Unveiling the Essence of Business Process Reengineering

Before we get into the topic, I’d like to share a story with you. 20 years ago, a group of executives from US automobile manufacturers came to visit the Japanese automobile production line. At the end of the production line, the visitors found that a critical production operation was missing before the final inspection: US operators usually use the rubber hammer to hammer the edge of the doors while assembling the doors with the vehicle body to ensure the gap and step complied with the quality requirement. The visitor asked the Japanese manufacturer where the procedure was and how you can ensure the seamless between door and body. Japanese guy shared that they have considered the manufacture and quality in the design stage. That is why they don’t need to wave the rubber hammer.?

In other words, Japanese manufacturers don’t use hammering to ensure quality. They don’t hire a group of people to wave the rubber hammer and don't need to buy many rubber hammers.? More importantly, the reliability of Japanese cars is higher than US cars. All the differences come from the different approaches to fixing the problem. Rubber hammer represents the leadership style of many people and organizations. They want to fix the problem quickly and build a process under a process. They are either satisfied with the additional workaround or lack of time or resources to diagnose where the true problem comes from and find a more reliable way to resolve the problem.?

Another interesting case was GM facing a strong challenge from Toyota and Honda in mid-2000 and losing the market share. The company drastically reduced the prices of its vehicles in an attempt to gain a competitive edge. This led to a significant impact on GM's financials: 1. Profit Margins Eroded: GM's profit margins took a significant hit as a result of price-cutting. Operating profit margins, which were around 6-7% before the price war, fell to approximately 2-3%. 2.? Market Share Gains with Diminished Profits: While GM did manage to gain some market share due to lower prices, the company's net profits decreased by nearly 90%, from billions of dollars to just hundreds of millions. 3. Reduced Investment in R&D: GM's reduced profitability meant the company had to scale back its investments in research and development (R&D) for new technologies and vehicle improvements. As a result, GM fell behind in developing more fuel-efficient and technologically advanced vehicles. 4. Brand Reputation and Quality: The relentless pursuit of cost-cutting to maintain lower prices impacted GM's reputation for quality. Quality issues, including product recalls, became more frequent, and the brand suffered. 5. Impact on Stock Value: GM's stock value also took a hit during this period. While stock prices can be influenced by multiple factors, the market's perception of GM's long-term viability played a role in the decline. 6. Loss of Competitive Edge: Over time, GM's price-war strategy made it harder for the company to compete in the long run as it struggled to catch up with competitors' innovations. These quantitative indicators reflect the negative consequences of GM's price war strategy, providing concrete evidence of how such an approach can lead to erosion of profits, reduced investments in quality and innovation, and a long-term competitive disadvantage. Hey! Price is not the only problem but also quality! The same case happens again and again, doesn’t it?

Look at an organization with fewer people but still can achieve an equal or even greater goal. How can they be so successful? The secret is “Do the right thing and do the things right!”

Business process reengineering (BPR) is a powerful approach that can help organizations revamp their operations to achieve enhanced productivity, cost-efficiency, and overall performance. At the core of BPR is a well-structured hierarchy comprising top-level business strategy, Operating strategy, and the intricate web of business processes. In the article of Lora Cecere (Strategy. Strategy. Wherefore art though strategy? https://www.supplychainshaman.com/strategy-strategy-wherefore-art-thou-strategy/), she shares that Don’t start BPR with the process but start with the following questions:?

1. Business strategy: What are the right things to do to increase company value?
2. Operating strategy: What are the right ways to support the business strategy? What are the right trade-offs between value drivers for each value network? What are the right metric portfolios??
3. Business process: How do I do the right things right?

In my article, we will explore the essence of business process reengineering, common mistakes/pitfalls to avoid, and the top five indicators for a successful BPR initiative in the supply chain.

The Hierarchy: From Business Strategy to Business Processes

1. Business Strategy: At the apex of the BPR hierarchy is the overarching business strategy. This strategy defines an organization's long-term goals (3-5 years) at a high level, its market positioning, and the competitive advantages it aims to cultivate. It defines the purpose and overarching goals for the organization which expresses the company’s fundamental reason for existence. The second element is specific, measurable targets that the company aims to achieve including financial goals, market share, customer satisfaction, and sustainability targets. The third element is resource allocation based on market analysis. It determines what and how to serve the target customer segments, including financial, human, and physical resources to fit the strategic initiatives. BPR starts here, with a clear understanding of what the organization seeks to achieve and how it intends to achieve it.

2. Operating Strategy: The operating strategy is the next tier in the hierarchy. It bridges the gap between the high-level business strategy and the nitty-gritty of daily operations. It outlines the methodologies, technologies, and resources required to execute the business strategy effectively. The operating strategy provides a roadmap for achieving the strategic goals, setting the stage for the forthcoming BPR. From a Supply Chain perspective, one of the key activities is Sales and Operation planning (S&OP). S&OP is a process that aligns a company’s sales and marketing plans with its operational capabilities. It ensures that the business can meet customer demand while optimizing resources and achieving business strategy. The initiative of S&OP starts with demand planning, supply planning, balancing supply and demand, collaborating departments like sales, marketing, finance, and production to make informed decisions with consensus, and reconciliation and execution which means the execution of the decision and adjustments are tracked and made the change if necessary.?

3. Business Processes: The lowest tier is occupied by the actual business processes. These are the day-to-day activities, workflows, and procedures that collectively contribute to the fulfillment of the operating strategy. Business process reengineering occurs at this level, where processes are reimagined, streamlined, and optimized to align with the operating and business strategies.

Common Mistakes in Business Process Reengineering

While BPR can be transformational, it's crucial to steer clear of common pitfalls that can hinder its success:

1. Misaligned BPR efforts from the business strategy or organization goal: There is an old saying of BPR: “Don’t start the initiative with processes”. Don’t separate the efforts from organizational objectives. BPR should be seen as a tool to achieve the same business strategy and organization goals given.?
2. Underestimate the changes required: If lack of subject matter experts or key stakeholders, tremendous upheaval and the second go will be the result. The project leader should know what influence and value will the change lead, and the corresponding work breakdowns (WBS) to manage the change initiative, implementation, execution, supervision, and reconciliation.????
3. Run! Don’t walk: The slang was given in the speech of Jensen Huang, CEO of Nvidia, in Taipei. It can be right when you have a vision and set a tough goal. However, whoever has high expectations of the dramatic improvement contributed by BPR should pay as much attention to each milestone and deliverable. To achieve a higher ambitious goal, one needs to move every step carefully and steadily.?
4. Overlooking Employee Involvement: Employees on the front lines often have invaluable insights. Ignoring their input can lead to resistance and suboptimal results.
5. Focusing Solely on Technology: While technology can streamline processes, it's not a panacea. BPR should encompass changes in culture, organizational structure, and workflows. Technology needs to work for people/organizations/processes rather than the other way around.?
6. Don’t pilot the new process: Trial and piloting the new process or system usually takes time and is costly. However, it is the necessary step to identify potential problems, and bottlenecks, and eliminate failures when a new process or system goes online.?
7. Neglecting to Measure Progress: Not setting Key Performance Indicators (KPIs) and failing to track progress can lead to a lack of accountability and an inability to gauge success.
8. Ignoring External Stakeholders: BPR impacts not only internal processes but also external partners and customers. Neglecting these relationships can have adverse consequences.

The following process flow is extracted from my past process reengineering experiences which includes: a. Enterprise level of Cost management system with the annual spends more than $1.5B, b. SAP ECC3.0 and i2Six (SCM software and renamed as BlueYonder now), c. Direct shipment project, d. 10% of Cost of Goods (COG) local sourcing in AP for semiconductor lithography equipment, e. Improve product margin in Latin America and much more.?

I’d like to highlight the human side of business process reengineering. In the world of organizational change, the impact on employees is twofold. Change presents prospects for growth and development while demanding adjustment to new relationships, skills, and behavioral patterns. As multiple changes occur, the collective costs of negotiation and adaptation accumulate. Organizational change thus yields both favorable and adverse outcomes for employees and organizations. Diverse perceptions of change influence varied employee responses: some embrace it, while others resist. Positive attitudes toward change and alignment between attitude and behavior typically drive focused efforts to support its implementation. However, it's widely assumed that organizational change is mostly experienced negatively. Many view it as an imposition, causing disturbance until the new order is normalized. Reasons for resistance include fear of the unknown, mistrust of management, disruptions in traditions, and conflicts with change agents.

A significant challenge in Business Process Reengineering (BPR) is resistance from key stakeholders affected by the restructuring efforts. BPR isn't just about role changes but a transformation of an organization's structure, affecting processes, culture, and behavior. Resistance often emerges due to the power rearrangement, and the crisis of individual sense-making amid reengineering. Worker resistance also stems from the team-oriented approach, the difficulty in adapting to new technologies, skepticism about BPR results, and discomfort in adapting to new skill requirements. To mitigate resistance during BPR, strategies such as identifying employee attitudes, emphasizing the need for change, ensuring participation, and improving communication at all levels are recommended. Engaging employees in the process boosts morale, and involving a diverse mix of team members ensures a balanced approach. Successful BPR is anchored in top management commitment, where leadership plays a decisive role in the process. Clear, honest, and regular communication significantly minimizes resistance. BPR necessitates a shift in management style, urging managers to reorganize, plan, and inspire in a holistic and integrated manner. In essence, successful BPR requires strategic leadership from top management and the cultivation of an environment conducive to change, open communication, networked relationships, and a culture of learning, facilitating the implementation of efficient processes and change management practices.

Defining successful indicators for Business Process Reengineering (BPR) involves identifying key metrics that reflect the effectiveness of the re-engineered processes. Here are the top 5 indicators that can signify success in BPR implementation::

1. Cost Reduction and Efficiency Improvements: One of the primary objectives of BPR is to achieve cost savings and enhance operational efficiency. Measure the reduction in costs associated with the re-engineered processes. This could include decreased cycle times, lower resource utilization, reduced overheads, and streamlined workflows. Successful BPR initiatives often lead to noticeable improvements in cost efficiency.
2. Quality Enhancement: Evaluate the impact of BPR on the quality of outputs or services. The focus on eliminating non-value-adding activities and reengineering processes often results in higher-quality deliverables. Metrics such as reduced error rates, improved accuracy, fewer defects, and higher customer satisfaction can signify success in enhancing quality through BPR.
3. Speed and Process Performance: Assess the improvement in the speed of operations and overall process performance. BPR aims to streamline processes and eliminate bottlenecks, leading to faster cycle times and quicker delivery of products or services. Metrics related to lead times, process completion times, and overall process performance improvements are indicative of successful BPR.
4. Employee Satisfaction and Engagement: Successful BPR should not only focus on process improvement but also consider its impact on employees. Engaged and satisfied employees contribute significantly to the success of reengineered processes. Metrics such as employee feedback, participation in process redesign, and improvements in job satisfaction can indicate successful BPR implementation.
5. Alignment with Business Goals and Customer Satisfaction: Ultimately, the success of BPR should align with the overarching business goals and enhance customer satisfaction. Metrics that reflect improved customer experiences, increased market share, and a closer alignment of processes with business objectives signify the success of BPR.

These indicators may vary depending on the specific goals and nature of the reengineering effort. From Supply Chain BPR, the indicators can be:?

1. Lead Time Reduction: BPR aims to streamline and optimize processes, resulting in a significant reduction in lead times throughout the supply chain. Measure the time it takes from the initiation of an order to its delivery. Successful BPR should considerably reduce lead times, leading to quicker order fulfillment and improved customer satisfaction.
2. Inventory Turnover: BPR initiatives often focus on inventory management and optimization. An increase in inventory turnover, indicating that goods are moving more swiftly through the supply chain, signifies success. This indicates efficient use of resources and capital tied up in inventory, leading to cost savings.
3. Cost Savings: Measure the reduction in operational costs post-BPR implementation. Successful reengineering efforts in the supply chain should result in cost savings by optimizing processes, reducing waste, and enhancing efficiency. Cost-saving metrics can include reduced production costs, lower transportation expenses, or minimized warehousing costs.
4. Supplier and Partner Relationships: Improved relationships with suppliers and partners are critical. Success in BPR can be reflected in stronger collaborations, reduced lead times from suppliers, and enhanced supply chain visibility and transparency. Measure improvements in communication, reliability, and responsiveness among supply chain partners.
5. Quality Improvement: Assess changes in product or service quality as a result of BPR. A successful reengineering initiative in the supply chain should lead to higher-quality outputs, reduced defects, and improved overall customer satisfaction. Measure metrics such as reduced error rates, enhanced product reliability, and improved compliance with industry standards.

Regularly monitoring and analyzing these indicators will provide insights into the effectiveness of the BPR initiatives and help in making informed decisions about further improvements or adjustments in the reengineered processes.

Business process reengineering, when executed strategically, can be a powerful tool for organizations aiming to adapt and thrive in an ever-changing business landscape. By aligning business strategy, operating strategy, and business processes, and by avoiding common mistakes while focusing on key success indicators, businesses can embark on a transformative journey toward enhanced efficiency and competitiveness. In the supply chain, these improvements can have a far-reaching impact, creating a ripple effect of benefits throughout the organization and beyond.