The seven keys to managing process variations

Companies are increasingly embracing business process management (BPM) as a way to make their supply chains more agile and efficient. After all, BPM involves taking a disciplined approach to identifying, standardizing, managing, and streamlining workflows and processes that span organizational boundaries. A BPM tool can, for example, provide a visual representation of the processes that run throughout the supply chain. This representation can significantly improve communication with all of the trading partners by helping to clarify roles and responsibilities, identify handover points, and reveal areas of inefficiency and waste. Standardized supply chain processes reduce wastage by identifying inefficiencies in both the products used and the processes that employ them. In industries like healthcare, where supplies are second only to staff costs in an organization, those savings can be significant.

While BPM provides many benefits, one challenge that many organizations continue to struggle with is managing and standardizing process variations. In fact, Steve Stanton—managing director of the consulting company FCB Partners and a pioneer of business process modeling—believes that the vast majority of the organizations he knows have failed at process standardization because managing variations is so difficult.

There are several common reasons for supply chain process variations. For example, a company may need to customize the customer's experience based on attributes such as profile, size, location, and behavior. Or it may need to slightly alter its receiving process to accommodate the unique nuances of each of its suppliers. For example, an organization which has multiple suppliers for the same raw material or product may apply a variation category (like "supplier") to their standard sourcing processes. This variation category will allow them to capture the nuances related to managing each individual supplier, while still governing the process variances from the company's standard process.

Another source of process variation is the fact that individual countries—and even some regions within countries—often have different tax or customs regulations and policies that require the company to customize certain processes such as shipping. In fact, globalization is making it increasingly difficult for many organizations to manage process variations. This is certainly the case for multinationals that have numerous locations and offer multiple core products or services. Even relatively small companies are now regularly selling into different countries and operating in multiple regulatory environments, increasing their process variation challenge.

If not managed effectively, developing and managing separate processes for different types of customers or suppliers or for different geographic regions can require a major investment in time and energy and lead to cost overruns. In addition, each new process variation can introduce process inconsistencies and additional complexity. To get the full benefits of business process management and process standardization without incurring significant extra cost or complexity, companies need to develop an effective way to manage process variations.

Ineffective responses to process variations

Typically, one finds three common responses to the problem of process variation along the supply chain. While they may offer some benefits, in general they are ineffective and can create additional problems for organizations that adopt them.

The first response is to create standardized processes at a high level only. This approach is most commonly found in companies just beginning to use business process management or smaller organizations. The problem with this approach is that it provides information at the 10,000-foot level—in other words, it provides basic information that is so summarized that it's of no use to anyone for day-to-day process guidance or as a platform from which to make future changes.

A second response is to create "mega-processes" that cover every conceivable variation. This approach is typically preferred by highly technical teams or large transformation projects and is characterized by detailed, technically correct process documents that apply approved process-notation standards. Unfortunately, teams often find the documented processes difficult to comprehend and engage with, so they ultimately ignore them. Additionally, because the process owners are reluctant to make any changes or implement improvements, process documentation quickly becomes out-of-date and of little use. The complex documentation can also stall agility and future opportunities for improvement.

The third fairly typical approach finds organizations at each point along the supply chain allowing owners to create their own, separate process variations. Commonly found among organizations that are further along the process management maturity curve, this approach is fraught with problems. Chief among them is the fact that separate, individual process variations that are owned, managed, and changed independently inevitably result in numerous administrative headaches. As these individualized variations drift further from the original standard, problems arise like incorrect stock orders and deliveries, product returns, and so forth. Without a strong link to the original standard they become less like variations and more like isolated, independent processes that are hard to track or manage.

Seven steps for managing process variations

But supply chain organizations need not limit themselves to the ineffective responses to process variation outlined above. Instead, they should put in place a set ofunderlying capabilities and policies that can help them achieve the benefits of standardized processes across the entire supply chain. The seven steps recommended below will help organizations better manage controlled process variations:

1. Organizations should agree on the core or standard process. This works well for high-level processes like procure-to-pay, idea-to-offering, order-to-cash, and plan-to-inventory. This is standardization at a value stream level and should ideally allow users to drill down into process specific details. For example, procure-to-pay may have multiple sub-processes that make up the end-to-end view, like create or maintain suppliers, prepare purchase order, receive goods and material, and process payment.

At the process detail level, it is possible to include factors such as participants and handoffs between participants, triggers, inputs, outputs, activities (process steps), tasks (transactional-level detail), supplemental documents, and answers to common questions that come up while performing the process. It is possible to measure process evolution and effectiveness by tracking items such as active time, wait time, cost, process specific key performance indicators (KPIs) or service level agreements (SLAs), supporting systems, automation/workflow integration, and opportunities for improvement. This standard core process will form a platform against which to consider local variations and will be owned by global process owners. They will be responsible for overseeing the process efficiency and effectiveness, regardless of the localized variations, with a corporate perspective rather than an individual departmental concern. A global process owner should know the process well enough to manage it and have the executive authority to make changes where efficiencies are identified. Although there may be—in fact, should be—input from different team members into what the standard process should look like, the global process owner ultimately makes the final call on what the core, or standard, process is. Once agreed on, all standard processes should be stored in a central repository where teams can easily access relevant, up-to-date processes when they need them.

2. Local process variations should only be established from this standard process. Any changes should be made by a local process expert who is responsible for that specific variant. This expert is the person who knows the local variation best. While they might not execute the process, they understand the steps and ramifications of each activity, and recognize what makes their context distinct. In order to manage process variants effectively, teams will need to use a BPM tool that can show the process variants against the core process, so it's easy to see where and how each process variant differs from the standard global process.

3. Any changes that the global process owners make to the standard process should be submitted to the applicable local variant owners for review. This ensures that any change to the general process is merged into the local variation or properly amended. This is important because the process change may need to be reflected in a different way in a specific country or for a specific product. For example, the activity might be completed by a different role in a certain country, or there may be local regulations that prevent the process change from being implemented as it has been in the standard global process.

4. There should be a global reporting capability so that process owners can see the list of processes that exist for each variant type. This facilitates awareness, review of, and, if necessary, rationalization of the number of process variations.

5. Business teams should regularly compare and report on all the process variations that exist for each standard process. They should, for example, be able to generate process variation time/cost savings reports to compare and contrast the performance of process variants against the standard. This report should include factors such as active time, wait time, cost, and any unique KPIs or SLAs. In order to control process variations, it's important to see and discuss process activities that have been added, removed, or changed when compared to the standard process on a regular basis.

6. When implementing a new process, business teams should be allowed to select the appropriate process variation for them from a list. Or, if they have a default location, product team, business unit, or so forth, they should be automatically routed to the relevant process variant. When implementing a new process, business teams want to see information that is relevant to them, their roles, and their location. Enabling teams to quickly find relevant process information is critical in order to drive engagement and process adherence.

7. Organizations should calculate the difference in cost and time between variations and the standard process. This allows organizations to make informed decisions about whether to keep, challenge, or eliminate process variations based on time and cost impact. For instance, if one location has greater logistics costs through distance or local tariffs, the variation needs to reflect this but where the difference is due to outdated plant or machinery creating delays, the variation could be eliminated with strategic capital investment in the plant. It's also important to recognize that in some cases, time and cost won't be the only considerations. For example, certain key customers may warrant a special shipping option that is more expensive than the standard shipping practice.

These seven capabilities and policies allow the entire organization to understand the extent of the process variations they are managing, to control and report on them, and to challenge them. This clarity and control will help teams along the supply chain be more agile, more flexible, and better able to customize (or eliminate) activities as they see fit.