Business process architectures and their definitions are defined very differently by consulting firms and companies alike. There is no standard. However, this article will attempt to define some of the foundational elements of a process architecture.
There are 3 key elements which form the foundation of a business process architecture:
- The structure of the underlying supply chain – Horizontal View
- The flow of information and materials – Vertical View
- The maturity level of an organization
We will explore the 3 key elements now and then create an architectural model to be used by any organization.
1. Underlying Supply Chain Structure
The key to understand the underlying supply chain structure is to put the customer into the center and ask a simple question: How does my organization serve my customer? The result from this question is the understanding of how deep a customer demand or order penetrates the supply chain. The basic fact is that any supply chain irrespectively of the industry has 2, and only 2, parts to it:
- The customer specific part, and
- the generic part
The point of changeover from the generic part to the customer specific is called the Customer Order Decoupling Point (CODP). One company can have multiple CODP’s. An example from the footwear industry is:
- Make to Stock customers are satisfied from Inventory in a market
- Make to Order customers receive a direct shipment from the factory specific to their order.
In this example the product itself does not change, however as part of the Build to Order Model in the automotive industry, where the car is built with the options chosen by the customer, the CODP is hence at part level, before the assembly of a car takes place. The various CODP’s of an organization are described in the picture below.
2. The Flow Principles
The second element of the business process architecture is the flow principle. Any organization has 4 flows:
- The Planning Flow
- The Transaction or Execution Flow
- The Material Flow
- The Cash Flow
Whilst the CODP cuts the supply chain horizontally, the flow principle cuts the decision making of an organization to support the supply chain in various levels of decision making, from operational decisions such as capacity planning to short term executional decisions such as organizing a truck to ship a product. The difference between planning versus transactions (Execution) is often neglected in business process architectures, but without decision making ability, the corresponding controls and execution capability of organizations are not able operate.
The planning flow is often subdivided into 3 planning layers, strategic planning, tactical planning and finally the operational scheduling from which then flows the execution.
What is a Business Process?
This is a hard question which has been answered in many different ways however, here is one which has served this organization well over the years: At its very core, a business process is a sequence of tasks. This sequence should be constructed with the following in mind:
A process should hence be defined as an “activity”, which the organization can perform. The wording should be a description of such an activity. Examples of such a description are: allocate inventory to a sales order OR adjust and finalize a sales forecast. When using a verb to describe an activity, and the principle of adding value in the process description, then we can see from the above examples how we can group tasks into a ‘process’.
A business process lies at the heart of what the business does to create value.
Supply Chain Management supports the management of the business processes:
“We understand business to be a series or combination of activities which create value. We understand supply chain management as the organization of the flow of those activities or tasks. In order for activities to create value, they utilize resources which, according to economics, are scarce and represent constraints. Thus, supply chain management must also effectively and efficiently deploy those resources to create and maximize value.”
Any business process model is structured along hierarchy levels. The most common approach is to use a process hierarchy model with 5 levels, as depicted below (this also has served us well over the years). It is important to recognize that each level serves a purpose. Level 1 and level 2 are usually used to organize and group processes logically. Level 3 is the processes and activities we described above, and these can be used to manage an application landscape ie what applications are used to cover this process. Level 4 is used to describe business requirements, select software and defined business requirements for standard operating procedures or application support functions. Level 5 is used for detailed design of a transaction flow in an application such as SAP or D365.
Business Process Architecture
Using the CODP approach described above, two core Main operational processes result, namely:
- Order to Cash to support the customer specific part of a supply chain, and
- Procure to Pay to support the generic part of a supply chain
Extending this principle with the flow approach, both “order to cash” and “procure to pay” cover the transactional or execution level of the flow model. However, these will add 2 more core Main operational processes to the business process architecture:
- Concept to Shelf to support the product creation and launch process of an organization
- Demand to Build to support strategic and tactical planning needs of a supply chain or organization
Using the Value Chain model of Porter which defined 9 business processes and the early business process work at GE, which defined 4 core and 4 support business processes as all an organization needs. Using these models as a base, we also defined four support processes as:
- Budget to Performance, to support the financial activities of an organization
- Talent Acquisition to Retire, to support all human resource needs of an organization
- Digital Build to Infrastructure, to support all IT needs and digitization of an organization
- Research to Innovation, the support the basic research needs of an organization to fuel the product development activities
Even the Porter Value Chain model can be adapted with the above in mind.
3. The Maturity Model
The final element is the maturity of an organization. This is a key foundation for successfully adopting business processes. The maturity of an organization, which is dependent on internal and external factors, can be best described in a number of maturity stages:
- Functional Excellence
- Internal Flow Integration
- External Collaboration
- Networked Single Channel
- Networked Omni Channel
The business process model is one of the 4 elements of an operating model. Please refer to our article on operating models.
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