operations and production management - piimt · operations and production management strategy and...

Operations and Production Management

GPO300 9th October 2012

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Monday, October 8, 12

first semester 2012 13GPO300 Operations and Production Management

CLASSROOM CODE OF CONDUCT

GROUND RULES:

Start and end time

No cell phones or electronic devices

Respect all ideas

Know your rights and obligations to others

Listen to others

Do not interrupt others

Do not criticize, condemn or complain

Side Discussions

Complete your assignments

Focus on ‘what’ is right and not ‘who’ is right

If You don’t understand something it is better to be ignorant for 5 minutes and ask now then to shy away and be ignorant for the rest of your life.

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1 Ops the Big PictureOperations management

1 ➤ What is operations management?

2 ➤ Why is operations management important in all types of organization?

3 ➤ What is the input–transformation–output process?

4 ➤ What is the process hierarchy?

5 ➤ How do operations processes have different characteristics?

6 ➤ What are the activities of operations management?

Operations performance

7 ➤ Why is operations performance important in any organization?

8 ➤ How does the operations function incorporate all stakeholders’ objectives?

9 ➤ What are the performance objectives of operations and what are the internal and external benefits which derive from excelling in each of them?

10 ➤ How do operations performance objectives trade off against each other?

Operations strategy

11 ➤ What is strategy and what is operations strategy?

12 ➤ What is the difference between a ‘top-down’ and a ‘bottom-up’ view of operations strategy?

13 ➤ What is the difference between a ‘market requirements’ and an ‘operations resources’ approach of operations strategy?

14 ➤ How can an operations strategy be put together?

Week 1 Week 2

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Operations and Production ManagementProcess Hierarchy (Reminder)

Process A Process B Process C Process D Process E

Senior Management Owned

Middle Management Owned

Process Member and

Process Owner Responsibilities

The many detailed activities, tasks and decisions involved in satisfying a process output.

A core process is directly related to generating revenue, providing services to the customer or creating a strategic advantage for the company.

Enabling Processes Core Processes Enabling processes do not directly impact the customer. They must exist to enable and support the execution of the core processes.

PM#S ummaryPM#S ummary PM#S ummaryPM#S ummary

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Part One Introduction38

Table 2.3 Typical stakeholders’ performance objectives

Stakeholder

Shareholders

Directors/top management

Staff

Staff representative bodiese.g. trade unions

Suppliers of materials, services, equipment, etc.

Regulators e.g. financial regulators

Government: local, national, regional

Lobby groups e.g. environmental lobby groups

Society

What stakeholders want from the operation

Return on investmentStability of earningsLiquidity of investment

Low/acceptable operating costsSecure revenueWell-targeted investmentLow risk of failureFuture innovation

Fair wagesGood working conditionsSafe work environmentPersonal and career development

Conformance with nationalagreementsConsultation

Early notice of requirementsLong-term ordersFair priceOn-time payment

Conformance to regulationsFeedback on effectiveness ofregulations

Conformance to legal requirementsContribution to (local/national/regional) economy

Alignment of the organization’sactivities with whatever the groupis promoting

Minimize negative effects from theoperation (noise, traffic, etc.) andmaximize positive effects ( jobs,local sponsorship, etc.)

What the operation wants fromstakeholders

Investment capitalLong-term commitment

Coherent, consistent, clear andachievable strategiesAppropriate investment

AttendanceDiligence/best effortsHonestyEngagement

UnderstandingFairnessAssistance in problem solving

Integrity of delivery, quality and volumeInnovationResponsivenessProgressive price reductions

Consistency of regulationConsistency of application ofregulationsResponsiveness to industry concerns

Low/simple taxationRepresentation of local concernsAppropriate infrastructure

No unfair targetingPractical help in achieving stakeholderaims (if the organization wants toachieve them)

Support for organization’s plans

The dilemma with using this wide range of stakeholders to judge performance is that organ-izations, particularly commercial companies, have to cope with the conflicting pressuresof maximizing profitability on one hand, with the expectation that they will manage in theinterests of (all or part of) society in general with accountability and transparency. Even ifa business wanted to reflect aspects of performance beyond its own immediate interests,how is it to do it? According to Michael Jensen of Harvard Business School, ‘At the economy-wide or social level, the issue is this: If we could dictate the criterion or objective function tobe maximized by firms (and thus the performance criterion by which corporate executiveschoose among alternative policy options), what would it be? Or, to put the issue even moresimply: How do we want the firms in our economy to measure their own performance?How do we want them to determine what is better versus worse?’2 He also holds that usingstakeholder perspectives gives undue weight to narrow special interests that want to usethe organization’s resources for their own ends. The stakeholder perspective gives thema spurious legitimacy which ‘undermines the foundations of value-seeking behavior’.

Critical commentary

M02_SLAC0460_06_SE_C02.QXD 10/21/09 11:49 Page 38

Typical stakeholders’ performance objectives


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Understanding the operations strategic objectives

Four dimensions for Operations Performance

COST Time

Quality

Variety

Product quality (how good?)Process quality (as good as promised?)

Responsiveness to demand

Customer Diversity

Efficiencies

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Trade-offs : Four dimensions of Performance

COST Time

Quality

Variety

Product quality (how good?)=> PriceProcess quality (as good as promised?)=> Defect rate

Responsiveness to demandMeasured by:- customer lead time - flow time

Customer DiversityMeasured by:- number of options - flexibility / set-ups - make-to-order

EfficienciesMeasured by: - cost per unit - utilization

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Trade-offs : Example

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Cost Efficiency

Varie

ty

The Efficient Frontier

B

AC

D




What Can Ops Management (This Course) Do to Help?Step 2: Overcome Inefficiencies

Responsiveness

HighCurrent frontier

Eliminate inefficiencies

In the industry

Competitor A

Low

Competitor C

Competitor B

Labor Productivity(e.g. $/call)

Low laborproductivity

High laborproductivity

Competitor B

Example:• Benchmarking shows the pattern above• Don’t just manage the current system… Change it!

Provides tools to identify and eliminate inefficiencies => Define Efficient Frontier

Prof. Christian Terwiesch

Types of inefficiencies:-Poor process design- Inconsistencies in activity network

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Formula:

Productivity =Output from the operation

Input to the operation

example:In a supermarket an operation manager must decide how many checkout positions to open at any given time.

Trade-offs : Moving within Frontiers

Fast

Slow




What Can Ops Management (This Course) Do to Help?

Step 3: Evaluate Proposed Redesigns/New Technologies

Responsiveness

HighHigh

Redesign

process

Current frontier

New frontier

Low

In the industry

Labor Productivity( $/ )

Low labor High labor

Example:

• What will happen if we develop / purchase technology X?

Better technologies are al a s (?) nice to ha e b t ill the pa ?

(e.g. $/call)productivity productivity


• Better technologies are always (?) nice to have, but will they pay?

OM helps: Evaluates system designs before they occur

Trade-offs : Moving to New Frontiers

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Example: The US Airline Industry

Prof. Christian Terwiesch13

Example: US Airline 1996




Example: The US Airline Industry


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Example: US Airline 2011



Strategy and the management of operations

Once the Operations function has:✦ Understood its role in the business ✦ Clarified its performance objectives (its Indicators and measurement systems)

Then we need to formulate a set of general principles which will guide its Decision-making. This is the operations strategy of the company.

General Definition of STRATEGY (Mc Kinsey)Strategy is a set of Decisions which:

Gives direction and shapes the activities performed by the companyDoes not change easily once adoptedHave the greatest impact on the objectives you have set

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Organization Strategy

Implications for Operations management

Low PriceRequires low variation in products/services and a high volume steady flow of goods results in max use of resources in the system. Standardized work, material and inventory requirements

Quick Response Requires flexibility, extra capacity, and higher levels of some inventory items

High Quality Entails higher initial cost for product and service design, and process design and more emphasis on assuring supplier quality

Newness/innovationEntails large investment in research and development for new and improved products and services plus the need to adapt operations and supply processes to suit new products and services

Product or service varietyRequires high variation in resource and more emphasis on product and service design; higher worker skills needed, cost estimation is more difficult, scheduling more complex, quality assurance mode involved, inventory management more complex and matching supply to demand more difficult

Sustainability Affects location planing, product and service design, process design, outsourcing decisions, return policies and waste management

Where is your competitive advantage?




The product/service life cycle influence on performanceobjectives

One way of generalizing the behaviour of both customers and competitors is to link it to the life cycle of the products or services that the operation is producing. The exact form ofproduct/service life cycles will vary, but generally they are shown as the sales volume passingthrough four stages – introduction, growth, maturity and decline. The important implicationof this for operations management is that products and services will require operationsstrategies in each stage of their life cycle (see Figure 3.8).

Introduction stage. When a product or service is first introduced, it is likely to be offeringsomething new in terms of its design or performance, with few competitors offering the same product or service. The needs of customers are unlikely to be well understood, so theoperations management needs to develop the flexibility to cope with any changes and be ableto give the quality to maintain product/service performance.

Growth stage. As volume grows, competitors may enter the growing market. Keeping up with demand could prove to be the main operations preoccupation. Rapid and dependableresponse to demand will help to keep demand buoyant, while quality levels must ensure thatthe company keeps its share of the market as competition starts to increase.

Maturity stage. Demand starts to level off. Some early competitors may have left the marketand the industry will probably be dominated by a few larger companies. So operations willbe expected to get the costs down in order to maintain profits or to allow price cutting, orboth. Because of this, cost and productivity issues, together with dependable supply, are likelyto be the operation’s main concerns.

Decline stage. After time, sales will decline with more competitors dropping out of the market.There might be a residual market, but unless a shortage of capacity develops the market will continue to be dominated by price competition. Operations objectives continue to bedominated by cost.

Product /service lifecycles

Part One Introduction72

Figure 3.8 The effects of the product/service life cycle on operations performanceobjectives


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Sal

es v

olum

e

Product life cycle




✦ The importance of Organizations Top Down Down Top

✦ The Operations Strategy from Corporate to business level to processes level

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Business

Operational

Processes - Tasks - Activities

Mission statement 2012:

Attain Dhs 600M in sales by 2013 with a fair ROI by developing people and systems while relocating stores to perpetuate the growth and success of this company




✦ The importance of Market needs and requirements and Customers✦ The importance of Resources and Suppliers

✦ Operations strategies and the full chain

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Chapter 1 Operations management 11

Table 1.2 Changes in the business environment are shaping a new operations agenda

Prompting operations responses . . .

For example,

• Globalization of operations networking

• Information-based technologies

• Internet-based integration of operationsactivities

• Supply chain management

• Customer relationship management

• Flexible working patterns

• Mass customization

• Fast time-to-market methods

• Lean process design

• Environmentally sensitive design

• Supplier ‘partnership’ and development

• Failure analysis

• Business recovery planning

The business environment is changing . . .

For example,

• Increased cost-based competition

• Higher quality expectations

• Demands for better service

• More choice and variety

• Rapidly developing technologies

• Frequent new product/serviceintroduction

• Increased ethical sensitivity

• Environmental impacts are moretransparent

• More legal regulation

• Greater security awareness

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Figure 1.3 All operations are input–transformation–output processes

The input–transformation–output process

All operations produce products and services by changing inputs into outputs using an‘input-transformation-output’ process. Figure 1.3 shows this general transformation processmodel. Put simply, operations are processes that take in a set of input resources which areused to transform something, or are transformed themselves, into outputs of products andservices. And although all operations conform to this general input–transformation–outputmodel, they differ in the nature of their specific inputs and outputs. For example, if you stand far enough away from a hospital or a car plant, they might look very similar, but movecloser and clear differences do start to emerge. One is a manufacturing operation producing‘products’, and the other is a service operation producing ‘services’ that change the physio-logical or psychological condition of patients. What is inside each operation will also be

Transformation processmodelInput resourcesOutputs of goods andservices


The Operations


Operations performance

7 ➤ Why is operations performance important in any organization?

8 ➤ How does the operations function incorporate all stakeholders’ objectives?

9 ➤ What are the performance objectives of operations and what are the internal and external benefits which derive from excelling in each of them?

‣ Operations management can either ‘make or break’ any business. It is large and, in most businesses, represents the bulk of its assets, but also because the operations function gives the ability to compete by providing the ability to respond to customers and by developing the capabilities that will keep it ahead of its competitors in the future.

‣ At a strategic level, performance objectives relate to the interests of the operation’s stakeholders. They relate to the company’s responsibility to customers, suppliers, shareholders, employees, and society in general.

‣ By ‘doing things well’, operations seek to influence the quality of the company’s goods and services. Externally, quality is an important aspect of customer satisfaction or dissatisfaction. Internally, quality operations reduce costs and increase reliability.

‣ By ‘doing things fast and on time’, operations seek to influence the speed with which goods and services are delivered. Externally, speed is an important aspect of customer service. Internally, speed both reduces inventories and reduces risks related to resources. Operations seek to increase operational reliability, thus saving the time and money that would otherwise be taken up in solving reliability problems and also giving stability to the operation.

‣ By ‘changing what they do’, operations seek to influence the flexibility with which the company produces goods and services. Externally, flexibility can:

✓ – produce new products and services (product/service flexibility);

✓ – produce a wide range or mix of products and services (mix flexibility);

✓ – produce different quantities or volumes of products and services (volume flexibility);

✓ – produce products and services at different times (delivery flexibility).

‣ By ‘doing things cheaply’,operations seek to influence the cost of the company’s goods and services.


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10 ➤ How do operations performance objectives trade off against each other?

Operations strategy

11 ➤ What is strategy and what is operations strategy?

12 ➤ What is the difference between a ‘top-down’ and a ‘bottom-up’ view of operations strategy?

13 ➤ What is the difference between a ‘market requirements’ and an ‘operations resources’ approach of operations strategy?

14 ➤ How can an operations strategy be put together?

‣Trade-offs are the extent to which improvements in one performance objective can be achieved by sacrificing performance in others. The ‘efficient frontier’ concept is a useful approach to articulating trade-offs and distinguishes between repositioning performance on the efficient frontier and improving performance by overcoming trade-offs.

‣Strategy is the total pattern of decisions and actions that position the organization in its environment and that are intended to achieve its long-term goals.

‣Operations strategy concerns the pattern of strategic decisions and actions which set the role, objectives and activities of the operation.


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‣The ‘top-down’ perspective views strategic decisions at a number of levels. Corporate strategy sets the objectives for the different businesses which make up a group of businesses. Business strategy sets the objectives for each individual business and how it positions itself in its marketplace.

‣The ‘bottom-up’ view of operations strategy sees overall strategy as emerging from day-to-day operational experience.

‣There are many different procedures which are used by companies, consultancies and academics to formulate operations strategies. Although differing in the stages that they recommend, many of these models have similarities.

‣Any operations strategy process should result in strategies that are comprehensive and coherent, provide correspondence, and prioritize the most critical activities or decisions.

‣Depending on what is most scarce, an operations strategy will either focus on its supplier base or on its customer base.

‣The customer base may be segmented in many ways, and the performance indicators defined for operations management will help take decisions that are aligned with such strategic orientation. If a main influence on business is due to resources and supplies available, then the operations strategy will need to define KPIs accordingly.


Introduction

Module 1 : OPERATIONS THE BIG PICTURE

Understanding operations Management

Outcomes week 2: Understanding the operation’s strategic performance objectives.

How to develop an operations strategy for the organization.

Next:

Module 2: DESIGN

Designing the operation’s products, services and processes.

Module 3: RUNNING THE OPERATIONS

Planning and controlling the operation.

Module 4: GETTING BETTER

Improving the performance of the operation.

Conclusions Operations management and Business Models


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Selected further reading

Chase, R.B., Jacobs, F.R. and Aquilano, N.J. (2004) Operations Management for Competitive Advantage (10th edn), McGraw-Hill/Irwin, Boston. There are many good general textbooks on operations management. This was one of the first and is still one of the best, though written very much for an American audience.

Chopra, S., Deshmukh, S., Van Mieghem, J., Zemel, E. and Anupindi, R. (2005) Managing Business Process Flows: Principles of Operations Management, Prentice-Hall, NJ. Takes a ‘process’ view of operations. Mathematical but rewarding.

Heizer, J. and Render, B. (2006) Operations Management (8th edn), Prentice Hall, New Jersey. Another good US authored general text on the subject.

Johnston, R. and Clark, G. (2008) Service Operations Management (3rd edn), Financial Times-Prentice Hall, Harlow. What can we say! A great treatment of service operations from the same stable as this textbook.

Slack, N. and Lewis, M.A. (eds) (2005) The Blackwell En- cyclopedic Dictionary of Operations Management (2nd edn), Blackwell Business, Oxford. For those who like technical descriptions and definitions.

Bourne, M., Kennerley, M. and Franco, M. (2005) Managing through measures: a study of the impact on performance, Journal of Manufacturing Technology Management, vol. 16, issue 4, 373–95. What it says on the tin.

Kaplan, R.S. and Norton, D.P. (2005) The Balanced Score- card: measures that drive performance, Harvard Business Review, Jul/Aug. The latest pronouncements on the Balanced Scorecard approach (which we cover in Chapter 18).

Neely, A. (ed.) (2002) Business Performance Measurement: Theory and Practice, Cambridge University Press, Cambridge.A collection of papers on the details of measuring per-formance objectives.

Pine, B.J. (1993) Mass Customization, Harvard Business School Press, Boston. The first substantial work on the idea of mass customization. Still a classic.

Waddock, S. (2003) Stakeholder performance implications of corporate responsibility, International Journal of Business Performance Management, vol. 5, numbers 2–3, 114–24. An introduction to stakeholder analysis.

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