CHAPTER 3
SUBSTITUTES FOR STRATEGY
LEARNING OBJECTIVES
This chapter looks at:
•How does total quality management fit into operations strategy
•How do lean operations fit into operations strategy
•How does business process reengineering fit into operations strategy
•How does Six Sigma fit into operations strategy
INTRODUCTION
Some organizations will not even know what is meant by ‘operations strategy’; some
will have a clearly worked out and thought through articulation of how they reconcile
market requirements with operations resource capabilities.
But many are likely to mention one of the ‘new approaches’ to operations that they
have picked up, or have been sold by consultants, or have judged to be particularly
appropriate in improving their operations performance. Such responses might include:
oWe are trying to make our operations as lean as possible
oWe are reengineering our operations to avoid organizational silos
‘NEW’ APPROACHES TO
OPERATIONS
Before anyone can judge whether any
of these new approaches is right for
them, they must understand what they
are, their underlying philosophy, and
how they differ from each other.
•total quality management;
•lean operations;
•Business process reengineering;
•Six Sigma.
TOTAL QUALITY MANAGEMENT
Total quality management (TQM) was one of the earliest management ‘fashions’.
Its peak of popularity was in the late 1980s and early 1990s.
TQM has come to be seen as an approach to the way operations and processes
should be managed and improved, generally.
“TQM is ‘an effective system for integrating the quality development, quality
maintenance and quality improvement efforts of the various groups in an
organization so as to enable production and service at the most economical levels
which allow for full customer satisfaction’.”.. A.V. Feigenbaum.
TOTAL QUALITY MANAGEMENT
W.E. Deming, considered in Japan to be the father of
quality control, asserted that quality starts with top
management and is a strategic activity.
Deming's basic philosophy is that quality and
productivity increase as ‘process variability’ decreases.
He emphasizes the need for statistical control methods,
participation, education, openness and purposeful
improvement.
BENEFITS OF TQM
Using the TQM philosophy ensures the following results:
• Organization becomes more competitive.
• Helping to establish a new culture which enables growth and long-term success.
• Creates a productive working environment in which everyone can succeed.
• Helps to reduce stress, waste and defects.
• Helps to build partnerships, teams and co-operation.
THE ELEMENTS OF TQM
 Meeting the needs and expectations of customers
 Covering all parts of the organization
 Including every person in the organization
 Getting things ‘right first time’, that is, designing-in quality rather than inspecting
it in
 Developing the systems and procedures that support improvement
MEETING THE NEEDS AND EXPECTATIONS
OF CUSTOMERS
TQM was one of the first of the ‘customer-centric’ approaches. In the TQM
approach, meeting the expectations of customers means more than simply
meeting customer requirements.
It involves the whole organization in understanding the central importance of
customers to its success and even to its survival.
Customers are seen not as being external to the organization but as the most
important part of it.
COVERING ALL PARTS OF THE
ORGANIZATION
One of the most significant elements of TQM is the concept of the internal customer
and internal supplier.
This means that everyone is a customer within the organization and consumes goods
or services provided by other internal suppliers, and everyone is also an internal
supplier of goods and services for other internal customers.
TQM utilizes this concept by stressing that each process in an operation has a
responsibility to manage these internal customer–supplier relationships.
INCLUDING EVERY PERSON IN THE
ORGANIZATION
TQM uses the phrase ‘quality at source’ – stressing the impact that each individual
has on quality.
The contribution of all individuals in the organization is expected to go beyond ‘not
make mistakes’.
Individuals are expected to bring something positive to improving the way they
perform their jobs.
The principles of ‘empowerment’ are frequently cited as supporting this aspect of
TQM, an idea that seemed radical when it first began to migrate from Japan in the
late 1970s.
GETTING THINGS ‘RIGHT FIRST TIME’, THAT IS,
DESIGNING-IN QUALITY RATHER THAN INSPECTING IT
IN
The costs of quality are usually categorized as:
1. prevention costs (identifying and preventing potential problems, improving the
design of products and services and processes to reduce quality problems, training
and development, process control, etc.),
2. appraisal costs (the costs of controlling quality to check to see if problems or
errors have occurred during and after production),
3. internal failure costs (costs associated with errors that are dealt with inside the
operation, scrap, rework, lost production time, failure-related disruption etc.) and
4. external failure costs (the loss of customer goodwill, litigation, guarantee and
warranty costs etc.).
GETTING THINGS ‘RIGHT FIRST TIME’, THAT
IS, DESIGNING-IN QUALITY RATHER THAN
INSPECTING IT IN
TQM shifts the emphasis from reactive (waiting for something to happen) to proactive
(doing something before anything happens).
This change in the view of quality costs has come about with a movement from an
inspect-in (appraisal-driven) approach to a design-in (getting-it-right-first-time)
approach.
DEVELOPING THE SYSTEMS AND PROCEDURES
THAT SUPPORT IMPROVEMENT
Typical of these is the ISO 9000 series – a set of worldwide standards that
establishes requirements for companies’ quality management systems. It is different
from, but closely associated with, TQM.
ISO 9000 registration requires a third-party assessment of a company’s quality
standards and procedures, and regular audits are made to ensure that the systems
do not deteriorate.
LESSONS FROM TQM
It provides on outline ‘checklist’ of how to go about operations improvement.
It is also capable of being developed into a more prescriptive form.
EFQM Excellence Model, developed by the European Foundation for Quality
Management (EFQM). Originally the European Quality Award (EQA), awarded to the
most successful exponent of total quality management in Europe each year, the model
was modified and renamed the ‘EFQM Excellence Model’ or ‘Business Excellence
Model’.
European Foundation for Quality Management (EFQM)
- is a self-assessment framework for measuring the strengths and areas for
improvement of an organization across all of its activities.
WHERE DOES TQM FIT INTO OPERATIONS
STRATEGY?
TQM is a philosophy of how to approach the organisation of quality improvement
that stresses the ‘total’ of TQM. It puts quality and improvement generally at the
heart of everything that is done by an operation.
It provides a checklist of how to organize operations improvement. It has also been
developed into a more prescriptive form, as in the EFQM Excellence Model,
developed by the European Foundation for Quality Management (EFQM).
LEAN OPERATIONS
The idea of lean operations (also known as ‘just-in-time’, ‘lean synchronization’ and
‘continuous flow operations’) spread beyond its Japanese roots and became
fashionable in the West at about the same time as TQM.
‘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, more dependable, produces higher quality products and services and,
above all, operates at low cost’.
LEAN OPERATIONS
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
WHAT IS ‘LEAN’?
Lean Operations is a means of running an organization by focusing on providing
greater customer satisfaction while using as few resources as possible.
The objective of lean operations is twofold:
1. Creating value for customers and eliminating waste.
2. Companies that use lean operations are highly concerned with efficiency.
Traditional: Focuses on training and relies on people to not make mistakes.
Lean Synchor: Focuses on building processes that are error proofed (a person
cannot make a mistake or it would be difficult to do so).
WASTE ELIMINATION
Four broad categories of waste that apply in many different types of operation:
1 Waste from irregular flow
– Perfect synchronization means smooth and even flow through processes, operations
and supply networks.
2 Waste from inexact supply
– Perfect synchronization is supplying exactly what is wanted, exactly when it is
needed. Any under or over supply and any early or late delivery will result in waste.
WASTE ELIMINATION
3 Waste from inflexible response
– Customer needs can vary, in terms of what they want, how much they want and
when they want it.
But unless an operation is flexible, it can make change only infrequently. This
mismatch is the cause of much inventory – for example, because machines make a
large batch of similar products together.
4 Waste from variability
– Synchronization implies exact levels of quality. If there is variability in quality
levels then customers will not consider themselves as being adequately supplied.
Variability therefore is an important barrier to achieving synchronized supply.
TYPES OF WASTE:
over production
waiting time
transport process
inventory
motion
defective goods
influencing the throughput efficiency
WHERE DOES LEAN FIT INTO
OPERATIONS STRATEGY?
The lean approach aims to meet demand instantaneously, with perfect quality and no
waste. It can be seen as having four elements: customer-based demand triggers,
synchronized flow, enhanced improvement behavior and waste elimination.
However, the lean concept implies some sacrifice of capacity utilization.
It occurs because when stoppages occur in the traditional system, buffers allow each
stage to continue working and thus achieve high-capacity utilization. There is far less
buffering in lean processes.
BUSINESS PROCESS REENGINEERING
(BPR)
Business process reengineering (BPR) originated in the early 1990s when Michael
Hammer proposed that rather than using technology to automate work, it would be
better applied to doing away with the need for the work in the first place (‘don’t
automate, obliterate’).
- is a strategy that tears down and recreates business processes, with a goal to
reduce manufacturing errors and expenses.
WHAT IS BPR?
BPR has been defined as follows:
- results in changes among the structures and processes within the business
environment. Therefore, there may be technological advancements and human
resource replacements with the automation techniques which will increase the
efficiencies and the productivity of the organizations.
These would result in increasing the flexibility and adaptability to the rapid changes
in the competitive business environment.
Business processes can be divided into three elements as inputs, process and outputs.
WHAT IS BPR?
‘… the fundamental rethinking and radical redesign of business processes to achieve
dramatic improvements in critical, contemporary measures of performance, such as
cost, quality, service and speed.’
- Hammer Champy (1993)
OBJECTIVES OF BPR
The main objectives of BPR include the following factors:
• Customer focus -The main objective of BPR is to increase the level of customer
satisfaction.
• Speed – With the use of advanced technologies, the processing speed is expected
to be improved as most of the tasks are automated.
• Compression – It explains the ways of reducing the cost and capital invested in
primary activities, throughout the value chain.It can be done by combining the
interrelated activities or by performing parallel activities in a particular process.
OBJECTIVES OF BPR
• Flexibility – It is about the adaptive processes and structures used to changing
conditions and competition. By being closer to the customer, the company would be
able to develop the awareness mechanisms to tackle the areas that require
improvements .
• Quality – The level of quality can always be maintained with the expected levels of
standards and can be monitored by the processes.
• Innovation – Leadership through innovation provides changes in the organization to
achieve competitive advantage.
• Productivity-It can be improved drastically with effectiveness and efficiency.
WHAT IS THE DIFFERENCE BETWEEN TQM
AND BPR?
• TQM and BPR have a cross-functional relationship. TQM is concerned about
improving productivity through quality improvements while BPR is about making
process improvements through radical redesign and use of advanced technologies.
• TQM is focusing on continuous improvements while BPR is concerned about product
innovations.
• TQM emphasis on the use of statistical process control while BPR emphasis on the
use of information technology.
• Both top down and bottom up approaches can be used in implementing TQM, but
BPR can be implemented only through a top-down approach.
HOW DOES BUSINESS PROCESS
REENGINEERING FIT INTO OPERATIONS
STRATEGY?
BPR is the fundamental rethinking and radical redesign of business processes to
achieve dramatic improvements in critical, contemporary measures of performance,
such as cost, quality, service and speed.
The approach strives for dramatic improvements in performance by radically
rethinking and redesigning the process using ‘end-to-end’ processes and by exploiting
the power of IT to integrate processes.
SIX SIGMA
Motorola, the electronics and communications systems company, first popularized the
‘Six Sigma’ approach.
When it set its quality objective as ‘total customer satisfaction’ in the 1980s, it started
to explore what the slogan would mean to its operations processes.
They decided that true customer satisfaction would only be achieved when its
products were delivered when promised, with no defects, with no early-life failures
and when the product did not fail excessively in service.
WHAT IS SIX SIGMA?
The Greek letter sigma
is often used to indicate the standard deviation of a
process, hence the ‘Six Sigma’ label.
General
Electric (GE), which was probably the best known of the early adopters of Six Sigma,
defined it as,
‘A disciplined methodology of defining, measuring, analyzing, improving, and
controlling the quality in every one of the company’s products, processes, and
transactions with the ultimate goal of virtually eliminating all defects.’
Six Sigma - is a set of techniques and tools for process improvement. It was
introduced by American engineer Bill Smith while working at Motorola in 1986.
THE ELEMENTS OF SIX SIGMA
1. Customer-driven objectives - ‘the process of comparing process outputs against
customer requirements’.
2. Use of evidence
3. Structured improvement cycle
4. Structured training and organisation of improvement
5. Process capability and control
6. Process design
7. Process improvement
USE OF EVIDENCE
Six Sigma emphasises observational methods of collecting data and the use of
experimentation to examine hypothesis. Techniques include graphical methods,
analysis of variance and two-level factorial experiment design.
Underlying the use of these techniques is an emphasis on the scientific method –
responding only to hard evidence and using statistical software to facilitate analysis.
STRUCTURED IMPROVEMENT CYCLE
The structured improvement cycle used in Six Sigma
is called the DMAIC (pronounced De-Make) cycle.
The DMAIC cycle starts with defining the problem, or
problems, partly to understand the scope of what
needs to be done and partly to define exactly the
requirements of the process improvement.
SIX SIGMA MODEL (DMAIC MODEL) FOR
PROCESS QUALITY IMPROVEMENT:
Six Sigma follows the DMAIC model for quality improvement and problem reduction
(For existing processes). This well-defined process approach consists of five phases in
order:
STRUCTURED TRAINING AND
ORGANIZATION OF IMPROVEMENT
The terms that have become associated with this group of experts (and denote their
level of expertise) are ‘Master Black Belt’, ‘Black Belt’ and ‘Green Belt’.
Master Black Belts are experts in the use of Six Sigma tools and techniques, as well
as how such techniques can be used and implemented. They are seen as teachers who
can not only guide improvement projects, but also coach and mentor Black Belts and
Green Belts who are closer to the day-to-day improvement activity. They are
expected to have the quantitative analytical skills to help with Six Sigma techniques
and also the organizational and interpersonal skills to teach and mentor.
STRUCTURED TRAINING AND
ORGANIZATION OF IMPROVEMENT
Black Belts are expected to develop their quantitative analytical skills and also act
as coaches for Green Belts. Black Belts are dedicated full time to improvement, and
although opinions vary on how many Black Belts should be employed in an operation,
some organisations recommend one Black Belt for every hundred employees.
Green Belts work within improvement teams, possibly as team leaders. They have
significant amounts of training, although less than Black Belts. Green Belts are not fulltime positions; they have normal day-to-day process responsibilities but are expected
to spend at least 20 per cent of their time on improvement projects.
HOW DOES SIX SIGMA FIT INTO
OPERATIONS STRATEGY?
Six Sigma is a disciplined methodology of defining, measuring, analyzing, improving
and controlling the quality in every one of the company’s products, processes and
transactions – with the ultimate goal of virtually eliminating all defects.
Although it started as a statistical process control-based concept, it is now a broad
improvement concept rather than a simple examination of process variation. It stresses
the use of (preferably quantitative) evidence in decision making, systematic problem
solving and the use of improvement specialists called Black Belts, Green Belts and so
on.
ALL THESE APPROACHES ARE DIFFERENT
WHAT PLACE DO THESE NEW APPROACHES
HAVE IN OPERATIONS STRATEGY?
These approaches are not strategies in themselves (operations strategy specific to one
organization at one point in time), they are generic in nature, but they are strategic decisions.
Although none of them is incompatible with operations strategy, they can all be considered as
part of a strategy. It is also important to understand fully any approach before it is adopted,
because all the approaches are different.
Some emphasize gradual change, others more radical change. Some hold a view of the best
way to organize resources, others concentrate on how to decide what to do. So, the focus of
BPR is what should happen rather than how it should happen, and lean is similar.
But both Six Sigma and TQM focus more on how operations should be improved. BPR is
explicit in its advocacy of radical and dramatic change. TQM and lean, on the other hand,
both incorporate ideas of continuous improvement, whereas Six Sigma can be used for small
or very large changes.