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III. PROCESS MANAGEMENT

o

A FAD IF IT
WEREN'T FOR THE CALIBER OF THE RESULTS IT'S
IT WOULD BE EASY TO DISMISS SIX SIGMA AS

PRODUCING AND THE COMPANIES ADOPTING IT.
PANDE, NEUMAN, AND CAVANAGH

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PROCESS MANAGEMENT OVERVIEW

Process Management Overview
Process Management is reviewed in the following topic areas:

.
.
.

Process management overview
Stakehotder impact
Benchmarking

.
.

Performance measures
Financiat measures

Business process management (BPM) is a fundamental concept of six sigma.
Efforts to improve individual (local) process components are replaced by systematic
methods to understand, control, and.improve (even optimize) overall business
results. These methods have evolved from the basic tenets of quality and
continuous improvement to address specific business objectives.
terms as a product or service
. ln
to help uE urxl-erstand,
control, and improve the business process, he described the familiar supplier process - customer model, with several key concepts:

W. Edwards Demi
that provides val

.
.
.

Process inputs, controls, and outputs are interdependent
Statistical methods can improve process control and guide improvements
Process feedback can be used to redesign products and processes, and
improve overall business results

BPM is focused on understanding, controlling, and improving business processes
to create value for all stakeholders. Six sigma builds on classic concepts to ensure
results.

Juran (1999)11 defines three principal dimensions for measuring the quality of this
process:

.
.
.

Effectiveness: how well the output meets customer needs
Efficiency: the ability to be effective at least cost
Adaptability: the ability to remain effective and efficient in the face of change

This clearly addresses the need for business processes to provide value to both the
customer (effectiveness) and shareholders (efficiency), now and in the future
(adaptability). Six sigma initiatives strive to manage the entire business process to
maximize these goals for the overall business.

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Process Management Overview (Continued)
Most businesses are structured as functional organizations (vertical units or "silos")
based on functional groupings such as R&D, product development, engineering,

production, distribution, marketing, sales, finance, administration, information
technology, etc. Each vertical function also has severalvertical levels from the top
executive down. Products (goods orservices) are produced across many functional
boundaries and business levds. Business process management represents a major
advance in quality improvement thinking by managing the entire process including
those areas between functional responsibilities.
Business process management includes steps to plan, organize, control, analyze,
and improve the process to maximize overall business results. Si4siglna black belts
business improvement.

Figure 3.1 illustrates a traditionql business process. Traditional management
structures are built around functional organizations (vertical silos). The obvious
objective is to control and improve each individual function with respect to its own
local goals and objectives (e.9. throughput, production costs, quality, and so on).
For example, an information technology department should be responsible for
managing and improving lT seruices.

@El-rFl il[EilHE/,*.:r

@EnmrcffiffiH\-*Ll
Figure 3.1 Business Process vs. Organization Function (Pearson,

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Process Management Overuiew (Continued)
It becomes very difficult to optimize the overall production process when a product
path crosses many functional boundaries as shown by the process inpuUprocess
output path in Figure 3.1. Here, production starts with the process inputs and flows
across many vertical functions and horizontal business levels to produce process
outputs (products, goods, orservices). Managing across these transitions between
functional elements is difficult because, often, no one is in charge. Differences in

function, organizational structure, time, vocabulary, and location are sources of
confusion and defects. When functional relationships are not clearly understood,
business processes can become more expensive or fail.

Business process management addresses this problem by taking a matrix
organization and project management approach to production (see the dotted line
in Figure 3.1). This approach became popular in the military/industrial sectoralmost
30 years ago as a way to ensure that quality, cost, and delivery targets could be met.

.

Sometimes this may mean intentional sub-optimization of a local function in order

to improve the overatl busindss outcome. For example, an extra setup or
changeover in one operation may increase local costs or cycle times, but reduce
overall WIP inventory and provide much higher customer value.
Clearly, the business process management role is critical to overall business
success. ln the mid-1990s, project management became very popular, and project
management training courses became available from many sources. ln a natural
extension, the six sigma black belt role effectively serves as a project manager for
overall business improvement projects; working to bridge the gaps, eliminate
confusion, and identify global business improvement opportunities versus local
functional ones.

Process Elements
The SIPOC diagram is a foundation technique for six sigma management and
improvement. An example is shown in Figure 3.2 below:

Suppliers

N

\//

lnputs

N

Processes

Outputs

--\
\./

Customers

Figure 3.2 A Basic SIPOC Diagram
(Pande,2000)1s

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O

Process Elements (Continued)
SIPOC is an acronym for the five major elements in the diagram:

i Supplier:
\ lnput:
\ Process:
\ output:
I Customer:
L

The
The
The
The
The

organization providing resources to the process of concern
information, materials, or service provided
set of action steps that transforms the inputs into outputs
final product or seruice resulting from the process
person, process, or organization that receives the output

A close investigation of the SIPOC model shows how six sigma is based on the
powerful concept of closed-loop business system models:

.

Any change in the process output (O) will be related to one or more changes
in supplier, inputs, or process actions (SlPs).

.

lf all SlPs are stable, the ogtput (O) will be stable.

.

A change in O means one or more of the SlPs must have changed.

Apparentviolations of this rule indicate thatthe process model is incomplete.
lf one or more of the SlPs change significantly, the Os may or may not ct

.
.

angl

lf they do, SIP changes may be used to predict and control changes in O.
lf not, the changed SlPs are robust and may provide process savings.

_l

Closed-loop relationships between SIPs and Os provide a method to define
process correlations and possible cause-effect relationships.
Six sigma relies on the SIPOC model to create, monitor, and improve closed-loop
business systems for process management, process improvement, and process
designlredesign. SIPOG can help everyone "see" the business from an overall
process perspective by:

.
.
.
.

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Displaying cross functional activities in simple diagrams (process flow charts)
Providing a framework applicable to process of all sizes
Helping maintain the big picture business perspective
Providing methods for adding additional detail as needed

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Process Elements (Continued)
When process flow charts are used with the SIPOG model, business process
monitoring, control, understanding and improvement are greatly enhanced. To
complete the picture, however, it is helpful to consider one additional factor: the
levels of the business process.
Processes can be viewed as being both comprised of smaller micro- or subprocesses and constituents of larger macro-processes. As illustrated in Figure 3.1,
it is often convenient to think of at least three levels of the overall process because
six sigma methods and procedures change somewhat from level to level. Process
problems are hierarchical and interconnected to operational issues, which in turn,
are tied to support systems ultimately linked to business issues such as customer
satisfaction, profitability, and shareholder value. The three main levels may be
described as business, operations, and process.
(Harry,2000)e
The business level. High level problems often relate to the enterprise information
and financial systems used to "steer" the business. These representstrategic sigma
projects. Some examples include systems that measure customer feedback and
supplier quality systems. Harry's six sigma breakthrough strategy at the business
level is:

.
.
.
.
.
.
.
.

Recognize the true states of your business
Define what plans must be in place to realize improvement of each state
Measure the business systems that support the plans
Analyze the gaps in system performance benchmarks
lmprove system elements to achieve performance goals
Control system-level characteristics that are critical to value
Standardize the systems that prove to be best in class
lntegrate best-in-class systems into the strategic planning framework

The operations level. The issues of managing operations and making products or
producing services are the focus at this level. lt is important to recognize
operational issues that link to key business systems. lssues of product cost, quality,
inventory, throughput, and availability are often important at this level. Six sigma
projects at this level may take a year or more to complete because of the comptex
combination of factors involved. Required improvements at this level may be
derived from the business level needs.

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Process Elements (Gontinued)
Harry's six sigma breakthrough strategy, at the operations level, is:

.
.
.
.
.
.
.
.

Recognize operational issues that link to key business systems
Define six sigma proiecb to resolve operational issues
Measure performance of the six sigma proiects
Analyze project performance in relation to operational goals
lmprove six sigma proiect management system
Gontrol inputs to proiect management system
Standardize best-in-class management system practices
lntegrate standardized six sigma practices into policies and procedures

The process level. The process level deals with process elements that may be
contributing locally to the cost of poor quality (COPa). The obiective is to recognize
process problems that link to important operational issues'
Harry's six sigma breakthrough strategy, at the process level, is:

.
.
.
.
.
.
.

Recognize functional problems that link to operational issues
Define the processes that contribute to the functional problems
Measure the capability of each process that offers operational Ieverage
Analyze the data to assess prevalent patterns and trends
tmprove the key producUservice characteristics created by key processes
Control the process variables that exert important influence
$tandardize the methods and processes producing best-in-class performance
lntegrate standard methods and processes into the design cycle

The six sigma business improvement process moves up and down the vertical levels
of the organization as well as across the functional elements. Using the SIPOC

process model, and understanding the differences in process levels, will make it
easier to manage the process of business improvement.

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STAKEHOLDER IMPACT

Stakeholder lmpact
Businesses have many stakeholders including stockholders, customers, suppliers,
company management, employees and their families, the community, and society.
Each stakeholder has unique relationships with the business. The SIPOC model
explains the classic supplier - process - customer relationship, but this is only one
of the relationships that must be addressed by business process management.
Figure 3.3 illustrates some typical business - stakeholder relationships.
SOCIETY
STOCKHOLDERS OR OWNERS

o
E

IJI

J

oo-

f

o
G,
UI

INTERNAL COMPANY

=
o
o

PROCESSES

a

=
o
MANAGEMENT AND EMPLOYEES

Figure 3.3 lllustration of Company Stakeholder lnteractivity
Six sigma identifies a process owner as a senior manager in charge of a process.
The black beltserves as a business process improvement project manager, working
across multiple processes to identifu the process stakeholders, understand their
requirements and process interdependencies, and improve the individual process
configurations and settings to improve the overall outcome for all stakeholders.
This involves all stakeholders in a variety of ways.

ln Figure 3.4, each stakeholder is both supplier and customer, forming many
closed-loop processes that must be managed, controlled, balanced, and optimized
if the business is to thrive. Communication within the entire stakeholdercommunity
is channeled through internal company processes.
Some examples of how the processes shown in Figure 3.4 can impact the health of
the business are to follow. Stockholders choose to invest based on expected
returns in the near-term (dividends or increased stock price) or longer-term (growth).
lf the business produces the revenues and profits expected, they may choose to

invest further in the business. lf not, they may sell and reduce the company's
financial resources.

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STAKEHOLDER IMPACT

Stakeholder Impact (Continued)

Supolier

Inputs

Outputs

Customer

Stockholder

Investment

Profit, Growth

Stockholder

Customer

Orders

Goods/Services

Customer

Supplier

Materials, Machines

Additional Orders

Supplier

Employees

Commitment

Pay

Employees

Managers

Leadership

Caeer Growth

Managers

Community

Tu

Tax Revenues

Community

Society

Infrastructue

Quality of Life

Society

Buiness
Process
Manaeement

Incentives

Figure 3.4. Stakeholder Relationships

When customers choose to purchase goods or services, they provide financial
resources to the process. lf the delivered goods or services provide the desired
value, the customer may be motivated to provide reinforcing feedback in the form
of additional orders, positive word-of-mouth, new product ideas, referrals, etc. that
help build the business. However, if the perceived value is not up to par, negative
feedback to the process can retard the business.
ln each case, the supplier/customer determines whether value was received. ln this
way, the customer sets the final specifications for each transaction. Perceived value
is a function of the cost, quality, features, and availability of the total product (goods
and services). Forexample, a car may have reasonable cost, quality, and availability,
but if service is inadequate, the customer may choose to buy from another source
next time. Even worse, the customer may tell others about their bad experience.

Activities which fail to meet their stated objectives have negative effects on the
stakeholders. To the stockholders, the net worth of the company will be reduced.
Suppliers may have payments delayed or never paid in full. Management and
employees may see wage levels frozen or diminished, and the number of employees
may be reduced. Customers may react to unsuccessful activities by seeking other
companies with which to deal, or they may impose penalties stated in the contract,
and/or find restitution through legal action.

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