Evaluating and improving business process

Evaluating and Improving Business Process

Process Improvement Process improvement is successful only when you address the underlying problem. A useful way of improving processes successfully is to use a lean manufacturing technique called Value Stream Mapping (VSM). It originated at car manufacturer Toyota, where they called it 'material and information flow mapping.' VSM is now widely used in a variety of industries as a way of identifying improvement projects. The basic idea behind Value Stream Mapping is this: if the underlying process is right, the outcome will be reliable. To get the process right, you have to understand the sequence of activities that provide value to your customers.

Process Management is a management approach that focuses on improving business performance by improving process performance. It focuses on planning and administering the activities necessary to achieve a high level of performance in a process and identifying opportunities for improving quality, operational performance and ultimately customer satisfaction. It involves design, control and improvement of key business processes

Defining Business Process Reliability Business Process ‐ a documented method for performing a process necessary to the operation of a business. Business Process Risk – the combination of the probability a business process failure will occur with the degree of slip in schedule or increase in cost Reliability for a business process is generally a discrete event probability with an implied cost per occurrence. The probability that an activity, i.e. entering a sales order or managing a cash account, will be completed without error and in a usable manner. “ Usable manner” refers to the fact that many business processes are links in a chain of activities that have suppliers and customers. A business process, like a sub‐system design, has many points of failure each of which can have different occurrence rates, and severity based on the effect of the failure on the business

Quantifying Business Process Reliability Measured as probability of sustaining an unanticipated cost Standardize loss value so reliabilities are evaluated on a level scale. I.E., process with failure probability of 10% with cost of $10 is not as serious as process with failure probability of 1% with cost of $1000. Probability of sustaining loss in unit currency should be used. Unit currency may be thousands or millions to get meaningful numbers Measuring reliability is necessary to assess effectiveness of improvement Failure effects on subsequent processes are assessed

Quantifying Business Process Reliability (Contd) If process failures are documented, it is possible to measure frequency of occurrence against opportunities for failure to occur. Failures should have cost of correction documented. Cost model of process failures is an alternative approach Requires recording cost data for each failure.

Quantifying Business Process Reliability Example is Accounts Payable procedure. 25 errors out of 500 invoices paid in past year. Zero cost assumed for correct payments. Costs of errant payments are associated with interest forgone on overpayments, interest charged on underpayments, additional labor to process payments a second time, etc. Error Cost Inputs $500 $2250 $3750 $5750 $8500 $750 $2400 $4250 $6400 $8750 $1000 $2500 $4500 $6500 $9300 $1250 $3000 $5000 $7500 $9500 $2100 $3300 $5100 $8300 $10000

Business Process Business Process– a modified FMEA (Failure Modes Effects and Analysis) to address the possible failures of a Business Process and their effects . FMEA can be most effective tool for assessing business processes. It is low in cost, Easy to understand by non‐engineering personnel quickly identifies weaknesses in a process. Essential purpose of this FMEA is to identify business process weaknesses provide an organized methodology to correct weaknesses with prioritization.

Business Process FMEA ‐2 Business Process FMEA is performed by a team consisting of process owner, the process supplier(s), process customer(s), and a facilitator use of a team assures broad – spectrum evaluation of potential failure modes. facilitator offers an impartial arbiter of disputes and keeps team focused on task at hand. Business Process FMEA Team can be constituted uniquely for each process evaluated. Process owner usually manager or delegate from same department Supplier to process is provider of inputs to the process Customer of process uses output of process as inputs to subsequent process. Suppliers and customers of a process can be numerous Facilitator is usually independent of process

Business Process FMEA ‐ 3 Business Process FMEA methodology is virtually identical to Manufacturing Process FMEA Differences are types of failure modes and mechanisms, and classification and scoring of Occurrence, Severity, and Detection factors which should be customized to particular business, and may be modified for different departments within a company. Failure modes can vary from process to process as well as from business to business for the same process Failure Effects ‐ Typical failure effects translate as costs to the bottom line failure to meet schedule failure to deliver proper quantity cost overrun

Business Process FMEA ‐ 4 Occurrence ‐ should be related to frequency with which failure mode appears per number of opportunities to occur Severity ‐ should be presented as a preventable cost scoring can be specific to particular business ; expressed as a range in dollars. For a small business, a cost of $10,000 might score a 10 For a large business, a cost of $100,000 or more might score a ten Detection ‐ related to likelihood that process will be able to detect failure mode before impact of failure effects are noticed Risk Priority Number RPN) – a numerical value y ( ) that is the product of Occurrence, Severity and Detection developed in the FMEA to evaluate the relative importance of the various failures and prioritize corrective action.

Business Process FMEA ‐ 5 Corrective Action ‐ should generally be prioritized by RPN (higher RPN selected first) low occurrence failures with very high Severity (cost) should be investigated for economical corrective actions Implementation of Corrective Actions should be structured to reduce Occurrence and/or Severity of the and increase Detection After corrective action(s) have been validated, FMEA should be rescored. Living Document ‐ FMEA should be maintained as a living document. Periodically, each FMEA should be reviewed to identify additional potential process improvements. When a business process is changed, existing FMEA should be updated, rather than starting a new FMEA.

Business Process FMEA ‐ 6 Occurrence Ranking Criteria Likelihood of Occurrence Criteria: Possible Failure Rates Rating Absolute Uncertainty CANNOT detect 10 Very Remote <5% chance 9 Remote >5 to 10 % chance 8 Very Low >10 to 25% chance 7 Low >25 to 50% chance 6 Moderate >50 to 70% chance 5 Moderately High >70 to 80% chance 4 High >80 to 90% chance 3 Very High >90 to 99% chance 2 Almost Certain >99% chance 1

Business Process FMEA ‐ 7 Severity Ranking Criteria Effect Criteria: Severity of Effect - Cost per occurrence Rating Extremely Costly >$500,000 10 Very High Cost >$250,000 to $500,000 9 High‐Very High Cost >$100,000 to $250,000 8 High Cost >$25,000 to $100,000 7 Moderate‐High Cost >$5,000 to $25,000 6 Moderate Cost >$1,000 to $5,000 5 Moderate‐Low Cost >$250 to $1,000 4 Low Cost >$100 to $250 3 Very Low Cost >$25 to $100 2 Insignificant Cost <$25 1

Business Process FMEA ‐ 8 Detection Ranking Criteria Detection Criteria: Likelihood of Detecting Potential Cause by Process Controls Rating Absolute Uncertainty CANNOT detect 10 Very Remote <5% chance 9 Remote >5 to 10 % chance 8 Very Low >10 to 25% chance 7 Low >25 to 50% chance 6 Moderate >50 to 70% chance 5 Moderately High >70 to 80% chance 4 High >80 to 90% chance 3 Very High >90 to 99% chance 2 Almost Certain >99% chance 1

Business Process FRACAS Most engineering and manufacturing businesses maintain a formal FRACAS (Failure Reporting, Analysis, and Corrective Action System) or similar system for design and production Almost none apply same methodology for business processes Properly documenting business process failures can provide valuable insight into removing failure causes and reducing waste. When a problem is identified in a business process: Document as many details as possible Importance is no different than documenting a hardware test failure Date, time, process and procedure, person(s) performing process, inputs (including source), detailed description of the failure symptoms, and cost of failure should be documented

Business Process FRACAS ‐ 2 Root causes usually traceable to inadequate procedures and human errors Use multidisciplinary team Use Problem analysis methods such as Crosby 5‐step, Ford 8‐D, etc. Graphical methods such as Process Flow Diagrams diagrams can prove useful to identify root cause(s) Brainstorming during problem solving process obtains variety of possible failure causes which are then resolved into minimal set of causes. If FMEA was performed, evaluate to identify failure cause (mechanism), and to determine if possible failure causes were missed in FMEA

Business Process FRACAS ‐ 3 Corrective actions for business processes usually tighten available options Conflict between failure resistance and usability of process may require tighter oversight and review rather than reduction of flexibility Cost analysis of various approaches needs to be made looking at costs of preventing failures against undesirable costs of process failures Use of economic cost analysis against accounting cost analysis

Measuring process performance Process aspects of interest to managers are cost, quality, flexibility and speed. The following is a list of process performance measures that can be used to assess these aspects. Capacity - The capacity of the process is its maximum output rate, measured in units produced per unit of time. The capacity of a series of tasks is determined by the lowest capacity task in the sequence. The capacity of parallel sequences of tasks is the sum of the capacities of the two sequences, except for cases in which the two sequences have different outputs that are combined. In such cases, the capacity of the two parallel sequences of tasks is that of the lowest capacity parallel sequence.

Capacity utilization - the percentage of the process capacity that actually is being used. Throughput (also known as flow rate ) - the average output of a production process (machine, workstation, line, plant) per unit time (e.g. parts per hour). The maximum throughput rate is the process capacity. Lead time (also known as throughput time or flow time ) - the average time that a unit requires to flow through the process from the entry point to the exit point. Flow time includes both processing time and any time the unit spends between steps. Cycle time - The cycle time is measured as the average time from when a job is released at the beginning of the routing until it reaches an inventory point at the end of the routing.

Process time - the average time that a unit is worked on. Process time is flow time less idle time. Idle time - time when no activity is being performed, for example, when an activity is waiting for work to arrive from the previous activity. The term can be used to describe both machine idle time and worker idle time. Work In process ( WIP ) - the amount of inventory between the start and end points of a routing. Set-up time – Setup time is the time a job spends waiting for the station to be set up..

Direct labor content - the amount of labor (in units of time) actually contained in the product. Excludes idle time when workers are not working directly on the product. Also excludes time spent maintaining machines, transporting materials, etc. Direct labor utilization - the fraction of labor capacity that actually is utilized as direct labor.

Identifying processes Give them names that express their beginning and end states. For instance: Manufacturing: procurement to shipment Product development: concept to prototype Sales: prospect to order Order fulfillment: order to payment Service: inquiry to resolution

TYPICAL PROCESS Customer Communication Manufacturing Capability Development Strategy Development Product Development Customer Design and Support Order Fulfillment Concept Development Manufacturing Market Customer

CHOOSING WHICH PROCESS TO IMPROVE Dysfunctional/ broken process: process in deepest trouble Importance: which process have the greatest impact on the customer Feasibility: which process is most susceptible to successful imporvment

Example of broken processes The ones the executives already know are in trouble. A product development process that hasn’t hatched e new product in five years. If employees spends time rekeying typed information into the system.

Measure to define process reliability Historically, many Quality Assurance methodologies such as Six Sigma have been used to improve quality in business processes. Reliability Methodologies, address frequency of occurrence, severity of the failure effects and ability of a process to detect imminent failure. Developing Reliability analysis methodology to evaluate new business processes before implementation as well as periodic evaluation can provide significant savings

HOW DO YOU IMPROVE PROCESSES? Improvement may be gradual and continuous (i.e., kaizen, continuous process improvement), or it may be dramatic process redesign (i.e., process reengineering).

The following are some of the things people can do to improve processes: Use a structured methodology such as the Golden-Pryor Improvement Checklist. Eliminate activities that do not add value for the customer. Ask yourself: "Would the customer want to pay for this activity?" If the answer is no, ask yourself: "Why are we doing this? Is it a federal law? A state law?" If the answer is no, ask yourself: "What benefit do we gain by doing this?" At this point, you are coming close to eliminating the activity. Eliminate constraints—things that frustrate employees and slow processes. Streamline/simplify processes. It is difficult to document and teach people complex processes.

Once processes are streamlined, computerize them if feasible. Provide leadership in a positive direction. Function as a strategist. Envision and invent the future with streamlined processes and relationships. Act empowered; be accountable. As individuals and members of teams, function as process owners and consider process management and improvement an integral part of daily work. Don't say, "They won't let us …" Make decisions, not excuses. Document and publicize improvements. Success breeds success. Continue to monitor and evaluate processes to identify additional opportunities for improvement. Ask (and teach others to ask) what, where, why, who, when, and how questions about each step in a process (or job).

PROCESS QUESTIONS. What: is there to do? is being done? should be done? can be done? constraints keep us from doing it? Who: does this job? should do this job? knows how to do it? should know how to do it?

Where: is this job done? should it be done? can it be done? When: is this job done? should it be done? can it be done?

How to Create and Use Your Value Stream Map The objective of Value Stream Mapping is to create a picture of how items (such as materials, designs, or customer needs) flow through the value stream – from raw materials and inputs through to the customer's end product. Value Stream Mapping is best applied to processes that are reasonably routine and standardized. Manufacturing companies are obvious examples of these, however, any organization that delivers a standard set of products or services is likely to benefit from applying VSM. Value Stream Mapping is unlikely to be useful where work processes change continuously or where bespoke products are delivered, because the flow may change with each customer or project.

steps to use the Value Stream Mapping tool: Step One – Identify the Product or Service to Map Choose a process for which you would like to implement leaner, more efficient practices. It's important here to define the scope of your map. Identify the start and end points, and make sure that you map from one end of the process to the other end, so you can see where the blockages and non-value activities are. You also need to identify which part of the overall process you need to look at. As an example, if the amount of profit you're generating from each order is falling, then you may want to look at how an entire order is fulfilled. If the volume of orders is falling, then you may want to look at the sales process in more detail. If you have shared equipment or other resources then, instead of looking at the manufacture of one product, you might want to look at manufacturing as a whole system.

Example To illustrate the steps of creating a Value Stream Map, we'll use a simple example: the process of transforming an Internet order into a shipped product.

Step Two – Draw the Current Value Stream Map To help you draw the map, gather a team of people representing the stakeholders in the process. Include people who both manage and support the various parts of the value stream. It is vitally important here to include people who actually do the work, and not just the managers of team leaders - otherwise you risk creating a VSM that shows what should happen, rather than what actually happens. You can then observe and gather data to complete the map: Brainstorm who is involved, both internally and externally; what is needed to deliver the product or fulfill the customer need; and the tasks or activities that go into producing the products. Put these tasks in order, as much as possible, and include costs and actual working time for each task, in order to build up a picture of average performance for each task (and – ultimately – for the entire, end-to-end process). Look at the delays in between stages of the process – for example, the length of time a task sits in someone's in-tray – and add that.

Example Here are the tasks involved in order processing and delivery for our example: Order entry and processing. Supplier liaison. Inventory management. Order picking. Packaging. Shipping. Depending on your operations, any of these tasks could be the subject of its own Value Stream Map – that's why defining scope is so important.

Here's how you would organize the tasks in our example:

Step Three – Assess the Current Value Stream In this step, you analyze whether each activity in the process is adding value. This is where you can look for lean improvement opportunities: What is 'value add'? Value-add activities change an item, and make it worth more to the customer. Car assembly is a perfect example: as the car body moves along the production line, more and more pieces or assemblies are added, making it more complete. Eventually, it becomes a fully operational vehicle that people will buy. Each step adds value (although clearly the most value is added when the final component is installed!) At each point in the map, ask yourself, “Does this activity add value?” Identify your value-add points. Identify your no-value-add points (for example, places where material is stored, redundant or excessive paperwork, and places where there are long lead times). Determine which no-value-add points are still necessary (for example, for meeting regulatory requirements, addressing other compliance issues, and ensuring worker safety).

Step Four – Create a 'Future State' Value Stream Map Map how you want your improved process to look in the future. How will the process work after you've eliminated the waste you identified in the previous step? Follow these tips: Assume that anything is possible. Ask yourself what your leanest competitor would do. Consider how you would structure the process if you were starting the business today with unlimited capital. Look for similar activities, and see if there's a way to group them. Identify bottlenecks and critical events. Look for ways to simplify activities that are complex. Confirm that customers actually value each transformation activity. Look for common forms of waste, such as these: Moving product/materials inefficiently. Using equipment and people unnecessarily. Keeping too much or too little inventory. Performing inefficient quality checks. Stockpiling finished goods. Adding features or conducting processing that the customer does not value.

Example Here are some of the opportunities for improvement in our example: Eliminate redundant approvals or move them earlier in the process to prevent unnecessary work. Improve the flow of information (paper or electronic). Restructure the warehouse operations for efficiency. Update the inventory control system.

Step Five – Create a Plan to Implement the Desired State When you have identified your objectives, you can develop a plan for change. At this point, many organizations also begin other lean processes – like Kaizen , Kanban , and Just In Time . Remember, though, that the time you invest in VSM will pay off only if you follow through with the implementation plan. These guidelines will help you do that: Use the VSM to communicate your goals and objectives. In your VSM team, include people who will work with the new activities. This helps increase buy-in. Talk frequently about lean and efficient operations so that it becomes part of your corporate culture. Look for ways to reward efficient work and efficiency suggestions. Step Six – Implement the Plan Various techniques can be used, but one of the most popular used with VSM is a series of 'Kaizen Blitzes,' each lasting approximately one week. These gradually move you from the current state to the future state. Step Seven – Review the Results, and Repeat

Evaluating and improving business process

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