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A Systems Model of a Process.

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Introduction

"Would you tell me please which way I ought to go from here?" "That depends a good deal on where you want to get to," said the Cat. "I don't much care where... " said Alice. "Then it doesn't matter which way you go," said the Cat. "...so long as I get somewhere," added Alice as an explanation. - Alice & the Cheshire Cat, Alice in Wonderland, Lewis Carroll When one sees eternity in the things that pass away and infinity in finite things, its only then that he has attained pure knowledge - Bhagvad Geeta A process is a structured, measured & controlled set of activities designed to process the inputs and produce a specified output for a particular customer or a market. However, this is a very myopic definition of a process as it restricts the process as being equivalent to a workflow and ignores the soft processes like acquisitions by a company, succession within the controlling structures, etc. which do not have any clear input - process - output structure. Keen refines this definition as "... process is any work in the organisation that meets the following criteria: it is recurrent, it affects some aspect of organisational capabilities, it can be accomplished in different ways that makes a difference to the contribution it generates in terms of cost, value, service or quality and it involves coordination." ...read more.

Middle

A process should be undertaken by the organisation if it directly or indirectly contributes to the increase in its EVA (CFAT or PAT - CE*Discount Rate) and thereby the Shareholder Value. However, it would be wrong for the organisation to evaluate process viability only on its EVA contribution aspect; this is because there are a few processes that almost always consume more capital than the financial returns they generate. e.g. Research and Development. However, they are normally priority processes necessary for the long run survival and may currently have a negative EVA contribution but definitely lead to a positive NPV in the long run. e.g. Assume a typical process of laptop sourcing in an organisation. Let us first have a look at all the capital that is trapped inside this process Suppose there are 5 people in the procurement team and their only job is to source, negotiate and create purchase contracts for laptops purchased. One for search/sourcing, one for negotiating, one for designing the contract, and 2 secretaries. Suppose they, on an average earn, �30,000 p.a. Thus the total capital trapped in employees in this department is �150,000. Suppose the other fixed capital being used solely by this team is: -Building/Office �5,000,000 at replacement cost -Capital Equipment (incl. laptops, printers, furniture, etc.) �500,000 -Stationery, Food for employees, Travel and other revenue expenditure �200,000 p.a. ...read more.

Conclusion

Hence there is a 20% chance that a cost of �7,256,076.39 will be incurred i.e. �1,451,215.28 will be the cost incurred if no maintenance is carried out during the year. However, on the other hand if maintenance is done, the cost incurred is only �866,826.04. Thus there is a cost savings of �584,389.29 if maintenance is done. If ROCE is 20 % then maintenance adds �116,877.85 to the EBIT. A freeing up of cash-flow as a result of improvement in the maintenance process can be shown as below. No. of workers = 100 Annual pay per worker = �28,800 Current productivity level = 50% Productivity level (goal) = 80% Supervisor salary = �35,000 Inventory = �300,000 Inventory turns = 3 Inventory turns (goal) = 6 Downtime cost = �500,000 Downtime = 10% of the time Downtime (goal) = 5% of the time Cost of rework = �50,000 Rework as % of revenue = 5% Rework as % of revenue (goal) = 2.5% Worker Manpower = 50/80 * 100 = 63 workers required at 80 % productivity level Saving of 100 - 63 = 37 workers i.e. �1,065,600 Supervisor Manpower = 37/20 = 2 supervisors can be laid off at 80% productivity levels Saving of �70,000 Inventory = �300,000 * 3/6 = �150,000 Saving of �150,000 Downtime = �500,000 * 5/10 = �250,000 Saving of �250,000 Rework = �50,000 * 2.5/5 = �25,000 Saving of �25,000 Total Savings achieved from process improvement = �1,560,600 ...read more.

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