BPR tools and techniques.ppt

Business Process Reengineering

BPR Tools and Techniques

Why use Tools/Techniques??????

• Improve productivity

• Finish projects faster

• Higher quality results

• Eliminate tedious housekeeping work & concentrate

on value added work etc.

BPR Tools:

Business Process System Design/

Tools for Understanding the Business

Process System

Business Process Design

includes the design of a manufacturing or service system for

producing quality goods and services for the intended markets or

customers.

The major tasks comprise designing the production system with

suitable machines, layout, capacity and human resources.

Used to analyze the existing business process and identify the existing

activities as value-adding and non-value-adding activities.

Used to obtain minimum levels of WIP inventory.

Process Design : Tools/Techniques

1. Analytical tools (like queuing and inventory models) and simulation models can be used

to study the EOQ (Optimum Inventory Levels) and materials flow within and outside an

organization. This would help to decide the type of layout, capacity level and process

requirements so that non-value-adding activities and excess inventory can be eliminated.

2. Fishbone Diagram

3. Workflow models including Process Mapping/Flowcharts

4. System Dynamics & Simulation

5. Activity-Based Costing (ABC)

6. Process Value Analysis

5. Skill matrix

6. QFD

7. Benchmarking

These tools are highly valuable in terms of analyzing value/ non-value-adding activities.

These techniques provide easy understanding of material and information flow within

and outside the organization

Analytical Tools:Optimizing the Order Quantity using Inventory Models:

Toyota Corolla 1.6 Automatic is considered as a specific car model. The demand for this vehicle is almost steady throughout the year at a rate of 2 units per week.

The purchasing cost of the Corolla paid by TGCL to TMC is $23500 per unit. In addition, TGCL spends on average $2500 per unit on transportation, import duties and clearing charges.

A breakdown of the different types of costs is as follows: • 1. The TGCL calculates its interest rate to be 25% per year. • 2. The cost of maintaining the warehouse and its depreciation is $100000 per

year, which is not dependent of the amount of inventory stored there. In addition, the costs of pilferage and misplacement of inventory are estimated to be around

3% of average inventory stocked which is covered under insurance. • 3. The annual cost of Order Management System and other Operational/HR Cost

is $500000 and not dependent on how often sales are made or orders are placed.

• 4. The cost of invoice preparation, handling charges, time, etc. is estimated to be $10000 per order.

• 5. The cost of unloading every order that arrives is estimated to be $120000 per order.

To determine the optimal Inventory Level.

The first task is to determine the cost parameters.

• The holding cost rate I is equal to the interest rate (.25) plus the cost rate pilferage and misplacement of inventory or loses (.03).

• Therefore, unit of Inventory Holding Cost rate (I) = 25% + 3% = 0.28 • This rate applies to the value of the inventory when it arrives at

TGCL. • The value or Unit of Purchase Cost (C) = $23500+$2500 = $26000. • Finally, the fixed cost of order placement includes all costs that

depend on the order frequency. • Thus, it includes the order receiving cost ($120000) and the cost of

invoice preparation, etc. ($10000), but not the cost of the order management system. Therefore, Fixed Cost (K) = $130000 value.

• Demand = 2 units per week = 104 units /year• Optimal order quantity: • Q = sqrt(2KD/IC) = sqrt (2x104 x 130000/0.28x26000)= 61

The data from Toyota Ghana Company Limited illustrate the computation of the optimal order quantity for Toyota Corolla.

DefectiveShoe

Sole Deptt.

Lasting

Stitching

Cutting& Preparation

Unskilled labour

Raw Material defect

Colour Mismatch

Cut Marks

Unskilled labour

Toe gap

Back Counter Twisted

Upper cut

Over Cementing

Adhesive marks

Toelip Tilted

Slip Stitching

Upper Damage

Over Heating

Wrinkle due to Double Punch

Sole Damage

Back Counter Twisted

Toelip Tilted

unskilled worker

Wrongly placed in the mould

Unskilled labour

Colouring problem

Power failure

Cut Marks

Cause & Effect Diagram of defects in different process

FISHBONE DIAGRAM:

Process Design : Tools/TechniquesFlowcharting

Flowcharting is a tool for analyzing processes.

It allows you to break any process down into individual

events or activities and to display these in shorthand

form showing the logical relationships between them.

Constructing flowcharts promotes better understanding

of processes, and better understanding of processes is a

pre-requisite for improvement.

Process Modeling/ Mapping The documentation of a process which records the tasks,

the roles and the entities used.

Process model:

Who are the operating actors?

Which operational activities and ordering exist?

What are inputs and outputs of activities?

Which activities are executed by which actors?

Reengineering Process: Tools/Techniques

Process Mapping

From: V. D. Hunt, (1996) Process Mapping—How to Reengineer Your Business Processes, John Wiley & Sons


Process Mapping (Example)

• A Skills Matrix is a table that clearly shows the skills held

by individuals in a team, and the skills gaps within a

team.


Skill Matrix

Skill Matrix

AccountableDME CPA BCM BCM

Customer Documentation Y Y YInternal Documentation Y YProcess Lapse Y Y YPEMI Related Y YAF Bounce Y YLoan Documentation Y Y Y YRepayment Y Y Y

ResponsibleError Category

Understanding Business Process System -Tools/Techniques : Skill Matrix

SYSTEM MODELING:

( SLIDES ATTACHED)

(COMPUTER SIMULATION)

In a business organization, the ABC methodology assigns an

organization's resource costs through activities to the

products and services provided to its customers.

ABC has predominantly been used to support strategic

decisions such as pricing, outsourcing and identification and

measurement of process improvement initiatives.


Activity based cost accounting

Activity Based Costing:

ABC: What is it?• Activity based costing is an accounting methodology that assigns costs to

activities rather than products or services. This enables resource and overhead costs to be more accurately assigned to the products and the services that consume them.

Traditional ABC

Salaries $100 Clean door $40

Equipment $80 Paint door $75

Supplies $20 Inspect door $75

Overhead $45 Send door to assembly $55

TOTAL $245 TOTAL $245

ABC:

ABC doesn’t eliminate or change costs, it provides data about how costs are actually consumed.

In the previous example, if you wanted to reduce costs using traditional data you would have to decrease salaries, or decrease costs of supplies.

You don’t know enough to change the equipment or overhead costs. Using ABC data you can see that it costs the same to paint and inspect the door. These steps could be combined to lower cost.

CASE STUDY- ABC

Process value analysis is a qualitative analysis procedure that can quickly and significantly improve your processes.

It allows an improvement team to identify specific process steps that may not be adding value, with the goal of saving time and resources. After a process is documented using the S-I-P-O-C and process mapping tools, you can quickly analyse the value of each step of the process from the perspective of people who are served.


Process value analysis

http://www1.umn.edu/osci/How_To/Defining_what_you_will_fix_SIPOC.html

http://www.umn.edu/osci/How_To/42705_Secrets_of_process_mapping.html

Process Value Analysis:

1. Gatheringinformationabout thebusiness process

2. Building a modelof the businessprocess andidentifyingthe resourcesinvolved

Collection of datafrom expertsand informationFunds

Functional modelof the process;Assessment ofresources

3. Identifying thebenefits arisingfrom the currentbusiness process

Customersatisfactionanalysis

Process Value Analysis:

4. Comparingbenefits andresources ofeach businessprocess phase

5. Identifyingdirections forvalue improvementandnew valuesproposition

Comparativevalue analysis

Identificationof valueBottlenecksAnalysis ofevolutionopportunities

6. Identifying themain processchanges toachievethe objectivesdefined at step 5

Definition offinal product/serviceproperties

PVA in Fashion Footwear Industry:

IDEF0 Model of Business Process:

IDEF0:

After analyzing the IDEF0 Model, we get:

• common problems faced in the business planning;• constraints related to the manufacturing stage

(i.e. common production capacity of the devices, sequence of the operations to be performed, rules to be followed);

• extent of the involved resources in terms of costs;• employed personnel and tasks;• common duration of the phases.

Identification of Customer Requirements:

We define the Kano Categories as follows:

• Must Be: The quailty characteristic must be present or the customer will go elsewhere.

• Performance: The better we are at meeting these needs, the happier the customer is.

• Delighter: Those qualities that the customer was not expecting but received as a bonus.

(The Kano model is a tool that can be used to prioritize the Critical to Quality characteristics, as defined by the Voice of the Customer.)

QFD as BPR Tool• QFD is a method for developing a design quality aimed at satisfying the consumer and

then translating the consumer's demand into design targets and major quality assurance points to be used throughout the production phase. ... [QFD] is a way to assure the design quality while the product is still in the design stage.“

The 3 main goals in implementing QFD are:

• Prioritize spoken and unspoken customer wants and needs.• Translate these needs into technical characteristics and specifications.• Build and deliver a quality product or service by focusing everybody toward customer

satisfaction.

QFDQuality Function Deployment has helped to transform the way many

companies:

• Plan new products• Design product requirements• Determine process characteristics• Control the manufacturing process• Document already existing product specifications• QFD uses some principles from Concurrent Engineering in that cross-

functional teams are

involved in all phases of product development. Each of the four phases in a QFD process uses a matrix to translate customer requirements from initial planning stages through production control

Phase 1, Product Planning:

Building the House of Quality. Led by the marketing

department, Phase 1, or product planning, is also called The House of Quality. Phase 1 documents customer requirements, warranty data, competitive opportunities, product measurements, competing product measures, and the technical ability of the organization to meet each customer requirement. Getting good data from the customer in Phase 1 is critical to the success of the entire QFD process.

Phase 2, Product Design

This phase 2 is led by the engineering department. Product design requires creativity and innovative team ideas. Product concepts are created during this phase and part specifications are documented. Parts that are determined to be most important to meeting customer needs are then deployed into process planning, or Phase 3.

:

Phase 3, Process Planning:

Process planning comes next and is led by manufacturing engineering. During process planning, manufacturing processes are flowcharted and process parameters (or target values) are documented.

Phase 4, Process Control:

And finally, in production planning, performance indicators are created to monitor the production process, maintenance schedules, and skills training for operators. Also, in this phase decisions are made as to which process poses the most risk and controls are put in place to prevent failures. The quality assurance department in concert with manufacturing leads Phase 4.

• 1. Product Planning (House of Quality): translate customer requirement into product technical requirements to meet them.

• 2. Product Design: translate technical requirements to key part characteristics or systems.

• 3. Process Planning: identify key process operations necessary to achieve key part characteristics.

• 4. Production Planning (Process Control): establish process control plans, maintenance plans, training plans to control operations.

Linking these phases provides a mechanism to deploy the customer voice through to control of process operations.

Step 1: Customer Requirements - "Voice of the Customer“The first step in a QFD project is to determine what market segments will be analyzed during the process and to identify who the customers are. Tools Used: Affinity Diagrams or Tree Diagrams.

• Step 2: Regulatory Requirements

Not all product or service requirements are known to the customer, so the team must document requirements that are dictated by management or regulatory standards that the product must adhere to.

• Step 3: Customer Importance Ratings

On a scale from 1 - 5, customers then rate the importance of each requirement. This number will be used later in the relationship matrix.

Step 4: Customer Rating of the CompetitionUnderstanding how customers rate the competition can be a tremendous competitive advantage. In this step of the QFD process, it is also a good idea to ask customers howyour product or service rates in relation to the competition.

Step 5: Technical Descriptors - "Voice of the Engineer"The technical descriptors are attributes about the product or service that can be measured and benchmarked against the competition. Technical descriptors may exist that your organization is already using to determine product specification, however new measurements can be created to ensure that your product is meeting customer needs.

Step 6: Direction of ImprovementAs the team defines the technical descriptors, a determination must be made as to the direction of movement for each descriptor.

Step 7: Relationship MatrixThe relationship matrix is where the team determines the relationship between customer needs and the company's ability to meet those needs. The team asks the question, "what is the strength of the relationship between the technical descriptors and the customers needs?" Relationships can either be weak, moderate, or strong and carry a numeric value of 1, 4 or 9.

Step 8: Organizational DifficultyRate the design attributes in terms of organizational difficulty. It is very possible that some attributes are in direct conflict. Increasing the number of sizes may be in conflict with the companies stock holding policies, for example.

Step 9: Technical Analysis of Competitor ProductsTo better understand the competition, engineering then conducts a comparison of competitor technical descriptors. This process involves reverse engineering competitor products to determine specific values for competitor technical descriptors.

Step 10: Target Values for Technical DescriptorsAt this stage in the process, the QFD team begins to establish target values for each technical descriptor. Target values represent "how much" for the technical descriptors, and can then act as a base-line to compare against.

Step 11: Correlation MatrixThis room in the matrix is where the term House of Quality comes from because it makes the matrix look like a house with a roof. The correlation matrix is probably the least used room in the House of Quality; however, this room is a big help to the design engineers in the next phase of a comprehensive QFD project. Team members must examine how each of the technical descriptors impact each other. The team should document strong negative relationships between technical descriptors and work to eliminate physical contradictions.

Step 12: Absolute ImportanceFinally, the team calculates the absolute importance for each technical descriptor. This numerical calculation is the product of the cell value and the customer importance rating. Numbers are then added up in their respective columns to determine the importance for each technical descriptor. Now you know which technical aspects of your product matters the most to your customer!

– Benchmarking is the process of continually searching for

the best methods, practices and processes, and either

adopting or adapting their good features and

implementing them to become the “best of the best.”

– Use benchmarking both for comparison of performance

as well as to understand the potential for improvement

– best methods, practices and processes can be :

– financial performance and control system,

– customer service delivery and performance system,

– production system, HRM, project management practices etc.

Process Design : Tools/TechniquesBenchmarking

Benchmarking Methods for BPR•Internal Benchmarking (within the business unit)

•Competitive (with competitors)•Generic (between unrelated industries)

Bench mark - Comparison of a one or more aspect of a Company's performance against the best in its own or other relevant industry sector.

Benchmarking Methods for BPR•Internal Benchmarking (within the business unit):

It focuses on the fact that organizations should look within their boundaries to improve the processes rather than looking at other organizations. I.B. also encourages a culture of learning and innovation spurred on by internal competition.

When to use Internal or External Benchmarking?

Duplicate

Process Internall

y?

Metrics Availabl

e?

Significantly

Superior Process?

Transferablepractices?

Investigateinternalbenchmarking

SimilarProcess Internall

y?

Techniques

adaptable?

Investigateexternalbenchmarking

yes

No No

yes

yes

No

yes

No

No

yes

yes

No

Internal Benchmarking (Case)Case application

• A multi-national manufacturing company in the North-east was experiencing high-scrap rates at a particular point in the process of the manufacture of one of its products in the US plant. The firm also has a facility in Eastern Europe and both the US and the European facility are ISO certified. The scrap rate in the US plant was approximately 10 percent of production and corresponded to a cost of approximately 10 percent of sales. What also concerned the company was that the scrap rates were rising.

Internal Benchmarking (Case)

Ques: Whether internal or external benchmarking?

(concerning the availability of metrics)

• The plant in Eastern Europe was producing the same product on a similar production line but that line was experiencing scrap rates of less than 2 percent. Thus, metrics were available.

• Comparing this to the American plant, with a scrap rate of 10 percent, it was apparent that the European process was significantly superior.


Ques: To determine if the practices were transferable?

• We could presume that there were issues of culture and language but they were not insignificant.

• The geographic separation of the two plants also played a part in this decision.

• However, overriding the possible issues against internal benchmarking, management was in favor of borrowing the superior practices from the Eastern European location and the decision was made to benchmark internally.


Identification and isolation of a particular process or point in a process that requires improvement:

Steps:• To assemble the benchmarking team.

* The team for this project was self-selected and consisted of individuals, both internal and external to the company, interested in developing and applying benchmarking and quality tools. No upper level managers were present on the team but the team did have the permission and support of top management to perform the study.

• The improvement team identified reasons for the scrap, using Pareto diagrams to identify the root causes.

• They determined that one particular set of tasks within the entire process accounted for over 80 percent of the scrap.


The next goal was to reduce scrap by 50 percent:

• The team identified several tools that were appropriate for analyzing the process.

• The first tool used was process mapping to illustrate the number and sequence of tasks within the production process.

• They then employed fishbone diagrams to brainstorm and classify possible causes of the problem.

• This step-by-step procedure allowed them to identify the exact point in the process where the scrap was occurring. The use of process mapping and fishbone diagrams were the appropriate tools to use for the implementation of internal benchmarking.


To Compare the two processes:The benchmarking team then looked to the Eastern European plant

for a similar production process for comparison and internal benchmarking .

• They analyzed the European process in a similar manner, using process mapping . They found that, at the same point in the process where the US company was experiencing a problem, the European plant had implemented a different transfer system for the WIP between two stages in the production process. The transfer system in the US used an air delivery system where the European plant was using a conveyor system.

• The conveyor system caused less damage to the product and reduced the scrap rate. Thus, the aspect of the target process that

leads to improved performance was identified.


• With this knowledge, the improvement team brainstormed alternative countermeasures to correct its problem and enable them to evaluate potential transferability.

• It analyzed the countermeasures based on cost, effectiveness at reducing the scrap, and feasibility of implementation, rating each alternative as either high or low medium in each category.

• Once this analysis was completed, the team selected an alternative through a multi-voting technique and decided to replace the air-blown transfer system with the conveyor method.

• After obtaining permission from top management, the team first implemented a “test” program by modifying one of the multiple lines to a conveyor system.

Benchmarking Methods for BPR

•Internal Benchmarking (within the business unit)

•Competitive (with competitors)

•Generic (between unrelated industries)

Competitive BenchmarkingCompetitive Benchmarking is a process of comparing a

firm’s process, or strategies, or performance measures with another firm.

Seven Steps in the Benchmarking Process:

1.Determine which functional areas within your operation are to be benchmarked -- those that will benefit most from the benchmarking process, based upon the cost, importance and potential of changes following the study. 2.Identify the key factors and variables with which to measure those functions -- usually in the general form of financial resources and product strategy. 3.Select the best-in-class companies for each area to be benchmarked – those companies that perform each function at the lowest cost, with the highest degree of customer satisfaction, etc. Best-in-class companies can be your direct competitors (foreign or domestic), or even companies from a different industry (parallel competitors with replacement or substitute products or services.

Competitive Benchmarking:

• Measure the performance of the best-in-class companies for each benchmark being considered -- from sources such as the SEC, companies themselves, articles in the press or trade journals, analysts in the market, credit reports, clients and vendors, trade associations, the government or from interviews with other organizations.

• Measure your own performance for each variable and begin comparing the results in an "apples-to-apples" format to determine the gap between your firm and the best-in-class examples. Always feel free to estimate results, as exact measures are usually disproportionately difficult to obtain and often do not significantly add value to the study.

Competitive Benchmarking:

• Specify those programs and actions to meet and surpass the competition based on a plan developed to enhance those areas that show potential for compliment. The firm can choose from a few different approaches -- from simply trying harder, to emulating the best-in-class, changing the rules of the industry or leapfrogging the competition with innovation or technology from outside the industry.

• Implement these programs by setting specific improvement targets and deadlines, (Set a benchmarking timeline ) and by developing a monitoring process to review and update the analysis over time. This will also form the basis for monitoring, revision and recalibration of measurements in future benchmarking studies.

(Work , Measure, Adjust & Repeat)

Benchmarking Method for BPR:

DEA:

• Data Envelopment Analysis (DEA) is a very powerful service management and benchmarking technique originally developed by Chames, Cooper and Rhodes (1978) to evaluate the performance of private and public sector organizations.

DEA:

What does DEA do?

* DEA compares service units considering all resources used and services provided, and identifies the most efficient units or best practice units (branches, departments, individuals) and the inefficient units in which real efficiency improvements are possible. This is achieved by comparing the mix and volume of services provided and the resources used by each unit compared with those of all the other units. In short, DEA is a very powerful benchmarking technique.

• DEA calculates the amount and type of cost and resource savings that can be achieved by making each inefficient unit as efficient as the most efficient - best practice ~ units.

DEA:

• Specific changes in the inefficient service units are identified, which management can implement to achieve potential savings located with DEA. These changes would make the efficient units performance approach the best practice unit performance.

• Management receives information about performance of service units that can be used to help transfer system and managerial expertise from better-managed, relatively efficient units to the inefficient ones. This has resulted in improving the productivity of the inefficient units, reducing operating costs and increasing profitability.

The Mathematical Formulation of DEA

Minimize =

Where: = efficiency rating of the service unit being evaluated by DEA• = amount of output r used by service unit j• = amount of input / used by service unit j• i = number of inputs used by the SUs• r = number of outputs generated by the SUs

• ur = coefficient or weight assigned by DEA to output r

• vi. = coefficient or weight assigned by DBA to input /

How DEA Works and How to Interpret the Results

Service Unit Service Output Input Used

Transactions Processed (T) Teller Hours(H) Supply Dollars (S)

B1 1000 20 300

B2 1000 30 200

B3 1000 40 100

B4 1000 20 200

B5 1000 10 400

Illustrative Example of Five Bank Branches:

Assume that there are five bank branches (Bl, B2, B3, B4, and B5) and that each processes 1,000 transactions (e.g., deposits) during one common time period (e.g., week, month, year) by jointly using two inputs: tellers measured in labor hours (H) and supplies measured in dollars (S).

The problem facing the manager is * to identify which of these branches are inefficient and the magnitude of the inefficiency. This information can be used to locate the branches that require remedial management action, to reward the more efficient managers, and/or to determine the management techniques used in the more efficient branches that should be introduced into less efficient branches.

BPR tools and techniques.ppt

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