Chapter 1: Introduction to Process Management Introduction Firms must study their customers, determine what their needs are

now, and anticipate what their needs will be in the future. Then they must develop or adjust processes, products, and services to meet current and (hopefully) future customer needs. Processes are woven throughout organizations and represent unique ways that organizations and represent unique ways that organizations provide what the customers want. World-class businesses manage processes in part by successfully managing inventories, creating long-lasting and mutually beneficial partnerships with suppliers and customers, establishing effective information and communication systems to connect with stakeholders, utilizing Jut-in-Time (JIT) practices, and instituting quality management programs to create and deliver products and services customers want, leading to longlasting success in the marketplace. Successful organizations collaborate with their trading partners, blending functional groupings and firm boundaries to find the most effective solutions to a host of processes issues. Process management along the supply chain thus improves the competitiveness of all participating organizations. Processes and Process Management Defined Our individual and work lives are filled with processes that need to be managed, form getting up in the morning, to other things. A business process consists of a set of linked activities or elements designed and performed by internal and external suppliers to create valued goods, services, and decisions for internal and external customers. Collectively, these processes ARE the business and need to be managed. Successful processes ultimately keep employees, stockholders, and customers satisfied, creating value for the firm and its products. Process decisions must be continually be made in organizations regarding, for example, which activities to perform in-house and which to outsource, the best mix of people and technology, etc. In todays business environment, materials, technologies, customer tastes, and competition change rapidly, causing demand to change and processes to become obsolete much faster than in years past. Thus, as processes are created within an organization, an emphasis on continuous process evaluation leading to process improvement or replacement must also be created, to maintain business success. It can also be seen form the discussion so far why the measurement of productivity (outputs/inputs) plays such a large role in many organizations as they seek to gauge process performance and keep the business competitive. Monitoring processes and using other performance measures allows managers to keep track of the firms performance over time, and also provides clues as to where weaknesses lie in the organization. Today, the term business process management (BPM) has become a wide-ranging business philosophy regarding design, analysis, and improvement of business process. Adept managers realize that businesses are a collection of interrelated processes, and that managing core business processes effectively is paramount to long-term success.

Process Management and Supply Chain Management The sharing or integration of businesses processes, beginning with a firms primary goods and service suppliers and extending to the firms most valued customers, allows each participant within the supply chain to learn the actual purchase plans of customers; to share new product design and deliver product; and to reduce stock out, inventory carrying, and delivery costs. Business process integration took on an even greater level of importance during the 1990s, as manufacturers changed their business practice from vertically integrated organizations to greater outsourcing of materials, parts and services. Reengineering of existing products and processes and new approaches to product design and developing also occurred. The book reengineering the Corporation: A Manifesto for Business Revolution addressed the topic of business process reengineering (BPR) or the radical redesign of business processes to achieve improvements in cost, quality, and service. Additionally, manufacturers greatly simplified product bills of materials and parts modularization, which helped simplify product and process design while decreasing inventory levels. As the practice of outsourcing became widespread in many industries, the reliance on outside suppliers to lower product costs while providing high levels of service and product quality also grew, resulting in greater emphasis on improving buyer-supplier relationships. Organizations began to realize the importance and potential benefits of jointly managing business processes with their supply chain partners in order to improve quality, supplier, responsiveness, and final product delivery to meet the needs of end customers at a reasonable cost. It can be troublesome, though, when companies give up control of core processes. The integration of key business processes regarding the flow of materials from raw material suppliers to the final customer has developed into a concept known as supply chain management. Key business process integration is thus the essence of supply chain management. Eight Key Supply Chain Processes Identifying which business processes should be jointly managed along the supply chain is an important issue. To achieve successful supply chain process integration and all of the associated benefits, supply chain partners must reach a shared understanding of the key supply chain processes. Customer Relationship Management Process The general idea of CRM is to manage the firms customer base so that customers remain satisfied and continue to purchase goods and services. Since customers are not all the same, firms must segment their customers and provide different sets of products and value-enhancing services to each segment to maximize long-term profitability. Customer Service Management Process

The customer service management process provides the structure for delivering products and services to customers, and attending to customer needs. Appropriate response procedures are developed for common events, questions, or complaints. Information systems, software and websites are designed to relay information to customers, and customer service employees are trained to provide information and services that customers want. One customer service definition covers most of the sub processes in customer service management; it is the Seven Rs Rule. Providing the seven Rs means having the right product, in the right quantity, in the right condition, at the right place, at the right time, for the right customer, at the right cost. A perfect order is one where all seven areas are satisfied. Poor performance by the firm in any of the seven areas results in poor customer service. Demand Management Process This process seeks to balance customer demand with the firms capacity. To accomplish this, the firm must use effective demand forecasting techniques, and then translate demand forecasts into the desired level of procurement, production, and distribution. Today, systems such as collaborative planning, forecasting, and replenishment (CPFR) have become quite popular as tool for reducing forecast error. The objective of CPFR is to optimize the supply chain by improving demand forecast accuracy; delivering the right product at the right time to the right location, and consequently reducing inventories across the supply chain; and avoiding stock outs while improving customer service. This can be achieved only if the trading partners are willing to work closely together and share information and risk through a common set of processes. Demand management also involves developing contingency plans for the occasions when demand/capacity imbalances exist. Organizations can try to reduce demand during busy periods using several short-term demand management techniques. Alternately, firms can try to stimulate demand through use of off-peak pricing and aggressive marketing campaigns. Order Fulfillment Process This process provides for the delivery of products and services to customers, which requires the internal integration of marketing, manufacturing, and logistics such that customers get what they want, on time, at a competitive price. Transportation, for instance, is what allows products to move form point of origin to point of consumption throughout the supply chain. Providing adequate transportation and storage, getting items through customs, delivering products to foreign locations in a timely fashion and transportation pricing can all impact the ability of the firm and its supply chain to serve a foreign market competitively. In many cases, firms are forced to use outside agents or third-party transportation services to move items domestically or into foreign locations effectively. Flow Management Process

This process is responsible for making the product or service and managing production inventories, customers, and information. This involves designing the manufacturing or service processes to achieve the desired flexibility to meet ever-changing customer requirements. Decisions within the flow management process are coordinated with other internal processes such as customer service management, order fulfillment, and supplier relationship management. Supplier Relationship Management Process It is critical that firms develop strong relationships and partnerships with suppliers based on a strategic perspective, and then manage these relationships to create value for all participants in the supply chain. Successful partnerships with key suppliers can contribute to product innovations, cost containment, and quality improvement, and have the potential to create long-term competitive advantage for the firm. A firm is only as good as it suppliers. Product Development and Commercialization Process Designing and producing new products that customers want, and doing it frequently and efficiently, is a requirement for continued success in competitive industries. Product life cycles are constantly shortening as customers demand new products and better versions of old ones. Additionally, a manufacturing representative is typically involved in new product development, along with representatives of other internal functions, thus enabling concurrent engineering. A new development in improving new product design is the simultaneous design of product, process, and supply chain, referred to as threedimensional concurrent engineering (3DCE). Bringing marketing and customer relationship management in the design stage also enables the use of effective promotion strategies and existing marketing channels. Returns Management Process Managing product returns effectively can be a source of additional customer satisfaction and product improvement ideas. In many cases, proper disposal of product returns may also be a legal requirement. Close contact with product development and commercialization and manufacturing flow management is necessary to provide feedback from product returns due to quality defect and poor fit with customer expectations. A managing reverse supply chains, or the product returns process, is today becoming a significant concern. Another objective of returns management should be to ultimately reduce or eliminate product returns. Decisions within the product returns process include how to receive, inspect, process, dispose, and route a product return. Possible process actions include repairing, remanufacturing, recycling or reselling products, or disposing of products in an environmentally acceptable manner. Inventory and Process Management

Inventory management is one of the most critical activities of an organization and its supply chain, directly influencing how effectively supply chain trading partners produce and deliver goods and services. Inventories act as a buffer between all of the sources of demand and supply inside and outside the organization. Too much inventory is costly in terms of inventory holding costs, while too little inventory causes stock outs, which can be expensive in terms of lost productivity, lost sales, and lost future business. Ineffective communication between buyers and suppliers and infrequent delivery of materials, combined with production based on poor forecasts along a supply chain, result in either too little or too much inventory at various points of storage and consumption, also known as the bullwhip effect. Inventory management processes thus overlap all of the units and functions within the organization, its suppliers and customers, and other members of the supply chain where physical goods are purchased, stored, moved or manufactured. These processes are typically classified as either independent demand or dependent demand inventory management processes. Independent demand is the external demand for finished product and replacement parts created by market conditions, whereas dependent demand is the internal demand for raw materials, parts, and components that are necessary for building finished products and supplying services. Lean Thinking and Process Management The lean philosophy is a collection of processes and philosophies emphasizing the reduction of waste throughout a productive system, along with continuous improvement, and the synchronization of material flows within the organization and eventually including the organizations immediate suppliers and customers. The primary topic of discussion within the lean philosophy is Just-in-Time (JIT). With JIT systems, supplies and assemblies are pulled through the system when and where they are needs. When problems are encountered, the process is stopped until the problem is solved. JIT activities include a set of activities related to waste reduction, the creation of JIT partnerships with buyers and customers, the design of JIF layouts, the creation of JIT manufacturing schedules, the use of continuous improvement efforts, and gaining the commitment of workers. Quality and Process Management To ensure continued business success, firms must strive to offer better customer service and higher quality products and services to customers at competitive prices. Thus, managing and improving quality is a continuous effort in most competitive organizations. As with lean thinking, company-wide quality management and improvement (also termed Total Quality Management or TQM) is a philosophy encompassing a collection of processes that seek to asses and improve quality continuously to please customers, reduce costs, and, ultimately, create competitive advantage for the firm. It is also an integral part of all lean production programs, since continuous improvement methods refer to the use of TQM. TQM also involves the coordinated efforts of the firm along with its supply chain partners, since incoming supply costs and quality ultimately impact products and services created by the firm and delivered to its immediate customers and ultimately, the end customer.

In order to improve processes, organizations must first assess process performance. Managers therefore identify processes that are critical to achieving quality objectives, determine how to monitor process performance, gather data and utilize the appropriate TQM tools, and finally, create policies for collecting process performance information and monitoring quality over time. Business Process Management Formalizing Process Improvement BPM is a term used to describe a structures approach to process assessment and organizational improvement, typically involving the use of commercial software applications. Information technology has made it much easier to communicate the necessary process information between internal functions and supply chain partners. BPM looks at the entire organization and seeks significant improvements in how the work gets done. To make process improvement a reality, employees throughout the firm must work together and be empowered to examine, question, and change processes within the firm and between supply chain trading partners. Tools such as benchmarking are also commonly used to study how things are done well in other firms and potentially use the same methods. The common theme throughout many BPM programs is that software applications are utilized, processes are selected, performances are monitored, problem areas are identified, solutions are generated and implemented, and finally, performances are again monitored to provide feedback on the process solutions so that refinements can be made, if needed. To facilitate these initiatives, BPM and BPR software solutions have become popular as firms seek to monitor and improve specific processes, and then track changes to these processes. Measuring Process Performance The overarching objective in process management is to achieve successful process outcomes, be it the creation of products and services that customers want and find useful; the hiring of the right personnel; making decisions that effectively solve problems; or successfully repairing, returning, or recycling products. When processes do not achieve the intended outcomes, managers and users want to be notified, so redesigns, repairs, or rethinking can occur to fix problems or otherwise get processes back to desired performance levels. To accomplish this, performance measurement systems must be in place to continually test or monitor process outputs and compare them to desired outcomes or standards. Several points must be considered when designing effective performance measurements: 1. Link measures to the firms vision and goals measures should support goals and tie process improvements to things the firm cares about. 2. Measure what customers care about performance measures can help to translate customer requirements into product and process characteristics.

3. Output isnt everything performance measures should also monitor the quality, cost, and timing of outputs along with the volume to get a complete picture of a process. 4. Effectiveness trumps efficiency measurement systems should be concerned with process methods, or the way things are done, rather than simply how much or how often something is done. 5. More measurements are better to get a complete picture of process performance, organizations should be monitoring a suite of measures, all linked to organizational goals. Like BPM, another set of activities gaining in popularity is business performance management, the other BPM. Business performance management refers to a formal set of process analytic activities supported by information technologies that address financial and operational performance. Trends in Process Management Today more and more business between supply chain partners is being conducted in cyberspace, using software applications with increasing levels of functionality. However, this virtual supply chain created problems in areas such as security and remote access by internal users, third-party service providers, and supply chain partners. Coordinating customer-facing processes with supplier-facing processes can also be a challenge, particularly in a volatile demand environment such as seasonal products, or when selling complex, make-to-order custom products. In his research, Radjou discusses the use of composite processes, or technology-enabled, cross-organizational process flows designed to share and act on changes in demand. Composite processes thus facilitate integration efforts along the supply chain. Several trends in process management include business process outsourcing (BPO); environmental, health, and safety factor concerns in the supply chain; use of collaborative environments (CEs); automated decision systems; and the use of radio frequency identification (RFID) tags and other technologies to manage process and link physical products to the Internet. A number of years ago, process outsourcing concentrated on routine processes such as billing or collections, whereas today the trend is toward the outsourcing of processes that could be deemed strategic in nature, or core activities, such as in information systems management. Offshore BPO is also becoming very popular. Environmental, health and safety (EHS) managers are today collaborating with other functions within the firm and with supply chain partners to increase customer retention, revenue generation, cost reduction, and asset utilization. Collaborative environments allow two or more participants to communicate and coordinate processes to accomplish a shared objective; these environments use a combination of communication technologies such as instant messaging, email, chat rooms, mobile communicators, whiteboards, and web conferencing capabilities. Automated decision systems combine artificial intelligence and decision support systems. These systems typically make actual decisions in real time, often without any human intervention, after analyzing data from other inputs for a particular customer or situation. Some have referred to these systems as smart BPM systems.

Radio frequency identification (RFID) technology enables a device to read data stored on chips at a distance, without requiring line-of-sight scanning. While this technology has existed for quite some time, recent cost decreases, technology advances that have greatly reduced their size, and requirements for their use by large customers such as Wal-Mart have enabled many supply chain participants to start thinking about or testing the use of RFID tags. The potential benefits include product visibility across the supply chain, better inventory management, easier product tracing and recalls, and reduced product tampering. Some of the problems facing this technology include the design of RFID tags and readers that will work well under variable environmental conditions, conflicts with other sources of wireless transmissions, and the lack of a standard for transmission protocols.