UNIT-5

Productivity is the quantitative relation between what we produce and we use as a resource to
produce them, i.e., arithmetic ratio of amount produced (output) to the amount of resources
(input). Productivity can be expressed as:
Productivity =Output&Input

Productivity refers to the efficiency of the production system. It is the concept that guides the
management of production system. It is an indicator to how well the factors of production
(land, capital, labor and energy) are utilized.

European Productivity Agency (EPA) has defined productivity as, “Productivity is an

attitude of mind. It is the mentality of progress, of the constant improvements of that which
exists. It is the certainty of being able to do better today than yesterday and continuously. It
is the constant adaptation of economic and social life to changing conditions. It is the
continual effort to apply new techniques and methods. It is the faith in progress.”
A major problem with productivity is that it means many things to many people. Economists
determine it from Gross National Product (GNP), managers view it as cost cutting and speed
up, engineers think of it in terms of more output per hour. But generally accepted meaning is
that it is the relationship between goods and services produced and the resources employed in
their production.

Factors Influencing Productivity

Factors influencing productivity can be classified broadly into two categories:
A. controllable (or internal) factors and
B. un-controllable (or external) factors.
A. CONTROLLABLE FOR INTERNAL FACTORS

1. Product factor: In terms of productivity means the extent to which the

product meets output requirements product is judged by its usefulness. The cost benefit
factor of a product can be enhanced by increasing the benefit at the same cost or by
reducing cost for the same benefit.
2. Plant and equipment: These play a prominent role in enhancing the
productivity. The increased availability of the plant through proper maintenance and
reduction of idle time increases the productivity. Productivity can be increased by
paying proper attention to utilization, age, modernization, cost, investments etc.
 Factors influencing productivity

3. Technology:  Innovative and latest technology improves productivity to a

greater extent. Automation and information technology helps to achieve improvements
in material handling, storage, communication system and quality control. The various
aspects of technology factors to be considered are:

i. Size and capacity of the plant,

ii. Timely supply and quality of inputs,
iii. Production planning and control,
iv. Repairs and maintenance,
v. Waste reduction, and
vi. Efficient material handling system.
4. Material and energy:
Efforts to reduce materials and energy consumption brings about considerable
improvement in productivity.

i. Selection of quality material and right material.

ii. Control of wastage and scrap.
iii. Effective stock control.
iv. Development of sources of supply.
v. Optimum energy utilization and energy savings.
vi. Human factors:
Productivity is basically dependent upon human competence and skill. Ability to
work effectively is governed by various factors such as education, training,
experience aptitude etc., of the employees. Motivation of employees will influence
productivity.
vii. Work methods: Improving the ways in which the work is done
(methods) improves productivity, work study and industrial engineering techniques
and training are the areas which improve the work methods, which in term enhance
the productivity.
viii. Management style:  This influence the organizational design,
communication in organization, policy and procedures. A flexible and dynamic
management style is a better approach to achieve higher productivity.
2. UNCONTROLLABLE (OR) EXTERNAL FACTORS
 1. Structural adjustments: Structural adjustments include both economic
and social changes. Economic changes that influence significantly are:

i. Shift in employment from agriculture to manufacturing industry,

ii. Import of technology, and
iii. Industrial competitiveness.
Social changes such as women’s participation in the labor force, education, cultural
values, attitudes are some of the factors that play a significant role in the improvement
of productivity.
2. Natural resources: Manpower, land and raw materials are vital to the
productivity improvement.
3. Government and infrastructure: Government policies and program are
significant to productivity practices of government agencies, transport and
communication power, fiscal policies (interest rates, taxes) influence productivity to
the greater extent.
Total Productivity Measure (TPM)
It is based on all the inputs. The model can be applied to any manufacturing organization or
service company.
Total productivity =Total tangible output +Total trangible input

Total tangible output = Value of finished goods produced + Value of partialunits produced +
Dividents from securities + Interest+ Other income

Total tangible input = Value of (human + material + capital + energy+ other inputs) used.
The word tangible here refers to measurable.

The output of the firm as well as the inputs must be expressed in a common measurement
unit. The best way is to express them in rupee value.

Partial Productivity Measures (PPM)

Depending upon the individual input partial productivity measures are expressed as:
Partial productivity =Total output%Individual input

Labor productivity =Total output%Labour input(in terms of man hours)

Capital productivity =Total output%Capital input

Material productivity =Total output%Material input

Energy productivity =Total output%Energy input

 One of the major disadvantages of partial productivity measures is that there is an over
emphasis on one input factor to the extent that other input are underestimated or even
ignored.

Productivity Improvement Techniques

A. TECHNOLOGY BASED
1. Computer Aided Design (CAD), Computer Aided Manufacturing
(CAM), and Computer Integrated Manufacturing Systems (CIMS): CAD refers to
design of products, processes or systems with the help of computers. The impact of
CAD on human productivity is significant for the advantages of CAD are:

a. Speed of evaluation of alternative designs,

b. Minimization of risk of functioning, and
c. Error reduction.

CAM is very much useful to design and control the manufacturing. It helps to achieve
the effectiveness in production system by line balancing.
d. Production Planning and Control
e. Capacity Requirements Planning (CRP), Manufacturing
Resources Planning (MRP II) and Materials Requirement Planning (MRP)
f. Automated Inspection.
2. Computer integrated manufacturing:
Computer integrated manufacturing is characterized by automatic line balancing,
machine loading (scheduling and sequencing), automatic inventory control and
inspection.

a. Robotics
b. Laser technology
c. Modern maintenance techniques
d. Energy technology
e. Flexible Manufacturing System (FMS)
2. EMPLOYEE BASED

1. Financial and non-financial incentives at individual and group level.

2. Employee promotion.
3. Job design, job enlargement, job enrichment and job rotation.
4. Worker participation in decision-making
 5. Quality Circles (QC), Small Group Activities (SGA)
6. Personal development.
3. ATERAL BASED

1. Material planning and control

2. Purchasing, logistics
3. Material storage and retrieval
4. Source selection and procurement of quality material
5. Waste elimination.
4. PROCESS BASED

1. Methods engineering and work simplification

2. Job design evaluation, job safety
3. Human factors engineering.
5. PRODUCT BASED

1. Value analysis and value engineering

2. Product diversification
3. Standardization and simplification
4. Reliability engineering
5. Product mix and promotion.
6. TASK BASED

1. Management style
2. Communication in the organization
3. Work culture
4. Motivation
5. Promotion group activity.

Production Planning and Control: Meaning, Characteristics and Objectives!

Meaning:

Production planning and control is an important task of Production Manager. It has to see that

production process is properly decided in advance and it is carried out as per the plan.

Production is related to the conversion of raw materials into finished goods. This conversion

process involves a number of steps such as deciding what to produce, how to produce, when

to produce, etc. These decisions are a part, of production planning. Merely deciding about the

task is not sufficient.

The whole process should be carried out in a best possible way and at the lowest cost.

Production Manager will have to see that the things proceed as per the plans. This is a control

function and has to be carried as meticulously as planning. Both planning and control of
production are necessary to produce better quality goods at reasonable prices and in a most

systematic manner.

Production planning is the function of looking ahead, anticipating difficulties to be faced and

the likely remedial steps to remove them. It may be said to be a technique of forecasting

ahead every step in the long process of production, taking them at a right time and in the right

degree and trying to complete the operations at maximum efficiency. Production control, on

the other hand, guides and directs flow of production so that products are manufactured in a

best way and conform to a planned schedule and are of the right quality. Control facilitates

the task of manufacturing and see that everything goes as per the plans.

Goldon B. Carson:

“Production planning and control involves generally the organization and planning of the

manufacturing process. Specifically, it consists of the planning of the routing, scheduling,

dispatching and inspection, co-ordination and the control of materials, methods, machines,

tooling and operating times. The ultimate objective is the organization of the supply and

movement of materials and labour, machine utilization and related activities, in order to bring

about the desired manufacturing results in terms of quantity, time and place.”

“Basically, the production control function involves the co-ordination and integration of the

factors of production for optimum efficiency. Overall sales orders or plans must be translated

into specific schedules and assigned so as to occupy all work centres but overload none. The

job can be done formally in which case elaborate charting and filing techniques are used ; or

it can be done informally, with individuals’ thoughts and retention there of supplanting

tangible aids.”

Charles A. Koepke:

“Production planning and control is the coordination of a series of functions according to a

plan which will economically utilize the plant facilities and regulate the orderly movement of
goods through the entire manufacturing cycle, from the procurement of all materials to the

shipping of finished goods at a predetermined rate.”

Characteristics of Production Planning and Control:

The forgoing discussion brings out the following traits of production planning and

control:

1. It is the planning and control of manufacturing process in an enterprise. The questions like

—What is to be manufactured? When it is to be manufactured? How to keep the schedule of

production etc.? —are decided and acted upon for getting good results.

2. All types of inputs like materials, men, machines are efficiently used for maintaining

efficiency of the manufacturing process.

3. Various factors of production are integrated to use them efficiently and economically.

4. The manufacturing process is organized in such a way that none of the work centres is

either overworked or under worked. The division of work is undertaken very carefully so that

every available element is properly utilized.

5. The work is regulated from the first stage of procuring raw materials to the stage of

finished goods.

Objectives of Production Planning and Control:

Planning of production precedes control. Whatever is planned needs to be controlled. The

ultimate objective of both planning and control is to use various inputs in an efficient way

and to have a proper control over various targets and schedules fixed earlier.

The following details will bring out the objectives of production planning and

production control:

Production Planning:
1. To determine the requirements for men, materials and equipment.

2. Production of various inputs at a right time and in right quantity.

3. Making most economical use of various inputs.

4. Arranging production schedules according to the needs of marketing department.

5. Providing for adequate stocks for meeting contingencies.

6. Keeping up-to-date information processes.

Production Control:

1. Making efforts to adhere to the production schedules.

2. Issuing necessary instructions to the staff for making the plans realistic.

3. To ensure that goods produced according to the prescribed standards and quality norms.

4. To ensure that various inputs are made available in right quantity and at proper time.

5. To ensure that work progresses according to the predecided plans.

What Is Total Quality Management (TQM)?

Total quality management (TQM) is the continual process of detecting and reducing or
eliminating errors in manufacturing, streamlining supply chain management, improving the
customer experience, and ensuring that employees are up to speed with training. Total quality
management aims to hold all parties involved in the production process accountable for the
overall quality of the final product or service.

TQM was developed by William Deming, a management consultant whose work had a great
impact on Japanese manufacturing. While TQM shares much in common with the Six Sigma
improvement process, it is not the same as Six Sigma. TQM focuses on ensuring that internal
guidelines and process standards reduce errors, while Six Sigma looks to reduce defects.

What's Total Quality Management?

Understanding Total Quality Management

Total quality management (TQM) is a structured approach to overall organizational
management. The focus of the process is to improve the quality of an organization's outputs,
including goods and services, through continual improvement of internal practices. The
standards set as part of the TQM approach can reflect both internal priorities and any industry
standards currently in place.

Industry standards can be defined at multiple levels and may include adherence to various
laws and regulations governing the operation of the particular business. Industry standards
can also include the production of items to an understood norm, even if the norm is not
backed by official regulations.

Primary Principles of Total Quality Management

TQM is considered a customer-focused process and aims for continual improvement of
business operations. It strives to ensure all associated employees work toward the common
goals of improving product or service quality, as well as improving the procedures that are in
place for production.

Special emphasis is put on fact-based decision making, using performance metrics to monitor
progress; high levels of organizational communication are encouraged for the purpose of
maintaining employee involvement and morale.
Industries Using Total Quality Management
While TQM originated in the manufacturing sector, its principles can be applied to a variety
of industries. With a focus on long-term change over short-term goals, it is designed to
provide a cohesive vision for systemic change. With this in mind, TQM is used in many
industries, including, but not limited to, manufacturing, banking and finance, and medicine.

These techniques can be applied to all departments within an individual organization as well.
This helps ensure all employees are working toward the goals set forth for the company,
improving function in each area. Involved departments can include administration,
marketing, production, and employee training.
Focus on customer

When using total quality management it is of crucial importance to remember that only

customers determine the level of quality. Whatever efforts are made with respect to training
employees or improving processes, only customers determine, for example through
evaluation or satisfaction measurement, whether your efforts have contributed to the
continuous improvement of product quality and services.

Employee involvement

Employees are an organization’s internal customers. Employee involvement in the

development of products or services of an organization largely determines the quality of these
products or services. Ensure that you have created a culture in which employees feel they are
involved with the organization and its products and services.

Process centred

Process thinking and process handling are a fundamental part of total quality management.
Processes are the guiding principle and people support these processes based on basis
objectives that are linked to the mission, vision and strategy.

Integrated system

Following principle Process centred, it is important to have an integrated organization system

that can be modelled for example ISO 9000 or a company quality system for the
understanding and handling of the quality of the products or services of an organization.

Strategic and systematic approach

A strategic plan must embrace the integration and quality development and the development
or services of an organization.

Decision-making based on facts

Decision-making within the organization must only be based on facts and not on opinions
(emotions and personal interests). Data should support this decision-making process.

Communication

A communication strategy must be formulated in such a way that it is in line with the
mission, vision and objectives of the organization. This strategy comprises the stakeholders,
the level within the organization, the communications channels, the measurability of
effectiveness, timeliness, etc.
Continuous improvement

By using the right measuring tools and innovative and creative thinking, continuous
improvement proposals will be initiated and implemented so that the organization can
develop into a higher level of quality.

Practical approach Total Quality Management

When you implement total quality management, you implement a concept. It is not a system
that can be implemented but a line of reasoning that must be incorporated into the
organization and its culture.

Practice has proved that there are a number of basic assumptions that contribute to a
successful roll-out of total quality management within an organization.

These basic assumptions are:

 Train senior management on total quality management principles and ask for their
commitment with respect to its roll-out.
 Assess the current culture, customer satisfaction and the quality system.;
 Senior management determines the desired core values and principles and
communicates this within the organization.
 Develop a basic total quality management plan using the basic starting principles
mentioned above.
 Identify and prioritize customer needs and the market and determine the
organization’s products and services to meet those needs.
 Determine the critical processes that can make a substantial contribution to the
products and services.
 Create teams that can work on process improvement for example quality circles.
 Managers support these teams using planning, resources, and by providing time
training.
 Management integrates the desired changes for improvement in daily processes. After
the implementation of improved processes, standardization takes place.;
 Evaluate progress continuously and adjust the planning or other issues if necessary.
 Stimulate employee involvement. Awareness and feedback lead to an overall
improvement of the entire process. Support this for example by means of a reward
model, i.e. Management by Objectives, and recognition.

WTO and Globalization(refer pdf)

The World Trade Organization (WTO) is among the most powerful and one of the most
secretive international bodies on earth. It is rapidly assuming the role of global government,
as 134 nation-states, including the U.S., have ceded to its vast authority and powers. The
WTO represents the rules-based regime of the policy of economic globalization. The central
operating principal of the WTO is that commercial interests should supersede all others. Any
obstacles in the path of operations and expansion of global business enterprise must be
subordinated. In practice these “obstacles” are usually policies or democratic processes that
act on behalf of working people, labor rights, environmental protection, human rights,
consumer rights, social justice, local culture, and national sovereignty.

The WTO, globalization, and a new world order

IMF-instituted structural adjustment programs (SAPs) were designed to boost export crops to
ensure repayment of debts. But belt-tightening stipulations cut nation-state spending on
housing, education, health and public transport — the sectors that buttress domestic
economies. Dismantling state infrastructures has harmed many nations and has widened
income gaps. The discrepancy between the “state of the economy” and the condition of
populations has become increasingly evident. By the early 1990s it became apparent — even
to prominent World Bank economists — that SAPS were pulling the rug out from under
national infrastructures, preventing poverty alleviation and competition, and encouraging
corruption. Meanwhile, floating exchange rates facilitated an explosion in currency trading
(yen vs. dollars, etc.) from $18 billion daily in 1972 to over $1.5 trillion daily in the 1990.
The rapid movement of what might be called “specudollars” helped set the stage for the
1996/97 collapse of Asian currencies. A new architecture for global governance could have
three elements:

[1] Rules: New rules are needed to constrain capital flows to prevent the volatile,
destabilizing, speculative movement of capital and to direct funds towards healthy
development. Unplayable debts must be forgiven. The forgiving of debt would be a
compensation for past inequities of terms of trade and extraction of wealth.
[2] Institutions: The World Bank (WB) is a bank, not a development agency. One possible
candidate for administrating global governance is the Global Environmental Facility (GEF)
— a union of the UN Development Program, the UN Environmental Program and the WB.
GEF gives grants. Recently it has increased Non-Governmental Organization (NGO)
participation, albeit inadequate; and its funding is grossly insufficient.
[3] Incentives and Funds: Perverse subsidies — those encouraging the extraction, mining,
refining and combustion of coal and oil — must be eliminated. Subsidies and tax incentives
must be switched to stimulate producers and consumers of clean energy and energy-efficient
technologies. New enterprises for fuel cells, solar, etc., can generate jobs and trade — a “win-
win” for the economy and the environment. International agreements — such as the Kyoto
Climate and Biodiversity Conventions — are hampered by the absence of financial resources.
Universal acceptance of the 1987 Montreal Protocol to phase out stratospheric ozone
depleting chemicals was achieved when funds were allocated to transfer technology to poor
nations. For wealthy and poor nations, funds can help “jump-start” clean, infant industries.
Funds are also needed to support what the private sector will not, such as watershed
protection.

Business Process Reengineering (BPR): Definition, Steps, Examples

So, What is Business Process Reengineering?

Business process reengineering is the act of recreating a core business process with the goal
of improving product output, quality, or reducing costs.
Typically, it involves the analysis of company workflows, finding processes that are sub-par
or inefficient, and figuring out ways to get rid of them or change them.

Business process reengineering became popular in the business world in the 1990s, inspired
by an article called Reengineering Work: Don’t Automate, Obliterate which was published in
the Harvard Business review by Michael Hammer.

His position was that too many businesses were using new technologies
to automate fundamentally ineffective processes, as opposed to creating something different,
something that is built on new technologies.

Think, using technology to “upgrade” a horse with lighter horseshoes which make them
faster, as opposed to just building a car.

In the decades since, BPR has continued to be used by businesses as an alternative

to business process management (automating or reusing existing processes), which has
largely superseded it in popularity.

And with the pace of technological change faster than ever before, BPR is a lot more relevant
than ever before.

 Want more information about what business process reengineering is? Check out our
video: What is Business Process Reengineering?

Business Process Reengineering Steps

As we’ve mentioned before, business process reengineering is no easy task.

Unlike business process management or improvement, both of which focus on working with

existing processes, BPR means changing the said processes fundamentally.

This can be extremely time-consuming, expensive and risky. Unless you manage to carry out
each of the steps successfully, your attempts at change might fail.

Step #1: Identity and Communicating the Need for Change

If you’re a small startup, this can be a piece of cake. You realize that your product has a
high user drop-off rate, send off a text to your co-founder, and suggest a direction to pivot.

For a corporation, however, it can be a lot harder. There will always be individuals who are
happy with things as they are, both from the side of management and employees. The first
might be afraid that it might be a sunk investment, the later for their job security.

So, you’ll need to convince them why making the change is essential for the company. If the
company is not doing well, this shouldn’t be too hard.

In some cases, however, the issue is with the company not doing as well as it could be.
Meaning, you should do your research. Which processes might not be working? Is your
competition doing better than you in some regards? Worse?
 Once you have all the information, you’ll need to come up with a very comprehensive plan,
involving leaders from different departments. The management will have to play the role of
salespeople: conveying the grand vision of change, showing how it’ll affect even the lowest-
ranked employee positively.

Risk of Failure: Not Getting Buy-In From The Company

If you fail to do this, however, your business process reengineering efforts might be destined
to fail long before they even start.

Business Process Re-Engineering can seriously impact everyone in the company, and
sometimes this can appear to be a negative change for some. Some employees might, for
example, think you’ll let them all go if you find a better way to function (which is a real
possibility).

In such cases, even if the management is on board, the initiative might fail because the
employees aren’t engaged.

Usually, it’s possible to get the employees buy-in by motivating them or showing them
different views they weren’t aware of. Sometimes, however, the lack of employee
engagement might be because of a bad workplace culture – something that might need to be
dealt with before starting any BPR initiatives.

  Getting your employee to commit to change isn’t easy. There are a bunch of change
management models that help you accomplish this, though. Some of our favorites
include the ADKAR Model and Bridge’s Transition Model.

Step #2: Put Together a Team of Experts

As with any other project, business process reengineering needs a team of highly skilled,
motivated people who will carry out the needed steps.

In most cases, the team consists of:

 Senior Manager. When it comes to making a major change, you need the supervision
of someone who can call the shots. If a BPR team doesn’t have someone from the senior
management, they’ll have to get in touch with them for every minor change.
 Operational Manager. As a given, you’ll need someone who knows the ins-and-outs
of the process – and that’s where the operational manager comes in. They’ve worked with the
process(es) and can contribute with their vast knowledge.
 Reengineering Experts.  Finally, you’ll need the right engineers. Reengineering
processes might need expertise from a number of different fields, anything from IT to
manufacturing. While it usually varies case by case, the right change might be anything –
hardware, software, workflows, etc.

Risk of Failure: Not Putting The Right Team Together

 There are a lot of different ways to mess this one up.

If the team consists of individuals with a similar viewpoint and agenda, for example, they
might not be able to properly diagnose the problems/solutions.

Or, the team might involve too many or too few people. In the first case, the decision making
might be slowed down due to conflicting viewpoints. In the later, there might not be enough
experts in certain fields to create adequate solutions.

It’s hard to put all that down as a framework, as it depends on the project itself. There is one
thing, however, that benefits every BPR team: having a team full of people who are
enthusiastic (and yet unbiased), positive and passionate about making a difference.

Step #3: Find the Inefficient Processes and Define Key Performance Indicators (KPI)

Once you have the team ready and about to kick-off the initiative, you’ll need to define the
right KPIs. You don’t want to adapt to a new process and THEN realize that you didn’t keep
some expenses in mind – the idea of BPR is to optimize, not the other way around.

While KPIs usually vary depending on what process you’re optimizing, the following can be
very typical:

 Manufacturing
o Cycle Time – The time spent from the beginning to the end of a process
o Changeover Time – Time needed to switch the line from making one product
to the next
o Defect Rate – Percentage of products manufactured defective
o Inventory Turnover – How long it takes for the manufacturing line to turn
inventory into products
o Planned VS Emergency Maintenance – The ratio of the times planned
maintenance and emergency maintenance happen
 IT
o Mean Time to Repair – Average time needed to repair the system / software /
app after an emergency
o Support Ticket Closure rate – Number of support tickets closed by the
support team divided by the number opened
o Application Dev. – The time needed to fully develop a new application from
scratch
o Cycle Time – The time needed to get the network back up after a security
breach
Once you have the exact KPIs defined, you’ll need to go after the individual processes. The
easiest way to do this is to do business process mapping. While it can be hard to analyze
processes as a concept, it’s a lot easier if you have everything written down step by step.
 This is where the operational manager comes in handy – they make it marginally easier to
define and analyze the processes.

Usually, there are 2 ways to map out processes:

 Process Flowcharts – the most basic way to work with processes is through
flowcharts. Grab a pen and paper and write down the processes step by step.
 Business Process Management Software – if you’re more tech-savvy, using
software for process analysis can make everything a lot easier. You can use Tallyfy, for
example, to digitize your processes, set deadlines, etc. Simply using such software might end
up optimizing the said processes as it allows for easier collaboration between the employees.
  Want to get started with BPMS, but not sure how? Our guide to different BPM tools
(and their distinct features) is as good of a start as any.

Risk of Failure: Inability to Properly Analyze Processes

Or, to put it more succinctly – impatience. It’s uncommon for someone to try business
process reengineering if they profits are soaring and the projections are looking great.

BPR is usually called for when things aren’t going all that well and businesses need drastic
changes. So, it can be very tempting to hurry things up and skip through the analysis process
and start carrying out the changes.

The thing is, though, the business analysis needs to be done properly, not rushed through to
get to the more exciting parts.

There are always time and money pressures in the business world, and it’s the responsibility
of the senior management to resist the temptation and make sure the proper procedure is
carried out. Problem areas need to be identified, key goals need to be set and business
objectives need to be defined and this takes time.

Ideally, each stage requires input from groups from around the business to ensure that a full
picture is being formed, with feedback and ideas being taken into consideration from a
diverse range of sources. The next step is to identify and prioritize the improvements that
are needed and those areas and processes that need to be scrapped.

Any business that doesn’t take this analysis seriously will be going into those next steps blind
and will find that their BPR efforts will fail.

Step #4: Reengineer the Processes and Compare KPIs

Finally, once you’re done with all the analysis and planning, you can start implementing the
solutions and changes on a small scale.

Once you get to this point, there’s not much to add – what you have to do now is keep putting
your theories into practice and seeing how the KPIs hold up.
If the KPIs show that the new solution works better, you can start slowly scaling the
solution, putting it into action within more and more company processes.

If not, you go back to the drawing board and start chalking up new potential solutions.

Business Process Reengineering Examples

The past decade has been very big on change. With new technology being developed at such
a breakneck pace, a lot of companies started carrying out business process reengineering
initiatives. There are a lot of both successful and catastrophic business process reengineering
examples in history, one of the most famous being that of Ford.

BPR Examples: Ford Motors

One of the most referenced business process reengineering examples is the case of Ford, an
automobile manufacturing company.

In the 1980s, the American automobile industry was in a depression, and in an attempt to cut
costs, Ford decided to scrutinize some of their departments in an attempt to find inefficient
processes.

One of their findings was that the accounts payable department was not as efficient as it could
be: their accounts payable division consisted of 500 people, as opposed to Mazda’s (their
partner) 5.

While Mazda was a smaller company, Ford estimated that their department was still 5 times
bigger than it should have been.

Accordingly, Ford management set themselves a quantifiable goal: to reduce the number of
clerks working in accounts payable by a couple of hundred employees. Then, they launched
a business process reengineering initiative to figure out why was the department so
overstaffed.

They analyzed the current system, and found out that it worked as follows:

1. When the purchasing department would write a purchase order, they sent a copy to
accounts payable.
2. Then, the material control would receive the goods, and send a copy of the related
document to accounts payable.
3. At the same time, the vendor would send a receipt for the goods to accounts payable.
Then, the clerk at the accounts payable department would have to match the three orders, and
if they matched, he or she would issue the payment. This, of course, took a lot of manpower
in the department.
Old Payable Process

So, as is the case with BPR, Ford completely recreated the process digitally.

1. Purchasing issues an order and inputs it into an online database.

2. Material control receives the goods and cross-references with the database to make
sure it matches an order.
3. If there’s a match, material control accepts the order on the computer.

New payable process

This way, the need for accounts payable clerks to match the orders was completely
eliminated.