Process Analytics (PA)

1. Process Analytics (PA) Steps required in producing a bottle of water

2. Outputs Inputs Processes Processes • Are whatever we do to add value to a product or service. • Processes can be broken down into sub-processes, which in turn can be broken down further. • Any process that is part of a larger process is considered a “nested process.” • Each process and each nested process has inputs and outputs.

3. Companies with Business Processes that are hard to beat! • McDonalds • Southwest Airlines • Dell Direct Model • Order fulfillment at Amazon

4. The dark side of business processes failures: The financial meltdown of 2008 • The process of selecting investments • The process of assessing risk • The process of auditing and developing controls activities • The process of complying to regulations • The process of benefits and rewards • The process of collecting and disseminating information

5. Service Processes and Manufacturing Processes Manufacturing processes causes change in one or more of the following dimensions: • Physical properties • Shape • Fixed dimensions • Surface finish • Joining parts and materials If a process isn’t doing at least one of these, then it is a service (non-manufacturing) process.

6. Manufacturing and Service Goods Production • Tangible • Can be inventoried • Low customer contact • Capital Intensive • Quality easily measured Service Production • Intangible • Can’t be inventoried • High customer contact • Labor Intensive • Quality hard to measure Most firms provide both goods and services.

7. Transformation Processes(Adding value) Outputs Inputs Process Analytics is… “the science of designing and controlling processes that transform inputs into services and products

8. What is process analytics? • Can we use science, management or technology to eliminate those activities that do not add value (waiting in line, transportation, restocking, counting, inventory, employee empowerment).. • Can we use science, management or technology to do things quicker (doing things in parallel rather than sequentially, making right turns rather than left, having people print their boarding passes at home rather than at a ticket counter) • Can we use science, management or technology to improve the quality of our product or services (6 sigma design, prevent employees from doing the wrong thing even if they want to) • Can we use science, management or technology to improve differentiation (customization of products or services (Dell & Hanna Casino)), flexibility using CNC machines, modular manufacturing, outsourcing)

9. Output Productivity = Input Productivity • Productivity is the value of outputs (services and products) produced, divided by the value of input resources(wages, costs of equipment, etc.)

10. Policies Processed Employee Hours Labor productivity = 600 Policies (3 Employees) (40 hours/employee) = = 5 policies/hr Productivity Calculation Single factor Three employees process 600 insurance policies in a week. They work 8 hours per day, 5 days per week. Calculate the productivity in policies per hour.

11. Quality at standard cost Labor cost + Materials Cost + Overhead cost Multifactor productivity = (400 units) ($10/unit) $400 + $1000 + $300 $4,000 1,700 = = 2.35 = Productivity Calculation • Multifactor A team of workers makes 400 units of a product, valued by its standard cost of $10 each (before markups for other expenses and profit). The accounting department reports that the actual costs are $400 for labor, $1,000 for materials, and $300 for overhead. Calculate the productivity. • These figures must be compared with performance levels in prior periods and with future goals.

12. Application Calculate the year-to-date labor productivity: Calculate the multifactor productivity:

13. In class assignment • In a community college there are 50 students in a 3 credit hour class. Adjunct instructors are asked to teach classes at a cost of $4,000 for each 3-credit course. It costs the college $20 per student to make copies of the reading material and give them access to the internet. There are lots of administrators in this college between admissions, registrar, secretaries and other non-core personnel that cost a cool $1,000,000 per semester. This college offers a total of 40 courses a semester. Each student pays $100 per credit hour and the school receives a $100 subsidy from the state per student per credit hour. What is the multi-factor productivity of this community college?

14. Solved Assignment • Multifactor productivity is the ratio of the value of output to the value of input resources

15. In class assignmentContinued! • Assuming that this class runs for 16 weeks and that the students have 14 hours of instruction per week. What is the labor productivity per hour assuming that the revenue from the course is still $30,000.

16. Process Analytics is a Strategy “We get brilliant results from average people managing brilliant processes. We observe that our competition often gets average (or worse) results from brilliant people managing broken processes.“ Kujio Cho Chairman, Toyota Motors

17. What is meant by Strategy? • Strategy is the process of choosing how to compete and there are 2 basic ways that firms compete: • Low Cost • Differentiation • Quality • Time • Variety • Flexibility • Volume • Consistency (Reliability) • Features

18. Competitive Priorities Cost 1. Low-cost operations Quality 2. Top quality 3. Consistent quality Time 4. Delivery speed 5. On-time delivery 6. Development speed Flexibility 7. Customization 8. Variety 9. Volume flexibility

19. Why is Process Analytics so important? • Designing products and services that better meet customer needs and wants and do so consistently • Designing and producing products and services faster and more efficiently (cheaper..Lower cost) • Delivering products and services to customers efficiently and effectively: • On time • cheaply • No errors • Importance of Business Processes

20. Current Challenges facing U.S. firms • Globalization • Rapid technological change • Ethical issues across cultures • Increasing diversity of the workforce • Environmental impact issues • Financial crisis • Lessons from Amazon Jeff Bezos