Process ManagementProcess
and Strategy
-1
Business Process Management
1
Building block of Operations Management
– System view
– Process chart – Schematic representation
– Value stream mapping
– Evaluation and trade-offs
– Make-to-order vs. Make-to-stock
– Risk-pooling - in Waiting lines, in Inventory
– Reducing Inventory and Centralization
– Removing variability
Ardavan Asef-Vaziri
Sep-09
Introduction 1
Process ManagementProcess
and Strategy
-1
Systems approach
2
“The whole is greater than the sum of the parts.”
Suboptimization
2 > 1+1
Ardavan Asef-Vaziri
Sep-09
Introduction 2
Process ManagementProcess
and Strategy
-1
Systems
3
A set of parts with interrelationships between parts
organized to achieve a goal
How systems grow up
Performance measure of Sub-systems must be linked to the
performance measure of the total system
Ardavan Asef-Vaziri
Sep-09
Introduction 3
Process ManagementProcess
and Strategy
-1
Systems approach
4
Systems approach and
Sales
Purchasing
Production
Link Performance of
the subsystems to the
performance of the
total system.
Ardavan Asef-Vaziri
Sep-09
Introduction 4
Process ManagementProcess
and Strategy
-1
Schematic Representation of the Process (Flow
Charts)
Customer
places order
Raw
Material
Activity
Cook
Assemble
Finished
Goods
Deliver
Storage
Mc Donald's make-to-stock system.
Decision
Ardavan Asef-Vaziri
Sep-09
Flow
(Prior to 1999)
Introduction 5
5
Process ManagementProcess
and Strategy
-1
Value Stream Mapping
6

There are several key areas of concern in any product flow.
 Points where processing times are large.
 Activities that contains physical constraints – material or
capacity constraints.
 Points where there is a high degree of resource sharing. When
the same resource is required to process a variety of products.
 Divergence points where common materials are transformed
into different product streams.
 Convergence points where multiple materials must come
together.
 Points of excessive variation.
Ardavan Asef-Vaziri
Sep-09
Introduction 6
Process ManagementProcess
and Strategy
-1
Make to Stock vs. Make to Order
7
Will different companies intentionally choose different processes
to accomplish the same goal?
– in McDonald
– in In & Out
Process Evaluation
– Different processes lead to different advantages and
disadvantages.
Is there a simply better process, i.e., no trade-offs?
Ardavan Asef-Vaziri
Sep-09
Introduction 7
Process ManagementProcess
and Strategy
-1
Analysis of Tradeoffs
8
Tradeoffs
What are the pros and cons of models?
Ardavan Asef-Vaziri
Sep-09
Introduction 8
Process ManagementProcess
and Strategy
-1
Analysis of tradeoffs
9
Buying a new machine
Additional Investment
Integration with existing system
Training
Higher Productivity
Better Quality
More Flexibility
Having more inventory
Higher Carrying Costs
More Obsolescence
Ardavan Asef-Vaziri
Sep-09
Lower Ordering Cost
Purchasing Discount
Product Availability
Introduction 9
Process ManagementProcess
and Strategy
-1
Processing Time, Waiting Time; Long Waiting Line
10
We are interested in the management of processes.
Selling a ticket seems easy, but …
Ardavan Asef-Vaziri
Sep-09
Introduction 10
Process ManagementProcess
and Strategy
-1
More Servers + Specialization
11
Ardavan Asef-Vaziri
Sep-09
Introduction 11
Process ManagementProcess
and Strategy
-1
Polling: Lower Waiting Time, Longer Processing
Time (Perhaps)
Ardavan Asef-Vaziri
Sep-09
Introduction 12
12
Process ManagementProcess
and Strategy
-1
Uncertainty: Potential Solution
13
Inventory
– How much inventories?
– If too many … opportunity cost, spoilage cost
– If too few …
loss of sales
– It is costly to solve uncertainty using inventory.
Notice that:
– It is not difficult to deliver books very fast
– It is not difficult to deliver books at a very low cost
– But, it is very difficult to deliver book fast and at a low cost
?
Ardavan Asef-Vaziri
Sep-09
Introduction 13
Process ManagementProcess
and Strategy
-1
Amazon.com: Delivering Books
14
Example: In the early days of Amazon.com the company did not
keep any inventory of books.
– The supplier Ingram kept the books for Amazon.
– Once Amazon received an order it was transmitted to
Ingram.
– Ingram would ship the book directly to the consumer.
What are the advantages for such an arrangement for Amazon and
Ingram?
– Risking pooling (less inventory is needed)
What are the disadvantages of this arrangement for Amazon and
Ingram?
– Allocation priority
Ardavan Asef-Vaziri
Sep-09
Introduction 14
Process ManagementProcess
and Strategy
-1
Lean Operations: The Real Cost of Inventory
15
Inventory adversely affects all competing edges (P/Q/V/T)
Has cost
– Physical carrying costs
– Financial costs
Has risk of obsolescence
– Due to market changes
– Due to technology changes
Leads to poor quality
– Feed back loop is long
Hides problems
– Unreliable suppliers, machine breakdowns, long changeover times, too
much scrap.
Causes long flow time
Ardavan Asef-Vaziri
Sep-09
Introduction 15
Process ManagementProcess
and Strategy
-1
Inventory Centralization
16
If centralization of stocks reduces inventory, why doesn’t everybody do
it?
– Longer response time
– Higher shipping cost
– Less understanding of customer needs
– Less understanding of cultural, linguistics, and regulatory barriers
These disadvantages my reduce the demand.
Ardavan Asef-Vaziri
Sep-09
Introduction 16
Process ManagementProcess
and Strategy
-1
Pareto phenomenon (ABC analysis)
17
 Classifying items, activities, or tasks according to some measure of
importance and allocating efforts and resources accordingly
 A vital few things are important for reaching an objective or solving a
problem
 80/20 rule – 80% of the problems are caused by 20% of the activities
How do we identify the vital few?
Ardavan Asef-Vaziri
Sep-09
Introduction 17
Process ManagementProcess
and Strategy
-1
Pareto phenomenon, ABC analysis, & Recognition
of Priorities
Acknowledging the fact that certain aspects of any management situation are more
important than others is called Recognition of Priorities.
Ardavan Asef-Vaziri
Sep-09
Introduction 18
18
Process ManagementProcess
and Strategy
-1
Models -Representations
19
A model is an abstraction of reality
•
Narrative
• Tabular
• Schematic (Some times Physical)
• Mathematical
– Linear programming
– Transportation model
– Inventory models
– Waiting line models
– Statistical models
Ardavan Asef-Vaziri
Sep-09
Introduction 19
Process ManagementProcess
and Strategy
-1
Recent Trends
20

Global Competition

Operations Strategy

Flexibility

Cycle Time Reduction

Business Process Re-engineering

Supply Chain Management

Workers Involvement

Lean Manufacturing

Total Quality Management
Ardavan Asef-Vaziri
Sep-09
Introduction 20
Process ManagementProcess
and Strategy
-1
Recent Trends
21
Global Competition
 Global Market
 Global Suppliers
Operations Strategy
 Quality based
 Time based
Flexibility
 Variety of products
 High Volume as well as Low Volume
Cycle Time Reduction
 The less time RM (Raw Material), WIP (Work In Process),
FG (Finished Goods) spend in the Manufacturing and
Logistics process, the less opportunity they have to absorb
costs.
Ardavan Asef-Vaziri
Sep-09
Introduction 21
Process ManagementProcess
and Strategy
-1
Recent Trends
22
Business Process Re-engineering
 Value added and NVA activities
Supply Chain Management
 NOT from RM storage to FG warehouse, but from the
original suppliers to final consumers
 Under separate ownerships
Workers Involvement
 Workers are not costs, they are assets
 Lean Manufacturing
 Inventory is waste
 Variability is evil
 Total Quality Management
Ardavan Asef-Vaziri
Sep-09
Introduction 22
Process ManagementProcess
and Strategy
-1
Examples of Exam Questions
23
1. The following activities are all a part of system operations as opposed to
system design
a)
b)
c)
d)
e)
long term forecasting, product design, capacity planning, inventory
management.
short term forecasting, product design, capacity planning, inventory
management
short term forecasting, production planning, capacity planning, inventory
management
short term forecasting, production planning, quality assurance, inventory
management
none of the above
2. Pareto Phenomenon is the same as
a)
b)
c)
d)
e)
Ardavan Asef-Vaziri
ABC analysis
analysis of trade-off
systems analysis
quantitative approaches
none of the above
Sep-09
Introduction 23
Process ManagementProcess
and Strategy
-1
Review Questions (cont.)
24
3. In ABC analysis
a)
b)
c)
d)
e)
25% of items form 25% of the measure of importance
10% of items form 10% of the measure of importance
90% of items form 90% of the measure of importance
50% of items form 50% of the measure of importance
15% of items form 75% of the measure of importance
4. Given:
(I) Lean operations, (II) Operations strategy, (III) Business process re-engineering
(A) Inventory is waste, (B) Time based operations, (C) High Volume as well as Low
Volume,
(D) Value-added and NVA activities
Which of the following selections is correct?
a)
b)
c)
d)
e)
(I)
(I)
(I)
(I)
(I)
Ardavan Asef-Vaziri
matches with (D), (II) matches with (C), (III) matches with (B)
matches with (A), (II) matches with (B), (III) matches with (C)
matches with (A), (II) matches with (B), (III) matches with (D)
matches with (A), (II) matches with (D), (III) matches with (C)
matches with (C), (II) matches with (D), (III) matches with (B)
Sep-09
Introduction 24
Process ManagementProcess
and Strategy
-1
Review Questions (cont.)
25
5. Given
(I) supply chain management, (II) Flexibility, (III) Operations strategy
(A) Quality based operations, (B) Workers are asset, (C) Value added and
NVA activities,
(D) from suppliers to consumers, (E) High Volume as well as low volume
Which of the following selections is correct?
a)
b)
c)
d)
e)
(I) matches with (D), (II) matches with (E), (III) matches with (C)
(I) matches with (D), (II) matches with (E), (III) matches with (A)
(I) matches with (A), (II) matches with (E), (III) matches with (D)
(I) matches with (C), (II) matches with (D), (III) matches with (E)
(I) matches with (E), (II) matches with (B), (III) matches with (D)
Ardavan Asef-Vaziri
Sep-09
Introduction 25