Business Process Design

 

What is key to a business process?

The Key to Success

What is the goal of a business? Let us assume it is to make money – probably the goal of the majority of businesses around the World. Of course it is possible that the owners of a business choose another goal – such as the happiness of their employees or the satisfaction of their customers. It does not matter which goal the owners happen to choose it is essential to make enough money to support (or deliver) the chosen goal.

So, to make money is essential and can be either the goal or the surrogate for or goal.

The question then becomes, “How are we going to make money? Which of the business processes is the one that will deliver the money we need to fulfil the goal?” Finance (in companies that produce a product) is not the key process – it measures and it should control, but it does not deliver the profit.

I submit that operations – the processes that develop the product, produce the product and deliver it to customers are the ones key for success. The product itself, while important, also is not the key – it is the process of developing new and better products that counts. The product however tells us that the customer is the primary target – product development, production and distribution are all processes that should satisfy your clients’ needs – so that he buys, and then buys again and again.

A business should focus first on one of product development, production and distribution – all three to be eventually designed to maximize profits and profitability.

Product Development, Production and Distribution

The product itself and its quality are certainly essential to the success of any business. However, please first consider how a company achieves an advantage through the products it sells – most companies in a market segment have more or less equal products – companies often compete on price simply because the difference to other competitors is too small for the consumer or buyer to recognise a difference.

In product development a difference can be achieved by the ability to deliver more new developments faster and more reliably than the competition. There is a methodology that can help a company achieve reliability, speed and capacity. It is Critical Chain – project management the Theory of Constraints way. Many companies have shown that 90%+ reliability, 25-50% shorter lead time and 25 -50% capacity gains from the same resources are all possible – at the same time. Critical Chain chains the project management process in a way that reduces the time wasters found in almost all traditional project organisations. The key is the change to the way the company manages projects.

Production is analogous to projects – a project plan looks like the ‘routing’ network in production. The difference is that in production a unit of production waits in a queue relatively even more than a project does. In many production environments the product is in a queue (and not being worked on) well over 90% of the time and often over 99% of the time. Products wait in queues because so much is underway and machines cannot be instantly available. Drum Buffer Rope and Simplified Drum Buffer Rope (Production the Theory of Constraints way) both focus their attention on the limiting factor of a factory, increase the rate of flow through the factory and deal actively with the system’s uncertainties so that lead-times can be cut in half, WIP inventory can be cut similarly and because production priorities are clear, much less time is lost at the capacity critical machines. As in projects the factory realizes reliability, speed and capacity increases. Again, the key is to change the way the company manages production.

Distribution is somewhat different.  If the company and/or their clients stock the company’s products in order to be able to deliver quickly then the amount of cash tied up in stock and a high level of availability are both critical to the client. In many environments the result is a compromise that results in too high stock levels and inadequate product availability. Distribution the Theory of Constraints way goes a long way to solving the problem. Inventories can often be cut by 50% while availability increases to over 95%. (In retail businesses shelf space can be used more effectively.) The key is to change the way the distribution network is replenished and therefore the way production is planned and scheduled.

To gain significant and decisive competitive advantages in these three operations areas a significant change to their processes is essential. The solutions are common sense, but certainly not common practice.

Re-engineering the Operations Processes

If a company wants to (re-) engineer their operations, then it is essential to first define the goal they want to achieve and how they intend to achieve that goal. If reliability, speed and capacity (that lead to much greater profit and profitability) are key elements of the desired outcome then the new processes must b designed to do that. Implementing what is common practice may well result in a company that is well placed within its industry, but it will not lead to a decisive competitive edge and rapid success.

It is possible to re-engineer a company and then later on do the job again to achieve the kind of results described above. However, this seems a waste of time and will likely be confusing and frustrating for the company’s personnel. This is especially so because the processes described above are by far simpler to understand and implement than most of the rather complex existing methodologies. There is in fact a dilemma here, either we implement what is commonly accepted practice in industry or we implement something new and unique.

A business wishing to (re-) engineer their processes has a choice to make. They can either:

A. Introduce business processes that are the same as common practice throughout industry. This seems to be the safe option since these processes have been proven by many businesses to be good enough. Even most successful businesses use processes that are common practice. A business that introduces processes that are common practice cannot be making a mistake.

B. Introduce business processes that are new and unique at least in some way. New and unique processes introduce the possibility of competitive advantage – because they are different – although being different does not guarantee an advantage. In fact the opposite can be true.

The business that chooses option A almost guarantees that it will not develop a significant competitive advantage. As long as no other competitor chooses option B it may continue to earn a (satisfactory) return. However, what seems to be the safe option can easily turn out to be very risky indeed – it takes just one competitor to either launch a price war or, even worse, change his business processes to gain a competitive advantage.

The business that chooses option B has already understood that A cannot be a winning solution. However a company that chooses option B must choose carefully to select something new that is not too risky and that its competitors will not be able to copy easily. The recommendations above are not proof that these approaches are risk free. It is up to the company to evaluate how risk these options really are.

The recommendation made here does NOT preclude the use of Lean and/or 6-Sigma. Both these tools and methods are important and strengthen the recommendations made above. Companies that use all 3 appropriately report superb results. Do not disregard these very useful tools!

 

Technorati Tags: Production, Strategy and Tactics, Prodct Development

Technorati Tags: Inventory, Inventory Management, Prodct Development, Production, Risk Management, Strategy and Tactics, Supply Chain, Theory of Constraints, TOC, Distribution