F O U R T H E D I T I O N

Process Measurement and Analysis

© The McGraw-Hill Companies, Inc., 2003

chapter 5

DAVIS

AQUILANO

CHASE

PowerPointPresentation

byCharlieCook

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–2

Chapter ObjectivesChapter ObjectivesChapter ObjectivesChapter Objectives

• Illustrate how all activities within an organization are actually processes that need to be managed.

• Present the various measures of performance that can be used to evaluate a process.

• Show how process analysis can provide managers with an in-depth understanding of how a process is performing, while at the same time identifying areas for improvement.

• Present the concept of service blueprinting and illustrate how it is used to evaluate processes within a service environment.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–3

Chapter Objectives (cont’d)Chapter Objectives (cont’d)Chapter Objectives (cont’d)Chapter Objectives (cont’d)

• Introduce the concept of business processes and show how they are providing managers with a broader perspective for managing their organizations.

• Present the concepts of benchmarking and reengineering and show their roles in creating world-class operations.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–4

Managerial IssuesManagerial IssuesManagerial IssuesManagerial Issues

• Recognizing that every set of activities represents a process to be managed.

• Acknowledging that processes are linked to other processes in other functional areas.

• Choosing strategically critical performance measures by which to monitor processes so that corrective actions are taken when needed.

• Using benchmarking to identify ways in which to create or improve world-class design, production and delivery operations for products.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–5

Defining a ProcessDefining a ProcessDefining a ProcessDefining a Process

• Selecting a Process–Identifying the strengths and weaknesses of

each process’s capability to support the strategic focus of the firm on particular market segments.• Standardization

• Flexibility

• Customization

• Speed of delivery

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–6

Process Flowcharts for Making Process Flowcharts for Making HamburgersHamburgers

Process Flowcharts for Making Process Flowcharts for Making HamburgersHamburgers

Exhibit 5.1aExhibit 5.1a

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–7

Process Flowcharts for Making Process Flowcharts for Making HamburgersHamburgers

Process Flowcharts for Making Process Flowcharts for Making HamburgersHamburgers

Exhibit 5.1bExhibit 5.1b

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–8

Relative Comparison of Relative Comparison of Hamburger Preparation ProcessesHamburger Preparation Processes

Relative Comparison of Relative Comparison of Hamburger Preparation ProcessesHamburger Preparation Processes

Exhibit 5.2Exhibit 5.2

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–9

Process MeasurementProcess MeasurementProcess MeasurementProcess Measurement

• Importance of Measuring Processes–Is the basis for good management—“If you can’t

measure it, you can’t manage it.”–Allows a firm to determine if its strategically

important goals and standards are being met.–Allows for performance comparisons with other

competing firms.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–10

Types of Performance MeasuresTypes of Performance MeasuresTypes of Performance MeasuresTypes of Performance Measures

• Productivity–The operational efficiency with which inputs are

transformed (converted) into outputs.• A relative measure that becomes meaningful when

compared to itself over time, similar operations internally, or externally within its industry.

–Partial measures of productivity can be taken using the various inputs (e.g., labor, energy, and materials) that are combined to create a product.

Inputs

Outputs tyProductivi

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–11

Partial Measures of ProductivityPartial Measures of ProductivityPartial Measures of ProductivityPartial Measures of Productivity

Exhibit 5.3Exhibit 5.3

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–12

Types of Performance Measures Types of Performance Measures (cont’d)(cont’d)

Types of Performance Measures Types of Performance Measures (cont’d)(cont’d)

• Capacity–Output of a process in a given period of time—

units of output per unit of time.–Design capacity

• The ideal output rate at which the firm would like to produce under normal circumstances and for which the system was designed.

–Maximum capacity• The maximum potential output rate that could be

achieved when productive resources are used to their maximum.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–13

Types of Performance Measures Types of Performance Measures (cont’d)(cont’d)

Types of Performance Measures Types of Performance Measures (cont’d)(cont’d)

• Capacity Utilization–Percentage of available capacity actually used.

• Design capacity versus maximum capacity

capacity Design

output Actual

CapacityUtilization

available hours machine Total

used hours machine Actual Capacity

Utilization

Homogeneous output

Variable output

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–14

Measures of CapacityMeasures of CapacityMeasures of CapacityMeasures of Capacity

Exhibit 5.4Exhibit 5.4

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–15

Types of Performance Measures Types of Performance Measures (cont’d)(cont’d)

Types of Performance Measures Types of Performance Measures (cont’d)(cont’d)

• Quality–Usually measured by the defect rate of the

products produced.

• Speed of Delivery–Product’s lead time—amount of time from when

product is ordered to when it is shipped.• Inventoried versus customized products

–Variability/Uncertainty in delivery time• Less uncertainty in delivery times is better.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–16

Types of Performance Measures Types of Performance Measures (cont’d)(cont’d)

Types of Performance Measures Types of Performance Measures (cont’d)(cont’d)

• Flexibility–The measure of how readily a firm’s

transformation process can adjust to changes in customer demand (i.e., agile manufacturing).

• Flexibility Measures–How quickly a process can convert from

producing one product to another product.–How quickly a process can adjust to changes in

volume (demand).–How capable is the process in producing more

than one type of product.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–17

Types of Performance Measures Types of Performance Measures (cont’d)(cont’d)

Types of Performance Measures Types of Performance Measures (cont’d)(cont’d)

• Process Velocity (Manufacturing Velocity)–Ratio of total throughput time for a product to

the value-added time.• Throughput time—the time the product spends in

the process.

• Value-added time—the time it takes to complete the product.

Value-added time

time throughput Total velocity Process =

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–18

Process Analysis in ManufacturingProcess Analysis in ManufacturingProcess Analysis in ManufacturingProcess Analysis in Manufacturing

• Multistage Process–A process that consists of more than one step.

• Hybrid Process–A multistage process that consists of more than

one type of process.

• Make-to-Stock–Process for making highly standardized

products for finished goods inventory.

• Make-to-Order–Process for making customized products to

meet individual customer requirements.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–19

Manufacturing: Make-to-StockManufacturing: Make-to-StockManufacturing: Make-to-StockManufacturing: Make-to-Stock

Exhibit 5.5aExhibit 5.5a

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–20

Manufacturing: Make-to-OrderManufacturing: Make-to-OrderManufacturing: Make-to-OrderManufacturing: Make-to-Order

Exhibit 5.5bExhibit 5.5b

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–21

Process Analysis in ManufacturingProcess Analysis in ManufacturingProcess Analysis in ManufacturingProcess Analysis in Manufacturing

• Modularization–Use of standard components and

subassemblies to produce customized products.

• Tightness and Dependence–The degree to which various process stages are

related. Tight process are highly related, creating strongly dependence between the stages.

–Buffer inventories can make a process “looser.”

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–22

Manufacturing: Modularization Manufacturing: Modularization Manufacturing: Modularization Manufacturing: Modularization

Exhibit 5.5cExhibit 5.5c

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–23

Process Analysis in ManufacturingProcess Analysis in ManufacturingProcess Analysis in ManufacturingProcess Analysis in Manufacturing

• Bottleneck–A stage with the lowest output capacity that

limits the total output of the process.

• Capacity versus Demand–Capacity is the firm’s output capability; demand

is the level of output that the market requires to meet customer needs.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–24

Process Analysis in ManufacturingProcess Analysis in ManufacturingProcess Analysis in ManufacturingProcess Analysis in Manufacturing

• Process Flowcharts–A schematic diagram for describing a process.

• What the official or documented method is.

• How the work is actually being performed.

• What the proper procedures should be.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–25

Elements in a Process FlowchartElements in a Process FlowchartElements in a Process FlowchartElements in a Process Flowchart

Exhibit 5.6Exhibit 5.6

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–26

Process Analysis in ServicesProcess Analysis in ServicesProcess Analysis in ServicesProcess Analysis in Services

• Service Blueprinting–The process of flowcharting for services that

includes the customer:• Identifying (mapping) processes

• Isolating fail points

• Establishing a time frame

• Analyzing profitability

• Line of visibility– Above the line: stages in process, in direct contact with

customer, that focus on providing good service.

– Below the line: stages in the process, not in contact with the customer, that focus on process efficiency.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–27

Service Blueprint for a Cash AccountService Blueprint for a Cash Accountat a Discount Brokerageat a Discount Brokerage

Service Blueprint for a Cash AccountService Blueprint for a Cash Accountat a Discount Brokerageat a Discount Brokerage

Exhibit 5.7Exhibit 5.7Source: Adapted from G. Lynn Shostack, “Designing Services That Deliver,” Harvard Business Review 62, no. 1 (January–February 1984), p. 138.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–28

Blueprint for a Corner ShoeshineBlueprint for a Corner ShoeshineBlueprint for a Corner ShoeshineBlueprint for a Corner Shoeshine

Exhibit 5.8Exhibit 5.8Source: Reprinted by permission of Harvard Business Review. Exhibit from Adapted from “Designing Services That Deliver” by G. Lynn Shostack, January–February 1984, p. 134. Copyright © 1984 by the President and Fellows of Harvard College; all rights reserved.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–29

Shoeshine Profitability AnalysisShoeshine Profitability AnalysisShoeshine Profitability AnalysisShoeshine Profitability Analysis

Exhibit 5.9Exhibit 5.9Source: Reprinted by permission of Harvard Business Review. Exhibit from Adapted from “Designing Services That Deliver” by G. Lynn Shostack, January–February 1984, p. 135. Copyright © 1984 by the President and Fellows of Harvard College; all rights reserved.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–30

Process Analysis in Services (cont’d)Process Analysis in Services (cont’d)Process Analysis in Services (cont’d)Process Analysis in Services (cont’d)

• Failsafing–Creating a control condition where the

customer, server, or process can take only the correct (or desired) action while engaged in a service process.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–31

Business ProcessesBusiness ProcessesBusiness ProcessesBusiness Processes

• Business Process–A logical set of tasks or activities that crosses

functional boundaries and recognizes its interdependence with other processes or businesses.

• Examples of Business Processes

Exhibit 5.10Exhibit 5.10

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–32

Business Process AnalysisBusiness Process AnalysisBusiness Process AnalysisBusiness Process Analysis

• Define the Process Boundaries–Identify where the process begins and where it

ends (its boundaries).–Determine its inputs and outputs.–Recognize other processes that impact on the

process under evaluation.

• Link the Process to the Corporate Strategy–Understand how the process contributes to the

firm’s competitive advantage.–Identify key measures to be used evaluate the

process.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–33

Measures of Performance forMeasures of Performance forSpecific Business ProcessesSpecific Business Processes

Measures of Performance forMeasures of Performance forSpecific Business ProcessesSpecific Business Processes

Exhibit 5.11Exhibit 5.11

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–34

Business Process Analysis (cont’d)Business Process Analysis (cont’d)Business Process Analysis (cont’d)Business Process Analysis (cont’d)

• Map the Process–Develop a process flow chart to provide a visual

context for analyzing the process:• Specific ordering of the process steps

• Length of time each step takes

• Resources required by each step

• Cross-functional relationships

• Granularity–Describes the level of detail that is used in

analyzing a process.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–35

Process Mapping with Functional AreasProcess Mapping with Functional AreasProcess Mapping with Functional AreasProcess Mapping with Functional Areas

Exhibit 5.12Exhibit 5.12

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–36

BenchmarkingBenchmarkingBenchmarkingBenchmarking

• Benchmarking–Comparison of a company’s measures of

performance with those of firms that are considered to be world class.

–“The search of the best practices that leads to superior performance.”

–Involves continuous monitoring/measurement.–Applicable to all functional areas:

• Goods and services

• Business processes

• Performance measures

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–37

Key Steps in BenchmarkingKey Steps in BenchmarkingKey Steps in BenchmarkingKey Steps in Benchmarking

• Planning–Determining where we should bench mark.

• Analysis–Obtaining an in-depth understanding of the firm.

• Integration–Defining target areas for change.

• Action– Incorporating findings into current processes.

• Maturity–Having best practices at all organizational levels.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–38

Types of BenchmarkingTypes of BenchmarkingTypes of BenchmarkingTypes of Benchmarking

• Internal Benchmarking–Comparison of similar operations within the firm

• Competitive Benchmarking–Comparison with like operations of competitors

• Functional Benchmarking–Comparison with the “best of breed” in a

specific function, regardless of industry

• Generic Benchmarking–Adopting the innovative processes of industry

leaders in commonly-held practices

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–39

Benchmarking Process StepsBenchmarking Process StepsBenchmarking Process StepsBenchmarking Process Steps

Exhibit 5.12Exhibit 5.12Source: Robert C. Camp, Benchmarking: The Search for Industry Best Practices That Lead to Superior Performance, (Milwaukee, WI: ASQC Quality Press, 1989).

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–40

Business Process ReengineeringBusiness Process ReengineeringBusiness Process ReengineeringBusiness Process Reengineering

• Reengineering–The process of rethinking and restructuring an

organization

• Characteristics of a Reengineered Process–Several jobs are combined into one.–Workers make decisions.–The steps in the process are performed in a

natural order.–Processes have multiple versions (flexibility).–Work is performed where it makes the most

sense.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–41

Business Process ReengineeringBusiness Process ReengineeringBusiness Process ReengineeringBusiness Process Reengineering

• Issues with Reengineering–Inability of management to link reengineering

efforts to overall corporate strategy.–Reengineering is regarded as a tactical program

rather than as a strategy issue for the entire organization.

–Lack of commitment and participation by top management.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 5–42

Comparison between Strategic and Tactical Comparison between Strategic and Tactical Deployment Techniques for ReengineeringDeployment Techniques for Reengineering

Comparison between Strategic and Tactical Comparison between Strategic and Tactical Deployment Techniques for ReengineeringDeployment Techniques for Reengineering

Exhibit 5.13Exhibit 5.13Source: Gateway Management Consulting