You have permission to publish this article free of charge, as long as
resource box is included with article. If you do run my article, a courtesy reply to sean@bizmanualz.com would be greatly appreciated. This article is 1,122 words long including resource box. Thanks for your interest.Part Two of Creating Well-Defined Processes Series
Part One: Process Improvement
Next Week: Implementation
Last week, we raised question: how do you know where to begin? How can you identify a gap in one of your company’s core processes?
The answer: follow money trail…
But how do you follow money trail, and what will that mean for your business? To answer this, let's look at five steps to identify your core processes and any needs for change.
Step 1: Define Your Business Model
The following question might sound very basic, but you should first ask yourself: what business am I in? You’ll ask this because you want to follow money trail: to identify how exactly you earn revenue and from where that revenue comes. And this also defines your business model, which sets how you make money. By examining your business model (including mission and vision statements), you see not only how you can make money but also how you should make money. In other words, what should be happening in your business to increase revenue – but isn’t and why?
Step 2: Create a Process Map
Once you’ve looked at your business model, continue to follow money trail and identify your company’s core processes in cash to cash cycle. By doing this you can see which processes are most critical to overall success of your business.
Next, connect core processes in a process map. Link suppliers, inputs, outputs and customers together to see overall cash conversion cycle. Let’s examine a high level process map.
Here we have complete business cycle of a typical company using SIPOC method, which connects Suppliers to Inputs to Processes to Outputs to Customers. To illustrate, a typical process map flows like following from left to right: a Supplier connects input purchasing with Process of inventory and to Output sales, which is then connected to Customer. From there, cycle also flows back from right to left: Customer connects Output accounts receivable to Process of manufacturing to Input accounts payable and finally to Supplier.
With this, you can see departments through which cash flows. And once you identify and break down your company’s core processes, you are closer to answering question: which process do I start to improve?
Step 3: Examine Financial Statements
Now continue along money trail by looking at your financial statements, including balance sheet, income statement and cash flow statement. Your financial statements indicate where your money is piling up, sort of like a snap shot of what your velocity is currently.
For example, in a manufacturing company, you can determine if there are long wait times between sales or long delivery times – both of which are evident in inventory. And inventory (as seen in your financial statements) also show effects of time – and whether your process velocity (i.e. a slow process in conversion cycle that causes long lead and wait times) is causing a pile up in your financial statements. Ask yourself: "are my processes fast enough to make my customers happy?"
Step 4: Set Velocity
Velocity is speed at which your system is operating currently e.g. goods delivered on time and responsiveness to orders. To design an effective process, you will need to know set velocity that organization needs to maintain good customer satisfaction. If your inventory process has a long cycle time, beginning with raw materials and ending with customer, then this could be an indication of a low velocity. Customers set pace, and they will tell you if velocity of product turnaround is sufficient. And so companies need to calculate what that pace is to make customers happy.
