OM Chap02

Chapter 2 Operations performance
Source: Honda Motor Company
Slack, Chambers and Johnston, Operations Management 5th Edition Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Key teaching objectives

Why
is operations performance important in any organization?
How does the operations function incorporate all stakeholders objectives? What does top management expect from the operations function? What are the performance objectives of operations and what are the internal and external benefits which derive from excelling in each of them? How do operations performance objectives trade off against each other?.
Operations performance is vital for any organization

is no exaggeration to view operations management as being able to either make or break any business. This is not just because the operations function is large and, represents the bulk of its assets and the majority of its people, but 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.
It
How operations can affect profits

way operations management performs its activities can have a very significant effect on a business. So any organization needs some way of assessing the performance of its operations function and its operations management 3 perspectives on operations performance, from macro to micro: i how each of the organizations stakeholders may view operations performance. what top management may expect of the operations function. A common set of more detailed operations performance objectives
The
The stakeholder perspective on operations performance

are the people and groups that have a legitimate interest in the operations activities Some stakeholders are internal, (employees); others are external, (customers, society or community groups, and a companys shareholders). Some external stakeholders have a direct commercial relationship with the organization, (suppliers and customers); others do not, (industry regulators). It is a responsibility of the operations function to understand the (sometimes conflicting) objectives of its stakeholders and set its objectives accordingly.
Stakeholders
The stakeholder perspective on operations performance
Typical stakeholders performance objectives
Top managements performance objectives for operations

top management has the most immediate impact on organization performance they expect all their operations managers to contribute to the success of the organization by using its resources effectively effective operations management can give five types of advantage to the business
Advantage of effective operations management

Reducing the costs of producing products and services, and being efficient. Achieving customer satisfaction through good quality and service. Reducing the risk of operational failure, through well designed and well run operations. Reducing the amount of necessary investment to produce the required products and services by increasing the effective capacity of the operation and by being innovative. providing the basis for future innovation by learning from its experience of operating its processes.
The five operations performance objectives

Quality Being RIGHT Being FAST
Speed Dependability Flexibility Cost
Being ON TIME
Being ABLE TO CHANGE
Being PRODUCTIVE
The five operations performance objectives

B Providing error-free goods and services which are fit for their purpose- quality advantage. B Doing things fast, minimizing the time between a customer asking for goods or services and the customer receiving them in full-speed advantage. B Doing g things g on time, , so as to keep p the delivery y promises p you have made-dependability advantage. B To be able to vary or adapt the operations activities to cope with unexpected circumstances -flexibility advantage. B Doing things cheaply; that is, produce goods and services at a cost which enables them to be priced appropriately for the market -cost advantage..
Quality
Quality has several meanings. The two most common are Quality as the specification of a product or service
e.g. Lower Hurst Farm produces organic meat raised exclusively on its own farm
Quality as the conformance with which the product or service is produced

e.g. Quick-service restaurants like McDonalds may buy less expensive meat, but its conformance must be high
Quality Objective
B Quality is expectations consistent conformance to customers
inside the operation B Quality reduces costs. The fewer mistakes made by each process in the operation, the less time will be needed to correct the mistakes and the less confusion and irritation will b spread be d. B Quality increases dependability.
Quality
Irrespective of a product or services specification quality, producing it so it conforms to its specification consistently brings benefits to any operation Externally it enhances the product or service in the market, or at least avoids customer complaints Internally it brings other benefits to the operation: It prevents errors slowing down throughput speed It prevents errors causing internal unreliability and low dependability It prevents errors causing wasted time and effort, therefore saving cost
Quality
External and internal benefits
Cost Speed Dependability
Quality
On-specification products and services
Flexibility
What does Quality mean in
a hospital?
Patients receive the most appropriate treatment Treatment is carried out in the correct manner Patients are consulted and kept informed Staff are courteous, friendly and helpful
an automobile plant?
All assembly is to specification Product is reliable All parts are made to specification The product is attractive and blemish-free
a bus company?
The buses are clean and tidy The buses are quiet and fume-free The timetable is accurate and user-friendly Staff are courteous, friendly and helpful
a supermarket?
The store is clean and tidy Dcor is appropriate and attractive Goods are in good condition Staff are courteous, friendly and helpful
Speed Objective
B Speed means the elapsed time between customers requesting products or services and receiving them. B the faster the customers can have the product or service, the more likely they are to buy it, or the more they will pay for it. inside the operation B Speed reduces inventories. B Speed reduces risks. Forecasting tomorrows events is far less of a risk than forecasting next years.
Speed
Speed again has different interpretations, externally and internally Externally it means the elapsed time between a customer asking for a product or service and getting it (in a satisfactory condition) It often enhances the value of the product or service to customers Internally it brings other benefits to the operation: It helps to overcome internal problems by maintaining dependability It reduces the need to manage transformed resources as they pass through the operation, therefore saving cost
Speed
Short delivery lead-time
Quality
Flexibility
What does Speed mean in
a hospital?
The time between requiring treatment and receiving treatment is kept to a minimum The time for test results, X-rays, etc. to be returned is kept to a minimum
The time between dealers requesting a vehicle of a particular specification and receiving it is minimized The time to deliver spares to service centres is minimized
a bus company?
The time between a customer setting out on the journey and reaching his or her destination is kept to a minimum
a supermarket?
The time for the total transaction of going to the supermarket, making the purchases and returning is minimized Goods are immediately available
Dependability Objective
B Dependability means doing things in time for customers to receive their goods or services exactly when they are needed, or at least when they were promised. inside the operation B Dependability saves time. B Dependability p y saves money. y Ineffective use of time will translate into extra cost.
Dependability
Externally it enhances the product or service in the market, or at least avoids customer complaints Internally it brings other benefits to the operation: It prevents late delivery slowing down throughput speed It prevents lateness causing disruption and wasted time and effort, therefore saving cost
Dependability

Reliable delivery
Quality
Flexibility
What does Dependability mean in
a hospital?
The proportion of appointments that are cancelled is kept to a minimum Keeping appointment times Test results, X-rays, etc. are returned as promised
On-time delivery of vehicles to dealers On-time delivery of spares to service centres
a bus company?
Keeping to the published timetable at all points on the route Constant availability of seats for passengers
a supermarket?
Predictable opening hours Proportion of goods out of stock kept to a minimum Keeping to reasonable queuing times Constant availability of parking
Flexibility Objective
B Being able to change the operation in some way. B four types of flexibilities: B product/service flexibility the operations ability to introduce new or modified products and services; B mix flexibility the operations ability to produce a wide range g or mix of p products and services; ; B volume flexibility the operations ability to change its level of output or activity to produce different quantities or volumes of products and services over time; B delivery flexibility the operations ability to change the timing of the delivery of its services or products.
Flexibility enables
B Mass customization: Being able to produce a high variety of products or services.
B Normally high variety means high cost. Some companies have developed their flexibility in such a way that products and services are customized for each individual customer. Yet they manage to produce them in a high-volume, mass production manner.
B Agility: Agility is really a combination of all the five performance objectives, but particularly flexibility and speed.
B Agility means responding to market requirements by producing new and existing products and services fast and flexibly.
inside the operation B Flexibility speeds up response. Fast service often depends on the operation being flexible B Flexibility saves time B Flexibility maintains dependability. Internal flexibility can also help p to keep p the operation p on schedule when unexpected events disrupt the operations plans.
Flexibility
Flexibility has several distinct meanings but is always associated with an operations ability to change
Change what ?
The products and services it brings to the market Product/service
flexibility
The mix of products and services it produces at any one time Mix
flexibility
The volume of products and services it produces Volume flexibility The delivery time of its products and services Delivery flexibility
Flexibility

Reliable delivery
Quality
Flexibility
Frequent new products/services Wide range Volume and delivery changes
What does Flexibility mean in
a hospital?
Introducing new treatments Providing a wide range of treatments The ability to adjust the number of patients treated The ability to reschedule appointments
The introduction of new models A wide range of options The ability to adjust the number of vehicles manufactured The ability to reschedule manufacturing priorities
a bus company?
The introduction of new routes and excursions A large number of locations served The ability to adjust the frequency of services The ability to reschedule trips
a supermarket?
The introduction of new lines A wide range of goods stocked The ability to adjust the number of customers served The ability to get out-of-stock items
Cost Objective
B Every euro or dollar removed from an operations cost base is a further euro or dollar added to its profits. B The ways in which operations management can influence cost will depend largely on where the operation costs are incurred. B The operation will spend its money on staff (the money spent t on employing l i people), l ) f ilities technology facilities, t h l and d equipment (the money spent on buying, caring for, operating and replacing the operations hardware) and materials (the money spent on the bought-in materials consumed or transformed in the operation)..
What does Cost mean in
a hospital?
Bought-in materials and services
Technology and facilities costs
Staff costs
Technology and facilities costs Staff costs
a bus company?
Bought-in Bought in materials and services Staff costs
Technology and facilities costs
a supermarket?
Technology and facilities costs Staff costs
Keeping operations costs down

B The measure that is most frequently used to indicate how successful an operation is at doing this is productivity. B Productivity is the ratio of what is produced by an operation to what is required to produce it.
Productivity
Improving productivity
B One obvious way of improving an operations productivity is to reduce the cost of its inputs while maintaining the level of its outputs. This means reducing the costs of some or all of its transformed and transforming resource inputs. B Productivity can also be improved by making better use of the inputs to the operation B All operations are increasingly concerned with cutting out waste, whether it is waste of materials, waste of staff time, or waste through the under-utilization of facilities
Cost reduction through internal effectiveness

B All performance objectives affect cost. B One important way to improve cost performance is to improve the performance of the other operations objectives. B High-quality operations do not waste time or effort. B Fast operations reduce the level of in-process inventory y between and within p processes, , as well as reducing administrative overheads. B Dependable operations eliminate wasteful disruption and allows the other micro-operations to operate efficiently. B Flexible operations adapt to changing circumstances quickly and without disrupting the rest of the operation.

B Each of the various performance objectives has several internal effects, but all of them affect cost.
Polar diagrams Polar diagrams are used to indicate the relative importance of each performance objective to an operation or process They can also be used to indicate the difference between different products and services produced by an operation or process
Polar diagrams for a taxi service versus a bus service

Taxi service Bus service
Cost
Speed p
Dependability p y
Quality
Flexibility
Polar diagrams for a proposed police performance method

Required performance Reassurance Actual performance
Efficiency
Crime reduction
Working with criminal justice agencies
Crime detection
trade-off between performance objectives: Improving one performance objective might only be achieved by sacrificing the performance of another Two views of trade-offs: Repositioning performance objectives by trading off improvements in some objectives for a reduction in performance f i others. in thers Increasing the effectiveness by overcoming trade-offs so that improvements in one or more aspects can be achieved without any reduction in the of others. Most businesses at some time or other will adopt both approaches through the concept of the efficient frontier
Trade-offs and the efficient frontier

Operations A, B, C, D have all chosen a different balance between variety and cost efficiency. None is dominated by any other operation Operation X, however, has an inferior performance because operation A is able to offer higher variety at the same level of cost efficiency and operation C offers the same variety i t but b t with ith better b tter cost t efficiency. fficiency The convex line on which operations A, B, C and D lie is known as the efficient frontier.
Trade-offs and the efficient frontier

Operations on the efficient frontier will generally also want to improve their operations effectiveness by overcoming the trade-off that is implicit in the efficient frontier curve. operation B can improve both its variety and its cost efficiency simultaneously and move to position B1 through operations improvements This distinction between positioning on the efficient frontier and increasing operations effectiveness by extending the frontier is an important issue Any business must make clear the extent to which it is expecting the operation to reposition itself in terms of its performance objectives and the extent to which it is expecting the operation to improve its effectiveness.
Key Terms Test

The four-stage model of operations contribution A model devised by Hayes and Wheelwright that categorizes the degree to which operations management has a positive influence on overall strategy. Quality There are many different approaches to defining this. We define it as consistent conformance to customers expectations. Speed The elapsed time between customers requesting products or services and receiving them.
Key Terms Test

Dependability Delivering, or making available, products or services when they were promised to the customer. Flexibility The degree to which an operations process can change what it does, how it is doing it, or when it is doing it. Product/service flexibility The operations ability to introduce new or modified products and services.
Key Terms Test

Mix flexibility The operations ability to produce a wide range of products and services. Volume flexibility The operations ability to change its level of output or activity to produce different quantities or volumes of products and services over time. Delivery flexibility The operations ability to change the timing of the delivery of its services or products.
Key Terms Test

Mass customization The ability to produce products or services in high volume, yet vary their specification to the needs of individual customers or types of customer. Agility The ability of an operation to respond quickly and at low cost as market requirements change. Productivity The ratio of what is produced by an operation or process to what is required to produce it, that is, the output from the operation divided by the input to the operation.

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Chapter 2 Operations performance

Source: Honda Motor Company

Key teaching objectives

is operations performance important in any organization?

Operations performance is vital for any organization

How operations can affect profits

The stakeholder perspective on operations performance

The stakeholder perspective on operations performance

Typical stakeholders performance objectives

Top managements performance objectives for operations

Advantage of effective operations management

The five operations performance objectives

Speed Dependability Flexibility Cost

Being ABLE TO CHANGE

The five operations performance objectives

Quality as the conformance with which the product or service is produced

What does Quality mean in

What does Quality mean in

What does Quality mean in

What does Quality mean in

Cost Speed Dependability

What does Speed mean in

What does Speed mean in

What does Speed mean in

What does Speed mean in

Cost Speed Dependability

What does Dependability mean in

What does Dependability mean in

On-time delivery of vehicles to dealers On-time delivery of spares to service centres

What does Dependability mean in

What does Dependability mean in

Cost Speed Dependability

Frequent new products/services Wide range Volume and delivery changes

What does Flexibility mean in

What does Flexibility mean in

What does Flexibility mean in

What does Flexibility mean in

What does Cost mean in

Bought-in materials and services

Technology and facilities costs

What does Cost mean in

Bought-in materials and services

Technology and facilities costs Staff costs

What does Cost mean in

Bought-in Bought in materials and services Staff costs

Technology and facilities costs

What does Cost mean in

Bought-in materials and services

Technology and facilities costs Staff costs

Keeping operations costs down

Cost reduction through internal effectiveness

Cost reduction through internal effectiveness

Cost reduction through internal effectiveness

Cost reduction through internal effectiveness

Polar diagrams for a taxi service versus a bus service

Polar diagrams for a proposed police performance method

Working with criminal justice agencies

Trade-offs and the efficient frontier

Trade-offs and the efficient frontier

Key Terms Test

Key Terms Test

Key Terms Test

Key Terms Test