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strategicoperationstrategicoperation
Soumitra ChowdhurySoumitra Chowdhury
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What is operations management?
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations management is the activity of managing the resources which are devoted to the production and delivery of products and services.
Operations management defined
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
They are all
operations
Back office operation in a bank
Kitchen unit manufacturing
operation
Retail operation
Take-out / restaurant operation
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The best way to start understanding the nature of ‘operations’ is to look around you
Everything you can see around you (except the flesh and blood) has been processed by an operation
Every service you consumed today (radio station, bus service, lecture, etc.) has also been produced by an operation
Operations Managers create everything you buy, sit on, wear, eat, throw at people, and throw away
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
A general model of operations management
Transformed resources …
Materials Information Customers
Transforming resources …
Facilities Staff
Customers
Output products
and services
Input resources
Planning and control
ImprovementDesign
Operations strategy
The operation’s strategic
objectives
The operation’s competitive role
and position
Operations management
Operations strategy
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Design a store layout which gives smooth and effective flowDesign elegant
products which can be flat-packed efficiently
Site stores of an appropriate size in the most effective locations
Maintain cleanliness and safety of storage area
Arrange for fast replenishment of products
Monitor and enhance quality of service to customers
Continually examine and improve operations practice
Ensure that the jobs of all staff encourage their contribution to business success
Operations management at IKEA
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
All operations are transformation processes …
Transformation processInputs
that transform inputs …
Outputs
into outputs
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Transformed resources …
Materials Information Customers
Transforming resources …
Facilities Staff
Customers
Output products
and services
Input resources
Some inputs are transformed resources
Some inputs are transforming resources
Outputs are products and services that add value for customers
Transformation process
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The output from most operations is a mixture of products and services
Mixture of products and services – Outputs
that are a mixture of the tangible and the
intangible
Prêt a Manger
Acme Whistles
Mwagusi Safari Lodge
Crude oil production
Aluminium smelting
Specialist machine tool production
Restaurant
Information systems provider
Management consultancy
Psychotherapy clinic
Pure products – Outputs that are exclusively
tangible
Pure services – Outputs that are exclusively
intangible
IKEA
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
A Typology of Operations
Variation in demand
High Low
VisibilityHigh Low
VarietyHigh Low
HighVolumeLow High
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
A Typology of Operations
Implications Implications
High
Low repetitionEach staff member performs more of jobLess systemizationHigh unit costs
High repeatabilitySpecializationCapital intensiveLow unit costs
VolumeLow High
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
A Typology of Operations
Implications Implications
FlexibleComplexMatch customer needsHigh unit costs
Well definedRoutineStandardizedRegularLow unit costs
VarietyHigh Low
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
A Typology of Operations
Implications Implications
Changing capacityAnticipationFlexibilityIn touch with demandHigh unit costs
StableRoutinePredictableHigh utilizationLow unit costs
Variation in demand
High Low
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
A Typology of Operations
Implications Implications
VisibilityHigh Low
Short waiting toleranceSatisfaction governed by customer perceptionCustomer contact skills neededReceived variety is highHigh unit costs
Time lag between production and consumptionStandardizationLow contact skillsHigh staff utilizationCentralizationLow unit costs
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
A Typology of OperationsImplications Implications
Changing capacityAnticipationFlexibilityIn touch with demandHigh unit costs
StableRoutinePredictableHigh utilizationLow unit costs
Variation in demand
High Low
VisibilityHigh Low
Short waiting toleranceSatisfaction governed by customer perceptionCustomer contact skills neededReceived variety is highHigh unit costs
Time lag between production and consumptionStandardizationLow contact skillsHigh staff utilizationCentralizationLow unit costs
FlexibleComplexMatch customer needsHigh unit costs
Well definedRoutineStandardizedRegularLow unit costs
VarietyHigh Low
High
Low repetitionEach staff member performs more of jobLess systemizationHigh unit costs
High repeatabilitySpecializationCapital intensiveLow unit costs
VolumeLow High
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Volume
Important to understand how different operations are positioned on the 4 V’s.
Is their position where they want to be?
Do they understand the strategic implications?
Variety
Variation
Visibility
Low
High
High
High
High
Low
Low
Low
Mwagusi Safari Lodge
4 V’s profile of two operations
Formule 1 Hotel
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Some interfunctional relationships between the operations function and other core and support functions
Engineering/ technical function
Accounting and finance
function
Human resources function
Information technology (IT) function
Understanding of the capabilities and
constraints of the operations process
New product and service ideas
Understanding of the capabilities and
constraints of the operations process
Market requirements
Financial analysis for performance and decisions
Provision of relevant
data
Recruitment development and training
Understanding of human resource needs
Analysis of new technology options Understanding of
process technology needs
Provision of systems for design, planning and
control, and improvement
Understanding of
infrastructural and system
needs
Marketing function
Product/service development
function
Operations function
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The strategic role and objectives of operations
Source: Honda Motor Company
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What is the role of the Operations function?Operations as implementer
Operations implements strategy
Strategy
Operations
Operations drives strategy
Operations as driver
Strategy
Operations
Operations supports strategy
Operations as supporter
Strategy
Operations
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The 3 key attributes of Operations
Operations contribution
Implementing Be dependable
Operationalize strategy
Explain practicalities
Supporting Be appropriate
Understand strategy
Contribute to decisions
Driving Be innovative
Provide foundation of strategy
Develop long-term capabilities
The strategic role of the Operations function
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Internally neutral
STAGE 1 Correct the worst problems
Holding the organization back
Increasing contributio
n of operatio
ns
The four-stage model of Operations contribution
Externally neutral
As good as the competitors
STAGE 2 Adopt best practice
Implementin
g
strategy
Internally supportive
Clearly the best in the industry
STAGE 3 Link strategy with operations
Supporting
strategy
Externally supportive
Redefining industry expectations
STAGE 4 Give an operations advantage
Driving
strategy
Incr
easi
ng s
trat
egic
impa
ct
Increasing operations capabilities
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Broad strategic objectives for an operation applied to stakeholder groups
SocietyIncrease employmentEnhance community well-beingProduce sustainable productsEnsure clean environment
CustomersAppropriate product or service specificationConsistent qualityFast deliveryDependable deliveryAcceptable price
SuppliersContinue businessDevelop supplier capabilityProvide transparent information
ShareholdersEconomic value from investmentEthical value from investment
EmployeesContinuous employmentFair payGood working conditionsPersonal development
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Com
petit
iven
ess
The Operations function can provide a competitive advantage through its performance at the five competitive objectives
Quality Being RIGHT
Speed Being FAST
Dependability Being ON TIME
Cost Being PRODUCTIVE
Being ABLE TO CHANGEFlexibility
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What do the terms quality, speed, dependability, flexibility and cost mean in the context of operations?
Which enables you to do things cheaply (cost advantage)?
Which enables you to change what you do (flexibility advantage)?
Which enables you to do things quickly (speed advantage)?
Which enables you to do things on time (dependability advantage)?
Which enables you to do things right (quality advantage)?
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Minimum cost, maximum value
Minimum price, highest value
Fast throughput
Quick delivery
Reliable operation
Dependable delivery
Error-free processes
Error-free products and services
Ability to change
Frequent new products, maximum choice
The benefits of excelling
Dependability
Cost
Speed
Quality Flexibility
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What does Quality mean in …
Patients receive the most appropriate treatment
… a hospital?
Treatment is carried out in the correct manner
Patients are consulted and kept informed
Staff are courteous, friendly and helpful
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What does Quality mean in …
… an automobile plant?
All assembly is to specification
Product is reliable
All parts are made to specification
The product is attractive and blemish-free
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
… a bus company?
What does Quality mean in …
The buses are clean and tidy
The buses are quiet and fume-free
The timetable is accurate and user-friendly
Staff are courteous, friendly and helpful
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
… a supermarket?
What does Quality mean in …
The store is clean and tidy
Décor is appropriate and attractive
Goods are in good condition
Staff are courteous, friendly and helpful
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Quality
‘Quality’ has several meanings. The two most common are …
Quality as the specification of a product or service
e.g. Lower Hurst Farm produces organic meat raised exclusively on its own farm
Quality as the conformance with which the product or service is produced
e.g. Quick-service restaurants like McDonald’s may buy less expensive meat, but its conformance must be high
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Quality
Irrespective of a product or service’s specification quality, producing it so it conforms to its specification consistently brings benefits to any operation
Externally – it enhances the product or service in the market, or at least avoids customer complaints
Internally – it brings other benefits to the operation:
It prevents errors slowing down throughput speed
It prevents errors causing internal unreliability and low dependability
It prevents errors causing wasted time and effort, therefore saving cost
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Depend-ability
FlexibilityQuality
Speed
Cost
QualityExternal and internal benefits
On-specification products and services
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The time between requiring treatment and receiving treatment is kept to a minimum
… a hospital?
What does Speed mean in …
The time for test results, X-rays, etc. to be returned is kept to a minimum
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What does Speed mean in …
… an automobile plant?
The time between dealers requesting a vehicle of a particular specification and receiving it is minimized
The time to deliver spares to service centres is minimized
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What does Speed mean in …
… a bus company?
The time between a customer setting out on the journey and reaching his or her destination is kept to a minimum
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What does Speed mean in …
… a supermarket?
The time for the total transaction of going to the supermarket, making the purchases and returning is minimized
Goods are immediately available
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Speed again has different interpretations, externally and internally
Externally – it means the elapsed time between a customer asking for a product or service and getting it (in a satisfactory condition)
It often enhances the value of the product or service to customers
Internally – it brings other benefits to the operation:
It helps to overcome internal problems by maintaining dependability
It reduces the need to manage transformed resources as they pass through the operation, therefore saving cost
Speed
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Depend-ability
FlexibilityQuality
Speed
Cost
SpeedExternal and internal benefits
On-specification products and services
Short delivery lead-time
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What does Dependability mean in …
The proportion of appointments that are cancelled is kept to a minimum
… a hospital?
Keeping appointment times
Test results, X-rays, etc. are returned as promised
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What does Dependability mean in …
… an automobile plant?
On-time delivery of vehicles to dealers
On-time delivery of spares to service centres
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What does Dependability mean in …
… a bus company?
Keeping to the published timetable at all points on the route
Constant availability of seats for passengers
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What does Dependability mean in …
… a supermarket?
Predictable opening hours
Proportion of goods out of stock kept to a minimum
Keeping to reasonable queuing times
Constant availability of parking
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Externally – it enhances the product or service in the market, or at least avoids customer complaints
Internally – it brings other benefits to the operation:
It prevents late delivery slowing down throughput speed
It prevents lateness causing disruption and wasted time and effort, therefore saving cost
Dependability
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Depend-ability
FlexibilityQuality
Speed
Cost
DependabilityExternal and internal benefits
Depend-ability
FlexibilityQuality
Speed
Cost
On-specification products and services
Short delivery lead-time
Reliable delivery
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Flexibility has several distinct meanings but is always associated with an operation’s ability to change
Change what ?
The products and services it brings to the market – Product/service flexibility
The mix of products and services it produces at any one time – Mix flexibility
The volume of products and services it produces – Volume flexibility
The delivery time of its products and services – Delivery flexibility
Flexibility
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What does Flexibility mean in …
Introducing new treatments
… a hospital?
Providing a wide range of treatments
The ability to adjust the number of patients treated
The ability to reschedule appointments
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What does Flexibility mean in …
… an automobile plant?
The introduction of new models
A wide range of options
The ability to adjust the number of vehicles manufactured
The ability to reschedule manufacturing priorities
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
… a bus company?
What does Flexibility mean in …
The introduction of new routes and excursions
A large number of locations served
The ability to adjust the frequency of services
The ability to reschedule trips
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
… a supermarket?
What does Flexibility mean in …
The introduction of new lines
A wide range of goods stocked
The ability to adjust the number of customers served
The ability to get out-of-stock items
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Depend-ability
FlexibilityQuality
Speed
Cost
External and internal benefits
FlexibilityExternal and internal benefits
Depend-ability
FlexibilityQuality
Cost
On-specification products and services
Short delivery lead-time
Reliable deliverySpeed
Frequent new products/servicesWide rangeVolume and delivery changes
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What does Cost mean in …
… a hospital?
Staff costs
Technology and facilities costs
Bought-in materials and services
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What does Cost mean in …
… an automobile plant?
Technology and facilities costs
Staff costs
Bought-in materials and services
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
… a bus company?
What does Cost mean in …
Staff costs
Technology and facilities costs
Bought-in materials and services
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
… a supermarket?
What does Cost mean in …
Staff costs
Technology and facilities costs
Bought-in materials and services
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The cost of producing products and services is obviously influenced by many factors such as input costs, but two important sets are …
The 4 V’s: volume variety variation visibility The internal performance of the operation in terms of quality speed dependability flexibility
Cost
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
CostExternal and internal benefits
Depend-ability
FlexibilityQuality
Speed
Cost
Depend-ability
FlexibilityQuality
Cost
On-specification products and services
Short delivery lead-time
Reliable deliverySpeed
Frequent new products/servicesWide rangeVolume and delivery changes
Low price, high margin, or both
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations strategy
Source: courtesy of Justin Waskovich
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What is strategy?
Strategic decisions – means those decisions which …
Are widespread in their effect on the organization to which the strategy refers
Define the position of the organization relative to its environment
Move the organization closer to its long-term goals.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
‘Operations’ is not the same as ‘operational’
‘Operations’ are the resources that create products and services
‘Operational’ is the opposite of strategic, meaning day-to-day and detailed
So, one can examine both the operational and the strategic aspects of operations
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Top-down perspective
What the business wants operations
to do
Operations resources
perspective
What operations resources can do
What day-to-day experience suggests operations should do
Bottom-up perspective
Market requirement perspective
What the market position requires operations to do
Operations strategy
The four perspectives on operations strategy
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Corporate strategy
Business strategy
Emergent sense of what the strategy should be
Operational experience
Top-down and bottom-up perspectives of strategy
Operations strategy
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The strategy hierarchy
Key strategic decisions
Influences on decision making
Business strategy
What is the mission?What are the strategic
objectives of the firm?How to compete?
Customer/market dynamicsCompetitor activityCore technology dynamicsFinancial constraints
Corporate strategy
What business to be in?What to acquire?What to divest?How to allocate cash?
Economic environmentSocial environmentPolitical environmentCompany values and ethics
Functional strategy
How to contribute to the strategic objectives?
How to manage the function’s resources?
Skills of function’s staffCurrent technologyRecent performance of the
function
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The effects of the product/service life cycle on the organization
Sal
es
volu
me
Introduction Growth Maturity Decline
Likely order winners
Product/service characteristics, performance or novelty
Availability ofquality products/services
Low priceDependable supply
Low price
Likely qualifiers
QualityRange
Price Range
QualityRange
Dependable supply
Dominant operations
performance objectives
FlexibilityQuality
SpeedDependabilityQuality
CostDependability
Cost
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Different competitive factors imply different performance objectives
Competitive factorsIf the customers value these ...
Performance objectivesThen, the operations will need to
excel at these ...
Low price Cost
High quality Quality
Fast delivery Speed
Reliable delivery Dependability
Innovative products and services Flexibility (products and services)
Wide range of products and services Flexibility (mix)
Ability to change the timing or quantity of products and services Flexibility (volume and/or delivery)
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
‘… the decisions which shape the long-
term capabilities of the company’s
operations and their contribution to overall
strategy through the on-going
reconciliation of market requirements and
operations resources …’
Operations strategy is …
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What you HAVE
in terms of operations capabilities
What you NEED
to ‘compete’ in the market
Operations resources
Market requirements
What you WANT
from your operations to
help you ‘compete’
What you DO
to maintain your
capabilities and satisfy markets
Strategic reconciliation
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The challenge of operations strategy formulation
An operations strategy should be:
Appropriate ...
Comprehensive ...
Coherent ...
Consistent over time ...
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
An implementation agenda is needed
When to start?
Where to start?
How fast to proceed?
How to coordinate the implementation programme?
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The five P’s of operations strategy implementation
Purpose – a shared understanding of the motivation, boundaries and context for developing the operations strategy
Point of entry – the point in the organization where the process of implementation starts
Process – how the operations strategy formulation process is made explicit
Project management – the management of the implementation
Participation – who is involved in the implementation
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Trade-offs
“Do you want it good, or do you want it Tuesday?”
“No such thing as a free lunch.”
“You can’t have an aircraft which flies at the speed of sound, carries 400 passengers and lands on an aircraft carrier. Operations are just the same.” (Skinner)
“Trade-offs in operations are the way we are willing to sacrifice one performance objective to achieve excellence in another.”
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Quality planning and control
Source: Archie Miles
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The various definitions of quality
The transcendent approach views quality as synonymous with innate excellence.
The manufacturing-based approach assumes quality is all about making or providing error-free products or services.
The user-based approach assumes quality is all about providing products or services that are fit for their purpose.
The product-based approach views quality as a precise and measurable set of characteristics.
The value-based approach defines quality in terms of ‘value’.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Quality upQuality up
Profits upProfits up
Processing time down
Processing time down
Inventory down
Inventory down
Capital costs down
Capital costs downComplaint and
warranty costs down
Complaint and warranty costs
down
Rework and scrap costs
down
Rework and scrap costs
down
Inspection and test costs
down
Inspection and test costs
down
Productivity up
Productivity up
Service costs downService
costs down
Image upImage up
Scale economies up
Scale economies up
Price competition
down
Price competition
down
Sales volume up
Sales volume up
Revenue up
Revenue up
High quality puts costs down and revenue up
Operation costs down
Operation costs down
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Customers’ expectations
for the product or
service
Customers’ perceptions
of the product or
service
Gap
Perceived quality is poor
Perceived quality is good
Expectations > perceptions
Expectations = perceptions
Expectations < perceptions
Perceived quality is governed by the gap between customers’ expectations and their perceptions of the product or service
Gap
Perceived quality is acceptable
Customers’ expectations
for the product or
service
Customers’ perceptions
of the product or
service
Customers’ expectations
for the product or
service
Customers’ perceptions
of the product or
service
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The perception–expectation gap
Action required to ensure high perceived quality
Main organizational responsibility
Gap 1
Gap 2
Gap 3 Operations
Gap 4 Marketing
Ensure consistency betweeninternal quality specification andthe expectations of customers
Ensure internal specification meets its intended concept of design
Ensure actual product or service conforms to internally specified quality level
Ensure that promises made to customers concerning the product or service can really be delivered
Marketing, operations, product/service development
Marketing, operations, product/service development
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Quality characteristics of goods and services
Functionality – how well the product or service does the job for which it was intended
Appearance – the aesthetic appeal, look, feel, sound and smell of the product or service
Reliability – the consistency of performance of the product or service over time
Durability – the total useful life of the product or service
Recovery – the ease with which problems with the product or service can be rectified or resolved
Contact – the nature of the person-to-person contacts that take place
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Variablesthings you can measure
Attributesthings you can assess and accept or reject
Qualityfitness for purpose
Reliabilityability to continue
working at acceptedquality level
Quality
Quality of designdegree to which
design achieves purpose
Quality of conformancefaithfulness with which the
operation agrees with design
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations improvement
Source: Courtesy of Lotus-Haed, www.pixelpusher.co.za
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Performance measures at different levels of aggregation
Overall strategic objectives
Broad strategic measures
Market strategic
objectives
Financial strategic
objectives
Operations strategic
objectives
Functional strategic measures
Customer satisfaction
ResilienceAgilityComposite performance measures
Quality Dependability Speed Flexibility CostGeneric operations performance measures
Some detailed performance measures
Defects per unit
Mean time between failuresLateness complaints
Customer query timeOrder lead timeThroughput time
Time to marketProduct range
Transaction costs
Level of customer complaints
Scrap level
Labour productivity
Machine efficiency
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Performance measures at different levels of aggregation
High strategic relevance and aggregation
High diagnostic power and
frequency of measurement
Detailed performance measures
Broad strategic measures
Functional strategic measures
Composite performance measures
Generic operations performance measures
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Overall strategic objectives
Customer performance measures
To achieve strategic impact, how should we be viewed by customers?
Internal process performance measures
To achieve strategic impact, what aspects of performance should business process excel at?
Financial performance measures
To achieve strategic impact, how should we be viewed by shareholders?
Learning and growth performance measures
To achieve strategic impact, how will we build capabilities over time?
The measures used in the balanced scorecard
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Prioritizing process objectives
Priorities should be determined by …
IMPROVEMENT PRIORITIES
The
IMPORTANCE
of each competitive
objective
Your
PERFORMANCE
in each competitive
objective
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Order-winning objectives
For this product or service, does this performance objective …
9-point importance scale
1 …provide a crucial advantage with customers?
2 …provide an important advantage with most customers?
3 …provide a useful advantage with most customers?
4 …need to be up to good industry standard?
5 …need to be around median industry standard?
6 …need to be within close range of the rest of the industry?
7 …rate as not usually important but could become more so in future?
8 …very rarely rate as being important?
9 …never come into consideration?
Qualifying objectives
Less important objectives
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
For this product or service, is the achieved performance …
Better than competitors
1 …consistently considerably better than our nearest competitor’s?2 …consistently clearly better than our nearest competitor’s?3 …consistently marginally better than our nearest competitor’s?
9-point performance scale
4 …often marginally better than that of most competitors?
5 …about the same as that of most competitors?
6 …often close to that of our main competitors?
Same as competitors
7 …usually marginally worse than that of our main competitors?
8 …usually worse than that of most competitors?
9 …consistently worse than that of most competitors?
Worse than competitors
Similar processes
Similar processes
Similar processes
Customer
expectations
Customer
expectations
Customer
expectations
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
betterthan
sameas
worsethan
lessimportant qualifying
orderwinning
1
2
3
4
5
6
7
8
9
123456789
IMPORTANCEFOR
CUSTOMERSLOW HIGH
PE
RF
OR
MA
NC
EA
GA
INS
T
CO
MP
ET
ITO
RS
GO
OD
BA
D
URGENTACTION
IMPROVE
APPROPRIATE
EXCESS ?
X
X
Lower bound of acceptability
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Short-term, dramaticLarge steps Intermittent Abrupt, volatile Few championsIndividual ideas & effort Scrap and rebuild New inventions/theories Large investment Low effort Technology Profit
Short-term, dramaticLarge steps Intermittent Abrupt, volatile Few championsIndividual ideas & effort Scrap and rebuild New inventions/theories Large investment Low effort Technology Profit
Effect Pace
TimeframeChange
Involvement Approach
Mode Spark Capex
Maintenance Focus
Evaluation
Long-term, undramaticSmall steps
Continuous, incrementalGradual and consistent
Everyone Group efforts, systematic
Protect and improveEstablished know-how
Low investment Large effort
People Process
Long-term, undramaticSmall steps
Continuous, incrementalGradual and consistent
Everyone Group efforts, systematic
Protect and improveEstablished know-how
Low investment Large effort
People Process
Innovation Kaizen
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The plan–do–check–act (or ‘Deming’) improvement cycle,and the define–measure–analyze–improve–control
(or DMAIC) ‘six sigma’ improvement cycle
Define
Measure
AnalyzeImprove
Control
Plan Do
CheckAct
Plan
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Define – identify the problem, define
requirements and set the goal
Measure – gather data, refine problem and measure inputs
and outputs
Analyze – develop problem hypotheses, identify ‘root causes’
and validate hypotheses
Improve – develop improvement ideas,
test, establish solution, and
measure results
Control – establish performance
standards and deal with any problems
The DMAIC cycle
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Per
form
ance
Time
Planned ‘breakthrough’ improvements
Actual improvement pattern
‘Breakthrough’ improvement does not always deliverhoped-for improvements
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Per
form
ance
Time
Continuous improvement
Standardize and maintain
Improvement
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Per
form
ance
Time
PDCA cycle repeated to create continuous improvement
Continuous improvement
Plan
Do
Check
Act
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Per
form
ance
Time
Combined ‘breakthrough’ and
continuous improvement
Combined improvement
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Cost
Quality + dependability + speed + flexibility + cost
Flexibility
Quality + dependability + speed + flexibility
Speed
Quality + dependability + speed
The sandcone model of improvement
Dependability
Quality + dependability
Quality
Quality
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Failure prevention and recovery
Source: Eurotunnel
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Why systems fail
Design failures
Facilities failures
Staff failures
Failures inside the operation
Supply failures Customer
failures
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
How failure is detected and analyzed
– in-process checks
– accident investigation
– failure mode-and-effect analysis
– fault-tree analysis
Failure detection mechanisms include:
Failure analysis procedures include:
– point-of-departure interview
– machine-diagnostic checks
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The three tasks of failure prevention and recovery
Failure detection and analysis
Finding out what is going wrong and why
Improving system reliability
Stopping things going wrong
Recovery
Coping when things do go wrong
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Severity of consequence
Effect on customer
Normal operation
Failure
Prevention Mitigation Recovery
Failure management
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What’s happened
What consequences
Inform
Contain
Follow up
Find root cause
Engineer out
Analyze failure
Plan recovery
The stages in failure planning
Discover Act Learn Plan
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Managing improvement – the TQM approach
Source: Corbis/Munshi Ahmed
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Total quality management can be viewed as a natural extension of earlier approaches to quality management
•Quality is strategic•Teamwork•Staff empowerment•Involves customers and suppliers
•Quality systems•Quality costing•Problem solving•Quality planning
•Statistics•Process analysis•Quality standards
•Error detection•Rectification
Prevents ‘out of specification’ products and services reaching market
Solves the root cause of quality
problems
Broadens the organizational responsibility
for quality
Makes quality central and strategic in the
organization
InspectionQuality control
Quality assurance
Total Quality Management
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The internal customer–supplier concept involves understanding the relationship between processes
Process 1
Process 3
Process 2
Process 4
Process 5
Process 6
External supplier
External customer
Between each process, the requirements of the ‘customer’ process must be understood and met by the 'supplier’ process
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Total Quality Management
Includes all parts of the organization
Includes all staff of the organization
Includes consideration of all costs
Includes every opportunity to get things right
Includes all the systems that affect quality
Never stops
Source: Corbis/Richard T Nowitz
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Porter’s Value Chain
Source: Joe Schwarz, www.joyrides.com
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Main aspects of Value Chain Analysis
Value chain analysis is a powerful tool for managers to identify the key activities within the firm which form the value chain for that organisation, and have the potential of a sustainable competitive advantage for a company.
Therein, competitive advantage of an organisation lies in its ability to perform crucial activities along the value chain better than its competitors.
When the system is managed carefully, the linkages can be a vital source of competitive advantage.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Main aspects of Value Chain Analysis
The value chain analysis essentially entails the linkage of two areas.
1.Firstly, the value chain links the value of the organisations’ activities with its main functional parts.
2.Then the assessment of the contribution of each part in the overall added value of the business is made.
In order to conduct the value chain analysis, the company is split into primary and support activities.
Primary activities are those that are related with production, while support activities are those that provide the background necessary for the effectiveness and efficiency of the firm.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
1–108
Porter’s Value Chain
Firm’s infrastructure
Human resource managementHuman resource managementTechnology and development
ProcurementProcurement
Inb
oun
dlogistics
Op
erations
Op
erations
Ou
tbou
nd
logistics
Mark
eting
&S
ales
Mark
eting
&S
ales
Service
PROFIT
Primary activities
Su
pp
ortactivities
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Primary Activities
Inbound Logistics.Here goods are received from a company's suppliers. They are stored until they are needed on the production/assembly line. Goods are moved around the organisation.
Operations.This is where goods are manufactured or assembled. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine.
Outbound Logistics.The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Primary Activities
Marketing and Sales.In true customer orientated fashion, at this stage the organisation prepares the offering to meet the needs of targeted customers.
This area focuses strongly upon marketing communications and the promotions mix.
Service.This includes all areas of service such as installation, after-sales service, complaints handling, training and so on.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Support Activities
Procurement.This function is responsible for all purchasing of goods, services and materials.
The aim is to secure the lowest possible price for purchases of the highest possible quality.
They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organisations), and ePurchasing (using IT and web-based technologies to achieve procurement aims).
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Support Activities
Technology Development.Technology is an important source of competitive advantage.
Companies need to innovate to reduce costs and to protect and sustain competitive advantage.
This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Support Activities
Human Resource Management (HRM).Employees are an expensive and vital resource.
An organisation would manage recruitment and s election, training and development, and rewards and remuneration.
The mission and objectives of the organisation would be driving force behind the HRM strategy.
Firm Infrastructure.This activity includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting department.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Supply network design
Source: Getty Images
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations in practice
Michael Dell started in 1984 by cutting out the ‘middle man’ and delivering computers direct to the customer
Using its direct selling methods, Dell went on to become the number one computer maker
There are many reasons for Dell’s success but most of them comefrom the way Dell configures its supply networks
Source: Corbis/ Gianni Giansanti/ Sygma
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Plastic homeware
manufacturer
Operations network for a plastic homeware company
First-tier suppliers
Packaging supplier
Plastic stockist
First-tier customers
Wholesaler
Second-tier suppliers
Ink supplier
Cardboard company
Chemical company
Second-tier customers
Retailer
Retailer
Direct supplyInformation
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations network for a shopping mall
First-tier suppliers
Cleaning services
Security services
Maintenance services
Shopping mall
First-tier customers
Retailers
Second-tier customers
Retail customers
Direct supplyInformation
Second-tier suppliers
Recruitment agency
Cleaning materials supplier
Equipment supplier
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations performance should be seenas a whole supply chain issue
Benefits of looking at the whole supply chain include
It helps an understanding of competitiveness
It helps to identify the significant links in the network
It helps focus on long-term issues
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Direction, extent and balance of vertical integration
Extent – Narrow process span
Extent – Wide process span
Direction – Upstream vertical integration
Direction – Downstream vertical
integration
WholesalerRaw
material suppliers
Component maker
Assembly operation
Retailer
Balance – Should excess capacity be used to supply other companies?
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The decision logic of outsourcing
Is activity of strategic
importance?
Explore keeping this activity in-house
Yes Yes
Does company have
specialized knowledge?
NoIs company’s
operations performance
superior?
Yes
NoIs significant operations
performance improvement
likely?
Yes
No Explore outsourcing this activity
No
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Supply-side and demand-side factorsin location decisions
Theoperation
Examples of supply-side factors that vary with location, influencing costs
labour costsland costsenergy coststransportation costscommunity factors
Examples of demand-sidefactors that vary withlocation, influencingcustomer service/revenue
labour skillssuitability of siteimageconvenience for customers
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Labour
Transport
Fabric
Supplies
Customs duties
€15.55France
€14.33Portugal
€11.43Turkey
€11.43Thailand
€11.13Morocco
€10.82Romania
€10.37China
€9.60Myanmar
Cost in euros2 4 6 8 10 12 14 160
Cost breakdown of a shirt made in various countriesand sold in France
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Location – Where is the market?
Population density
Low High
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The balance of capacity
Capacity can either lead or lag demand
Inventory can be used to smooth out the peaks
Spare capacity can be used to supply other operations
The danger of this is that the original operation may receive a lower level of service
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Capacity lags demand
Vo
lum
eTime
Capacity leads demand
Vo
lum
e
Time
Capacity leading demand and capacity lagging demand
DemandDemand
Capacity
Capacity
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Vo
lum
e
Time
Smoothing with inventory
Demand
Capacity
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The nature of planning and control
Source: Arup
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Planning is a formalization of what is intended to happen at some time in the future.
A plan does not guarantee that an event will actually happen;it is a statement of intention.
Although plans are based on expectations, during their implementation things do not always happen as expected.
Control is the process of coping with any changes that affect the plan.It may also mean that an ‘intervention’ will need to be made in the operation to bring it back ‘on track’.
Planning and control
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Planning is deciding
Control is
what activities should take place in the operation
when they should take place
what resources should be allocated to them
understanding what is actually happening in the operation
deciding whether there is a significant deviation from what should be happening
(if there is deviation) changing resources in order to affect the operation’s activities
Planning and control
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Significance of planning and controlT
ime
ho
rizo
n
Hou
rs/d
ays
Day
s/w
eeks
/mon
ths
Mon
ths/
year
s Long-term planning and controlUses aggregated demand forecasts
Determines resources in aggregated form
Objectives set in largely financial terms
Medium-term planning and controlUses partially disaggregated demand forecasts
Determines resources and contingencies
Objectives set in both financial and operations terms
Short-term planning and controlUses totally disaggregated forecasts or actual demand
Makes interventions to resources to correct deviations from plans
Ad hoc consideration of operations objectives
PLANNING
CONTROL
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Dependent and independent demand
Dependent demande.g. input tyre store in car plant
Demand for tyres is governed by the number of cars planned to be made
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Dependent demand
Independent demand
Resource to order Each product or service is large compared with total capacity of the operation
Make to stock
Make to order
Each product or service is small compared with total capacity of the operation
P:D ratios
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Scheduling Loading
Sequencing Monitoring and control
When to do things?
In what order to do
things?
How much to do?
Are activities going to plan?
The activities of planning and control
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Quality losses Slow-
running equipment
Equipment ‘idling’ ‘Breakdown’
failure
Set-up and changeovers
Not worked (unplanned)
Valuable operating time
Maximum available time
Loading –The reduction of time available for ‘valuable’ operating time
Not worked (planned)
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Finite and infinite loading of jobs on three work centres A, B and CFinite loading limits the loading on each centre to their capacities, even if it means that jobs will be late.
Infinite loading allows the loading on each centre to exceed their capacities to ensure that jobs will not be late
12
34
56
0
Work centre Work centreA B C A B C
Finite loading Infinite loading
Wee
ks
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
In Accident and Emergency departments, patients arrive at random. Medical staff must rapidly devise a schedule. Patients with serious illness need urgent attention. Less urgent cases will have to wait. Routine non-urgent cases will have the lowest priority of all.
The hospital triage system
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Process stage
Week 12
Week 13
Week 14
Week 15
Week 16
Week 17
Week 18
Job A Job B Job C Job D Job E
Job A Job BJob Y Job X
Job A Job BJob Z Job XJob Y
Job A Job BJob X Job C
Gantt chart showing the schedule for jobs at each process stage
Initial spec.
Pre-coding
Coding
Compact. check
Final test
Job A Job BJob W Job C Job D
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Pull and push philosophies of planning and control
PUSH CONTROL
Work centre
Work centre
Work centre
Work centre
Instruction on what to make and where to
send it
DEMAND
FORECAST
OR
CENTRAL OPS. PLANNING AND CONTROL SYSTEM
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
PULL CONTROL
Work centre DEMAND
Pull and push philosophies of planning and control
Work centre
Work centre
Work centre
Request Request Request Request
Delivery Delivery Delivery Delivery
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operation or process
Input Output
Compare / re-plan
Intervention
Plans
A simple model of control
Monitor
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Capacity planning and control
Source: Arup
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Objective
To provide an ‘appropriate’ amount of capacity at any point in time
The ‘appropriateness’ of capacity planning in any part of the operation can be judged by its effect on …
Costs
Revenue
Working capital
Service levelSource: British Airways London Eye
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Objectives of capacity planning and control
Forecast demand
Time
Agg
rega
ted
outp
ut
Estimate of current capacity
Measure aggregate capacity and demand
Identify the alternative capacity plans
Choose the most appropriate capacity plan
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The nature of aggregate capacity
– rooms per night
– ignores the numbers of guests in each room
– tonnes per month
– ignores types of alloy, gauge and batch variations
Aggregate capacity of a hotel:
Aggregate capacity of an aluminium producer:
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Climatic Festive Behavioural Political Financial Social
Causes of seasonality
Construction materialsBeverages (beer, cola)
Foods (ice-cream, Christmas cake)Clothing (swimwear, shoes)Gardening items (seeds, fertilizer)
Fireworks
Travel servicesHolidaysTax processingDoctors (influenza epidemic)Sports servicesEducation services
Source: Alamy/Medical-on-line
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Demand fluctuations in four operations
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Good forecasts are essential for effective capacity planning …
… but so is an understanding of demand uncertainty, because it allows you to judge the risks to service level
When demand uncertainty is high, the risks to service level of under-provision of capacity are high
DE
MA
ND
TIME
Only 5% chance of demand being lower than this
DE
MA
ND
TIME
Distribution of demandOnly 5% chance of demand being higher than this
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
How capacity and demand are measured
Design capacity
168 hours per week
Effective capacity
109 hours per week
Planned loss of 59 hours
Actual output – 51 hours per
week
Avoidable loss – 58 hours per
week
Efficiency
Actual output
Effective capacity=
Utilization Actual output
Design capacity=
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Ways of reconciling capacity and demand
Level capacity
Demand
Capacity
Chase demand Demand management
CapacityCapacity
Demand Demand
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
How do you cope with fluctuations in demand?
Absorb demand
Change demand
Adjust output to match demand
Level capacity
Chase demand
Demand management
Ways of reconciling capacity and demand
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Absorb demand
Part finishedFinished goods, orCustomer inventory
QueuesBacklogs
Have excess
capacity
Make to stock
Keep output level
Make customer
wait
Source: Madam Tussaud’s
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Adjust output to match demand
Hire Fire
Temporary labour Lay-off
Overtime
Subcontract
Short time
Third-party work
Source: Corbis/Photocuisine
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Change demand
Change pattern of demand
Develop alternative products and/or services
Source: Empics
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Supply chain planning and controlSource: Tibbett and Britten
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
What is supply chain management?
‘Supply chain management is the management of the
interconnection of organizations that relate to each other
through upstream and downstream linkages between the
processes that produce value to the ultimate consumer in
the form of products and services.’
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Supply chain management is concerned with the flow of information as well as the flow of products and services
•Products and services•New products and services•Delivery information•Payment request / Credit
‘Downstream’ flowof products and
servicesfor customer
fulfilment
‘Upstream’ flowof customer
requirements
•Long-term plans and requirements•Market research information•Individual orders•Payment•Potential new products and services
Flow between processes
Consumer
Flow between processes
Flow between processes
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
First-tier supplier
Second-tier supplier
First-tier customer
Second-tier customer
End customer
Demand side
Supply side
Purchasing and supply
management
Physical distribution management
Logistics
Materials management
Supply chain management
Information flow
Physical flow
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The operationPurchasing functionSuppliers
Request for
products and
services
Demand from
customers
Supply to customer
s
Request for
quotations
Prepare purchase
order
Prepare quotation for specification,
price, delivery, etc.
Requests
Select supplier(s
)Quotations
Produce products
and services
Order Receive products
and servicesDeliver
Liaison between
purchasing and the
operation
The purchasing function brings togetherthe operation and its suppliers
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Short-term ability to supply Longer-term ability to supply
•Range of products or services provided
•Potential for innovation
•Quality of products or services •Ease of doing business
•Responsiveness •Willingness to share risk
•Dependability of supply •Long-term commitment to supply
•Delivery and volume flexibility •Ability to transfer knowledge as well as products and services
•Total cost of being supplied •Technical capability
•Ability to supply in the required quantity
•Operations capability
•Financial capability
•Managerial capability
Factors for rating alternative suppliers
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Factor Weight Supplier A score Supplier B score
Cost performance 10 8 (8 x 10 = 80) 5 (5 x 10 = 50)
Quality record 10 7 (7 x 10 = 70) 9 (9 x 10 = 90)
Delivery speed promised 7 5 (5 x 7 = 35) 5 (5 x 7 = 35)
Delivery speed achieved 7 4 (4 x 7 = 28) 8 (8 x 7 = 56)
Dependability record 8 6 (6 x 8 = 48) 8 (8 x 8 = 64)
Range provided 5 8 (8 x 5 = 40) 5 (5 x 5 = 25)
Innovation capability 4 6 (6 x 4 = 24) 9 (9 x 4 = 36)
Total weighted score 325 356
Weighted supplier selection criteria for the hotel chain
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
‘Partnership’ supply
management
Cha
ract
er o
f in
tern
al o
pera
tions
act
ivity
Do
noth
ing
Do
ever
ythi
ng
impo
rtan
tD
o ev
eryt
hing
Transactional – many suppliers
Close – few suppliers
Type of inter-firm contact
Virtual spot
trading
Long-term virtual
operation
Vertically integrated operation
Traditional supply
management
Types of supply relationship
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Attitudes
Actions
Trust
Elements of process partnership relationships
Joint problem solving
Joint co-ordination of
activities
Joint learning
Long-term expectations
Sharing success
Multiple points of contact
Few relationships
Information transparenc
yDedicated assets
Closeness of relationship
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Improved profitability
Supply chain time compression
Schedule changes impact
market faster
so can respond to
market changes better
so revenues are maximized
so improved forecasts
so reduced stockholding
costs
Forecasts made closer to demand time
so less need for safety stocks
Defects are detected faster
so easier to improve quality
so reduced wastage costs
New products and service
faster to market
so fewer lost sales from
delayed launch
so reduced risk of
obsolescence
so revenues are maximized
so less discounted
sales
The effects of supply chain compression
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Supply chain dynamics
Supply chains with different end objectives need to be managed in different ways
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Matching the supply chain with market requirements
Lean supply chain
management
Mismatch
Mismatch Agile supply chain
management
Nature of demandFunctional products Innovative products
PredictableFew changes
Low varietyPrice stable
Long lead-timesLow margin
UnpredictableMany changesHigh varietyPrice markdownsShort lead-timesHigh margin
Su
pp
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hai
n o
bje
ctiv
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espo
nsiv
eE
ffic
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Low
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st
Hig
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Min
imum
inve
ntor
y
Low
-cos
t su
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rs
Low
th
roug
hpu
t tim
es
Hig
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Dep
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Fle
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Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Lean operations and JIT
Source: Tibbet and Britten
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
‘The key principle of lean operations is relatively
straightforward to understand: it means moving
towards the elimination of all waste in order to
develop an operation that is faster and more
dependable, produces higher quality products
and services and, above all, operates at low cost.’
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Synonyms
continuous flow manufacture
high value-added manufacture
stockless production
low-inventory production
fast-throughput manufacturing
lean manufacturing
Toyota production system
short cycle time manufacturingSource: Corbis/Denis Balihouse
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Traditional approach
JIT approach
stage A
orders
deliveries
orders
deliveries
JIT material flow
buffer inventory
stage B
buffer inventory
stage C
stage A stage Cstage B
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
JIT approach
focus on producing only when needed
fewer stoppages
low inventory so problems are exposed and
solved
no surplus production goes
into inventory
lower capacity utilization, but
Traditional approach
focus on high capacity utilization
more stoppages because of problems
high inventory means less chance of problems being
exposed and solved
extra productiongoes into inventory
because of continuing stoppages at stages
more production at each stage
JIT and capacity utilization
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
JIT aims to meet demand instantly, with perfect quality and no waste
JIT definitions
More fully:
Improved overall productivity and elimination of waste
Cost-effective production and delivery of only the necessary quantity of parts at the right quality, at the right time and place, while using a minimum amount of facilities, equipment, materials and human resources
JIT is dependent on the balance between the supplier’s flexibility and the user’s flexibility
JIT is accomplished through the application of elements that require total employee involvement and teamwork
A key philosophy of JIT is simplification
Source: Empics
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The lean philosophy of operations is the basis for JIT techniques that include JIT methods of planning and control
The lean philosophy of operations
Eliminate waste Involve everyone Continuous improvement
JIT as a set of techniques for managing operations
Basic working practices
Design for manufacture
Operations focus
Small, simple machines
Flow layout
TPM
Set-up reduction
Total people involvement
Visibility
JIT supply
JIT as a method of planning and control
Pull scheduling
‘Kanban’ control
Levelled scheduling
Mixed modelling
Synchronization
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The 5 S’s
Sort (Seiri) Eliminate what is not needed and keep what is needed.
Straighten (Seiton) Position things in such a way that they can be easily reached whenever they are needed.
Shine (Seiso) Keep things clean and tidy; no refuse or dirt in the work area.
Standardize (Seiketsu) Maintain cleanliness and order – perpetual neatness.
Sustain (Shitsuke) Develop a commitment and pride in keeping to standards.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Inventory level
Delivering smaller quantities more often can reduce inventory levels
Inventory level
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
operation
movement
inspection
storage
Activities:
Waste (muda)
influencing the throughput efficiency
Types of waste:
delay
over-production
waiting time
transport
process
inventory
motion
defective goods
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
WIPDefective materials
ReworkScrap
Downtime
productivity problems
WIPDefective materials
ReworkScrap
Downtime
productivity problems
Reduce the levelof inventory (water) to reveal the operations’ problems
The problem with inventory
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Small machines
The conventional Western approach is to purchase large machines to get ‘economies of scale’.
These often have long, complex set-ups, and make big batches, quickly creating ‘waste’.
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
JIT small machines approach:
emphasis: flexibilityeconomies of scope
Using several small machines rather than one large one allows simultaneous processing, is more robust
and is more flexible
easy to move (layout)
quick set-up
flexible scheduling options
cheaper tooling
fewer set-ups needed
planned maintenance easier
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
continuous improvement insmall steps, to expose wasteand eliminate it
gradual reduction of inventory
identify exposed problems
emphasis:
In JIT systems:
eliminate these problems
repeat the cycle
Visible, enforced improvement
‘Traditional’ production systems often accept waste and use the insurance of all types of inventory
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
The operations challenge
Source: Provided by the Sea W: FS Project, Nasa/Goddard Space Flight Center and ORBIMAGE
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Five of the challenges for operations managers
Operations strategy
Design Improvement
Planning and control
Globalization
Corporate social responsibility
Technology Knowledge management
Environmental responsibility
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations decisions have a corporate social responsibility dimension
Product/service design – customer safety, recyclability of materials, energy consumption
Network design – employment implications and environmental impact of location
Layout of facilities – staff safety, disabled customer access
Process technology – staff safety, waste and product disposal, noise pollution, fumes and emissions
Job design – workplace stress, unsocial working hours
Capacity planning and control – employment policies
Inventory planning and control – price manipulation
For example …
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Decision area Some globalization issues
Product/service design Transferability of product/service design
Adaptation of design to fit culture and legislation
Network design Location of global network of facilities
Ownership and capacity change legislation
Layout of facilities Cultural reaction to work organization
Process technology Serviceability and maintenance of technology
Skills availability
Job design Cost of labour
Skills availability
Cultural reaction to work requirements
Planning and control (including MRP, JIT and project planning and control)
Cultural reaction to necessity for planning
Cultural reaction to need for flexibility
Globalization
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Decision area Some globalization issues
Capacity planning and control
Differences in seasonality and demand patterns
Legislation on part-time or temporary work contracts
Legislation and cultural view of flexible working
Inventory planning and control
Storage conditions and climatic sensitivity
Cost of capital and other storage cost differences
Supply chain planning and control
Real cost of transportation
Differences in contractual arrangements
Supplier conformance to employment standards
Quality planning and control and TQM
Cultural views of acceptable quality
Cultural views of participation in improvement groups
Safety
Failure prevention and recovery
Maintenance support
Cultural attitude to risk
Flexibility of response to failure
Globalization
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Product/service design – recyclability of materials, energy consumption, waste material generation
Some environmental considerations of operations management decisions
Network design – environmental impact of location, development of suppliers in environmental practice, reducing transport-related energy
Layout of facilities – energy efficiency
Process technology – waste and product disposal, noise pollution, fume and emission pollution, energy efficiency
Job design – transportation of staff to and from work, development in environmental education
Planning and control (including MRP, JIT and project planning and control) – material utilization and wastage, environmental impact of project management, transport pollution of frequent JIT supply
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Some environmental considerations of operations management decisions (continued)
Capacity planning and control – over-production waste of poor planning, local impact of extended operating hours
Inventory planning and control – energy management of replenishment transportation, obsolescence and wastage
Supply chain planning and control – minimizing energy consumption in distribution, recyclability of transportation consumables
Quality planning and control and TQM – scrap and wastage of materials, waste in energy consumption
Failure prevention and recovery – environmental impact of process failures, recovery to minimize impact of failures
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Is packaging necessary?
Can packaging
be reduced?
Yes
Reduce packaging
Yes
Reuse
YesRecycle
Yes
Eliminate unwanted packaging
No
Can packaging be reused?
No
Can packaging
be recycled?
NoMinimize
packagingNo
Identifying waste minimization in packagingS
ourc
e: A
we
Insp
iring
Im
ages
/Pho
togr
aphe
rs D
irect