CHAPTER 2 THEORITICAL FOUNDATION. Many organizations are applying Business Process Reengineering (BPR) approach

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1 15 CHAPTER 2 THEORITICAL FOUNDATION 2.1 Introduction Many organizations are applying Business Process Reengineering (BPR) approach in order to generate new ways to increase their efficiency by reducing cost in response to today s booming competition in an increasingly global marketplace business environment; as it stated in Manuel, L & Marklund, J (2005: 1). Stimulus in measuring business performance such as money can improve company to achieve higher quality services and fast. BPR defined as the fundamental rethinking and a radical design of business process to gain fast, better-cheaper cost. According to Peppard, J & Rowland, P (1995: 2), relatively, there were several tools and methods that are best suited to characterize and analyze business process in order to implement BPR projects and manage radical changes. In addition, the complete representation in analyzing business process of a company determines the success of BPR (Manganelli, RL & Klein, MM 1994). In this thesis, the techniques for characterizing and analyzing PT. XYZ workshop business processes are categorized in Business Process Modeling (BPM). Moreover, BPR can be applied in important technologies such as Modeling and Simulation. In addition, dynamic process models give analysis of substitute process by offering quantitative process metrics such as cost, cycle time, serviceability and resource utilization. Also, tradeoffs can be as alternative in order to achieve informed business decision. As the keystones of modern strategic planning, BPR is a set of survival skills that requires rethinking fundamental concept of business and work (Boys 1995c, Bridges 1994). Selecting the suitable one is a hard task for BPR researches and practitioners because there are numerous BPM methods and software tools with different perspectives and features for viewing BPR projects

2 16 (Manuel, L & Marklund, J 2005). The selected BPR method then applied to new business processes of PT. XYZ which are described in chapter three. As a result, the new process in the context of reengineering will begin with identifying the workshop as object of process modeling. In turn, the chosen method must fit to company objectives and become a basis for evaluating various BPM methods and generating claim procedures in XYZ workshop service center. In advance, it can be used for studying relationship between modeling and method attributes empirically (Manuel, L & Marklund, J 2005:280). Furthermore, most companies think that process support systems are one of important aspects in managing their IT systems in order to reflect organization maturity growth that are eager to automate their business activities (retrieved from By utilizing process support in workshop service center, productivity and quality improvement in delivering information flow, speed up response, and minimize problems in satisfying current customers can be completed. Also, for maintaining customer that already becomes a XYZ member, it requires greater understanding of customer wants and needs that are becoming XYZ main goals and business values by capturing relevant data member and does transactional system in well-managed business process model due to future business progress (Wahyudi, D 2007, pers. comm., 3 March). Thus, constructed data flow diagrams will reflect workshop service claim process flows in the business ( Flow.php, accessed 28 February 2007). After that, the rest of the thesis is structured as results; the following section reviews the definition of BPM and its components as theoretical foundation. Then, the future structured will give details of the new modeling system in claiming process justification. Additionally, following on from this, there will illustrate and discussed

3 17 the general claim of current system and rework procedures. Finally, last but not least, in last chapter there will be concluded recent observation for XYZ business process simulation and provided with recommendation for all readers in aiming to future advanced research development Reason to Choose the New Systems A lingua franca of business process is growing up with us. Minimizing labor and other resources applied in process. Optimization is equivalent to speeding up the assembly line and innovate the basis of future competitive advantage (Hamel and Prahalad 1995). Thus, simulation is essential analysis tool for business process redesign that gives a descriptions of actual process under multiple business scenarios, visualization with modeling elements (APPENDIX B), performance trend ((Manuel, L & Marklund, J 2005:301)and tested the animation tools which gives a powerful simple communication vehicle to convince the management from a flow chart to integrated system. Therefore, the goal of a milestone should be achieve a quantified business benefits. (see APPENDIX A for details information) Some changes are likely to be systemically complex (Peppard, J & Rowland, P 1995 that are characterized by a network of interdependent factors. Challenge that the IT development team faces in trying to comprehend defines and supports the organizational activities of current and potential IT users. In managing such complex situation, systems approached strive to reassure their value to find a way of appreciating the complex relationships that affect change, resisting the urge to ignore soft factors

4 18 that are hard to manage and, however, difficult to sustain enough rigidity and diligence in the employment (Morien, R 1999) Reason to Choose Business Process Improvement Reengineering has become a common and widespread concept in most business case study. The reengineering buzzword struck the business community in the late 80 s. As we know, the 80 s era is wartime between US industrial leadership with Japan. At that time, some believe that Reengineering is the answer for US industry to get over Japanese manufacturer leadership with their quality movement (Hammer, M & Champy, J 1993). On the other hand, we live in the information era. The needs of information technology become more and more crucial and essential to many company. Information Technology had change the way we do business, no question about it. It is allowing us to conduct business faster with higher precision ( But it is also bringing disaster if we miscalculate the IT investment. Many companies miscalculate their IT investment (Reilly, FK, & Brown KC 2006). Their IT implementation only drain their resource and drawn their business attention far from their core competence. Why this situation occurs? The writer believes because there is a gap between business process design and IT infrastructure design. Other reason is because the business process design and IT design was rarely have different goals, orientation and lack of integration (Stoddard, DB, Jarvenpaa, SL 1995). Information Technology is the critical reason why a company conducted Reengineering (Hammer, M & Champy, J, 1993). Therefore,

5 19 reengineering should bridge the gap between IT and process design. Reengineering methods used in this thesis facilitate and consider the Information Technology as a means to achieve dramatic, radical, and fundamental process improvement (Stoddard, DB, Jarvenpaa, SL 1995). This thesis also used IT as a tool to facilitate the reengineering research. In some requisites such as reduced costs, greater opportunities generated, or higher user satisfaction will have to account for its value in any IT involvement (Peppard, J & Rowland, P 1995). Consequently, it is essential to define the scope of IT that allows a throughout approval of its contribution as shown chapter one for both at the design stage and at an evaluation stage. IT designers can take a adequately prosperous vintage point from which to consider a computing system s true implications for the business by considering this impact of IT on business processes (Aalst W, & Hee, K 2002). As current business process will be a function of organizational, technological, and human resource factors including their job descriptions will be explained in chapter three. As the pivot of a broader complete intervention, the design of the business process does allow the impact of a wide range of variables to be discussed in chapter three and four. It can then be used alongside other models in the quest to bring out the full potential of IT support (Grover, V, Jeong, SR, Kettinger, WJ & Teng, JTC 1995). At evaluation stage, a prosperous set of process metrics can be gathered to provide evidence of the value of the new process in chapter four. These metrics might be qualitative, such as accounts of customer experience or descriptions of user satisfaction (Alter, S 1996). Next, it follows with the design stage.

6 20 The IT system should be described in a way that allows its impact on the business process to be understood and then logically question the qualities of the new business process design and it will compare the existing business process or previous designs as shown in chapter five. Nevertheless, the real question is still relevant. Why bother? Why we are working so hard seek to discover and develop this concept? Why are we reengineering our Business Process? The answers is simple; to maximize profitability. Stakeholders of the company want to accomplish more earnings with all capability skills of their employees (Wahyudi, D 2007, pers. comm., 15 March). The writer understands that this thesis is only a small part of all business process and activities in automotive company which is specialize in workshop service processes. Therefore, the writer understands that the methods used in this thesis may not satisfy all the readers. Some may see weaknesses. The writer humbly invites readers to discuss about it. The writer appreciates comments, critiques, positive suggestions and challenges from all the readers in order to build positive thoughts in the future. In the end, hopefully this thesis wills benefits reader with valuable insight about Business Process Reengineering and for the development on next Indonesian economy. 2.2 What is Business Process and Business Process Design? As organizations adapt to new conditions that leads to faster-better-cheaper in terms of time, scope, and money, they respond to competitive pressures, various change management in business processes have proceed (Stoddard, DB, Jarvenpaa, SL 1995). The subject of managing innovation and change in business

7 21 processes has been widely discussed in this era, specifically in automotive and service industry. Every few years, a new management philosophy, method, or technology is developed that is believed to enhance business performance ( Furthermore, business process and business process design definitions will be explained in sub Chapters below: Business Process Definition Based on Manuel, L & Marklund, J (2005: 22); there are three type definitions in explaining business process such as: A Pragmatic Definition A Business Process describes how something is done in an organization. However, in general terms business and process is described as below (Manuel, L & Marklund, J, 2005:p.2) Business is an organizational entity that deploys resources to provide customers with desired products and services Process definition based on Merriam-Webster s Dictionary is: 1. A natural phenomenon marked by gradual changes that lead to a particular result. 2. A natural continuing activity or function 3. A series of actions and operations conducing to an end. Moreover, other source said that a business process is a collection of activities designed to produce a specific output for a particular customer or market. It implies a strong emphasis on how the work is done within and organization, in contrast to a product's focus on what ( Traditional Process Definition in Operations Management

8 22 A process is a specific ordering of work activities across time and place, with a beginning, an end, and clearly defined inputs and outputs a structure for action as shown in Figure 2.1 below: Inputs Process Outputs Figure 2.1 Transformation Model of a Process There are different types of transformations such as: 1. Physical (Ex. raw material to finished product) 2. Locational (Ex. flying from Denver to Los Angeles.) 3. Transactional (Ex. depositing money in a bank) 4. Informational (Ex. accounting data to financial statement) The Process View In the process view, any organization entity or business can be characterized as a process or a network of processes based on the simple transformation model of a process (Manuel, L & Marklund, J, 2005). Also, it has its origin in the areas of manufacturing and quality. Additionally, there is a relationship between environment, information system and management system as shown in Figure 2.2 below. It is an example of sharing model of business process in Figure 2.2, a model of the organization was needed to design a computerized information system before its implementation. Refers to Mayer, RJ, Benjamin, PC, Caraway, BE & Painter, MK (1995); the success of object technology corresponds to

9 23 its need. The most important difficulty in the management field was to take into account the new links between an organization and its environment ( The activity approach was an attempt to redesign the management system. New models were needed to support new information and management systems, whose features were largely different. In the computer field, the most important concern was to evaluate a suitable system design before its implementation. Figure 2.2 Sharing Model of Business Process Comprehensive Process Definition A process is a set of activities that transforms inputs to outputs (data is accessed or retrieved from URL address: On the other hand, a business process is a network of connected activities and buffers with well defined boundaries and precedence relationships as illustrated in Figure 2.3. After that, it utilizes resources

10 24 to transform inputs into outputs with the purpose of satisfying customer requirements. Additionally, there are two main methods for processing jobs in Business Process Modeling such as (Manuel, L & Marklund, J, 2005, p.9): 1. Discrete It is used for identifiable products or services. For example: cars, cell phones, and clothes. 2. Continuous It is used for products and services not in identifiable distinct units such as gasoline, electricity, and paper. Resources Process Supplier Inputs Outputs Customer Source: Reproduced from (Manuel, L & Marklund, J, 2005, p.9) Figure 2.3 Comprehensive Process Definitions Moreover, in Figure 2.4 below, it shows an example of relationship between models in information system and management systems. It shows a link between management system that contains model of organization in its environment and information system that contains implementation model of organization that related with two way directions in management system. Thus, the progress of

11 25 organization business performance is determined by environment situation that links to model of the organization in its environment which is a part of management system (Manganelli, RL & Klein, MM 1994). Organization Environment Model of the organization Model of information system Information System Implementation Model of the organization in its environment Management System Source: Reproduced from (Manganelli, RL & Klein, MM 1994) Figure 2.4 Models in Information System and Management Systems Component of the Process Architecture Process architecture shown in Figure 2.5 consists of five components;

12 26 Input and output Information Structures Flow units Process Architecture Resources The network of activities and buffers Source: Scanned from (Satzinger, JW, Jackson, Robert B, & Burd SD 2002, p.5-9) Figure 2.5 Process Architecture such as inputs and outputs, information structure, flow units, resources, and the network of activities and buffers. For details information about process architecture component is explained in next sub chapters below Inputs and Outputs For inputs and outputs, there is establishing interaction between the process and its environment. In addition, inputs and outputs identify the process boundaries in order to easy to identify the input consumed from the environment in order to produce the desired output (Manuel, L & Marklund, J (2005:5). Process inputs and outputs can be: Tangible For example: raw material, spare parts, cash, products, customers. Intangible For example: Information, time, energy, and services Flow units

13 27 A flow unit is a transient entity or a job that proceeds through the network of activities and buffers and exits the process as a finished output. Typically, the identity of a flow unit changes across the process. Examples of common flow units: materials, orders, files, documents, customers, products, cash, and transactions. Flow rate is the number of jobs flowing through the process per time unit (Manuel, L & Marklund, J, 2005, p.5) The network of activities and buffers The work performed on a job moving through a process can be divided into an ordered sequence of activities. Furthermore, the buffers represent storage or waiting points where the job waits before moving to the next activity (queues, waiting rooms, etc.). Different types of jobs create different paths through the network (Manuel, L & Marklund, J, 2005, p.6). Thus, defining activities is crucial in process analysis; it is a tradeoff between process and activity complexity as shown in Figure 2.6: Process Complexities Individual Activity Complexities Source: Courtesy of (Manuel, L & Marklund, J, 2005, p.6) Figure 2.6 Process Complexities versus Individual Activity Complexities

14 Resources Tangible assets utilized to perform activities in a process can be divided into two categories such as: Capital assets For example: real estate, machinery, equipment, and IT systems. Labor For example: people with knowledge and skills. The difference between resources and inputs is resources are utilized while inputs are consumed (Manuel, L & Marklund, J, 2005, p.8) Information structure Information structure specifies the information required for making decisions and performing activities in a process of developing a simulation models in order to measure XYZ Company's impact on business process and performance. Furthermore, limited information availability is a common cause for process inefficiencies. Thus, information enables coordination (Manuel, L & Marklund, J, 2005, p.9) Workflow Management Systems Management of administrative processes in the field of Information Systems is often referred to as workflow management. In workflow management systems, control actions taken on documents moving through a business process (Aalst W, & Hee, K, 2002). Workflow management systems are used to control who does what to a specific document ( Thus, by using our comprehensive process definition; process is considered equals to workflow. Workflow is

15 29 the prime focus of each model, emphasizing a process rather that a functional orientation (Manuel, L and Marklund, J (2005, p.9)). Furthermore, one or more data flow diagrams as known as business process diagram are including into this business model step such as data flow diagrams (DFD), role activity diagram (RAD), process map, action workflow, and entity relationship diagram (ERD) as shown in Appendix D. These DFD methods are applied in the developing the new system analysis and design, database, and business process modeling. Although they have similar constraints, it requires different notations and perspectives in order to choose the right methods for producing an integrated and complete view of process in doing BPR project ( Flow.php). In this paper, we will use DFD as model business method starts with context diagram, diagram level zero, and stops in diagram level one. For detail explanation and example see sub-chapters below: Definition of Data Flow Diagram (DFD) Data Flow Diagram (DFD) is a visualization of several data that flows through an information system in a graphical representation ( A data flow diagram can also be used for the visualization of data processing (structured design). Furthermore, DFD is also applicable in system analysis and design as a technique to interpret the structured data flows that are primarily concerned with automated processes. Basically, DFD uses five basic symbols as shown in Figure 2.7 below based on analysis data that scanned from

16 30 (Satzinger, JW, Jackson, Robert B, and Burd SD, 2002, p.196) to trace and describe the details of DFD elements such as: External Agents/ Entities External agents represent a destination of data flow or external data source. Through external agents, information from the process can be sent and received Arrows/ Data flow Data flow links the movement of information from one point to another between terminators, processes, and data stores. Those that cross the system boundary are known as IO or Input Output descriptions Processes A process shows transformation or operation of data flows within the system. It modifies the inputs in the process of generating the outputs. Based on (Satzinger, JW, Jackson, Robert B, & Burd SD 2002); step-by step instructions are followed that transform inputs into outputs (a computer or person or both doing the work) Data Stores Data stores represent an information repository. It is a place that symbolizes an open ended narrow

17 31 rectangle for storing information within the system. Also, it shows the information flow from its source to its destination which symbolized by a line with arrowheads presenting the flow direction Real-time link As the process is executing, real-time link represents communication back and forth connecting an external agent and process. For example; credit cards verification uses real-time link to bank. 1. External agent 3. Process Step-by-step instructions 2. Data flow 4. Data store Data at rest 5. Real-time link Source: Downloaded from Figure 2.7 Data Flow Diagram Symbols For more information about the details of DFD decomposition, see the next sub-chapters below (Figure 2.8 and Figure 2.9) will illustrate it in a context diagram, diagram level zero, and diagram level

18 32 one. Here is the detail of DFD which starts with context diagram, diagram zero, and diagram level one. In this paper, we only describe a workshop DFD in context diagram, diagram zero and diagram level one. The claiming center system has only context diagram. Furthermore, the new member system has context diagram and diagram zero. There is only one main process in XYZ workshop service center (claim processing system) that we will discuss in next chapter.

19 33 Source: Scanned from (Satzinger, JW, Jackson, Robert B, & Burd SD, 2002, p.198) Figure 2.8 Context Diagram, Diagram zero, and Diagram level one Context Diagram Context diagram represents all system under research in order to explain the scope of the observation in a company. It shows the interaction between the system and outside entities. This context-level DFD is then "exploded" to show more detail of the system

20 34 being modeled (Satzinger, JW, Jackson, Robert B, & Burd SD, 2002, p.199). More details for context diagram components are shown clearly in Figure 2.9. Moreover, the system will summarizes all processing activities within the system in single process symbol and connects external entities by resource flows and data flows. Source: (Scanned from Satzinger, JW, Jackson, Robert B, & Burd SD, 2002, p.201) Figure 2.9 Context Diagram for Order-Entry Subsystem This example shows that in order-entry subsystem have five external agents such as customer, accounting, management, shipping, and bank. It links to credit bureau in real-time connection.

21 Diagram Level-One DFD Level one process describes only the main functional areas of the system. The limit process for illustrating business process diagram is twelve process boxes. In addition, this diagram identifies the main business processes at high level. For more details information, further-giving rise to a corresponding level two business process diagram can be analyzed. In Figure 2.8 above, it illustrated decomposition diagram from context diagram (course registration system) decompose into level zero (schedule course) decompose into diagram level one that has more details on each activity (Satzinger, JW, Jackson, Robert B, & Burd SD, 2002, p. 198). 2.3 The Essence of Business Process Design (BPD) The main objective of BPD is to improve business process, reduce costs, and provide better products and services to customers (Manuel, L & Marklund, J 2005:10). BPD often most valuable when considering complex cross functional processes such as challenging coordination issues and process inefficiencies often related to handing off work from one station or person to the next which introduces delays and errors. Additionally, tagging is an important technique for gathering process data; follow a job through the process then data is collected on a document called a tag for accompanying the job ( Moreover, back to Adam Smith and the late 1700's; by focusing on fewer tasks, workers' skill level goes up that makes work faster, no time lost when workers

22 36 switch between tasks, and workers well positioned to help develop better techniques and tools. Drawbacks of BPD are more complex coordination issues when more complex products and services and also customers demand more variety (Emeraldinsight article, 2007). Therefore, the important part of BPD is How to do things in an efficient and effective way Incremental Improvement VS Process Design In this paper, we use business process design as reference to improve XYZ profit in the long run achievement. There are differences between incremental improvements versus process design. Here is the detail for both processes as shown in Table 2-1: Incremental process Business process design improvement 1. Continuous improvement 1. Creative in its nature 2. It is a change that brings a process closer to its normal 2. It questions existing assumptions and rules operating standards 3. It does not question the fundamental assumptions and rules that define the current process design 3. It requires new perspectives to generate innovative solutions with potential for breakthrough improvements 4. Deductive approach 4. Inductive approach Source: Reproduced from (Bodie, Z, Kane, A & Marcus, AJ, 2005) Table 2-1.Incremental process improvement VS Business process design XYZ uses business process design in order to attain more profit in terms of money. It requires new perspectives to generate innovative

23 37 solutions with several steps in order for getting breakthrough improvements in their business processes Activity Classification and BPD A key issue in process designs and analysis is classification of the process activities. There is two basic classification approaches in Figure 2.10 below (Manuel, L & Marklund, J, 2005, p.7). In this paper, workshop service center has non-value adding activities such as rework, delay, and quality control which are discussed more on chapter 3. Activity Value-Adding Non-Value Adding Handoff Delay Rework Business Value Adding Control Policy compliance Activity Value-Adding Non-Value Adding Handoff Delay Rework Control Policy compliance Source: Reproduced from (Manuel, L & Marklund, J, 2005, p. 7.) Figure 2.10 Two Basic Classification Approaches The explanation of Figure 2.10 above of two basic classification approaches is described below: Value adding activities Value adding activities are essential approaches in order to meet customer expectations, activities the customer would be willing to pay for, involves doing the right things right; performing the right activities

24 38 and doing them correctly, with high efficiency (Manuel, L and Marklund, J 2005, p.7). Business value adding activities Business value adding activities such as control activities do not directly add customer value but are essential to conducting business (Manuel, L and Marklund, J 2005, p.6). Non-value adding activities Non-value adding activities for example; activities the customer is not willing to pay for (Manuel, L and Marklund, J 2005, p.8). 2.4 Process Management Definition of Process Management Process Management is principles of managing, controlling and improving processes (Manuel, L and Marklund, J 2005, p.10). Workflow oriented is equal to how jobs flow through an organization. Important elements in managing processes are: 1. Process design 2. Continuous (incremental) improvement 3. Control systems 4. People management 5. Change management Principles for Successful Process Management Here is the three phases (initialization, definition and control) in order to achieve successful process management as shown in Figure 2.11 below (Manuel, L and Marklund, J 2005, p.27):

25 39 Phase I: Initialization Phase II: Definition Phase III: Control Assign process ownership Analyze boundaries & interfaces Define the process Establish control points Develop & implement measures Perform feedback & control Process authority, scope, interfaces and handoffs are determined. Workflow Documentation Baseline for process evaluation is defined. Means and procedures for process monitoring, feedback and control are established. Source: Reproduced from (Manuel, L and Marklund, J 2005, p.27) Figure 2.11 Principles for Successful Process Management Phase I: Initialization The objective of this phase; Initialization (see Figure 2.11 above), is to clarify the process scope, determine who will take responsibility for the process, and mediate between line managers with overlapping authorities. In this phase, first, there is process ownership that needs someone in charge to make things happen, need responsibilities of a process owner in accountability and also authority for process operations and improvements (Manuel, L and Marklund, J, 2005, p.29). Second, in analyzing process boundaries and interfaces, it has internal interfaces, process boundary defines the process entry and exit points where inputs flow in and outputs flow out. Most process inefficiencies are related to insufficient interface communication that means lack of coordination (Manuel, L and Marklund, J 2005, pp.26-29).

26 40 Producer Output Producer Supplier Input Output PROCESS Customer Input Customer Source: Reproduced from (Manuel, L and Marklund, J 2005, p.29) Figure 2.12 Customer-Producer-Supplier (CPS) models Next, the Customer-Producer-Supplier (CPS) model shown in Figure 2.12 is a useful approach for resolving interface related problems. Coordination achieved by understanding internal and external customers that involves negotiation and agreement between all parts will lead to company success (Manuel, L and Marklund, J 2005, p.28) Phase II: Definition Phase II (Definition) objective is to document the process workflow and facilitate communication and understanding of process operations (Manuel, L and Marklund, J 2005, p.30) Phase III: Control (I) There are three stages in phase III such as control I, control II, and control III. In control I phase stage; the objective is establishing a system for controlling the process and providing feedback to the people involved (Manuel, L and Marklund, J 2005, p.31).

27 Phase III: Control (II) This second control stage is developing and implementing measurements that involve answering the questions such as: a. What is to be measured and controlled? b. What is currently measured (available data)? Moreover, measurements should be meaningful, accurate and timely through statistical and graphical tools that needed to convert data into information (Manuel, L and Marklund, J 2005, p.32). Refers to control II stage, there are five measurement categories such as: (i) (ii) Measures of conformance (to given specifications) Response time (lead-time, cycle time) (iii) Service levels (degree of availability) (iv) Repetition (frequency of recurring events such as rework) (v) Cost (Quality, internal and external failure costs) Phase III: Control (III) Objectives of control III phase (corrective action) are a regulation to maintain a certain performance level and do improvement (in aiming at reducing variability or raising the average performance level). It performs feedback of critical importance for stabilizing and improving the process and control. It should be performed in a constructive, not corrective manner. Constructive feedback makes people feel that they matter and encourages involvement and commitment (Manuel, L and Marklund, J 2005, p.33).

28 Six Sigma Definitions of Six Sigma Based on Manuel, L & Marklund, J (2005: 39); the Six Sigma is originally a company wide initiative at Motorola for breakthrough improvement in quality and productivity (see Appendix A for details). In addition, Manuel, L and Marklund, J theorized a broad definition of Six Sigma programs such as: A company wide strategic initiative for process improvement in both manufacturing and service organizations with the clear objective of reducing costs and increasing revenues. (Manuel, L & Marklund, J 2005: 39) Revenues are dependent on how well the firm can satisfy the external customers' desires. An important Six Sigma success factor is the focus on internal and external customer requirements in every single improvement project (Keown, AJ, Martin, JD, Petty, J, William & Scott, DF 2005) Moreover, cycle time analysis provide valuable information about process performance that helps identify problems, increases process understanding, and evaluates the effect of design changes. Theory of Constraints (TOC) is an approach for identifying and managing bottlenecks in order to increase process flow and thereby process efficiency (Whitten, Bentley, & Dittman 2000). Moreover, TOC is focusing on improving the bottom line through increasing throughput, reducing inventory, and reducing operating costs The Six Sigma Framework The Six Sigma Framework is centered on a disciplined and quantitatively oriented improvement methodology (DMAIC) Define, Measure, Analyze, Improve, and Control. The DMAIC methodology provides a common language so that experiences and successes can be

29 43 shared through the organization. The DMAIC methodology provides a common language so that experiences and successes can be shared through the organization (Manuel, L & Marklund, J 2005, p.39). 2.6 Business Process Reengineering What is Business Process Reengineering? BPR, or reengineering, emerged in the late 1980s and early 1990s as a new approach to managing innovation and change (Grover, V, Jeong, SR, Kettinger, WJ & Teng, JTC 1995). Managers should constantly seek new and improved methods and techniques for managing and controlling service business process. Moreover, restructuring of organizations through downsizing of managerial hierarchies and functions is needed in BPR for big personnel reduction. BPR has been the subject of numerous articles and books; classical examples are: The New Industrial Engineering (Davenport, TH., 1993: 35), the essence of reengineering is about discontinuous thinking and the relinquishing of outdated rules and fundamental assumptions that underline operations. It is a move way from linear and sequential thinking to a holistic, all-or nothing perspective on strategic change in organization. In addition, managers have to think deductively; by defining what is a real problem of company in seeking business solution through reengineering (try to serve the external environment by improving customer service and increasing monthly performance targets and evaluating a several choices as possible pollution) organization (Manuel, L & Marklund, J 2005, p.49). Thus, reengineering is a radically new process of organizational change that many companies are using to renew their commitment to customer service (Manuel, L & Marklund, J 2005, p.49).

30 44 Departing from incremental and gradually approaches to strategic planning and change, reengineering is not a step-by-step, incremental approach. It is intended to revolutionize all the components that make up an organization that includes processes, products, services, people, and technologies (Manuel, L & Marklund, J 2005, p.50). Therefore, it is not simply about improving bottom-line performance, to improve efficiency of outdated administration functions but also as a fundamental message concerns in long-term organizational transformation. In Table 2-2, the areas are not ranked on order of priority, but comprise the core main points pertaining to the reengineering goal. Successful reengineering efforts such as firms use BPR to grow business rather than cut back, firms emphasize serving customers and compete aggressively with quantity and quality of products and services, and firms emphasize getting more customers, more work and more revenues instead of downsizing. Reengineering is focusing on core competencies or value adding business processes, the goal is to achieve dramatic improvement through rapid and radical redesign and implementation (Manganelli, RL & Klein, MM: 1994). The leading experts said the clear definition of reengineering in the nature of BPR (Davenport, TH. 1993): Basically, reengineering is the primary rethinking and major redesign of business process to attain remarkable improvement in significant changes and modern measures of business performance in cost, quality, service, and speed. BPR is the analysis and design of workflows and processes within and between organizations. BPR is an improvement philosophy. It aims to achieve step improvements in performance by redesigning the processes through which an organization operates, maximizing their value added content and minimizing everything else. This approach can

31 45 be applied at an individual process level or to the whole organization. Reengineering is the rapid and radical redesign of strategic, value added business process and the systems, policies, and organizational structure that support them to optimize the workflow and production in an organization. Key aspects of Traditional Reengineering organization Organization organization T Organizational Hierarchical Flat a structure b Work units Functional Process teams l departments e Nature of work Simple task Multidimensional work 0 Employee roles Controlled Empowered - Managerial roles Supervisors Coaches 2 Executive roles Scorekeepers Leaders - Value system Protective Productive 2 Job preparation Training Education Promotion criteria Performance Ability T Performance T measurement a Compensation systems Activity (inputs) Results (outputs) b Source: Reproduced from Manganelli, RL & Klein, MM: 1994). Table 2-2. Traditional to the Reengineering Organization

32 46 Thus, BPR is a redesigning methodology that brings improvement in delivering company's success through reborn in cost, quality, service, policy and procedures, system and business processes (Manuel, L & Marklund, J 2005, p.53). Today, the BPR concept has evolved towards a broader, yet more comprehensive process management concept. Many BPR projects focus on streamlining intra-organization processes by means of information and communication technologies ( BPR and Other Improvement Concepts Continuous Improvement and BPR are like two different sides at same coin. The quality movement of this concept focuses on process based rather than functional structural. They are still at functional official organization structure. Furthermore, here is the difference between reengineering and other methodology shown in Table 2-3 below: Rightsizing Restructuring Automation TQM Reengineering Assumptions Staffing Reporting Technology Customer Fundamental questioned relationships applications needs Focus of Staffing, job Organization Systems Bottom-up Radical change responsibilities improvements changes Orientation Functional Functional Procedures Processes Processes Role of IT Often blamed Occasionally To speed up Incidental Key existing systems emphasized Improvement Usually Usually Incremental Incremental Dramatic and goals incremental incremental significant Frequency Usually one Usually Periodic Continuous Usually one time one time time Source: Retyped from (Manganelli, RL & Klein,MM, 1994) Table 2-3. Reengineering and its Relationships to Other Improvement Programs Continuous Improvement grows from the quality circle concept that Dr. W. Edwards Deming brought to Japan. After World War II, this concept came from Japan (Petrozzo, DP & Stepper, JC 1994). The Quality

33 47 movement raises Just in Time (JIT) manufacture which developed by Toyota. In addition, the USA realized this but they responded a little bit late for the Japanese attack on their markets. The Japanese almost won in every battle. Soon, the USA realized their mistakes and learned from Japan. Then the reengineering concept was born. However, some experts agree that reengineering and continuous improvement must get along side by side. Radical improvement not accompanied by continuous maintenance of development will decline in next development. On the other hand, if radical improvement strengthens with continuous improvement, it will maintain its momentum until it is the time for radical improvement takes place again. XYZ tries to focus on their current budget plan (see Appendix A for details) Furthermore, in order to achieve 100 percent target of several business goals, XYZ adapting to new technology by implement an outsourcing to purchase new software application such as Linux in April 2007 that had reached third ranked in IT Best System 2007 as shown in Appendix A BPR Brief History Many leading organization have conducted BPR to improve productivity and gain competitive advantage (Manuel, L & Marklund, J 2005, p.54). Yet regardless of the number of companies involved in engineering, the rate of failure in reengineering projects is over 50% (Hammer, Michael and Champy, James, 1993, p. 70). Some of the frequently mentioned problems related to BPR include: The inability to accurately predict the outcome of a radical change Difficulty in capturing existing processes in a structured way Shortage of creativity in process redesign

34 48 The level costs incurred by implementing the new process Furthermore, process innovation was an ambitious management change program designed to combine information technology and human resource management for the purpose of improving business performance. Process innovation combines the adoption of a process view of the business with application of innovation to key process. In addition, the combination of process innovation will certainly help company to achieve major reductions in processing cost, time and major improvement in quality, service levels or other business objectives. (Manuel, L & Marklund, J 2005:56) In Table 2-4, it describes a distinction between the less ambitious process improvement, which Davenport emphasize will not achieve significant improvements in business performance, and process innovation, which all encompassing and designed to equip companies to complete more effectively with their rivals (1993:210). Aspects of change Process improvement Process Innovation Level of change Incremental Radical Starting point Existing process Clean slate Frequency of change One-time/continuous One-time Time required Short Long Participation Bottom-up Top-down Typical Scope Narrow, within function Broad, cross functional Risk Moderate High Primary enabler Statistical control Information Technology Type of change Cultural Cultural/ statistical Source: Retyped from (Davenport, TH., 1993) Table 2-4 Process Improvement and Process Innovation

35 49 Based on interviewing with Operational Manager of PT. XYZ, he said that XYZ adopted process improvement in order to get more profit from potential and loyal customer (Carr, DK & Johansson, HJ, 1995). Because they want to achieve their business goals with minimum risk with starting point in existing process which is discussed more on chapter What processes should be reengineered and when? Three forces are driving companies towards redesign the three C s such as: a. Customers (They are becoming increasingly more demanding) b. Competition (It has intensified and is harder to predict) c. Change (in technology) In Figure 2.13 below, all steps business process activities is illustrated in detail retrieved from ( Source: Downloaded from Figure 2.13 Business Process Activities in Six Steps

36 50 For building trust and good image to existing and new customer, XYZ provide Halo Suzuki Mobil by dialing as their toll free number in order to deliver recent important information to potential customer and handle customer claims ( In addition they also use and FAQ (Frequent Asked Questions) on XYZ website as their secondary tool in Information Technology in helping customer who needs information from them. Thus, XYZ IT supports collaborate with customer services will certainly answer all questions confirmed by Wahyudi, D (2007, pers. comm., 19 February). There are six steps in analyzing business process such as: 1. Business analyst analyzes the current business process. 2. Continues with process development and system integration done by Business Analysts. 3. Data that already gathered and processed, it links to server and it will be monitored in repository. 4. Process participants and business system is processed. 5. Business owner do process management in real-time 6. Historical and trend analysis is delivered to business owner. Thus, reengineering definition is: Reengineering is only part of what is necessary in the radial change process; it refers specially to the design of new process. The term process innovation encompasses the envisioning of new work strategies, the actual process design activity, and the implementation of the change in its entire complex technological, human and organizational dimension. (Carr, DK & Johansson, HJ, 1995:325)

37 51 Additionally, process management was discovered and successfully implemented by Japanese company, including PT. XYZ as Suzuki's Dealer from Japan. In particular, Japanese firm have improved the process of product development, logistic, and sales and marketing. Japanese manufacturing companies' interest in breaking down (isolating) business process into their component parts, and measuring their performance, with a view to improving them (continuous improvement), has been a major contributory factor in securing words-class competitive success (Stoddard, DB, Jarvenpaa, SL, 1995, vol. 12, pp ) Business Process Life Cycle In developing business process lifecycle model, there are four stages that give feedback mechanism throughout the lifecycle such as concept, design, production and servicing (Retrieved from URL address: Source: Downloaded from Figure 2.14 Business Life Cycles

38 Screening Criteria This is the screening criteria in reengineering processes such as (Manuel, L & Marklund, J 2005, pp ): 1. Dysfunction: Which processes are in deepest trouble (most broken or inefficient)? In Table 2-5, there is a description about the differences between symptoms and diseases of broken processes. Relates with XYZ current business process, there was a symptom such as rework in workshop analysis. One of the main goals for this company is minimizing and (if possible) eliminating rework in order to give maximum satisfaction to loyal customer (Manuel, L & Marklund, J 2005:57) Source: Scanned from (Manuel, L & Marklund, J 2005:57) Table 2-15 Symptoms and Diseases of Broken Process 2. Importance: Which processes have the greatest impact on the company s customers? Refers to Figure 2.15 below, there are several processes from customer issues in the market link with processes in company (Manuel, L & Marklund, J 2005:58).

39 53 Market Company Customer Issues Processes Product Cost On-time Delivery Product Features After-sales service Product Design Order Processing Procurement CRM Source: Reproduced from (Carr, DK & Johansson, HJ, 1995) Figure 2.15 Market & Company Relationships 3. Feasibility: Which processes are currently most likely to be successfully reengineered? Feasibility is determined by process scope, project cost, owner commitment and the strength of the redesign team as shown in Figure 2.16 below (Manuel, L & Marklund, J 2005:58): Process Scope Project Cost Process Feasibility Owner/ Corp. Commitment Team Strength Source: Reproduced from (Manuel, L & Marklund, J 2005:58) Figure 2.16 Process Feasibility 2.7 The Key Characteristic of BPR From the definition above, the important characteristics regarding the nature of BPR can be synthesized. Moreover, these characteristics will become guidelines that lead

40 54 to the understanding of the meaning of the real reengineering concept such as (Denna, EL, Perry, LT & Jasperson, J, 1995): 1. Fundamental Reengineering is pushing fundamental change inside the organization. Fundamental refers to the changes in the organization is exceeding the management boundaries. It is change the top, medium, and bottom management level. All management level must understand and fully conscious about the needs of Reengineering in their company. In addition, the top level management must be the first to initiate the reengineering initiatives. The level of change cannot be bottom to up it is must be encouraged from up to bottom. However, the implementation could be conduct from bottom to up (Denna, EL, Perry, LT & Jasperson, J, 1995). 2. Radical Radical means discard old rules and believes in the organization change all old habits. If necessary, rewrite the mission and vision to accommodate the needs for transform. Clean sheet paper approach could be used; it means that begin to writing again from the scratch. This approach is seldom happens, many reengineering Methodist argue about the affectivity of this approach. The cons argue that this approach is not realistic; due to it are enormous needs of financial capital and also hidden political disturbance. The pros argue that this approach is the best possible approach in BPR. The cost of change is still reasonable than the cost of status quo. Nevertheless, Reengineering must be seen by case-by-case approach, which means it will be different case for ach organization. There is no way to generalize all the case for each organization (Denna, EL, Perry, LT & Jasperson, J, 1995).

41 55 3. Dramatic Reengineering is not seeking about 10 percent or 20 percent improvement, its plan for quantum leap improvement 100 percent to 500 percent improvement. Moreover, Reengineering is not deal with incremental, step-bystep, and improvement. Thus, result from dramatic improvement can be measures from organization performance in cost, quality, service and speed. (Denna, EL, Perry, LT & Jasperson, J, 1995). 4. Process Focus Organization structure in the aged business organization is divided in several functional units. Each functional unit such as marketing, purchasing, production, etc; build their own exclusive group which leads to very little communication to each other. They are building their kingdom and mark their territory. This situation leads to poor customer service. Additionally, reengineering breaks this situation by encouraging process based organization structure. Rather than functional, company is focusing in developing process in organizational units. This gives the overall view of each unit to understand their role in delivering service to customer. Thus, the process focus allows organization to serve better services (Denna, EL, Perry, LT & Jasperson, J, 1995). 5. Customer Oriented Business Process that becomes the focus in reengineering effort must be focus on the value added process. Expert says that customer is a main orientation to select which process is value added. Value added process is a process that delivers customer the high possible satisfaction. In large organization, there are many process interact with each other. Sometimes, it is

42 56 impossible to reengineering all process. Therefore, we must prioritize the most value added process. There are only 30 percent companies that succeed implementing BPR. The others 70 percent are failing. Nevertheless, more and more company is willing and planning implementing BPR in their company. Consultant activity in reengineering concept is never as busy as before. It appears the survivability is the answers why reengineering become a must for many company. The never ending changes, the increasing level of competition and the fast development of Information Technology is the reason why the survivability in most company which decreases day by day. If the companies not change to get along with the needs of transform, they will die (Denna, EL, Perry, LT & Jasperson, J, 1995). 2.8 Information Technology as Crucial Enabler of Reengineering Information Technology is crucial enabler to Reengineering. Nowadays, it is the primary reason why the companies do primarily reengineering obstacle. Why? Because some organization, which had multiple system of IT, will finds difficulty to bridge the different system in their organization. Another reason appears because company tends to automate with IT old processes. It means that they are not fundamentally change the entire system of their processes, but they are only automating processes. Moreover, if automating processes is done, then the Reengineering effort in the future will be more difficult to face. Other critical problem is the legacy system ; which is the current IT system in company. Redesigning current process to meet reengineering requirements can jeopardize the overall reengineering process by becoming too large to handle. (Denna, EL, Perry, LT & Jasperson, J, 1995).

43 Simulation Modeling According to Manuel, L & Marklund, J (2005:300); simulation is an experiment with a model replicating the real world system. The reason why using simulation in this paper retrieved from URL address: is: 1. Cheaper and less risky than experimenting with the actual system 2. Stimulates creativity since it is easy to test the effect of new ideas 3. A powerful complement to the traditional symbolical and analytical tools 4. It provides a quantitative measure 5. It is flexible (it can handle any kind of complex system) 6. It usually requires a substantial amount of data gathering 7. Easy to misrepresent reality and draw faulty conclusions 8. It is a fun tool to work with Thus, a simulation model is primarily descriptive while an optimization model is by nature prescriptive (Manuel, L & Marklund, J (2005:310)). Many benefits offered through building simulation modeling and analyzing business process such as it can represent different sample parameter values in arrival rates or service interval that help to identify workshop process bottlenecks and provide a graphical display of process models interactively and animatedly in order to show the dynamic of XYZ business processes (Petrozzo, DP & Stepper, JC, 1994). Business process modeling tools are continuously being released on the software market such as ARIS toolkit, IDEF, Meta Workflow Modeler, Process Mapping, Visio, and Work Smart Analysis (Denna, EL, Perry, LT & Jasperson, J, 1995). Simulation modeling offers wider opportunities for understanding business process. Moreover, with the help of Extend simulation software tools, the dynamic models such as build up queue of business

44 58 process can be shown visually. This will enable next generation to develop creative ideas to redesign current business process that usually focus on the analysis aspects of a company; for example in manufacturing or finance. Based on (Stoddard, DB, Jarvenpaa, SL 1995, vol. 12, p.81) said that over 80 percents of BPR projects used flowchart as a tool in describing and analyzing company business process accurately compared to manual draws. Furthermore, simulation models can incorporate and represent dynamic and arbitrary performance in defining entities and resources retrieved from To help understanding current business problem and make suitable a decision-making, simulation models can be a solution in order to provide quantitative information as shown in Figure 2.17 below that provide quantitative information that can be used for decision making and can be regarded as problem-understanding rather that problemsolving tools. Input Data Output Data Simulation Model Random Random Source: Reproduced from Manuel, L & Marklund, J (2005:349) Figure 2.17 Simulation Model Several characteristics of simulation that fit for business process modeling are listed below (Mayer, RJ, Benjamin, PC, Caraway, BE & Painter, MK: 1995): 1. In order to follow changes in the real system, company can modify simulation model and use it to support continuous business process improvement in decision making. 2. Relates to a time-ordered sequence of interrelated events, a process-based approach in developing simulation modeling which describes the whole

45 59 systems flow of information within and between business process stations in a company. 3. In a purpose to process design, non-existing business process simulation model can be developed. 4. Through business process simulation model, the activities of both human and technical resources in the system can be captured. 5. Modern simulation like Extend software packages are breaking compromises in graphical interfaces; it achieves the descriptive benefits of symbolic tools like flow charts and optimization engines that enables efficient automated search for best parameter values. Basic steps in evaluating a process design through discrete event simulation such as (Tulskie, A Wiiliam, 1995): 1. Building the simulation model 2. Running the simulation 3. Analyzing performance measures 4. Evaluation of alternative scenarios 2.10 Simulation Modeling and BPR Because of lack of evaluating the effects of redesign solution tools, it can make BPR project failed based on (Peppard, J & Rowland, P: 1995). Modeling refers to the use of graphic models which are employed wherever possible, in place of narrative text, to provide clear and unambiguous information about the system. They are produced to represent both the current system and data structure and the required system and data structure. They enable detailed investigation to be made of the requirements and the design before money is

46 60 spent in actually producing the system (Bustard D, Kawalek, P, Norris M, 2000) Business Process Modeling A business process modeling (BPM) is the description of a business process. Modeling can be based on formal, informal, or graphical technique. BPM is mainly the observation process or to infer knowledge that is not evident from a simply analysis BPM is primarily the observation of the process and is usually a foundation phase for other activities that change the process. These activities include the following (Carr, DK & Johansson, HJ, 1995): 1. Business process improvement. Incremental and continuous changes adjust the performance of a process. BPM contributes to process monitoring. Following observation, problems or opportunities for improvement are identified and changes made as necessary (Fig. 2.18(a)). 2. Business process reengineering. Radical changes are applied to the process and significant improvements in performances are expected. The current state of the process is illustrated, through a model, in an as-in picture. There also can be several should-be pictures, representing different strategic choices and long-term perspectives of the organization (Fig. 2.18(b)). 3. Technology transfer. The process is already implemented in one environment and needs to be transferred to a new environment. The new environment usually offers new resources such as people,

47 61 infrastructures, and materials which requires knowledge from the old environment (Fig. 2.18(c)). 4. Process standardization. The process starts from varying and undefined situation: work proceeds according to informal rules and no documentation of the underlying exists. Modeling starts from this blurred picture an aims at a clear, stable description. As the model is built, the modeled organization gains awareness of the process and tries to make it converge to a standard definition. The model also converges to a standard process. The model testifies to the organization s commitments to a standardized, predictable and repeatable way of working (Fig.2.18 (d)). The ISO assessment standard provides a model for the measurement of software development. The data gathered from the assessment exercise can then be used to drive process improvement, leading to gains in productivity, product quality, and delivery time scales (Manuel, L & Marklund, J (2005:349)). With telecommunications products and services ever-more dependent on software, continuous process improvement is vital to a competitive-edge. And with the total complexity of modern technology, models that reflect the real world and allow us to analyze and improve it are increasingly important.

48 Figure 2.18 (a, b, c, and d) BPM for improvement, reengineering, technology transfer and standardization 62

49 63 Source: Downloaded from Figure 2.19 Business Process Modeling Method In Figure 2.19, there is a requirement of modeling objectives such as specific modeling method perspectives and certain characteristics of modeling method that matches with perspectives and characteristics in developing business process modeling method The capability Levels Six levels of capability are defined within ISO 15504, illustrated in Figure 2.20 below: The definition of each capability level is as follows: Level 0. Incomplete. In this level, the identification of work products or outputs of the XYZ business processes are not built yet.

50 64 Level 1. Performed. In this level, there is no planned and tracked of business achievement. 5. Optimizing 4. Predictable 3. Established 2. Managed 1. Performed 0. Incomplete Source: Scanned from (Manganelli, RL & Klein, MM, 1994) Figure 2.20 Capability escalator Furthermore, the XYZ general agreement is needed in order to perform business process and it has to testify the achievement of the business purpose as required in scope creep or business objectives as it stated in preliminary business plan. Level 2. Managed. In this level, business performance is already tracked and planned as required in specific procedures. Level 3. Established. In this level, approved tailored versions of standard documented processes are used in individual implementations in order to develop the process definition. Level 4. Predictable. In this level, there is collection and analysis of detail measures of business performance that leads to process capability understanding and predicting improved XYZ business performance. Also,

51 65 there is enough information about quality of service processes in achieving standard quality controlled. Level 5. Optimizing. In this level, there is collection and analysis of detail measures of business performance that leads to process capability understanding and predicting improved XYZ business performance. Also, there is enough information about quality of service processes in achieving standard quality controlled Simulating BPR with Extend + BPR TM Software This thesis is using dynamic modeling and simulation tools from Extend +BPR TM Software from Imagine that corporation to model and simulate reengineering processes. Extend has a comprehensive set of iconic modeling blocks that can be used for continuous and discreet event modeling and simulation (see Appendix C for understanding Extend elements). The philosophy of Extend is that objects flow through a model based on either a change in time, the completion of an event, or a change of state either in an object or the model itself. States of objects are describes by attributes, or it values that described by attributes, or values that describes them in some manner, such as color priority, cost, etc. This is an object-oriented approach that complement to the purpose of using object technology in this research. As listed in Appendix C, the Extend + BPR TM block that is used to modeling the reengineered processes. The following is the Extend + BPR TM capabilities (Manuel, L & Marklund, J, (2005: )): 1. Operations. Operations in Extend can be modeled in various ways. A simple operation is modeled using the combination of the Batch

52 66 block and the Activity block. The combination of the Batch lock and Activity, Delay block represents a batch operation. 2. Transactions. A transaction is a movement of objects from one point to another. Extend provides several blocks for representing a transaction. 3. Stores. In Extend, there is a number of blocks represent storage. These storage areas can contain items of different types of items with attributes that define type. 4. Decision. A decision in Extend + BPR TM is modeled by using a Decision block, which compares two variables, and a Select DE Output block, which chooses a path based on the received value. 5. Events. Extend + BPR TM supports implicit and explicit events. Extend + BPR TM also has the capability of generating events that will shut down other operations while they are executing. Interrupts can shut down operation, change the value of attributes associated with items, restart operations and so on. 6. Mathematical and Logical Operations. Extend + BPR TM has a large library of mathematical and logical operation available. The logical and mathematical blocks that control the behavior of a model can be implemented in two ways. The first is using visual graphic iconic blocks. The other, is hidden from the viewer or presented visually as part of the model itself. 7. Queues. It arises when the short term demand for service exceeds the capacity as shown in Figure 2.21 below. Often it caused by random variation in service times and the times between customer

53 67 arrivals. Extend + BPR TM also supports FIFO, LIFO and priority queues. Queuing and waiting time analysis is particularly important in service systems (in this thesis workshop service will be mainly focused). Input Source The Queuing System Calling Population Jobs Queue Service Mechanism Served Jobs Leave the system Arrival Process Queue Configuration Queue Discipline Service Process Source: Reproduced from Manuel, L & Marklund, J, (2005: 175) Figure 2.21 Components of a Basic Queuing Process In this thesis infinite calling populations is applied and independence between arrivals. Also, the arrival process is poisoning with an expected arrival rateλ. In addition, independent of the number of customers currently is in the system. The queue configuration is a single queue with possibly infinite length; no reneging or balking. The queue discipline is FIFO- First in First Out. The service mechanism consists of a single server with exponentially distributed service times. The queue discipline specifies the order by which jobs in the queue are being served. It can entail prioritization based on customer type.

54 Diagram of Porter s Five Forces BARRIERS TO ENTRY Absolute cost advantages Proprietary learning curve Access to inputs Government policy Economies of scale Capital requirements Brand identity Switching costs Access to distribution Expected retaliation Proprietary products SUPPLIER POWER Supplier concentration Importance of volume to supplier Differentiation of inputs Impact of inputs on cost or differentiation Switching costs of firms in the industry Presence of substitute inputs Threat of forward integration Cost relative to total purchases in industry THREAT OF SUBSTITUTES -Switching costs -Buyer inclination to substitute -Price-performance trade-off of substitutes BUYER POWER DEGREE OF RIVALRY Bargaining leverage -Exit barriers Buyer volume -Industry concentration Buyer information -Fixed costs/value added Brand identity -Industry growth Price sensitivity -Intermittent overcapacity Threat of backward integration -Product differences Product differentiation -Switching costs Buyer concentration vs. industry -Brand identity Substitutes available -Diversity of rivals Buyers' incentives -Corporate stakes Source: Downloaded from Figure 2.22 Diagrams of Porter's 5 Forces Explanation of diagram Porter above: 1. Supplier power In supplier power, supplier concentration has to be noticed. Next, the seller must make a priority to determine reorder point to know how much is the volume to ask supplier for supply and differentiation of inputs as the impact of inputs on cost, verify the switching costs of firms in the industry,