Business Management Articles
BPE: Low Risk, High Payback
Canadian Manufacturers and Exporters, 20/20, July 2007
by Sam Khoury & Carlo Mariglia
When the company started receiving complaints from customers, the COO knew that he had a serious problem. The only trouble was, he didn’t know exactly what the problem was.
Electrico is a 20-year-old manufacturer of electrical components with an established Canadian customer base. When the COO received calls from three customers complaining about late deliveries, he knew that he had to identify the issue and resolve it – quickly.
Unfortunately, the solution wasn’t obvious. The COO had determined that the production cycle had slowed and inventory was backlogging. He and his team, however, were unable to pinpoint the specific causes.
Needing to resolve things quickly, before customers defected, the COO decided to launch a business process enhancement initiative to help the company determine why it was no longer meeting production deadlines.
“Business process enhancement (BPE)” or “business process improvement (BPI)” is a specialized approach to removing barriers that slow or impede the flow of work. BPE maximizes the potential of people, processes and technology to achieve business goals. It can be used to improve quality, increase productivity, reduce costs, enhance customer satisfaction and retention, lower risks and increase profitability.
The need for BPE is growing in direct correlation to the growing complexity of business. Supplies, markets, customer needs, competitive forces – all of these are in continuous flux, impacting how a business operates. As a company adapts to these changes, people, activities and workflow tend to fall out of sync, leading to inefficiencies and problems.
How do you know whether your manufacturing operation is a good candidate for business process enhancement?
- Are your processes becoming increasingly technologically-driven?
- Is your operation growing quickly and your infrastructure challenged to keep up?
- Are you introducing a new business model?
- Are you merging plants or processes?
- Are you introducing new systems?
- Are costs escalating?
- Is profitability falling?
Canadian manufacturers face threats and opportunities in the global marketplace that challenge them to be as competitive as possible in all facets of their business. BPE helps to eliminate the barriers preventing optimal performance by analyzing and redesigning workflow processes. It can address overall operations or specific components. For many manufacturers, purchasing, inventory management and materials handling are the most significant cycles, and are often the focus for enhancements.
Business process enhancement involves assessing the current state of operations to identify inefficiencies, gaps and risks and then recommending changes to specific areas that impede productivity. Recommendations can include changes to work processes, changes to the organization (such as people, training), or changes to support systems and infrastructure.
BPE assessments can also help to prevent problems from arising. Conducting an initiative before a new information technology or financial system is introduced, for example, can ensure an efficient, successful implementation.
The more automated that business processes become, the more complex and confusing they can be for both management and employees. Security issues can arise because of a lack of understanding of how the entire system works and the roles of individuals. In some cases, the ability to detect fraud can even be compromised. BPE helps companies regain understanding and control of their operations.
Manufacturers can also benefit from business process enhancement when they intend to merge companies, divisions or plants. BPE can rank the features, capabilities, and controls of each entity and determine which ones are best to achieve consistency and efficiency.
Some companies appoint internal teams to undertake a BPE project. Most, however, look to external specialists to provide the resources, experience and objective perspective needed to successfully drive the initiative. There are three basic steps involved in a business process enhancement project.
1. Assessment
The assessment phase involves identifying key external and internal factors: the drivers of the business and its industry, and the relevant processes within the enterprise. Interviews with key managers, customers and employees help to define the problems, goals and needs of each.
BPE identifies what is currently being done and compares that with what each party is trying to achieve. The process enhancement team needs to know what is essential and what can safely be eliminated or changed. At the same time, diplomacy and sensitivity to the corporate culture are vital to ensure that everyone supports the process.
2. Diagnosis
The next step is to take what’s been learned and document it. In the case of Electrico, for example, the assessment revealed that management’s objectives were no longer aligned with the goals of the production and warehousing departments. The process team created a diagram providing a clear picture of the current state of operations, including who performed key functions, the amount of time dedicated to each activity, what activities were not adding value, and what risks were involved. This diagram was integrated with recommendations for streamlining processes: objectives, controls necessary to manage risks, and specific measures to drive success. Once reviewed and approved by management, this diagram served as a map for implementation and as a baseline to measure results.
3. Implementation
Some organizations prefer to assume responsibility for implementing process enhancements. Others want the hands-on support of a BPE specialist to guide management and to help employees understand and implement the necessary changes. Project management typically involves:
- developing a project plan, including goals, priorities, tasks, responsibilities, deliverables and timelines;
- communicating the need for BPE and securing the buy-in of employees;
- resolving conflicts that may arise;
- maintaining the project schedule; and
- monitoring progress and measuring results.
The real value of BPE is that it offers short-term solutions that can be put to work immediately – with a corresponding immediate payback in performance improvements.
Depending upon the size of the operation and the scope of the project, a BPE initiative can often be completed within a few weeks. Costs are usually recovered within a few months.
For Electrico, the company’s BPE project not only reduced production time by 20% by automating several manual processes, it also produced cost savings of 20% within only six months. As well, the discipline of participating in the project encouraged managers and employees to welcome, rather than resist, change. By learning more about how each unit within the company contributes to overall success, and by sharing information and knowledge, employees became more proactive in identifying ways in which the company could continue to improve.
Every manufacturer in Canada must deal effectively with constant change: shifts in customers, vendors, markets. BPE is a low-risk, high-payback solution to leveraging change and gaining a competitive advantage.
Sam Khoury, CA•IT, CPA, is a partner and Carlo Mariglia, CA, CPA, CISA, CIA, is a senior manager, who work in the risk advisory services practice of BDO Dunwoody LLP (www.bdo.ca). They specialize in helping clients implement initiatives related to business process enhancement, enterprise risk management and other risk management and internal control issues. You can reach Sam at (416)369-6030 or skhoury@bdo.ca and Carlo at (416) 865-0200 or cmariglia@bdo.ca.
