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Business Processes Summary
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Business ProcessesLecture 1:
Consumer Utility: a measure of the customer preference of a productor service. The customer will
choose the option that gives them the highest utility.
Inconvenience: the reduction in utility that results from the effort of obtaining the product or
service. Location and Timing
Location: the place where customer can get a product or service
Timing: the amount of time that passes between ordering and receiving a product or
service.
Price: the total cost of owning a product or receiving a service. Including expenses such as shipping
and financing etc.
Consumption Utility: is a measurement of how much you like a service, ignoring the effects of price
and its inconvenience. Consumption ability comes from various attributes such as Performance and
Fit.
Performance: subcomponent of consumption utility capturing how much a consumer
desires a product or service (we all desire “cleaner”, “newer”, “more efficient”...).
Fit: subcomponent of consumption utility that captures how well the product or service
matches with the uniqueness of a given consumer. On some attributes consumers disagree
what the best is.
Consumer utility consists of: Inconvenience, Price and Consumption Utility
Strategic Trade-off: When selecting inputs and resources, the firm must choose between a set that
excels in one direction of customer utility or another, but no single set of inputs and resources can
excel in all dimensions.
Capabilities: The dimensions of the customer’s utility function a firm is able to satisfy. Capabilities
allow a company to do well on some but not all components of customer utility.
Market Segments: A set of customers who have similar utility functions
,Restaurant A: Better for cost-sensitive people
Restaurant B: Better for price-sensitive people
Restaurant C: No one focusing on time and cost would visit this restaurant
Restaurant D: Perfect restaurant for people focusing on time and cost (Dominates all restaurant,
efficient frontier)
Operations Management: Improving the way we and/or others do their work “The Science for the
Better”. Managing processes to efficiently (e.g. reduced cost, better utilized resources) match
demand and supply.
1. Costs
2. Efficiency
Costs for inputs: Inputs are the things that a business purchases. A fast food restaurant
purchases meat, salad, buns, soda, etc. Car manufacturers buy steel, seats and tires,
computer makers buy displays, chips and power supplies and hospitals purchase
medications, bandages and food.
Costs for resources: Resources are the things in a business that help transform input into
output that match customers demand. In a fast food restaurant, the resources are the
cooking equipment, the real estate of the restaurant and the employees. Car manufacturers
and computer makers have plants, warehouses and employees. Hospitals have doctors,
nurses and their building.
Three system inhibitors (Efficiency):
Waste: The consumption of inputs and resources that do not add value to the customer
Restaurant: disposes expired food, bad layout (e.g. employees waste time looking for the
sauce)
Variability: Predictable or Unpredictable changes in the demand or the supply process
Customer arrival: we can never predict exactly the number of customers we need to serve
today
Customer requests: what customers want to order and how much?
Customer behavior: you wait for customer because he is on the phone
Inflexibility: The inability to adjust to either changes in the supply process or changes in customer
demand
E.g. Small waiting rooms with limited number of seats
E.g. Limited range of offered products and services
Key decisions in Business Processes:
1. Process Analysis and Improvement
2. Process Productivity and Quality
, 3. Anticipate Customer Demand
4. Respond to Customer Demand
Process: A set of activities that take a collection of inputs, perform some work or activities with
those inputs by means of resources, and then yield a set of outputs
Process Flow Diagram: a graphical way to describe the process. It uses boxes to depict resources,
arrows to depict flows, and triangles to depict inventory location
Resource: A collection of equipment/people that can perform an identical set of activities. Each unit
in a resource is called a resource unit. Sometimes also called resource pool.
Flow Unit: the basic unit that moves through a process.
Choose flow unit that corresponds to what you want to track and measure (with respect to
the process).
Stick with the flow unit you define.
Choose a flow unit that can be used to measure and describe all of the activities within the
process.
Process Metric: something we can measure that informs us about the performance and capability of
a process.
Inventory (I):number of units within a process.
Inventory tells us how much “stuff” is in the process
Inventory takes up space and costs money
Expressed in units
Flow Rate/Throughput (R):the rate at which flow units travel through a process.
Expressed in units/times units
Flow Rate = Minimum{Demand, Process Capacity}
Flow Time (T):the time a flow unit spends in a process, from start to finish.
Expressed intime units
Little’s Law: the law that describes the relationship between three key process metrics
I=RXT
Lecture 2: One-step processes
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