Is your operating set-up correct?

Here is a simple framework to help entrepreneurs evaluate their operating set-up. But first, let’s define things.

The framework is based on the classic input-process-output or I-P-O model. Customers are not just the external customers but also the internal customers. People in the organization must not only serve the external customers but should also serve the needs and wants of the internal customers. External customers are people who pay for product or services provided by the firm. Internal customers are peers, superiors, and subordinates in the firm.

The addition to the model are the concepts of "fixed" and "variable". Inputs, processes, and outputs can be classified as either fixed or variable. The wrong combination can mean constant headaches for the entrepreneur. Keep in mind as well that there are several processes in a business venture and one might have to deal with a mix. As such, the processes may have to be managed differently.

One reference point is the output. Is it fixed or variable? Is your product/service customized or standard? On the one hand, a customized product/service is when the business venture provides a process that meets the unique individual wants and needs of the customer. Each product/service is not identical. It is tailor-made/custom-made for each specific customer.

On the other hand, standard products/services will be identical with each other. It is the same product/service for every customer. In the garment industry, this is the difference between RTW (one size fits all) and custom tailoring. In the food industry, it is the difference between buffet and ala carte. In the paper game, it is the difference between plain pad paper and personalized stationery.

Another reference point is the process. Is the process fixed or variable? Is the process automated or manual? A fixed process is close to automation since it will churn out in the same way all the time. It is machine dictated and needs very little or even no human intervention. Once set up, it is consistent and designed to produce the same thing over and over again.

A manual system is totally dependent on human intervention. A manual system has great flexibility, variability and discretion. In the machine shop game, this is the difference between a computer numeric control (CNC) lathe and a manual lathe. In the banking game, it is the difference between an automated tellering machine and a human teller.

The last reference is the input. Are the inputs fixed or variable? Are the inputs uniform or are they highly differentiated from each other? It is the difference between manufacturing and servicing. In a manufacturing situation, the inputs are identical. In the service operation, the inputs are varied. The type of repairs that has to be done vary.

If the set-up is wrong, then headaches will be a natural consequence. What are the possible set-ups (relative to input-process-output) and evaluations?

*Fixed, fixed, fixed: This set-up implies there is consistency or identity in the input. There is a highly automated or standardized process and the requirements of the customer are standardized. For as long as there is a match between the consistency of the input and process to the output, this set up will not give the entrepreneur headaches. This is just like having standard cement, sand and water being used to produce standard hollow blocks, using a highly automated equipment.

* Variable, fixed, fixed: This set-up can be a nightmare. There is little variability allowed by the market. There is great variability in the source of inputs. The automated equipment better be geared up to handle the variability of the inputs to produce the fixed product. If the equipment cannot handle the input variability, there will be a slowdown of the process, a decrease in output and a high rejection rate.

*Variable, variable, fixed: The input has great variability. The process is highly manual. But the customer requires consistent outputs. This can be managed but there must be great supervision and training of the people in the system. The people in the system must be clear on the output and the variables that drive them. The people must be skilled in converting different inputs with different processes to produce a consistent output. More often than not, a multi-skilled person or a generalist will do well in this kind of system. This is like an electronic repair shop. The customers expect the product to be always repaired, but the kind of repair needed varies widely.

* Fixed, fixed, variable: This set-up is trying to produce customized output with standard inputs and processes. The set-up will only produce problems and headaches. It can be managed but it will have to be done with highly creative people who can customize, using fixed resources. In any case, this will be a very difficult situation to manage.

* Variable, variable, variable: This is a custom set-up. The system is totally flexible to meet a wide range of demands. The key to this set-up is having multi-skilled people who can listen and understand the output requirements. The understanding must be used to get from the variable source of inputs and to work on them, using the variable systems. This is the only way to manage this highly flexible system.

* Fixed, variable, variable: This is a set-up that requires great creativity in using the flexibility of the process. The output is customized but the input is standardized. The process must be greatly influenced by the creative use of the flexibility to continuously produce customized products from standard materials.

There are other combinations and each would have a different character and, therefore, requires a different way to manage. The application need not only be in factories. Anything that has a process can benefit from this analysis. It can be a paper flow process. It can be a marketing process. It can be a process in an office. And once you find out the character of your input, process, and output and the best set-up, managing will come easily.

(Alejandrino Ferreria is the associate dean of the Asian Center for Entrepreneurship of the Asian Institute of Management. For further comments and inquiries, you may contact him at: [email protected]. Published "Entrepreneur’s Helpline" columns can be viewed on the AIM website at http//: www.aim.edu.ph).