How to Design and Operate Business Processes
● Focus on understanding how to effectively design and manage business processes.
The Systems View of Business
● A company consists of various individual systems in functional areas such as:
Manufacturing, Engineering, Marketing, Accounting.
● Each functional area can be seen as a subsystem of the overall business.
● Together, these subsystems form the complete system that is the company.
Definition of a System
● A system is an interconnected and coordinated set of elements and processes that
converts inputs to desired outputs.
Understanding Business Operations
● Observing a single department (e.g., advertising) provides limited insight.
○ You may see tasks being performed but not how they connect to the overall
business.
● A deeper observation can reveal:
○ How ideas are transformed into plans for campaigns.
○ The sequential connection of tasks.
○
Circular View of Processes
● Observing processes repeatedly helps create a circular view:
○ Connects the completion of one task back to the beginning of the next.
○ This view aids in understanding and improving departmental performance.
Interconnectedness of Subsystems
● The circular view is still incomplete without understanding interactions with other
departments:
○ Finance's role in funding campaigns.
○ Manufacturing's readiness for product demand.
○ Sales and customer service's preparedness for increased workloads.
● A comprehensive view of the interconnected business system is essential to evaluate
overall success.
Principles of Systems Thinking
1. Understand Interactions:
○ Avoid fixing systems without understanding their workings and interactions.
○ Example: Reducing delivery time may harm sales if drivers gather valuable
market intelligence during that time.
2. See the Big Picture:
○ Help team members understand their contributions to overall goals for
efficient system operation.
3. Focus on Meaningful Metrics:
○ The most obvious solutions may not be the best.
○ Analyze system behavior and focus on meaningful metrics rather than just
measurable ones.
○ Example: Counting reports may not reflect process effectiveness.
,Implementation of KPIs
● Consider what KPIs (Key Performance Indicators) to implement and their purpose.
● Ensure that the metrics chosen are meaningful and relevant to the overall goals of
the organization.
Customer Service and Problem Solving
Customer Service Challenges
● Companies often reward employees for quickly ending calls rather than effectively
solving customer issues.
● Unhappy customers tend to call back, increasing workload and reducing productivity.
Problem Shifting in Organizations
● Problems can be transferred from one department to another without resolution.
○ Example: Poor market research leads to engineering creating unsuitable
products, which then affects advertising and sales.
● The real issue often lies in the initial department (e.g., market research), which is a
leverage point for improvement.
Feedback in Systems
● Systems respond to feedback, which is information from outputs that is applied back
to inputs.
○ Example: Customer responses to an ad campaign provide feedback on its
effectiveness.
● Mixed signals from management can lead to unintended consequences, such as
decreased customer satisfaction.
Learning from Mistakes
● Instead of just criticizing mistakes, teams should:
1. Analyze why the mistake happened.
2. Identify ways to improve the system.
3. Use mistakes as learning opportunities.
Importance of Systems Thinking
Skills for Future Jobs
● Problem analyzing skills are crucial for:
1. University students
■ Requires systems thinking and structured work.
■ Increases chances of good grades.
2. University graduates
■ Essential for job candidates.
■ Enhances employability.
3. Job starters
■ Helps in understanding new roles.
■ Boosts career advancement.
,Supply Chain Management (SCM)
Definition and Importance
● Supply chain management is not the same as value chain.
● It involves acquiring and managing goods and services needed for production and
delivery to customers.
● SCM is the lifeblood of production operations, coordinating the flow of goods from
suppliers to customers.
Strategic Role of SCM
● As companies outsource more, SCM has evolved into a strategic management
function.
● SCM integrates various elements of the supply chain into a cohesive system.
Benefits of Supply Chain Management
● Managing Risks: Helps in managing risks like availability through strategies such as
second sourcing.
● Managing Relationships: Coordinates relationships within the supply chain,
focusing on key partnerships.
● Managing Trade-offs: Maintains a holistic view of the company.
● Promoting Sustainability: Aims to develop greener supply chains, impacting
resource usage and environmental effects.
○ Example: Walmart collaborates with suppliers to meet sustainability targets.
Core Functions of SCM
● Ensures the right materials are obtained:
1. At the right price
2. In the right place
3. At the right time
● Encompasses two main functions:
1. Inventory control
2. Procurement
Inventory Management
Inventory Control
● You can’t just pile up huge quantities of everything you might eventually need.
● Inventory costs money:
○ To purchase
○ To store
● Not having an adequate supply of inventory can result in expensive delays.
Definition
● Inventory: Goods and materials kept in stock for production or sale.
Technology
● Radio Frequency Identification (RFID):
○ Uses small antenna tags attached to products or shipping containers.
○ Special sensors detect the presence of the tags and track the flow of goods
through the supply chain.
, Procurement (Purchasing)
Goals of Purchasing
● Ensure the company has:
○ All the materials it needs
○ When it needs them
○ At the lowest possible cost
Common Rule
● A company should always have enough supplies on hand to cover a product’s lead
time (the period that elapses between placing the supply order and receiving
materials).
Definition
● Procurement: The acquisition of raw materials, parts, components, supplies, and
finished products required to produce goods and services.
Systems and Techniques in Procurement
1. Material Requirements Planning (MRP)
○ Software calculates when materials are required, when to order, and when to
deliver to minimize storage costs.
2. Manufacturing Resource Planning (MRP II)
○ Expands MRP with links to a company’s financial systems and other
processes.
3. Enterprise Resource Planning (ERP)
○ Extends resource planning to encompass the entire organization.
○ Composed of modules addressing various functional areas, from
manufacturing to sales to human resources.
Production and Operations Management
Overview
● Production: Transformation of resources into goods and services.
● Production and Operations Management: Overseeing all activities involved in
producing goods and services.
Key Decisions
● Involves a wide range of strategic and tactical decisions, from high-level design of the
production system to forecasting and scheduling.
Productivity
● Measured by: $ \text{Productivity} = \frac{\text{Value of Outputs}}{\text{Value of
Inputs}} $
● Key factor in determining a company’s competitiveness and profitability.
● Companies that produce similar goods or services with fewer resources have a
distinct advantage.
Importance
● High productivity requires low waste (leftover materials, defective products, excess
energy usage).
● Focus on understanding how to effectively design and manage business processes.
The Systems View of Business
● A company consists of various individual systems in functional areas such as:
Manufacturing, Engineering, Marketing, Accounting.
● Each functional area can be seen as a subsystem of the overall business.
● Together, these subsystems form the complete system that is the company.
Definition of a System
● A system is an interconnected and coordinated set of elements and processes that
converts inputs to desired outputs.
Understanding Business Operations
● Observing a single department (e.g., advertising) provides limited insight.
○ You may see tasks being performed but not how they connect to the overall
business.
● A deeper observation can reveal:
○ How ideas are transformed into plans for campaigns.
○ The sequential connection of tasks.
○
Circular View of Processes
● Observing processes repeatedly helps create a circular view:
○ Connects the completion of one task back to the beginning of the next.
○ This view aids in understanding and improving departmental performance.
Interconnectedness of Subsystems
● The circular view is still incomplete without understanding interactions with other
departments:
○ Finance's role in funding campaigns.
○ Manufacturing's readiness for product demand.
○ Sales and customer service's preparedness for increased workloads.
● A comprehensive view of the interconnected business system is essential to evaluate
overall success.
Principles of Systems Thinking
1. Understand Interactions:
○ Avoid fixing systems without understanding their workings and interactions.
○ Example: Reducing delivery time may harm sales if drivers gather valuable
market intelligence during that time.
2. See the Big Picture:
○ Help team members understand their contributions to overall goals for
efficient system operation.
3. Focus on Meaningful Metrics:
○ The most obvious solutions may not be the best.
○ Analyze system behavior and focus on meaningful metrics rather than just
measurable ones.
○ Example: Counting reports may not reflect process effectiveness.
,Implementation of KPIs
● Consider what KPIs (Key Performance Indicators) to implement and their purpose.
● Ensure that the metrics chosen are meaningful and relevant to the overall goals of
the organization.
Customer Service and Problem Solving
Customer Service Challenges
● Companies often reward employees for quickly ending calls rather than effectively
solving customer issues.
● Unhappy customers tend to call back, increasing workload and reducing productivity.
Problem Shifting in Organizations
● Problems can be transferred from one department to another without resolution.
○ Example: Poor market research leads to engineering creating unsuitable
products, which then affects advertising and sales.
● The real issue often lies in the initial department (e.g., market research), which is a
leverage point for improvement.
Feedback in Systems
● Systems respond to feedback, which is information from outputs that is applied back
to inputs.
○ Example: Customer responses to an ad campaign provide feedback on its
effectiveness.
● Mixed signals from management can lead to unintended consequences, such as
decreased customer satisfaction.
Learning from Mistakes
● Instead of just criticizing mistakes, teams should:
1. Analyze why the mistake happened.
2. Identify ways to improve the system.
3. Use mistakes as learning opportunities.
Importance of Systems Thinking
Skills for Future Jobs
● Problem analyzing skills are crucial for:
1. University students
■ Requires systems thinking and structured work.
■ Increases chances of good grades.
2. University graduates
■ Essential for job candidates.
■ Enhances employability.
3. Job starters
■ Helps in understanding new roles.
■ Boosts career advancement.
,Supply Chain Management (SCM)
Definition and Importance
● Supply chain management is not the same as value chain.
● It involves acquiring and managing goods and services needed for production and
delivery to customers.
● SCM is the lifeblood of production operations, coordinating the flow of goods from
suppliers to customers.
Strategic Role of SCM
● As companies outsource more, SCM has evolved into a strategic management
function.
● SCM integrates various elements of the supply chain into a cohesive system.
Benefits of Supply Chain Management
● Managing Risks: Helps in managing risks like availability through strategies such as
second sourcing.
● Managing Relationships: Coordinates relationships within the supply chain,
focusing on key partnerships.
● Managing Trade-offs: Maintains a holistic view of the company.
● Promoting Sustainability: Aims to develop greener supply chains, impacting
resource usage and environmental effects.
○ Example: Walmart collaborates with suppliers to meet sustainability targets.
Core Functions of SCM
● Ensures the right materials are obtained:
1. At the right price
2. In the right place
3. At the right time
● Encompasses two main functions:
1. Inventory control
2. Procurement
Inventory Management
Inventory Control
● You can’t just pile up huge quantities of everything you might eventually need.
● Inventory costs money:
○ To purchase
○ To store
● Not having an adequate supply of inventory can result in expensive delays.
Definition
● Inventory: Goods and materials kept in stock for production or sale.
Technology
● Radio Frequency Identification (RFID):
○ Uses small antenna tags attached to products or shipping containers.
○ Special sensors detect the presence of the tags and track the flow of goods
through the supply chain.
, Procurement (Purchasing)
Goals of Purchasing
● Ensure the company has:
○ All the materials it needs
○ When it needs them
○ At the lowest possible cost
Common Rule
● A company should always have enough supplies on hand to cover a product’s lead
time (the period that elapses between placing the supply order and receiving
materials).
Definition
● Procurement: The acquisition of raw materials, parts, components, supplies, and
finished products required to produce goods and services.
Systems and Techniques in Procurement
1. Material Requirements Planning (MRP)
○ Software calculates when materials are required, when to order, and when to
deliver to minimize storage costs.
2. Manufacturing Resource Planning (MRP II)
○ Expands MRP with links to a company’s financial systems and other
processes.
3. Enterprise Resource Planning (ERP)
○ Extends resource planning to encompass the entire organization.
○ Composed of modules addressing various functional areas, from
manufacturing to sales to human resources.
Production and Operations Management
Overview
● Production: Transformation of resources into goods and services.
● Production and Operations Management: Overseeing all activities involved in
producing goods and services.
Key Decisions
● Involves a wide range of strategic and tactical decisions, from high-level design of the
production system to forecasting and scheduling.
Productivity
● Measured by: $ \text{Productivity} = \frac{\text{Value of Outputs}}{\text{Value of
Inputs}} $
● Key factor in determining a company’s competitiveness and profitability.
● Companies that produce similar goods or services with fewer resources have a
distinct advantage.
Importance
● High productivity requires low waste (leftover materials, defective products, excess
energy usage).
