Evaluating and Improving Business Process

Process Improvement
• Process improvement is successful only when you address the underlying problem. A useful way of improving processes successfully is to use a lean manufacturing technique called Value Stream Mapping (VSM). It originated at car manufacturer Toyota, where they called it 'material and information flow mapping.' VSM is now widely used in a variety of industries as a way of identifying improvement projects. • The basic idea behind Value Stream Mapping is this: if the underlying process is right, the outcome will be reliable. To get the process right, you have to understand the sequence of activities that provide value to your customers.

• Process Management is a management approach that focuses on improving business performance by improving process performance. It focuses on planning and administering the activities necessary to achieve a high level of performance in a process and identifying opportunities for improving quality, operational performance and ultimately customer satisfaction. It involves design, control and improvement of key business processes

Defining Business Process Reliability
• Business Process ‐ a documented method for performing a • process necessary to the operation of a business. • Business Process Risk – the combination of the probability a business process failure will occur with the degree of slip in schedule or increase in cost • Reliability for a business process is generally a discrete event probability with an implied cost per occurrence.
– The probability that an activity, i.e. entering a sales order or managing a cash account, will be completed without error and in a usable manner.

• “Usable manner” refers to the fact that many business processes are links in a chain of activities that have suppliers and customers. • A business process, like a sub‐system design, has many points of failure each of which can have different occurrence rates, and severity based on the effect of the failure on the business

Quantifying Business Process Reliability • Measured as probability of sustaining an unanticipated cost – Standardize loss value so reliabilities are evaluated on a level scale. • Probability of sustaining loss in unit currency should be used. • I. Unit currency may be thousands or millions to get meaningful numbers • Measuring reliability is necessary to assess effectiveness of improvement – Failure effects on subsequent processes are assessed . process with failure probability of 10% with cost of $10 is not as serious as process with failure probability of 1% with cost of $1000..E.

– Failures should have cost of correction documented. it is possible to measure frequency of occurrence against opportunities for failure to occur.Quantifying Business Process Reliability (Contd) • If process failures are documented. . • Cost model of process failures is an alternative approach – Requires recording cost data for each failure.

• Zero cost assumed for correct payments. Error Cost Inputs $500 $750 $1000 $2250 $2400 $2500 $3750 $4250 $4500 $5750 $6400 $6500 $8500 $8750 $9300 $1250 $3000 $5000 $7500 $9500 $2100 $3300 $5100 $8300 $10000 . additional labor to process payments a second time. interest charged on underpayments. • Costs of errant payments are associated with interest forgone on overpayments. • 25 errors out of 500 invoices paid in past year.Quantifying Business Process Reliability • Example is Accounts Payable procedure. etc.

• FMEA can be most effective tool for assessing business processes.Business Process • Business Process– a modified FMEA (Failure Modes Effects and Analysis) to address the possible failures of a Business Process and their effects. • Easy to understand by non‐engineering personnel • quickly identifies weaknesses in a process. • Essential purpose of this FMEA is • to identify business process weaknesses • provide an organized methodology to correct weaknesses with prioritization. . • It is low in cost.

• Business Process FMEA Team can be constituted uniquely for each process evaluated. • facilitator offers an impartial arbiter of disputes and keeps team focused on task at hand. the process supplier(s).Business Process FMEA ‐2 • Business Process FMEA is performed by a team consisting of process owner. • Process owner usually manager or delegate from same department • Supplier to process is provider of inputs to the process • Customer of process uses output of process as inputs to subsequent process. and a facilitator use of a team assures broad – spectrum evaluation of potential failure modes. • Suppliers and customers of a process can be numerous • Facilitator is usually independent of process . process customer(s).

Severity. and classification and scoring of Occurrence.Business Process FMEA ‐ 3 • Business Process FMEA methodology is virtually identical to Manufacturing Process FMEA • Differences are types of failure modes and mechanisms. and Detection factors which should be customized to particular business. • Failure modes can vary from process to process as well as from business to business for the same process • Failure Effects ‐ Typical failure effects translate as costs to the bottom line • failure to meet schedule • failure to deliver proper quantity • cost overrun . and may be modified for different departments within a company.

Severity and Detection developed in the FMEA to evaluate the relative importance of the various failures and prioritize corrective action.000 might score a 10 • For a large business. . a cost of $10. expressed as a range in dollars. • For a small business. a cost of $100.Business Process FMEA ‐ 4 • Occurrence ‐ should be related to frequency with which failure mode appears per number of opportunities to occur • Severity ‐ should be presented as a preventable cost • scoring can be specific to particular business .000 or more might score a ten • Detection ‐ related to likelihood that process will be able to detect failure mode before impact of failure effects are noticed • Risk Priority Number RPN) – a numerical value y ( ) that is the product of Occurrence.

. • Periodically. rather than starting a new FMEA. FMEA should be rescored. • When a business process is changed. • Living Document ‐ FMEA should be maintained as a living document. existing FMEA should be updated.Business Process FMEA ‐ 5 • Corrective Action ‐ should generally be prioritized by RPN (higher RPN selected first) • low occurrence failures with very high Severity (cost) should be investigated for economical corrective actions • Implementation of Corrective Actions should be structured to reduce Occurrence and/or Severity of the and increase Detection • After corrective action(s) have been validated. each FMEA should be reviewed to identify additional potential process improvements.

Business Process FMEA ‐ 6 Occurrence Ranking Criteria Likelihood of Occurrence Criteria: Possible Failure Rates Rating Absolute Uncertainty Very Remote Remote Very Low Low Moderate Moderately High High Very High Almost Certain CANNOT detect <5% chance >5 to 10 % chance >10 to 25% chance >25 to 50% chance >50 to 70% chance >70 to 80% chance >80 to 90% chance >90 to 99% chance >99% chance 10 9 8 7 6 5 4 3 2 1 .

000 >$250 to $1.000 to $25.000 >$1.Business Process FMEA ‐ 7 Severity Ranking Criteria Effect Extremely Costly Very High Cost High‐Very High Cost High Cost Moderate‐High Moderate Cost Moderate‐Low Cost Low Cost Very Low Cost Insignificant Cost Criteria: Severity of Effect Cost per occurrence >$500.000 to $250.000 >$100 to $250 >$25 to $100 <$25 Rating 10 9 8 7 6 5 4 3 2 1 .000 >$100.000 >$250.000 to $100.000 to $500.000 Cost >$5.000 to $5.000 >$25.

Business Process FMEA ‐ 8 Detection Ranking Criteria Detection Criteria: Likelihood of Detecting Potential Cause by Process Controls Rating Absolute Uncertainty Very Remote Remote Very Low Low Moderate Moderately High High Very High Almost Certain CANNOT detect <5% chance >5 to 10 % chance >10 to 25% chance >25 to 50% chance >50 to 70% chance >70 to 80% chance >80 to 90% chance >90 to 99% chance >99% chance 10 9 8 7 6 5 4 3 2 1 .

Business Process FRACAS • Most engineering and manufacturing businesses maintain a formal FRACAS (Failure Reporting. detailed description of the failure symptoms. process and procedure. Analysis. and Corrective Action System) or similar system for design and production • Almost none apply same methodology for business processes • Properly documenting business process failures can provide valuable insight into removing failure causes and reducing waste. • When a problem is identified in a business process: • Document as many details as possible • Importance is no different than documenting a hardware test failure • Date. inputs (including source). person(s) performing process. and cost of failure should be documented . time.

• Graphical methods such as Process Flow Diagrams diagrams can prove useful to identify root cause(s) • Brainstorming during problem solving process obtains variety of possible failure causes which are then resolved into minimal set of causes. Ford 8‐D.Business Process FRACAS ‐ 2 • Root causes usually traceable to inadequate procedures and human errors • Use multidisciplinary team • Use Problem analysis methods such as Crosby 5‐step. evaluate to identify failure cause (mechanism). • If FMEA was performed. etc. and to determine if possible failure causes were missed in FMEA .

Business Process FRACAS ‐ 3 • Corrective actions for business processes usually tighten available options • Conflict between failure resistance and usability of process may require tighter oversight and review rather than reduction of flexibility • Cost analysis of various approaches needs to be made looking at costs of preventing failures against undesirable costs of process failures • Use of economic cost analysis against accounting cost analysis .

measured in units produced per unit of time.The capacity of the process is its maximum output rate. the capacity of the two parallel sequences of tasks is that of the lowest capacity parallel sequence. • Capacity . quality. except for cases in which the two sequences have different outputs that are combined. The following is a list of process performance measures that can be used to assess these aspects. The capacity of parallel sequences of tasks is the sum of the capacities of the two sequences. . flexibility and speed. The capacity of a series of tasks is determined by the lowest capacity task in the sequence.Measuring process performance Process aspects of interest to managers are cost. In such cases.

plant) per unit time (e.the average time that a unit requires to flow through the process from the entry point to the exit point.the percentage of the process capacity that actually is being used. line.g.• Capacity utilization . • Throughput (also known as flow rate) . parts per hour).the average output of a production process (machine. .The cycle time is measured as the average time from when a job is released at the beginning of the routing until it reaches an inventory point at the end of the routing. • Lead time (also known as throughput time or flow time) . Flow time includes both processing time and any time the unit spends between steps. The maximum throughput rate is the process capacity. workstation. • Cycle time .

.the amount of inventory between the start and end points of a routing. for example. • Set-up time – Setup time is the time a job spends waiting for the station to be set up. The term can be used to describe both machine idle time and worker idle time.• Process time . • Idle time . when an activity is waiting for work to arrive from the previous activity. . Process time is flow time less idle time.the average time that a unit is worked on.time when no activity is being performed. • Work In process (WIP) .

transporting materials.the amount of labor (in units of time) actually contained in the product. Also excludes time spent maintaining machines.• Direct labor content . etc. • Direct labor utilization . Excludes idle time when workers are not working directly on the product.the fraction of labor capacity that actually is utilized as direct labor. .

Identifying processes Give them names that express their beginning and end states. For instance: • Manufacturing: procurement to shipment • Product development: concept to prototype • Sales: prospect to order • Order fulfillment: order to payment • Service: inquiry to resolution .

TYPICAL PROCESS Customer Communication Market Concept Development Customer Manufacturing Strategy Develop ment Product Develop ment Custom er Design and Support Order Fulfillme nt Manufacturing Capability Development .

CHOOSING WHICH PROCESS TO IMPROVE • Dysfunctional/ broken process: process in deepest trouble • Importance: which process have the greatest impact on the customer • Feasibility: which process is most susceptible to successful imporvment .

Example of broken processes • The ones the executives already know are in trouble. . • A product development process that hasn’t hatched e new product in five years. • If employees spends time rekeying typed information into the system.

severity of the failure effects and ability of a process to detect imminent failure. address frequency of occurrence. many Quality Assurance methodologies such as Six Sigma have been used to improve quality in business processes.Measure to define process reliability • Historically. • Developing Reliability analysis methodology to evaluate new business processes before implementation as well as periodic evaluation can provide significant savings . • Reliability Methodologies.

kaizen.HOW DO YOU IMPROVE PROCESSES? • Improvement may be gradual and continuous (i. process reengineering).e.. or it may be dramatic process redesign (i.e.. continuous process improvement). .

ask yourself: "What benefit do we gain by doing this?" At this point. . ask yourself: "Why are we doing this? Is it a federal law? A state law?" If the answer is no. Ask yourself: "Would the customer want to pay for this activity?" If the answer is no. • Streamline/simplify processes. • Eliminate activities that do not add value for the customer. • Eliminate constraints—things that frustrate employees and slow processes.The following are some of the things people can do to improve processes: • Use a structured methodology such as the Golden-Pryor Improvement Checklist. you are coming close to eliminating the activity. It is difficult to document and teach people complex processes.

• Ask (and teach others to ask) what. "They won't let us …" Make decisions. • Provide leadership in a positive direction. and how questions about each step in a process (or job). • Document and publicize improvements. Success breeds success. • Continue to monitor and evaluate processes to identify additional opportunities for improvement. function as process owners and consider process management and improvement an integral part of daily work. Function as a strategist. where. when. who. why. . Don't say. not excuses. be accountable.• Once processes are streamlined. As individuals and members of teams. • Act empowered. computerize them if feasible. Envision and invent the future with streamlined processes and relationships.

PROCESS QUESTIONS. • What: – – – – – – – – – is there to do? is being done? should be done? can be done? constraints keep us from doing it? does this job? should do this job? knows how to do it? should know how to do it? • Who: .

• Where: – is this job done? – should it be done? – can it be done? • When: – is this job done? – should it be done? – can it be done? .


Manufacturing companies are obvious examples of these. . designs. any organization that delivers a standard set of products or services is likely to benefit from applying VSM.How to Create and Use Your Value Stream Map • The objective of Value Stream Mapping is to create a picture of how items (such as materials. • Value Stream Mapping is best applied to processes that are reasonably routine and standardized. because the flow may change with each customer or project. or customer needs) flow through the value stream – from raw materials and inputs through to the customer's end product. Value Stream Mapping is unlikely to be useful where work processes change continuously or where bespoke products are delivered. however.

Identify the start and end points. As an example. then you may want to look at how an entire order is fulfilled. if the amount of profit you're generating from each order is falling. If you have shared equipment or other resources then.steps to use the Value Stream Mapping tool: Step One – Identify the Product or Service to Map Choose a process for which you would like to implement leaner. then you may want to look at the sales process in more detail. You also need to identify which part of the overall process you need to look at. so you can see where the blockages and non-value activities are. It's important here to define the scope of your map. . If the volume of orders is falling. you might want to look at manufacturing as a whole system. instead of looking at the manufacture of one product. more efficient practices. and make sure that you map from one end of the process to the other end.

Example • To illustrate the steps of creating a Value Stream Map. we'll use a simple example: the process of transforming an Internet order into a shipped product. .

rather than what actually happens.Step Two – Draw the Current Value Stream Map To help you draw the map. Include people who both manage and support the various parts of the value stream.otherwise you risk creating a VSM that shows what should happen. what is needed to deliver the product or fulfill the customer need. both internally and externally. and not just the managers of team leaders . in order to build up a picture of average performance for each task (and – ultimately – for the entire. the length of time a task sits in someone's in-tray – and add that. You can then observe and gather data to complete the map: – Brainstorm who is involved. and include costs and actual working time for each task. – Put these tasks in order. as much as possible. end-to-end process). – Look at the delays in between stages of the process – for example. gather a team of people representing the stakeholders in the process. . and the tasks or activities that go into producing the products. It is vitally important here to include people who actually do the work.

Packaging. any of these tasks could be the subject of its own Value Stream Map – that's why defining scope is so important. Supplier liaison. Depending on your operations.Example Here are the tasks involved in order processing and delivery for our example: – – – – – – Order entry and processing. Order picking. Shipping. . Inventory management.

Here's how you would organize the tasks in our example: .

Eventually. “Does this activity add value?” • Identify your value-add points. • Identify your no-value-add points (for example. and make it worth more to the customer. . ask yourself. places where material is stored. • Determine which no-value-add points are still necessary (for example. more and more pieces or assemblies are added. and ensuring worker safety). addressing other compliance issues. for meeting regulatory requirements.Step Three – Assess the Current Value Stream In this step. Car assembly is a perfect example: as the car body moves along the production line. and places where there are long lead times). This is where you can look for lean improvement opportunities: What is 'value add'? Value-add activities change an item. you analyze whether each activity in the process is adding value. it becomes a fully operational vehicle that people will buy. Each step adds value (although clearly the most value is added when the final component is installed!) • At each point in the map. making it more complete. redundant or excessive paperwork.

Look for common forms of waste. Using equipment and people unnecessarily. Performing inefficient quality checks. – – – – – – . and see if there's a way to group them. Look for similar activities. Identify bottlenecks and critical events. Consider how you would structure the process if you were starting the business today with unlimited capital. Keeping too much or too little inventory. Ask yourself what your leanest competitor would do.• Step Four – Create a 'Future State' Value Stream Map Map how you want your improved process to look in the future. How will the process work after you've eliminated the waste you identified in the previous step? Follow these tips: – – – – – – – Assume that anything is possible. Look for ways to simplify activities that are complex. Confirm that customers actually value each transformation activity. such as these: Moving product/materials inefficiently. Adding features or conducting processing that the customer does not value. Stockpiling finished goods.

– Restructure the warehouse operations for efficiency. – Update the inventory control system. . – Improve the flow of information (paper or electronic).Example • Here are some of the opportunities for improvement in our example: Eliminate redundant approvals or move them earlier in the process to prevent unnecessary work.

Step Six – Implement the Plan Various techniques can be used. – Look for ways to reward efficient work and efficiency suggestions. but one of the most popular used with VSM is a series of 'Kaizen Blitzes. Step Seven – Review the Results. – In your VSM team. At this point. and Repeat . These guidelines will help you do that: – Use the VSM to communicate your goals and objectives. – Talk frequently about lean and efficient operations so that it becomes part of your corporate culture. though. include people who will work with the new activities.Step Five – Create a Plan to Implement the Desired State When you have identified your objectives. many organizations also begin other lean processes – like Kaizen. This helps increase buy-in. that the time you invest in VSM will pay off only if you follow through with the implementation plan. These gradually move you from the current state to the future state.' each lasting approximately one week. Remember. you can develop a plan for change. Kanban. and Just In Time.

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