Transformed resource: Wood pulp, recycled paper, chemicals, etc.
Transforming resource: Paper-making machinery, staff
– Changing the physical and chemical composition of materials
– Materials processing
(a manufacturing operation)
Transformed resource: Passengers (at one port)
Transforming resource: Ship, crew
– Changing the location of passengers
– Customer processing
(a service operation)
Passengers (at destination port)
Brewery (physical composition)
Retail operations (possession)
Parcel delivery (location)
Telecoms company (location)
Massage Parlor (psychological state)
Theatre (psychological state)
Hospital (physiological state)
e.g. Supply network
Farmers / Manufacturers – Wholesalers – Restaurant – Customer
Customer books table – Orders food – Food is cooked – Food is served – Food is eaten – Bill is paid
(Transformed resources) Food, Ingredients (Transforming resources) Oven, pots, pans – (Transformation process) Ingredients are combined and cooked – (output) A restaurant dish
What are the implications of high and low?
Low: 1)Low repetition 2)Each staff member performs more of job 3) Less systemization 4)High unit costs
High: 1)High repeatability 2) Systemization 3) Capital intensive 4) Low unit costs
Variation of demand
High: 1)Anticipation 2) Flexibility needed 3) Changing capacity
Low: 1) Stable 2) Routine 3)Predictable 4)High utilization
High: 1)Complex 2)Flexible 3)Match customers needs
Low: 1)Well defined 2) Routine 3) Regular 4)Standardized
High: 1)Satisfaction governed by customer perception
2) Customer contact skills needed
Low: 1) High staff utilization 2)Low contact skills 3)Time lag between production and consumption
Actual volume (the number of customers served)
The capacity of the operation (the maximum the operation could cope with)
Seat occupation rate
e.g. with about 40 seats which is open 8 hours a day, if a customer occupied a seat for two hours on average, the capacity would be:
8 × 40 × 0.5 = 160 customers a day.
There are two important aspects to measuring variety for restaurants. The first is the range of different foods that the restaurant serves. Just count the number of different items on the menu to get an indication of this. The second is whether the restaurant will ‘customise’ food to your own preference. For example, does it serve steak well done, medium and rare? Does it allow you to choose the fillings for your sandwiches?
Possibly the easiest way to measure variation is the ratio of peak demand in a day or a week, to the lowest demand during that day or week. Again, you could try asking the restaurant manager for this information, or (if you have time) make observations throughout the day or even the week. For example, the restaurant might be up to its full capacity for part of the day but, at its quietest point, only 10 per cent full.
This is a relatively simple issue. Simply ask, ‘How much of the preparation of the food do you witness?’ It is unusual to see every aspect of food preparation – preparing the vegetables, slicing the bread, etc. But you may see food being cooked and assembled in some burger restaurants. The other way of looking at this issue is to ask yourself whether the preparation of the food is being deliberately put ‘center stage’ in the restaurant. Some restaurants have a policy of doing this so as to entertain customers while they are waiting for their food.
– Operations is holding the company back from competing
– does not contribute competitively
– it attempts to improve by avoiding mistakes
2. External neutral
– Operations begins to compare itself to ‘best practice’ I outside market
3. Internally supportive
– One of the best operations in the market
– Develop a view of competitive and strategic goals and develops appropriate operational resources to support it.
4. Externally supportive
– Driving function within the business
– Provides the foundation for competitive success
(Some would say Stage 4 doesn’t exist since ‘operations’ cannot take a leading role and drive strategy. Those taking a ‘marketing orientation’ would say operations is a supportive function which exists to deliver what the marketing requires.)
What benefits do they provide the organization with?
– customer satisfaction
– fewer mistakes made by each process reduces the cost of having to remediate problems
– increase dependability internally which leads to efficient and stable processes
– faster throughput reduces inventories
– shorter lead time and faster the throughput the later forecasting can be left which reduces risks
– saves time and reduces costs
– gives stability and predictability to operations internally so each process can concentrate on improving its own area of responsibility
(product flexibility, mix flexibility, volume flexibility, delivery flexibility)
-maintains dependability in spite of unexpected events/disruptions
(A universally attractive objective)
•the bottom-up perspective: what day-to-day experience suggests operations should do
•the market requirements perspective: what the market position requires operations to do
•the operations resources perspective: what operations resources can do.
2. Qualifying factors – may not b major competitive determinants of success but operation’s performance needs to be over a particular ‘qualifying’ level to be considered.
3. Less important factors – have little impact on customers no matter how the operation performs them.
2. Growth in market acceptance – availability
3. Maturity of market, sales level off – low price, dependability
4. Decline as market becomes saturated – Low price
the “building blocks” of the operation; they define its overall tangible shape and architecture.
The location, size and focus of operational resources. Decisions about where to locate production facilities, how large each should be, what goods or services should be produced at each location, what markets each facility should serve, etc.
2. Capacity management
The capacity of operations and their ability to respond to changes in customer demand. The use of facilities, working hours and staffing levels.
The technology of the equipment used in operations processes. For example, the degree of automation used, the configuration of equipment.
4. Supply network
The extent to which operations are conducted in-house or are sub-contracted. The choice of suppliers, their location, the extent of dependence on particular suppliers, and how relationships with suppliers are managed.
Infrastructure decision areas
Infrastructural decisions, on the other hand, affect the people, systems, and culture
1. Planning and control
The systems used for planning and controlling operations.
Quality management policies and practices.
3. Work organisation
Organisational structures, responsibilities and accountabilities in operations.
4. Human resources
Recruitment and selection, training and development, management style.
5. Performance measurement
Financial and non-financial performance management and its linkage to recognition and reward systems.
6. New product development
The systems and procedures used to develop and design new products and services.
(e.g. improve quality of teaching (hiring more qualified teachers) but also increase cost)
2. Increase the overall effectiveness of the operations to establish a new ‘efficient frontier’
(e.g. establish new classroom practices/ micro-operational improvements to increase quality but maintain cost)
3. Operational ‘focus’ – dedicating each operation to a concise, manageable set of objectives, services, products to promote increased efficiency. An ‘operation-within-an-operation’ concept allows organisations to accrue the benefits of focus without setting up independent operations.
(e.g. more ESL departments with senior teachers responsible for improving standards relevant to student’s preferences, motivations, needs)
Professional services (service)
Project processes (manufacturing)
Medium variety/medium volume
Service shops (service)
Batch processes (manufacturing)
Low variety/high volume
Mass service (service)
Continuous process (manufacturing)
– Disintermediation? Should agents be used?
– How wide is it process span? Upstream/ Downstream integration?
– Long-term capacity management?
– The shape of its network?
– Co-opetition with suppliers, customers, universities
2. Why might Kings keep parts of its supply network in-house?
Quality – Supplier may have specialized knowledge
Speed of response – Can be built into supply contract
Dependability – Late delivery penalties can be built into contract
Flexibility – Outsource suppliers may be larger wither wider capabilities
Cost – Outsources companies can achieve economies of scale
Quality – origins of quality problems are easier to trace in-house
Flexibility – easier to alert in-house operations to required changes even though they may be unable to respond
Cost – capture the profits from outsource supplier
2. – If activity is of strategic importance
– If they have specialized knowledge
– If their operations performance is superior
– If operations performance improvement is likely
– Proximity to suppliers reduces transport costs
– Land costs
– Cheaper labour costs
– Community factors (tax rates, political stability, local amenities, support services)
Demand-side (vary to influence revenue):
– More convenience for customers
– Better image for customers
– More suitable (intrinsic characteristics of site)
Identifying the criteria which will be used to evaluate the various locations and their relative importance.
e.g. Suitability of location (weighting 4)
Rate of local property (weighting 3)
Evaluating each location out of 100.
e.g. Suitability – Brighton (80) Bournemouth (70)
To find a location which minimizes transportation costs
e.g. an economical two-seat convertible sports car
package – ‘component’ products and services that provide benefits defined in the concept.
i.e. core products/ supporting goods or services
process – the way in which it will be created and delivered to the customer
e.g. R and D, focus groups with customers, ideas from staff, ideas from competitor activity, reverse engineering (taking apart competitor products in order to understand it)
Concept screening – assessing design against criteria (feasibility, acceptability, vulnerability) e.g. design funnel which reduces many options to one final design
Preliminary design – specifying the components of the package, reducing design complexity (standardization, commonality, modularization)
Design evaluation –
e.g. Value engineering – prevent unnecessary costs before producing the product/service, design is subject to rigorous scrutiny by designers, purchasing specialists, financial analysts to find any similar components that could do the same job at a lower cost
Taguchi methods – to test robustness of the design e.g. can design cope with staff shortages
Prototyping and final design
– it does not have to make such drastic improvements for each new product because it introduces new products more frequently
– sequential design stages cause delays to revenues and cash flows
– fewer development costs
– capacity planning
– facility location
– facility layout
– inventory control
– help save money in lost products
– identify location of potentially dangerous products to be recalled
– tracking data on how customers use the product after sale
•Active interaction: in which a customer interacts directly with the technology (e.g., a bank’s ATM).
•Passive interaction: in which the customer has no, or very limited, control over the technology (e.g., cinemas and moving walkways).
•Hidden interaction: in which the customer is typically unaware of the technology (e.g., security cameras and bar code scanners).
•Interaction through an intermediary: in which the customer interacts with the person (typically a representative or employee of the processing organisation) who operates the technology (e.g. call centres and travel agents).
What is the difference between planning and control?
Planning is concerned with deciding:
•what activities should take place in the operation
•when they should take place
•what resources should be allocated to them.
Control is concerned with:
•understanding what is actually happening in the operation
•deciding whether there is a significant deviation from what should be happening
•(if there is deviation) changing resources in order to affect the operation’s activities.
– Uses aggregated demand forecasts
– Determines resources in aggregated form
– Objectives set in largely financial terms
Short-term planning and control:
– Uses total disaggregated forecasts or actual demand
– Makes interventions to resources to correct deviations from plans (control)
– Ad hoc consideration of operations objectives
– slow customer responsiveness
– detailed control decisions
– high robustness (ability to deal with changes in the environment)
Demand which is relatively predictable because it is dependent upon some other factor which is known. Demand forecasting is relatively straightforward. Resource-to-order or create-to-order planning and control.
e.g. Demand for King ESL places will be derived from number of international students applying for a place at a partnering UK university
No firm visibility of customer orders. Bases planning and control on experience and understanding of the market.
Part produce to order
Produce to order
In resource-to-order planning and control, resources are obtained, produced and delivered only when orders are received. So, P = D. Reducing the P/D ratio takes some of the risk out of planning and control.
What possibilities are there for each activity?
2. Sequencing – customer priority (aggrieved or important customers served first), due date (DD), first come first served (FCFS), longest operation time (LOT) (to keep utilization high), shortest operation time (SOT) (to ease cash flow problems)
3. Scheduling – forward scheduling – doing work as soon as it is practical to do so (high labour utilization, flexible) backward scheduling – starting jobs so they are finished just before they are due (lower material costs, less exposed to risk if customer changes their mind, focuses the operation on customer due dates)
Staff rostering – staff scheduling (to ensure capacity matches demand, the length of shifts are attractive to staff, holiday dates accommodated, sufficient flexibility and robustness)
4. Monitoring and controlling
Pull control – material is moved only when the next stage wants it and requests it. Inventory cannot accumulate. Associated with JIS philosophy.
Drum, buffer, rope concept helps to decide where in a process, control should occur. Work processes are not perfectly balanced, this means there is a part which is likely to be acting as a bottleneck on the work flowing through the process. The bottleneck should be the drum (set the rhythm for the rest of the process to follow). It is sensible to keep a buffer of inventory before the drum. Communication rope is required at the drum to control prior activities and ensure activities before the bottleneck do not overproduce.
2. If output is measurable
3. If the effects of interventions into the operation are predictable
4. If there is repetition of operation activities to facilitate learning and improvement
2. Revenues – capacity levels equal or higher than demand ensure no revenue is lost
3. Working capital – producing extra inventory prior to demand has to be funded before generating revenue
4. Quality of products/services – e.g. part-time staff
5. Speed of response
7. Flexibility – especially volume flexibility
a university – number of students
a theatre – number of seats
an airline – number of seats available
a brewery – volume of fermentation tanks
Output capacity measures:
a university – number of students graduated per year
a theatre – number of customers entertained per week
an airline – number of passengers transported per week
a brewery – litres per week
design capacity = theoretical capacity of operation if everything is completely full and runs at full speed
effective capacity = design capacity minus unavoidable problems (market and technical demands of the operation)
How are the three aspects of performance associated with it measured?
OEE = a x p x q
Availability rate = total operating time / loading time
Performance rate = net operating time / total operating time
Quality rate = valuable operating time / net operating time
Total operating time – loading time minus availability losses (set-up and change overs, breakdown failure)
Net operating time – total operating time minus speed losses (slow running equipment, equipment idling)
Valuable operating time – Net operating time minus quality losses
e.g. use anticipation inventory to supply future demand
chase demand plans – adjust capacity plans to reflect demand fluctuations
demand management – attempt to change demand to fit capacity availability
– Varying the size of the workforce
– Using part-time staff
What methods can be used to try to maximize the yield from capacity?
– have relatively fixed capacity
– the service cannot be stored
– the service is sold in advance
– the marginal cost of making a sale is relatively low
– overbooking capacity
– price discounting
– varying service types (e.g. discounting, upgrading etc.)
Cycle inventory – because of batching
Decoupling inventory – inventory accumulated between two different interdependent work centres as a buffer against unevenness or breakdowns. Allows work centres to operate independently and maximize utilization and efficiency
Anticipation inventory – to compensate for seasonal demand fluctuations
Pipeline inventory – exists because material cannot be transported instantaneously between points in the warehouse
2. Incurs storage costs
3. Becomes obsolete
4. Becomes damaged or deteriorates
5. Involves administration and insurance costs
(how much to purchase of a given material/product?)
2. Price discount costs
3. Stock-out costs – lost revenue and dissatisfied customers
4. Working capital costs
5. Storage costs
6. Obsolescence costs
7. Operating inefficiency costs – JIT philosophies suggest high inventory levels prevent us from seeing the full extent of problems within the operation
Attempts to find the best balance between the advantages and disadvantages of holding stock.
Order costs – Cost of placing order, price discount costs
Holding costs – Working capital, storage, obsolescence risk costs
EOQ = √ (2CoD / Ch)
2. JIT suggests it is a reactive approach. Managers should ask “How can I change operations to reduce the overall inventory I need to hold?” instead of “What is the optimum order quantity?”
3. Cost minimization may not always be an appropriate objective for inventory management
4. The perpetual inventory principle is a common problem with all inventory systems. Any errors in recording transactions (e.g. keying errors) can lead to discrepancies between the recorded and actual inventory and these errors are perpetuated until physical stock checks are made.
Periodic – at a point in time
Usage value = usage rate x individual value
Companies should also consider:
– consequence of stock-out
– uncertainty of supply
– high obsolescence or deterioration risks
– Physical distribution management
Range of products
Quality of products
Delivery and Volume flexibility
Total cost of being supplied
Potential for innovation
Ease of doing business
Willingness to share risk
Long-term commitment to supply
– More supplier quality assurance possibilities (SQA)
– Strong relationships
– Dependency encourages commitment and effort
– Better communication and easier to collaborate on new developments
– Higher confidentiality
– More scale economies
Multi-sourcing (e.g. traditional market supply relationships)
– Purchaser can drive down price and supplier cannot exert upward pressure on prices
– Can switch sources in case of supply failure
– Wide source of knowledge and expertise
– Allows a supplier specialising in a small number of products to gain economies of scale.
– The consortium e-marketplace = several large businesses combine to create an e-marketplace controlled by the consortium
– A third-party e-marketplace = an independent party creates an unbiased, market-driven e-marketplace for buyers and sellers in an industry
What factors could cause problems?
– Trading blocs lower tariff barriers (e.g. EU)
– Improved transportation infrastructures
– Language/communication difficulties
– Risk of delays
– Cross-border taxes
– Geopolitical / operational risks
– Long-term expectations (but not permanent)
– Multiple points of contact
– Joint learning
– Few relationships (but not necessarily single sourcing)
– Information transparency
– Joint coordination
– Supply chains tend to hold far less buffer inventory
– Inventory is a ‘blanket of obscurity’
– Reducing buffer inventory reduces degree of insulation between stages and exposes problems.
– Lower-capacity utilization but no surplus production
goes into inventory
– It is possible to get closer to the ideal of ‘perfect quality and no waste’ over time.
– Respect-for-humans system
– Team-based problem solving
– Job enrichment/rotation and multi-skilling
2. Waiting time
5. L and D
6. Quality of working life (QWL)
– Kanban pull system
– Levelled or Mixed modelling scheduling – equalizing mix of products
(instead of producing 200 As, 120 Bs and 80 Cs, a steady mixed stream in the same ratio is produced AABABCAB)
– Synchronization by classifying parts as runners, repeaters, strangers
2. Use small simple machines
– more robust system
– produce smaller batches
3. Layout for smooth flow
4. Total productive maintenance (TPM)
– Process owners are encouraged to assume ownership of machines and undertake simple maintenance and repair tasks
5. Reduce setup times
– Problems are more detectable and it is easier for staff to share in management and improvement
7. Product design for process ease
– Push system
– Highly dependent on stock record data
– Fixed operations environment with fixed lead times used to calculate when materials should arrive at the next operation
– Less flexible
– Pull system
– Control of the pull between stages is achieved using cards, tokens or simple visual clues
– Decision making is largely decentralized
– Scheduling is ‘rate-based’ (output of a part per unit of time) not ‘volume-based’ (number of parts to be made in a week)
– Minimized lead times
e.g. Rolls Royce
2. Manufacturing-based approach – free from errors
3. User-based approach – fit for purpose
4. Product-based approach – precise, measurable set of characteristics
5. Value-based approach
Mismatch between customer’s expectations and operation’s own internal quality specifications.
2. Concept – specification gap
3. Quality specification – actual quality gap
4. Actual quality – communicated image gap
Mismatch between the actual product and the image portrayed through advertising campaigns
(functionality, appearance, reliability, durability, recovery, contact)
2. Decide how to measure each quality characteristic
(disaggregating quality characteristics (e.g. appearance) into measurable sub-components (e.g. colour match, surface finish, visible scratches)
3. Set quality standards
4. Control quality against standards
Where in process should checks take place?
Every product or take a sample?
5. Find and correct causes of poor quality
6. Continue to make improvements
e.g. number of blemishes visible on car
Attributes – assessed by judgment and are dichotomous, i.e. have two states (OK or not OK)
e.g. Is the colour to specification?
•organisations need to make improving quality a central and strategic part of their operations
•quality improvement is the business of everyone in the organisation
•organisations should seek to improve every aspect of everything that they do
(internal customer and internal supplier)
•the pursuit of quality improvement is a continuous and never-ending task.
TQM recognizes all costs and benefits of quality:
– Prevention costs (trying to prevent problems, failures)
– Appraisal costs (controlling quality)
– Internal failure costs (costs of scrapped parts)
– External failure costs (loss of customer goodwill)
How can they linked to business strategy?
performance against competitors (good, ok, bad) importance for customers (less important, qualifying factors, order winning factors)
Segregating competitive factors into:
Performance measures can involve different levels of aggregation:
Overall strategic objectives (broad strategic measures)
Generic operations performance measures
Disaggregated detailed performance measures (high diagnostic power and frequency of measurement)
External performance-based targets
Absolute performance targets
What are the drawbacks?
1. Internal benchmarking – Comparison with other parts of the organization
2. External benchmarking – against parts of an external organization
3. Non-competitive benchmarking – against external organizations which are not direct competitors
4. Competitive benchmarking
– Limits the organization to currently accepted methods instead of searching for ‘best practice’
– Other organization’s methods may be inappropriate
Business Process Re-engineering (BPR) – the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements.
– Organize work around outcomes of process rather than tasks which go into it.
– Check to see whether internal customers can be their own supplier rather than depending on another function of the business
– Do not separate those who do the work from those who manage it.
Continuous improvement – known as ‘kaizen’ improvements, small incremental steps, whole philosophy relying primarily on people who operate the system, its is not the rate of improvement that is important but the momentum e.g. simplifying the question sequence when booking students on courses
Improvement cycles (DMAIC cycle)
Define, Measure, Analyze, Improve, Control
– Proponents cannot agree whether it should be implemented gradually or radically
– BPR can be used an excuse to ‘downsize’ and put short-term interests of shareholders first