Open-Loop Processes versus Closed-Loop Processes

If it can be modeled it can be designed to be robust

I’ve done a fair amount of business process re-engineering over the course of my career and the single biggest problem I find is always the same: open-loop business processes.

To illustrate the point I’m going to talk about a large pharma organization that will remain nameless to spare people’s blushes. Their problem was that they were paying taxes on hundreds of millions of dollars of equipment they no longer could trace, and they wanted to remove this unnecessary expense. Our project uncovered a great many fundamental process flaws, all of which added up to tens of millions of dollars of unnecessary taxes being paid each year and, it turned out, tens of millions more being spent on ordering the same things multiple times by mistake.

Like all large organizations, responsibilities were in silos. Someone in Manufacturing needs equipment X so they inform Finance and a PO is generated. Ordering sends the PO to the vendor. At some time in the future (potentially up to a year) X is delivered and accepted by Receiving. Receiving notifies Manufacturing and Finance. Finance issues an asset tag, which Receiving slaps onto X. X is placed into the production line and all is well.

Except, all is not well. For a start, because people come and go and a lot is happening, it’s easy to look up one day and see you don’t have any X. So you order one, unaware of the fact someone else in your role ordered X nine months ago. Finance has no idea this order is a duplicate, they assume you simply need another X, and so another PO is generated and another order placed.

But there’s a much larger problem. Even if you don’t accidentally over-order, you quickly lose track of what you have. Let’s assume X is a complex piece of equipment, perhaps a fill-finish line. It consists of 20 major components, all of which will be replaced multiple times during its duty life. That asset tag, slapped haphazardly onto one part of X, will vanish. Worse still, the asset tag may not even be applied because it doesn’t reach Receiving in time. After that, no one has any idea how to keep track of X and therefore no idea how to decommission it at end-of-life. Which means, in turn, from a tax perspective X is still a functioning taxable item. You can see how, over the course of 20+ years, this would begin to hurt the bottom line in a not insignificant way.

Worse still, Finance is using one part of their ERP system with one set of asset designators, while Manufacturing is using a totally separate ERP module with a different set of asset designators. At year end, no one can reconcile the two sets of numbers. Try explaining that to the auditors when you have tens or even hundreds of millions of dollars discrepancy regarding your capital equipment.

These are classic problems arising from a set of open-loop business processes. Open-loop is when you don’t build in explicit confirmation points along the process flow line. In the example above there were so many open-loop processes that failure was guaranteed.

Here’s how we tackled the problem. We modeled every significant process flow from beginning to end. We identified all the open loops. Then we engineered simple ways to close those loops, one at a time, starting from the very beginning.

Step One: Manufacturing needs X so they ask Finance to open a PO. Finance now checks with Manufacturing to confirm, providing details of previous orders for X going back 24 months. This avoids accidental duplication of orders.

Step Two: Manufacturing provides Finance with a breakdown of X components that will be replaced during duty life. Finance creates asset tags for each component and confirms with Manufacturing. Both ERP modules are populated with matching asset tags per component, permitting tracking across the asset lifecycle.

Step Three: Receiving notifies Finance, which notifies Manufacturing. Placing of asset tags is done by a responsible party from Manufacturing to ensure each tag is placed on its correct component. All tags/components are then reconfirmed for the two ERP modules.

Step Four: every time a component is swapped out, Manufacturing informs Finance and a new asset tag for that component is generated and placed on the new component by Manufacturing and then confirmed across both ERP modules. Finance then begins the process of removing the old component from the books while Manufacturing goes through the GMP decommissioning process. At end of decommissioning, Manufacturing informs Finance so the asset can be taken off the books.

Of course the details are a bit more complex than in this simplified example but the point is clear: at every stage along the road there are explicit checks and confirmations. That’s the way closed-loop processes work, and how they can save organizations huge amounts of time and money. It’s such a simple concept, you wonder why it’s so often neglected in the rush to get things done.

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