Economic efficiency as a process property

Today the economic efficiency of the company is scarcely a property of the products any more but rather of the processes. Companies today are thus faced with the task of optimizing their process chains, something which in practice leads to a reorientation in resource steering which is de-cisively important in competition: while in the past attempts were made to exert control over the economic efficiency of production on the basis of figures from the company’s accounting department, the approach today is to try to identify the processes lying behind these figures. That, in brief, is how Norton and Kaplan tackle the problem with their “balanced score-card” (Kaplan and Norton 1997). The method which has been widespread to date is to organize resources by the result via costs. This approach is foundering on account of the increasing proportion of overhead costs since it forces the cost accountant to take a considerable cost block which for logical reasons cannot be allocated to the cost unit (products) in a manner corresponding to the cause of the costs and notwithstanding this to still allocate it to artificially created codes (cost center account) in a way un-connected with the cause of the costs.

The main points of criticism may be summarized as follows:

 Overheads are proportional to time – time consumption figures (lead times) thus become an extremely important cause of costs. They are not however picked up by traditional cost accounting – there is no time di-mension – which in practice means that an instance of production with a long lead time including subsequent storage is calculated in virtually the same way as production with a short lead time.

 This in turn results in the considerable effort being expended on improv-ing the efficiency of value generation (degree of utilization) not beimprov-ing expressed in the costs.

Opening up the areas of potential hidden in the processes is increasingly becoming a matter of sheer survival: against a background of intensifying competition virtually all companies are operating today with their backs to the wall as regards not only their prices but also their equity capital. Process

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potentials are, on the other hand, comparatively enormous. Today this means the first step should be to identify the process chains and then to keep constantly improving them.

2.1.1 The process-oriented approach of ISO 9001/TS 16949 A process-oriented approach is the basis of process control. “For an or-ganization to be able to function effectively it must detect, direct and steer large numbers of interconnected activities. An activity which uses re-sources and which is carried out in order to make possible the conversion of inputs into results can be regarded as a process.” (ISO/TS 16949 2002).

The process-oriented approach of ISO/TS 16949 thus covers:

 Understanding and meeting requirements

 Process assessment from the point of view of value generation

 Achieving results as regards process performance

 Permanent process improvement on the basis of objective measurements Competition in the global market is shifting increasingly from competi-tion between products to competicompeti-tion between processes. Companies such as Dell, Amazon or Würth may serve as examples of how markets can be created not via products but via business processes.

The way value generation is oriented towards the customer has conse-quences for the control of internal processes: the customer does not judge isolated improvements in individual processing steps but rather solely the result at the end of the value chain – in other words, the capability of the entire process. This transition from the production economy to the service economy is today referred to as the second industrial paradigm.

Process capability brings a new way of looking at things: to steer the economic efficiency of the company not by means of its technical equip-ment but rather via its internal processes. While improveequip-ments on the basis of an improved manufacturing technology can only be achieved with diffi-culty – most companies have the very latest machines and tools and may well buy their materials from the same suppliers – the process potential is comparatively enormous. Although process-based certification standards have now become very common and although most companies have now become certificated on the basis of a process-oriented code (ISO 9001, TS 16949), the process-oriented approach is hardly observed in practice.

We shall therefore go on to show what action can be taken and tools de-ployed to achieve the process capability of the company in practice.

2.1 Economic efficiency as a process property 43

2.1.2 The process potential in figures

Process capability means the ability to work without errors. Process capa-bility can be measured as a spread within preset specification limits. The process capability can be statistically expressed in numbers by sigma which is a measure of the scatter. Purity grades can be assigned to the dif-ferent sigma values. Today purity grades are expressed as ppm values (parts per million non-conforming parts in a delivery).

Figure 2.1 contrasts the dependence between process variations – ex-pressed as the scatter value sigma – and failures – exex-pressed as the ppm value.

The really important thing to realize here is that when the process capability is improved by just one sigma level, an improvement in economic efficiency can be achieved by reducing failures by one order of magnitude, something which is a long way from being achievable by making improvements in the processing (machines, tools, methods, etc.) (Rehbehn and Zafer 2003).

Fig. 2.1. Assignment of sigma level and failures

44 2 MES for process capability