1 Chapter 1 Operations management
1.1 What is operations management?
Operations management is the activity of managing the resources which are devoted to the
production and delivery of products and services. It is one of the core functions of any business,
although it may not be called operations management in some industries. Operations
management is concerned with managing processes. And all processes have internal customers
and suppliers. But all management functions also have processes. Therefore, operations
management has relevance for all managers.
1.2 Why is operations management important in all types of organization?
Operations management uses the organization's resources to create outputs that fulfil defined
market requirements. This is the fundamental activity of any type of enterprise. Operations
management is increasingly important because today's business environment requires new
thinking from operations managers.
1.3 What is the input-transformation-output process?
All operations can be modelled as input-transformation-output processes. They all have inputs of
transforming resources, which are usually divided into `facilities' and `staff', and transformed
resources, which are some mixture of materials, information and customers. Few operations
produce only products or only services. Most produce some mixture of tangible goods or products
and less tangible services.
1.4 What is the process hierarchy?
All operations are part of a larger supply network which, through the individual contributions of
each operation, satisfies end-customer requirements. All operations are made up of processes
that form a network of internal customer-supplier relationships within the operation. End-to-end
business processes that satisfy customer needs often cut across functionally based processes.
1.5 How do operations processes have different characteristics?
Operations differ in terms of the volume of their outputs, the variety of outputs, the variation in
demand for their outputs, and the degree of `visibility' they have. High volume, low variety, low
variation and low customer `visibility' are usually associated with low cost.
1.6 What are the activities of operations management?
Responsibilities include understanding relevant performance objectives, setting an operations
strategy, the design of the operation (products, services and processes), planning and controlling
the operation, and the improvement of the operation over time. Operations managers also have a
set of broad societal responsibilities. These are generally called `corporate social responsibility' or
CSR objectives.
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2 Chapter 2 Operations performance
2.1 Why is operations performance important in any organization?
Operations management can either `make or break' any business. It is large and, in most
businesses, represents the bulk of its assets, but also because the operations function gives the
ability to compete by providing the ability to respond to customers and by developing the
capabilities that will keep it ahead of its competitors in the future.
2.2 How does the operations function incorporate all stakeholders objectives?
At a strategic level, performance objectives relate to the interests of the operation's stakeholders.
They relate to the company's responsibility to customers, suppliers, shareholders, employees, and
society in general.
2.3 What does top management expect from the operations function?
Operations can contribute to the organization as a whole by: - reducing the costs - achieving
customer satisfaction - reducing the risk of operational failure - reducing the amount of
investment - providing the basis for future innovation.
2.4 What are the performance objectives of operations and what are the internal and
external benefits which derive from excelling in each of them?
By `doing things right', operations seek to influence the quality of the company's goods and
services. Externally, quality is an important aspect of customer satisfaction or dissatisfaction.
Internally, quality operations both reduce costs and increase dependability. By `doing things fast',
operations seek to influence the speed with which goods and services are delivered. Externally,
speed is an important aspect of customer service. Internally, speed both reduces inventories by
decreasing internal throughput time and reduces risks by delaying the commitment of resources.
By `doing things on time', operations seek to influence the dependability of the delivery of goods
and services. Externally, dependability is an important aspect of customer service. Internally,
dependability within operations increases operational reliability, thus saving the time and money
that would otherwise be taken up in solving reliability problems and also giving stability to the
operation. By `changing what they do', operations seek to influence the flexibility with which the
company produces goods and services. Externally, flexibility can: - produce new products and
services (product/service flexibility); - produce a wide range or mix of products and services (mix
flexibility); - produce different quantities or volumes of products and services (volume flexibility); produce products and services at different times (delivery flexibility).
Internally, flexibility can help speed up response times, save time wasted in changeovers, and
maintain dependability.
By `doing things cheaply', operations seek to influence the cost of the company's goods and
services. Externally, low costs allow organizations to reduce their price in order to gain higher
volumes or, alternatively, increase their profitability on existing volume levels. Internally, cost
performance is helped by good performance in the other performance objectives.
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2.5 How do operations performance objectives trade off against each other?
Trade-offs are the extent to which improvements in one performance objective can be achieved
by sacrificing performance in others. The `efficient frontier' concept is a useful approach to
articulating trade-offs and distinguishes between repositioning performance on the efficient
frontier and improving performance by overcoming trade-offs.
3 Chapter 3 Operations strategy
3.1 What is strategy and what is operations strategy?
Strategy is the total pattern of decisions and actions that position the organization in its
environment and that are intended to achieve its long-term goals. Operations strategy concerns
the pattern of strategic decisions and actions which set the role, objectives and activities of the
operation. Operations strategy has content and process. The content concerns the specific
decisions which are taken to achieve specific objectives. The process is the procedure which is
used within a business to formulate its strategy.
3.2 What is the difference between a `top-down' and a `bottom-up' view of
operations strategy?
The `top-down' perspective views strategic decisions at a number of levels. Corporate strategy
sets the objectives for the different businesses which make up a group of businesses. Business
strategy sets the objectives for each individual business and how it positions itself in its
marketplace. Functional strategies set the objectives for each function's contribution to its
business strategy. The `bottom-up' view of operations strategy sees overall strategy as emerging
from day-to-day operational experience.
3.3 What is the difference between a `market requirements' and an `operations
resource' view of operations strategy?
A `market requirements' perspective of operations strategy sees the main role of operations as
satisfying markets. Operations performance objectives and operations decisions should be
primarily influenced by a combination of customers' needs and competitors' actions. Both of
these may be summarized in terms of the product/service life cycle. The `operations resource'
perspective of operations strategy is based on the resource-based view (RBV) of the firm and sees
the operation's core competences (or capabilities) as being the main influence on operations
strategy. Operations capabilities are developed partly through the strategic decisions taken by the
operation. Strategic decision areas in operations are usually divided into structural and
infrastructural decisions. Structural decisions are those which define an operation's shape and
form. Infrastructural decisions are those which influence the systems and procedures that
determine how the operation will work in practice.
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3.4 How can an operations strategy be put together?
There are many different procedures which are used by companies, consultancies and academics
to formulate operations strategies. Although differing in the stages that they recommend, many
of these models have similarities. Any operations strategy process should result in strategies that
are comprehensive and coherent, provide correspondence, and prioritize the most critical
activities or decisions.
4 Chapter 4 Process design
4.1 What is process design?
Design is the activity which shapes the physical form and purpose of both products and services
and the processes that produce them. This design activity is more likely to be successful if the
complementary activities of product or service design and process design are coordinated.
4.2 What objectives should process design have?
The overall purpose of process design is to meet the needs of customers through achieving
appropriate levels of quality, speed, dependability, flexibility and cost. The design activity must
also take account of environmental issues. These include examination of the source and suitability
of materials, the sources and quantities of energy consumed, the amount and type of waste
material, the life of the product itself, and the end-of-life state of the product.
4.3 How do volume and variety affect process design?
The overall nature of any process is strongly influenced by the volume and variety of what it has
to process. The concept of process types summarizes how volume and variety affect overall
process design. In manufacturing, these process types are (in order of increasing volume and
decreasing variety) project, jobbing, batch, mass and continuous processes. In service operations,
although there is less consensus on the terminology, the terms often used (again in order of
increasing volume and decreasing variety) are professional services, service shops and mass
services.
4.4 How are processes designed in detail?
Processes are designed initially by breaking them down into their individual activities. Often
common symbols are used to represent types of activity. The sequence of activities in a process is
then indicated by the sequence of symbols representing activities. This is called `process
mapping'. Alternative process designs can be compared using process maps and improved
processes considered in terms of their operations performance objectives. Process performance
in terms of throughput time, work-in-progress, and cycle time are related by a formula known as
Little's law: throughput time equals work-in-progress multiplied by cycle time. Variability has a
significant effect on the performance of processes, particularly the relationship between waiting
time and utilization.
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5 The design of products and services
5.1 Why is good product and service design important?
Good design makes good business sense because it translates customer needs into the shape and
form of the product or service and so enhances profitability. Design includes formalizing three
particularly important issues: the concept, package and process implied by the design. Design is a
process that itself must be designed according to the process design principles described in the
previous chapter.
5.2 What are the stages in product and service design?
Concept generation transforms an idea for a product or service into a concept which captures the
nature of the product or service and provides an overall specification for its design. Screening the
concept involves examining its feasibility, acceptability and vulnerability in broad terms to ensure
that it is a sensible addition to the company's product or service portfolio. Preliminary design
involves the identification of all the component parts of the product or service and the way they
fit together. Typical tools used during this phase include component structures and flow charts.
Design evaluation and improvement involve re-examining the design to see if it can be done in a
better way, more cheaply or more easily. Typical techniques used here include quality function
deployment, value engineering and Taguchi methods. Prototyping and final design involve
providing the final details which allow the product or service to be produced. The outcome of this
stage is a fully developed specification for the package of products and services, as well as a
specification for the processes that will make and deliver them to customers.
5.3 Why should product and service design and process design be considered
interactively?
Looking at them together can improve the quality of both product and service design and process
design. It helps a design `break even' on its investment earlier than would otherwise have been
the case. Employ simultaneous development where design decisions are taken as early as they
can be, without necessarily waiting for a whole design phase to be completed. Ensure early
conflict resolution which allows contentious decisions to be resolved early in the design process,
thereby not allowing them to cause far more delay and confusion if they emerge later in the
process. Use a project-based organizational structure which can ensure that a focused and
coherent team of designers is dedicated to a single design or group of design projects.
6 Chapter 6 Supply network design
6.1 Why should an organization take a total supply network perspective?
The main advantage is that it helps any operation to understand how it can compete effectively
within the network. This is because a supply network approach requires operations managers to
think about their suppliers and their customers as operations. It can also help to identify
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particularly significant links within the network and hence identify long-term strategic changes
which will affect the operation.
6.2 What is involved in configuring a supply network?
There are two main issues involved in configuring the supply network. The first concerns the
overall shape of the supply network. The second concerns the nature and extent of outsourcing or
vertical integration. Changing the shape of the supply network may involve reducing the number
of suppliers to the operation so as to develop closer relationships, any bypassing or
disintermediating operations in the network. Outsourcing or vertical integration concerns the
nature of the ownership of the operations within a supply network. The direction of vertical
integration refers to whether an organization wants to own operations on its supply side or
demand side (backwards or forwards integration). The extent of vertical integration relates to
whether an organization wants to own a wide span of the stage in the supply network. The
balance of vertical integration refers to whether operations can trade with only their vertically
integrated partners or with any other organizations.
6.3 Where should an operation be located?
The stimuli which act on an organization during the location decision can be divided into supplyside and demand-side influences. Supply-side influences are the factors such as labour, land and
utility costs which change as location changes. Demand-side influences include such things as the
image of the location, its convenience for customers and the suitability of the site itself.
6.4 How much capacity should an operation plan to have?
The amount of capacity an organization will have depends on its view of current and future
demand. It is when its view of future demand is different from current demand that this issue
becomes important. When an organization has to cope with changing demand, a number of
capacity decisions need to be taken. These include choosing the optimum capacity for each site,
balancing the various capacity levels of the operation in the network, and timing the changes in
the capacity of each part of the network. Important influences on these decisions include the
concepts of economy and diseconomy of scale, supply flexibility if demand is different from that
forecast, and the profitability and cash-flow implications of capacity timing changes.
7 Chapter 7 Layout and flow
7.1 What are the basic layout types used in operations?
There are four basic layout types. They are fixed-position layout, functional layout, cell layout and
product layout.
7.2 What type of layout should an operation choose?
Partly this is influenced by the nature of the process type, which in turn depends on the volumevariety characteristics of the operation. Partly also the decision will depend on the objectives of
the operation. Cost and flexibility are particularly affected by the layout decision. The fixed and
variable costs implied by each layout differ such that, in theory, one particular layout will have the
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minimum costs for a particular volume level. However, in practice, uncertainty over the real costs
involved in layout makes it difficult to be precise on which is the minimum-cost layout.
7.3 What is layout design trying to achieve?
In addition to the conventional operations objectives which will be influenced by the layout
design, factors of importance include the length and clarity of customer, material or information
flow; inherent safety to staff and/or customers; staff comfort; accessibility to staff and customers;
the ability to coordinate management decisions; the use of space; and long-term flexibility.
7.4 How should each basic layout type be designed in detail?
In fixed-position layout the materials or people being transformed do not move but the
transforming resources move around them. Techniques are rarely used in this type of layout, but
some, such as resource location analysis, bring a systematic approach to minimizing the costs and
inconvenience of flow at a fixed-position location. In functional layout all similar transforming
resources are grouped together in the operation. The detailed design task is usually (although not
always) to minimize the distance travelled by the transformed resources through the operation.
Either manual or computer-based methods can be used to devise the detailed design. In cell
layout the resources needed for a particular class of product are grouped together in some way.
The detailed design task is to group the products or customer types such that convenient cells can
be designed around their needs. Techniques such as production flow analysis can be used to
allocate products to cells.
In product layout, the transforming resources are located in sequence specifically for the
convenience of products or product types. The detailed design of product layouts includes a
number of decisions, such as the cycle time to which the design must conform, the number of
stages in the operation, the way tasks are allocated to the stages in the line, and the arrangement
of the stages in the line. The cycle time of each part of the design, together with the number of
stages, is a function of where the design lies on the `long thin' to `short fat' spectrum of
arrangements. This position affects costs, flexibility, robustness and staff attitude to work. The
allocation of tasks to stages is called line balancing, which can be performed either manually or
through computer-based algorithms.
8 Chapter 8 Process technology
8.1 What is process technology?
Process technology is the machines, equipment or devices that help operations to create or
deliver products and services. Indirect process technology helps to facilitate the direct creation of
products and services.
8.2 How does one gain an understanding of process technologies?
Operations managers do not need to know the technical details of all technologies, but they do
need to know the answers to the following questions. What does it do? How does it do it? What
advantages does it give? What constraints does it impose? Material processing technologies
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which have had a particular impact include numerically controlled machine tools, robots,
automated guided vehicles, flexible manufacturing systems and computer-integrated
manufacturing systems. Information processing technologies which have had a particular impact
include networks, such as local-area networks (LANs), wireless LANs and wide-area networks
(WANs), the Internet, the World Wide Web and extranets. Other developments include RFID,
management information systems, decision support systems and expert systems. There are no
universally agreed classifications of customer-processing technologies, such as there are with
materials- and information-processing technologies. The way we classify technologies here is
through the nature of the interaction between customers, staff and the technology itself. Using
this classification, technologies can be categorized into those with direct customer interaction and
those which are operated by an intermediary.
8.3 How are process technologies evaluated?
All technologies should be appropriate for the activities that they have to undertake. In practice
this means making sure that the degree of automation of the technology, the scale or scalability
of the technology, and the degree of coupling or connectivity of the technology fit the volume and
variety characteristics of the operation. All technologies should be evaluated by assessing the
impact that the process technology will have on the operation's performance objectives (quality,
speed, dependability, flexibility and cost). All technologies should be evaluated financially. This
usually involves the use of some of the more common evaluation approaches, such as net present
value (NPV).
8.4 How are process technologies implemented?
Implementating process technology means organizing all the activities involved in making the
technology work as intended. The resource and process `distance' implied by the technology
implementation will indicate the degree of difficulty. It is necessary to allow for the adjustment
costs of implementation.
9 Chapter 9 People, jobs and organization
9.1 Why are people issues so important in operations management?
Human resources are any organization's and therefore any operation's greatest asset. Often, most
`human resources' are to be found in the operations function.
9.2 How do operations managers contribute to human resource strategy?
Human resource strategy is the overall long-term approach to ensuring that an organization's
human resources provide a strategic advantage. It involves identifying the number and type of
people that are needed to manage, run and develop the organization so that it meets its strategic
business objectives, and putting in place the programmes and initiatives that attract, develop and
retain appropriate staff. It involves being a strategic partner, an administrative expert, an
employee champion and a change agent.
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9.3 What forms can organization designs take?
One can take various perspectives on organizations. How we illustrate organizations says much
about our underlying assumptions of what an `organization' is. For example, organizations can be
described as machines, organisms, brains, cultures or political systems. There are an almost
infinite number of possible organizational structures. Most are blends of two or more `pure
types', such as - The U-form - The M-form - Matrix forms - The N-form.
9.4 How do we go about designing jobs?
There are many influences on how jobs are designed. These include the following: - the division of
labour - scientific management - method study - work measurement - ergonomics - behavioural
approaches, including job rotation, job enlargement and job enrichment - empowerment - teamworking, and - flexible working.
9.5 How are work times allocated?
The best-known method is time study, but there are other work measurement techniques,
including: - Synthesis from elemental data - Predetermined motion-time systems (PMTS) Analytical estimating - Activity sampling.
10 Chapter 10 The nature of planning and control
10.1 What is planning and control?
Planning and control is the reconciliation of the potential of the operation to supply products and
services, and the demands of its customers on the operation. It is the set of day-to-day activities
that run the operation on an ongoing basis. A plan is a formalization of what is intended to
happen at some time in the future. Control is the process of coping with changes to the plan and
the operation to which it relates. Although planning and control are theoretically separable, they
are usually treated together. The balance between planning and control changes over time.
Planning dominates in the long term and is usually done on an aggregated basis. At the other
extreme, in the short term, control usually operates within the resource constraints of the
operation but makes interventions into the operation in order to cope with short-term changes in
circumstances.
10.2 How do supply and demand affect planning and control?
The degree of uncertainty in demand affects the balance between planning and control. The
greater the uncertainty, the more difficult it is to plan, and greater emphasis must be placed on
control. This idea of uncertainty is linked with the concepts of dependent and independent
demand. Dependent demand is relatively predictable because it is dependent on some known
factor. Independent demand is less predictable because it depends on the chances of the market
or customer behaviour. The different ways of responding to demand can be characterized by
differences in the P:D ratio of the operation. The P:D ratio is the ratio of total throughput time of
goods or services to demand time.
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10.3 What are the activities of planning and control?
In planning and controlling the volume and timing of activity in operations, four distinct activities
are necessary: - loading, which dictates the amount of work that is allocated to each part of the
operation; - sequencing, which decides the order in which work is tackled within the operation; scheduling, which determines the detailed timetable of activities and when activities are started
and finished; - monitoring and control, which involve detecting what is happening in the
operation, replanning if necessary, and intervening in order to impose new plans. Two important
types are `pull' and `push' control. Pull control is a system whereby demand is triggered by
requests from a work centre's (internal) customer. Push control is a centralized system whereby
control (and sometimes planning) decisions are issued to work centres which are then required to
perform the task and supply the next workstation. In manufacturing, `pull' schedules generally
have far lower inventory levels than `push' schedules. The ease with which control can be
maintained varies between operations.
11 Chapter 11 Capacity planning and control
11.1 What is capacity planning and control?
It is the way operations organize the level of value-added activity which they can achieve under
normal operating conditions over a period of time. It is usual to distinguish between long-,
medium- and short-term capacity decisions. Mediumand short-term capacity management where
the capacity level of the organization is adjusted within the fixed physical limits which are set by
long-term capacity decisions is sometimes called aggregate planning and control.
Almost all operations have some kind of fluctuation in demand (or seasonality) caused by some
combination of climatic, festive, behavioural, political, financial or social factors.
11.2 How are demand and capacity measured?
Either by the availability of its input resources or by the output which is produced. Which of these
measures is used partly depends on how stable is the mix of outputs. If it is difficult to aggregate
the different types of output from an operation, input measures are usually preferred. The usage
of capacity is measured by the factors `utilization' and `efficiency'. A more recent measure is that
of overall operations effectiveness (OEE).
11.3 What are the alternative ways of coping with demand fluctuation?
Output can be kept level, in effect ignoring demand fluctuations. This will result in underutilization
of capacity where outputs cannot be stored, or the build-up of inventories where output can be
stored. Output can chase demand by fluctuating the output level through some combination of
overtime, varying the size of the workforce, using part-time staff and subcontracting. Demand can
be changed, either by influencing the market through such measures as advertising and
promotion, or by developing alternative products with a counter-seasonal demand pattern. Most
operations use a mix of all these three `pure' strategies.
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11.4 How can operations plan and control their capacity level?
Representing demand and output in the form of cumulative representations allows the feasibility
of alternative capacity plans to be assessed. In many operations, especially service operations, a
queuing approach can be used to explore capacity strategies.
11.5 How can queuing theory be used to plan capacity?
By considering the capacity decision as a dynamic decision which periodically updates the
decisions and assumptions upon which decisions are based.
12 Chapter 12 Inventory planning and control
12.1 What is inventory?
Inventory, or stock, is the stored accumulation of the transformed resources in an operation.
Sometimes the words `stock' and `inventory' are also used to describe transforming resources,
but the terms stock control and inventory control are nearly always used in connection with
transformed resources. Almost all operations keep some kind of inventory, most usually of
materials but also of information and customers (customer inventories are normally called
`queues').
12.2 Why is inventory necessary?
Inventory occurs in operations because the timing of supply and the timing of demand do not
always match. Inventories are needed, therefore, to smooth the differences between supply and
demand. There are five main reasons for keeping inventory: - to cope with random or unexpected
interruptions in supply or demand (buffer inventory); - to cope with an operation's inability to
make all products simultaneously (cycle inventory); - to allow different stages of processing to
operate at different speeds and with different schedules (de-coupling inventory); - to cope with
planned fluctuations in supply or demand (anticipation inventory); - to cope with transportation
delays in the supply network (pipeline inventory).
12.3 What are the disadvantages of holding inventory?
Inventory is often a major part of working capital, tying up money which could be used more
productively elsewhere. If inventory is not used quickly, there is an increasing risk of damage, loss,
deterioration, or obsolescence. Inventory invariably takes up space (for example, in a warehouse),
and has to be managed, stored in appropriate conditions, insured and physically handled when
transactions occur. It therefore contributes to overhead costs.
12.4 How much inventory should an operation hold?
This depends on balancing the costs associated with holding stocks against the costs associated
with placing an order. The main stock-holding costs are usually related to working capital,
whereas the main order costs are usually associated with the transactions necessary to generate
the information to place an order. The best-known approach to determining the amount of
inventory to order is the economic order quantity (EOQ) formula. The EOQ formula can be
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adapted to different types of inventory profile using different stock behaviour assumptions. The
EOQ approach, however, has been subject to a number of criticisms regarding the true cost of
holding stock, the real cost of placing an order, and the use of EOQ models as prescriptive devices.
12.5 When should an operation replenish its inventory?
Partly this depends on the uncertainty of demand. Orders are usually timed to leave a certain
level of average safety stock when the order arrives. The level of safety stock is influenced by the
variability of both demand and the lead time of supply. These two variables are usually combined
into a lead-time usage distribution. Using re-order level as a trigger for placing replenishment
orders necessitates the continual review of inventory levels. This can be time-consuming and
expensive. An alternative approach is to make replenishment orders of varying size but at fixed
time periods.
12.6 How can inventory be controlled?
The key issue here is how managers discriminate between the levels of control they apply to
different stock items. The most common way of doing this is by what is known as the ABC
classification of stock. This uses the Pareto principle to distinguish between the different values
of, or significance placed on, types of stock. Inventory is usually managed through sophisticated
computer-based information systems which have a number of functions: the updating of stock
records, the generation of orders, the generation of inventory status reports and demand
forecasts. These systems critically depend on maintaining accurate inventory records.
13 Chapter 13 Supply chain planning and control
13.1 What are supply chain management and its related activities?
Supply chain management is a broad concept which includes the management of the entire
supply chain from the supplier of raw material to the end-customer. Its component activities
include purchasing, physical distribution management, logistics, materials management and
customer relationship management (CRM).
13.2 What are the types of relationship between operations in supply chains?
Supply networks are made up of individual pairs of buyer-supplier relationships. The use of
Internet technology in these relationships has led to a categorization based on a distinction
between business and consumer partners. Business-to-business (B2B) relationships are of the
most interest in operations management terms. They can be characterized on two dimensions what is outsourced to a supplier, and the number and closeness of the relationships. Traditional
market supplier relationships are where a purchaser chooses suppliers on an individual periodic
basis. No long-term relationship is usually implied by such `transactional' relationships, but it
makes it difficult to build internal capabilities. Virtual operations are an extreme form of
outsourcing where an operation does relatively little itself and subcontracts almost all its
activities. Partnership supplier relationships involve customers forming long-term relationships
with suppliers. In return for the stability of demand, suppliers are expected to commit to high
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levels of service. True partnerships are difficult to sustain and rely heavily on the degree of trust
which is allowed to build up between partners.
Customer relationship management (CRM) is a method of learning more about customers' needs
and behaviours in order to develop stronger relationships with them. It brings together all
information about customers to gain insight into their behaviour and their value to the business.
13.3 What is the `natural' pattern of behaviour in supply chains?
Marshall Fisher distinguishes between functional markets and innovative markets. He argues that
functional markets, which are relatively predictable, require efficient supply chains, whereas
innovative markets, which are less predictable, require `responsive' supply chains. Supply chains
exhibit a dynamic behaviour known as the `bullwhip' effect. This shows how small changes at the
demand end of a supply chain are progressively amplified for operations further back in the chain.
13.4 How can supply chains be improved?
The Supply Chain Operations Reference model (SCOR) is a highly structured framework for supply
chain improvement that has been developed by the Supply Chain Council (SCC). The model uses
three well-known individual techniques turned into an integrated approach. These are: - Business
process modelling - Benchmarking performance - Best practice analysis. To reduce the `bullwhip'
effect, operations can adopt some mixture of three coordination strategies: - information-sharing:
the efficient distribution of information throughout the chain can reduce demand fluctuations
along the chain by linking all operations to the source of demand; - channel alignment: this means
adopting the same or similar decision-making processes throughout the chain to coordinate how
and when decisions are made; - operational efficiency: this means eliminating sources of
inefficiency or ineffectiveness in the chain; of particular importance is `time compression', which
attempts to increase the throughput speed of the operations in the chain. Increasingly, supply
risks are being managed as a countermeasure to their vulnerability.
14 Chapter 14 Enterprise resource planning (ERP)
14.1 What is ERP?
ERP is an enterprise-wise information system that integrates all the information from many
functions, that is needed for planning and controlling operations activities. This integration
around a common database allows for transparency.
It often requires very considerable investment in the software itself, as well as its implementation.
More significantly, it often requires a company's processes to be changed to bring them in line
with the assumptions built into the ERP software.
14.2 How did ERP develop?
ERP can be seen as the latest development from the original planning and control approach
known as materials requirements planning (MRP). Although ERP is becoming increasingly
competent at the integration of internal systems and databases, there is the even more significant
potential of integration with other organizations' ERP (and equivalent) systems. In particular, the
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use of internet-based communication between customers, suppliers and other partners in the
supply chain has opened up the possibility of web-based integration.
14.3 How should ERP systems be implemented?
Because ERP systems are designed to address problems of information fragmentation
implementation will be complex and cross organizational boundaries. There are a number of
critical success factors (CSFs) that the organization must `get right' in order for the ERP system to
work effectively. Some of these are broad, organization-wide, or strategic, factors. Others are
more project-specific, or tactical, factors.
15 Chapter 15 Lean synchronization
15.1 What is lean synchronization?
Lean synchronization is an approach to operations which tries to meet demand instantaneously
with perfect quality and no waste. It is an approach which differs from traditional operations
practices insomuch as it stresses waste elimination and fast throughput, both of which contribute
to low inventories. The ability to deliver just-in-time not only saves working capital (through
reducing inventory levels) but also has a significant impact on the ability of an operation to
improve its intrinsic efficiency. The lean synchronization philosophy can be summarized as
concerning three overlapping elements, (a) the elimination of waste in all its forms, (b) the
inclusion of all staff of the operation in its improvement, and (c) the idea that all improvement
should be on a continuous basis.
15.2 How does lean synchronization eliminate waste?
The most significant part of the lean philosophy is its focus on the elimination of all forms of
waste, defined as any activity that does not add value. Lean synchronization identifies seven types
of waste that, together, form four barriers to achieving lean synchronization. They are: waste
from irregular (non-streamlined) flow, waste from inexact supply, waste from inflexible response,
and waste from variability.
15.3 How does lean synchronization apply throughout the supply network?
Most of the concepts and techniques of lean synchronization, although usually described as
applying to individual processes and operations, also apply to the whole supply networks. The
concept of the lean supply chain has been likened to an air traffic control system, in that it
attempts to provide continuous, `real-time visibility and control' to all elements in the chain. Most
of the ideas of lean synchronization are directly applicable to all the service operations in the
supply network.
15.4 How does lean synchronization compare with other approaches?
There are other approaches that attempt to perform the same function as lean synchronization.
Two alternatives to lean synchronization as a planning and control method are the theory of
constraints (TOC), and material requirements planning (MRP). Although both TOC and MRP may
seem to be different approaches, they can be combined. The way in which they can be combined
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depends on the complexity of product structures, the complexity of product routeing, the
volume-variety characteristics of the operation and the level of control required.
16 Chapter 16 Project planning and control
16.1 What is a project?
A project is a set of activities with a defined start point and a defined end state, which pursues a
defined goal and uses a defined set of resources. All projects can be characterized by their degree
of complexity and the inherent uncertainty in the project. Project management has five stages,
four of which are relevant to project planning and control: understanding the project
environments, defining the project, planning the project, technical execution of the project (not
part of project planning and control) and project control.
16.2 Why is it important to understand the environment in which a project takes
place?
It is important for two reasons. First, the environment influences the way a project is carried out,
often through stakeholder activity. Second, the nature of the environment in which a project
takes place is the main determinant of the uncertainty surrounding it.
16.3 How are projects planned and controlled?
Projects can be defined in terms of their objectives (the end state which project management is
trying to achieve), scope (the exact range of the responsibilities taken on by project
management), and strategy (how project management is going to meet the project objectives).
16.4 What is project planning and why is it important?
Project planning involves five stages. - Identifying the activities within a project; - Estimating times
and resources for the activities; - Identifying the relationship and dependencies between the
activities; - Identifying the schedule constraints; - Fixing the schedule.
Project planning is particularly important where complexity of the project is high. The
interrelationship between activities, resources and times in most projects, especially complex
ones, is such that unless they are carefully planned, resources can become seriously overloaded at
times during the project.
16.5 What techniques can be used for project planning?
Network planning and Gantt charts are the most common techniques. The former (using either
the activity-on-arrow or activity-on-node format) is particularly useful for assessing the total
duration of a project and the degree of flexibility or float of the individual activities within the
project. The most common method of network planning is called the critical path method (CPM).
The logic inherent in a network diagram can be changed by resource constraints. Network
planning models can also be used to assess the total cost of shortening a project where individual
activities are shortened.
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16.6 What is project control and how is it done?
The process of project control involves three sets of decisions: how to monitor the project in
order to check its progress, how to assess the performance of the project by comparing
monitored observations to the project plan, and how to intervene in the project in order to make
the changes which will bring it back to plan. Enterprise Project Management systems can be used
to integrate all the information needed to plan and control projects.
17 Chapter 17 Quality management
17.1 What is quality and why is it so important?
The definition of quality used in this book defines quality as `consistent conformance to
customers' expectations'.
17.2 How can quality problems be diagnosed?
At a broad level, quality is best modelled as the gap between customers' expectations concerning
the product or service and their perceptions concerning the product or service. Modelling quality
this way will allow the development of a diagnostic tool which is based around the
perception-expectation gap. Such a gap may be explained by four other gaps: - the gap between a
customer's specification and the operation's specification; - the gap between the product or
service concept and the way the organization has specified it; - the gap between the way quality
has been specified and the actual delivered quality; - the gap between the actual delivered quality
and the way the product or service has been described to the customer.
17.3 What steps lead towards conformance to specification?
There are six steps: - define quality characteristics; - decide how to measure each of the quality
characteristics; - set quality standards for each characteristic; - control quality against these
standards; - find and correct the causes of poor quality; - continue to make improvements. Most
quality planning and control involves sampling the operations performance in some way.
Sampling can give rise to erroneous judgements which are classed as either type I or type II errors.
Type I errors involve making corrections where none are needed. Type II errors involve not
making corrections where they are in fact needed.
17.4 What is total quality management (TQM)?
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'. It is best
thought of as a philosophy that stresses the `total' of TQM and puts quality at the heart of
everything that is done by an operation. `Total' in TQM means the following: - meeting the needs
and expectations of customers; - covering all parts of the organization; - including every person in
the organization; - examining all costs which are related to quality, and getting things `right first
time'; - developing the systems and procedures which support quality and improvement; developing a continuous process of improvement.
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18 Chapter 18 Operations improvement
18.1 Why is improvement so important in operations management?
Improvement is now seen as the prime responsibility of operations management. Of the four
areas of operations management activity (operations strategy, design, planning and control, and
improvement) the focus of most operations managers has shifted from planning and control to
improvement. Furthermore all operations management activities are really concerned with
improvement in the long term. And all four activities are really interrelated and interdependent.
Also, companies in many industries are having to improve simply to retain their position relative
to their competitors. This is sometimes called the `Red Queen' effect.
18.2 What are the key elements of operations improvement?
There are many `elements' that are the building blocks of improvement approaches. The ones
described in this chapter are: - Radical or breakthrough improvement - Continuous improvement Improvement cycles - A process perspective - End-to-end processes - Radical change - Evidencebased problem-solving - Customer-centricity - Systems and procedures - Reduce process variation
- Synchronized flow - Emphasize education and training - Perfection is the goal - Waste
identification - Include everybody - Develop internal customer-supplier relationships.
18.3 What are the broad approaches to managing improvement?
What we have called `the broad approaches to improvement' are relatively coherent collections
of some of the `elements' of improvement. The four most common are total quality management
(TQM), lean, business process re-engineering (BPR) and Six Sigma. BPR is a typical example of the
radical approach to improvement. It attempts to redesign operations along customer-focused
processes rather than on the traditional functional basis. The main criticisms are that it pays little
attention to the rights of staff who are the victims of the `downsizing' which often accompanies
BPR, and that the radical nature of the changes can strip out valuable experience from the
operation. Total quality management was one of the earliest management `fashions' and has
suffered from a backlash, but the general precepts and principles of TQM are still influential. It is
an approach that puts quality (and indeed improvement generally) at the heart of everything that
is done by an operation.
Lean was seen initially as an approach to be used exclusively in manufacturing, but has become
seen as an approach that can be applied in service operations. Also lean, when first introduced
was radical, and counter-intuitive. The idea that inventories had a negative effect, and that
throughput time was more important than capacity utilization was difficult to accept by the more
traditionally minded. So, as lean ideas have been gradually accepted, we have likewise come to be
far more tolerant of ideas that are radical and/or counter-intuitive. Six Sigma is `A disciplined
methodology of defining, measuring, analysing, 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'. First popularized by Motorola, it was so named because it required that
natural variation of processes (± 3 standard deviations) should be half their specification range. In
other words, the specification range of any part of a product or service should be ± 6 times the
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standard deviation of the process. Now the definition of Six Sigma has widened beyond its
statistical origins. It should be seen as a broad improvement concept rather than a simple
examination of process variation, even though this is still an important part of process control,
learning and improvement. There are differences between these improvement approaches. Each
includes a different set of elements and therefore a different emphasis. They can be positioned on
two dimensions. The first is whether the approaches emphasize a gradual, continuous approach
to change or a more radical `breakthrough' change. The second is whether the approach
emphasizes what changes should be made or how changes should be made.
18.4 What techniques can be used for improvement?
Many of the techniques described throughout this book could be considered improvement
techniques, for example statistical process control (SPC). Techniques often seen as `improvement
techniques' are: - scatter diagrams, which attempt to identify relationships and influences within
processes; - flow charts, which attempt to describe the nature of information flow and decisionmaking within operations; - cause-effect diagrams, which structure the brainstorming that can
help to reveal the root causes of problems; - Pareto diagrams, which attempt to sort out the
`important few' causes from the `trivial many' causes; - Why-why analysis that pursues a formal
questioning to find root causes of problems.
19 Chapter 19 Risk management
19.1 What is risk management?
Risk management is about things going wrong and what operations can do to stop things going
wrong. Or, more formally, `the process which aims to help organizations understand, evaluate
and take action on all their risks with a view to increasing the probability of their success and
reducing the likelihood of failure'. It - - - - consists of four broad activities: Understanding what
failures could occur. Preventing failures occurring. Minimizing the negative consequences of
failure (called risk `mitigation'). Recovering from failures when they do occur.
19.2 How can operations assess the potential causes of, and risks from failure?
There are several causes of operations failure including design failures, facilities failure, staff
failure, supplier failure, customer failure and environmental disruption. There are three ways of
measuring failure. `Failure rates' indicate how often a failure is likely to occur. `Reliability'
measures the chances of a failure occurring. `Availability' is the amount of available and useful
operating time left after taking account of failures.
Failure over time is often represented as a failure curve. The most common form of this is the socalled `bath-tub curve' which shows the chances of failure being greater at the beginning and end
of the life of a system or part of a system. Failure analysis mechanisms include accident
investigation, product liability, complaint analysis, critical incident analysis, and failure mode and
effect analysis (FMEA).
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19.3 How can failures be prevented?
There are four major methods of improving reliability: designing out the fail points in the
operation, building redundancy into the operation, `fail-safeing' some of the activities of the
operation, and maintenance of the physical facilities in the operation. Maintenance is the most
common way operations attempt to improve their reliability, with three broad approaches. The
first is running all facilities until they break down and then repairing them, the second is regularly
maintaining the facilities even if they have not broken down, and the third is to monitor facilities
closely to try to predict when breakdown might occur. Two specific approaches to maintenance
have been particularly influential: total productive maintenance (TPM) and reliability-centred
maintenance (RCM).
19.4 How can operations mitigate the effects of failure?
Risk, or failure, mitigation means isolating a failure from its negative consequences. Risk
mitigation actions include: - Mitigation planning. - Economic mitigation. - Containment (spatial
and temporal). - Loss reduction. - Substitution.
19.5 How can operations recover from the effects of failure?
Recovery can be enhanced by a systematic approach to discovering what has happened to cause
failure, acting to inform, contain and follow up the consequences of failure, learning to find the
root cause of the failure and preventing it taking place again, and planning to avoid the failure
occurring in the future. The idea of `business continuity' planning is a common form of recovery
planning.
20 Chapter 20 Organizing for improvement
20.1 Why does improvement need organizing?
Improvement does not just happen by itself. It needs organizing, information must be gathered so
that improvement is treating the most appropriate issues, responsibility for looking after the
improvement effort must be allocated, and resources must be allocated. It must also be linked to
the organization's overall strategy. Without these decisions, it is unlikely that real improvement
will take place.
20.2 How should the improvement effort be linked to strategy?
At a strategic level, the whole purpose of operations improvement is to make operations
performance better serve its markets. Therefore there should be approximate alignment or `fit'
between an operation's performance and the requirements of its markets. In fact, improvement
should do three things to achieve this: 1 It should achieve an approximate balance between
`required market performance' and `actual operations performance'. 2 It should make this
alignment `sustainable' over time. 3 It should `move up' the line of fit, the assumption being that
high levels of market performance, achieved as a result of high levels of operations performance
are difficult for competitors to match.
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20.3 What information is needed for improvement?
It is unlikely that for any operation a single measure of performance will adequately reflect the
whole of a performance objective. Usually operations have to collect a whole bundle of partial
measures of performance. Each partial measure then has to be compared against some
performance standard. There are four types of performance standard commonly used: - historical
standards, which compare performance now against performance sometime in the past; - target
performance standards, which compare current performance against some desired level of
performance; - competitor performance standards, which compare current performance against
competitors' performance; - absolute performance standards, which compare current
performance against its theoretically perfect state. The process of benchmarking is often used as
a means of obtaining competitor performance standards.
20.4 What should be improvement priorities?
Improvement priorities can be determined by bringing together the relative importance of each
performance objective or competitive factor as judged by customers, with the performance which
the operation achieves as compared with its competition. This idea can be consolidated on an
`importance-performance matrix'. The `sandcone model' provides an alternative approach to
prioritization. It recommends that improvement should cumulatively emphasize quality,
dependability, speed, flexibility, and then cost.
20.5 How can organizational culture affect improvement?
An organization's ability to improve its operations performance depends to a large extent on its
`culture', that is `the pattern of shared basic assumptions . . . that have worked well enough to be
considered valid'. A receptive organizational culture that encourages a constant search for
improved ways to do things can encourage improvement. According to Bessant and Caffyn there
are specific abilities, behaviours and actions which need to be consciously developed if
improvement is to sustain over the long term. Many of the abilities and behaviours related to an
improvement culture relate to learning in some way. The learning process is important because it
encourages, facilitates and exploits the learning that occurs during improvement. This involves
two types of learning, single- and double-loop learning. - Single-loop learning occurs when there is
repetitive and predictable link between cause and effect. - Double-loop learning questions the
fundamental objectives, service or even the underlying culture of the operation.
20.6 What are the key implementation issues?
Improvement efforts often fail (estimates range from half to 80 per cent of programmes failing).
Included in the reasons for this are the following. - Top-management support may be lacking Senior managers may not fully understand the improvement approach - The improvement may be
`hyped up' excessively, leading to unrealistic (and therefore unrealized) expectations Implementation problems may not be anticipated. ISO 9000 and its associated family of standards
may be used to provide a structure around improvement implementation. They are concerned
with the processes and procedures that support quality. So-called `quality awards' and models
may contribute towards implementation of improvement by providing a focused structure for
organizations to assess their improvement efforts. The best known of these is probably the EFQM
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(Business Excellence Model). This is based on a nine-point model which distinguishes between the
`enablers' of quality and the `results' of quality. It is often now used as a self-certification model.
21 Chapter 21 Operations and corporate social responsibility (CSR)
21.1 What is corporate social responsibility (CSR)?
CSR is about how business takes account of its economic, social and environmental impacts in the
way it operates - maximizing the benefits and minimizing the downsides. It is the voluntary
actions that business can take, over and above compliance with minimum legal requirements, to
address both its own competitive interests and the interests of wider society. Although there are
many definitions of CSR, they usually include five `dimensions': - The environmental dimension The social dimension - The economic dimension - The stakeholder dimension - The voluntariness
dimension.
21.2 How does the wider view of corporate social responsibility influence
operations management?
The concept of corporate social responsibility permeates almost every decision taken by
operations managers. Most dramatic environmental contamination disasters are caused by
operational failure. In a broader sense, all operations management decisions have some kind of
environmental impact. Increasingly, companies are making formal reports and statements relating
to their environmental practice. Operations managers are often responsible for providing the
basic information for these reports. The environmental management system ISO 14000 is being
adopted by a wide range of organizations. Operations managers will often have to implement
these standards.
Corporate social responsibility includes understanding the effects of operations management
decisions on all stakeholder groups. Although globalization is an emotive issue, operations
managers are affected in all the decision areas by aspects of globalization. Operations managers
are at the forefront of trying to balance any costs of CSR with any benefits. This means attempting
to understand where extra expenditure will be necessary in order to adopt socially responsible
practices against the savings and/or benefits that will accrue from these same practices. Groups
that are affected by ethical management practice include the organization, the customers, staff,
suppliers, the wider community and the organization's shareholders. Some authorities claim that
CSR is meaningless if it involves nothing more than what is required by legislation, or even simple
good management.
21.3 How can operations managers analyse CSR issues?
Analysing CSR issues in difficult in the context of operations management decisions, partly
because of the complexity of those issues. Two models that were introduced in earlier chapters,
and can be used to understand how to approach CSR, are trade-off analysis (including the idea of
the efficient frontier) and risk management.
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