Improvement of business process for SME on the basis of quality system.

Karaulova, Tatyana ; Otto, Tauno

Abstract: This paper addresses a need for modelling methods to support enterprise engineering. The enterprise engineering is a considered and systematic analysis and design of an enterprise through the business processes, which it employs to realize its business goals. The enterprise model contains the representations of individual facts, objects, and relationships that occur within the enterprise. BPM is a convergence of a number of existing technologies and approaches. Its primary roots are in the process management capabilities of workflow tools but it also includes the capabilities that derive from document management, process modelling, analytics, rules management, collaboration applications and application integration.

Key words: process model; systems management, ISO, modelling, business process

1. Introduction

In today's competitive global market, for the survival of any industry, manufacturing companies need to be flexible, adaptive, responsive to changes, and be able to produce a variety of products in a short time at a lower cost (Lee, et al., 2003). Business processes are everywhere in organizations. Some have been defined with a great deal, but the vast majority of processes in a business are not well defined or documented. Organizations are turning to improving and standardizing processes as a source of competitive advantage and as a driver for improvements across the enterprise.

Process management theory is not a new concept, but the ability to use technology to manage by process has really come of age. The Theory of Systems requires that management understand the organization as a whole system, a complete picture; and they must emphasize the optimisation of that system. It is essential that the aim of the system is communicated to and understood by all members of the organization. Moreover, the best chances of achieving that aim come when all the parts of the system are working collectively toward the aim (Deming, 1986). Quality in the systems view is the result of the interactions of all parts of the system.

The ISO 9000 standard is an excellent tool to develop a strong foundation of good processes and systems. Processes and systems are essential for the performance and expansion of any company. ISO 9001 was developed as a real tool to improve companies. Enterprise engineering takes a systematic approach to designing an enterprise. This implies the need for a top down approach, which considers all aspects of the enterprise, including its processes, resources, functions and control structure.

2. Business Process Improvement

Business Process Improvement (BPI) is a systematic approach that helps an organization to make significant advances in the way its business processes operate. BPI defines an organization's strategic goals and objectives and proceeds to align its processes to meet customer requirements better.

BPI--Business Process Improvement--has been defined as "the critical analysis and radical redesign of existing processes to achieve breakthrough improvements in performance measures (such as cost reduction, time reduction or quality improvement)" (Teng, 1994).

BPI works by (Wikipedia, 2006):

* Defining what the organization's strategic goals and purposes are (Who are we, what do we do, and why do we do it?)

* Determining who the organization's customers (or stakeholders) are (Who do we serve?)

* Aligning the business processes to meet the customer's requirements (How do we do it better?)

The goal of BPI is a radical change in the performance of an organization, rather than a series of incremental changes.

2.1. Principles of BPI

Base activities around outcomes: BPI is organized around outcomes, not the specific tasks required to reach the outcome. Organizations using BPI seek to eliminate the emphasis on routine that may not work well in a business.

Process first, not automation first: Although BPI may use automated planning tools, such as enterprise resource planning, automation or information, processing is not meant to be a substitute for BPI. An automated but inefficient system does not adequately meet customer requirements.

Benchmark regularly: An organization using BPI must continually and frequently determine whether the costs of performing a business process outweigh the benefits. Therefore this organization should establish benchmarks, or a set of standards, against which the process has to be measured. The benchmarks themselves must be quantifiable, attainable, and realistic.

Establish who owns a business process: Specific people, the process owners, must be placed in charge of a business process, be responsible for the performance and changes in the process, as well as for its success or failure. Without personal responsibility, the process may fail.

Build control points into a process: There should be frequent points where the process owners and customers/stakeholders decide whether the process is meeting current benchmarks and what should be done with it. This may include halting the process if it fails to meet realistic benchmarks.

Standardize similar processes: Many organizations rely on an ad hoc approach to business processes. A standardized system of preparing processes saves time, effort, staff hours and money.

2.2. Methodology of BPI

The first step in BPI is to define the organization's mission, existing structure and processes (AS-IS). Then the BPI process owners should determine the outcomes, which add value to the organization's mission and objectives (TO-BE).

Once the outcomes are determined, the organization's work force needs to be reshaped to meet the new missions and objectives, and a series of benchmarks, including cost metrics, should be put into place. It is during these latter steps that much of the resistance to BPI becomes apparent.

Activity analysis and activity modelling help an organization to understand how it currently does business, and this understanding is the first step in improving an organization's business practices.

Model "AS-IS" is the initial point for revealing the bottlenecks of the operation of a system. In the "TO-BE" model it is necessary to dispose these limitations to improve the process. The structure of the process improvement is introduced in Figure 1. Measurements are after process improvement efforts have been taken. How well has the process been improved? Have any unforeseen variations been caused by changing the process? Does the process need more improvement now? Should policy be changed or the changes permanently instituted? How well has the improvement team performed? All these questions come to the front after making changes to a process.

[FIGURE 1 OMITTED]

3. System View of an Enterprise

Process-orientation means formalizing and structuring all business related activities between humans: employees, customers, suppliers, and partners. The ultimate goal is management and automation of all internal and external business processes. The agility with which an enterprise manages performance can determine market position and its profitability. Focus must be on:

* Optimizing the efficiency of all internal and external business processes

* Ensuring the efficacy of an end-to-end value network linking the suppliers of the suppliers with the customers of the customers.

A common decision made in the system-theoretic analysis of an organization is the separation of the decision making part of it (the management system) from the operating part of an enterprise (the operative system).

Figure 2 shows the relationships between the management, operative and support systems of an enterprise.

[FIGURE 2 OMITTED]

The operative system of the enterprise transforms an input stream of goods and services along the logistic processes to the output stream that is delivered to customer. In return a flow of monetary values is received through a financial process and passed on to the suppliers as compensation for their goods and services. Each of the logistics and financial processes is encompassed by, and can be represented as an information flow.

Support processes enable an effective and efficient execution of business processes. The support processes incorporate operating an adequate infrastructure and offering internal services. The management system provides guidelines that have to be implemented by the units of the operative system.

3.1. ISO 9000 and the SME

In many ways a small business is a more ideal unit than a large organization for the quality management philosophy to function effectively. The potential for effective teamwork is better in a small organization. There are fewer layers of management in most small businesses, so that the potential exists for good communications and dynamic work habits (Small Business Guidebook to Quality Management). A normally overworked small business owner and manager can often benefit the most by relying more on the skills, knowledge and attitudes of the employees who operate the processes.

A successful SME needs to (IQA, 2003):

* Identify and meet the needs and expectations of its customers and other interested parties, i.e. employees, suppliers, owners, and society, to achieve competitive advantage in an effective and efficient manner.

* Attain, maintain and improve overall performance and capabilities.

The application of the ISO 9000 standard can help to gain these objectives.

4. Business Process Management

Management process is the collection of planning, organizing, and controlling activities for the goal-oriented management of an organizations value chain regarding the factors quality, time, cost, and customer satisfaction (Muehlen, 2002). The main goal of process management is the achievement of transparency with regard to the process structure and contribution.

Typical management functions include planning, organization, and controlling of the enterprise. Management functions classification consists of seven distinct functions (Muehlen, 2002):

1. Planning. The general decision what has to be done and how it should be done in order to achieve corporate goals.

2. Organizing. The creation of a formal structure of authority that forms and defines work units, and coordinates these work units in relation to the overall goal.

3. Staffing. The recruiting and training of personnel and the constant achievement of adequate working conditions.

4. Directing. The continuous decision-making in individual cases, and the subsequent development of individual or general guidelines.

5. Coordinating. The general task to connect various parts of the work process.

6. Reporting. The continuous information of the superior organizational level about the development of the work process. This includes continuous self-information and the provisioning of information to subordinate employees.

7. Budgeting. The execution of all tasks that comprise budgeting, especially the creation of a budget and its supervision.

4.1. Foundations of BPM

Underlying every business is a set of processes that define how that business operates, how it generates revenue, how it supports its customers, etc. The way in which a business differentiates itself from its competitors is built into its unique business processes. Hence the business processes become a very strategic and critical asset and intellectual property for the company. (Savvion, 2004).

A business process orientation may be said to include:

* recognition of the business as a set of processes,

* development of structures that match these processes,

* design of jobs that operate these processes,

* application of management and measurement systems that direct and assess these processes and

* commitment to customer-focused, empowerment and continuous-improvement oriented values and beliefs (culture). By helping companies to model, automate, manage, and optimise their business processes, BPM provides the framework for sustainable competitive advantage.

4.2. Life Cycle of BPM

BPM provides a complete view of all the activities necessary to execute a particular business process including the applications, people, and data involved. A closed-loop of BPM is introduced in Figure 4. This framework includes the following:

* The processes and technology, which include the 'hard' elements of a manufacturing system: machines, transportation and storage equipment, and other facilities required to support the manufacturing process.

* The human and organizational architecture represents the organizational structure and the interactions of the employees within a manufacturing system, including their roles, responsibilities, and production tasks.

* The information and control architecture represents the planning and control functions of a manufacturing system and the processes involved in decision making. This also describes the flow of data and information in all its formats, whether paper or computer based, throughout the system.

[FIGURE 3 OMITTED]

The BPM lifecycle consists of the following tasks (Naimani, 2004):

* Model the process--during this phase business owners create a high level design of tasks to be performed and resources required. In addition some assumptions are made about the time and cost of each task.

* Simulate and analyse--the high level model is used to run some hypothetical scenarios to identify critical paths and bottlenecks. This information is used to refine the process before deployment

* Implement and document--during this phase the high-level business process is converted from the high level definition to an executable process model. The process is then documented so that it can be used for training or future maintenance.

* Deploy and execute--this phase involves deployment of the process to the BPM engine for execution of the process flow.

* Monitor--this phase involves monitoring the business process that is being executed to find key performance indicators and other metrics. This is typically done using a Business Activity monitoring tool in conjunction with the BPM engine.

* Optimise and redesign--after the system has been monitored for some time, historical metrics can be used to further optimisation of the process. Real process throughput and utilization metrics can be fed into the simulation tool to come up with the optimal execution model.

The key advance of optimisation over traditional BPM technologies is the ability to address both the real time optimisation of individual processes "in flight" as well as the ability to identify strategic changes to business processes to drive long-term value and cost savings (Global 360, 2005). This dual mission of optimisation drives efficiency improvements, as well as the increased process effectiveness, or alignment with business process goals and performance indicators.

To succeed with BPM, business users and IT (information technologies) professionals must work together as a team. Three distinct capabilities are required to create this synergy between IT and the business: modelling, analysis and simulation (MacVittie, 2005).

5. Process Management

Processes define how organizations do business, deliver products or services and interact with customers; support their corporate strategies; and enable them to react to change more rapidly.

Business process management empowers business analysts to define, manage, analyse and optimise their processes. Business users own the process. They know what the process is intended to do and how it should flow. They make decisions and adjust the process, as often as necessary, to meet their needs. A process management framework is introduced in figure 4.

[FIGURE 4 OMITTED]

The combination of technology infrastructure, process flow, and business requirements all needs to be discovered and translated into a process map to enable automation to occur (Khan, 2005).

BPM is a systematic way to look at processes being performed within a company as well as between the company and its strategic partners and customers.

6. An Enterprise Model

A model is generally regarded as a representation of reality. The typical uses of modelling are (Whitman, 1998):

* To analyse and design an enterprise and its processes

* To help to reduce complexity

* To communicate a common understanding of the system

* To act as a documentation tool for ISO 9000, TQM, Concurrent Engineering, and other efforts.

There are many ways to model an enterprise. This paper focuses on the process-centred models of an enterprise.

A process model must provide many perspectives of the enterprise if it is to adequately describe an enterprise and its processes. These perspectives, or views, are required because of the different types of information available about the enterprise and because of the different types of questions people want to be answered by the model. The four most common perspectives are (Curtis et al. 1992):

* functional: what process elements are being performed, and what flows of information entities are relevant to these process elements;

* behaviour: when process elements are performed (sequencing);

* organizational (resource): where and by whom processes are performed, physical communications mechanisms, storage media and locations;

* informational: what information entities are produced or manipulated by the process. Includes data, products, and objects.

The basic uses for process models include facilitating human understanding and communication, supporting process improvement and process management, as well as automating process guidance and execution support.

7. Knowledge Library of the Business Processes

Business processes are collections of enterprise activities organized to meet some goal. The activities are useful only when organized into these business processes.

The development of a database, which includes the needed information of all the processes (workflows) in an organization and their full-scale documentation, is the most suitable way for a SME. A process model in the database describes the entire life cycle of products, providing relation between several parts of information. The procedures of ISO 9000 may be taken as the base for implementation of this work.

Enterprises need the technique and software that can help a manufacturer to manage the important parts of its business, including planning products, purchasing parts, maintaining inventories, interacting with suppliers, providing customer services and tracking orders. The process modelling technique that needs to be used throughout SME has to be readily accessible with the minimum of training and support.

Certainly, all the processes are interrelated, connected with instructions and forms, and implemented by the employees using the same equipment, tools, and engines. A fragment of the process knowledge library, which is worked out on the base of ISO 9000 system for Estonian enterprises of engineering industry is introduced in figure 5. Every work procedure is provided by function (IDEF0), data (IDEF1x), ontology (IDEF5) models, several forms and other needed documents. On the base of theses models it is possible to carry out a process simulation and other types of system analysis for process improvement using all principles of BPI.

[FIGURE 5 OMITTED]

IDEFO is a static modelling paradigm that represents a system as a network of interconnected activities. It uses a mix of graphics and a natural language to capture and communicate process details. The IDEF0 can be used to produce structured documentation suitable for ISO 9000. The combination of data, process flow and analysis often allow to identification of bottlenecks, waste in the operation, root cause determination and prioritisation of breakthrough opportunities. The process knowledge library has to include this information in its structure and attainment routes. Software tools for business process modelling and analysis provide the ability to define and build a model of a business process and then use statistical modelling to analyse its behaviour under various scenarios of modelling real business conditions.

8. Analysis of the Modelled Process

Analysis of the modelled process leads to a better understanding of the business operations, critical flaws in the current operational conditions, ways of optimising them, and an assessment of the resources required to ensure performance consistent with expectations. These analytical activities have often resulted in significant improvement in operational efficiency and process improvement.

A baseline (the "AS-IS") activity model provides an accurate description of the way the activities are currently performed. In addition to providing a means for bounding, validating, and analysing the activities, the model permits accurate performance measures of an activity's cost, time, and quality to be developed. Without such a baseline, it is impossible to analyse alternative methods of performing the activities.

The Process Simulation allows business analysts to simulate a process or any changes to the process before deploying it into production, including:

* Cost Estimations

* Resource Allocation Determinations

* Process Design Flaw Elimination

* Process Flow Bottleneck Discovery

The Process Simulator's user's interface enables users to modify the process model and define the simulation characteristics of the process--activities, resources, arrivals, and options. Multiple scenarios can be viewed, edited and simulated, as well as scenario data can be report and analyse.

9. Conclusion

Business process modelling and simulation is a way for businesses to reduce the risk of introducing change. Effective modelling and simulation will reduce the chances of these problems occurring and increase the certainty that the proposed changes will deliver the anticipated benefits.

In the work many methodologies are developed, both for detailed business process analysis (IDEF0, IDEF1X, etc.), as well as for knowledge representation and extraction (IDEF5, etc.).

Application of the business processes database has the following advantages:

* Automatic description and recording of workflows;

* Extensive workflow analysis and improvement;

* Documentation of competencies and responsibilities according to an ISO 9000 quality certificate;

* The base for optimisation of a business process;

* Identifying "bottlenecks" of the workflow.

BPM is a convergence of a number of existing technologies and approaches. Its primary roots are in the process management capabilities of workflow tools but it also includes capabilities that derive from document management, process modelling, analytics, rules management, collaboration applications and application integration. As organizations are enabled to move from managing business processes to managing business process lifecycles, their processes are now a closed loop: business objectives, strategic planning, process modelling, process execution, application management, content management, and business analytics are tied together and can interact. This interaction among all of the discrete elements of BPM takes advantage of feedback loops for change management and incremental optimisation of business processes.

10. References

MacVittie, L. (2005) IT Detours On the Road to BPM, Intelligent Enterprise, http://www.intelligententerprise.com/showArticle.jhtml?articleID=165700251& pgno=1, (30.03.06)

Khan, R. (2005) Want BPM? The First Challenge is Your Process Map, http://www.ebizq.net/executive_corner/topics/biz_opt/features/5729.html, (30.03.06)

Lee, Y. T., McLean, C., and G. Shao. (2003) A Neutral information model for simulating machine shop operations. Proceedings of the 2003 Winter Simulation Conference, ed. S. Chick, pp. 1296-1304

Wikipedia (2006), Business Process Improvement, http://en.wikipedia.org/wiki/Business_process_improvement, (30.03.06)

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Vinturella, J.B. & Patti, L.A. (2004) Business Process Modeling and Analysis with Savvion BusinessManager, www.savvion.com, (27.07.04)

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Muehlen, M (2002) Workflow-based Process Controlling ISBN 3-8325-0388-9, ISSN 1611-3101, Logos Verlag Berlin

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Deming, W. Edwards. Out of the Crisis. Cambridge, MA: M.I.T. Center for Advanced Engineering Study, 1986.

Small Business Guidebook to Quality Management http://www.gecgr.co.cu/infoconst/bvirtual/cd/envios/envio%201242.pdf, (30.03.06)

IQA (2003)--Quality Systems in the Small or Medium Sized Enterprise, Institute of Quality Assurance

Whitman, L.; Huff, B. & Presley, A (1998) Issues Encountered Between Model Views, Appeared in Flexible Automation and Integrated Manufacturing Conference Proceedings, Begell House, Inc. 79 Madison Avenue, New York

Curtis, B., M. I. Kellner, et al. (1992) "Process Modeling" Communications of the ACM 35 (9): 75-90

Lee, Y. T., McLean, C., and G. Shao. (2003) A Neutral information model for simulating machine shop operations. Proceedings of the 2003 Winter Simulation Conference, ed. S. Chick, pp. 1296-1304

This Publication has to be referred as: Karaulova, T. & Otto, T. (2006). Improvement of Business Process for SME on the Basis of Quality System, Chapter 26 in DAAAM International Scientific Book 2006, B. Katalinic (Ed.), Published by DAAAM International, ISBN 3-901509-47-X, ISSN 1726-9687, Vienna, Austria

DOI: 10.2507/daaam.scibook.2006.26

Authors' data: Ph.D. Karaulova T.[atyana], Ph.D. Otto T.[auno], Tallinn University of Technology, Estonia, tatjana.karaulova@ttu.ee, tauno@staff.ttu.ee