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Process Management and Strategy

Introduction 1Ardavan Asef-Vaziri Sep-09

Process -1

Business Process Management

Building block of Operations Management– System view– Process Chart

» A tool to describe the business process

– Evaluation and trade-offs» Make-to-order vs. Make-to-stock

– Risk-pooling » Multi-server queues, central ordering , central safety stock

– Dealing with variability

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Process Management and Strategy

Introduction 2Ardavan Asef-Vaziri Sep-09

Process -1

Systems approach

“The whole is greater than the sum of the parts.”

Suboptimization

2 > 1+1

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Process Management and Strategy

Introduction 3Ardavan Asef-Vaziri Sep-09

Process -1

Systems approach

Systems approach andSalesPurchasingProduction

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Process Management and Strategy

Introduction 4Ardavan Asef-Vaziri Sep-09

Process -1

Systems

A set of parts with interrelationships between parts organized to achieve a goal

How systems grow up

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Process Management and Strategy

Introduction 5Ardavan Asef-Vaziri Sep-09

Process -1

Process Chart. Ex. McDonald’s

(Prior to 1999)

RawMaterial

Cook

Finished GoodsAssemble Deliver

Customer places order

This is a make-to-stock system.Activity

Decision

Storage

Flow

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Process Management and Strategy

Introduction 6Ardavan Asef-Vaziri Sep-09

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Trade-Off; Ex. Make to Stock vs. Make to Order

Will different companies intentionally choose different processes to accomplish the same goal? – in McDonald– in In & Out

Process Evaluation– Different processes lead to different advantages and

disadvantages.

Is there a simply better process, i.e., no trade-offs?

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Process Management and Strategy

Introduction 7Ardavan Asef-Vaziri Sep-09

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Analysis of Tradeoffs

Tradeoffs

What are the pros and cons of models?

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Process Management and Strategy

Introduction 8Ardavan Asef-Vaziri Sep-09

Process -1

Analysis of tradeoffs

Buying a new machine Additional Investment

Integration with existing system

Training

Having more inventoryHigher Carrying Costs

More Obsolescence

Higher Productivity

Better Quality

More Flexibility

Lower Ordering Cost

Purchasing Discount

Product Availability

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Process Management and Strategy

Introduction 9Ardavan Asef-Vaziri Sep-09

Process -1

Processing Time, Waiting Time; Long Waiting Line

We are interested in the management of processes.Selling a ticket seems easy, but …

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Process Management and Strategy

Introduction 10Ardavan Asef-Vaziri Sep-09

Process -1

More Servers + Specialization

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Process Management and Strategy

Introduction 11Ardavan Asef-Vaziri Sep-09

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Polling: Lower Waiting Time, Longer Processing Time (Perhaps)

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Process Management and Strategy

Introduction 12Ardavan Asef-Vaziri Sep-09

Process -1

Uncertainty: Potential Solution

Inventory– How many inventories?– If too many … opportunity cost, spoilage cost– If too few … loss of sales– It is costly to solve uncertainty using inventory.

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Process Management and Strategy

Introduction 13Ardavan Asef-Vaziri Sep-09

Process -1

Potential Solutions: Transfer the inventory to the distributor

Example: In the early days of Amazon.com the company did not keep any inventory of books.– The supplier Ingram kept the books for Amazon.– Once Amazon received an order it was transmitted to

Ingram.– Ingram would ship the book directly to the consumer.

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Process Management and Strategy

Introduction 14Ardavan Asef-Vaziri Sep-09

Process -1

Amazon.com: Delivering Books

Notice that:– It is not difficult to deliver books very fast– It is not difficult to deliver books at a very low cost– But, it is very difficult to deliver book fast and at a low cost

?

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Process Management and Strategy

Introduction 15Ardavan Asef-Vaziri Sep-09

Process -1

Potential Solutions

How do we deal with uncertainty

Inventory

Transfer/Share the uncertainty

Eliminate the uncertainty

Transfer the inventory to a distributor

Print on demand

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Process Management and Strategy

Introduction 16Ardavan Asef-Vaziri Sep-09

Process -1

Potential Solutions: Transfer the inventory to the distributor

Example: In the early days of Amazon.com the company did not keep any inventory of books.– The supplier Ingram kept the books for Amazon.– Once Amazon received an order it was transmitted to

Ingram.– Ingram would ship the book directly to the consumer.

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Process Management and Strategy

Introduction 17Ardavan Asef-Vaziri Sep-09

Process -1

Potential Solutions: Transfer the inventory to the distributor

Ingram’s BookInventory

Ingram’sOrder

Ingram’s Post Order Process

Amazon’sOrder

Amazon’s Post Order Process

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Process Management and Strategy

Introduction 18Ardavan Asef-Vaziri Sep-09

Process -1

Potential Solutions: Transfer the inventory to the distributor

What are the advantages for such an arrangement for Amazon and Ingram?– Risking pooling (less inventory is needed)

What are the disadvantages of this arrangement for Amazon and Ingram? – Allocation priority

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Process Management and Strategy

Introduction 19Ardavan Asef-Vaziri Sep-09

Process -1

Pareto phenomenon (ABC analysis)

Classifying items, activities, or tasks according to some measure of importance and allocating efforts and resources accordingly

A vital few things are important for reaching an objective or solving a problem

80/20 rule – 80% of the problems are caused by 20% of the activities

How do we identify the vital few?

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Process Management and Strategy

Introduction 20Ardavan Asef-Vaziri Sep-09

Process -1Pareto phenomenon, ABC analysis, & Recognition of Priorities

Acknowledging the fact that certain aspects of any management situation are more important than others is called Recognition of Priorities.

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Process Management and Strategy

Introduction 21Ardavan Asef-Vaziri Sep-09

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Models -Representations

A model is an abstraction of reality• Narrative• Tabular• Schematic (Some times Physical)• Mathematical

– Linear programming– Transportation model– Inventory models– Waiting line models – Statistical models

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Process Management and Strategy

Introduction 22Ardavan Asef-Vaziri Sep-09

Process -1

Recent Trends

Global Competition

Operations Strategy

Flexibility

Cycle Time Reduction

Business Process Re-engineering

Supply Chain Management

Workers Involvement

Lean Manufacturing

Total Quality Management

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Process Management and Strategy

Introduction 23Ardavan Asef-Vaziri Sep-09

Process -1

Recent Trends

Global Competition Global Market Global Suppliers

Operations Strategy Quality based Time based

Flexibility Variety of products High Volume as well as Low Volume

Cycle Time Reduction The less time RM (Raw Material), WIP (Work In Process),

FG (Finished Goods) spend in the Manufacturing and Logistics process, the less opportunity they have to absorb costs.

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Process Management and Strategy

Introduction 24Ardavan Asef-Vaziri Sep-09

Process -1

Recent Trends

Business Process Re-engineering Value added and NVA activities

Supply Chain Management NOT from RM storage to FG warehouse, but from the

original suppliers to final consumers Under separate ownerships

Workers Involvement Workers are not costs, they are assets

Lean Manufacturing Inventory is waste Variability is evil

Total Quality Management

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Process Management and Strategy

Introduction 25Ardavan Asef-Vaziri Sep-09

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Examples of Exam Questions

1. The following activities are all a part of system operations as opposed to system design

a) long term forecasting, product design, capacity planning, inventory management.

b) short term forecasting, product design, capacity planning, inventory management

c) short term forecasting, production planning, capacity planning, inventory management

d) short term forecasting, production planning, quality assurance, inventory management

e) none of the above

2. Pareto Phenomenon is the same as

a) ABC analysis

b) analysis of trade-off

c) systems analysis

d) quantitative approaches

e) none of the above

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Process Management and Strategy

Introduction 26Ardavan Asef-Vaziri Sep-09

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Review Questions (cont.)

3. In ABC analysis

a) 25% of items form 25% of the measure of importance

b) 10% of items form 10% of the measure of importance

c) 90% of items form 90% of the measure of importance

d) 50% of items form 50% of the measure of importance

e) 15% of items form 75% of the measure of importance

4. Given: (I) Lean operations, (II) Operations strategy, (III) Business process re-engineering(A) Inventory is waste, (B) Time based operations, (C) High Volume as well as Low Volume, (D) Value-added and NVA activities

Which of the following selections is correct?

a) (I) matches with (D), (II) matches with (C), (III) matches with (B)b) (I) matches with (A), (II) matches with (B), (III) matches with (C)c) (I) matches with (A), (II) matches with (B), (III) matches with (D)d) (I) matches with (A), (II) matches with (D), (III) matches with (C)e) (I) matches with (C), (II) matches with (D), (III) matches with (B)

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Process Management and Strategy

Introduction 27Ardavan Asef-Vaziri Sep-09

Process -1

Review Questions (cont.)

5. Given(I) supply chain management, (II) Flexibility, (III) Operations strategy(A) Quality based operations, (B) Workers are asset, (C) Value added and NVA activities, (D) from suppliers to consumers, (E) High Volume as well as low volume

Which of the following selections is correct?

a) (I) matches with (D), (II) matches with (E), (III) matches with (C)b) (I) matches with (D), (II) matches with (E), (III) matches with (A)c) (I) matches with (A), (II) matches with (E), (III) matches with (D)d) (I) matches with (C), (II) matches with (D), (III) matches with (E)e) (I) matches with (E), (II) matches with (B), (III) matches with (D)