LEAN THINKING* Basic Idea - to eliminate all waste in the production of goods and services Waste (muda) – any operation (activity) or process which uses resources but does not add value to the product or service
INTRODUCTION TO BUSINESS PROCESS REENGINEERING Dr. Ömer Yağız Department of Business Administration Eastern Mediterranean University
This slide set is prepared by Dr. Ömer Yağız for MGMT 585 – Business Process Reengineering
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A Fine Application of Lean Thinking – Lean Manufacturing
Types of Waste
Stocks (inventory) of all kinds Inspection Setup time Waiting Data Processing Most indirect labor Rework Scrap Transportation & travel (inhouse and out) Poor product or service design Customer returns
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Eiji Toyoda and Taiichi Ohno (TOYOTA) TOYOTA Production System 9
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Just-in-time manufacturing and purchasing
Eiji Toyoda
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A striking example of fragmentation of work
Reengineering - Introduction
Adam Smith 1776 – An Inquiry into the Wealth of Nations The idea of “division of labor” 9 9
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work should be broken down into its simplest and most basic tasks Worked fine for 200 years, but now we need to question this idea in view of the demands of today’s markets and technologies has led to “fragmentation of work”
The idea of “de-Adam-Smithizing” of business processes 5
Reengineering - Introduction
Reengineering - Introduction
Early 1900’s 9
Henry Ford – application of division of labor in manufacturing
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Alfred Sloan of General Motors – application of division of labor in management
As production increased to meet expanding demand 9
moving assembly line (93 minutes vs. 12.5 hours for chassis assembly) efforts to increase efficiency in order to increase output
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number of tasks increased processes became larger and more complicated managing processes became more difficult
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different divisions for products (Buick, Cadillac, Oldsmobile, Chevrolet, etc)
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who owns the process? serious problem...
number of layers in organization grew which led to barriers between top management and customers customer focus ? not visible... various processes became ends rather than the means
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Reengineering - Introduction
Reengineering - Introduction
The notion of “discontinuous thinking” – what does it mean? 9
identify and stop using outdated rules and fundamental assumptions in your business operations
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student must physically be present for registration student must get “access” personally by presenting bank receipt on the day of registration – to do this wait and wait and wait...... receipt number must be entered on thudente registration form final registration form must be signed by the department chairman student must obtain approval from the associate dean to take a sixth course
such rules must be abandoned or changed in order to achieve higher productivity and quality of service
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“how can we do what we do faster?” how can we do what we do better?” “how can we do what we do at a lower cost?”
We should rather ask 9
“why do we do what we do at all?” Is this really necessary?
Many tasks are done not to create value for the customer, but to satisfy the internal demands of the organization or the person doing it
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Illustrations of processes badly in need of reengineering
Illustrations of processes badly in need of reengineering
The basic question to ask is not 9
example: former(until 2001) registration process
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The
manager who does exactly what is expected of him
Fill customer orders quickly
Airport A Factory
CDC
Airport B
RDC Plane at airport A needs repairs.
RDC notifies CDC : 1 day CDC checks, picks & dispatches order : 5 days RDC receives & shelves goods & ships order to customer : 5 days TOTAL : 11 days
CDC and one RDC are in the same bldg.
Mechanic located at Airport B
RDC – speed of response to customer orders CDC – inventory costs, inventory turnover, labor costs. To hurry to fill a rush order will hurt CDC’s performance rating
Manager at B refuses to send his mechanic to A. Reason: mechanic must spend the night at a hotel at A; hotel bill comes out of B’s budget
customer orders
RESULT: Mechanic sent to A next morning. Plane is idle for a long time which led to loss of thousands of dollars. ¾The Manager at B was doing exactly what was required of him --- controlling and minimizing his expenses
RESULT: RCD has goods airshipped from another RCD. This increases air freight expenses. 11
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Another exampe from EMU Accounting Office does not give access to a student although he has paid the tuition on time Why? Because the student has an outstanding debt resulting from exchange rate differences between the Turkish lira and the U.S. dollar The student pays 20 YTL to get access Result: unnecessary trips, time lost, waiting, second visit to advisor, etc.
Reengineering - Introduction
Customers Competition 9 Change 9 9
We examine each in the next few slides ...
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Reengineering - Introduction
Forces or trends which make it difficult for organizations to operate “the old way”
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Reengineering - Introduction
Customers
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buyers’ market rather than sellers’ market 9 “the customers can have any color as long as it is black” -- Ford was able to say this because his company was the only company making the highly successful Model T Ford car. Of course the cars came in only one color – black 9 increased consumerism : form of social activism dedicated to protecting the rights of consumers in their dealings with businesses (Consumers Union in the U.S.) 9
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customization” is a reality – every customer is different 9 mass production + quality, price, selection, and service became order of the day 9 “customer focus” must be at the forefront 9 in short, customers have the upper hand in many industries and businesses
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Reengineering - Introduction
Reengineering - Introduction
Competition
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“globalization” led to downfall of trade barriers 9 Start-up businesses proliferate 9 dot.coms in the internet age 9 information and communication technology
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e-business
hardware and software industry equipment industry innovation shortened product life cycles new product development and introduction communications
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Reengineering - Introduction
accelerated pace of change computer
one example: car rental business another: e-commerce
increased
SAMSUNG industry
fast-food
vs. barnes and noble.com three years ago increased quality of service
it has become a “normal” process constantly changing products and services SONY,
amazon.com
Change
concept and practice of “concurrent engineering” need to be fast and responsive
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Reengineering - Introduction
A new world for business is the result of the 3 C’s – customers, competition, and change
Operations Priorities 9cost 9product
quality and reliability speed 9delivery reliability (ability to deliver on time) 9ability to cope with changes in demand 9flexibility (a wide variety of products) and new product introduction speed These priorities are important for gaining competitive advantage. This requires a lot of attention on “processes.” 9delivery
flexibility 9 quick response 9 quality 9
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Reengineering - Introduction
What is wrong with extreme division of labor? order fulfillment example (p. 26) passport processing example (next slide) 9 result – too many handoffs, waiting, increased chance of errors 9 no one is responsible for the whole process 9 poor customer service (system is not able respond to customer questions or special requests) 9 9
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Reengineering - Introduction 9
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Reengineering - Introduction 9
companies consist of “functional silos”
these structures are self-perpetuating, i.e they stifle innovation and creativity in organizations new
ideas must be “sold” up the organizational ladder; if one says “no”, the idea is killed.
this situation is also unresponsive to changes in the external environment, such as markets, technology, macro-economic condition, etc. 9 increased production leads to diseconomies of scale through disproportionate overhead increase 24 9
process
people
involved in the process look inward to their department and upward to their boss; no one looks outward toward the customer (Think of registration process..) 23
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Reengineering - Introduction
Reengineering - Introduction
Example from EMU— Why does a student who has to go through a clearance process have to go and obtain a signature from the university dormitories even if he/she does not live there? Does this make sense to you?
What to do to become successful? task-oriented jobs in today’s world of customers, competition, and change are obsolete (modası geçmiş) 9 instead work must be organized around processes 9 “reinvent” the company rather than “fix it” 9 reengineer your company and its processes 9
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