5 Steps to Identify Core Processes

Part Two of Creating Well-Defined Processes Series

Next Week: Implementation

Last week, we raised the question: how do you know where to begin? How can you identify a gap in one of your company's core processes?

The answer: follow the money trail?

But how do you follow the money trail, and what will that mean for your business? To answer this, let's look at five steps to identify your core processes and any needs for change.

Step 1: Define Your Business Model

The following question might sound very basic, but you should first ask yourself: what business am I in? You'll ask this because you want to follow the money trail: to identify how exactly you earn revenue and from where that revenue comes. And this also defines your business model, which sets how you make money. By examining your business model (including mission and vision statements), you see not only how you can make money but also how you should make money. In other words, what should be happening in your business to increase revenue ? but isn't and why?

Step 2: Create a Process Map

Once you've looked at your business model, continue to follow the money trail and identify your company's core processes in the cash to cash cycle. By doing this you can see which processes are most critical to the overall success of your business.

Next, connect the core processes in a process map. Link suppliers, inputs, outputs and customers together to see the overall cash conversion cycle. Let's examine a high level process map.

Here we have the complete business cycle of a typical company using the SIPOC method, which connects Suppliers to Inputs to Processes to Outputs to Customers. To illustrate, a typical process map flows like the following from left to right: a Supplier connects the input purchasing with the Process of inventory and to the Output sales, which is then connected to the Customer. From there, the cycle also flows back from right to left: the Customer connects the Output accounts receivable to the Process of manufacturing to the Input accounts payable and finally to the Supplier.

With this, you can see the departments through which cash flows. And once you identify and break down your company's core processes, you are closer to answering the question: which process do I start to improve?

Step 3: Examine Financial Statements

Now continue along the money trail by looking at your financial statements, including the balance sheet, income statement and cash flow statement. Your financial statements indicate where your money is piling up, sort of like a snap shot of what your velocity is currently.

For example, in a manufacturing company, you can determine if there are long wait times between sales or long delivery times ? both of which are evident in inventory. And inventory (as seen in your financial statements) also show the effects of time ? and whether your process velocity (i.e. a slow process in the conversion cycle that causes long lead and wait times) is causing a pile up in your financial statements. Ask yourself: "are my processes fast enough to make my customers happy?"

Step 4: Set Velocity

Velocity is the speed at which your system is operating currently e.g. goods delivered on time and responsiveness to orders. To design an effective process, you will need to know the set velocity that the organization needs to maintain good customer satisfaction. If your inventory process has a long cycle time, beginning with raw materials and ending with the customer, then this could be an indication of a low velocity. Customers set the pace, and they will tell you if the velocity of product turnaround is sufficient. And so companies need to calculate what that pace is to make customers happy.

Step 5: Determine Leverage

The last element in following the money trail is to review leverage ? which process improvement will create the strongest return on investment (ROI)? Keep in mind both time and money, and determine what process inefficiency is consuming all of your cash. Why is that process eating away your money, and should it be? But keep in mind, too, the element of risk: what will happen if I make a change, and what will happen if I make no change?

For gauging your ROI needs, examine the five parts we've discussed so far: your business model, process map, your financial statements, velocity and the leverage to make your customers happy. Answer these five questions, and you should know where to start.

Let's look at an example in play...

Review a Case Study of Core Business Processes

A manufacturing company interested in ISO 9001 quality was experiencing poor customer service and very low inventory turns, and needed help. The company's perceived problem was not that they carried too much inventory but, instead, that they had poor customer service and employee performance in processing and fulfilling orders in a timely manner. Because of this, they wanted us to focus on those areas. But with such a pile up of inventory we saw a red flag. And we asked the company: where is the root cause of the problem?

As we took a further look, we immediately saw a connection between poor customer sales service and a large stock of inventory. The company's manufacturing cycle efficiency was so low that it created a perceived need for higher inventory. And customers weren't happy because of long wait times to receive the products that they ordered. In other words, customers weren't getting the velocity that they had expected and wanted.

The company insisted that it needs more inventory to keep customers happy. But this is just another bandage to fix the symptom of the problem and not the root cause.

Inventory is a result of the purchasing, manufacturing and sales cycles. And so we examined the financials, business model and system velocity of the company. From there we created a process map of these three core processes, as well as defined the company's leverage points that would ensure a healthy ROI for any process changes made. We calculated an improvement of five times in velocity. By removing the inefficiencies out of the system, inventory decreased significantly, turns increased greatly, and customers were happy. We helped reduce the total amount of inventory. And we also helped increase the speed of the inventory cycle by focusing on purchasing, manufacturing and sales.

Create a Gap Analysis

And so with this example, we can now answer our original question: where do you start? As we've discussed, follow the money trail through the five key steps: define your business model, create a process map, examine financial statements, set velocity and determine leverage. But what pulls it all together?

We pull all of this together with a Gap Analysis. An operations assessment (also called an audit) results in a Gap Analysis and this report of gaps, or inefficiencies, found in the system shows you where to start to achieve your target. A Gap Analysis helps you identify your core processes and performance metrics in order for you to achieve your objectives.

Look Ahead

Next time, we will look at a process map more in-depth. We've identified where to start, but we will learn how to create a process map - one of the most important documents you need for your organization's success.

Chris Anderson is the managing director of Bizmanualz, Inc. and co-author of policies and procedures manuals, producing the layout, process design and implementation to increase performance.

To learn how to increase your business performance, visit: Bizmanualz, Inc.

---

ISO 9001 What Records Does My Business Need To Keep?

Which documents must I keep for ISO 9001?In addition to... Read More

Business Innovation ? Core Competency and Competitive Advantage

Creativity can be defined as problem identification and idea generation... Read More

A Leadership Screw Driver: The 90 Day Improvement Plan

I was talking with first-line supervisors in a utility company... Read More

Effective Meetings by Phone - Part 1, How to Plan a Teleconference

Teleconferences can be a boon or a bust. On the... Read More

What We Have Here Is A Failure To Communicate

Today's successful organizations are the ones which carry on open... Read More

Is this A Good Time To Sell Your Body Shop Business?

Have you ever asked yourself the question? "Is this a... Read More

Don?t Get Down ? Manage Up!

"Experience is not what happens to a man; it is... Read More

10 Steps When You Need Help in Your Business

If you think ahead and plan, many nightmare panic and... Read More

Performance Appraisals: Questions for Smarties and Dummies

In numerous programs I've conducted on performance appraisals, with Human... Read More

Managing Change in the Workplace

Change is exhilarating. Change is terrifying. Change is badly needed... Read More

Managing Client Relationships

Managing Client Relationships: Even the best run organizations occasionally run... Read More

How To Use W Edwards Deming

Human beings and the way they interact are extraordinarily Complex.... Read More

Innovation Management ? does the idea fit with the firm?

Creativity can be defined as problem identification and idea generation... Read More

Effective Meetings Begin With a Real Agenda

Everyone knows that an agenda is the key to an... Read More

Selective Job Cuts Often Benefits Firm More Than Broad Layoffs Over Long Term

It is difficult to pick up a newspaper or listen... Read More

Test Your Hiring IQ

The purpose of any selection process is to discriminate (albeit... Read More

Change Behaviors, Change Performance

Every organization is looking for the holy grail of performance... Read More

6 Steps to Effective Communication

Effective leaders are known for being excellent communicators. Here's what... Read More

Unveiling the Value of Your Expertise

All of us have knowledge, expertise, and experience that others... Read More

The Challenges of Human Resource Management

IntroductionThe role of the Human Resource Manager is evolving with... Read More

Using Outlook to Count Responses

Here's a productivity tip that will save you a lot... Read More

Knowledge Management - Creating a Sustainable Yellow Pages System

How can I "know who knows" None of us can... Read More

Money, Motivation, Success and Who?

It was 7:30 on a Saturday morning, and I was... Read More

Outsourced Learning: Are You Ready for Learning BPO?

As the business world enters a period of hyper-competitiveness, every... Read More

What is Data Visualization?

Data Visualization is InteractiveHave you ever booked your flight plans... Read More

Get It Done! Soft Skills not Hard Tools are Required

If your organization has people, then interpersonal skills are needed.I... Read More

Look Good on Voice Mail

Your use of voice mail tells others a lot about... Read More

Saying One Thing, Doing Another...

This week I was asked to speak at an internal... Read More

How to Save Money on Training

1) Use a live instructor. Adults learn best by doing,... Read More

Five Tips for Analyzing an Income Statement

In today's article, we'll be looking at the income statement,... Read More

An Original Perspective on Waging Conflict as a Way to Promote and Restore Self-dignity

Conflict is a fact of life for all of us,... Read More

Policy & Procedure Manuals - Tools For Greater Productivity and Efficiency

In today's tough retail environment the retailer needs all the... Read More

You Get the Behavior You Reward

On consulting assignments, here are some of the questions I... Read More