Process Management: Creating Supply Chain Value Carol L. Marks, C.P.M., Director of Purchasing and Business Management Systems Industrial Distribution Group, Southern Division 704/398-5666; carol.l.marks@idg-corp.com 89 th Annual International Supply Chain Management Conference, April 2004 Abstract. The creation of value in the supply chain requires a focused approach to both internal and external processes. Process Management is one approach to recognizing value for all members of the supply chain. Process Management is a business model and must be developed throughout the organization. Other management tools such as ISO 9000, Six Sigma or Lean Manufacturing can be used in conjunction with Process Management by incorporating the correct tool into the proper step of the model, therefore eliminating the management tool of the year scenario. The model is designed to be used at the organizational level, but value can be gained by the application of the model at the process or department level. From a supply chain perspective, Process Management insures the inclusion of both the customer and supplier in the value equation. Definitions. Process Management, as defined in this presentation, is a five-step business model designed to identify, document, measure, manage and improve internal and external organizational processes in order to maximize the value of the system or, in this case, the supply chain. Process Management is used to align all business processes to effectively run the company, optimize systems and reach the organization s vision. It represents a blend of process and people skills, which include statistical analysis of processes and teamwork. The goal of Process Management is to integrate all business processes, both internal and external, and to take ownership for fulfilling the vision of the company. Value has been defined is the capacity of a good, service, or an activity, or activities of an organization to satisfy a need, or provide a benefit to a person or legal entity. Value creation may be defined simply as when an organization or a process outperforms expectations. Value will be viewed from the perspective of various stakeholders including customers, suppliers, the organization s associates and shareholders. A working definition of value creation with relevant examples specific to the organization should be established early in the process. The Opportunity. The CAPS Study, The Future of Purchasing and Supply: A Five and Ten Year Forecast, lists Strategic Cost Management as a key executive issue facing purchasing and supply management groups. The study further prints out that organizations will be increasingly forced to examine cost improvement opportunities through cooperation and process improvements, and that performance measurement will increasingly be tied to the organizations objectives. In addition, Peter F. Drucker, well-known authority on corporate management, contends that organizations must focus outside the organization to understand both the opportunities and threats facing them. Opportunities and threats, cost improvement and process improvement can be effectively addressed using the Process Management Model.
Objectives. To provide an overview of the Process Management model, and to show how the adoption of such a model can move an organization toward its vision and mission, therefore creating value for the organization, its customers and suppliers (the supply chain) by reducing costs and addressing external opportunities and threats. The Model. Step 1: Identify The first step is to identify the primary process. This includes developing the mission of the primary process that: represents the purpose of the process; why it exists is usually two to three sentences links back to the company vision and mission meets the definition of a mission in terms of linkage and ability to measure (Figure 1) The customers and suppliers of the primary process and their needs are identified as well as the secondary processes that make up the primary processes. Suppliers of the process include internal and external suppliers. Through the application of the model to supplier identification and selection, documentation of requirements and expectations, measurement of success, management of the relationship using statistical methods and improvement of supplier-based processes, value is not only created but can be validated. At this point, processes should be evaluated to determine where core competencies exist. Validation of core competencies may be also made in the next steps of the process. Also in this step, the supply chain should be clearly identified in terms of scope, interfaces and linkages to other internal and external processes (see Figure 2.) Step 2: Document The second step is to document the processes. The purpose of this step is to develop standard operating procedures and job work instructions (SOPs/JWIs) for the secondary and work processes where necessary. List all the work processes within the secondary processes Decide which processes require SOPs/JWIs Develop an action plan to get the procedures written Implement the action plan Much of this work may be done for some processes as a part of quality system registration requirements if used in conjunction with Process Management. The documentation step also allows for a review of processes to determine areas where waste may be generated. Once identified, the non-value-adding step is either removed or outsourced, or problem-solving tools are used to improve the process step. Step 3: Measure In order to manage and improve a process, you must be able to measure the process. Measures can be for primary, secondary and/or work processes. Emphasis is placed on Manage Improve Process Identify Management Measure Document
measuring processes in four major areas: quality, timeliness, quantity and cost. Key process indicators are developed and communicated throughout the company. Measures should provide actionable data, and provide a clear link to the organization s goals. Some measures will be tactical, others strategic in nature. Examples of process measures for purchasing and supply in addition to traditional measures may include supplier gross margin return on investment (GMROI) or supplier (or supplier/customer) process improvement cost savings as a percentage of revenue. Remember, key measures should reflect the goals of the organization. Step 4: Manage The fourth step is to manage the processes. This step involves managing both the people and the process. Each measurement should have a "standard." A standard represents at what level the process should be operating. For example, the standard for Economic Value Add or Supplier Value, if these are key measure components, should be defined and clearly communicated. Standards can be specifications or expectations from customers or other stakeholders and/or standards set internally by leadership. The standards should be possible to achieve. There should be continual improvement in the standards over time. Results are monitored over time using statistical tools such as a control chart whenever possible. Once the process is stable (no special cause present), a process capability analysis is done. If the process is not capable of meeting the standard, it must be improved. Specific corrective plans are set and monitored and may include the outsourcing of the process if the defined standard cannot be met. On the people side, measurements and feedback play a key role in motivating associates. This step also includes the setting of goals and objectives and recognition. Associates and suppliers are recognized for keeping the process in control and for process improvements. Goals and objectives are developed to provide focus and direction and to ensure we are working on the right things. Performance reviews or a feedback process designed to facilitate communication may be used. The process should be designed to identify both strengths and areas for improvement, and to set action plans and to recognize accomplishments made toward the goals set. Step 5: Improve The fifth step is to improve the processes. Improvement in this step does not mean small, incremental improvement, or improvements gained through steps 1-4 above, but those improvements leading to a transformation of the process. In this step, efforts are undertaken to move the processes to new levels. Step 5 is based on Strategic Planning. A strategic plan is a document outlining the process future direction, strategic goals, objectives, targets and action steps. It starts with developing a vision of what the process could be in the future. From here, it is determined what actions are necessary to move towards the new vision and implements those actions. Benchmarking, creativity and innovation all play a role in this step. Information is gathered from internal and external sources. Following is an agenda for a strategic planning session.
1. Strategic Planning Overview Step 1: Review Vision/Mission Statements Step 2: Review Current Information a. Review Current Processes b. Analysis of Current Market Position c. Assessment of Needs d. Competitive Analysis e. Analysis of Supplier Strategies f. Industry/World Trends & Climate Step 3: Identify Strengths, Weaknesses, Opportunities and Threats Step 4: Define the Ideal State Step 5: Compare the Current State to the Ideal State Step 6: Identify Barriers (Gaps) and Ways to Overcome Step 7: Develop Strategic Goals based on Gap Analysis Step 8: Draft Objectives and Action Plans for Strategic Goals Step 9: Discuss the Organizational Structure Required to Reach the Strategic Goals Step 11: Revisit the Mission Step 12: Progress Review and Next Steps Step 13: Summaries and Closure Once step 5 is complete, the plan is monitored and measured using statistical tools and a defined method of feedback. The model is a cycle and will be repeated as the strategic plan supports new processes and/or business scenarios. Process Management is a strategic business model with positive implications for the supply chain. Using the model has been shown to: Help embed the concept of value creation throughout the entire organization (or process). Provide an environment of shared leadership that supports value creation through associate training, motivation, and empowerment. Result in significant improvements in operational performance. Involve both customers and suppliers in the value creation process. Improve communication, making such topics as vision, goals and objectives, results in terms of financial performance, and opportunities for improvement a part of everyday conversation and ongoing planning. Steps to Developing the System 1. Needs Analysis a. Where are we now? b. Where do we want to be? c. Conduct gap analysis 2. Develop Timeline and Components a. Prioritize components b. Determine quick win areas c. Establish a reporting process d. Establish support structure for teams 3. Provide Additional Training and Support as Directed by the Plan 4. Work the Plan
a. Monitor monthly b. Redefine timeline based on progress c. Do not be afraid to make adjustments to the plan what is/isn t working? d. Do not view adjustments as failures e. Monitor timeline and adjust as necessary Interrelation of processes and flow of Process Management Model: (Figure 2) Implementing Vision and Strategy Improvement and Change Financial Resources Information Technology Developing Human Resources P r o c e s s Management Flexible Procurement Solutions (sales process) Service Movement of Inventories and Making Deliveries Internal Checks Management Review Materials & Supplies Supplier Feedback Feedback Suppliers Understanding Markets and s REFERENCES Center for Advance Purchasing Studies (CAPS) Focus Study, The Future of Purchasing and Supply: A Five- and Ten-Year Forecast, 1998. Other references: Process Management model developed jointly by Industrial Distribution Group, Belmont, NC and Dr. Bill McNeese, BPI Consulting, Houston, TX.