What are the four basic variation sources in business processes?

The 4Vs are the 4 dimensions that fundamentally determine the nature of any business’s operations and allow us to categorise, compare and understand their nature, structure, challenges and approaches. Business operations vary wildly. To understand how we can apply and focus on the core operations-management challenges that affect all of them, we need to be able to make sense of the huge spread of organisations and categorise them; and the 4Vs is a framework to do just that.

But it offers more than that!

Whichever particular type of business you are already in, it gives us structure to look at how we can refine the positioning of our business to gain a competitive advantage through strategic choices.

The 4Vs model provides structure, giving us a means to place and evaluate wildly different types of business operations and offering insight into why certain operations can or must operate in a certain way whilst others could never work following a similar approach.

For more information, check out the video version of this blog.

Volume

The first of the 4 Vs is “Volume”.

“Volume” refers to the “quantity” of products or services produced by an organisation. Some very high-volume businesses may make millions of items each year, for example a water-bottling plant, while others make only make a few items each year, for example a boutique artisan sculptor workshop.

Generally, a high-volume business will have high product and process repeatability, and will have specialised labour, processes and equipment. Therefore, the business is likely to be capital-intensive, because of the large amount of expensive equipment and buildings, which are optimised for such high-volume production and can provide the low unit costs that are typically essential to compete for high-volume operations. 

Low volume business operations, making a small number of things or providing a small number of services each year will rarely have such expensive or specialised equipment, buildings, processes or skills as it cannot be justified for such low volume output and they must instead compete on other factors than costs such as customisation or short lead times.

Variety

‘Variety’ is the second of the 4Vs, and this refers to the number of different “types” of products or services produced and how different they are from each other. 

A business may be very specialised, with next to no variety in the products in makes, for example, a water-bottling plant with just 1 type of product. Or, a business could have a huge variety, for example the artisan workshop, which produces a series of unique pieces, each completely different from the last.

Challenges of a high-variety business include:

• Complex process routings
• Complex supply chains
• A need to be more flexible
• Matching the customer needs to exactly what they want
• A higher unit cost

These challenges mean that it is often difficult for high-variety businesses to compete with specialised businesses on price. High-variety businesses are usually low-volume, and vice versa.

In the Rowtons Training introductory 3hour “Operations Management A-Z” training course, you can learn more about the trade-off between volume and variety, and in particular the implications on cost, flexibility and customisation, giving yourself a comprehensive grounding in the fundamentals of Operations Management.

Variation

‘Variation’ is the third of the 4Vs – the 3rd “dimension” of operations. It refers to the level of change and predictability of demand that a business’s operations experience. Some operations will experience very high demand variation, for example due to seasons, days of the week or customer unpredictability.

Variation also refers to how “predictable” the level of change in demand is – the demand uncertainty. For example, ice cream vans will always sell more ice cream during the summer months but they know this and can plan, but an emergency hospital department may have similar large swings in demand but cannot predict if or when this might happen. High variation of demand is simply a reality of many business operations but should always be actively minimised where possible. Demand Management typically seeks to smooth the demand, reducing the uncertainly and variation of the load placed upon the operations.  

Businesses with a high variation of demand will need to:

• Have the flexibility to change their capacity
• Be good at anticipating changes in demand based on cues
• Stay close to true customer demand
• Have buffers of inventory, capacity and time available to be able to react and deliver
• All of these things cost a business money. This means that high-variation businesses often have higher unit costs but can charge higher prices if they are able to react and deliver.

Visibility

‘Visibility’ is the last of the 4Vs. It refers to the visibility of the customer to the business and its processes, and of the business to the customer. Some operations will be low-visibility, e.g., a water treatment plant, or a supermarket, whose operations work remotely from their customers. Other operations will be high-visibility, e.g., a coffee shop or an estate agent.

Customers of high-visibility businesses will have a lower tolerance for waiting, and customer satisfaction is more based upon perception of the quality and the attention to detail. High-visibility businesses need to have a more client-oriented service or process, resulting in a higher unit cost.

Organizations with “high visibility” operations, need to be much more apt at dealing with customers, giving more attention to customer contact skills and presentation where as those with low “visibility” others can focus more on their processes in privacy and are judged on the end results of cost, quality, output, delivery etc.

Typically, more customer contact (high visibility) leads to higher costs – but –  also you can charge higher prices if you’re doing it well!

What are the 4Vs of Operations Management?

The 4Vs – the 4 dimensions of operations are: Volume, Variety, Variation and Visibility. They can be used to assess all different types of business operations and understand how any why they operate, their key competitive strengths, weaknesses and different approaches. Using the 4Vs model, we can take what seem to be utterly incomparable industries and start to make sense of them, their structure, priorities and decisions by being able to place them somewhere on that sliding scale of each of the 4 dimensions of Volume, Variety, Variation and Visibility.

Rowtons Training offers operations management training courses on various aspects of business operations, including Logistics Management, Supply Chain Management and Inventory Management. If you want to learn more about the 4Vs in particular, check out our video on the subject.

Crack On!

One size fits all. It is an attractive notion for those of us who like the idea of a quick fix. In my experience, however, whether it is a cap, a pair of socks, or a business process – the likelihood of one mould suiting everyone is seldom the case.

For some organizations, business processes vary by geography, by industry, or due to legal requirements. And yet, good business practice dictates that process standardization can increase efficiency, clarify expectations and optimize productivity.

While standardized processes have been proven to save time and minimize errors, sometimes a cookie-cutter approach to the execution of tasks can cause more problems than it solves.

Should you expect there to be variations in your processes?

Yes. Increased globalization and advancements in technology see businesses constantly reinventing themselves. With the universal adoption of e-commerce, even the smallest of companies can now do business with customers and vendors in regions that are removed from their headquarters.

Yet those that take advantage of these types of opportunities are required to deal with a range of variables that inherently conflict with process standardization, and can include country-specific product attributes, customer characteristics, regulations and legislations.

To operate effectively despite these challenges, organizations would do well to start by capturing those variations that differ from their core processes — adaptations of the standard processes that take the relevant variables into account, while still aiming for the same outcome.

For example, a U.S. company that produces food products for domestic use as well as for export to Canada will need a standard process that uses the customary system as a weight unit for the U.S. and a process variation that uses the metric system as a weight unit for Canada.

What are the three pitfalls to avoid?

While the need for a flexible approach to managing process variations is obvious, executing on the requirement is often challenging.

Over time I have seen organizations frequently approach process variations in one of the following three ways:

• Create high-level standard processes: Standard processes are defined only at a high level and are not functional as practical guidance. This situation is often found in newly-founded companies.

• Create mega-processes: Often encountered during change initiatives and in technical teams, this scenario involves the meticulous, detailed documenting of every possible process variation. Due to the complexity of the documentation, this system often fails.

• Create individual process variations: In more mature organizations, management often allows this approach, which leads to siloed processes and process sprawl. It compromises the organization’s ability to change and complicates administration.

Clearly, these three methods fail to deliver the efficiency, productivity and visibility organizations are looking to achieve with process standardization.

What are the seven ways to effectively manage process variations?

It is possible for organizations to effectively handle their need for variations outside of their core processes. Here are seven steps to keep in mind:

1. Create a global standard process as a foundation for all variations. With a centralized governance team that consists of global process owners, you can use global processes as benchmarks against which the variations can be measured.

1. Establish local variations where necessary. Local process variations can be created by process variant experts, who must ensure their differences are highlighted against the standard processes.

1. Ensure all process variations are visible. All variations on every process need to be carefully reviewed and compared to standard processes.

1. Make sure teams have easy access to the relevant variations. Leverage a platform that automatically routes teams to those process variations that apply to their business unit, location or other characteristic. Alternatively, provide a list from which they can select the relevant variations.

1. Notify owners of process variations or changes to the standard processes. They can review the changes and either incorporate them into their specific variations or reverse them and keep their variations unchanged.

1. Implement global reporting. Global process owners can review and consequently reject or approve variations.

1. Gather and analyze cost and time data. With this information, you can compare the effectiveness of process variations against standard processes, and determine their efficiency.

Should you let tech do the heavy lifting?

Yes. With the help of a robust process variant management solution, it is possible to manage process variations well. Your software should provide a centralized hub where standard processes are stored and from where variations can be created, and automatic routing points users to the process variations that are most relevant to them.

In addition, a process management platform that has tracking, comparison and reporting capabilities enables you to measure the expense and time associated with process variations. This gives you and your executive decision makers a solid understanding of where you can make improvements and eliminate waste.

As organizations hurtle along the highway of change and globalization, the shortcomings of painting all processes with the same brush become very clear, very quickly. By anticipating and preparing for process variations, business teams can meet operational demands and exceed expectations in an ever-expanding international marketplace.