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Business Processes 5

Figure 1-2: A generic business process

products are shipped to the customer in a timely manner and that payment
for the order is received. These process steps can include validating the order,
preparing the shipment, sending the shipment, issuing an invoice, and record-
ing the receipt of payment. The sales department receives and validates the
customer order and passes it on to the warehouse, which prepares and ships
the order. The accounting department handles the invoice and payment steps.
This is a very simplistic example. However, it highlights the fact that processes
consist of interdependent steps that are completed in different parts of the
organization.
Because the various process steps are carried out by different functional
areas or departments, effective communication and collaboration among the
departments is essential to the smooth execution of these processes. Without
this interaction, the process cannot be completed effi ciently and effectively.
For instance, if the customer order is not properly communicated to the ware-
house, then it cannot be shipped on time. Similarly, if the order and shipment
information is not communicated to the accounting department, billing and
payment will not be completed effi ciently and accurately. Clearly, complet-
ing a process successfully requires more than just communicating information.
Close coordination of work among the people involved is also essential. For
example, when the salesperson accepts the order, he or she must collaborate
with the warehouse to determine when the order can be shipped. Without this
collaboration, the salesperson may make promises that the company cannot
realistically meet. If this occurs, then, the products will not be available when
promised. The salesperson must also collaborate with the accounting depart-
ment to verify that the customer is credit-worthy. Accepting orders and ship-
ping goods to customers who have not made payments for previous shipments
can cause major fi nancial problems for the organization.
An organization uses many processes to achieve its objectives, as illus-
trated in Figure 1-3. Three processes are directly related to creating and deliv-
ering products and services. They are buy, make, and sell. Organizations use
specifi c terms to identify these processes.
• The procurement process (buy ) refers to all of the activities
involved in buying or acquiring the materials used by the organiza-
tion, such as raw materials needed to make products.

• The production process (make) involves the actual creation of
the products within the organization. Whereas the production pro-
cess is concerned with acquiring needed materials internally (by
making them), the procurement process is concerned with obtaining
needed materials externally (by buying them). Each is appropriate
for different types of materials, as we will discuss later in the book.

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