OPERATIONAL
EXCELLENCE- ERP
,BOOK:
difference between innovation & improvement
1) Innovation
Structural change in the way in which you work. It’s a new technology or working way. In many situations innovation signifies
the introduction or relapse into a (very) inefficient way of working, with possibly even a worse result than before. -> an ice
cream producer decides to add a new distribution channel through which next to stores also deliveries directly at the homes of
end consumers are executed. -> yet it can end up in a loss. For your company, and after several years it goes bankrupt.
Yet innovation is expected to lead to improvement of your process, can be immediately or on longer terms -> ideal situation
2) Improvement
Efficiency & effectiveness. A positive effect on one area is (more than) compensated by a negative on the other:
Efficiency: use the means to a good end. So, employ equal means with improved result or same result with less means, either
one of them is good
Examples:
More result, same means: you use car for transport to your work, you can take someone with you for every seat or you can use
it as a multimodal -> you put your bike into your car
Same result, less means: a car has a stop-start function to save fuel in traffic jams and red lights. Or you can program your gps
to avoid traffic jams.
Effectivity: improve the result as such to better fit your customers expectations. Compare the result that you produce versus
your customer’s expectations
Examples:
More efficiency lead to more effectiveness:
You order products online and check out for payment. It is a delighter to find that the value of your purchases is sufficiently high
to allow dismissal of transportation costs. This clearly is an efficiency improvement of the supplier leading to an effectivity
improvement for the customer. Customer will be more excited for a next purchase, bcs you appreciate the supplier.
More efficiency and yet los of effectiveness.
You convince supplier of having a yearly target of -2% on the purchase budget. This is an cost decrease but can result in a
loss for the supplier as his internal cost are high and this can lead to the supplier having more interest in other customers,
then the service to the cost decreasing customer will start demising so you can’t reach your yearly target anymore.
More effectiveness without efficiency change:
A producer of sports watches delivers a watch indicating new features (location, heart rate, …) this appliance delivers a great
profit margin. After some time a regulating authority may decide to use the watch for better screening potential patients. The
promise of reduced hospitalization costs ensures a larger market for existing sport watches. You do not always need to cut costs
or improve products efficiency in order to see a rise in effectiveness.
PROCESSES
Bv: daily life: in a store you will first discover, select, and bring the goods you want to the cashier. Only after proper payment you will
become the owner. In a webstore the process differs a bit. First you discover and select the goods. Now you will need to pay all of the
goods that you have placed in your shopping basket & after payment the goods will be transported to you. The sequence between
delivery and payment is the opposite in both shops but we still discuss the same sales process of a store.
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,The selection process: we select the counter party, product, location; timing & price with which we will execute the transaction.
(Preparation for the transaction)
process Selection transaction
sales Work on the potential client until the first Note order correctly, confirm it, produce
or even subsequent order and deliver it accordingly
planning Based on the estimated sales, calculate Release planned orders whenever you are
how much you need to replenish inventory within the cumulative order lead time
levels in time (planned orders) (released production and purchase orders)
production Determine optimal production sequence Execute production orders
based on settings and materials
purchase Based on requirement select the best Place order to supplier, receive, evaluate,
supplier and pay invoice
warehouse Plan the expected activities of purchase, Execute receipts, picking, etc.
production and sales
Transaction process: exchange between to parties.
Bv: purchase: supplier delivers goods or services to a customer, who will trade these in exchange for money
You could have a transaction between two parties which each has its own legal entity ( limited liability versus independent
merchant f.e.) this is the same in a sales process
Production process: production department delivers what the production planning has determined to produce. Planning
calculates this based on estimated demand. The transaction is between two parties: production & sales. We don’t contribute
for money but for a higher goal: profit for your company.
3-Sub processes:
The physical process you mainly find in the transaction process and by exception in the selection process (bv: materials to be used in
production need to be tested before a supplier is finally selected)
The financial & documentation are found both in the selection & transaction process
Front & back office processes:
Front: deals with every contact with the desired outside world: customers.
Can be showroom, sales/marketing department who come in direct contact with customers.
It’s (a part of) sales, marketing, deliveries (transportation) and sometimes even warehouse (pickup by customer)
Need to be customer friendly and robust
Aimed at creating value for the customer:
Back: coordinates all contacts with other partners, who are needed to realize the processes in order to meet customer needs
Verifying availability of a product, calculating profit margin, etc. is part of sales but customer isn’t involved.
Purchase is a typical BOP only FOP when you work in an environment where customer directly determines the product we
sell & sit the buyer at the table with the customer to work out the exact requirements.
They are meant to provide the front with everything that will be sold there
Everything that doesn’t belong in front but is needed to realize sales
Production, purchase, subcontracting and transportation and warehouse, research & development as well
Processes around customer clearance, storage of goods, quality management, planning, returns, repack, destruction,
accounting, …
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, Example:
1) a car dealer has a showroom where customers can discover new models. Nice spaces to talk and negotiate in a relaxed atmosphere
for the customer -> FO but warehouse and workhouse are the back office
2) New web store has an amazing website. Social media lead potential customers to it. Through telephony the more traditional clients
may be persuaded to take the contract -> front office, but WH prepares goods, purchase, transport -> so need to make sales
happen-> BOP
Improvement methods: BOTH AIM AT PROCESS IMPROVEMENT BY ELIMINATING WASTE AND IMPROVE DESIRED OUTCOME
-To gain insights and oversights into an existing situation. When this is analyzed properly, you can indicate what needs to be done to make
the process work lire efficiently or produce more effectively. You will possibly discover an innovation. Once you have chosen, you need to
determine where the impact of that improvement or innovation will be visible. The result will be a new situation that you gladly will want
to realize.
Process: result of pilling up blocks of tasks and decisions: from supplier to customer when you deliver (transaction) and best-case scenario
is that your process will always work.
Improving a process means:
1) Know how it works
2) Understand how processes can be improved using improvement method
3) Apply the change (improvement in a concrete situation (project)
-Value stream mapping (VSM)
-> will reveal how long a product stays in our process -> we want to shorten this as much as possible
->when a process runs faster, we will consume less capital to keep it running
->ideal situation: we only start our activities after customer decided what he wants from us
-> we are able to deliver that wish before the customer starts complaining
-business process modeling notation (BPMN)
-> we look at the interaction between actors and decisions that need to be made
-> you need to make sure that you analyze in depth so that you can easily find improvements
With both we describe current situation and look for opportunities to improve
Important to bring the right people to the table and shape a group capable of setting goals and executing against these
CI: needed because there will always be more opportunities that you can handle, you need to split it the project in separate
phases with each a specific objective, you need to keep sufficient pace in your change process not a one-time thing
Reasons why you would alter:
1) The market in which you operate: growth/shrink
2) Your market share: growth/shrink
3) Technology evolves you are ahead of competition, behind or follow
4) Legislation evolves comply at right moment
At a given moment you will need to move and change your process
Front runner? quickly pick up the trail of a new trend -> good for market share but the change will shake up your process so
that you’re in for efficiency changes later. Or you can copy collages but there won’t be bonuses
CI: is fundamental for your company to survive in the long-term. Detecting in time the required changes and implementing them in time.
Segregation of duties (SOD)
->need to give different persons different roles
-> to avoid fraud
->compliance: comply with legislation. The companies right to exist
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