PROF. MACQUEEN ONLY

MAT510_Week 3: Business Statistics- Understanding Business Processes

Slide #

Slide Title

Slide Narration

Slide 1

Introduction

Welcome to Business Statistics. In this lesson, we will try to develop a deeper understanding of business processes.

Slide 2

Topics

The following topics will be covered in this lesson:

· Examples of business processes;

· SIPOC model for processes;

· Identifying business processes;

· Analysis of business processes;

· Systems of processes; and

· Measurement process

Slide 3

Examples of Business Processes

Key business process elements include suppliers, process inputs, process steps, process outputs, and customers. For example, a mail order business process starts from the customer call and ends when the customer pays the bill.

Processes are typically described in flowcharts that help us understand the process and create effective measurement, management and improvement of the process.

Some examples of typical business processes are:

· Customer order delivery

· Developing budgets

· Strategic planning and deployment

· New product development

· Manufacturing process design

· Employee recruiting and orientation

· Company email delivery

· Equipment procurement

· Patent application; and

· Laboratory measurement

Slide 4

Examples of Business Processes (Continue)

Administrative functions can also have a process. In this flowchart example, we show a personnel hiring process. A key measurement of the process is the time required to complete the process, or cycle time. Once the Human Resources department receives a resume, the resume is sent to the hiring manager. After the initial applicant screening and internal and/ or external interviews, management makes a hiring decision. Lastly, the job applicant reports to work.

Slide 5

SIPOC Model for Processes

Your text defines a business process as a “series of activities done by an individual or group to produce a product or service for a customer”. The elements of the SIPOC model, shown on the slide here, are supplier, inputs, process steps, outputs, and customer.

This model is a useful framework to address the interconnected relationships in the business process. The supplier provides input to the process. Inputs contain information defining the request. Process steps include a series of activities converting input to output. Outputs become the result of a process. Finally, the customer is the person or organization who receives the products or services.

Other process elements - such as people, equipment, information technology and facilities - can be added to the SIPOC model. Although these elements may not be a part of the process flow per se, they can be critical to the success of the process. Therefore, we should not overlook those elements, as closely examining them may lead to further process improvements. The model also helps each team member to understand their role in the entire business process and how they can help improve or contribute to the entire business process.

Slide 6

Identifying Business Processes

It is easiest to begin with the key outputs being a product or service. Here we identify the output of our process. Next, we ask who wants or needs this product. The person or organization is our customer. After that, we are trying to identify the process boundaries, or where the process begins and ends, as well as the key process steps along the way.

We arrive at these steps by asking “how do we produce these outputs?” We can identify inputs by asking “what do we need in order to produce the outputs?” We note that input should not include people or equipment that do the work. They are included in the process resources. The suppliers are whoever provides the input to us.

Slide 7

Identifying Business Processes (Continued)

The figure shown in this slide indicates a process, as well as its subprocess and sub-subprocess. In some major processes, there may be hundreds or thousands of steps, depending on how specifically they define the process.

To avoid confusion in the process steps, we often organize the process into 5 to 10 major process steps, and then create subprocesses that elaborate on these major steps. The subprocesses can be further broken down into sub-subprocesses. The idea is to have simplicity and clarity in the process map.

Slide 8

Analysis of Business Processes

The work associated with the process can be divided into two categories. Value added work produces products and services that generate revenue and profits. Non-value added work is not necessary to produce products and services. These work activities cost money to operate and should be eliminated, where possible, in the process. For example, if you make a refrigerator, the raw material and assembly are value added work because they produce the refrigerator. The re-work, storage or inspection is non-value added work. Eliminating non-value added work improves profits. It represents an opportunity for improvement.

The more non-value added work in the process, the more complex the process becomes. When adding complexity in the process, there are more errors that can occur. We like to make every process as simple as possible while still getting the work done. This is called the KISS principle - Keep it simple, stupid!

For example, in a manufacturing process, scrap and re-work are a part of the process. We need to set up departments and supervisors to perform scrap and re-work functions. Those operations are usually physically hidden in the back of the plant so as not to be visible to corporate managers and customers. These are called “hidden plants”. Eliminating hidden plants when possible reduces the cost and improves the profit.

Slide 9

Analysis of Business Processes (Continued)

*Tabs Interaction

Intro: Lacking good data is typically a great barrier to improvement. We do not want just any old data, we need specific data that help us to study and improve the process. Click the tabs below to review the five key process measurement methods:

Tab 1: assess current performance levels

Tab 2: compare current and past performance to determine if the process has shifted

Tab 3: determine if the process should be adjusted (minor changes)

Tab 4: determine if the process should be re-designed or improved (major changes)

Tab 5: predict the future performance based on current process.

Slide 10

Analysis of Business Processes (Continued)

The SIPOC model provides a clear way to show where process measurements should be performed. We measure supplier performance and customer feedback. We also measure input and output processes and provide needed changes to improve these processes. In addition, we need to benchmark our process performance against our competitors or peers.

Benchmarking is the act of determining how your organization’s processes are performing relative to processes in other companies. We need to carefully select companies that operate in a similar environment or conditions to our own. Benchmarking can be grouped into two categories - output (or results) benchmarking and process benchmarking.

For example, how does our company’s safety record compare to DuPont’s safety record? Output benchmarking has a serious limitation. It only tells you what level can be achieved; it does not tell you how to achieve it. Process benchmarking looks at how the results are obtained. The results are much more valuable and insightful. However, it requires the active cooperation of the organizations being benchmarked.

Slide 11

Systems of Processes

We might assume that any improvement in a process will automatically improve the overall system. Unfortunately, this may not be the case. A purchase manager may decide to lower his or her purchasing costs by buying lower grade material. This decision improves the purchasing department costs, but may cost greater future loss in the operation as a whole. This is called suboptimization.

We need to have a view of our role in the overall system. We can do this by visualizing or mapping the core process of the entire system. We need to pay attention to the core processes of the system. For example, a large consumer credit organization may have an employee cafeteria in its headquarters. However, providing food is not a core process which is necessary for the organization to make money. We need to focus on improving core business processes.

Slide 12

Measurement Process

As we have learned, process measurements include all components described by the SIPOC framework. In any measurement, there are two types of variations. They are:

· Process variation - the variation from the process we are studying; and

· Variation created by the measurement process itself.

For example, say a re-tooling took place and caused product quality changes. This would be the process variation. Sampling of products for performance measurements can result in measurement variation.

Key factors in measurements include accuracy, precision and stability.

As illustrated in the figure on the slide, measure A is an example of good accuracy and good precision. It has good accuracy because the average measured value is very close to the true value of 50. It has good precision because the spread, or variation, of measurements is very narrow.

In measurement B, we can see evidence of good accuracy but has poor precision.

Measurement C has good precision but it is not accurate. You can observe bias error in measurement C.

In measurement D, we observe poor measurement accuracy and poor precision.

Another factor in the measurement is stability. It refers to the ability to maintain the accuracy and precision over time. For example, we may set a watch to the correct time. However, the accuracy and precision may degrade over a month. Therefore, the watch would have poor stability.

Slide 13

Check Your Understanding

Directions: Choose whether the following statement is true or false, then click the submit button.

Question: Benchmarking is the act of determining how your organization’s processes are performing relative to processes in other companies.

Feedback (*use for both correct and incorrect answers): Benchmarking allows organizations to compare the strengths and issues of their business processes with other similar companies in order to see what changes should occur.

Slide 14

Summary

We have reached the end of this lesson. Let’s take a look at what we’ve learned.

We began by listing several examples of typical business processes, and looked at several key elements of all business processes.

Next, we learned about the SIPOC Model for Processes. The elements of this framework are the supplier, the inputs, the process steps, the outputs, and the customer.

We then moved on to identifying business processes. Here, we looked at an example of the steps in the SIPOC Model, and learned how main processes, subprocesses, and sub-subprocesses relate to each other.

Our next step was an analysis of business processes. Here, we looked at the five key process measurement methods.

From there, we reviewed systems of processes. In this section, we learned the importance of focusing our process improvement efforts on those core practices that produce income for an organization.

We ended with a look at the measurement process. Here, we reviewed the two types of variation, as well as the key factors in measurement.