U

nderstand i ng Processes

Business Process Reengineering is a systematic aPProach to radically improving the core business Processes and k"y suppotling procers.r. Discreet improvement of a comPany's poitfoHo oJ products or services, or standalone functions, fails io focus on a company's strategy and therefore cannot lead to radical improvement. It is important when considering undertaking Business process Re-engineering to understand thoroughly what Processes are ut d why they are key to business success. As well, it is important to understand the three possible reasons for undertaking Business Process Reengineering:

1 2 3

cost reduction; renewed comPetitiveness (parity or best practice); competitive dominance.

WHAT ARE PROCESSES?

process is a set of linked activities that take an input and transform it to create an output. Ideally, the transforrnation that occurs in the process should add value to the input and create an output tnat is more useful and effective to the recipient either upstream or downstreant. There are processes everywhere. Take data, aPPly rules to organLze that data, and you have created information.

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it through a series of value-adding activities, and created an output-a piece of metal that is now useful. Beginning in the early 1980s, Western manufacturirg companies set to work feverishly streamlining their operating Processes through the use of tactical process orientation tools such as IIT and TQM techniques in order both to enhance the value they add to their manufactured outputs and to reduce the costs of excess inventories, inefficient and ineffective production, and the indirect costs associated with production. But Processes go much further than merely transforming a piece of metal or the application of the tactical process orientation tools within a company's four walls. Theoretically, a Process may start at the point where material is separated from the earth, move through a number of transformation steps, through sales and use, and ultimately through recycli^g into some other useful object. Thinki.g of a process in this broadest sense may get some people to think in the future of the "design for reincarnation" concept, where products are designed not only for the marketplace, and for ease of manufacture (design for manu facturability), but for how they will be taken apart and reused. By thinkitg about businesses as processes rather than as functions, managers can focus on streamlining processes in order to create more value for less effort rather than focusirg on rcclucing the size of functions in order simply to cut costs. Cost cuts will naturally occur as non-value-adding activities are rentovt'cl from the processes and as the processes increase in thcir l('v('l of effectiveness.
formed

Processes are the basis on which all manufacturi.g entities create wealth. Take a piece of metal, cut it, bend it, machine it to create a bracket for a shelf. You have taken an input, trans-

streamlined they can still have longer-term implications such as cost effectiveness. Business process Reengineering usually concentrates on the few core business processes out of the many Processes that go on in any business. A core business process "creates" value by the capabilities it gives the compuly for comPetitiveness. Core busin"r, processes are valued bt the customer, the shareholder or the regulator and are critical to get rigft. -Th-ey are required for ,rr..u5 in the indus try sector in which the company is doing business; they should be those processes that the business's strategy his identified as critical to excell at in order to match or beat the comPetition' There are usually between five and eight core business a processes in any industry group, and each by definition has 3.L, Figure in specific effect outside theoigur,lzatton. As shown .brr^,petitors and customers define the capabilities required for entry or leadership in every industry segment' Not all core buiiness processes are immediately aPParent, and occasionally the actual production of the goods is not at the heart of a core business process. For instanc, in the insurance indus try, the actuarial work that leads to a balance of competitive premiums for customers and profit after claims for theio*pany is a core business process. In the U.S. defense

Key Competitive Dimensions

Product Performance Product lntroduction Rate Global Market Reach Resource Leverage

Customer LoYaltY
etc.

Capability Required for lndustry Parity

Capability Required for lndustry Leadership

WHAT TYPES OF BUSINESS PROCESSES ARE THERE AND WHY ARE THEY IMPORTANT?
In terms of ptu't' nunrbers the majority of activities a.business undertakes ilr(' [).rr"t ol non-strategic processes. These processes are usually t r.t t s l),u'r'n t to the market, but if eliminated or
t

<Figure

Minimum

Possible Company Performance

J.l

Competitors and cus tomers define the capability requin'rl lnt entry or leadership in everY industry segment.

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department contracting industry, alliance management is increasingly a core business process since the DoD has cut back on its funding of R&D, and defense contractors are consolidating their operations; those that remain in the business are increasingly turning to joint R&D, another forrn of virtuahty, instead of competing with each other. In beer brewifrg, marketing and brand management is a core Process. Business processes, whether core business Processes or those that support the core business processes, can be thought of in the same way one thinks of production processes -a set of activities, which can be broken down into tasks, that when taken together take an input, transform it, and produce an output. But while the process of manufacturitg is physical, the core business process is more ephemeral-often includi.g the manufacturi^g process as a component-and connects outside the company. THREE TYPES OF REENGINEERING: COST, PARITY, BREAKPOINT
There are three types of Business Process Reengineering efforts a company can undertake:

Achievi ng Best- ln-Class

Type 3
Process lmProvement
Cost-Reduction-Focus

BreakPoint
Rewriting The Rules

Figure

3.2

coals driving Business Process Reen gineering'

o o o

1 Cost improvement 2 To achieve parity, or "best in class" '['Vpc 3 To effect a BreakPoint n lltrsiness Process Reengineering effort can be driven by
Type
Tyyte

()ne

oi thrce different business goals, as shown in Figure

3.2.

I 2

l'rot't's,; improvement can lead to dramatic cost reductions irr n()r'r-c()re processes, far beyond what can be accomplisht'tl th rough traditional cost-cutting efforts. Within ('()r'r' business processes, the reengineering effort is

management to look at all of these a Business business gials when determining the direction of reasons. of number a for process R6engineering effort , in First, not ail compuii"s will find BreakPoint oPPortunities achieving do, operations, even if ihe y try; even for those that them is another matter. tg q"t in second, not all companies will feel it is appropriate BreakPoint. a achieve the time, effort, and iost of trying to as And third, as much as this book focuses on BreakPoints for the ultimate goal, there are almost always opportunities usually cost reduction in improving non-core processes, and improving by big opportunities to increase competitiveness core business Processes.

It is important foi

TYPe

Cost ImProvement

usually.rirncd at reachi.g "best in class," attaini.g

c()nrp('titivr'parity with those who have in the past set the stanclarrls rul(l nrade the rules. The attt'nrpt to lind and implement BreakPoints, to change the rules .ulrl ('r'(.,rtt' the new definition of best in class for all others to try to ,ttt.tin.

Dun & Bradstreet: An Example of Process Improvement

was concerltt'tl Dun & Bradstreet, the business information provider, credit-rillirtg which by means the and about its customer interface cusl,ltl('l\ which by processes The contracts were established. lrttl tt'slt'tl, well were services Bradstreet & signed up to receive Dun

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slow, and D&B felt that by reengineering those processes it cou ld ach ieve sign if icant cost red uction wh ile im proving cu stomer
se

Under the eye of top management, analysis of the business su bstantial opportu n ities to en hance the effectiveness of the customer interface so that customer contracts and services could be undertaken in much less time. Three separate process flows for different contract types were replaced by a single, flexible process flow. The average time to process a contract was reduced from more than a week to less than one day, and 95 percent of customer inquiries can now be resolved while the customer is on the telepholte. Figure 3.3 shows the original contract processing process map for the Dun & Bradstreet company. An analysis of this process showed that over 1B percent of salary and benefits spent at the local-office level ($tt.g million), was spent on contract management. Of that, over two-thirds was spent on drplicatihB, storinB, transportinB, and controlling the data. The process caused unnecessary delays and redundancies. The multiplicity of forms and logs used in the process led to excessive duplication of data, which increased costs. Dependency on manual systems and stand-alone PCs resulted in high control and reconciliation costs. Th irty-seven separate information transfers increased the possibility for error. ln addition to the issues within the process itself, end-of-month submissions for most contracts caused bottlenecks, and annual contrar t rernlwal led to additional costs. While thc (ontract was "in process" for about six business days (2742 mirrutcs), it was actually being worked on for about four hours (220 rnirrulr,s), with the rest of the time spent "waiting." This means that orrly.rlrout B percent of the time the contract is in process is valu('-il(ltlt'tl t irtte. ()f tlrt.')')0 nrinutes of value-added time, only about 53 minutes wer(' .t('trr.rlly rlcvoted to capturing and processing the information nec(lssilry to < rt.ilt() the contract; the rest was spent on controlling, translx)rlirr13, <lulllir ating, and storing the information. Civen that the $1t.tl lrrilliorr lhc process cost was taken up by salary costs, only $Z.A milliorr w.rs .rr tr.rally being spent on value-added time, the rest of the staf f I irrrr, $t| rnillion worth-was taken up by controlling, transporting, eltl(l rltrlllit'ating information. An analysis ol llrr. l)r()cess efforts to simplify, reduce duplicate systeffis, and t'lirrrir.r.rlt, llre separate renewal process showed that over 57 million t otrlrl lr(' saverd by using a single, flexible system for
processes involved revealed

rvice.

3.6 show the process contract administration. Figures 3.4,3.5, and steps eliminated in each of these improvements' involve "presome of the simplification steps for new accounts with credit representatives work,, such as providing new-customer others calls' sales mu\9 they ratings and subscribe, n-umbers before to them allowing s!a{f, ,,empowerme nt:' of the processing invorve Some approvals' multiple approve contracts up to $5000, eliminating data bases. invorve removing logs, forms, and duplicate the final process. up make Figure 3.7 shows [hu six steps that to more than $z amount steps The total savings by taking these positions, and a staff 200 over of million annually, with a reduition modest cost for new technology'

Type

seeking parity-Moving Toward BreakPoint

AT&T Power systems Design For Excellence

bring a business to a This example shows how reengineerilq can but with an position of parity on most asp"ects of lts operatignt, can help create a profitadvantage that, while not a true BreakPoint, allow the business to able business, retain or gain market share, and its product line' seek true Breakpoints i; other aspects of located in Dallas, Texas, unit, power business Systems The AT&T of which is custom produces six differ",-,i produ.l categories, one is the product group switching power supplies (ols). Although this of doing business"' that produces the smallest revenue, it i; a "cost in the following ln 1989 AT&T power systems found itself on the downside: competitive position within the ols business. the near future; o a rapidly maturing market, destined to decline in growth as market short-term o oEM market shurl pitifuily low, but a medium Potential; extremery row, d ue in large part to the o sares effectiveness ,,unsalability" of the product by the sales force; perceived o costs high relative to competitors.
However, on the upside, the company enioyed:

o o

market parity on mean time between failure IMTBF); excellent technological capabilities;

omarketperceptionofAT&Tquality. never lrt' A detailed anarysis showed that the produ:t_ would lr percent-wlrit 31 competitive on cost. Even if costs were riuthed

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aggressive reengineerlngthe analysis showecl t. lle possible with still only be in a position would product and if revenues doubled, the reduced from of cost parity. But if time for custom prototyping.yus market would probably forgive the average of 53 days to 5 days, the
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that short prototyping tu rnarou nd, Pe rceived on real quality metrics quarity and name recognitiol, and parity grant AT&T's ols
and at least (MTBF) wourd offset .oridisadvantage

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product sustainable market share' relatively quickly, since the But the breakthrough had to occur represented a66 percent swing losses incurred by the ols products unit' i;-;;; opurating profit of the business (Figure 3.8) h ad 42hand-offs and/or procgss The formaily designed meetings' But when the tasks to be performed and 12 schuouled we re double the number of both actuar process was.*upped,.there circumstances, it is remarkable hand-offs and meetings. Under these days the prototyping ptot"ss took only 53 emphasized standard process new the of design The conceptuar dedicated, multifunctional platforms foi unique iolutions and a 3.9, would have 17 hand-offs design team. The new process, Figure meeting. Analysis showed that and/or activities, and only one formal goal for prototypinS' the new process wourd meet the five-day team could be assured design By standard izing the platforms, the were required for other components the since of parts availability, circuit board, was not standard subassembries. The bare printed nor minimal bare speed always optimally configured; but neither board desiSn keeping by board cost was the design driver. And in time for reduction reasonably consistent, th;re was asignificant software' the development of insertion machine of activities from the old number a process, new within the a design cell, a group that works process are retained'but assigned to time. Figure 3.10 shows the steps in close harmony to cut throughput be accomplished in a matter within the design cell, all of wnich can has a set of internal metrics' of hours, with no real hand-offs. The cell shown in Figu re 3'11 ' equivalent cell consists of eight and one-half f ull-time
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Business Process Reengineering
79

After

o one qualitY engineer; o one model builder; o one proiect manager'

after the writer can then back check the documentation for clarity. success is that the The key to the design-for-excellence concept's bullpen, and same the in team members actuaily work together until the request customer follow the prototype fiom the oilginal is production to Hand-off sampre is approved by the custJmer. four the but all of responsibility assured to be smooth, since it is the design engineers. proposal success ratio, The team is evaluated equally by its speed, the end of 1992, the up.-By ramp and subsequent ease of production and the ols metrics, bythese new process was working quite well business was becoming competitive.

lnitial lnquiry
Reouirements

(See Detail)

of his or her own documentatioh, writer; the technical rather than passing it all off to the technical fact and edit
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3.10

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in the design cell.

Type Design Cell

Self Contained Metrics

searching core Processes for BreakPoints

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BreakPoint busiThere is a third kind of business process, the carried out in ness process, a k"y set of activiii"r that when with the goal of concert drive a key aspect of the business from the dominating the competition. These often spring industry segment, current core business processes within an creates a new but create a newly defined set of activities that thereby defining set of competitive dimensions in an industry, imposing these and the next gur,uration of core processes processes on the comPetition' new-Product For example, in th; semiconductor indus try, process. But business core a developrrr"r,i has always been reduce lead to itself within with the ability one company found defined as being times from 16 weeks tojour days (lead time starting with starting with order entry, and the factory process established. wafer prep) , a new competitive dimension was of course products? new Did this l^,L[ute the need io develop dimension another not, but ,,rid"nly the market focused on without and customers saw that they could get real benefits new technologY.

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Another example is the old Eastern Airlines shuttle from

Boston or Washington D.C. to New York and back again. In the 1970s when Eastern created the every-hour-on-the-hour flights, they rewrote the rules of airline travel in the most heavily travelled corridor in the United States. The airline used the same activities and same core competencies, but created a new process that used such innovations as on-board ticketing, one price, and a guaranteed seat, even if the company had to "wheel out another plane just for one customer" to provide a never-heard-of level of service. Creatirg new competitive dimensions in an industry does not come without some risk and requires extensive analysis to minimize this risk. None the less the effort can be rewarding. Reengineering the supply chain in the soft drinks industry to achieve BreakPoints in cycle time, service and cost resulted in significant and sustainable competitive advantage for CocaCola & Schweppes Beverages Limited (CC&SB).
Coca-Cola and Schweppes-BreakPoints

The manuvariety of canned, bottled and packaged products. any new to central be to going clearly facturing facilities were approach to oPerations' modeled the Two teams were estabrished to do the analysit.gne while the core business processes of manufacture and distribution, influences such other investigated the effects of changing external of the business' as legislatioriand market forces on th; economics world was At the time, one of the fastest canning lines in the minute. per cans running in the cc&sB plant in Milton Keynes;2000 provide to not only The challenge was to use this new technology competitive a sufficient capacity to meet demand, but also to create
leap forward.

in the Supply

Chain

CC&SB is

a joint venture in Creat Britain between Cadbury Schweppes, the U.K.'s number one producer of mixers, and CocaCola, the country's number one producer of cola. As the joint venture's managing director, Derek Williams, said, "CC&SB decided that a full merger was the wrong course to pursue and that what they had to do was to build a new company." When the two companies joined forces, a large increase in sales volume for the two brand lines was realized, which became the
catalyst f<lr an urgent review of capacity. The apparent need for substantial investment was the trigger for a complete reappraisal of the core' business process of manufacturing and supplying soft drinks thrr)ughout Britain. Williarns had been managing d irector of Schweppes for some time befort'the joint venture was launched. With a background in personnel, Williams is widely acknowledged as a highly effective team bu il<ler. Two other top executives who oversaw the reengineerirrg cffrlrt were Peter White, the operations director, an astute logistit's [)r()fessional, and John Turner, the manufacturing director, a visi()nitry engineer. The operati()ns study needed to be conducted quickly; at the same time it nr.('(lt.rl lo be comprehensive and lay out a vision for the next 10-15 |(',trs. (-(-&SB's manufacturing plants produce a

of size and the The limiting factor in the filling process, because itself' The filler effect of gravity on the filling lin-e,'is the carrousel to a few time availabilid of high-speed filiers was limited at the conand suppliers. rh" Ccasg team looked at this technology and l^.rease sidered how they might use it to enhance productivity back-to-back on carrousels two run to iecided team The flexibility. cans per minute' one line-doubling the effective line speed to 4000 percent cut in 50 rn this wa1,, th; first Breakpoint was found-a than for a needed cycle time per line crew, with little more space traditional iinu, and some investment savings' the manning lf necess ary:, only one filler can be used, ?llowing down. or up level to be constani while flexing production possible to soon another bottleneck "p[".red. while it was relatively another to flavor change over the filling line from one packaging line. quickry, it took up to t*o hours to chang! ove.r the and cost speed, line titling This negated the advantage of higher

flexibilitY.

. _ -,r-^r^^r+ helped to idenAgain, process modering came to the rescue and cc&sB to enable would that tify a new packaging *".f,iL" layout the cycle achieve and speed capita lize on the inJreased filling line
time BreakPoint. ln the East Kilbride plant, cc&sB had another technologically practice., Kilbride advanced concept in use. ln contrast to accepted (PET) bottles in line te.rephthalate was actually blowing polyethylene ylelded huge Thi: supplier. rather than using an external bottle volume-tohlgh pET avery have bottles savings in space, since empty experiThe handle. to expensive weight ratio, and are difficult and concept this use to decision the ence from the existing plant drove again as a foundation for any new facility' manufactu ring A deep u nderstanding of the new materiars supply, the use <lf and distribution processes began to evolve through

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process models of the new inf rastructure. Trade-offs were evaluated

well have to be new plants built. The existing plants were seen as
sub-optimal for the then forecast increases in demand, ?trd new sites
we

to seek the economic impact of flexibility on the lines versus the

lower cost of dedicated equipment. lnventory levels were examined to find the trade-offs between storage space and the cost of capital to increase capacity in the plants to deal with the surges in demand. The challenge was to cover the increased demand for soft drinks in the hot summer months. A heat wave could create peak demand within hours. But was it realistic to build the plant to cover this demand, since it only occurred infrequently? Failure to satisfy peak demand, however, means loss of profitable growth. The analysis was complex. "Best Before Date" coding made stock rotation a necessity and moving goods into and out of stock adds to costs and overheads. The CC&SB team realized that the company needed an innovation; a way to get around holding stock for peak demand while not overbuilding capacity just for the three or four few-day periods each summer when peak demand would hit. A capacity utilization strategy set the high-speed lines running at
f u Il capacity seven days a week, and the other lines ru n n ing at varying capacity in order to flex to demand. During potential peak demand period, the high speed lines run only the most highly desired f lavors, on ly in 33 cl cans, saving changeover and maxim izing output. Here was a second BreakPoint, in the service area. Peak summer demand can now be met without the costs of hold ing excess inventory, rotating stock that goes beyond "Best Before" date, or inr reasing the complexity of systems. Customers would always be allle to get CC&SB products in a heat wave. "l lre pr(xess models were then used to demonstrate the effect of tlrc tyJlt' ancJ number of factories on manufacturing and primary rlistrilrrrtiorr r osts. These investigations required the consideration of fo<'r,rs(,(l vt'rsus multipurpose factories, and the number and scale of lll.urts tlrat would be required. All of the options required a l'urrrl,urrcrrl.rl rethinking of operating skills. ( orrsirl(,r".rtion of operating skills led to proposals to increase the It'vt.l ol skills ,r( r()ss the staff. lt was proposed that line teams should carry orrt rnultiplt. functions, covering inspection , routine mainterriln( (., IryHr(.r'r(., (lLrality, and machine operations. These proposals wer() J)r()jr.r tr.tl to rt'sult in line efficiency improvements of more than ti5 l)(.r r r.nt, .ul(l to f urther reenforce the capacity and cost Breakl)oittlr. Onr' [)r'()( (.(,(., rrror lr.l (.xilmined suggested further stretching of the existinU irrlr,rsll rrr lur(,. ll became clear that in this case/ most filling lines woulrl n(.(.(l r,';r!,rr urll in the following 15 years, and there may

re eva I u ated . The supply and distribution process models showed that if new capacity were to be built that "virtuality" could be exploited if a canmaking factory could be built next to the filling plant. Here was the third BreakPoint, in product cost, which could be achieved by a radical reduction in the working capital needed. No can inventory was required, cans could be supplied as needed and finished goods dispatched directly from manufacturing on trucks to the trade and multiples. These process-based evaluations of d istribution and site acq u isition costs by the CC&SB teams of a series of potential sites led to the construction of a major new factory at Wakefield in the North of England. The total contract for both can and PET filling lines was placed with a sole supplier as CC&SB wanted only one contractor, and common equipment in the production area. It was also decided, after approaching several suppliers, that a can-making plant wou ld be established alongside the new f illing factory, with cans supplied to the filling line via a "hole in the wall" operation. ln this wal, three BreakPoints-in cycle tiffi, service, and costhave been effected. As luck would haveit, the two summers following the completion of the new factory both had many days of superb weather, with peak demand f requently reached. The production and distribution strategies proved their worth, and CC&SB achieved remarkabte performance in the highly competitive cola and soft d rin ks market in C reat B ritain.

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