Chapter 8
Production and operations
management
Chapter 11: Strategic Leadership
Learning outcomes
• Explain what is meant by the term ‘operations
management’
• Understand some of the basic concepts of
operations management
• Understand the relationship between operations
and strategy
• Explain the roles of operations within strategy
• Understand the concept of planning operations
capacity
• Understand the importance of product design
and transformation process design
Chapter 11: Strategic Leadership
Learning outcomes
(continued)
• Understand the concept of quality management
• Explain the cost-of-quality concept
• Understand the importance of inventory
management within operations management
• Understand the most recent operations
management approaches and philosophies
• Understand the importance of operations
management in the services environment
Chapter 11: Strategic Leadership
Key terms
Capacity planning
Lead time
Concurrent engineering
Manufacturability
Continuous improvement
Operations management
Control
Quality assurance
Customer involvement
Environmentally friendly
Quality function deployment
(QFD)
Flexibility
Stock-keeping unit (SKU)
Inventory
Supply chain operating
Inventory management
reference (SCOR) model
Job shops
Total quality management (TQM)
Just-in-time (JIT)
Transformation process
Work-in-process (WIP)
Chapter 11: Strategic Leadership
Outline
• Introduction
• Strategic and planning concepts
• Quality management
• Inventory management
• Current approaches and philosophies
• Operations management in the service sector
• Conclusion
Chapter 11: Strategic Leadership
Introduction
• Operations management is the decisions made
about the operations function and the
management of the transformation process to
ensure that value is provided to the customer at
a cost that will ensure a profit to the company’s
shareholders
• Four types of decisions:
• Process
• Quality
• Capacity
• Inventory
Chapter 11: Strategic Leadership
Introduction (continued)
Chapter 11: Strategic Leadership
Introduction (continued)
• Five core management processes:
• Plan: balancing demand and supply
• Source: acquiring inputs
• Make: transforming into products
• Deliver: managing and filling customer orders
• Return: from customer or to suppliers
Chapter 11: Strategic Leadership
Outline
• Introduction
• Strategic and planning concepts
• Quality management
• Inventory management
• Current approaches and philosophies
• Operations management in the service sector
• Conclusion
Chapter 11: Strategic Leadership
Strategic and planning
concepts
• Two types of strategy decisions relate to
operations:
• Structural decisions include:
• Facilities
• Capacity
• Process technology
• Supply network
• Infrastructural decisions include:
• Planning and control
• Quality
• Human resources
• New product development
• Performance measurement
Chapter 11: Strategic Leadership
Strategic and planning
concepts (continued)
• Five positioning decisions lead to operations
objectives:
• Quality: doing things right
• Speed: doing things fast
• Dependability: doing things on time
• Flexibility: changing what you do
• Cost: doing things cheap
• Excelling in one or more of these performance
objectives is critical to obtain a competitive
advantage.
• Excelling at most of these objectives is costly
and does not provide competitive advantages in
Chapter 11: Strategic
allLeadership
industries.
Strategic and planning
concepts (continued)
Capacity planning can be broadly defined as:
‘ . . . the process of determining the production
capacity needed by an organisation to meet
changing demands for its products. In the
context of capacity planning, capacity is the
maximum amount of work that an organisation
is capable of completing in a given period of
time.’ (Wikipedia, 2008)
Chapter 11: Strategic Leadership
Strategic and planning
concepts (continued)
Three capacity planning strategies:
Chapter 11: Strategic Leadership
Strategic and planning
concepts (continued)
• Concurrent engineering is a term used to
describe the process of collective product
design by all affected functions in an
organisation.
• A product is designed for:
• Manufacturability
• Procurement
• Storage and transport
• Environmental friendliness
Chapter 11: Strategic Leadership
Strategic and planning
concepts (continued)
• Quality function deployment is a planning tool
used to fulfil customer expectations through a
disciplined approach to:
• product design;
• engineering; and
• production.
• It provides in-depth evaluation of a product, with
the focus remaining on integrating the
customer’s specifications and quality
requirements throughout the product design
process.
Chapter 11: Strategic Leadership
Strategic and planning
concepts (continued)
• Four criteria need to be considered when
designing the transformation process:
• Flexibility: adjusting for customer requirements
• Technology: an enabling factor
• Customer involvement: ensuring customer satisfaction
• Supply chain configuration: location, partner
relationships and complexity
Chapter 11: Strategic Leadership
Strategic and planning
concepts (continued)
• Competitive criteria inform the decision as to
which of the following four types of
transformation processes should be deployed:
• Job shops
• Batch processes
• Repetitive processes
• Continuous flow processes
Chapter 11: Strategic Leadership
Strategic and planning
concepts (continued)
The purpose of planning and control is to make
decisions to ensure that operations run effectively
and make the correct products:
• in the appropriate quantities;
• at the appropriate time; and
• at the appropriate level of quality.
Chapter 11: Strategic Leadership
Strategic and planning
concepts (continued)
• Planning and control activities are:
• Strategic operations planning
• Aggregate planning
• Master production schedule
• Activity scheduling
• Expediting
• Timescales play a significant role in planning
and control activities:
Chapter 11: Strategic Leadership
Outline
• Introduction
• Strategic and planning concepts
• Quality management
• Inventory management
• Current approaches and philosophies
• Operations management in the service sector
• Conclusion
Chapter 11: Strategic Leadership
Quality management
• Four stages can be identified in the progression
of the concept of quality:
• Quality inspection: verifying final quality
• Quality control: inspection and corrective action
• Quality assurance: quality planned and designed
• Total quality management (TQM): company-wide quality
focus
• The cost of quality has four components:
• Internal failure cost: inside the company
• External failure cost: at the customer
• Appraisal cost: detecting defects
• Prevention cost: preventing defects
Chapter 11: Strategic Leadership
Quality management
(continued)
Chapter 11: Strategic Leadership
Quality Management
(continued)
Chapter 11: Strategic Leadership
Outline
• Introduction
• Strategic and planning concepts
• Quality management
• Inventory management
• Current approaches and philosophies
• Operations management in the service sector
• Conclusion
Chapter 11: Strategic Leadership
Inventory management
• Inventory refers to material resources that are
stored for usage at a later stage either through
transformation from a raw to a finished state, or
through use in the current state.
• Different categories of inventory:
• Raw materials inventory
• Work-in-process inventory
• Finished goods inventory
• Inventory management aims to optimise three
targets:
• Customer service
• Operating costs
• Inventory costs
Chapter 11: Strategic Leadership
Outline
• Introduction
• Strategic and planning concepts
• Quality management
• Inventory management
• Current approaches and philosophies
• Operations management in the service sector
• Conclusion
Chapter 11: Strategic Leadership
Current approaches and
philosophies
• Just in time (JIT)
• Started in Toyota manufacturing plants
• Aims at reducing or eliminating all waste from
inventory in the transformation process
• Lean systems
• Similar to JIT
• Focus is on the total business, not only production
• Theory of constraints
• Focus attention on the one bottleneck that limits a
system’s ability to maximise throughput
• Total quality management
• Putting quality as the major differentiating factor
Chapter 11: Strategic Leadership
Outline
• Introduction
• Strategic and planning concepts
• Quality management
• Inventory management
• Current approaches and philosophies
• Operations management in the
service sector
• Conclusion
Chapter 11: Strategic Leadership
Operations management in
the service sector
• Most principles applicable to production
environment, but service sector is increasing in
importance
• The characteristics of service include:
• Intangibility: non-physical
• Inconsistency: quality dependent on ability
• Inseparability of customer from provider
• Inventory: service cannot be stored
• Challenge is to transfer and apply the
operations management principles to the
service environment
Chapter 11: Strategic Leadership
Outline
• Introduction
• Strategic and planning concepts
• Quality management
• Inventory management
• Current approaches and philosophies
• Operations management in the service sector
• Conclusion
Chapter 11: Strategic Leadership
Conclusion
• It is important for the logistics manager to
understand:
• The influence that production and operations have on
the logistics system
• The influence that the logistics system have on
production and operations
• A company needs to find a balance between the
efficiencies of both in order to optimise the total
system and not of each in isolation.
Chapter 11: Strategic Leadership