Part Two of Creating Well-Defined Processes Series

Next Week: Implementation

Last week, we raised the question: how do you know where to begin? How can you identify a gap in one of your company's core processes?

The answer: follow the money trail?

But how do you follow the money trail, and what will that mean for your Business? To answer this, let's look at five steps to identify your core processes and any needs for change.

Step 1: Define Your Business Model

The following question might sound very basic, but you should first ask yourself: what business am I in? You'll ask this because you want to follow the money trail: to identify how exactly you earn revenue and from where that revenue comes. And this also defines your business model, which sets how you make money. By examining your business model (including mission and vision statements), you see not only how you can make money but also how you should make money. In other words, what should be happening in your Business to increase revenue - but isn't and why?

Step 2: Create a Process Map

Once you've looked at your business model, continue to follow the money trail and identify your company's core processes in the cash to cash cycle. By doing this you can see which processes are most critical to the overall success of your Business.

Next, connect the core processes in a process map. Link suppliers, inputs, outputs and customers together to see the overall cash conversion cycle. Let's examine a high level process map.

Here we have the complete Business cycle of a typical company using the SIPOC method, which connects Suppliers to Inputs to Processes to Outputs to Customers. To illustrate, a typical process map flows like the following from left to right: a Supplier connects the input purchasing with the Process of inventory and to the Output sales, which is then connected to the Customer. From there, the cycle also flows back from right to left: the Customer connects the Output accounts receivable to the Process of manufacturing to the Input accounts payable and finally to the Supplier.

With this, you can see the departments through which cash flows. And once you identify and break down your company's core processes, you are closer to answering the question: which process do I start to improve?

Step 3: Examine Financial Statements

Now continue along the money trail by looking at your financial statements, including the balance sheet, income statement and cash flow statement. Your financial statements indicate where your money is piling up, sort of like a snap shot of what your velocity is currently.

For example, in a manufacturing company, you can determine if there are long wait times between sales or long delivery times - both of which are evident in inventory. And inventory (as seen in your financial statements) also show the effects of time - and whether your process velocity (i.e. a slow process in the conversion cycle that causes long lead and wait times) is causing a pile up in your financial statements. Ask yourself: "are my processes fast enough to make my customers happy?"

Step 4: Set Velocity

Velocity is the speed at which your system is operating currently e.g. goods delivered on time and responsiveness to orders. To design an effective process, you will need to know the set velocity that the organization needs to maintain good customer satisfaction. If your inventory process has a long cycle time, beginning with raw materials and ending with the customer, then this could be an indication of a low velocity. Customers set the pace, and they will tell you if the velocity of product turnaround is sufficient. And so companies need to calculate what that pace is to make customers happy.

Step 5: Determine Leverage

The last element in following the money trail is to review leverage - which process improvement will create the strongest return on investment (ROI)? Keep in mind both time and money, and determine what process inefficiency is consuming all of your cash. W

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