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110

Process--Flow Analysis

Chapter outline

6.1 Process thinking

6.2 The process view of business

6.3 Process flowcharting

6.4 Process-flow analysis as asking questions

6.5 Measuring process flows

6.6 Measuring process flows at Pizza U.S.A.

6. 7 Process redesign

6.8 Key points and terms

A customer walks into a home improvement store, selects a paint color from the multitude of sample options, and gives the selection to the store employee. The employee enters information about the selection into a machine that automatically dispenses the appropriate set and quantities of pigments into a can of white paint. Another machine is used to shake the can, resulting in consistent color throughout the can. The customer walks away with a virtually customized product in a matter of minutes. The simple process used to create the customized paint combines the customer's preference, employee skills, and automated technology.

This chapter is about understanding processes and how they are used to pro- duce and deliver products and services. It is also about determining what a process is capable of producing.

Process-flow analysis is about viewing and analyzing the transformation pro- cess as a sequence of steps connecting inputs to outputs. It is used to discover bet- ter methods or procedures for producing and delivering a product or a service deemed to be of value to customers.

Measuring process flows is essential to process-flow analysis and to improving transformation processes. We describe several process measures, including pro- cessing time, throughput time, flow rate, inventory, and capacity. We also define bottlenecks and provide methods for calculating these measures.

The flowchart (often referred to as a process map) is an essential tool to facilitate process-flow analysis. Flowcharts should consider not only process flows but cus- tomers, suppliers, and employee inputs in designing better processes. A flowchart for a high-contact service process such as surgery often reflects the customer's per- spective, mapping the activities performed on the patient. In manufacturing, a

Chapter 6 Process- Flow Analysis 111

flowchart often shows the activities performed on inventory as it moves through the production system.

To truly understand process-flow analysis, we begin this chapter with process thinking. This is a very powerful idea in business education and in practice .

. 1 PROCESS THINKING

Process thinking is the point of view that all work can be seen as a process. It begins by describing the process of interest as a system. A system is defined by its boundaries, inputs, outputs, suppliers, customers, and system flows. System definition is needed before detailed measurement and process flowcharting can begin.

A system is a collection of interrelated elements whose whole is greater than the sum of its parts. The human body, for example, is a system. The heart, lungs, brain, and muscles cannot function without one another. They are interrelated, and the function of one part affects the others. The whole of the body is greater than any of its individual parts or components.

A business organization also can be viewed as a system. Its parts are the func- tions of marketing, operations, finance, accounting, human resources, and infor- mation systems. Each of these functions accomplishes nothing by itself. A business cannot sell what it cannot produce, and it does no good to produce a product or service that cannot be sold. The functions in an organization are highly interactive and have value as a system that they do not have separately.

Every operation can be viewed as a system by identifying the transformation or conversion system, as was described in Chapter 1. The transformation system must be isolated from its environment by specifying the system boundaries. The boundaries delineate the resources and activities in the system being analyzed from those that are outside of the analysis and decision area. Identification of the system boundaries is always difficult and somewhat arbitrary, but it must be done to separate the system under study from the larger system or organization in which it operates. In this sense, the boundaries of a firm separate the firm from the larger supply chain in which it resides.

To illustrate these concepts, consider the case of a bank that is installing a new information system. The new system will replace the current one, with larger ca- pacity, new hardware, and some new software . The accounting systems will not be affected by this conversion because the same accounting transactions will be pro- duced in the same way, and so accounting can safely be assumed to be outside the system boundaries. Training will be required to operate the new system, and so human resources can be considered part of the system. Operations will be affected by the new software and must be included within the system boundaries since some new operational software is being added. Each part of the organization that is affected by the new hardware and software installation should be included within the system boundary, and functions that are not affected can be excluded as being outside the system boundaries. In this way, the appropriate system bound- aries can be identified for purposes of analysis.

A cross-Junctional team should be formed, consisting of the functions that are affected by the conversion to the new information system. This team will be responsible for overseeing the conversion from each of their functional perspec- tives and should handle the interactions between functions. If this is done by a

112 Part Two Process Design

cross-functional team rather than workers from a single function, a systems vie\- of the project will be taken. This sort of process thinking considers all the inter- acting functions within the system boundaries when making the conversion .

6.2 THE PROCESS VIEW OF BUSINESS

~ "JIT at

McDonald's/' Vol. VIII

~~

FIGURE 6.1 The process view of business. Source: V. Grover and M. K. Ma lhorta, "Business Process Reengineering: A Tutorial on Concept, Evolution, Method, Technology and Application," Journal of Operations Management 15 (1997), p. 200.

One of the most important contributions of process thinking is that a business can be viewed as a system that consists of a collection of interconnected processes. The process view of a business is horizontal in nature; the functional view is vertical. This is shown graphically in Figure 6.1.

As an illustration of interconnected processes in a business, consider a scenario. A sales team has a process for creating the customer order, while at the same time interacting with operations to ensure adequate capacity is available to fill the order. Other marketing personnel use a process for pricing the customer order. Once operations receives the order, the necessary processes are used to produce enough output to fill the order. The shipping area has a process for securing the order for delivery, and transportation is scheduled to deliver the order to the cus- tomer. Finance uses its own processes to bill and receive payment from the customer, while relying on pricing information from marketing and order size and delivery confirmation from operations.

Viewing a business as a collection of processes emphasizes the cross-functional nature of decision making. It illustrates that"functions must make handoffs to one another in executing a process. As a result, time and information can be lost between processes. In some cases, the number of steps in a process is so large that the system cannot function in an efficient and effective manner. See the example in the Operations Leader box of the complex and time-consuming process of setting up clinical trials to test newly developed cancer treatment drugs.

Another example comes from an MRI (magnetic resonance imaging) facility. Physicians from a variety of practices referred patients for MRI services, and a backlog of patients had developed. The backlog was difficult to solve because the MRI facility did not control its own schedule. An outside service provider was contracted to schedule patients, and their scheduling caused several problems. For example, the scan indicated on the schedule did not always match with the actual scan that the patient needed, and sometimes not enough scan time was scheduled

Chapter 6 Process-Flow A nalysis 113

Operations Leader Process Analysis to Improve Clinical Drug Trials ·

an derbilt-lngram Cancer Center (VICC) wanted to prove the complex process of starting a clinical trial. clinical trial is the research study used to conduct a

:ontrolled test of a new drug on humans. Patients vol- ~ t eer to participate in such studies, and the results :·e used to determine whether the new drug will be :oproved for use in the marketplace.

To begin studying the clinical trial process, VICC 'St assembled a team of experts to map the process . -e t eam included an oncologist, research nurse, ad-

- ni strator, oncology fellow, and three experts in -an a gement methodologies (such as process :-alysis) . Working closely with key individuals in each :"'-j)e studied areas, the team began by mapping pro- :::s.s fl ows fo r all major activities including initial prep- ;·:~ io n, approval processes, budgeting, and final :: eoaration. Each of these four major activities con-

__ ed of multiple steps, and subsequently, each major ;_ - ity was separately mapped at a more granular ; el t o include additional detail. The maps were then : ' l ed by the people involved in the daily operation

:- - e studied processes. ext , the mapping team used archival data from

:. 3 or evious trials to calculate the times to com- - =:e each process step . They found that the median -:;to open a clinical trial was 172•days. "Contrary

'lat might be expected from comments made by ::earch team leaders]. the time for Institutional ; e v Board review and approval is one of the

::...-:est processes in the chain of processes" at a .=.::an of 47 days, according to study authors = ::: Dil ts and Alan Sandier. In contrast, other re- - pro cesses required a median of 70 days, while _:.; eti ng and contracting consumed a median of : ::: s.

Further investigation of activities included in the process maps revealed some surprises . On the macro process map (least granular), 75 percent of process activities w ere defined as "value added ." However, on the four more-granular maps, only 32-54 percent of activities were deemed value added . The process mapping team's next step is to use what they have uncovered, both to speed up the opening of future clinical trials and to enhance patient treatment by providing more trials of mo r e investigational drugs.

Source: Adapted from David M. Dilts and Alan B. Sandier, "Invisible Barriers to Clinical Trials: The Impact of Structural, lnfrastructural, and Procedural Barriers to Opening Oncology Clinical Trials," Journal of Clinical Oncology, October 1, 2006.

for certain p atients . Further, there was a n eed to h ire an additional technician to conduct scans, and such technician s w ere in relatively sh ort supply in the local labor m arket. Dealing w ith the backlog of patients waiting fo r scans is an opera- tions p roblem, but p rocesses outside of operation s interact with processes within operation s to cau se the problem . Solutions to the b acklog p roblem need to account for the larger system of activities within and outside of operations.

This example illustrates h ow op eration s is only a p art of a larger organiza- tion tha t includes m an y other functions. Nearly all operations decisions are re- lated to at least one other p art of the organization . The process view of business p rov ides a vehicle for understanding the interactions b etween v ariou s organi- za tional functions and decisions that typically cr oss fun ction al and sometimes

114 Part Two Process Des ign

organizational lines. These interactions can be streamlined and improved by pro- cess flowcharting, as is described next.

6.3 PROCESS FLOWCHARTING

~ "Process System Improvement,''

Vol. X

FIGURE 6.2 A flowchart for selecting a supplier.

In this section, we describe process flowcharting as a tool for beginning to under- stand and improve processes. This is a very commonly used tool in a wide variety of industries. It can be useful for almost any type of process, to gain understand- ing of the activities that must occur for the process to successfully produce a prod- uct or service .

Process flowcharting refers to the creation of a visual diagram to describe a transformation process. Flowcharting is known by several names: process map- ping, flow-process charting, and in a service operations context as service blue- printing. In Chapter 7, we discuss value stream mapping, yet another specific approach to process flowcharting popularized by firms that implement lean sys- tems and lean thinking. The label used to refer to creating a pictorial depiction of a transformation process does not matter. What matters is that creating the vi- sual diagram can be invaluable in documenting what happens within a transfor- mation process. This pictorial documentation, when it includes process measurements, can help to identify how the transformation process can b e improved by changing some or all of the following elements:

1. Raw materials '

2. Product or service design

3. Job design 4. Processing steps or activities used

5. Management control information 6. Equipment or tools 7. Suppliers

The visual diagram that is created from process flowcharting is known in ge- neric terms as a flowchart (or flow-process chart or service blueprint or value stream map). There are many different specific forms of the flowchart in use, but the most common is the systems flowchart. An example of a systems flowchart for the "selecting a supplier" transformation process is shown in Figure 6.2. In this

No

Buyer receives

request to buy

Buyer selects

supplier

Chapter 6 Process-Flow Analysis 115

example, the systems flowchart is drawn from the perspective of the buyer within an organization and shows the discrete steps, along with decision points and flow sequences, in selecting a supplier.

Another example appears in Figure 6.3, which shows the service provided to help a customer select and have altered a suit from a retail store . This systems flowchart depicts a service context with the customer being in the system and interacting with the s e rvice provider and is, as such, also called a service blueprint. Moreover, because the service blueprint captures the perspec- tives of different people-customer, sales associate, and tailor-it is also known generally as a swim lane flowchart (alternativ ely called a deployment flowchart or a matrix flowchart). A swim lane flowchart is used to show the responsibilities of groups or individuals in either horizontal or vertical columns. It shows who or what is performing each step in the flowchart in the form of "swim lanes" in a pool. In Figure 6.3, horizontal swim lanes are drawn to demarcate the various participants involved in the process of buying a suit from a retail store . The term deployment flowchart comes from showing how people and resources are deployed, and the term matrix flowchart comes from the format of this display as a matrix.

Regardless of what it is called, a number of principles should be followed to create a flowchart that is easy for individuals unfamiliar with the transformation process to understand and that facilitates process-flow analysis. These principles are consistent with process thinking, which views the transformation process as a system with inputs, outputs, customers, suppliers, boundaries, and processing steps and flows. The principles are as follows:

1. Identify and select a relevant transformation process (or system) to study. This can be the entire supply chain for a product or a service, the entire firm, or a part of the firm . Ideally, the selected transformation process is known to affect performance.

2. Identify an individual or a team of individuals to be responsible for de- veloping the flowchart and, ideally, for subsequent analyses. This indi- vidual or team not only should have some familiarity with the transformation process but also should have process ownership, that is, authority for initi- ating and/ or implementing changes to the selected transformation process. When a selected transformation process cuts across different functions, a cross-functional team should be involved. When a selected transformation process cuts across the supply chain, interfirm collaboration becomes even more critical.

3. Specify the boundaries of the transformation process. The boundaries denote where the selected transformation process begins and ends, identify who the customer(s) and the supplier(s) of the transformation process are, and deter- mine how many processing steps or activities are to be evaluated. In some cases, the next function within an organization is the customer; in other cases, another firm is the customer. Similarly, other functions within an organization or other firms can be sup.pliers to the transformation process. For example, in the case of a five-star restaurant, the transformation process can be the dining service, in which case the kitchen where food is prepared and cooked and the bar where drinks are prepared are the suppliers to the dining room where cus- tomers are served . Alternatively, the entire restaurant can be selected to be the transformation process of interest, in which case suppliers to the restaurant

116 Part Two Process Design

FIGURE 6.3 Service to select and have altered a suit from a retail store.

Customer

Sales Associate

Tailor

Tailor Shop

Customer arrives at the store

Customer provides information

Request preferences (size, style, and price)

Customer begins search

Salesperson takes customer to racks

Line of Visibility

might include firms providing cooking ingredients and beverages and the culinary schools where chefs are trained.

4. Identify and sequence the operational steps or the activities necessary to complete the output for the customer(s). It is important in process flowchart- ing to depict what is actually happening and not what one thinks is happening. Once the "as it is" flowchart has been created and the transformation process has been analyzed, creating a "to be" flowchart may help show what the trans- formation process should look like when improvement changes have been implemented.

5. Identify the performance metrics for the operational steps or the activities within the selected transformation process. These metrics should be tied to the performance of the overall transformation process. For example, if deliv- ery performance is of interest, it may be useful to track the processing times for each operational step or activity. Alternatively, if quality performance is of interest, it may be useful to track the defect rate for each operational step or activity.

6. Draw the flowchart, defining and using symbols in a consistent manner. Figure 6.4 shows the common symbols in Microsoft Visio for creating a systems flowchart. These symbols were used in Figures 6.2 and 6.3 and are also consis- tent with ISO 9000 standards for flowcharting.

Try on suit and look in mirror

Line of Visibility

Move customer to the tailor

Determine alterations needed

Make alterations

Symbol

0 Terminator

D Process

Decision / Evaluation

Flow

Customer accepts alterations

Write up sales ticket

Chapter 6 Process-Flow Analysis 117

Thank customer

Exi t

Meaning

Customer returns to pick up suit

This symb ol shows the "start" and the "end" of the flowchart, thereby specifying the boundaries of the transformation process to study. The words "START" and "END" should be written inside the symbol for clarity.

This symbol denotes an operational step or an activity to be performed. A short description of the operational step or the activity should be written inside the symbol for clarity.

This symbol represents a decision, an evaluation, or an " IF-THEN" condition that has multiple potential outcomes (i.e., branches of arrows) . The decision, evaluation, or condition sho uld b e properly described in writing inside the symbol for clarity. Each branch of arrow shou~d be properly labeled to denote the meaning of the outcome from the decision, evaluation, or condition.

This symb ol denotes the direction of flow within the flow ch ar t; the flow could b e that of materials, information , or person (e.g., customer).

.... 118 Part Two Process Design

FIGURE 6.5 Flow-process chart for the picking operations.

Subject Charted Produ ce, Dairy, Meat Depts .

Summary

FLOW I Opera tions Pres. I Prop . I Save

PROCESS CHART I Transports I o I I I Ins pechons

Operation Picking

Charted by RGS Can I Eliminate?

Delays Chart No. Sheet 1 of 1 01 Can I Combine?

Storages DMe 1 / 8 / 13 Can I Change Sequence?

lime

Dist.

I lime

in in Feet Min.

2 9 0 I 60 12 0

30 I 10

80

7 I 4

2 0

20 15

10 25

11 10

1 2 30 3 0

13

14

15

16

17

18

.!2. 20

21

6 0

5

45 15

4

10

5 0

I 526

0 D Q

Can I Simplify? Distance 215

~ ~ ~ Present ~ ~ c <i. ~ ~ Descriptions '"

~ ,5 " Proposed 0 0 f!:: Q iii ~ Computer prints order sheets

' To the warehous e

~ On distribution desk le( Separated according to work areas ~ Taken to start poi nts

_;:::. Wait for order pic ker 1..- Picker separates them order by order I e.. (Produce) picke r fills order .__

To Dairy aisle

...)a On conveyor wait ing for picker

I~ (Dairy} picker fil ls order ~ To Meat aisle ~ On conveyor waiting for picker

le:- (Meat) picke~ fills order -.. To inspection .)1 Inspected

I e:::: Loaded onto carts route-by-route ~ Waits to be take n to the v1arehou se

I I To tal Time

SYMBOL KEY

Operation (a task or work activity)

Inspection (an inspection of the product for quantity or quality)

Transportation (a movement of material from one point to another)

Notes

v D

Storage (an inventory or storage of materials awaiting the next operation)

Delay (a delay in the sequence of operations)

When other specific forms of flowcharts are created, the individual or team re- sponsible may choose to use other symbols. This is allowed as long as the symbols are used consistently and, more importantly, a symbol key is provided to help in- terpret the flowchart that is drawn. Figure 6.5, for example, is a flow-process chart of the picking operations at a distribution center that provides produce, dairy, and

~

FIGURE 6.6 Information flowchart for the picking operations.

@

0

Chapter 6 Process-Flow Analysis 119

Picked items check on the sheets

SYMBOL KEY

Origin of record (used to identify an operation that involves the addition of significant data to a blank form)

Handling operations (any nonproductive step, such as sorting, stapling, or folding)

Move (a step in which the record is transported from one person, department, or workplace to another)

Delay, file, and destroy (identifies a point or time at which the record is inactive)

meat items to grocery stores. In this case, the interest is in tracking the flow of "materials" inside the distribution center. Figure 6.6 shows the same picking op- eration, but here the interest is in tracking the flow of "information" for the pur- pose of management and control of the distribution center.

PROCESS-FLOW ANALYSIS AS ASKING QUESTIONS

Creating a flowchart of a transformation process that is easy to understand by those unfamiliar with the transformation process is an important first step in process-flow analysis. Once created, the flowchart can be analyzed to yield insights into how the transformation process can be improved, given a specific improvement goal. The improvement goal, for example, can be to increase efficiency, reduce throughput time, increase quality, or even improve worker morale.

A systematic approach should be followed to analyze the created flowchart and the underlying transformation process . This approach is epitomized by asking questions about the flowchart and, by extension, the underlying transformation process. Tables 6.1 and 6.2 summarize two sets of useful questions. The questions in Table 6.1 are consistent with adopting the systems perspective discussed in

120 Part Two Process Design

TABLE 6.1 Process-flow analysis and improvement: Asking What, Who, Where, When, and How questions

TABLE 6.2 Process-flow analysis and improvement: Asking Flow, Time, Quantity, Quality, and Cost questions

Question Category

1. What

2. Who

3. Where

4. When

5. How

Question Category

1. Flow

2. Time

3. Quantity

4. Quality

5. Cost

Examples

• W hat does the customer need ? • What operations are really necessary? • Can some operations be eliminated, combined, or simplified? • Should the product be redesigned to facilitate production?

• Who is performing each operation? • Can the ope ration be redesigned to use less skill or fewer labor

hours? • Can operations be combined to enrich jobs and thus improve

productivity or working conditions? • Who are t he supplie rs?

Should different suppliers be used, or can the current suppliers be used more effectively?

• Should some or all of t he operations be outsourced to suppliers?

• Where is each operation conducted? • Can the layout be improved to reduce the distance traveled or

make the operations more accessible?

• When is each operation performed? Is there excessive delay or storage?

• Are some operations creating bottlenecks/ How can the waiting time be reduced?

How is the operation done? • Can better methods, procedures, or equipment be used? • Should the operation be revised to make it easier or less t ime-

consuming/

Examples

Is the t ra nsformation process balan ced or unbalanced? • Where is the bottleneck in the transformation process? • Are all operational steps or activities necessary?

How jumbled is the flow within the tra nsformatio n process'

How long does it take to produce/deliver one unit of output? • Can the length of this time be reduced? • What is the time between successive units of output? • Where is there excessive setup time? • Where is there excessive waiting time?

How many units theoretically can be produced/delivered in a given period (e.g., a week)7

• How easy is it to change this quantity? How many units are actually produced/delivered in a specified period (e.g., a week)?

• What is the historical defect rate? • Which operational step or activity contributes to the defect rate? • Where do errors occur?

How much does it cost to produce/deliver one unit of output? • What are the cost buckets that make up the cost to produce/deliver

one unit of output? • Can some cost buckets be reduced/eliminated?

-e tailor makes alterations on the suit as part of the ::. ice blueprint.

Chapter 6 Process- Flow A nalys is 121

Section 6.1. Questions in Table 6.2 are consistent with the supply chain and operations objectives presented in Chapter 2.

When these questions are asked, opportunities to improve the underlying transformation process can be highlighted. For example, looking at the flow- process chart in Figure 6.5 and asking questions about the picking operations at the grocery distribu- tion center led to the realization that many activities (transportation, inspection, delays, and storage) do not add value to the service provided and should be reduced or eliminated. Groceries in fact spent a con- siderable amount of time waiting for the next opera- tion or in transit and very little time in value-added operations (only 57 minutes out of 526 minutes) .

Moreover, looking at the information flowchart in Figure 6.6 and asking questions led to the realization that printing and distributing pick sheets is not only costly for the en- vironment but also time-consuming. If orders could be channeled electronically to relevant individuals, the information would be more timely and accurate. As a result of asking questions, a number of changes were implemented, including relocating aisles (i.e., a process layout change), revising picking methods to reduce bottlenecks and labor time (i.e., changes to work methods and jobs), and designing special carts to make the loading of delivery vans easier and faster (i.e., an equipment change).

Similarly, looking at the service blueprint for the service of helping a customer purchase a suit from a retail store and asking questions might lead to suggestions for improvement such as the following:

• If sales associates can be trained to listen better to customer requests, will cus- tomers b~ more likely to find a suit of interest?

• Can customers call ahead and ask to have some suggested suits waiting for ex- amination, reducing their search time?

• Can the tailor be available while the customer is trying on the suit to provide suggestions on how the suit can be tailored to fit better?

• Does the layout of the retail store make it easy for customers to search and find what they want?

In summary, process-flow analysis requires a good description of the transfor- mation process used to convert inputs into outputs. This description can be facili- tated by creating a flowchart that shows materials flows, information flows, or service flows . Once a flowchart is created, appropriate questions should be asked to highlight improvement opportunities in procedures, tasks, equipment, raw ma- terials, layout, suppliers, or management control information.

- 5 MEASURING PROCESS FLOWS

Once a process flowchart aimed at improving a transformation process has been cre- ated, some basic measures of a transformation process must be described. These mea- sures yield insights into the structure and performance of a transformation process.

Let's study the airport security process during check-in at a major airport. We notice that there is a line of passengers waiting to clear security, sometimes a long

122 Part Two Process Design

f line. There are also a number of security X-ray sta- tions for examining carry-on luggage, and we measure the total time it takes from entering the security line until passengers are cleared to catct. their flights. It turns out that these three obsern- tions are related: the average number of passen-

Average waiting time in line at airport security follows Little's Law.

. gers in the line, the average rate at which security can process passengers, and the average time i- takes passengers to get through the line. This rela- tionship is called Little's Law, named after the op- erations researcher who discovered it. Little's Law basically shows that the average number of item in a system (I) is the product of the average arrival rate to the system (R) and the average length of time an item stays in the system (T) . This average time in the system is throughput time, the time from when the processing begins until the product

Example

or service is completely finished. It includes both active processing time as well as any waiting time that occurs during processing. In mathematical terms Little's Law is stated as follows:

I= TX R

where I= average number of things in the system (or "inventory")

T = average throughput time (proce~sing time +waiting time) R = average flow rate in the process

In the case of airport security, if the security screeners can process an average of five passengers per minute (R = 5) and it takes an average of 20 minutes to get through the security check line (T = 20), the average number of passengers in line will be 100 (R X T = 100). An assumption is that the process is in a steady state in which the average output rate equals the average input rate to the process.

Little's Law is very powerful and is widely used in practice. It applies to manu- facturing and service transformation processes . Little's Law can be used in a variety of settings and situations .

It wi ll be helpful to see a couple of examples. Suppose a factory can produce an average of 100 units of product per day. Also, assume the throughput time, includ ing all processing and

waiting time for the product, is an average of 10 days .

T = 10 da ys

R = 100 units per day

Then the average inventory (partly finished product) in the factory w ill be

I= 10 x 100 = 1000 units

For another example, the amount of money in accounts recei vable can be considered as inventory, or the stock of money. Using Little's Law, if there is $2 million in accounts rece ivab le(/) and $20,000 per day is added to and subtracted from (f lows through) accounts receivab le (R), the throughput time is

100 days (T = 1/ R = 2,000,000/20,000)

Therefore, accounts receivab le has 100 days of outsta nding receivab les.

Chapter 6 Process-Flow Analysis 123

Little's Law applies to any steady-state transformation process including manufacturing, people waiting in lines, invoice processing, transactions in a legal office, and even accounts receivable processing. Little's Law is useful when any two of the three variables in the formula are known and the third can be cal- culated. The examples above show how this is done to calculate I and T. We can also calculate R if we know I and T (R = I/ T).

Next, we extend process measurements to include capacity, supply, and demand . Capacity is the maximum rate of output from a transformation pro- cess or the maximum flow rate that can be sustained over a period of time. In the airport security example, the average flow rate was five passengers per minute, but the capacity of the security checkpoint may have been, say, eight passengers per minute. With random arrivals (such as passengers arriving to enter the line) it is necessary to have capacity that exceeds the average ar- rival rate or the line will build up to an infinite length. This occurs because there are periods when the arrivals are less than the average and the full capac- ity cannot be used during those times. Queuing (or waiting line) theory, which is covered in a technical chapter on the text website, explains these phenomena in detail.

Most processes are composed of several resources that must process the transactions. In the airport screening example resources include the workers who check each passenger's identification and boarding pass, operators who run the X-ray equipment, and the X-ray equipment itself. In general, if there are n resources that process each transaction, then

Capacity = Minimum (capacity of resource 1 , ... . , capacity of resourcen)

Note that the capacity of the entire process cannot be larger than the capacity of the most constraining (the smallest capacity) resource, which is called the bottleneck. •

The amount a transformation process actually produces will depend on its capacity as well as the supply and demand of the process. The flow rate is as follows:

Flow rate = Minimum (supply, demand, capacity)

In the factory example above, assume that capacity was 200 units per day, demand was 75 units per day, and supply was 100 units per day. The flow rate would be 75 units per day (the minimum of the three variables) assuming they can produce only what is demanded. If they were able to increase demand to 150 units per day, the flow rate would be only 100 units per day unless supply also could be increased.

MEASURING PROCESS FLOWS AT PIZZA U.S.A.

To cement our understanding of the concepts of process measurement, let us re- turn to the Pizza U.S.A. example first described in Chapter 1. Suppose that one of the pizza stores produces fresh pizza with seven different topping choices, includ- ing the most popular "everything dump" pizza. The store is staffed by two em- ployees: a pizza chef and an assistant. It has an oven that can bake up to four

124 Part Two Process Design

pizzas at a time. The transformation process (sequence of steps) followed at store is as follows:

Take the order Make the crust Prepa re and add ingred ients Bake the pizza Cut pizza and box the order Take payment

.Minutes Who

3 2

24

Assistant Chef Chef Oven Assistant Assistant

1. What is the capacity of this process?

Looking at the three resources, we have:

• The assistant takes 3 minutes per order (1 + 1 + 1) and thus can proces~ 20 orders per hour.

• The chef takes 5 minutes per order (3 + 2) and can process 12 orders per hoUI. • The oven takes an average of 6 minutes per order (24 -;- 4), or 10 orders

per hour.

For simplicity, we have assumed that each oraer is for one pizza and that pizza· can be added to the oven any time during the cooking cycle . The minimum of the three resource capacities is 10 orders per hour, and so the system can produce 10 orders per hour.

2. What is the bottleneck in this process?

The bottleneck in this case is the oven. The assistant is busy only half the time, and the chef has 1 minute of idle capacity out of every 6 minutes. Reallocating jobs between the chef and the assistant to balance the workload will make the chef happy but will not increase the flow rate of the process. If Pizza U.S.A. wants to make more pizzas, something must be done to accelerate the flow of pizzas through the oven, or another oven must be added. The lesson here is that the process cannot produce more than the bottleneck can process. This is covered more completely in

The oven is the bottleneck for Pizza U.S.A.

Chapter 13 when we discuss scheduling and the theory of constraints.

3. What is the throughput time?

If we assume there is no waiting time in this system, we simply add the times of all the steps to fill an order:

1 + 3 + 2 + 24 + 1 + 1 = 32 minutes

It takes 32 minutes to complete all the steps and make one pizza. Note that adding an oven will im- prove the capacity and move the bottleneck to the chef, but it will not improve the throughput time. Changes would have to be made in the actual pro- cess of cooking, preparation, or other flow times to reduce throughput time.

Chapter 6 Process- Flow Analys is 125

4. What is the flow rate?

Assuming that demand and supply exceed capacity, the flow rate is determined by the capacity of 10 orders per hour. However, this is the maximum flow rate; the actual flow rate could be much less. If either demand or supply is less than capacity, then the smaller of the two will determine the flow rate. In the following question, we assume demand is only 60 percent of capacity, for a flow rate of six pizzas per hour.

5. What does it cost to make a pizza if the average demand is 60 percent of capacity?

Assume the chef gets paid $15 per hour, the assistant gets paid $11 per hour, and overhead cost is 50 percent of direct labor cost. At 60 percent of capacity, the average flow rate is six pizzas per hour. The cost per hour of operations is $15 + $11 = $26 for labor plus 50 percent added for overhead = $39 per hour, or $39 + 6 = $6.50 per pizza. Assume the cost of ingredients is $2.00 per pizza. I Therefore, the total cost is $6 .50 + $2.00 = $8.50 per pizza . ,

6. How can the unit cost of pizzas be reduced?

Three possibilities are:

• Increase demand through pricing, advertising, or other means. • If demand increases to exceed capacity, increase the flow rate of the entire

transformation process by means of automation or process improvements. • Reduce the unit cost of labor, materials, or overhead.

As you can see, these three approaches are interconnected because increasing demand will also require an increase in capacity at some point, and increasing the flow rate does no good unless demand is increased to sell the additional product.

7 PROCESS REDESIGN

Process redesign usually starts with identifying critical processes required to meet the customers' needs. Then the critical processes, many of which cut across organi- zation boundaries, are analyzed in detail using the methods described in this chap- ter. Changes are often made to these processes as a result of the insight from process-flow analysis. These changes might include eliminating some steps and combining others, or could be as extreme as a complete reconfiguration of process steps . As a result, business processes are redesigned and integrated to better serve the customer. The term business process reengineering (BPR) has also been used to label extensive process redesign activities. See the Operations Leader box titled "Credit Suisse: A Successful Process Redesign" for an example of how process flowcharting is being deployed to aid in improving processes.

In their famous book Reengineering the Corporation (2003), Hammer and Champy argue that most business processes are antiquated and need to be completely rede- signed. Many existing processes have been designed within the confines of indi- vidual functions such as marketing, operations, and finance and also do not make use of modern information systems. As a result, these processes take far too long to provide customer service and are inefficient and wasteful.

Consider a typical major insurance company that had just this problem. When the customer called about an insurance problem, the call was taken by the incoming calls department. The problem was entered into the computer and passed electronically to

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126 Part Two Process Design

Operations Leader Credit Suisse: A Successful Process Redesign

Founded in 1856 and headquartered in Zurich, Switzerland, Credit Suisse is a global financial ser-

vices institu- tion with more than two mil-CREDIT SUISSE lion customers

in 50 countries and a global workforce of more than 50,000 employees . Process redesign has been applied to many of its major service processes. The "accounts closing" process is described here.

Original process

Redesigned process

Customers' rising expectations for faster service, along with increasing regulation from national and international regulatory bodies, created a need for a faster and less error-prone process. Daily, hundreds of accounts are closed by retail and corporate bank- ing customers . In the past, the steps of closing a cus- tomer account involved many manual steps and a variety of banking personnel. The original accounts closing process, shown here, was prone to errors, slow to respond, and not very efficient.

send inquiries

send inquiries

........ New software application

Key

speak to or write

Workflow

e Data flow ...........

enter data

Operations Leader Continued

After the accounts closing process was analyzed, an important insight came to light. Most requests for account closing could be handled in a standard- ized manner and therefore could be automated. A new software application was developed to allow t he relationship manager to initiate all the activities t hat would close a customer account. Other bank personnel did not need to be involved, except in a

Chapter 6 Process-Flow Analysis 127

small number of unusual cases. As a result, the time it took to close an account was reduced by 50 percent and the error rate was reduced to just 0.01 percent.

Source: Peter Kung and Claus Hagen, "The Fruits of Business Process Management: An Experience Report from a Swiss Bank," Business Process Management Journa/13, no. 4 (2007), pp. 477-487; www.credit-suisse .com, 2012.

one of several deparhnents: underwriting, policy service, accounting, or another de- parhnent. The problem then waited in the queue, often for several days, until a worker had time to investigate it. In some cases, the customer's problem had been routed to the wrong deparhnent and had to be routed to another department, again spending several days in the queue. If the problem required more than one deparhnent to an- swer the question, the process of waiting was repeated. Finally, someone in customer service would get back to the customer after several weeks. In many cases, the original question was not answered completely or was answered incorrectly.

This process was redesigned by completely reorganizing the entire insurance operation around customer service representatives who would attempt to handle customer requests on the phone, if possible, using detailed protocols and standard scripts. If additional work was required, the customer service representative checked with other specialists and got back to the customer with an answer. The customer service representatives had been cross-trained in all the various disciplines required and were supported by the other deparhnents. Although this required more train- ing of customer service representatives, it greatly improved the speed and accuracy of the service while saving many millions of dollars. It also provided a single point of contact and less hassle for the customer.

Process redesign is radical redesign when processes simply cannot be im- proved in small steps and require a complete redesign to improve them in a major way, as was the case for the insurance office described above. Often radical rede- sign is supported by new technology, in the form of either production technology or information technology.

To pursue a successful radical redesign, Hammer and Champy (2003) advocate four principles:

1. Organize around outcomes, not tasks. The insurance company described above was originally organized according to tasks, using the classic division of labor. When the company reorganized around the outcome, which was cus- tomer service, dramatic improvements were made. A customer service repre- sentative handled all activities associated with the desired outcome. Although it is not always possible to have one person do everything, jobs can be broad- ened and handoffs between departments can be minimized.

2. Have the people who do the work process their own information. When bedside or portable information system access is available, nurses can update patient electronic medical records as they are dispensing medications to the patient. By doing so, nurses avoid delaying the record update and also do not

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128 Part Two Process Design

"hand off" the information for input by someone else, thus reducing th e likelihood of inadvertent errors. This principle can be applied in many situations in which information is passed from one department to another.

3. Put the decision point where the work is performed, and build control into the process. It is always better to push decision making to the lowest possible level. This will eliminate layers -of bureaucracy and speed up the decision- making process. In the insurance example, the customer service representative had greater latitude to make decisions directly for the customer rather than re- ferring decisions to other departments. To accomplish this, however, informa- tion and controls must be built into the process itself.

4. Eliminate unnecessary steps in the process. Simplifying the processes frequently means that unnecessary steps and paperwork are eliminated. Every step is exam- ined by using the flowcharting techniques discussed earlier, and only those that add value for the customer should be retained. Process redesign can be used to streamline and simplify work flows.

Process redesign is just one of many methods that can be used to improve operations. It uses a process view of the organization as a way of improving process flows. As a result of process redesign, processes will be simplified, process flows improved, and non-value-added work eliminated. Other tools for improving processes will be covered in the chapters on lean systems and quality.

6.8 KEY POINTS AND TERMS

This chapter has emphasized process-flow analysis by building on the ideas of sys- tems, measurement, flowcharting, and process redesign. The key points are as follows:

• A prerequisite to process-flow analysis is definition of the system to be ana- lyzed. Systems definition requires isolation of the system of interest from its environment by defining a boundary, customers, outputs, inputs, suppliers, and process flows .

• The process view leads to the idea that a business is a set of horizontal pro- cesses that are interconnected with the objective of meeting customer needs.

• Process flowcharting creates a pictorial description of a transformation process. The aim is to create flowcharts , or visual diagrams of a transformation process, that are easy to understand by people who may not be familiar with the under- lying transformation process.

• Process flowcharting can be applied to materials flow, information flow, and customer flow. In manufacturing, a flow-process chart is created to show mate- rials flow. In services, a service blueprint is created to show how customers in- teract with service providers.

• Process-flow analysis takes the flowchart and the measurements of a transforma- tion process and seeks answers to relevant questions. These questions help high- light opportunities that can be implemented to improve the transformation process.

• Measurement is essential to process improvement. Some key measurements of a process are throughput time, flow rate, inventory, and capacity. The bottle- neck resource determines the capacity of the entire process.

• Process redesign is used for changing how a process is carried out. It is often cross-functional in nature and may require a complete overhaul of work meth- ods, flows, and information systems.

ey Terms

STUD ENT NTERNET

EXERCIS ES

Chapter 6 Process-Flow Analysis 129

Process-flow analysis 110 Process thinking 111 System 111 System boundaries 111 Process view of a

business 112 Process flowcha rting 114

Process m apping 114 Flow-process charting 114 Service blueprinting 114 Systems flowchart 114 Process ownership 115 Little's Law 122 Throughput time 122

1. Process Maps for Clinical Trials http:/ /www.cmrhc.org

Capacity 123 Bottleneck 123 Flow rate 123 Process redesign 125 Business process

reengineering 125 Radical redesign 127

Click on "Process Maps" and study a few of the maps . What people or organiza- tions are involved in these processes, and in what ways do they interact?

2. Q-Skills http://www.q-skills.com/flowchrt.html

Read the summary of flowcharting and write a short report on some of the challenges of using flowcharts .

3. Little's Law http://en.wikipedia.org/wiki/Little's_law

Read this short article on Little's Law for more background information.

I SOLVED PROBLEMS .

blem

uti on

blem

ion

1. A ticket line for a Minnesota Vikings football game has an average of 100 fans waiting to buy tickets and an average flow rate of 5 fans per minute. What is the average time that a ticket buyer can expect to wait in line?

Using Little's Law I= T X R, solve forT:

T =I + R = 100 + 5 = 20 A ticket buyer can expect to spend an average of 20 minutes in line.

2. Joe's commercial laundry has contracts to wash bedsheets for hotels. Joe intakes each batch of sheets, which takes 1 minute, and then the sheets are washed, taking 20 minutes, and dried, taking 30 minutes. The batch of sheets is ironed, taking 10 minutes for one employee to complete each batch, and there are two employees ironing sheets. Finally, Joe packages the sheets and bills the customer, taking 2 minutes. Joe has five washing machines and seven dryers that can process one batch of sheets each. a. What is the capacity of the laundry system, and what is the bottleneck?

b. What is the average throughput time of a batch of sheets?

c. If the flow rate is 10 batches per hour, what is the average number of batches of sheets in the system (inventory)?

a. The capacity of each resource is as follows:

• Joe takes 3 minutes for each batch and can thus handle 20 batches per hour. Ironing takes 10 minutes, and so each employee can handle 6 batches per hour and the total capacity for two employees is 12 batches per hour.

130 Part Two Process Design

Problem

Oper. time

Manager 1 minute

Find table

Time between Oper. (minutes)

Solution

• Washing machines take 20 minutes per batch or three loads per hoe- each machine, and there are five machines, for a total capacity of 15 ba per hour.

• Dryers take 30 minutes per batch or two loads per hour fro m ;> machine X seven machin_es for a capacity of 14 batches per hour.

The most constraining (minimum capacity) resource is the ironing, ar.- the system capacity is 12 batches per hour and ironing is the bottleneck.

b. The average throughput time (assuming no waiting time) of the syste~r - each batch of sheets is:

T = 1 + 20 + 30 + 10 + 2 = 63 minutes c. I= T X R = (63 + 60) X 10 = 10.5 batches (note, that the 63 minutes mus: _

converted to hours using 60 minutes in an hour).

3. A small restaurant has 30 tables. When the guests arrive, the manager seats servers serve them, and the cashier assists them when they pay the bill. The p:r is shown with processing times above the process steps and waiting times :: occur between operations below the steps. One manager, one cashier, and i servers are available.

Server Server Server Server 2 minutes 3 minutes 4 minutes 1 minute

Bring menu Serve drinks & & Serve food Bring check

order drinks order food

5 w w ~ 5

Cashier 2 minutes

Pay cashier

a. What is the capacity of the system and the bottleneck resource? b. What is the throughput time for each customer? c. If there are 20 arrivals per hour, what is the average number of tables filleci.-

a. The capacity of each resource is as follows:

• The manager takes 1 minute each and can handle 60 customers (or tables per hour.

• The cashier takes 2 minutes each and can handle 30 customers per h our. • Each server takes 10 minutes per table and can handle 6 tables per h our

There are four servers, and so the total capacity for servers is 24 tables pe: hour.

• There are 30 tables available.

The resource with the minimum capacity is the servers, and so the systerr: capacity is 24 tables per hour and the bottleneck is the servers.

b. The throughput time (including both processing time and waiting time) o: the system for each customer is

1 + 2 + 3 + 4 + 1 + 2 + 5 + 10 + 20 + 30 + 5 = 83 minutes

c. If there are 20 arrivals per hour, there will be an average of

I= T X R = (83 + 60) X 20 = 27.7 tables being used