Process Based Business Management J Croker ThoughtPower July 2003
Business Processes Market Leadership Why Sound Processes are Critical to Business Success Process Definitions Describing a Process Process Problem Solving (outline) 2
4 elements of market leadership Operational Excellence Financial Management Product Leadership Customer Intimacy Clermiston Consulting 2003 3
Market leadership needs all of these elements The classical set Operational Excellence Product Leadership Customer Intimacy plus Financial Excellence to tie all together, highlighting Profitability Asset performance Cash to sustain future growth 4
Most sustained benefits will come from operational excellence Ashton & al HBR June 2003 OE Strengthens customer relationships by building links between companies, particularly supply chain linkages OE can expand the company s internal process capability beyond the company, into the larger marketplace. Most reliable, measurable performance inside the company 5
Improved operational excellence will follow from improved internal processes The Balanced Score Card (Kaplan & Norton, HBR Jul-Aug1992) shows the link 6
The Balanced Score Card after Kaplan & Norton, HBR 1992 Customer Satisfaction Better processes Seen as better value Internal Processes Financial Performance Trained people, new ideas Finance for reinvestment Training & Innovation Clermiston Consulting 2003 7
linking via the balanced score card Training yields more capable people More capable people can design and carry out more effective processes More effective processes make the company more reliable and responsive Customers will perceive a more reliable company to be better value and will favour it accordingly 8
Where should we put our efforts? A: where we have control. Internal control The company can manage issues in these areas Internal Processes Better processes The Balanced Score Card after Kaplan & Norton, HBR 1992 Customer Satisfaction Seen as better value Financial Performance External control Issues in these areas are beyond the control of the company. Control depends upon customers and shareholders Trained people, new ideas Finance for reinvestment Training & Innovation Clermiston Consulting 2003 9
The company can control Quality of people chosen Training and motivation Design of processes that enable the company to perform effectively: More reliably More responsively Be more robust Better than the competition Understanding & exploiting business processes is critical 10
What is a process? Set of activities preformed upon definable inputs to give a definable outcome Activities can be described (eg procedures) Outcomes can be measured Improvements can be made but only if the process is understood 11
General Process Components Inputs Raw Materials People Energy other resources Process Outputs Products Services Adjust Measure Process Instructions (Procedures) Adjust Compare with Standard Report This schematic applies to any process, be it a technical process or a business process 12
Example: Core Internal Processes Supply Chain Management (sometimes seen as Product & Service Delivery) Customer Relationship Management Product & Process Development Financial Management every business needs to understand and excel in these processes 13
Management Support Processes Executive / Board Management Strategic Analysis, Choice &Deployment Risk Management Human Resources Management Knowledge Management ensure the capability exists to carry out the core processes 14
Major processes are complex Involve many functions within the organisation Need to be broken down into identifiable sub-processes to be easily understood eg Supply Chain comprises (at least) 1. forecasting; 2. procurement; 3. manufacturing; 4. scheduling; 5. warehouse & inventory management; 6. finished good delivery; 7. customer ordering; 8. invoicing & accounts 15
Process Documentation Functional Flowsheeting gives a clear view of activities, links & accountabilities Done by key process team & facilitator Highlights critical process steps redundant & non-value adding effort disconnects handovers between departments Indicates key areas for measurement of Process output Performance of the process itself Provides a framework for doing the right thing first time, doing it faster and at lower cost 16
IT & Processes Information technology gives visibility to processes Fundamental role of IT in business is to monitor the physical and transactional processes in real time Flowsheet documentation of the processes shows where inputs / outputs to the IT system are required Facilitates automated auditing of the processes 17
Flow Sheet Examples Procurement Process a fairly simple process often requiring authorisations & other checks Forecasting Process a more complex process involving critical interdepartmental work Project Management Process a complex process with several measurements 18
Inventory (Raw Material) Item Ordering Clermiston Consulting July 2003 Technical Manufacturing Supplier Procurement Planning Sales Forecast Customer Requirement Explode BOM to inventory items to be ordered Approve Suppliers (commercial perspective) Qualify suppliers (technical perspective) Generate list of items for purchase Review list inconsistencies and inaccuracies Negotiate pricing Generate purchase orders (electronic documents) Define preference list Release purchase orders e-mail purchase orders Process order and deliver product Receive product Amend order or expedite Confirm complete receipt Confirm schedule of product on advice of RM receipt No Yes 19
Forecasting Process (Suggested) Outline Clermiston Consulting July 2003 Transport Manufacturing Customer Business & Account Management Logistics Management Understand plans and basis of future demand Understand forward needs Determine product plan with customer Input customer needs into forecasting spreadsheet Review spreadsheet for demand Review manufacturing capability S+OP Review demand Review supply and manufacturing /logistics capability Write moving production and logistics plans: Month 1,2,3 Months 4-6 Agree bulk order quantities and timing Order ships & bulk chemicals Receipt overseas shipments Manufacture product Deliver product Review forecast accuracy with customers and account managers How can we continually improve the process? Determine forecast accuracy Advice of delivery to Ac Rec 20
Project Execution & Monitoring Process: Generic Clermiston Consulting July 2002 Contract Administrator Select Subcontractors Manage sub contractors yes Project Manager Engage Site Staff Review cash flow & Project Program Cash Flow; program on track? no Revise plan to keep cash & program on track Prepare KPI charts Prepare monthly project report Let subcontracts Outcome General Mgr Estimator Site Briefings Safety, Env Briefings Letting Advice Updated cash flow forecast Updated project schedule Review updated program with Project manager Corrective action plan to bring project on track Review KPI charts KPI Charts with comments on deviances Review progress with client Monthly report Measure / Standard of Performance Record of site briefings Estimate vs actual feedback Integrated Cash Flow and Program on MS Project or SureTrak Time / Cost / Margin Chart Safety / Environmental Charts Project statistics 21
Process Problems Process not understood Too costly Takes too long Too much variation How do we fix these problems? 22
Process Problem Solving Outline 1. Identify the Process 2. Draw the flowsheet 3. Identify Critical steps 4. Change / remove / restructure NVA (non value-adding activities) 5. Measure performance of steps (incl mean, s, control limits) 6. Root cause analysis for variation 23
Further Detail Contact ThoughtPower for a focused facilitation of your process issues, tailored to your future success. John Croker 02 9416 4142 0418 263 795 jcroker@bigpond.net.au 24