God, grant me the serenity to accept the things I cannot change, The courage to change the things I can, And the wisdom to know the difference. (Serenity Prayer, Reinhold Niebuhr)

Processes & Process Measurement

A business process is a collection of related, structured activities or tasks that in a specific sequence produces a service or product (serves a particular business goal) for a particular customer or customers (Wikipedia). A primary process is one that addresses the main value-added activities of an organization. A support process is a process that may be necessary, but is not one of the main value-added activities of the firm.

Toyota Assembly Line (CNN Money)

Manufacturing Processes

Manufacturing process choice dictates the layout choices of the manufacturing firm. There are three main types of manufacturing processes:

Product Customization

There are various levels of customization that an organization can enable for its customers. Listed in decreasing order of customization, these are:

  1. Engineer to Order (ETO) - is a technique for customers needing solutions that are tailored to fit their own unique environment. It begins with selling product concepts that don’t have fixed designs and are expected to result in a new, unique end product (Wikipedia).
  2. Make to Order (MTO) (also known as Build To Order) - is a production approach where products are not built until a confirmed order for products is received. BTO is the oldest style of order fulfillment and is the most appropriate approach used for highly customized or low volume products (e.g. restaurant orders) (Wikipedia).
  3. Assemble to Order (ATO) - is a model production operating a build to order policy where products are assembled from standardized components only once an order has been made (Wikipedia).
  4. Make to Stock (MTS) - is a build-ahead production approach in which production plans may be based upon sales forecasts and/or historical demand.[1] BTS is a usually associated with the industrial revolution mass productiontechniques, where in anticipation of demand vast quantities of goods are produced and stocked in warehouses (Wikipedia).

Process Measurement

Productivity

Productivity describes various measures of the efficiency of production. A productivity measure is expressed as the ratio of output to inputs used in a production process, i.e. output per unit of input. Productivity is a crucial factor in production performance of firms and nations. Increasing national productivity can raise living standards because more real income improves people's ability to purchase goods and services, enjoy leisure, improve housing and education and contribute to social and environmental programs. Productivity growth also helps businesses to be more profitable (Wikipedia).

Formula: Productivity = Output / Input

Single Factor (Partial) Productivity

Productivity measures that use one class of inputs or factors, but not multiple factors, are called single factor productivities. One of the most common of these measures is labor productivity.

Formula: Labor Productivity = Output / Labor Input

On a national level, GDP per capita is a rough measure of average living standards or economic well-being and is one of the core indicators of economic performance.

Multi-Factor Productivity

When multiple inputs are considered, the measure is called multi-factor productivity or MFP. Because multiple inputs are used, a common denominator is required. Most commonly, the common denominator used is the total cost of all of the inputs over the time used to create the output.

Formula: Multi-Factor Productivity = Output / Total Cost of All Inputs

Efficiency

Efficiency is a measure of the extent to which input is well used for an intended task or function (output). It often specifically comprises the capability of a specific application of effort to produce a specific outcome with a minimum amount or quantity of waste, expense, or unnecessary effort (Wikipedia).

Formula (expressed as a percentage): Actual Output / Standard Output

Cycle Time

Manufacturing cycle time refers to the time required or spent to convert raw materials into finished goods. It is also known as throughput time. Technically, it is the length of time from the start of production to the delivery of the final products. It is composed of process time, move time, inspection time, and queue time (AccountingVerse).

Common things to look for to reduce cycle time include: waiting times, non-essesential process steps, serial vs parallel process steps, repeated steps, batching, excessive controls, outdated technology, lack of information and lack of training.

Percent Value-Added Time

Percent value-added time is a measure of process performance; the percentage total cycle time that is spent on activities that actually provide value. For a step in a process to be considered value-added, it must (1) physically change the product, (2) the customer must care about and want this change, and (3) rework does not count.

Formula (expressed as a percentage): Value Added Time / Total Cycle Time