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strategic operation

Soumitra Chowdhury

What is operations management?

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Operations management defined


Operations management is the activity of managing the resources which are devoted to the production and delivery of products and services.

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Back office operation in a bank

Kitchen unit manufacturing operation

Retail operation

They are all operations


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 Design Input resources Transforming resources Facilities Staff Operations management Planning and control Operations strategy

The operations strategic objectives Operations strategy The operations competitive role and position

Improvement Output products and services Customers

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Operations management at IKEA


Design elegant products which can be flat-packed efficiently Design a store layout which gives smooth and effective flow Ensure that the jobs of all staff encourage their contribution to business success

Site stores of an appropriate size in the most effective locations

Continually examine and improve operations practice

Maintain cleanliness and safety of storage area

Arrange for fast replenishment of products

Monitor and enhance quality of service to customers

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

All operations are transformation processes

Inputs

Transformation process

Outputs

that transform inputs into outputs

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Some inputs are transformed resources Some inputs are transforming resources
Transformed resources Materials Information Customers Input resources Transforming resources Facilities Staff

Transformation process

Output products and services

Customers

Outputs are products and services that add value for customers

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


Crude oil production Acme Whistles Pure products Outputs that are exclusively tangible

Aluminium smelting Specialist machine tool production Restaurant Information systems provider IKEA

Prt a Manger

Mixture of products and services Outputs that are a mixture of the tangible and the intangible

Management consultancy Mwagusi Safari Lodge Psychotherapy clinic Pure services Outputs that are exclusively intangible

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

A Typology of Operations
Low Volume High High

High

Variety

Low

High

Variation in demand

Low

High

Visibility

Low

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

A Typology of Operations
Implications
Low repetition Each staff member performs more of job Less systemization High unit costs

Implications
High repeatability Specialization Capital intensive Low unit costs

Low

Volume

High High

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

A Typology of Operations
Implications Implications
Well defined Routine Standardized Regular Low unit costs

Flexible Complex Match customer needs High unit costs

High

Variety

Low

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

A Typology of Operations
Implications Implications

Changing capacity Anticipation Flexibility In touch with demand High unit costs

High

Variation in demand

Low

Stable Routine Predictable High utilization Low unit costs

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

A Typology of Operations
Implications Implications

Short waiting tolerance Satisfaction governed by customer perception Customer contact skills needed Received variety is high High unit costs

High

Visibility

Low

Time lag between production and consumption Standardization Low contact skills High staff utilization Centralization Low unit costs

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Implications
Low repetition Each staff member performs more of job Less systemization High unit costs Flexible Complex Match customer needs High unit costs Changing capacity Anticipation Flexibility In touch with demand High unit costs Short waiting tolerance Satisfaction governed by customer perception Customer contact skills needed Received variety is high High unit costs

A Typology of Operations
Low Volume High High

Implications
High repeatability Specialization Capital intensive Low unit costs Well defined Routine Standardized Regular Low unit costs Stable Routine Predictable High utilization Low unit costs Time lag between production and consumption Standardization Low contact skills High staff utilization Centralization Low unit costs

High

Variety

Low

High

Variation in demand

Low

High

Visibility

Low

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

4 Vs profile of two operations


Low High High High
Mwagusi Safari Lodge

Volume Variety Variation Visibility

High Low Low Low


Formule 1 Hotel

Important to understand how different operations are positioned on the 4 Vs. Is their position where they want to be? Do they understand the strategic implications?

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
Understanding of the capabilities and constraints of the operations process

Product/service development function

Analysis of new technology options Understanding of process technology needs New product and Accounting service ideas Provision and finance Understanding of the of relevant function capabilities and data Operations constraints of the Financial analysis operations process function for performance Market and decisions requirements Understanding of human resource needs Recruitment development and training Understanding Provision of systems for design, planning and of control, and improvement infrastructural and system needs

Marketing function

Human resources function

Information technology (IT) 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 as supporter Operations as driver

Operations

Strategy

Strategy

Operations

Operations

Strategy

Operations implements strategy

Operations supports strategy

Operations drives strategy

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The strategic role of the Operations function


The 3 key attributes of Operations Implementing Operations contribution
Be dependable Operationalize strategy Explain practicalities Be appropriate Understand strategy Contribute to decisions Be innovative Provide foundation of strategy Develop long-term capabilities

Supporting

Driving

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The four-stage model of Operations contribution


Redefining industry expectations
n tio ib u o t era p fo s io n
STAGE 4 Give an operations advantage
ng ivi egy Dr at str

Increasing strategic impact

Clearly the best in the industry As good as the competitors

tr on c ing s STAGE 2 rea Inc Adopt best


practice
ng nti e lem gy p Im ate str Externally neutral

STAGE 3 Link strategy with operations


ng rti o pp gy Su ate str

STAGE 1 Holding the Correct the organization back worst problems Internally neutral

Internally supportive

Externally supportive

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


Society
Increase employment Enhance community well-being Produce sustainable products Ensure clean environment

Suppliers
Continue business Develop supplier capability Provide transparent information

Customers
Appropriate product or service specification Consistent quality Fast delivery Dependable delivery Acceptable price

Shareholders
Economic value from investment Ethical value from investment

Employees
Continuous employment Fair pay Good working conditions Personal development

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The Operations function can provide a competitive advantage through its performance at the five competitive objectives
Quality Being RIGHT Being FAST

Speed

Dependability

Being ON TIME

Flexibility

Being ABLE TO CHANGE

Cost

Being PRODUCTIVE

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Competitiveness

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

The benefits of excelling


Minimum price, highest value Cost Quick delivery Speed Fast throughput Error-free processes Minimum cost, maximum value Reliable operation Ability to change Dependable delivery Dependability

Error-free products and services

Quality

Flexibility Frequent new products, maximum choice

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

What does Quality mean in

a hospital?

Patients receive the most appropriate treatment 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

What does Quality mean in

a bus company?

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

What does Quality mean in

a supermarket?

The store is clean and tidy Dcor 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 McDonalds 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 services 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

Quality
External and internal benefits Cost Speed Dependability

Quality
On-specification products and services

Flexibility

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

What does Speed mean in

a hospital?

The time between requiring treatment and receiving treatment is kept to a minimum 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
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

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Speed
External and internal benefits
Short delivery lead-time

Cost Speed Dependability

Quality
On-specification products and services

Flexibility

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

What does Dependability mean in

a hospital?

The proportion of appointments that are cancelled is kept to a minimum 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

Dependability
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

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Dependability
External and internal benefits
Short delivery lead-time

Cost Speed Dependability


Reliable delivery

Quality
On-specification products and services

Flexibility

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Flexibility
Flexibility has several distinct meanings but is always associated with an operations 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

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

What does Flexibility mean in

a hospital?

Introducing new treatments 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

What does Flexibility mean in

a bus company?

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

What does Flexibility mean in

a supermarket?

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

Flexibility
External and internal benefits
Short delivery lead-time

Cost Speed Dependability


Reliable delivery

Quality
On-specification products and services

Flexibility

Frequent new products/services Wide range Volume 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?

Bought-in materials and services

Technology and facilities costs

Staff costs

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

What does Cost mean in

an automobile plant?

Bought-in materials and services

Technology and facilities costs Staff costs

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

What does Cost mean in

a bus company?

Bought-in materials and services Staff costs

Technology and facilities costs

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

What does Cost mean in

a supermarket?

Bought-in materials and services

Technology and facilities costs Staff costs

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Cost
The cost of producing products and services is obviously influenced by many factors such as input costs, but two important sets are The 4 Vs: volume variety variation visibility The internal performance of the operation in terms of quality speed dependability flexibility

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Cost
External and internal benefits
Short delivery lead-time Low price, high margin, or both

Cost Speed Dependability


Reliable delivery

Quality
On-specification products and services

Flexibility

Frequent new products/services Wide range Volume and delivery changes

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-today 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

The four perspectives on operations strategy


Top-down perspective
What the business wants operations to do

Operations resources perspective


What operations resources can do

Operations strategy

Market requirement perspective


What the market position requires operations to do

What day-to-day experience suggests operations should do

Bottom-up perspective

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Top-down and bottom-up perspectives of strategy


Corporate strategy

Business strategy

Operations strategy Emergent sense of what the strategy should be

Operational experience

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The strategy hierarchy


Key strategic decisions
Corporate strategy What business to be in? What to acquire? What to divest? How to allocate cash?

Influences on decision making


Economic environment Social environment Political environment Company values and ethics

Business strategy

What is the mission? What are the strategic objectives of the firm? How to compete?

Customer/market dynamics Competitor activity Core technology dynamics Financial constraints

Functional strategy

How to contribute to the strategic objectives? How to manage the functions resources?

Skills of functions staff Current technology Recent 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


Sales volume

Introduction
Likely order Product/service winners characteristics, performance or novelty Likely Quality qualifiers Range Dominant Flexibility operations Quality performance objectives

Growth
Availability of quality products/services Price Range Speed Dependability Quality

Maturity
Low price Dependable supply Quality Range Cost Dependability

Decline
Low price

Dependable supply 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 factors If the customers value these ...
Low price High quality Fast delivery Reliable delivery Innovative products and services Wide range of products and services Ability to change the timing or quantity of products and services

Performance objectives Then, the operations will need to excel at these ...
Cost Quality Speed Dependability Flexibility (products and services) Flexibility (mix) Flexibility (volume and/or delivery)

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Operations strategy is the decisions which shape the longterm capabilities of the companys operations and their contribution to overall strategy through the on-going reconciliation of market requirements and operations resources

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Operations resources

Market requirements

What you HAVE


in terms of operations capabilities

What you DO
to maintain your capabilities and satisfy markets

What you WANT


from your operations to help you compete

What you NEED


to compete in the market

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 Ps 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 cant 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

High quality puts costs down and revenue up


Quality up Rework and scrap costs down Service costs down Inspection and test costs down Processing time down

Image up

Inventory down

Sales volume up Price competition down

Complaint and warranty costs down Scale economies up

Capital costs down

Productivity up Operation costs down Profits up


Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Revenue up

Perceived quality is governed by the gap between customers expectations and their perceptions of the product or service

Customers expectations for the product or service

Gap Customers perceptions of the product or service Customers Customers expectations perceptions of the for the product or product or service service

Gap Customers expectations for the product or service Customers perceptions of the product or service

Expectations > perceptions

Expectations = perceptions

Expectations < perceptions

Perceived quality is poor

Perceived quality is acceptable

Perceived quality is good

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The perceptionexpectation gap


Action required to ensure high perceived quality Ensure consistency between internal quality specification and the 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 Main organizational responsibility Marketing, operations, product/service development Marketing, operations, product/service development Operations

Gap 1

Gap 2

Gap 3

Gap 4

Marketing

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

Quality

Quality fitness for purpose

Reliability ability to continue working at accepted quality level

Quality of design degree to which design achieves purpose

Quality of conformance faithfulness with which the operation agrees with design

Variables things you can measure

Attributes things you can assess and accept or reject

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


Broad strategic measures Market strategic objectives Overall strategic objectives Operations strategic objectives Financial strategic objectives

Functional strategic measures

Composite Customer performance Agility Resilience satisfaction measures Generic operations Cost Quality Dependability Speed Flexibility performance measures Transaction Defects per Mean time Customer Time to costs query time unit market between Some detailed failures Labour Order lead time Product performance Level of productivity customer range Lateness Throughput measures complaints complaints time Machine efficiency Scrap level

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Performance measures at different levels of aggregation


Broad strategic measures Functional strategic measures Composite performance measures Generic operations performance measures Detailed performance measures High diagnostic power and frequency of measurement High strategic relevance and aggregation

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The measures used in the balanced scorecard


Financial performance measures To achieve strategic impact, how should we be viewed by shareholders? Internal process performance measures To achieve strategic impact, what aspects of performance should business process excel at? Customer performance measures To achieve strategic impact, how should we be viewed by customers?

Overall strategic objectives

Learning and growth performance measures To achieve strategic impact, how will we build capabilities over time?

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Prioritizing process objectives Priorities should be determined by


The IMPORTANCE of each competitive objective Your PERFORMANCE in each competitive objective

IMPROVEMENT PRIORITIES

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

9-point importance scale


For this product or service, does this performance objective 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? Qualifying objectives 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?

Order-winning objectives

Less important objectives

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

9-point performance scale


For this product or service, is the achieved performance
1 consistently considerably better than our nearest Better than competitors? competitorsesses oc
r lar p er i Sim stom s Cu tation ec exp

2 consistently clearly better than our nearest competitors? 3 consistently marginally better than our nearest competitors?

4 often marginally better than that of most competitors? Same as es s competitors es 5 about the same as that of most competitors? roc rp
r ila Sim ustome s C ion ctat e exp

6 often close to that of our main competitors?

Worse than es 7 usually marginally worse than that of our main competitors? s c competitors es o 8 usually worse than that of most competitors? r pr
r ila Sim ustome s n C tatio ec exp

9 consistently worse than that of most competitors?

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

GOOD

better

2 3

EXCESS ? APPROPRIATE
c f ac o und bo it abil ept y

than

PERFORMANCE

COMPETITORS

AGAINST

same as

5 6 7 8 9 9 8

r owe L

IMPROVE URGENT ACTION

X
worse than

BAD

less important LOW

qualifying

order winning HIGH

IMPORTANCE CUSTOMERS
FOR

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Innovation
Short-term, dramatic Short-term, dramatic Large steps Large steps Intermittent Intermittent Abrupt, volatile Abrupt, volatile Few champions Few champions Individual ideas & effort Individual ideas & effort Scrap and rebuild Scrap and rebuild New inventions/theories New inventions/theories Large investment Large investment Low effort Low effort Technology Technology Profit Profit Effect Pace Timeframe Change Involvement Approach Mode Spark Capex Maintenance Focus Evaluation

Kaizen
Long-term, undramatic Long-term, undramatic Small steps Small steps Continuous, incremental Continuous, incremental Gradual and consistent Gradual and consistent Everyone Everyone Group efforts, systematic Group efforts, systematic Protect and improve Protect and improve Established know-how Established know-how Low investment Low investment Large effort Large effort People People Process Process

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The plandocheckact (or Deming) improvement cycle, and the definemeasureanalyzeimprovecontrol (or DMAIC) six sigma improvement cycle
Define Plan Do Control Measure

Act

Check

Improve

Analyze

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The DMAIC cycle

Define identify the problem, define requirements and set the goal Measure gather data, refine problem and measure inputs and outputs

Control establish performance standards and deal with any problems

Analyze develop Improve develop improvement ideas, problem hypotheses, identify root causes test, establish and validate solution, and hypotheses measure results

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Breakthrough improvement does not always deliver hoped-for improvements

Performance

Planned breakthrough improvements

Actual improvement pattern

Time

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Continuous improvement

Performance

Standardize and maintain Improvement

Time

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Continuous improvement
PDCA cycle repeated to create continuous improvement

Performance

Plan Act Do Check

Time

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Combined improvement

Performance

Combined breakthrough and continuous improvement

Time

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The sandcone model of improvement


Cost Flexibility Speed Dependability Quality

Quality Quality + dependability Quality + dependability + speed Quality + dependability + speed + flexibility Quality + dependability + speed + flexibility + cost

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

Failures inside the operation Supply failures Design failures Facilities failures Staff 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


Failure detection mechanisms include:
in-process checks machine-diagnostic checks point-of-departure interview

Failure analysis procedures include:


accident investigation failure mode-and-effect analysis fault-tree analysis

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

Failure management

Prevention

Mitigation

Recovery

Normal operation

Failure

Severity of consequence

Effect on customer

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The stages in failure planning

Discover

Act

Learn

Plan

Whats happened What consequences

Inform Contain Follow up

Find root cause Engineer out

Analyze failure Plan recovery

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
Makes quality central and strategic in the organization Broadens the organizational responsibility for quality Solves the root cause of quality problems Prevents out of specification products and services reaching market 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

Inspection

Quality control

Quality assurance

Total Quality Management

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The internal customersupplier concept involves understanding the relationship between processes

Process 3 External supplier External customer

Process 1

Process 2 Process 5 Process 4

Process 6

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
Source: Corbis/Richard T Nowitz

Includes consideration of all costs Includes every opportunity to get things right Includes all the systems that affect quality Never stops

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Porters 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

Porters Value Chain


Firms infrastructure Human resource management Human resource management Technology and development Procurement Procurement PROFIT Service Operations Operations Marketing Marketing & & Sales Sales Outbound logistics Inbound logistics Support activities

Primary activities

1108

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

Source: Corbis/ Gianni Giansanti/ Sygma

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 Dells success but most of them come from the way Dell configures its supply networks

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Operations network for a plastic homeware company


Second-tier suppliers Chemical company First-tier suppliers First-tier customers Wholesaler Plastic stockist Plastic homeware manufacturer Packaging supplier Second-tier customers

Retailer

Cardboard company Ink supplier

Retailer

Direct supply Information

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Operations network for a shopping mall


Second-tier suppliers Recruitment agency First-tier suppliers Security services Cleaning services Retailers Retail customers First-tier customers Second-tier customers

Cleaning materials supplier Equipment supplier

Shopping mall

Maintenance services
Direct supply Information

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Operations performance should be seen as 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

Balance Should excess capacity be used to supply other companies? Raw material suppliers Assembly operation

Component maker

Wholesaler

Retailer

Extent Narrow process span Extent Wide process span Direction Upstream vertical integration Direction Downstream vertical integration

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?

Does No company have No specialized knowledge?

Is companys operations performance superior?

No

Is significant operations No performance improvement likely? Yes

Explore outsourcing this activity

Yes

Yes

Yes

Explore keeping this activity in-house

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Supply-side and demand-side factors in location decisions

Examples of supply-side factors that vary with location, influencing costs labour costs land costs energy costs transportation costs community factors The operation

Examples of demand-side factors that vary with location, influencing customer service/revenue labour skills suitability of site image convenience for customers

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Cost breakdown of a shirt made in various countries and sold in France


France Portugal Turkey Thailand Morocco Romania China Myanmar 0 2 4 8 6 Cost in euros 11.43 11.43 11.13 10.82 10.37 9.60 10 12 14 16 Labour Transport Fabric Supplies Customs duties 15.55 14.33

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 leading demand and capacity lagging demand

Capacity leads demand

Capacity lags demand

Capacity

Volume

Demand

Volume

Demand Capacity

Time

Time

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Smoothing with inventory

Capacity

Volume

Demand

Time

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 and control


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.

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Planning and control


Planning is deciding
what activities should take place in the operation when they should take place what resources should be allocated to them

Control is

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 operations activities

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Significance of planning and control


Months/years

Long-term planning and control


Uses aggregated demand forecasts Determines resources in aggregated form Objectives set in largely financial terms

PLANNING

Days/weeks/months

Time horizon

Medium-term planning and control


Uses partially disaggregated demand forecasts Determines resources and contingencies Objectives set in both financial and operations terms

Short-term planning and control


Uses totally disaggregated forecasts or actual demand

Hours/days

CONTROL

Makes interventions to resources to correct deviations from plans Ad hoc consideration of operations objectives

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Dependent and independent demand Dependent demand e.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

P:D ratios
Resource to order Dependent demand Each product or service is large compared with total capacity of the operation

Make to order

Make to stock

Independent demand

Each product or service is small compared with total capacity of the operation

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The activities of planning and control

When to do things?

Scheduling

Loading

How much to do?

In what Sequencing order to do things?

Monitoring and control

Are activities going to plan?

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Loading The reduction of time available for valuable operating time

Maximum available time

Valuable operating time


Not worked (planned) SlowNot worked Set-up and running Equipment (unplanned) equipment Breakdown changeovers idling failure

Quality losses

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 C


Finite 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

Finite loading

Infinite loading

A B Work centre

A B Work centre

1 2 3 s k 4 ee 5 W

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The hospital triage system


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.

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

Gantt chart showing the schedule for jobs at each process stage
Process stage Week 12 Week 13
Job B

Week 14

Week 15

Week 16
Job D

Week 17

Week 18
Job E

Initial spec. Job A

Job C

Pre-coding

Job W

Job A Job X

Job B Job A

Job C Job B

Job D

Coding

Job C

Compact. check Final test

Job Y Job Z

Job X

Job A

Job B

Job Y

Job X

Job A

Job B

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

CENTRAL OPS. PLANNING AND CONTROL SYSTEM


Instruction on what to make and where to send it

FORECAST OR

Work centre

Work centre

Work centre

Work centre

DEMAND

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Pull and push philosophies of planning and control


PULL CONTROL

Request Work centre Delivery Work centre

Request Work centre Delivery

Request Work centre Delivery

Request DEMAND Delivery

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

A simple model of control

Input

Operation or process

Output

Intervention Plans Compare / re-plan

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 level
Source: 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


Measure aggregate capacity and demand Identify the alternative capacity plans

Aggregated output

Choose the most appropriate capacity plan

Forecast demand

Estimate of current capacity

Time

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The nature of aggregate capacity


Aggregate capacity of a hotel: rooms per night ignores the numbers of guests in each room

Aggregate capacity of an aluminium producer: tonnes per month ignores types of alloy, gauge and batch variations

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Causes of seasonality

Climatic

Festive

Behavioural

Political

Financial

Social

Source: Alamy/Medical-on-line

Construction materials Beverages (beer, cola) Foods (ice-cream, Christmas cake) Clothing (swimwear, shoes) Gardening items (seeds, fertilizer) Fireworks

Travel services Holidays Tax processing Doctors (influenza epidemic) Sports services Education services

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
Distribution of demand Only 5% chance of demand being higher than this

DEMAND

DEMAND

Only 5% chance of demand being lower than this TIME

TIME

When demand uncertainty is high, the risks to service level of underprovision of capacity are high

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

How capacity and demand are measured


Efficiency = Planned loss of 59 hours Avoidable loss 58 hours per week Actual output 51 hours per week Actual output Effective capacity

Design capacity

Effective capacity 168 hours per week 109 hours per week

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

Demand Capacity

Demand Capacity

Demand Capacity

Level capacity

Chase demand

Demand management

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Ways of reconciling capacity and demand How do you cope with fluctuations in demand?

Absorb demand
Level capacity

Adjust output to match demand


Chase demand

Change demand
Demand management

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Absorb demand Have excess capacity

Keep output level

Source: Madam Tussauds

Make to stock Part finished Finished goods, or Customer inventory

Make customer wait Queues Backlogs

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Adjust output to match demand

Hire Temporary labour Overtime Subcontract

Fire Lay-off Short time

Source: Corbis/Photocuisine

Third-party work

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 control


Source: 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
Upstream flow of customer requirements Flow between processes Long-term plans and requirements Market research information Individual orders Payment Potential new products and services Flow between processes Consumer

Flow between processes

Products and services New products and services Delivery information Payment request / Credit

Downstream flow of products and services for customer fulfilment

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Second-tier supplier

First-tier supplier

First-tier customer

Second-tier End customer customer

Supply side
Information flow Physical flow

Purchasing and supply management

Demand side Physical distribution management Logistics

Materials management Supply chain management

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The purchasing function brings together the operation and its suppliers
Suppliers Prepare quotation for specification, price, delivery, etc. Purchasing function
Requests

The operation Request for products and services Receive products and services Demand from customer s

Request for quotation s Select supplier(s ) Prepare purchase order

Quotations

Liaison between purchasing and the operation

Produce products and services

Order

Supply to customer s

Deliver

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Factors for rating alternative suppliers


Short-term ability to supply Range of products or services provided Quality of products or services Responsiveness Dependability of supply Delivery and volume flexibility Total cost of being supplied Ability to supply in the required quantity Longer-term ability to supply Potential for innovation Ease of doing business Willingness to share risk Long-term commitment to supply Ability to transfer knowledge as well as products and services Technical capability Operations capability Financial capability Managerial capability

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Weighted supplier selection criteria for the hotel chain


Factor Cost performance Quality record Delivery speed promised Delivery speed achieved Dependability record Range provided Innovation capability Total weighted score Weight 10 10 7 7 8 5 4 Supplier A score 8 (8 x 10 = 80) 7 (7 x 10 = 70) 5 (5 x 7 = 35) 4 (4 x 7 = 28) 6 (6 x 8 = 48) 8 (8 x 5 = 40) 6 (6 x 4 = 24) 325 Supplier B score 5 (5 x 10 = 50) 9 (9 x 10 = 90) 5 (5 x 7 = 35) 8 (8 x 7 = 56) 8 (8 x 8 = 64) 5 (5 x 5 = 25) 9 (9 x 4 = 36) 356

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Types of supply relationship


Character of internal operations activity Do Do Do everything nothing everything important

Vertically integrated operation Traditional supply management Partnership supply management Long-term virtual operation Type of inter-firm contact Close few suppliers

Virtual spot trading

Transactional many suppliers

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Elements of process partnership relationships


Trust Long-term expectations Joint learning
Closeness of relationship

Attitudes
Sharing success Multiple points of contact Few relationships Information transparenc y

Joint coordination of activities Joint problem solving

Dedicated assets

Actions

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The effects of supply chain compression


Supply chain time compression
Schedule changes impact market faster so can respond to market changes better Forecasts made closer to demand time Defects are detected faster New products and service faster to market

so improved forecasts

so easier to improve quality

so fewer lost sales from delayed launch

so reduced risk of obsolescence

so less need for safety stocks

so revenues are maximized

so reduced stockholding costs

so reduced wastage costs

so revenues are maximized

so less discounted sales

Improved profitability

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


Nature of demand Functional products Innovative products
Predictable Few changes Low variety Price stable Long lead-times Low margin Unpredictable Many changes High variety Price markdowns Short lead-times High margin

Supply chain objectives Responsive Efficient

Low throughput times High utilization Deployed inventory Flexible suppliers

Lean supply chain management

Mismatch

Low cost High utilization Minimum inventory Low-cost suppliers

Mismatch

Agile supply chain management

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 manufacturing
Source: Corbis/Denis Balihouse

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

JIT material flow


Traditional approach
buffer inventory buffer inventory

stage A

stage B

stage C

JIT approach
orders stage A deliveries stage B deliveries orders stage C

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

JIT and capacity utilization


Traditional approach JIT approach
focus on high capacity utilization more stoppages because of problems more production at each stage high inventory means less chance of problems being exposed and solved extra production goes into inventory because of continuing stoppages at stages

focus on producing only when needed

fewer stoppages lower capacity utilization, but low inventory so problems are exposed and solved no surplus production goes into inventory

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

JIT definitions
JIT aims to meet demand instantly, with perfect quality and no waste
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 suppliers flexibility and the users 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 Ss
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

Delivering smaller quantities more often can reduce inventory levels


Inventory level

Inventory level

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Waste (muda) Activities:


operation movement inspection delay storage

Types of waste:
over-production waiting time transport process inventory motion defective goods influencing the throughput efficiency

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The problem with inventory


Reduce the level of inventory (water) to reveal the operations problems

productivity problems

WIP Defective materials Scrap Downtime Rework

WIP Defective materials productivity problems Scrap Downtime Rework

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

Using several small machines rather than one large one allows simultaneous processing, is more robust and is more flexible
JIT small machines approach:

easy to move (layout) quick set-up flexible scheduling options cheaper tooling planned maintenance easier fewer set-ups needed emphasis: flexibility economies of scope

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Visible, enforced improvement


Traditional production systems often accept waste and use the insurance of all types of inventory In JIT systems: gradual reduction of inventory identify exposed problems eliminate these problems repeat the cycle emphasis: continuous improvement in small steps, to expose waste and eliminate it

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


Globalization Corporate social responsibility Operations strategy Environmental responsibility

Design Planning and control Technology

Improvement

Knowledge management

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Operations decisions have a corporate social responsibility dimension


For example 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

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Globalization
Decision area Product/service design Network design Layout of facilities Process technology Job design Some globalization issues Transferability of product/service design Adaptation of design to fit culture and legislation Location of global network of facilities Ownership and capacity change legislation Cultural reaction to work organization Serviceability and maintenance of technology Skills availability Cost of labour Skills availability Cultural reaction to work requirements Cultural reaction to necessity for planning Cultural reaction to need for flexibility

Planning and control (including MRP, JIT and project planning and control)

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Globalization
Decision area Capacity planning and control Inventory planning and control Some globalization issues Differences in seasonality and demand patterns Legislation on part-time or temporary work contracts Legislation and cultural view of flexible working Storage conditions and climatic sensitivity Cost of capital and other storage cost differences

Supply chain planning and Real cost of transportation control Differences in contractual arrangements Supplier conformance to employment standards Quality planning and controlCultural views of acceptable quality and TQM Cultural views of participation in improvement groups Safety Failure prevention and recovery Maintenance support Cultural attitude to risk Flexibility of response to failure

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Some environmental considerations of operations management decisions


Product/service design recyclability of materials, energy consumption, waste material generation 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

Identifying waste minimization in packaging

Yes Is packaging necessary? No

Can packaging be reduced?

Yes

Reduce packaging Reuse Yes Recycle Yes No Can packaging be recycled?

No

Source: Awe Inspiring Images/Photographers Direct

Can packaging be reused?

Eliminate unwanted packaging

No

Minimize packaging

Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007

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