Process Management
Class 3: 2/2/11
6-2
OBJECTIVES

Process Analysis

Process Flowcharting

Types of Processes

Process Performance Metrics

Manufacturing Processes

Service Processes

Business Process Reengineering
PROCESS MANAGEMENT
Processes relate to work that is ongoing and
repetitive
 Process management concepts and methods can
be applied to improve manufacturing, service,
and business processes
 Effort is placed trying to reduce cost, increase
throughput, and improve quality

6-4
PROCESS ANALYSIS TERMS
 Process:
Is any part of an
organization that takes inputs and
transforms them into outputs
 Cycle Time: Is the average successive
time between completions of
successive units
 Utilization: Is the ratio of the time
that a resource is actually activated
relative to the time that it is
available for use
6-5
PROCESS FLOWCHARTING
DEFINED
 Process
flowcharting is the use of a
diagram to present the major
elements of a process
 The basic elements can include tasks
or operations, flows of materials or
customers, decision points, and
storage areas or queues
 It is an ideal methodology by which
to begin analyzing a process
6-6
Flowchart Symbols
Purpose and Examples
Examples: Giving an
Tasks or operations admission ticket to a
customer, installing a
engine in a car, etc.
Examples: How much
Decision Points change should be
given to a customer,
which wrench should
be used, etc.
6-7
Flowchart Symbols
Purpose and Examples
Storage areas or
queues
Examples: Sheds,
lines of people waiting
for a service, etc.
Flows of
materials or
customers
Examples: Customers
moving to a seat,
mechanic getting a
tool, etc.
6-8
TYPES OF PROCESSES
Single-stage Process
Stage 1
Multi-stage Process
Stage 1
Stage 2
Stage 3
6-9
TYPES OF PROCESSES (CONTINUED)
A buffer refers to a storage area
between stages where the output
of a stage is placed prior to being
used in a downstream stage
Multi-stage Process with Buffer
Buffer
Stage 1
Stage 2
6-10
OTHER PROCESS TERMINOLOGY

Blocking



Occurs when the activities in a stage must stop
because there is no place to deposit the item just
completed
If there is no room for an employee to place a
unit of work down, the employee will hold on to
it not able to continue working on the next unit
Starving


Occurs when the activities in a stage must stop
because there is no work
If an employee is waiting at a work station and
no work is coming to the employee to process,
the employee will remain idle until the next unit
of work comes
6-11
OTHER PROCESS TERMINOLOGY (CONTINUED)
 Bottleneck


Occurs when the limited capacity of a
process causes work to pile up or
become unevenly distributed in the flow
of a process
If an employee works too slow in a
multi-stage process, work will begin to
pile up in front of that employee. In this
is case the employee represents the
limited capacity causing the bottleneck.
 Pacing

Refers to the fixed timing of the
movement of items through the process
6-12
OTHER TYPES OF PROCESSES
 Make-to-order


Only activated in response to an actual
order
Both work-in-process and finished goods
inventory kept to a minimum
 Make-to-stock


Process activated to meet expected or
forecast demand
Customer orders are served from target
stocking level
6-14
PROCESS PERFORMANCE METRICS




Capacity: maximum output of a
process or resource measured in
units/time: a rate
Operation time = Setup time + Run
time
Setup time: the length of time
required to changeover from one
product to another (assumes
products are produced in batches)
Throughput time = Average time for
a unit to move through the system
6-15
PROCESS PERFORMANCE METRICS (CONTINUED)


Cycle time = Average time between
completion of units
Throughput rate =
1___
Cycle time

Utilization of an operation =
Demand/Capacity
6-16
CYCLE TIME EXAMPLE
Suppose you had to produce 600 units in 80
hours to meet the demand requirements of a
product. What is the cycle time to meet this
demand requirement?
Answer: There are 4,800 minutes (60
minutes/hour x 80 hours) in 80 hours. So the
average time between completions would have
to be: Cycle time = 4,800/600 units = 8 minutes.
BREAD-MAKING QUESTIONS
What is the bottleneck when one breadmaking line is used? What is the capacity of
the process? What is the utilization of
packaging? What is the throughput time?
 What happens to capacity and utilization
when two bread-making lines are used? What
is the bottleneck?

6-19
PROCESS THROUGHPUT TIME REDUCTION

Perform activities in parallel

Change the sequence of activities

Reduce interruptions
7-20
BASIC WORK FLOW STRUCTURES





Project layout – fixed position;
construction, movie lots
Workcenter (job shop) – similar
equipment grouped together; machine
shop
Manufacturing cell – similar set of
processes for a limited range of
products
Assembly Line – discrete parts move
through workstations; toys, appliances,
cars
Continuous process – flow vs discrete,
flows a set sequence of steps; oil,
rubber, chemicals
PROCESS TYPES
Continuous
 Assembly Line
 Job Shop
 Cell
 Project

CONTINUOUS PROCESS
Highly standardized products in large volumes
 Often these products have become commodities
 Typically these processes operate 24 hours/day
seven days/week
 Objective is to spread fixed cost over as large a
volume as possible

CONTINUOUS PROCESS CONTINUED
Starting and stopping a continuous process can
be prohibitively expensive
 Highly automated and specialized equipment
used
 Layout follows the processing stages
 Output rate controlled through equipment
capacity and flow mixture rates

CONTINUOUS PROCESS CONTINUED
Low labor
requirements
 Often one primary
input
 Initial setup of
equipment and
procedures very
complex

24
ASSEMBLY LINE
Similar to continuous process except discrete
product is produced
 Heavily automated special purpose equipment
 High volume - low variety
 Both services and products can use flow shop
form of processing

A GENERALIZED ASSEMBLY LINE
OPERATION
ADVANTAGES OF THE ASSEMBLY LINE

Low unit cost





specialized high volume equipment
bulk purchasing
lower labor rates
low in-process inventories
simplified managerial control
DISADVANTAGES OF ASSEMBLY LINE
Variety of output difficult to obtain
 Difficult to change rate of output
 Minor design changes may require substantial
changes to the equipment
 Worker boredom and absenteeism
 Work not very challenging
 Vulnerable to equipment breakdowns

DISADVANTAGES OF ASSEMBLY LINE
CONTINUED
Line balanced to slowest element
 Large support staff required
 Planning, design, and installation very complex
task
 Difficult to dispose of or modify special purpose
equipment

ASSEMBLY LINE LAYOUT
Objective is to assign tasks to groups
 The work assigned to each group should take
about the same amount of time to complete
 Final assembly operations with more labor input
often subdivided easier
 Paced versus unpaced lines

JOB SHOP
High variety - low volume
 Equipment and staff grouped based on function
 Each output processed differently

A GENERALIZED JOB SHOP OPERATION
32
ADVANTAGES OF THE JOB SHOP
Flexibility to respond to individual demands
 Less expensive general purpose equipment used
 Maintenance and installation of general purpose
equipment easier
 General purpose equipment easier to modify and
therefore less susceptible to becoming obsolete

ADVANTAGES OF THE JOB SHOP
CONTINUED
Dangerous activities can be segregated from
other operations
 Higher skilled work leading to pride of
workmanship
 Experience and expertise concentrated
 Pace of work not dictated by moving line
 Less vulnerable to equipment breakdowns

DISADVANTAGES OF THE JOB SHOP
General purpose equipment is slower
 Higher direct labor cost
 High WIP inventories
 High material handling costs
 Management control very difficult

THE CELL FORM
Combines flexibility of job shop with low costs
and short response times of flow shop
 Based on group technology
 First identify part families
 Then form machine cells to produce part families

CONVERSION OF A JOB SHOP LAYOUT TO A
CELLULAR LAYOUT
37
ORGANIZATION OF MISCELLANEOUS
PARTS INTO FAMILIES
38
ADVANTAGES OF CELLULAR PRODUCTION

Reduced machine setup times






increased capacity
economical to produce in smaller batch sizes
smaller batch sizes result in less WIP
less WIP leads to shorter lead times
shorter lead times increase forecast accuracy and
provide a competitive advantage
Parts produced in one cell
ADVANTAGES OF CELLULAR PRODUCTION
CONTINUED
Capitalize on benefits of using worker teams
 Minimal cost to move from job shop to cellular
production (e.g. EHC)
 Can move from cellular production to “miniplants”

DISADVANTAGES OF CELLULAR
PRODUCTION
Volumes too low to justify highly efficient high
volume equipment
 Vulnerable to equipment breakdowns
 Balancing work across cells
 Does not offer the same high degree of
customization as the job shop

CELLULAR LAYOUT
Teams of workers and equipment to produce
families of outputs
 Workers cross-trained
 Nominal cells versus physical cells.
 Remainder cell
 Cell formation methods


production flow analysis
PROJECT OPERATIONS
Large scale
 Finite duration
 Nonrepetitive
 Multiple
interdependent
activities
 Offers extremely short
reaction times

43
7-44
PRODUCT-PROCESS MATRIX
SELECTION OF TRANSFORMATION SYSTEM
BY STAGE OF LIFE CYCLE
45
7-46
BREAK-EVEN ANALYSIS
A
standard approach to choosing
among alternative processes or
equipment
 Model
seeks to determine the point in
units produced (and sold) where we
will start making profit on the
process or equipment
 Model
seeks to determine the point in
units produced (and sold) where total
revenue and total cost are equal
7-47
BREAK-EVEN ANALYSIS (CONTINUED)
Break-even Demand=
Purchase cost of process or equipment
Price per unit - Cost per unit
or
Total fixed costs of process or equipment
Unit price to customer - Variable costs per unit
This formula can be used to find any
of its components algebraically if
the other parameters are known
7-48
BREAK-EVEN ANALYSIS (CONTINUED)

Example: Suppose you want to purchase a new
computer that will cost $5,000. It will be used to
process written orders from customers who will
pay $25 each for the service. The cost of labor,
electricity and the form used to place the order is
$5 per customer. How many customers will we
need to serve to permit the total revenue to breakeven with our costs?
 Break-even
Demand:
= Total fixed costs of process or equip.
Unit price to customer – Variable costs
=5,000/(25-5)
=250 customers
7-49
MANUFACTURING PROCESS FLOW DESIGN
A
process flow design can be defined
as a mapping of the specific processes
that raw materials, parts, and
subassemblies follow as they move
through a plant
 The
most common tools to conduct a
process flow design include assembly
drawings, assembly charts, and
operation and route sheets
7-50
EXAMPLE: ASSEMBLY CHART (GOZINTO) – PLUG ASSEMBLY
From Exhibit 7.4
4
5
6
7
Lockring
Spacer, detent spring
SA-2
Rivets (2)
A-2
Spring-detent
A-5
Component/Assy Operation
Inspection
8-51
SERVICE BUSINESSES
A service business is the management of
organizations whose primary business
requires interaction with the customer to
produce the service


Facilities-based services: Where the
customer must go to the service facility
Field-based services: Where the production
and consumption of the service takes place
in the customer’s environment
8-52
THE CUSTOMER CENTERED VIEW
A philosophical view that
suggests the organization
exists to serve the
customer, and the
systems and the
employees exist to
facilitate the process of
service.
The
Systems
The Service
Strategy
The
Customer
The
People
8-53
SERVICE-SYSTEM DESIGN MATRIX
Degree of customer/server contact
High
Buffered
core (none)
Permeable
system (some)
Reactive
system (much)
Low
Face-to-face
total
customization
Face-to-face
loose specs
Sales
Opportunity
Face-to-face
tight specs
Production
Efficiency
Phone
Internet & Contact
on-site
technology
Mail contact
Low
High
8-54
CHARACTERISTICS OF WORKERS, OPERATIONS, AND INNOVATIONS
RELATIVE TO THE DEGREE OF CUSTOMER/SERVICE CONTACT
8-55
EXAMPLE OF SERVICE BLUEPRINTING
Standard
execution time
2 minutes
Brush
shoes
30
secs
Total acceptable
execution time
5 minutes
Seen by
customer
Line of
visibility
Not seen by
customer but
necessary to
performance
Clean
shoes
45
secs
Apply
polish
30
secs
Fail
point
Buff
Collect
payment
45
secs
15
secs
Wrong
color wax
Materials
(e.g., polish, cloth)
Select and
purchase
supplies
8-56
SERVICE FAIL-SAFING
POKA-YOKES (A PROACTIVE APPROACH)


Keeping a mistake
from becoming a
service defect
How can we failsafe the three Ts?
Task
Treatment
Tangibles
8-57
THREE CONTRASTING SERVICE DESIGNS
 The
production line approach
(ex. McDonald’s)
 The
self-service approach (ex.
automatic teller machines)
 The
personal attention approach
(ex. Ritz-Carlton Hotel Company)
8-58
MANAGING CUSTOMER INTRODUCED VARIATION
•Arrival variability
•Request variability
•Capability variability
•Effort variability
•Subjective preference variability
8-59
ACCOMMODATION STRATEGIES
Classic accommodation – extra employees or
additional employee skills
 Low cost accommodation – use low cost labor,
outsource, self-service
 Classic reduction – more self-service, reservations,
adjust expectations
 Uncompromised reduction – develop procedures for
good service, minimizing variation impact

8-60
CHARACTERISTICS OF A WELL-DESIGNED SERVICE SYSTEM
1. Each element of the service
system is consistent with the
operating focus of the firm
2. It is user-friendly
3. It is robust
4. It is structured so that
consistent performance by its
people and systems is easily
maintained
8-61
CHARACTERISTICS OF A WELL-DESIGNED SERVICE SYSTEM (CONTINUED)
5. It provides effective links between the
back office and the front office so that
nothing falls between the cracks
6. It manages the evidence of service
quality in such a way that customers
see the value of the service provided
7. It is cost-effective
8-62
SERVICE GUARANTEES AS DESIGN DRIVERS
 Recent





research suggests:
Any guarantee is better than no
guarantee
Involve the customer as well as
employees in the design
Avoid complexity or legalistic language
Do not quibble or wriggle when a
customer invokes a guarantee
Make it clear that you are happy for
customers to invoke the guarantee
BUSINESS PROCESS DESIGN
(REENGINEERING)
DIVISION OF LABOR CONCEPT

Work broken down into its simplest most basic
tasks
Performing same task facilitates attaining greater
skill
 No time lost switching to another task
 Workers well positioned to improve tools and
techniques

DIVISION OF LABOR CONCEPT
CONTINUED
Division of labor concept not challenged until
recently despite dramatic changes in technology
 Quality, innovation, service, and value more
important than cost, growth, and control

PROCESS
Set of activities that taken together produce a
result of value to the customer
 Organizing on basis of processes

Eliminate delays and errors when work is handed off
 Capture information once and at source
 When people closest to process perform work, there is
little need for management overhead

BUSINESS PROCESS DESIGN (BPD)
The fundamental rethinking and radical
redesign of business processes to bring about
dramatic improvements in performance
Hammer, M. and Stanton, S. The Reengineering Revolution,
Harper Business, 1995.
RADICAL
Profoundly change the way work performed
 Not concerned with making superficial changes
 Get to root
 Get rid of old
 Reinventing, not improving

REDESIGN
BPD is about designing how work is done
 Smart, capable, well trained, highly motivated
employees mean little if the way work is
performed is poorly designed

PROCESS
All organizations perform processes
 Customers not interested in individual activities
but rather overall results
 Few of them are organized on the basis of
processes
 Thus, processes tend to go unmanaged
 Team approach one way this addressed

DRAMATIC
Quantum leaps in performance, not marginal or
incremental improvements
 Breakthroughs in performance

IBM CREDIT EXAMPLE
72
IBM CREDIT EXAMPLE CONTINUED
Order logged by 1 of 14 people in conference room
 Carted upstairs to credit department
 Information entered into computer to check
borrower’s creditworthiness
 Results written on piece of paper

IBM CREDIT EXAMPLE CONTINUED
Business practices department modified
standard loan covenant in response to customer
requests
 Used its own computer system
 Pricer keyed data into PC to determine
appropriate interest rate
 Administrator converted to quote letter and
Fedexed to field sales rep.

IBM CREDIT EXAMPLE CONTINUED
Average time to process a request was 6 days
 Could take as long as 2 weeks
 Actual processing time 90 minutes
 Deal Structurer

Turnaround time 4 hours
 Number of deals processed increased 100 times with
small reduction in head count
