Business Process Improvement Slashes Inefficiencies
What is a business process?
Every business sells, produces, and delivers a product or service to its clients, and the company’s business processes are the unique steps it takes to do this. Even if two businesses are selling exactly the same product or service, their business processes won’t be exactly the same. Processes are developed in response to demands, which may be imposed by clients, internal management, or government and other oversight agencies. Companies have overall processes, and divisions and departments within the company have sub-processes that roll up to the overall one. Most employees complete their part of the process to the best of their abilities – this is called Local Optimization. Surprisingly, local optimization often contributes to inefficiencies in the overall process.
How can doing your best still cause inefficiency?
Inefficiencies are introduced because employees do their best based on their understanding. How can doing your best cause a problem? Here are some examples.
One client complained that the number of sales per month was incorrect on their system generated reports. When we investigated the issue, we found that the reports accurately reflected the data in the system. What was the problem? The company rewarded employees for the number of sales per month, counted at the end of the month. Management analyzed sales reports weekly.
Using our standard business process improvement methodology, we found that:
- Based on the month end reward system, some employees waited until the last day of the month to enter sales. If management talked to employees during the month, they might hear about 100 sales, when the mid-month system-generated report would show only 10.
- Even when employees entered sales throughout the month, they waited until the last possible day to enter cancellations, which they optimistically hoped would reverse before month end. Since about half of the initial sales ended up cancelling, this omission had a significant impact on the accuracy of the sales data.
Based on the reward system, employees were highly motivated to enter sales at month end, but there was little incentive for entering sales or cancellations throughout the month. The system was accurately reporting the information entered, but the information in the system didn’t match what was happening in real life. To get information in the system to agree with what management might hear in a phone call or a hallway conversation, we recommended that the company make the reporting and reward periods the same. To see accurate numbers daily, management had to reward daily sales performance. Weekly rewards would ensure sales were entered into the system by the end of each week. What looked like a report problem was really a process problem caused by rewarding employees in a way that encouraged inaccurate information throughout the month.
No ownership of the overall process.
A client complained that it took too long to create an estimate of the cost to manufacture a new product. The problem wasn’t a lack of motivation, knowledge, or data. What was it? Here’s how the original process worked:
- Client requested cost to produce a new product.
- Sales completed a new product pricing request form by filling in customer and product information.
- Engineering reviewed request and filled in the technical requirements for building the product.
- Based on engineering’s input, purchasing sourced the raw materials required to build the product and provided the cost.
- Production figured out the steps required to produce the product and calculated the associated cost.
- Packing identified the best packing method and associated cost.
- Shipping determined the cost for various alternatives for delivering the product to the client.
- Accounting calculated the final cost and sales price for the new product.
- Sales, engineering, purchasing, production, packing, shipping, accounting, and the management team met to discuss the new product request and finalize the sales price to produce the new product.
Questions throughout the process frequently required communication with the customer, and clarification of the customer’s requirements had to be re-routed through all departments to determine whether an update was required. Each customer purchased about 10 products from the company, and with an average time of 90+ days to create a quote, our client was facing the loss of existing orders along with new opportunities, as frustrated customers began to select new manufacturers for all their products.
After conducting interviews with representatives of the departments involved and preparing process maps showing what was happening, we facilitated a team meeting to review the maps and discuss our findings, which included:
- Responsibility for the new product quote was handed off as it routed to each department; no one was assigned ownership of and authority for the overall process.
- Departments were sometimes generating unnecessary information. For example, engineering spent up to 4 hours creating a new product spreadsheet because they thought purchasing and production needed the information, but neither department used it.
- Questions that came up during the management meeting at the end of the process frequently required a complete rework of the quote.
- The employees who completed the new product quote request in each department also had production responsibilities, which took precedence over the new product work.
Once the departments understood the complete process, they became part of the solution. Management delegated authority for the complete new product estimation process to one person. Engineering was happy to stop spending time producing the unnecessary spreadsheet. A cross-functional team review of the request was added to the beginning of the process, so fewer questions came up for the first time at the end. The early team review also provided the additional benefit of identifying products the company could not produce before departments wasted time responding to the request.
With the changes implemented, the new product process was reduced to 30 days or less, and the person who now owns the process continues to make improvements. Maybe your business doesn’t take 90 days to price a new product, but every business has processes that can be improved.
Fix process issues before investing in software
Sometimes people will try to convince you that software solves business process issues. However, business process improvement is independent of computer software. The best software in the world can’t fix broken processes, and the wrong software makes bad processes worse. So before you invest in new or updated software, analyze and improve your business processes.
DragonPoint has used its standard business process improvement methodology to facilitate more than 50 process improvement projects for a variety of service and manufacturing clients. More information . . .