the business process
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Send invoice to the customer
Received customer order
Resolve customer complaint
Pack and prepared shipment
Receive payment
Pick order
Send shipment
Overview of Business Process Management (BPM)
Workflow, Business Process Management Resources
Managing business processes is a huge challenge in most organizations. Many business owners assume that it is a huge
expense or that it is only worth it for massive processes.
However, BPM is important no matter what size your business is. Here’s a definitive guide to managing your business
processes with the help of automation.
What is Business Process Management?
Business process management (BPM) is an organizational discipline where a company takes a step back and looks at all of
these processes in total and individually. It analyzes the current state and identifies areas of improvement to create a more
efficient and effective organization.
Business process management (BPM) is how a company creates, edits, and analyzes the predictable processes that make
up the core of its business. Each department in a company is responsible for taking some raw material or data and
transforming it into something else. There may be a dozen or more core processes that each department handles.
Is BPM like Task or Project Management?
Business process management is neither task management (which focuses on individual tasks) nor project management
(which handles one-time or unpredictable flows).
Task management is about handling or organizing a set of activities that arise out of a project. These projects are often onetime and non-repeatable. When these projects are well-organized like in construction work, a project management software
like ‘Microsoft Project’ is used. Business process management is focused more on repetitive and ongoing processes that
follow a predictable pattern, or process management.
Why does Business Process Management Matter?
When left unorganized and unsystematized, poor business processes can lead to mayhem. At the individual level, people
only see one part of a process, and very few can scan out and see the full effects of a process, where it starts and ends, the
key data needed, and where potential bottlenecks and inefficiencies lie.
Unmanaged, chaotic processes hurt business and lead to one or more of these scenarios:
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Time wasted
More errors
Increased blame
Lack of data
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Demoralized employees
Applying business process management, organizations can improve their processes and keep all aspects of operations
running optimally.
Steps of a BPM Lifecycle
Step 1: Design- Most processes include a form to collect data and a workflow to process it. Build your form and identify who
will own each task in the workflow.
Step 2: Model- Represent the process in a visual layout. Fix details like deadlines and conditions to give a clear idea of the
sequence of events, and the flow of data through the process.
Step 3: Execute- Execute the process by testing it live with a small group first and then open it up to all users. Make sure
you restrict access to sensitive information.
Step 4: Monitor- Keep an eye on the process as it runs through the workflow. Use the right metrics to identify progress,
measure efficiency, and locate bottlenecks. Here is a more detailed article about this step.
Step 5: Optimize- As you analyze, notice any changes that need to be done to your form or workflow to make them more
efficient.
What are the various types of business process management?
BPM systems can be categorized based on the purpose they serve. Here are the three types of business process
management:
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Integration-Centric BPM- This type of business process management system handles processes that primarily jump
between your existing systems (e.g. HRMS, CRM, ERP) without much human involvement. Integration-centric
business process management systems have extensive connectors and API access to be able to create processes
that move fast.
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Human-Centric BPM - Human-centric BPM is for those processes that are primarily executed by humans. These
often have a lot of approvals and tasks performed by individuals. These platforms excel at a friendly user interface,
easy notifications, and quick tracking.
Document-Centric BPM- These business process management solutions are required when a document (e.g. a
contract or agreement) is at the heart of the process. They enable routing, formatting, verifying, and getting the
document signed as the tasks pass along the workflow.
Most business process management systems will be able to incorporate elements of each of these, but each one will usually
have one specialty. Business process management examples
Human Resources - Have you ever felt your organization’s onboarding process is too complex and chaotic? Is your HR
department asking the candidates to fill out paper forms that make them exhausted? This is because your HR department
lacks the principle of Business Process Management (BPM). Applying business process management, helps you automate
your HR processes end-to-end, thereby cutting down on cost, time, and paper forms. Here are a couple of examples as to
how business process management helps your HR department to improve their processes:
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Approve employee timesheets faster
Onboard new hires without hassles
Sales - In most organizations, the sales team spends a significant amount of time in coordinating with the Accounts
Receivable (AR) team, to get sales invoices approved. Even a small typo in invoices, ruins the lives of the salespeople. This
is where business process management comes into the picture, since it automates the invoice approval process, thereby
eliminating the chances of manual errors and the back and forth clarifications between the salespeople and the AR team.
Here are a couple of scenarios in the sales department, where business process management can help them streamline their
processes:
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Shorten your sales cycle workflows
Be on time with quotes and invoices
Finance - A finance team is bombarded with paper forms and emails every day since anything that involves money has to
go through them. For instance, if the asset management team wants to purchase 50 laptops, they send the quotation that
they received from the vendor to the finance team for approval. This is just one case. Imagine, how many emails and paper
forms they receive on a daily basis from various teams. Without a system in place, it is cumbersome for them to manage all
of these. A business process management (BPM) system helps them manage all of this. Here are a couple of scenarios in
the finance department, where business process management comes as a saving grace:
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One-click approvals for travel requests
Customize workflows for unique scenarios
What is a BPM system?
A business process management system is a software that enables the modeling, design, execution, and maintenance of
business activities and the employees who manage them, across different departments and physical locations. These
software solutions are designed to help businesses optimize their everyday business processes for maximum efficiency and
productivity.
What does a BPM system do?
A business process management system does the following.
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Enables creating complex business process spanning different departments and locations
Monitors and maintains processes to ensure optimal efficiency
Modifies existing processes to enable changes to the process as the organization grows
What are the benefits of incorporating business process management?
Here are some of the primary benefits of using BPM in your business:
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Gain control of chaotic and unwieldy processes
Create, map, analyze, and improve business processes
Run everyday operations more efficiently
Realize bigger organizational goals
Move toward digital transformation
Improve and optimize tangled operations
Closely track individual items as they move through a workflow
Improving Business Processes
Mindtools, Learning Resources
A streamlined process means fewer errors and delays. You probably use dozens of business processes every day. For
example, you may go through the same steps each time you generate a report, resolve a customer complaint, contact a new
client, or manufacture a new product.
You've likely come across the results of inefficient processes, too. Unhappy customers, stressed colleagues, missed
deadlines, and increased costs are just some of the problems that dysfunctional processes can create. That's why it's so
important to improve processes when they are not working well. In this article, we'll look at how you can do this.
About Business Processes
Processes can be formal or informal. Formal processes – also known as procedures – are documented, and have wellestablished steps. For example, you might have procedures for receiving and submitting invoices, or for establishing
relationships with new clients. Formal processes are particularly important when there are safety-related, legal or financial
reasons for following particular steps.
Informal processes are more likely to be ones that you have created yourself, and you may not have written them down. For
example, you might have your own set of steps for noting meeting actions, carrying out market research, or communicating
new leads.
The Importance of Efficient Processes
These different kinds of processes have one thing in common: they're all designed to streamline the way that you and your
team work. When everyone follows a well-tested set of steps, there are fewer errors and delays, there is less duplicated
effort, and staff and customers feel more satisfied. Processes that don't work can lead to numerous problems. For example:
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Customers may complain about poor product quality or bad service.
Colleagues get frustrated.
Work may be duplicated, or not done.
Costs increase.
Resources are wasted.
Bottlenecks can develop, causing you to miss deadlines.
Improving Your Team's Processes
When you encounter some of the problems mentioned above, it may be time to review and update the relevant process.
Follow these steps to do this:
Step 1: Map the Process- Once you've decided which process you want to improve, document each step using a Flowchart
or a Swim Lane Diagram . These tools show the steps in the process visually. (Swim lane diagrams are slightly more complex
than flowcharts, but they're great for processes that involve several people or groups.)
It's important to explore each phase in detail, as some processes may contain sub-steps that you're not aware of. Consult
people who use the process regularly to ensure that you don't overlook anything important.
Step 2: Analyze the Process- Use your flow chart or swim lane diagram to investigate the problems within the process.
Consider the following questions:
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Where do team members or customers get frustrated?
Which of these steps creates a bottleneck ?
Where do costs go up and/or quality go down?
Which of these steps requires the most time, or causes the most delays?
First use Root Cause Analysis , Cause and Effect Analysis , or The 5 Whys to trace the problem to its origins. After all, if you
only fix the symptoms, the problems will continue. Speak to the people who are affected by the process. What do they think
is wrong with it? And what suggestions do they have for improving it?
Step 3: Redesign the Process- You're now going to redesign the process to eliminate the problems you have identified. It's
best to work with the people who are directly involved in the process. Their ideas may reveal new approaches, and, also,
they're more likely to buy into change if they've been involved at an early stage.
First, make sure that everyone understands what the process is meant to do. Then, explore how you can address the
problems you identified in step 2 (Brainstorming can help here). Note down everyone's ideas for change, regardless of the
costs involved. Then, narrow your list of possible solutions by considering how your team's ideas would translate to a reallife context.
Start by conducting an Impact Analysis to understand the full effects of your team's ideas. Then, carry out a Risk Analysis
and a Failure Mode and Effects Analysis to spot possible risks and points of failure within your redesigned process.
Depending on your organization's focus, you may also want to consider Customer Experience Mapping at this stage.
These tests will help you to understand the full consequences of each proposed idea, and allow you to make the right decision
for everyone. Once you and your team agree on a process, create new diagrams to document each step.
Step 4: Acquire Resources- You now need to secure the resources you need to implement the new process. List everything
that you'll need to do this. This could include guidance from senior managers or from colleagues in other departments, such
as IT or HR. Communicate with each of these groups, and make sure that they understand how this new process will benefit
the organization as a whole. You may need to prepare a business case to demonstrate this.
Step 5: Implement and Communicate Change- It's likely that improving your business process will involve changing existing
systems, teams, or processes. For example, you may need to acquire new software, hire a new team member, or organize
training for colleagues. Rolling out your new process could be a project in itself, so plan and manage this carefully. Allocate
time for dealing with teething troubles, and consider running a pilot first, to check for potential problems. Keep in mind that
change is not always easy. People can be resistant to it, especially when it involves a process that they've been using for
some time. You can use tools such as the Change Curve and Kotter's 8-Step Change Model to help overcome resistance to
change.
Step 6: Review the Process- Few things work perfectly, right from the start. So, after you roll out the new process, closely
monitor how things are going in the weeks and months that follow, to ensure that the process is performing to expectations.
This monitoring will also allow you to fix problems as they occur. Make it a priority to ask the people involved with the new
process how it's working, and what – if any – frustrations they're experiencing. Adopt continuous improvement strategies
such as Kaizen . Small improvements made regularly will ensure that the process stays relevant and efficient.
2
nd
chapter
Business Process Mapping
BU1193
What is a Business Process Map?
● A business process map is a visual representation showing the
steps of a work activity and the people who are involved in
carrying out each step
● When mapping a process you simply draw a box for each step
and connect them with arrows to show a flow. A basic process
map would look like this;
Business Process Map, Example
Business Process Map, Example Types of
Process Maps
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Basic flowchart
High-level process map
Detailed process map
Cross functional flowchart
Suppliers, Inputs, Process, Outputs and Customers (SIPOC)
Value stream map
Basic Flowchart
A basic flowchart is a simple map visualizing the steps of a process
including its inputs and outputs. When to use:
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to plan new projects
to model and documenting a process
to solve problems
to help teams communicate ideas better
To analyze and manage workflows
Basic Flowchart
High-Level Process Map
This is also known as a value chain map or a top-down map. It
shows the core activities of a process. It doesn’t go into much
detail about decision points, rework loop, roles involved etc. We
can use:
● to design and define business processes
● to identify the key steps and key details of a process
High-Level Process Map
Detailed Process Map
A flowchart that shows a drill-down version of a process. This
means all the details of the sub-processes are contained in this
type of map. We can use:
● to give all details (inputs and outputs) related to a process step
● to document the decision points within a process
Detailed Process Map
Cross-Functional Flowchart
A flowchart that shows the relationships between process steps and the functional units
(teams/ departments) responsible for them with swim lanes. It’s also known as a
deployment flowchart. We can use:
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to identify the key roles responsible for the process and how they relate to each
other
to highlight how a process flows across company boundaries
to identify potential process failure, redundancies, delays, rework, excessive
inspection etc.
Cross-Functional Flowchart
Suppliers, Inputs, Process, Outputs and Customers (SIPOC)
SIPOC shows the key elements of a process such as Suppliers, Inputs, Process, Outputs,
and Customers. We can use:
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to identify the key elements of a process before doing a detailed map
to define the scope of complex processes
can be used in the Measure phase of the DMAIC* methodology
DMAIC*: Define, Measure, Analyze, Improve, Control
Suppliers, Inputs, Process, Outputs and Customers (SIPOC)
Value Stream Map
Value stream maps visualize the flow of material and information that is needed to bring
your product to the customer. We can use
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to record measurements of the inputs and outputs of process steps
to identify waste within and between processes
to document, analyze and improve the flow of information and material
to gain insight into decision-making and process flow
to identify where to focus future projects or subprojects
Value Stream Map
Business Process Map Symbols
● Each step in a process is represented by a shape in a process
map. These shapes are also called flowchart shapes.
● There are nearly 30 standard shapes that you can use in
process mapping. But using a handful of the most common
shapes will be easier to understand.
Business Process Map Symbols (Basic)
Process Operation Symbols
Branching and Control Flow Symbols
Input and Output Symbols
File and Information Storage Symbols
Business Process Mapping Vs. Business Process Modelling
● Business process mapping is a way to visualize what a
business does by taking into account roles, standards and
responsibilities
● Business process mapping is the tool focused on
documentation. It shows how work is done, not
necessarily how it should be done.
Business Process Mapping Vs Business Process Modelling
● Business process modeling (BPM) takes this one step
further by providing a visual way to understand, analyze,
and improve upon a current method of working
● Business process modeling is more about in-depth
analysis and optimizing inefficiencies and bottlenecks.
Business Process Mapping Components
1. Process. The overall workflow from a starting point to its successful
completion.
2. Tasks or Activities. Something performed by a person or a system.
3. Flows. This is indicated on the process map by connecting lines and
arrows.
4. Events. These are triggers that cause a process to begin, end, or may
redirect a process to a different path.
5. Gateways. Decisions that can change the path of the process depending
on conditions or events.
6. Participants. Specifically naming the people or systems that perform the
tasks or activities
Business Process Mapping Notation
Events
An event is an occurrence that triggers or creates a task or
activity. Usually all business process maps and models will
have a start event and an end event, but they can also have
intermediate events that redirect the flow to a different path.
Activities
Business Process Mapping Notation
Activities are tasks that must be executed during the process.
They can be performed by an individual or the system. An
activity is depicted with a rectangle with rounded corners.
Activities can have sub-processes, loops, multiple instances,
and compensations.
Gateways (Decisions points)
Business Process Mapping Notation
Gateways depict a decision step, a point of convergence or
divergence of flow in the process. They can be exclusive or
inclusive, parallel, complex, or based on events or data.
Flows
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Flows connect the activities that are part of a business process. These
connections are meant to indicate relationships.
Business Process Mapping Notation
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A sequence flow is the most frequently used flow type shown as a straight
line with an arrow. This type of flow indicates the sequence in which tasks are
executed.
Business Process Mapping Notation
How to create a Business Process Map
Business Process Mapping Notation
Business Process Mapping Notation
Business Process Mapping Best Practices
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Before identifying the process steps, start with identifying the start and end points
of the process. This helps with setting limits
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Make your process maps as easy and simple as possible to read and understand by
anyone in your company
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Keep only the necessary details on your map. Not less or more than needed to
identify areas for improvements
Business Process Mapping Notation
Business Process Mapping Best Practices (Cont.)
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Make sure you use the correct process map symbols when drawing to avoid
confusion
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Include all the key stakeholders when mapping the process to avoid missing out on
important information or steps
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Use a business process mapping software that allows you to quickly draw as well as
collaborate with your team in real-time for efficiency
Business Process Mapping Notation
Benefits of Business Process Mapping
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Makes understanding and communicating the process much easier among teams,
stakeholders or customers
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Serves as a useful tool for scenario testing and what-if assessments
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Can be used as a marketing tool to prove to your investors or industrial customers
that your business processes are reliable
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Is a requirement of many types of standards and certification like ISO 9000
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Makes process documentation more reader-friendly
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Spread awareness of the roles and responsibilities of those who are involved
Business Process Mapping Notation
Benefits of Business Process Mapping (Cont.)
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Helps identify flaws in the process and where improvements should be made
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Aids teams brainstorm ideas for improvement or new changes that will help tackle
challenges like retaining employees, declining revenue etc.
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Helps reduce costs associated with development of products and services
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Improve team performance and employee satisfaction
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Can be used as learning material to train new employees
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Helps measure the efficiency of work processes
Business Process Mapping Notation
Case
Based on your personal experience:
a) Describe the process for applying/getting a bank loan
b) Design the basic flowchart (process map) using the basic map symbols
c) Describe the steps to test, implement and monitor the process
What is a Process Mapping?
Business Process Mapping Notation
Lucidchart, Learning Resources
A process map is a planning and management tool that visually describes the flow of work. Using process mapping software,
process maps show a series of events that produce an end result. A process map is also called a flowchart, process flowchart,
process chart, functional process chart, functional flowchart, process model, workflow diagram, business flow diagram or
process flow diagram. It shows who and what is involved in a process and can be used in any business or organization and
can reveal areas where a process should be improved.
Purpose of process mapping
The purpose of process mapping is for organizations and businesses to improve efficiency. Process maps provide insight
into a process, help teams brainstorm ideas for process improvement, increase communication and provide process
documentation. Process mapping will identify bottlenecks, repetition and delays. They help to define process boundaries,
process ownership, process responsibilities and effectiveness measures or process metrics.
Understanding processes
One of the purposes of process mapping is to gain better understanding of a process. The flowchart below is a good example
of using process mapping to understand and improve a process. In this chart, the process is making pasta. Even though this
is a very simplified process map example, many parts of business use similar diagrams to understand processes and improve
process efficiency, such as operations, finance, supply chain, sales, marketing and accounting.
Business Process Mapping Notation
Benefits of process mapping
Process mapping spotlights waste, streamlines work processes and builds understanding. Process mapping allows you to
visually communicate the important details of a process rather than writing extensive directions.
Business Process Mapping Notation
Flowcharts and process maps are used to:
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Increase understanding of a process
Analyze how a process could be improved
Show others how a process is done
Improve communication between individuals engaged in the same process
Provide process documentation
Plan projects
Process maps can save time and simplify projects because they:
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Create and speed up the project design
Provide effective visual communication of ideas, information and data
Help with problem solving and decision making
Identify problems and possible solutions
Can be built quickly and economically
Show processes broken down into steps and use symbols that are easy to follow
Show detailed connections and sequences
Show an entire process from the beginning to the end
Business Process Mapping Notation
Process maps help you to understand the important characteristics of a process, allowing you to produce helpful data to use
in problem solving. Process maps let you strategically ask important questions that help you improve any process.
Types of process mapping
Process mapping is about communicating your process to others. You can build stronger understanding with process maps.
The most common process map types include:
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Activity Process Map: represents value added and non-value added activities in a process
Detailed Process Map: provides a much more detailed look at each step in the
process
Document Map: documents are the inputs and outputs in a process
High-Level Process Map: high-level representation of a process involving interactions between Supplier, Input,
Process, Output, Customer (SIPOC)
Rendered Process Map: represents current state and/or future state processes to show areas for process
improvement
Swimlane (or Cross-functional) Map: separates out the sub-process responsibilities in the process
Value-Added Chain Diagram: unconnected boxes that represent a very simplified version of a process for quick
understanding
Value Stream Map: a lean-management technique that analyzes and improves processes needed to make a
product or provide a service to a customer.
Business Process Mapping Notation
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Work Flow Diagram: a work process shown in “flow” format; doesn’t utilize Unified Modeling Language (UML)
symbols.
Process mapping symbols
Key elements of process mapping include actions, activity steps, decision points, functions, inputs/outputs, people involved,
process measurements and time required. Basic symbols are used in a process map to describe key process elements. Each
process element is represented by a specific symbol such as an arrow, circle, diamond, box, oval or rectangle. These symbols
come from the Unified Modeling Language or UML, which is an international standard for drawing process maps.
Business Process Mapping Notation
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Business process mapping
In business, a process is a group of interrelated tasks that happen as a result of an event. These tasks produce a desired
result for the customer. Process mapping can be used in many areas of business: business process improvement, business
process redesign, reengineering, training, quality improvement, simulation, information technology, work measurement,
documentation, process analysis, operational process design, process integration, acquisitions, mergers and selling business
operations. Business process mapping can also be helpful for complying with manufacturing and service industry regulations,
such as the common ISO 9000 (International Organization for Standardization) or ISO 9001.
Why use a process map?
Creating a process map helps organize processes and makes information visible to everyone. By creating a process map or
flowchart, you are producing a visual example of the process to better understand it and see areas for improvement. The act
of flowcharting to improve a process was first introduced in 1921 by Frank Gilbreth to the American Society of Mechanical
Engineers (ASME).
Preparing for process mapping
It’s important to include everyone involved in the process: workers, suppliers, customers and supervisors. Everyone involved
needs to clearly understand what the goals of the process are, agree with deadlines and have some knowledge of basic
process mapping. You can create a flowchart by hand or in a software program like Microsoft Word, Microsoft Excel, Microsoft
Visio or Microsoft PowerPoint; however, there are other software programs specifically built for creating a process flowchart.
Business Process Mapping Notation
Using a process mapping software, especially a cloud-based software like Lucidchart, makes it easy to create, save and
share your work. Following these basic steps to creating process maps will make them easier to build and to understand.
Process mapping is used to visually demonstrate all the steps and decisions in a particular process. A process map or
flowchart describes the flow of materials and information, displays the tasks associated with a process, shows the decisions
that need to be made along the chain and shows the essential relationships between the process steps.
How to create a process map
Process mapping has become streamlined because of software that provides a better understanding of processes. Process
maps can be created in common programs like Microsoft Word, PowerPoint or Excel, but there are other programs more
customized to creating a process map. Process mapping is about communicating your process to others so that you achieve
your management objectives. Knowing how to map a process will help you build stronger communication and understanding
in your organization.
Step 1: Identify the problem
•
•
What is the process that needs to be visualized?
Type its title at the top of the document.
Business Process Mapping Notation
Step 2: Brainstorm activities involved
•
•
•
At this point, sequencing the steps isn’t important, but it may help you to remember the steps needed for your
process.
Decide what level of detail to include.
Determine who does what and when it is done.
Step 3: Figure out boundaries
•
Where or when does the process start?
•
Where or when does the process stop?
Step 4: Determine and sequence the steps • It’s helpful to have a verb begin the
description.
•
You can show either the general flow or every detailed action or decision.
Step 5: Draw basic flowchart symbols
Each element in a process map is represented by a specific flowchart symbol.Software resources make it simple to create
and rearrange shapes, add labels and comments and even use custom styling in your process map.
•
Ovals show the beginning of a process or the stopping of a process.
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•
•
•
•
Rectangles show an operation or activity that needs to be done.
Arrows represent the flow of direction.
Diamonds show a point where a decision must be made. Arrows coming out of a diamond are usually labeled yes
or no. Only one arrow comes out of an activity box. If more than is needed, you should probably use a decision
diamond.
A parallelogram shows inputs or outputs.
Step 6: Finalize the process flowchart
•
•
•
Review the flowchart with others stakeholders (team member, workers, supervisors, suppliers, customers, etc.) for
consensus.
Make sure you’ve included important chart information like a title and date, which will make it easy to reference.
Helpful questions to ask: o Is the process being run how it should? o Will team members follow the charted process?
o Is everyone in agreement with the process map flow?
o
Is anything redundant?
o
Are any steps missing?
Process maps provide valuable insights into how a businesses or an organization can improve processes. When important
information is presented visually, it increases understanding and collaboration for any project.
Business Process Mapping Notation
Numbering conventions
To help with process map organization, you can number the process maps and process steps. Here's a process mapping
numbering convention example:
•
o
•
o
•
o
Process 1 o Sub-process 1.1

Sub-process 1.1.1

Sub-process 1.1.2

Sub-process 1.1.3
Sub-process 1.2

Sub-process 1.2.1

Sub-process 1.2.2
Process 2
Sub-process 2.1

Sub-process 2.1.1

Sub-process 2.1.2
Process 3
Sub-process 3.1
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


Sub-process 3.1.1
Sub-process 3.1.2 o Sub-process 3.2
Sub-process 3.2.1
Process maps provide valuable insights into how a businesses or an organization can improve processes. When important
information is presented visually, it increases understanding and collaboration for any project.
rd
3 chapter
Procurement Process
BU1193
Business Process Mapping Notation
Procurement Cycle
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Procurement Process, Concept
●
Procurement is the process of finding and agreeing to terms, and acquiring
goods, services, or works from an external source, often via a tendering or
competitive bidding process
●
Procurement generally involves making buying decisions under conditions of
scarcity
What is a Procurement Process?
●
It’s the series of steps that are essential to get products or services from
requisition to purchase order and invoice approval.
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●
Sometimes, procurement' and purchasing' are used interchangeably, they
slightly differ from each other.
●
While purchasing is the overarching process of obtaining necessary goods
and services on behalf of an organization, procurement describes the
activities involved in obtaining them.
●
The procurement process in an organization is unique to its context and
operations.
Procurement Process
●
To keep the procurement management process fair, transparent, and
efficient, a good understanding of the procurement process flow is key.
Business Process Mapping Notation
●
Although the procurement process of organizations differs from each other,
there are some basic components that should be considered
●
Usually a procurement management process involves several elements,
including requirements determination, supplier research, value analysis,
raising a purchase request, reviewal phase, conversion to purchase order,
contract administration, monitoring/evaluation of received order, three-way
matching, payment fulfilment, and record keeping
Procurement Process
A typical procurement process includes the following steps:
●
●
Identifying the needs of goods and services
Finding suppliers
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●
●
●
●
●
●
Requesting proposals/quotations (RFP/RFQ)
Negotiating with suppliers
Agreeing terms with suppliers
Arranging and receiving products/services
Performing quality assurance
Analysing results and margins
The 3Ps of Procurement
●
Process- The list of rules that need to be followed while reviewing, ordering,
obtaining, and paying for goods/services. Checkpoints/steps increase with the
complexity of the purchase.
●
People- These are stakeholders and their specific responsibility in the
procurement cycle. They take care of initiating or authorizing every stage of
Business Process Mapping Notation
the process. The number of stakeholders involved is directly proportional to
the risk and value of the purchase.
●
Paper- This refers to the paperwork and documentation involved in every
stage of the procurement process flow, all of which are collected and stored
for reference and auditing reasons.
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Procurement Process Description
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Procurement Process Example
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Procurement Process (Purchase Control Model)
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Procurement Process SAP-ERP Model
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Procurement Process Ramco System Model
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Procurement Process Larion Model
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Procurement Process Design
Steps
Identify needs
Create requisition
Requisition approval
Create Purchase Order
Responsible
Document
Data/Information
Location
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Purchase order approval
Goods receipt
Supplier evaluation
Invoice approval
Vendor payment
Record for audit
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Procurement Process Design (Cont.)
Include in your design, the following situations:
a) The shipment (pallet) is partially damaged
b) 10 % of the product shipped are defective
c) The P.O. number matches but not the ordered products
Business Process Mapping Notation
What is Procurement?
It is critical to understand what is procurement first because it will give an in-depth understanding of procurement and supply
processes. Procurement is the term that is used to refer to the process or the act of sourcing or obtaining services or goods
for a business. Some businesses use the term procurement only to refer to the actual buying while others refer to the entire
process that leads up to the purchase as procurement.
The word procurement is used to refer to buying for a business and is customarily performed on a large scale. Procurement
involves two companies; the buyer and the seller. But it is the act of buying that is labeled procurement and not the activities
of the seller.
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Procurement is usually a part of the input to a company that then uses the goods or services procured in the making of their
own final product. This makes it a very vital function of any business. It is important to the success of the buyer’s business to
procure the best quality of goods or services procured at the most competitive rates.
On the surface, procurement might come across as a simple process. But it is often highly competitive with great care and
attention paid to each step. The activities that procurement entails include:
•
•
•
•
•
•
Vendor Selection
Payment Negotiation
Strategic Vetting
Final Selection
Contract Negotiation
Final Purchase
Difference Between Indirect, Direct and Service Procurement
Business Process Mapping Notation
Direct procurement is sourcing the goods, materials or services that serve as the input for the organization’s manufacturing
process. Direct procurement is a vital process that directly impacts the company’s own output of goods or services. The direct
procurement strategy has a direct impact on the quality and price of the final goods and services.
When Is Direct Procurement Used?
Direct procurement is common in manufacturing companies. The procurement team endeavors to create and sustain a good
relationship with the direct procurement vendors.
The day-to-day operations of an organization also require goods and services that are procured for internal use and this
process is called indirect procurement. They are usually obtained through short term contracts with suppliers.
Services procurement in IT could be for software licenses. This type of procurement is called services procurement and is
usually a one-time short term contract.
Direct Procurement
Indirect Procurement
Service Procurement
Business Process Mapping Notation
Acquisition
of
goods, Sourcing and purchasing Procuring and managing
materials, and/or services materials, goods, or services contingent workforce and
manufacturing Purposes
for internal use
consulting services
Ex: Raw materials, machinery, Ex:
Utilities,
facility Ex: Professional services,
and resale items
Management, and travel
software subscriptions, etc
Drives external profit and Takes care of day-to-day
continuous growth in revenue operations
Used to plug process and
people gaps
Comprises of stock materials or Used to buy consumables and Used to purchase external
parts for production
perishables
services and staff
short-term
Establish
long-term Resort to
Maintain one-off, contractual
collaborative supplier
transactional relationship with
relationships with suppliers
relationships
suppliers
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What is the procurement process?
So what is the procurement process? The procurement process refers to the identification and implementation of certain steps
by businesses to ensure they can acquire goods and services to meet their requirements and achieve their objectives. A
procurement process is important because it has a direct impact on how much a business can save. When businesses assess
the procurement process regularly, then it ensures their goals are being met. Changes can be made to the process when it is
not working as planned or when problems crop up for the business. As the procurement’s main aim is to boost efficiency,
businesses must ensure they are deriving maximum value from their process.
The procurement process isn’t the same for all businesses because it can vary according to needs. Each business has its
own set of needs and so it will have a different procurement process compared to another business which has different
requirements.
Procurement Process Flow
Business Process Mapping Notation
Every organization has a unique procurement process flow. However, procurement in business usually starts with identifying
a requirement and creating the purchase order that details all the requirements’ specifics. In a purchase where there is already
an approved supplier for the requirement, the purchase order will be sent for approval by the designated procurement or
finance team. If it is rejected, it will be sent back with the reason for it being rejected. On approval, the purchase order becomes
a purchase requisition.
For a purchase that does not have a pre-approved supplier or vendor, the procurement team sends out multiple RFQs
(Request for Quotations) detailing the requirements as specified in the purchase order. The quotations that are received are
analyzed, and a suitable vendor is selected. The procurement team then negotiates a satisfactory contract with the chosen
vendor and sends a purchase order.
When the purchased items are received, the vendor’s invoice goes through a three-way matching verification. Three-way
matching is the comparison and verification of the purchase order, vendor’s invoice, and the actual receipt of the goods. This
step is to verify if indeed, the organization had placed the said order with the specified vendor and if the vendor has supplied
and invoiced the order as per the purchase order. This is then compared with the receipt of the goods to see if the order was
received as requested and as invoiced. Once the three-way verification is complete, the vendor’s invoice is authorized and
the payment made to the vendor. The payment is accounted for by the financial department.
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Stages of Procurement
Identification of Requirement
The first step in buying something is recognizing that there is a need for it. This could be identifying the need to buy a new
item or reordering something when it is required or falls below a certain threshold of stock. This might involve a requisition
process in most businesses. It is important that all the stakeholders be consulted at this stage to prevent issues later on in the
procurement process.
Determination of the Specifics of the Requirement
When it has been identified that there is a need, the exact specifics of the product or service that is required is to be decided
upon. This would include technical specifications or part numbers. If the item is not one that has been previously procured this
list of specifics is generated with concurrence from all the technical people involved. Detailed specifics with proper consultation
with all the departments involved will prevent expensive mistakes from happening further down the procurement process.
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Sourcing
Once it is determined that a specific item or service is to be bought, the procurement team has to then do the research required
to determine the various sources that supply it. For repeat orders, there will usually be a pre-existing vendor list. For a new
item, the process of identifying and then vetting vendors is longer. It is faster to work with a preexisting vendor who has already
been determined to be a good supplier. New suppliers will need to be thoroughly investigated to determine their reputation,
speed, quality, reliability, and prices.
Next, the procurement department needs to investigate vendors, request quotes for the item needed, and then select a vendor.
This is an important part of the process because reputation, cost, speed of service, and dependability all need to be
investigated before making a final decision. The rule of thumb is to get at least three quotes, but that’s a best practice that will
need to be determined by your organization. Approval from the relevant levels of management will have to be obtained based
on the sourcing options and costs involved. If there is a bidding or tendering process involved for the order, the request for
proposal, bids or tenders will have to be published.
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Negotiation and Finalization of Price and Terms
For direct purchases, requests for quotes will be sent to the shortlisted vendors. The usual practice is to get a minimum of at
least three quotes before making a selection. The quote will be examined for price and speed competitiveness. The company
to procure from will be selected not only on price but also based on their promptness, reliability, and quality.
If there is a bidding or tendering process for the procurement, the selection of the qualifying bids will be as per the terms and
conditions set. The selected supplier will be chosen and announced as per the set process preferably in a highly transparent
manner. Selecting from the various bidders is a process that should be fair and transparent to ensure that the buyer gets the
best value and quality of supply. When the selection process is compromised, it might also compromise the value of the goods
or services supplied.
At this point, the buyer has to decide between the merits of having a single high-volume supplier or choosing multiple suppliers.
When choosing to have a single supplier, the higher volume of orders gives better bargaining power when negotiating rates.
However, if a single supplier is unable to fulfill an order it will affect the entire manufacturing process. Having more than one
supplier for an item reduces the risks while giving one less room to negotiate rates. Sometimes, multiple suppliers help to
build competition with regard to rates and quality.
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Purchase Requisition and Order
A purchase requisition generated within the company will be approved by the appropriate authority. This will then lead to the
generation of a purchase order with all the specifics of the order as well as the terms and conditions. Some companies involve
the buyer in the process of generating the specifics of the order so that both the buyer and seller understand the specifics of
the order. The specifications have to be carefully compared with the purchase requisition as well as the supplier quote to
prevent any mistakes from being made.
Delivery of The Purchase Order
The shipment notice is sent to the buyer wherever applicable. The delivery of the purchase order depends on the practices of
the buyer and the seller. It can be in person or by fax or email. This is also as per the specifications agreed upon by both the
buyer and the seller.
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Expediting
This involves creating the timeline for the prompt delivery of the requested goods or services after factoring any unforeseen
delays. It may also include information on the payment as well as delivery schedules.
Product/Service Supply and Inspection
When the product or service is ready, it is supplied to the buyer. It is the responsibility of the buyer to thoroughly inspect the
supplied items and if they match the agreed upon purchase order. The buyer can either approve or reject it. Both of the options
will trigger actions as per the agreed-upon terms and conditions. If the buyer takes delivery of the items it is implied that they
are accepted and the payment process starts.
Payment Process
For the payment to be made, the documents relating to the order are studied. All the specifics of the original purchase order,
receipt of items and the payment request invoice are compared. If there are any mismatches they are resolved before
payment. Once payment is approved the payment is made as per the agreed-upon modes of payment.
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Record Keeping and Review
Both the companies, the buyer and seller maintain their records for their auditing and taxation processes. The entire process
should be under continual review in order to improve as well as settle any disputes that might have arisen. Re-evaluation
makes the procurement process more efficient and prevents the recurrence of disputes.
The steps of procurement detailed above vary from business to business but the logical flow remains the same. Efficient
procurement practices keep the flow of purchased goods and services prompt and delay-free. It is also the responsibility of
the people involved in the process to continually keep up with negotiations at the relevant steps to ensure that the goods and
services that are procured are of the exact requirement, highest standards and most competitive price. Excellent recordkeeping not only helps in the auditing of the records but also in the case of reordering the same items. The ethical selection
of vendors ensures the fair supply of high-quality items.
Components of Procurement
1.
People
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The number of people involved in the procurement process depends on the sale of the manufacture and procurement orders.
For a small company, procurement personnel are few in number. For larger companies, each stage of the procurement
process has an entire team managing it. Also, when the items that are being ordered are small value, the number of approval
is smaller. But for high value or very important procurements, the level of approval for the purchase requisition goes higher in
the management order.
2.
Process
The procurement process should be well designed and organized in order for it to function efficiently. When there is a
disorganized procurement department, it leads to inefficiencies and inconsistencies in the entire process that can cause delays
and problems with the purchases as well as the payments for the same. Transparency in the process ensures that there is no
corruption or manipulation at any stage.
3.
Paperwork or Records
Business Process Mapping Notation
Record keeping at every step of the process of procurement is very important. Though almost all the steps of the process are
digitized, the efficient recording of all information at each stage and the coordination and comparison of all the relevant records
at each stage is important for both the buyer as well as the seller
Procurement, Purchasing and Supply Chain
Understanding Procurement, Purchasing and Supply Chain
Most organizations use the terms procurement, purchase, and supply chain interchangeably. However, the supply chain is
the largest process of the three. Procurement is a step in the entire supply chain. Purchasing is, in turn, a step in the larger
process of procurement.
Procurement Vs Purchasing - What is procurement process?
Procurement is the entire process of identifying a need within the organization, obtaining the requirements and maintaining a
good relationship with the vendors. When a need is confirmed, procurement research identifies likely suppliers.
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Purchasing, on the other hand, is a sub-function in the process of procurement. It only deals with receiving the purchase
requisition, evaluating the RFQs, making a purchase order, receiving the ordered goods/services, verifying the quality of the
goods/services, and processing the payment.
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While procurement and purchasing overlap in certain instances, they are often thought to be the same by many people. This
is not the case because their goals, what they define, their processes, and what they focus on is entirely different from one
another. Let us take a look at the key differences between procurement and purchasing.
On one hand, procurement is defined as the set of processes such as selection, identification, and acquiring of goods and
services from vendors through a range of different processes. These processes for acquiring include the tendering process
and direct purchase. The procurement process involves ensuring that the goods and services are received on or before time
and that the correct amount of goods and services has been delivered to the business as specified in the PO. However,
purchasing focuses on acquiring goods and services which are needed by an organization and doesn’t focus on the other
aspects like procurement. Procurement is a larger term that encompasses purchasing. That is, purchasing is a part of
procurement.
The steps involved in both of these processes differ from each other. Procurement involves first identifying the business
requirement, then authorizing purchase request, approving the request, and then identifying vendors. Then making inquiries
and finding out about the quotations specified by the supplier and negotiating. Procurement also involves selecting the supplier
carefully and then receiving goods to ensure they are of the quality expected and storing invoices for future reference after
three-way matching. Then procurement’s last stage involves paying the supplier. Purchasing is much simpler as it involves
Business Process Mapping Notation
less number of steps. The steps include PO acknowledgment, receiving goods and inspecting them, invoice storing, ensuring
the invoice is legitimate and paying the supplier.
Procurement is considered a strategic function whereas purchasing is called a tactical function. This is because procurement
starts from the moment a need is identified by the business and ends when the supplier has been paid for the delivery of
goods. It involves steps such as taking the time and evaluating the various suppliers before ordering from that supplier.
Moreover, it involves ensuring the maximum value comes from the contracts that have been created. Purchasing, on the other
hand, consists of only the transactional aspect because it only focuses on the purchase of the goods and services required
by the business. It does not involve complexities like procurement which is thorough in its function.
The procurement function is required to fulfill the needs of a business. It involves first spotting that there is a need and then
ensuring that those needs are fulfilled in the best way possible. It takes into account the entire picture from start to finish so
those needs are fulfilled. Hence, procurement can be defined as a function that takes the proactive approach because it
ensures that problems are avoided from the start. Purchasing is quite different in this regard because it takes a reactive
approach. When there is a need then it satisfies those requirements of the business. It can be said that purchasing is about
activities and tasks that are accomplished to commit expenditure for a business.
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Procurement focuses on evaluating risks before they become bigger and cause problems to the supply chain and the rest of
the business functions. This risk mitigation ensures that potential problems are resolved before they get worse. For example,
when choosing vendors in procurement, the risks associated with the various vendors, and proper evaluation is done.
Moreover, procurement involves assessing various risks such as data security risks and operational risks. Purchasing does
not focus on risks or elimination of risks like procurement and so it differs from it in this area too. Purchasing takes a
transactional approach and so it does not focus on risk evaluation and mitigation.
The goals of each function are different and what they accomplish is different as a result. The goal of procurement is to ensure
that value is created in the process and the total cost of ownership is thought about. On the other hand, purchasing is more
basic in nature because it focuses on the cost of the order and how to get the best price. It can be said that procurement is
ongoing because the people associated with it focus on ensuring the proper supplier relationships are maintained and other
processes are continually assessed. However, the purchase is not ongoing like procurement because once the goods and
services are acquired, that is the end of procurement.
Procurement focuses on the supplier relationships whereas purchasing doesn’t do that.
In short, procurement is about the long-term while purchasing focuses on the short-term. Maintaining proper supplier
relationships is vital for any business because it can ensure long term savings and benefits for the business. Procurement
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places emphasis on ensuring care is taken to find the best suppliers who can meet those requirements and when a relationship
is built, procurement emphasizes ensuring it is maintained. The purchasing function deals with the supplier base that already
exists in a business. Hence, procurement delves deeper into ensuring they are dealing with the right suppliers who provide
excellent services and deliver goods on time.
Procurement Vs Sourcing
Procurement is the entire end-to-end process of identifying a need, identifying the best supplier, placing an order, receiving it,
paying for it and then documenting it. Since it needs to identify the need for an item, it also includes a part of inventory and
storage. It involves the negotiation and planning that are required to make sure that the buyer gets the best deal.
Ideally, procurement should also include relationship management with the vendors to ensure that they continue to maintain
quality supply at preferential rates and terms. It includes a lot of follow up to confirm and ensure that each stage of the
procurement process is as per the schedule and the requirement specification. Once the material is dispatched and received,
the buyer checks if it satisfies the requirement before approving it and then releasing payment. The record-keeping process
of the entire purchase right from the requisition request and through to the release of payment is a part of procurement.
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Procurement is also the first stage in the entire supply chain as it is usually the procured items that are used by the business
to manufacture the items that they, in turn, sell to others. It is a vital process in every manufacturing company as a shortage
or delay in procurement can bring the entire operations of the company to a grinding halt. If the items procured by the company
are not of the correct specification or of poor quality it will in turn, have a detrimental effect on the quality of their own
manufacturing process. So, the quality and time-bound manufacture of any good in a company are very sensitive to any
irregularities in the procurement process.
Sourcing, on the other hand, is just one step in the overall process of procurement. Sourcing is the process by which the buyer
company does its research through experts and market reports to determine probable sources of what they require to buy. If
the items that are being procured are repeat orders, it is simple enough to place an order with a vetted supplier. But it always
pays for the buyer to stay informed as to any new entrants into the market. Awareness gives the buyer opportunities to take
advantage of any changes in the market dynamics.
A business should not become over-reliant on a single supplier in case unforeseen circumstances cause the procurement to
be disrupted. It is always advisable to have more than one supplier to ensure that there is always a pre-approved supplier in
place. The monopoly of one supplier also makes it harder to negotiate for competitive rates.
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When the item that is required by the buyer is new, the sourcing process is much longer. At the outset, it has to be determined
if there are suppliers for the item that is requested. If there are no existing suppliers for the exact item, businesses that take
custom orders have to be identified. Once the probable sources for the item have been identified they have to be thoroughly
investigated and vetted. Once a few businesses have been identified and shortlisted, they have to be contacted with specifics
of the requirement.
The next most important step in sourcing is the negotiation of the rate at which the item is to be supplied without compromising
on the quality. If one buys the cheapest items available with no regard for the quality, it will cause the product from which the
raw material is manufactured from to be of poor quality. However, if the cost of procurement is too high, it will eat into the profit
margin of the buyer who will be manufacturing goods from the procured items. If the procurement is at a price that is too high,
it will make the final goods manufactured cost more, thereby impacting their price competitiveness.
So, sourcing has to maintain the fine balance between keeping the procured items at the best possible quality while also being
at the lowest possible cost. Every small saving that is made when buying raw material has a positive impact on the profit
margins of the company. The high standard of every manufacturing company is also dependent on the quality of the raw
materials that are used.
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Reliability is another important factor in choosing a source of raw material. Delays by the supplier can delay or even stop the
entire manufacturing process. Sometimes, suppliers are chosen even if they cost a little more on account of their reliability
and promptness in supply. Mitigating the risk is worth the extra cost when the item that is being sourced is vital to the
manufacturing process.
Procurement Vs Supply Chain
Procurement is the process that starts from the identification of the need to purchase the item right up to the actual purchase,
delivery, and payment for the same. It does not extend beyond obtaining and paying for the items received. The supply chain
starts with procurement as the first process. However, it extends beyond the step of procuring raw materials right through the
manufacture and supply of the finished goods all the way up to the final step when it reaches the end customer or consumer.
The supply chain encompasses the entire cycle of the manufacture right up to the retail sale of an item.
The steps that are involved in the supply chain are
•
•
The procurement of the raw material
Various stages of manufacture
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•
•
•
•
Transportation to wholesalers
Warehousing
Distribution to retail sales points, and
Sale to the consumer
At each stage, there is quality control as well as logistics. So, procurement is only the first step in the long process of the entire
supply chain.
th
4 chapter
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The Fulfillment Process
Business Processes
Order Fulfillment Process: Product in - Product out
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What is Fulfillment?
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Order fulfillment is all the steps a company takes between receiving a new
order and placing that order into the customer’s hands.
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The practice involves warehousing, picking and packing the product, shipping
it and sending an automated email to the customer to let them know the order
is in transit
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Order Fulfillment Process
Order fulfillment comprises the activities of receiving, processing, and shipping the
order, but can be broken down into smaller steps in chronological order:
1.
2.
3.
4.
5.
Order is received (online, in person, via email or on the phone)
Based on inventory verification, order confirmation is sent to the customer
Order request is sent to the warehouse
A warehouse worker locates and picks the ordered item
Order is packed and prepared for shipping, inventory is updated
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6. Order is shipped, and customer is notified that order is on its way
7. Order is delivered
8. If necessary, order returns are handled and refunds granted
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Order Fulfillment Key Activities
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Order Fulfillment Key Activities
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Receiving inventory- Goods may come from a third party, another company
department or a company warehouse; a pipeline (as with oil, fuel, water or
some other fluid product); as digital data from a database; or in a variety of
forms from other external or internal sources.
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Inventory Storage- Once goods are received in the fulfillment center, they
are inventoried and either immediately disbursed or sent to short- or longerterm storage. Items are ideally stored just long enough to help organize the
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orderly distribution of goods for existing sales, rather than to hold product for
future sales.
Order Fulfillment Key Activities (cont.)
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Order Processing- An order processing management system dictates the
product picking and packing activities per each newly received customer
order. In the online marketplace, order management software can be
integrated with the shopping cart on an ecommerce website to automatically
initiate order processing.
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Picking- A picking team or automated warehouse robots select items from the
warehouse according to a packing slip’s instructions. The packing slip
contains specific information, such as a list of item SKUs, product colors,
sizes, number of units and location in the distribution center’s warehouse.
Order Fulfillment Key Activities (cont.)
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Packing- Packing materials are selected by a packing team or automated
fulfillment robots to achieve the lowest practical dimensional weight, which is
calculated by multiplying package length times width times height. Since
space on delivery trucks is at a premium, optimizing dimensional weight (or
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DIM weight) is important to speed transport while also potentially lowering
shipment costs.
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Shipping- The order is sent to a transportation channel or shipping node to
be shipped to the customer. Shippers and carriers—be they freight lines or
airlines, FedEx, UPS, the Postal Service or other carriers—determine freight
billable costs by whichever is greater: actual package weight or its
dimensional weight.
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Order Fulfillment Key Activities (cont.)
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Delivery- It is common for shipping routes to include more than one carrier.
For example, FedEx may pick up a package at the fulfillment center that will
later be delivered by the Postal Service to the customer’s home.
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Returns processing- Returns processing begins with including shipping
materials and a return label with the original customer’s order. When a
customer does return a product for exchange or a refund, the process must be
executed carefully to ensure it’s appropriate to restock it (if needed); returns
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processing involves quality control checks and sorting returned products
accordingly.
Critical Factors for Order Fulfillment Process
There are four critical factors that should be considered when designing an order
fulfillment process:
1. Business size and order volume
2. Sales channels and technology
3. Distribution facilities locations
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4. Product customization
Business Size and Order Volume
●
●
The number of products and the monthly order volume play a big role in
designing a fulfillment process; for instance, the fulfillment process for a new
and small company will look very different from, say, Walmart or The Bay.
Low order volume may make it more cost-effective fulfillment in-house, as
opposed to outsourcing; if the company sell a limited variety of products with a
few orders shipped weekly, the fulfillment process may be more simple
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If the company is growing quickly and the number of orders is increasing, the
fulfillment process will need to be adapted accordingly
Sales Channel and Technology
●
●
The fulfillment process usually complement and support online sales
channels; if the company is selling across more than one channel, technology
should make the order fulfillment process easier not harder.
For example, as soon as an online order is placed, it should automatically
trigger the order fulfillment process so it can be picked, packed, and shipped
in a timely manner.
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Order fulfillment process need to leverage technology resources to manage
the entire order fulfillment process more efficiently without having to do any
developer work
Distribution Facilities Locations
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Customers want ecommerce delivery to be quick and without a high price tag:
73% of shoppers expect affordable, fast deliveries, and 24% of customers
cancel an order due to slow shipping.
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●
●
When the company has its distribution facilities strategically located, the
shipping cost and times are reduced and it makes the fulfillment process more
efficient which leads to happier customers
Shipping from multiple locations can also not only to drive down operations
costs and shipping times but also improve the efficiency of the order fulfillment
process
Product Customization
●
Selling products that are custom-made, specially gift wrapped, extremely
fragile or high-value products (Jewelry, art pieces), make the order fulfillment
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process different compared to a regular product (lead times, delivery
operations costs, etc)
●
In general order fulfillment for highly customized products needs to be done in
house in order to reassure that customization will be exactly right for each
customer
Fulfillment Process - Magestore Model
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Basic Fulfillment Process
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Order Fulfillment - Vector Mine Model
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Order Fulfillment Flowchart
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Order Fulfillment Flowchart (Cont.)
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Order Fulfillment Process
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Order Fulfillment: Reverse Logistics
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Fulfillment Process - Exercise
Activity
Receive payment
Create and send quotation
Receive customer P.O.
Create sale order
Send shipment (ship)
Responsible
Document
Information
Location
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Create and send invoice
Prepare shipment (pick and pack)
Receive customer inquiry
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Understanding Ecommerce Fulfillment: Definition, Process,
Resources
By: Jake Rheude, Red Stack (Logistics Resources)
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Successful eCommerce businesses all have one thing in common, a terrific eCommerce fulfillment services. You might have
the best product in the world. Your website is epic. And your sales funnel slides your customers easily to the checkout.
If your eCommerce fulfillment doesn’t run smoothly, however, your web-based business will be all splash and no cash.
ECommerce fulfillment may not be the thing that gets you excited about your online business. However, it is a crucial element
of your success in online retail. A 2018 study found that free shipping was the number one feature for online shoppers. It
influenced 83 percent of online shoppers to buy. In addition, shipping costs are a major factor in shopping cart abandonment.
In the study, 54 percent of respondents say they halted an order due to the high price of fulfillment. Speed matters also: 25
percent stopped orders when shipping was too slow.
Predictable and accurate fulfillment equals happy customers and positive reviews. Robust eCommerce fulfillment processes
can save you time and money. In addition, well-run fulfillment will help you expand your business. A successful eCommerce
fulfillment process involves multiple vendors and schedules. These should line up to run like a welloiled machine. The better
you manage all these moving pieces, the greater your eCommerce success.
What is eCommerce fulfillment?
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ECommerce fulfillment is the part of your eCommerce operation that delivers your products to customers. Your e-fulfillment
processes include several things. Getting product onto fulfillment center shelves is eCommerce fulfillment. Picking and packing
orders is order fulfillment. Shipping times and methods are part of your third-party logistics operations.
In truth, eCommerce fulfillment has been an integral part of your business from the start.
When you were packing boxes in your garage, you were your own fulfillment provider. Now that your business has grown,
you may need to outsource to a 3PL.
What’s involved in the eCommerce fulfillment process?
Fulfillment involves more than picking and packing orders. The best eCommerce fulfillment providers will help your online
retail business run seamlessly.
Think of your third-party eCommerce fulfillment provider as an extension of your business. Outsourcing your fulfillment makes
your business agile. You can expand and contract warehouse space as your business needs change. Outsourcing lets you
minimize your expense and risk.There are four basic components of the e-fulfillment process:
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ECommerce store and fulfillment center integration
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•
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Receiving and inventory management
Order fulfillment
Returns processing
Below, we discuss each component. By the end, you will understand what eCommerce fulfillment can offer your company.
You’ll be ready to take advantage of the power of outsourced fulfillment.
How does eCommerce fulfillment work?
Fulfillment is the lynchpin of your eCommerce operations. When you understand each of the steps in the process, therefore,
you’ll be better able to manage your outsourced eCommerce fulfillment provider.
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Omnichannel Fulfillment Center Integration
When you think of a fulfillment warehouse, you might imagine rows of shelves filled with products. At its core, however, every
good order fulfillment center is a technology company.
Your eCommerce store should integrate seamlessly with your fulfillment center. Your orders should flow directly to the people
who will pack and ship them. Here are three important features of a good eCommerce fulfillment center:
•
•
•
Your 3PL company should integrate with every platform on which you sell. Your fulfillment center should create a
custom app to connect incoming orders for any sales channels it doesn’t support.
The IT staff is just as important as the people who pack and ship your orders. Make sure your fulfillment provider has
a robust IT department.
Look for a fulfillment center with minimal downtime. In addition, look for responsive support to help smooth any glitches
quickly.
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Receiving and Inventory Management
Pallets of your merchandise ship to your fulfillment warehouse. Then, those pallets get logged into inventory and placed on
shelves, ready to fill your orders.
Receiving is the spot where many fulfillment warehouses fall short. When pallets sit on a loading dock, your products aren’t
in inventory. Of course, no inventory means no sales. This, as you may have guessed, is bad.
Another inventory management challenge is shrinkage. Shrinkage is a nice way of saying
“loss, theft, and breakage.” Most e-fulfillment centers have an allowance for shrinkage in their contracts. This means that you
will eat the cost of the lost merchandise, up to a certain amount. In general, shrinkage allowances range from 2 to 10 percent
of your warehoused inventory. Look for these three qualities in your order fulfillment provider:
•
•
Your eCommerce fulfillment center should place your stock into inventory within one to two days of receiving it.
You should be able to log into your inventory management system. This real-time data is critical for maintaining
Goldilocks stock levels. That is, not too much (which ties up all your capital in inventory). And not too little (which puts
you at risk of running out before you can restock — a good way to lose sales).
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Your 3PL provider should have a low shrinkage allowance. Some fulfillment centers make inventory management a
top priority. These providers are responsible for items lost or broken while on the shelves. In this case, you don’t have
to account for shrinkage when you calculate ideal stock levels.
Order Fulfillment: Pick, Pack, and Ship
When an order comes in, your fulfillment warehouse will pick the right items to put in the box. A floor worker will pack them in
the perfect box. Your 3PL provider will ship them to your customer. This is the pick, pack, and ship process. With centrallylocated fulfillment warehouses, shipping to your customers is speedy. (See more on warehouse location below.) It’s important
that the 3PL provider turn your orders around quickly, too. Otherwise, you will lose the benefit of that shorter shipping time.
Accuracy is vital. Mistakes in picking and packing orders can cost you customers. Here are three ways your eCommerce
fulfillment center can help you meet customer expectations for fast and low-cost shipping:
•
•
Look for a 3PL provider that offers next-day turnaround, or even same-day shipping.
Choose a fulfillment warehouse, or warehouses, that are centrally-located. The fulfillment center should ship to most
of your customers within two days or less.
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Ask for data on the fulfillment center error rates.
Returns Processing: Reverse Logistics
You can’t avoid eCommerce returns. Ease of returns is important to eCommerce shoppers. This can be a major factor to drive
your sales. Logging in returns is an important function of eCommerce fulfillment.
The more quickly your fulfillment provider processes returns, the more quickly your customer will get a refund. Efficient returns
also get your stock back on the shelf so it’s available to sell again.
Here are three ways your eCommerce fulfillment partner can make returns a breeze for you and your customers:
•
•
•
Find a warehouse that will put returns back on the shelf within one to two days. Returns that sit on receiving docks are
a drag on your business and consumer confidence.
Let your 3PL provider handle customer service for returns, so you can focus on increasing your sales.
Create a process for handling damaged goods. Consider setting up a secondary site to sell returned merchandise at a
discount. Make sure your eCommerce fulfillment provider can help evaluate returns and process orders for discount
goods.
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How is 3PL different from drop shipping?
The term drop shipping gets confused with traditional eCommerce fulfillment. However, these two models of getting products
to your customers are very different.
What is a third-party fulfillment service?
The terms 3PL, eCommerce fulfillment, and order fulfillment refer to traditional fulfillment.
Here’s how eCommerce fulfillment works:
•
•
•
•
•
•
You purchase or manufacture products to sell online.
Before you start selling your products online, you pay up front for the merchandise.
You ship your stock to a third-party fulfillment service.
When a customer places an order, your fulfillment center ships it to the customer.
The fulfillment center pulls the order from your pre-purchased inventory.
All the money from your order flows into your business.
Your profit is the difference between the sale price and your wholesale costs plus overhead.
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What is drop shipping?
Drop shipping allows you to sell products with less investment at the beginning. The trade-off for this reduced risk is less
control over the fulfillment process. In addition, your profits on each sale will be lower. Here’s how drop shipping works:
•
•
•
•
You place items from a manufacturer in your online store. You don’t buy inventory.
When you receive an order, you relay it to the manufacturer.
The manufacturer ships orders directly to your customers. You never own the merchandise you sell. This is the essence
of drop shipping.
You split the profits with the manufacturer. Your cut is less when you drop ship than when you maintain your own
inventory.
Should you outsource your eCommerce fulfillment?
Perhaps your orders are flat, and you have a solid in-house order fulfillment process. In that case, you might not need to
outsource your eCommerce fulfillment. As your business expands, however, the in-house solution can become a drag on your
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growth. Outsourcing your fulfillment can be an economical way to support the expansion of your online store. Some
advantages of outsourcing your eCommerce fulfillment include:
•
•
•
•
•
Flexible shelf space that can scale up quickly as you grow.
Your orders will be picked and packed by trained professionals who specialize in order fulfillment.
Your resources are freed up to pursue business development.
You aren’t stuck with a lease for expensive space you might not need.
You can choose a centrally-located fulfillment warehouse that’s able to ship orders to your customers more quickly.
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How to find the best eCommerce fulfillment service for your online store
ECommerce fulfillment isn’t one-size-fits-all. There are a number of factors to consider when you choose the best fulfillment
services company for your business. Choosing a fulfillment center that has great service isn’t enough. You need a partner
that specializes in shipping the kinds of products you sell and is located close to your customers.
Fulfillment center location
There’s an old saying that only three things matter in real estate: location, location, location. The same is true of e-fulfillment
services. Your home base for your business may be tucked into a remote corner of the country, but your inventory should be
centrally located. Ideally, you should be able to ship to most consumers within two business days.
“Shipping times of seven days or more may be acceptable for boutique or niche eCommerce companies. If you’re selling on
one of the big platforms, such as Amazon or eBay or competing with those platforms, however, fast delivery is a must.” See
our article on Choosing the Location of Your Fulfillment Warehouse for more information.
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When you aim for national distribution, one warehouse location is probably not going to be enough. You’ll need two or more
fulfillment centers to get close to your customers. Try a national eCommerce fulfillment strategy with centrally-placed fulfillment
centers. This can get your orders delivered to most of the contiguous 48 states in two days or less.
The other benefit of well-placed fulfillment centers is lower shipping costs. Most carriers calculate shipping based on zones.
The farther an order has to travel, the more zones it crosses and the more expensive it is to ship.
High shipping costs are one of the top reasons for eCommerce shopping cart abandonment. Fast, cheap (or free) shipping is
critical to eCommerce success. Analyze your sales trends before you choose a 3PL company. Review the zone chart of the
warehouses you’re considering. Make sure that you get the coverage you need from your 3PL provider.
Fulfillment center specialization
Even among the best eCommerce fulfillment providers, there are differences in core competencies. One might be a great
match for your business and another a total mismatch.
The size and shape of your products is key to determining your fit with a fulfillment warehouse. If your merchandise presents
any shipping challenges, you need a 3PL provider with expertise in those challenges.
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Choose a fulfillment center with experience delivering similar merchandise safely and economically. This is particularly
important if your products are large, heavy, or fragile.
Red Stag, for example, specializes in shipping heavy and bulky items. We understand how to pack bigger products, so they
arrive safely. And we use strategies to ship large items with the lowest DIM weight, so we save you money. If your orders
weigh less than 1 pound, look for a provider who specializes in small shipments.
Fulfillment center turnaround time
Amazon Prime has made free two-day delivery an industry standard. You don’t have to sell on Amazon to compete, though.
All you need is a great fulfillment warehouse that can turn your orders around quickly.
Find an eCommerce fulfillment center that offers same-day shipping. When your orders leave the warehouse quickly, they get
to your customers faster. Your business will grow faster if you can deliver the speed that eCommerce shoppers demand.
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Fulfillment center customer support
There are two aspects of eCommerce fulfillment customer support. You want to find 3PL services that respond quickly to your
questions and requests. In addition, your warehousing & shipping provider should be able to support your end customers.
Look for services that give you your own dashboard, so you can track your order fulfillment in real time. Ask for support for
customer requests. When it comes to customer service, transparency is key. If your customers can track their own packages,
you’ll have fewer customer service calls.
Evaluating order fulfillment services: questions to ask
You’re the boss of your eCommerce fulfillment center. It’s okay to ask a lot of questions to make sure you choose the 3PL
fulfillment provider that best fits your business. That said, it’s not always easy to know what questions to ask. To ensure you
find the right fulfillment service for your company, here are some questions to get you started: Picking and packing questions
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What types of products do you ship? If your products are large or heavy, you need a fulfillment warehouse that
specializes in large and heavy items. They will be able to give you the best advice on how to properly pack and ship
your products. On the other hand, small products won’t get the best handling in a fulfillment center full of bulky items.
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The same can be true for hazardous materials or fragile merchandise. Find a fulfillment center that specializes in the
types of goods you sell. This will save you money on packaging and shipping.
What value-added services do you offer? A warehouse that can kit your merchandise can add value to your
eCommerce business. ECommerce fulfillment services can include custom lettering or just-in-time assembly.
What are your customer service practices? Your e-fulfillment company can take much of the customer service
burden off your shoulders. Make sure it has systems in place to respond quickly to customer inquiries. Fulfillment cost
questions
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•
What is the charge for setting up my account and integrating my sales platforms? The right answer to the
question is free. Ask about all the charges relating to your account from beginning to end. Hidden fees can turn a
reasonable quoted price for fulfillment services into a business-killing expense.
Who pays for fulfillment mistakes? What kind of guarantees does the fulfillment center offer if they pack or ship an
order incorrectly? Will they waive the fulfillment and shipping fees when they make a mistake? A guarantee like this is
a sign of a high-quality e-fulfillment provider — one that doesn’t make many mistakes.
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What is your policy on inventory shrinkage? Find out the shrinkage allowance up front. A top-notch eCommerce
fulfillment warehouse will guarantee your inventory. This will protect you from the costs of inventory shrinkage and
damage
Shipping cost questions
•
•
•
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Do you offer shipping discounts? Because 3PL providers are volume shippers, they may qualify for discounted
shipping rates from major freight companies. Make sure this discount gets passed to you.
Do you offer international shipping? Even if you sell only to domestic customers now, why limit your future? The
growth potential of eCommerce is worldwide sales. Choose an e-fulfillment provider that can help take your online store
to the next level.
What is your system for shipment tracking? Make sure that shipment notifications go directly to your customers
and to you. Notifications should include tracking numbers. That way, you and your customers can follow shipments
and troubleshoot when needed.
How fast can you ship my orders? Find out what percentage of the country the fulfillment provider can ship to in two
days or less. You’ll want to reach at least 70 percent of the country within that time frame. Two-day shipping via ground
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will keep your customers happy. Ask about order turnaround as well. Can they ship same-day on orders received by a
certain cutoff? This is an important asset to help you grow your eCommerce business.
What are your customer service practices? Your e-fulfillment company can take much of the customer service
burden off your shoulders. Make sure it has systems in place to respond quickly to customer inquiries.
Technology questions
•
•
•
Does your warehouse have backup power? People in other parts of the country still expect their orders to arrive on
time. They don’t care if your fulfillment center is hit by a blizzard. A power outage is not their problem. Ask how recently
they have tested their backup systems. A generator that doesn’t work won’t help you when extreme weather hits.
What inventory management and inventory control services do you offer? To avoid shrinkage, look for a fulfillment
center that provides continuous inventory management. This is more accurate than spot-check inventories.
Do you have ISP backups in place? The power may be on, but an internet outage can take a warehouse out of
service. If your orders aren’t transmitted from your eCommerce sales channels, they can’t get shipped. Make sure your
efulfillment services provider uses more than one ISP. That way, its internet service will be uninterrupted.
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What are your security procedures? This relates to both internet security and the physical security of your
merchandise. Find out what controls the 3PL provider places on access to sensitive and proprietary information. They
should also conduct background checks on employees. In addition, they should use security cameras to prevent theft.
How will eCommerce fulfillment contribute to your success?
Inefficient eCommerce fulfillment can slow the growth of your business. Poorly packed boxes, shipment errors, and delays
can lead to dissatisfied customers and bad reviews.
Now you have a solid grounding in the basics of the order fulfillment process. So, you are ready to evaluate potential 3PL
providers. It’s a good idea to answer these questions about what you need from your eCommerce fulfillment center. Then find
a partner who will help your eCommerce business thrive.
Fulfillment is a core component of your eCommerce success. It may be a challenge to assess your fulfillment center in detail,
but just do it. You’ll thank us later.
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Another core component to eCommerce success is having a return and refund process that is easy for you and your
customers. Take a look at these Best Practices to ensure your company is doing everything they can to make this process
easy.
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