Week 5 Discussion
Shravan
alistair_brandon-jones_nigel_slack_robert_johnston-operations_management-pearson_2016.pdf
OPEraTiOns ManagEMEnT
A01_SLAC8678_08_SE_FM.indd 1 06/02/16 8:30 PM
At Pearson, we have a simple mission: to help people make more of their lives through learning.
We combine innovative learning technology with trusted content and educational expertise to provide engaging and e�ective learning experiences that serve people wherever
and whenever they are learning.
From classroom to boardroom, our curriculum materials, digital learning tools and testing programmes help to
educate millions of people worldwide - more than any other private enterprise.
Every day our work helps learning flourish, and wherever learning flourishes, so do people.
To learn more please visit us at www.pearson.com/uk
A01_SLAC8678_08_SE_FM.indd 2 06/02/16 8:30 PM
OPERATIONS MANAGEMENT Eighth edition
nigel slack alistair Brandon-Jones robert Johnston
A01_SLAC8678_08_SE_FM.indd 3 06/02/16 8:30 PM
Pearson Education Limited Edinburgh Gate Harlow CM20 2JE United Kingdom Tel: +44 (0)1279 623623 Web: www.pearson.com/uk
First published under the Pitman Publishing imprint 1995 (print) Second edition (Pitman Publishing) 1998 (print) Third edition 2001 (print) Fourth edition 2004 (print) Fifth edition 2007 (print) Sixth edition 2010 (print) Seventh edition 2013 (print and electronic) Eighth edition published 2016 (print and electronic)
© Nigel Slack, Stuart Chambers, Christine Harland, Alan Harrison, Robert Johnston 1995, 1998 (print) © Nigel Slack, Stuart Chambers, Robert Johnston 2001, 2004, 2007, 2010 (print) © Nigel Slack, Alistair Brandon-Jones, Robert Johnston 2013, 2016 (print and electronic)
The rights of Nigel Slack, Alistair Brandon-Jones and Robert Johnston to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.
The print publication is protected by copyright. Prior to any prohibited reproduction, storage in a retrieval system, distribution or transmission in any form or by any means, electronic, mechanical, recording or otherwise, permission should be obtained from the publisher or, where applicable, a licence permitting restricted copying in the United Kingdom should be obtained from the Copyright Licensing Agency Ltd, Barnard’s Inn, 86 Fetter Lane, London EC4A 1EN.
The ePublication is protected by copyright and must not be copied, reproduced, transferred, distributed, leased, licensed or publicly performed or used in any way except as specifically permitted in writing by the publisher, as allowed under the terms and conditions under which it was purchased, or as strictly permitted by applicable copyright law. Any unauthorised distribution or use of this text may be a direct infringement of the authors’ and the publisher’s rights and those responsible may be liable in law accordingly.
All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners.
Pearson Education is not responsible for the content of third-party internet sites.
ISBN: 978 1 292 09867 8 (print) 978 1 292 09871 5 (PDF) 978 1 292 17190 6 (ePub)
British Library Cataloguing-in-Publication Data A catalogue record for the print edition is available from the British Library
Library of Congress Cataloging-in-Publication Data A catalog record for the print edition is available from the Library of Congress
10 9 8 7 6 5 4 3 2 1 20 19 18 17 16
Cover image © Karin Hildebrand Lau / Alamy Stock Photo
Print edition typeset in 9.25/12 Charter ITC Std by 76 Printed in Slovakia by Neografia
NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION
A01_SLAC8678_08_SE_FM.indd 4 06/02/16 8:30 PM
v
Guide to ‘operations in practice’, examples, short cases and case studies xii
Preface xvi
To the Instructor. . . xviii
To the Student. . . xix
Ten steps to getting a better grade in operations management xx
About the authors xxi
Acknowledgements xxii
Publisher’s acknowledgements xxiv
Part One DirECTing ThE OPEraTiOn 3 1 Operations management 4
2 Operations performance 38
3 Operations strategy 74
4 Product and service innovation 109
5 The structure and scope of operations 140
Supplement to Chapter 5 — Forecasting 170
Part Two DEsigning ThE OPEraTiOn 181 6 Process design 182
7 Layout and flow 216
8 Process technology 246
9 People in operations 276
Supplement to Chapter 9 — Work study 306
Part Three DELivEr 315 10 Planning and control 317
11 Capacity management 350
Supplement to Chapter 11 — Analytical queuing models 391
12 Supply chain management 398
13 Inventory management 432
14 Planning and control systems 468
Supplement to Chapter 14 — Materials requirements planning (MRP) 491
15 Lean operations 498
Part Four DEvELOPMEnT 531 16 Operations improvement 532
17 Quality management 572
Supplement to Chapter 17 — Statistical process control 603
18 Managing risk and recovery 616
19 Project management 646
Notes on chapters 681 Useful websites 689 Glossary 691 Index 704
Brief contents
A01_SLAC8678_08_SE_FM.indd 5 06/02/16 8:30 PM
A01_SLAC8678_08_SE_FM.indd 6 06/02/16 8:30 PM
This page intentionally left blank
vii
How is operations performance judged at an operational level? 48
How can operations performance be measured? 63
How do performance objectives trade off against each other? 66
Summary answers to key questions 68 Case study : Operations objectives at the
Penang Mutiara 70 Problems and applications 72 Selected further reading 73
Chapter 3: Operations strategy 74 Introduction 74
What is strategy and what is operations strategy? 76
What is the difference between a ‘top-down’ and ‘bottom-up’ view of operations strategy? 80
What is the difference between a ‘market requirements’ and an ‘operations resources’ view of operations strategy? 84
How can operations strategy form the basis for operations improvement? 92
How can an operations strategy be put together? The process of operations strategy 98
Summary answers to key questions 102 Case study : McDonald's: half a century
of growth 104 Problems and applications 107 Selected further reading 108
Chapter 4: Product and service innovation 109 Introduction 109
What is product and service innovation? 110 What is the strategic role of product
and service innovation? 114 What are the stages of product and
service innovation? 119 What are the benefits of interactive
product and service innovation? 130 Summary answers to key questions 134
Contents
Guide to ‘operations in practice’, examples, short cases and case studies xii Preface xvi To the Instructor. . . xviii To the Student. . . xix Ten steps to getting a better grade in operations management xx About the authors xxi Acknowledgements xxii Publisher’s acknowledgements xxiv
Part One
DirECTing ThE OPEraTiOn 3
Chapter 1: Operations management 4 Introduction 4
What is operations management? 5 Why is operations management important
in all types of organization? 8 What is the input–transformation–output
process? 13 What is the process hierarchy? 19 How do operations and processes differ? 22 What do operations managers do? 27 Summary answers to key questions 31 Case study : Design house partnerships at
Concept Design Services 33 Problems and applications 36 Selected further reading 36
Chapter 2: Operations performance 38 Introduction 38
Why is operations performance vital in any organization? 39
How is operations performance judged at a societal level? 41
How is operations performance judged at a strategic level? 46
A01_SLAC8678_08_SE_FM.indd 7 06/02/16 8:30 PM
viii
Case study: Developing ‘Savory Rosti-crisps’ at Dreddo Dan’s 136
Problems and applications 138 Selected further reading 139
Chapter 5: The structure and scope of operations 140 Introduction 140
What do we mean by the ‘structure’ and ‘scope’ of operations’ supply networks? 141
What configuration should a supply network have? 145
How much capacity should operations plan to have? 149
Where should operations be located? 154 How vertically integrated should an
operation’s network be? 156 How do operations decide what to do
in-house and what to outsource? 161 Summary answers to key questions 164 Case study: Aarens Electronic 166 Problems and applications 168 Selected further reading 169
Supplement to Chapter 5: Forecasting 170 Introduction 170
Forecasting – knowing the options 170 In essence forecasting is simple 171 Approaches to forecasting 172 Selected further reading 178
Summary answers to key questions 211 Case study: The Action Response Applications
Processing Unit (ARAPU) 212 Problems and applications 214 Selected further reading 214
Chapter 7: Layout and flow 216 Introduction 216
What is layout and how can it influence performance? 217
What are the basic layout types used in operations? 220
How does the appearance of an operation affect its performance? 231
How should each basic layout type be designed in detail? 234
Summary answers to key questions 240 Case study: The event hub 241 Problems and applications 244 Selected further reading 244
Chapter 8: Process technology 246 Introduction 246
What is process technology? 247 What do operations managers need to
know about process technology? 251 How are process technologies evaluated? 258 How are process technologies
implemented? 264 Summary answers to key questions 271 Case study: Rochem Ltd 272 Problems and applications 274 Selected further reading 274
Chapter 9: People in operations 276 Introduction 276
Why are people so important in operations management? 277
How do operations managers contribute to human resource strategy? 279
How can the operations function be organized? 281
How do we go about designing jobs? 286 How are work times allocated? 300 Summary answers to key questions 301 Case study: Grace faces (three) problems 302
Part Two
DEsigning ThE OPEraTiOn 181
Chapter 6: Process design 182 Introduction 182
What is process design? 183 What should be the objectives of
process design? 185 How do volume and variety affect
process design? 189 How are processes designed in detail? 195
A01_SLAC8678_08_SE_FM.indd 8 06/02/16 8:30 PM
ix
Problems and applications 304 Selected further reading 305
Supplement to Chapter 9: Work study 306 Introduction 306
Method study in job design 306 Work measurement in job design 309
Supplement to Chapter 11: analytical queuing models 391 Introduction 391
Notation 391 Variability 391 Incorporating Little’s law 393 Types of queuing system 393
Chapter 12: supply chain management 398 Introduction 398
What is supply chain management? 399 How should supply chains compete? 402 How should relationships in supply chains
be managed? 407 How is the supply side managed? 412 How is the demand side managed? 419 What are the dynamics of supply chains? 423 Summary answers to key questions 426 Case study: Supplying fast fashion 428 Problems and applications 430 Selected further reading 431
Chapter 13: inventory management 432 Introduction 432
What is inventory? 434 Why should there be any inventory? 437 How much to order? The volume decision 442 When to place an order? The timing decision 452 How can inventory be controlled? 458 Summary answers to key questions 463 Case study: supplies4medics.com 465 Problems and applications 466 Selected further reading 467
Chapter 14: Planning and control systems 468 Introduction 468
What are planning and control systems? 469 What is enterprise resource planning and
how did it develop into the most common planning and control system? 475
How should planning and control systems be implemented? 483
Summary answers to key questions 486
DELivEr 315
Chapter 10: Planning and control 317 Introduction 317
What is planning and control? 318 What is the difference between planning
and control? 319 How do supply and demand affect planning
and control? 321 What are the activities of planning and control? 327 Summary answers to key questions 345 Case study: subText Studios Singapore 346 Problems and applications 348 Selected further reading 349
Chapter 11: Capacity management 350 Introduction 350
What is capacity management? 351 How are demand and capacity
measured? 354 How should the operation’s base capacity
be set? 364 What are the ways of coping with
mismatches between demand and capacity? 366
How can operations understand the consequences of their capacity decisions? 373
Summary answers to key questions 382 Case study: Blackberry Hill Farm 384 Problems and applications 388 Selected further reading 389
Part Three
A01_SLAC8678_08_SE_FM.indd 9 06/02/16 8:30 PM
x
Case study: Psycho Sports Ltd 487 Problems and applications 489 Selected further reading 490
Supplement to Chapter 14: Materials requirements planning (MrP) 491 Introduction 491
Master production schedule 491 The bill of materials (BOM) 492 Inventory records 494 The MRP netting process 494 MRP capacity checks 497 Summary 497
Chapter 15: Lean operations 498 Introduction 498
What is lean? 499 How does lean eliminate waste? 506 How does lean apply throughout the
supply network? 519 How does lean compare with other
approaches? 521 Summary answers to key questions 524 Case study: Saint Bridget’s Hospital 525 Problems and applications 527 Selected further reading 528
Summary answers to key questions 566 Case study: Reinventing Singapore’s
libraries 568 Problems and applications 569 Selected further reading 570
Chapter 17: Quality management 572 Introduction 572
What is quality and why is it so important? 573
What steps lead towards conformance to specification? 580
What is total quality management (TQM)? 587 Summary answers to key questions 597 Case study: Turnaround at the
Preston plant 599 Problems and applications 601 Selected further reading 602
Supplement to Chapter 17: statistical process control 603 Introduction 603
Control charts 603 Variation in process quality 604 Control charts for attributes 608 Control chart for variables 610 Summary of supplement 615 Selected further reading 615
Chapter 18: Managing risk and recovery 616 Introduction 616
What is risk management? 617 How can operations assess the
potential causes and consequences of failure? 619
How can failures be prevented? 632 How can operations mitigate the effects
of failure? 637 How can operations recover from the
effects of failure? 639 Summary answers to key questions 642 Case study: Slagelse Industrial
Services (SIS) 643 Problems and applications 645 Selected further reading 645
Part Four DEvELOPMEnT 531
Chapter 16: Operations improvement 532 Introduction 532
Why is improvement so important in operations management? 533
What are the key elements of operations improvement? 540
What are the broad approaches to improvement? 545
What techniques can be used for improvement? 554
How can the improvement process be managed? 559
A01_SLAC8678_08_SE_FM.indd 10 06/02/16 8:30 PM
xi
Chapter 19: Project management 646 Introduction 646
What is project management? 647 How are projects planned? 653 How are projects controlled? 669 Summary answers to key questions 674 Case study: United Photonics Malaysia Sdn Bhd 675
Problems and applications 679 Selected further reading 680
Notes on chapters 681
Useful websites 689
Glossary 691
Index 704
A01_SLAC8678_08_SE_FM.indd 11 06/02/16 8:30 PM
xii
guide to ‘operations in practice’, examples, short cases and case studies
Chapter Location Company/example Region Sector/activity Company size
1 Operations management
Lego Europe Manufacturing Large Torchbox UK Web design Small MSF Global Charity Large Pret a Manger Global Hospitality Medium Formule 1 Europe Hospitality Large Ski Verbier Exclusive Europe Hospitality Small Hewlet Packard Manufacturing Large To be a great operations manager…
Global N/A N/A
Concept design services General Design/manufactur- ing/distribution
Medium
2 Operations performance
Novozymes Europe Pharmaceutical Large Patagonia Global Garments Large Holcim Global Cement/aggregates Large Quality Street Global Confectionary Large The Golden Hour General Healthcare N/A UPS Global Distribution Large Mymusli German Web retail Small Aldi Europe Retail Large Foxconn Taiwan Manufacturing Large
The Penang Mutiara Malaysia Hospitality Medium
3 Operations strategy
SSTL UK/ Space Aerospace Medium Apple retail Global Retail Large Amazon Global Web retail Large Apple supply operations Global Manufacturing Large Nokia Global Telecomm Large Sometimes any plan is better than no plan
Europe Military Large
McDonalds Global Hospitality Large
4 Product and service innova- tion
Apple iPhone Global Design Large Kodak Global Manufacturing Smaller Square watermelons Global Agriculture Various IKEA Global Design/ Retail Large Dyson Global Manufacturing Large The circular economy Global Sustainability Various Dreddo Dan’s Global Snack food Large
A01_SLAC8678_08_SE_FM.indd 12 06/02/16 8:30 PM
xiii
Chapter Location Company/example Region Sector/activity Company size
5 The structure and scope of operations
ARM and Intel Global Design and Design/ manufacturing
Large
Hollywood studios USA Creative Large Surgery and shipping India/Global Healthcare/transporta-
tion Large
Counting clusters Various Various Various HTC Taiwan Design/manufacturing Large Samsun Korea Manufacturing Large Aarens Electronic Netherlands Manufacturing Medium
6 Process design
Changi airport Singapore Air travel Large Fast food Global Hospitality Large Ecover Europe Manufacturing Large Sands Film Studio UK Creative Small Space4 housing UK Construction Medium Sainsbury ’s UK Retail Large
Shouldice hospital Canada Healthcare Small
Action response UK Charity Small
7 Layout and flow
Volkswagen Germany Manufacturing Large Google USA Technology Large Factory flow helps surgery UK Healthcare Medium Apple’s shop UK Retail Large Cadbury ’s UK Manufacturing/ enter-
tainment Large
Nestlé Global Manufacturing Large
Office cubicles Various Design Various
Zodiac France / Global
Manufacturing Medium
The Event Hub UK Policing Medium
8 Process technology
I Robot Global Various Various Technology or people? Various Various Various QB house Asia Hairdressing Medium Marmite UK Food Large Technology failures UK Technology Large
Who’s in the cockpit? Global Various Airlines Various
Rochem UK Food processing Medium
9 People in operations
W L Gore Global Manufacturing Large High customer contact jobs USA Air travel Large McDonald’s Global Hospitality Large Yahoo USA Technology Large Music while you work Global Various Various
Grace faces (three) problems UK Legal Medium
10 Planning and control
Joanne manages the schedule
UK Retail Medium
Operations control at Air France
Global Airline Large
Uber Global Technology platform Large Can airline passengers be sequenced?
General Airports Various
The hospital triage system Global Healthcare Various The life and times of a chicken sandwich (part 1)
UK Food processing Medium
A01_SLAC8678_08_SE_FM.indd 13 06/02/16 8:30 PM
xiv
Chapter Location Company/example Region Sector/activity Company size
11 Capacity management
Heathrow UK Airports Large Panettone Italy Food processing Large Amazon Global Retail Large Lowaters UK Horticulture Medium Demand management USA Public Large Baseball games USA Leisure Medium Blackberry hill farm UK Leisure Small
12 supply chain management
Ocado UK Retail Large The North Face Global Garment manufacture Large Apple Global Technology Large The tsunami effect Asia Various Various
Levi Strauss Global Garment manufacture Large
Seven-Eleven Japan Japan Retail Large
Supplying fast fashion Global Garment design/ manufacture/ retail
Large
13 inventory management
National Health Service Blood and Transplant service
UK Public sector Large
Energy inventory Global Power generation Large Treasury wines Australia Wine production Large Gritting roads Europe Public sector Large Flame electrical South Africa Wholesale Small Amazon Global Retail Large Supplies4medics Europe Retail Medium
14 Planning and control systems
Butchers pet care UK (Dog) food production Medium SAP and its partners Global Systems developers The life and times of a chick- en salad sandwich (part 2)
UK Food production Medium
What a waste USA Recycling Large Psycho sports N/A Manufacturing Small
15 Lean operations
Jamie’s lean meals UK Domestic food preparation
N/A
Pixar adopts lean USA Creative Large Toyota Global Auto production Large Waste reduction in airline maintenance
N/A Air transport N/A
Andon’s in Amazon Global Retail Large
Torchbox UK Web design Small
St Bridget’s Hospital Sweden Healthcare Medium
16 improve- ment
Sonae Corporation Portugal Retail Large The checklist manifesto N/A Healthcare Various 6Wonderkinder Germany App developer Small Improvement at Heineken Netherlands Brewer Large
6Sigma at Wipro India Outsourcers Large
Learning from Formula 1 UK Transport Various
Reinventing Singapore’s libraries
Singapore Public sector Medium
A01_SLAC8678_08_SE_FM.indd 14 06/02/16 8:30 PM
xv
Chapter Location Company/example Region Sector/activity Company size
17 Quality management
TNT Express Global Transport Large Victorinox Switzerland Manufacturing Large Four Seasons Global Hospitality Large Magic moments UK Photography Small Ryanair’s Europe Airline Large Millbrook Proving Ground UK Auto testing Medium Quick Food Products UK Food production Small Fat finger syndrome Global Finance Various Deliberate defectives Canada Manufacturing Large Preston plant Canada Manufacturing Medium
18 Managing risk and recovery
Tesco UK Retail Large Findus Europe Food production Large G4S UK Outsourcer Large The rise of the micromort N/A Various Various Is failure designed-in to airline operations?
Netherlands Airline Large
General motors USA Auto manufacture Large Slagelse Industrial Services Denmark Manufacturing Medium
19 Project management
Disney Global Leisure Large Vasa’s first voyage Sweden Military N/A Halting the growth of ma- laria
Global Healthcare Large
The Scottish Parliament Building
UK Construction Large
United Photonics Malaysia Development Large
A01_SLAC8678_08_SE_FM.indd 15 06/02/16 8:30 PM
xvi
Preface
introduction - Operations may not run the World, but it makes the World run Operations management is important . It is concerned with creating the services and products upon which we all depend. And all organizations produce some mixture of services and products, whether that organization is large or small, manufacturing or service, for profit or not for profit, public or private. Thankfully, most companies have now come to understand the importance of opera- tions. This is because they have realized that effective operations management gives the potential to improve both efficiency and customer service simultaneously. But more than this, operations management is everywhere , it is not confined to the operations function. All manag- ers, whether they are called Operations or Marketing or Human Resources or Finance, or whatever, manage pro- cesses and serve customers (internal or external). This makes, at least part of their activities ‘operations’.
Operations management is also exciting . It is at the centre of so many of the changes affecting the business world – changes in customer preference, changes in sup- ply networks brought about by internet-based technolo- gies, changes in what we want to do at work, how we want to work, where we want to work, and so on. There has rarely been a time when operations management was more topical or more at the heart of business and cultural shifts.
Operations management is also challenging . Promoting the creativity that will allow organizations to respond to so many changes is becoming the prime task of operations managers. It is they who must find the solutions to technological and environmental chal- lenges, the pressures to be socially responsible, the increasing globalization of markets and the difficult- to- define areas of knowledge management.
The aim of this book This book provides a clear, authoritative, well-structured and interesting treatment of operations management as it applies to a variety of businesses and organizations. The text provides both a logical path through the activi- ties of operations management and an understanding of their strategic context.
More specifically, this text is:
● Strategic in its perspective. It is unambiguous in treating the operations function as being central to competitiveness.
● Conceptual in the way it explains the reasons why operations managers need to take decisions.
● Comprehensive in its coverage of the significant ideas and issues which are relevant to most types of operation.
● Practical in that the issues and challenges of making operations management decisions in practice are dis- cussed. The ‘Operations in practice’ feature, which starts every chapter, the short cases that appear through the chapters, and the case studies at the end of each chapter, all explore the approaches taken by operations managers in practice.
● International in the examples that are used. There are over 110 descriptions of operations practice from all over the world.
● Balanced in its treatment. This means we reflect the balance of economic activity between service and manufacturing operations. Around seventy-five per cent of examples are from organizations that deal primarily in services and twenty-five per cent from those that are primarily manufacturing.
Who should use this book? This book is for anyone who is interested in how services and products are created.
● Undergraduates on business studies, technical or joint degrees should find it sufficiently structured to provide an understandable route through the subject (no prior knowledge of the area is assumed).
● MBA students should find that its practical discus- sions of operations management activities enhance their own experience.
● Postgraduate students on other specialist Master’s degrees should find that it provides them with a well-grounded and, at times, critical approach to the subject.
A01_SLAC8678_08_SE_FM.indd 16 06/02/16 8:30 PM
xvii
summary answers to key questions Each chapter is summarized in the form of a list of bullet points. These extract the essential points that answer the key questions posed at the beginning of each chapter.
Case studies Every chapter includes a case study suitable for class discussion. The cases are usually short enough to serve as illustrations, but have sufficient content also to serve as the basis of case sessions.
Problems and applications Every chapter includes a set of problem-type exercises. These can be used to check out your understanding of the concepts illustrated in the worked examples. There are also activities that support the learning objectives of the chapter that can be done individually or in groups.
selected further reading Every chapter ends with a short list of further reading that takes the topics covered in the chapter further, or treats some important related issues. The nature of each further reading is also explained.
Distinctive features Clear structure The structure of the book uses the ‘4Ds’ model of opera- tions management that distinguishes between the strate- gic decisions that govern the direction of the operation, the design of the processes and operations that create products and services, planning and control of the deliv- ery of products and services, and the development, or improvement of operations.
illustrations-based Operations management is a practical subject and cannot be taught satisfactorily in a purely theoretical manner. Because of this we have used examples and short ‘opera- tions in practice’ cases that explain some of the issues faced by real operations.
Worked examples Operations management is a subject that blends qualita- tive and quantitative perspectives; ‘worked examples’ are used to demonstrate how both types of technique can be used.
Critical commentaries Not everyone agrees about what is the best approach to the various topics and issues with operations manage- ment. This is why we have included ‘critical commentar- ies’ that pose alternative views to the one being expressed in the main flow of the text.
A01_SLAC8678_08_SE_FM.indd 17 06/02/16 8:30 PM
xviii
Teaching and learning resources for the 8th edition
To the instructor . . .
new for the eighth edition This 8 th Edition is different. In fact, it’s the biggest set of changes that we have made between editions. We have been consulting widely with our users, who have very kindly contributed to advising us on how we should further improve both the structure and content of the book. First the structure – we have retained the ‘4Ds’ structure (direct, design, delivery and development) that has proved to be exceptionally popular, but we have shifted two chapters that were in the ‘design’ section into the ‘direct’ section. Our users, quite rightly, pointed out that ‘design innovation’ and ‘the structure and scope of operations’ (what was called ‘Supply network design’ in previous editions) were both fundamental and strategic, and so therefore should be included in the first part of the book. We have done this and made both chap- ters more strategic. We have also moved two chapters (Quality management and Project management) into the ‘Development’ section on the grounds that they are both increasingly seen as part of operations improvement. In terms of the content, we have included various aspects of sustainability and Corporate Social Responsibility in each chapter rather than separating the issue out at the end of the book. The issues covered are just too important to be segregated in that way. Needless to say, as usual, we have tried to keep up to date with the (increasingly) rapid changes taking place in the (wonderful) world of operations.
Specifically, the 8th edition includes the following key changes:
● There are now more than 110 of the popular ‘Opera- tions in Practice’ examples throughout the book, over 40 per cent of which are new.
● The importance of sustainability and Corporate Social Responsibility (CSR) has been emphasised further, and included throughout the book.
● We have even further strengthened the emphasis on the idea that ‘operations management’ is relevant to every type of business and all functional areas of the organization.
● Many new ideas in operations management have been incorporated, including the ‘three level’ approach to performance, the relationship between innovation, creativity and design, crowdsourcing, ideas management, business ecosystems, triadic rela- tionships, office layout, telecommuting and organi- sational ‘ambidexterity’. However, we have retained the emphasis on the foundations of the subject.
● Six of the 19 cases at the end of the chapter are new (but the old ones are still available on the website), and provide an up-to-date selection of operations issues.
● The book has been visually redesigned to aid learn- ing. Instructor’s resources A completely new instruc- tor’s manual is available to lecturers adopting this textbook, together with PowerPoint presentations for each chapter and a Testbank of assessment ques- tions. Visit www.pearsoned.co.uk/slack to access these. Most importantly, a new set of online resourc- es to enable students to check their understanding, practise key techniques and improve their problem- solving skills now accompanies the book.
A01_SLAC8678_08_SE_FM.indd 18 06/02/16 8:30 PM
xix
Making the most of this book
To the student . . .
All academic textbooks in business management are, to some extent, simplifications of the messy reality that is actual organizational life. Any book has to separate top- ics, in order to study them, which in reality are closely related. For example, technology choice impacts on job design that in turn impacts on quality management; yet, for simplicity, we are obliged to treat these topics individually. The first hint therefore in using this book effectively is to look out for all the links between the individual topics. Similarly with the sequence of topics: although the chapters follow a logical structure, they need not be studied in this order. Every chapter is, more or less, self-contained. Therefore study the chapters in whatever sequence is appropriate to your course or your individual interests. But because each part has an intro- ductory chapter, those students who wish to start with a brief ‘overview’ of the subject may wish first to study Chapters 1 , 6 , 10 and 16 and the chapter summaries of selected chapters. The same applies to revision – study the introductory chapters and summary answers to key questions.
The book makes full use of the many practical exam- ples and illustrations that can be found in all operations. Many of these were provided by our contacts in compa- nies, but many also come from journals, magazines and newspapers. So if you want to understand the impor- tance of operations management in every-day business life look for examples and illustrations of operations
management decisions and activities in newspapers and magazines. There are also examples which you can observe every day. Whenever you use a shop, eat a meal in a restaurant, borrow a book from the library or ride on public transport, consider the operations manage- ment issues of all the operations for which you are a customer.
The case exercises and study activities are there to provide an opportunity for you to think further about the ideas discussed in the chapters. Study activities can be used to test out your understanding of the specific points and issues discussed in the chapter and discuss them as a group, if you choose. If you cannot answer these you should revisit the relevant parts of the chap- ter. The case exercises at the end of each chapter will require some more thought. Use the questions at the end of each case exercise to guide you through the logic of analysing the issue treated in the case. When you have done this individually try to discuss your analy- sis with other course members. Most important of all, every time you analyse one of the case exercises (or any other case or example in operations management) start off your analysis with the two fundamental questions:
● How is this organization trying to compete (or satisfy its strategic objectives if a not-for-profit organiza- tion)?
● What can the operation do to help the organization compete more effectively?
A01_SLAC8678_08_SE_FM.indd 19 06/02/16 8:30 PM
xx
Ten steps to getting a better grade in operations management
I could say that the best rule for getting a better grade is to be good. I mean really, really good! But, there are plenty of us who, while fairly good, don’t get as good a grade as we really deserve. So, if you are studying opera- tions management, and you want a really good grade, try following these simple steps:
Step 1 Practise, practise, practise. Use the Key ques- tions and the Problems and applications to check your understanding.
Step 2 Remember a few key models , and apply them wherever you can. Use the diagrams and models to describe some of the examples that are contained within the chapter.
Step 3 Remember to use both quantitative and quali- tative analysis. You’ll get more credit for appropri- ately mixing your methods: use a quantitative model to answer a quantitative question and vice versa, but qualify this with a few well-chosen sentences.
Step 4 There’s always a strategic objective behind any operational issue. Ask yourself, ‘Would a similar opera- tion with a different strategy do things differently?’ Look at the ‘Operations in practice’ pieces in the book.
Step 5 Research widely around the topic. Use websites that you trust – we’ve listed some good websites at the end of the book. You’ll get more credit for using references that come from genuine academic sources.
Step 6 Use your own experience. Every day, you’re experiencing an opportunity to apply the principles of operations management. Why is the queue at the airport check-in desk so long? What goes on behind the ‘hole in the wall’ of your bank’s ATM machines?
Step 7 Always answer the question. Think ‘what is really being asked here? What topic or topics does this
question cover?’ Find the relevant chapter or chapters, and search the Key questions at the beginning of each chapter and the Summary at the end of each chapter to get you started.
Step 8 Take account of the three tiers of accumulating marks for your answers.
(a) First, demonstrate your knowledge and under- standing. Make full use of the text to find out where you need to improve.
(b) Second, show that you know how to illustrate and apply the topic. The Case studies and ‘Operations in practice’ sections give you hundreds of different examples.
(c) Third, show that you can discuss and analyse the issues critically. Use the Critical commentaries within the text to understand some of the alterna- tive viewpoints.
Generally, if you can do (a) you will pass; if you can do (a) and (b) you will pass well, and if you can do all three, you will pass with flying colours!
Step 9 Remember what the issue is about, but also understand why! Read the text until you really under- stand why the concepts and techniques of operations management are important, and what they contribute to an organization’s success. Your new-found knowl- edge will stick in your memory, allow you to develop ideas, and enable you to get better grades.
Step 10 Start now! Don’t wait until two weeks before an assignment is due. GOOD LUCK!
Nigel Slack
A01_SLAC8678_08_SE_FM.indd 20 06/02/16 8:30 PM
xxi
about the authors
nigel slack is an Emeritus Professor of Operations Management and Strategy at Warwick University, an Honorary Professor at Bath University and an Associate Fellow of Said Business School, Oxford University. Previously he has been Professor of Service Engineering at Cambridge University, Professor of Manufacturing Strategy at Brunel University, a University Lecturer in Management Studies at Oxford University and Fellow in Operations Management at Templeton College, Oxford. He worked initially as an industrial apprentice in the hand-tool industry and then as a production engineer and production manager in light engineer- ing. He holds a Bachelor’s degree in Engineering and Master’s and Doctor’s degrees in Management, and is a Chartered Engineer. He is the author of many books and papers in the operations management area, including The Manufacturing Advantage , published by Mercury Business Books, 1991, and Making Management Decisions (with Steve Cooke), 1991, published by Prentice Hall, Service Superiority (with Robert Johnston), published in 1993 by EUROMA, The Blackwell Encyclopedic Dictionary of Operations Management (with Michael Lewis) pub- lished by Blackwell, Operations Strategy together with Michael Lewis, the fourth edition published by Pearson in 2014 and Perspectives in Operations Management (Volumes I to IV) also with Michael Lewis, published by Routledge in 2003, Operations and Process Management , with Alistair Brandon-Jones, Robert Johnston and Alan Betts, now in its 4th Edition 2015. He has authored
numerous academic papers and chapters in books. He also acts as a consultant to many international com- panies around the world in many sectors, especially financial services, transport, leisure and manufactur- ing. His research is in the operations and manufacturing flexibility and operations strategy areas.
alistair Brandon-Jones is a Professor in Operations and Supply Management and Associate Dean for Post- Experience Education at the University of Bath School of Management, He was formerly a Reader at Manchester Business School, an Assistant and Associate Professor at Bath School of Management and a Teaching Fellow Warwick Business School, where he also completed his PhD. His other books include Operations and Process Management , Essentials of Operations Management , and Quantitative Analysis in Operations Management . Alistair is an active empirical researcher focusing on e-enabled operations and supply management, healthcare opera- tions, and professional services. This work, supported by a range of grants, has been published in many lead- ing management journals. Alistair has consulting and executive development experience with organizations around the world, in various sectors including petro- chemicals, health, financial services, manufacturing, defence, and government. In addition, he has won sev- eral university, national, and international awards for teaching excellence.
A01_SLAC8678_08_SE_FM.indd 21 06/02/16 8:30 PM
xxii
acknowledgements
During the preparation of the eighth edition of this book (and previous editions) we have received an immense amount of help from friends and colleagues in the Operations Management community. In particular everybody who has attended one of the regular ‘fac- ulty work-shops’ deserves thanks for the many useful comments. The generous sharing of ideas from these sessions has influenced this and all the other OM books that we prepare. Our thanks go to everyone who attend- ed these sessions and other colleagues. It is, to some extent, invidious to single out individuals – but we are going to. We thank Pär Åhlström of Stockholm School of Economics, James Aitken of University Of Surrey, Yongmei Bentley of the University Of Bedfordshire, Helen Benton of Anglia Ruskin University, Ran Bhamra, Loughborough University, Tony Birch of Birmingham City University, Abhijeet Ghadge of Heriot Watt University, Professor Sven Åke Hörte of Lulea University of Technology, Eamonn Ambrose of University College, Andrea Benn of University of Brighton, Dublin, Mattia Bianchi of the Stockholm School of Economics John K Christiansen of Copenhagen Business School, Philippa Collins of Heriot-Watt University, Henrique Correa of Rollins College, Florida, Paul Coughlan of Trinity College Dublin, Simon Croom of the University of San Diego, Stephen Disney of Cardiff University, Doug Davies of University of Technology, Sydney, Tony Dromgoole of the Irish Management Institute, J.A.C. de Haan of Tilburg University, Carsten Dittrich of the University of Southern Denmark, David Evans of Middlesex University, Ian Evans of Sunderland University, Paul Forrester of Keele University, Ian Graham of Edinburgh University, Ian Fouweather of Bradford University, Alan Harle of Sunderland University, Norma Harrison of Macquarie University, Catherine Hart of Loughborough Business School, Steve Hickman of University Of Exeter, Chris Hillam of Sunderland University, Ian Holden of Bristol Business School, Matthias Holweg, Oxford University, Mickey Howard of Exeter University, Kim Hua Tan of the University Of Nottingham, Stavros Karamperidis of Heriot Watt University, Tom Kegan of Bell College of Technology, Hamilton, Denis Kehoe of Liverpool University, Mike Lewis of Bath University, Xiaohong Li of Sheffield Hallam University, John Maguire of the University of Sunderland, Charles Marais of the University of Pretoria, Peter McCullen of
University Of Brighton, Roger Maull, Exeter University, Bart McCarthy, Nottingham University, Harvey Maylor of Cranfield University, John Meredith Smith of EAP, Oxford, Michael Milgate of Macquarie University, Keith Moreton of Staffordshire University, Chris Morgan of Cranfield University, Adrian Morris of Sunderland University, Andy Neely of Cambridge University, Steve New of Oxford University, John Pal of Manchester Business School, Antony Potter of Manchester Business School, Gary Priddis of University of Brighton, Sofia Salgado Pinto of the Católica Porto Business School, Peter Race of Henley College, Reading University, Gary Ramsden of University Of Lincoln, Steve Robinson of Southampton Solent University, James Rowell of University Of Buckingham, Frank Rowbotham of University Of Birmingham, Ian Sadler of Victoria University, Hamid Salimian of University of Brighton, Sarah Schiffling of University of Lincoln, Andi Smart, Exeter University, Amrik Sohal of Monash University, Nigel Spinks of the University Of Reading, Rui Soucasaux Sousa of the Católica Porto Business School, Alex Skedd of Northumbria Business School, Martin Spring of Lancaster University, Dr Ebrahim Soltani of the University of Kent, R. Stratton of Nottingham Trent University, James Stone, Aston University, Dr. Nelson Tang of the University of Leicester, David Twigg of Sussex University, Helen Valentine of the University of the West of England, Professor Roland van Dierdonck of the University of Ghent, Dirk Pieter van Donk of the University of Groningen, Arvind Upadhyay of University of Brighton, Vessela Warren of University Of Worcester, Bill Wright of Bpp Professional, Ying Xie of Anglia Ruskin University, Maggie Zeng of Gloucestershire University and Li Zhou of University Of Greenwich University.
Our academic colleagues at both Warwick Business School, Bath School of Management have also helped, both by contributing ideas and by creating a lively and stimulating work environment. At Warwick, thanks go to, Nicola Burgess, Mehmet Chakkol, Max Finne, Emily Jamieson, Mark Johnson, Pietro Micheli, Rhian Silvestro, and Chris Voss. At Bath, thanks go to Brian Squire, Chris Archer-Brown, Maria Battarra, Emma Brandon-Jones, Günes Erdogan, Marco Formentini, Emmanuel Fragniere, Andrew Graves, Jooyoung Jeon, Richard Kamm, Mike Lewis, Sheik Meeran, Dimitris
A01_SLAC8678_08_SE_FM.indd 22 06/02/16 8:30 PM
xxiii
Paraskevopoulos, Tony Roath, Jens Roehrich, Christos Vasilakis, and Baris Yalabik.
Our late friend and colleague, Bob Johnston con- tributed both expertise and wisdom to earlier editions of this book. We still miss his intelligence, insight and support.
We were lucky to receive continuing profession- al and friendly assistance from a great publishing team. Especial thanks to Kate Brewin, Caitlin Lisle, Tim
Parker, Kelly Miller, Kay Holman, Neville Hankins, Lucy Chantler, Isobel McLean, Frances Topp and Sasmita Sinha.
Finally, to our families, who both supported and tolerated our nerdish obsession, thanks are inadequate, but thanks anyway to Angela and Kathy, and Emma and Noah.
Nigel Slack Alistair Brandon-Jones
A01_SLAC8678_08_SE_FM.indd 23 06/02/16 8:30 PM
xxiv
Publisher ’s acknowledgements
We are grateful to the following for permission to repro- duce copyright material:
Figures Figure 2.11b from Spidergram to check on police forces, The Times, 10/07/2002 (Miles, A. and Bladwin, T.) reproduced with permission; Figure 3.15 adapted from Operations Strategy, 4 ed., Pearson Education (Slack N. and Lewis M.A. 2015) reproduced with permission; Figure 5.6 from Operations and Process Management: Principles and Practice for Strategic Impact, Pearson Education (Slack, Nigel, Brandon-Jones, A., Johnston, R. and Betts, A. 2012) reproduced with permission; Figure 7.6 from For Toyota, patriotism and profits may not mix, Wall Street Journal, 29/11/2011 (Dawson, C.) reprinted with permission of Wall Street Journal, Copyright © 2011 Dow Jones & Company, Inc. All Rights Reserved Worldwide. License numbers 3841860034292 and 3841860323322; Figure 8.4 from Unilever UK, Reproduced with kind permission of Unilever PLC and group companies; Figure 9.7 adapted from A new strat- egy for job enrichment, California Management Review, Vol. 17 (3) (Hackman, J.R., Oldham, G., Janson, R. and Purdy, K. 1975) republished with permission of University of California Press, permission conveyed through Copyright Clearance Center, Inc.; Figure 12.6 adapted from What is the right supply chain for your product?, Harvard Business Review, March-April, pp. 105–116 (Fisher, M.C. 1997), reprinted by permis- sion of Harvard Business Review. Copyright ©1997 by Harvard Business Publishing; all rights reserved; Figure 12.10 adapted from Purchasing must become sup- ply management, Harvard Business Review, September (Kraljic, Peter 1983), reprinted by permission of Harvard Business Review. Copyright ©1983 by Harvard Business Publishing; all rights reserved; Figure 15.7 from Applying Lean in Offices, Hospitals, Planes and Trains, Presentation at The Lean Services Summit, Amsterdam, June 24 (2004) p. 30, McKinsey & Company, www.mckinsey. com. Copyright © 2004 McKinsey & Company. All rights reserved. Reprinted by permission; Figure 15.12 adapted from C.A. Voss and A. Harrison, Strategies for implement- ing JIT, in, Just-in-Time Manufacture, IFS/Springer-Verlag (Voss, C.A. (ed.) 1987) Copyright © 1987 Springer; Figure 17.4 adapted from A conceptual model of service
quality and implications for future research, Journal of Marketing, Vol. 49, Fall, pp. 41-50 (Parasuraman, A., Zeithaml, V.A. and Berry, L.B. 1985), American Marketing Association; Figure 19.4 from Reinventing Project Management: The Diamond Approach to Successful Growth and Innovation, Harvard Business School Press (Shenhar, A.J. and Dvir, D. 2007) reprinted by permis- sion of Harvard Business Review Press. Copyright © 2007 by the Harvard Business Publishing Corporation; all rights reserved.; Figure 19.6 adapted from Managing Sensitive Projects: A Lateral Approach, English version by Cutrin, T. and Etcheber, P. Routledge, NY (D’Herbemont, O. and César B 1998) republished with permission of Routledge Publishing Inc. Permission conveyed through Copyright Clearance Center, Inc.; Figure 19.19 adapted from Collaboration, Integrated Information, and the Project Life Cycle in Building Design and Construction and Operation, Construction Users Roundtables (CURT).
Tables Table S9.2 adapted from Principles of Motion Economy: Revisited, Reviewed and Restored, Proceedings of the Southern Management Association Annual Meeting (Atlanta, GA 1983) (Barnes, F.C. 1983) p. 298; Tables 9.3 and 9.4 from J.L. Kobrick and B.J. Fine, Climate and human performance, in, The Physical Environment and Work John Wiley (Oborne, D.J. and Gruneberg, M.M. (eds.) 1983) reproduced with permission of Wiley in the format Book via Copyright Clearance Center; Table 15.1 adapted from What is the Theory of Constraints, and How Does it Compare to Lean Thinking? The Lean Enterprise Institute (Rattner, S. 2009) Copyright © 1999 Sergio Rattner. All rights reserved.
Text Case Study on pages 346–49 adapted from Operations and Process Management, 3rd ed., Pearson Education (Slack, N., Brandon-Jones, A., Johnston, R. and Betts, A. 2012) © Pearson Education Limited 2006, 2009, 2012; Box on page 470 adapted from My way - IT at Butcher’s Pet Care, Engineering and Technology Magazine, Vol. 4 (13) (Allan K.); Box on pages 499–500 written and sup- plied by Janina Aarts and Mattia Bianchi, Department of Management and Organization, Stockholm School of
A01_SLAC8678_08_SE_FM.indd 24 06/02/16 8:30 PM
xxv
Co., Ltd: 465tr; Reproduced with the kind permis- sion of Société des Produits Nestlé S.A.: 229tr; Newlife Paints Ltd: 129tr; PhotoDisc: 433tr, 484br; Press Association Images: AP / Eckehard Schulz 272tr; Rex Shutterstock: Amer Ghazzal 53tr; Sands Films Studio: 193cr; Shutterstock.com: Haider Y. Abdulla 346tr, Alphaspirit 287, 514br, Aaron Amat 676tc, Andresr 575br, Anyunov 644tl, ArchMan 196br, Anna Baburkina 617tr, Blend Images 232br, Anna Bogush 441tr, Buruhthan 50br, 51br, 54cr, 56cr, 58br, Vladimir Caplinskij 166tr, Roberto Caucino 43br, Chen WS 487tr, Ant Clausen 190tl, Creations 505tr, Digital Storm 250tr, T P Feller 5r, Iakov Filimonov 234tr, Gabriel12 186br, Karel Gallas 384tr, Angelo Giampiccolo 322tr, Arina P Habich 436tr, Hadrian 50tl, 51cl, 54tl, 56tl, 58cl, Indianstockimages 9c, Stuart Jenner 9cl, 551br, Jezper 357tr, JHDT Productions 296tr, Jimmi 248tr, Justasc 416tr, Matej Kastelic 97c, Robert Kneschke 590cr, Ktsdesign 115c, Blaz Kure 50tr, 51cr, 54tr, 56tr, 58cr, Lamarinx 190bl, Lightspring 150, Liunian 191bl, Dmitry Lobanov 56, Luchunyu 192bl, Ludinko 451br, SV Luma 333tr, Robyn Mackenzie 537tr, Marques 278, Michaeljung 192c, Stuart Monk 224br, Monkey Business Images 163tr, 478tr, Natursports 564br, 650tr, Sergey Nivens 40tr, Nucleartist 156tr, Ollyy 201tr, 298tr, Pathdoc 267br, Sean Pavone 425tr, Phovoir 212tr, Potstock 192cl, Raimundas 142tr, Rido 111tr, Michael Rolands 50bl, 51bl, 54cl, 56cl, 58bc, Shadow216 647, StockLite 146cr, Stockphoto mania 151tr, Stokkete 534tr, Supergenijalac 9tl, 191cl, Jordan Tan 318br, Graham Taylor 241tr, Cappi Thompson 403br, Anatoly Tiplyashin 104br, Toria 11tr, TravnikovStudio 330br, VectorLifestylepic 568tr, Vipubadee 578tr, Valentyn Volkov 122tr, 543, Tatyana Vyc 191tl, Ingrid W 221tr, Wavebreakmedia 302cr, www.BillionPhotos.com 575tr, Yeko Photo Studio 337cr, Zurijeta 293br; Ski Verbier Exclusive Ltd: 25br; The Kobal Collection: Paramount Pictures 269cr
Cover images: Front: Alamy Images: Karin Hildebrand Lau c; Getty Images: Tetra Images
All other images © Pearson Education
Economics, reproduced with permission; Box on page 534 adapted from Case study by Professors Rui Sousa and Sofia Salgado Pinto, Católica Porto Business School, Portugal; Case Study on pages 568-69 from Professors Robert Johnson, Warwick Business School, Chai Kah Hin and Jochen Wirtz, National University of Singapore, and Christopher Lovelock, Yale University.
Photos The publisher would like to thank the following for their kind permission to reproduce their photographs:
(Key: b-bottom; c-centre; l-left; r-right; t-top)
123RF.com: Andrew Mayovskyy 628br, Igor Zakharevich 634; Alamy Images: 360b 539cr, AF Archive 501tr, Agencja Fotograficzna Caro 218tr, Arcaid Images 663tr, Asif’s Photography 218br, Roger Bamber 352tr, David Burton 584br, Chih-Chung Johnny Chang 132tr, Clivestock 188cr, Cultura Creative 60br, David J. Green 457br, Karin Hildebrand Lau 180c, 314c, Matthew Horwood 89b, Bstar Images 25tr, Justin Kase 401tr, Lucia Lanpur 258cr, Mediablitzimages 136tr, Trevor Mogg 83b, Numb 479cr, Helen Sessions 419tr, Adrian Sherratt 9bl, Tetra Images 29b, Mikhail Tolstoy 33t, Peter Treanor 582tr, Urbanmyth 184tr, Mark Waugh 586tr, Julie Woodhouse 51tr, Andrew Woodley 71tr, Zoonar GmbH 512; Alistair Brandon-Jones: 370tr, 470tr; Andy Maluche/Photographers Direct: 252tr; Bridgeman Art Library Ltd: Look and Learn 648br; Corbis: Nur Photo / Zakir Hossain Chowdury 405, Monty Rakusen 510br, Michael Spooneybarger 639tr; Courtesy of Cadbury plc: 227; Digital Vision: 443tr; Fotolia.com: Maridav 159br, Tan Kian Khoon 100cr; Getty Images: AFP / Lee Celano 12c, AFP / Roberto Schmidt 54br, AFP / Romeo Gacad 9bc, Bloomberg / Chris Ratcliffe 18c, Bloomberg / Jason Alden 59tr, Bloomberg / Junko Kimura-Matsumoto 326tr, Bloomberg / Philipp Schmidli 45br, Caiaimage / Robert Daly 525tr, Look / Hendrik Holler 371tr, Ian McNichol 621, Tetra Images 180b, 314b, 530c, 530b, Ron Vesely 372cr, Paul Zimmerman 499br; Imagemore
A01_SLAC8678_08_SE_FM.indd 25 06/02/16 8:30 PM
2 Operations performance
1 Operations management
3 Operations strategy
4 Product and service innovation
5 the structure and scope of operations
M01_SLAC8678_08_SE_C01.indd 2 06/02/16 5:03 PM
part one DireCtinG the OPeratiOn
Transformed resources • Materials • Information • Customers
Transforming resources • Facilities • Staff
Input resources
Output products and services
Operations management
Develop - Improving the operation’s capabilities
Direct - Steering operations
and processes
Design - Shaping processes,
products and services
Deliver - Planning and
controlling ongoing operations
Value added for customers
this part of the book introduces the idea of ‘operations’ and the operations function. it also examines the fundamental activities and decisions that shape the overall direction and strategy of the operations function. the chapters in this part are:
● chapter 1 operations management – this introduces the common ideas that describe the nature and role of operations and processes in all types of organization.
● chapter 2 operations performance – this identifies how the performance of the operations function can be judged.
● chapter 3 operations strategy – this examines how the activities of the operations function can have an important strategic impact.
● chapter 4 product and service innovation – this looks at how innovation can be built into the product and service design process.
● chapter 5 the structure and scope of operations – this describes the major decisions that determine how and the extent to which an operation adds value through its own activities.
M01_SLAC8678_08_SE_C01.indd 3 06/02/16 5:03 PM
intrODuCtiOn operations management is about how organizations create and deliver services and products. everything you wear, eat, sit on, use, read or knock about on the sports field comes to you courtesy of the operations managers who organized its creation and delivery. every book you borrow from the library, every treatment you receive at the hospital, every service you expect in the shops and every lecture you attend at university – all have been created by operations. While the people who supervised their creation and delivery may not always be called operations managers, that is what they really are. and that is what this book is concerned with – the tasks, issues and decisions of those operations managers who have made the services and products on which we all depend. this is an introductory chapter, so we will examine what we mean by ‘operations management’, how operations processes can be found everywhere, how they are all similar yet different, and what it is that operations managers do ( see Fig. 1.1 ).
Operations management
Key questions
❯ What is operations management?
❯ Why is operations management important in all types of organization?
❯ What is the input– transformation–output process?
❯ What is the process hierarchy?
❯ how do operations and processes differ?
❯ What do operations managers do?
1
Topic covered in this chapter
Operations management
Direct
Design Develop
Deliver
Direct
Operations performance
The structure
and scope of operations
Operations strategy
Operations management
Product and service innovation
Figure 1.1 this chapter examines operations management
M01_SLAC8678_08_SE_C01.indd 4 06/02/16 5:03 PM
ChaPter 1 operations management 5
What iS OPeratiOnS ManaGeMent?
Operations management is the activity of managing the resources that create and deliver ser- vices and products. The operations function is the part of the organization that is responsible for this activity. Every organization has an operations function because every organization creates some types of services and/or products. However, not all types of organization will necessarily call the operations function by this name. (Note in addition that we also use the shorter terms ‘the oper- ation’ or ‘operations’ interchangeably with the ‘operations function’.) Operations managers are the people who have particular responsi- bility for managing some, or all, of the resources that make up the operations function. Again in some organizations, the operations manager could be called by some other name. For example, he or she might be called the ‘fleet manager’ in a distribution company, the ‘administrative manager’ in a hospital, or the ‘store manager’ in a supermarket.
✽ ✽ ✽ Operations principle Operations principle Operations principle
OPeratiOnS in PraCtiCe
‘ We want any child playing with LEGO ® bricks to have a high quality play experience, and in addition we also want to make a positive impact through the way we operate – from our focus on business ethics to reducing our impact on the environment ,’ says Jørgen Vig Knudstorp, ceo of the Lego group.
of all businesses, the toy business is one of the world's trickiest. Difficult to forecast, unfailingly subject to fickle kids' latest fads and subject to constant techno- logical innovation. Yet the Lego group, a privately held, family-owned company with headquarters in Billund, Denmark, has, in recent years, thrived in the business, becoming one of the most reputable companies in the world, according to the reputation institute, and one of the leading manufacturers of play materials. it is a suc- cess founded on a deceptively simple idea. one Lego brick is unremarkable, but put one or two together and possibilities start to emerge. With another few bricks the number of things you can create rises exponentially. For example, there are more than 915 million possible ways of arranging six standard four-by-two bricks, and with the approximately 4,200 different elements in the Lego range and 58 different colours together with various decorations, the total number of active combinations is many more. and, however many bricks you assemble, irrespective of what colour or set they are from, your pieces will always fit together perfectly. all of the basic Lego elements use the same method to stick together. they have studs on top that are slightly bigger than and tubes on the inside. pressing the bricks together pro- duces an ‘interference fit ’ that provides a temporary joint without the use of an additional fastener. But this
principle does depend on the elements being made to very high levels of precision and quality, which explains the company's motto, ‘only the best is good enough’.
ole Kirk Kristiansen, a Danish carpenter, who started selling wooden toys as a way of earning extra money, founded the company in 1932. these included wooden toy bricks, the forerunners of the plastic bricks, which are now so successful that it is estimated that there are now 86 bits of Lego for every person on the planet. Bricks, and other Lego ‘elements’, are manufactured at the group's factories in Denmark, hungary, the czech republic and mexico, locations that have been cho- sen to be near their key markets in europe and the Usa . these sites have been expanded to cope with increased demand, together with new factories built in nyiregyhaza in hungary and Jiaxing in china. products made in these factories serve a global market. the aim, according to Bali padda, executive Vice president and
Lego: building a creative experience 1
▼
so u
rc e:
s h
u tt
er st
o ck
.c o
m : t
p F
el le
r
M01_SLAC8678_08_SE_C01.indd 5 06/02/16 5:03 PM
6 Part One Directing the operation
The LEGO example illustrates how important the operations function is for any com- pany whose reputation depends on producing safe, high-quality, sustainable and prof- itable products or ser vices. Its operations, like its market, are globally located, it is meticulous about ensuring that its processes operate to precise quality standards, and it has invested heavily in process technology that reduces the environmental impact of its operations and the cost of its products. Of course, exactly what is involved in producing products and services will depend to some extent on the type of organization of which the operations function is a part. Table 1.1 shows some of the activities of the operations function for various types of organization.
Operations in the organization The operations function is central to the organization because it creates and delivers services and products, which is its reason for existing. The operations function is one of the three core functions of any organization. These are:
chief operations officer of the Lego group, is to ‘ build a stable manufacturing base around the world, ulti- mately making sure that LEGO products are available to children and their parents when and where they want them ’. and it is the company's operations processes that are central to maintaining its reputation for quality, and its ability to produce millions of elements profita- bly and sustainably.
the process starts at the main warehouse that con- tains the silos holding raw plastic granulates. at the Billund operation, 60 tonnes of plastic is processed every 24 hours. the silos are linked to the moulding machines by a complex arrangement of tubes. the moulding stage is particularly important, because every Lego piece must be made to a demanding level of pre- cision, with tolerances as small as 10 micrometres. at each machine, the plastic is heated and pumped into the mould through a main channel, which divides into a number of narrower channels, each corresponding to a single brick. Water is used to cool the moulds, which can produce up to 32 bricks, and, when the plastic has solidified (only a couple of seconds), they release the bricks into containers. these moulds are expen- sive, and each element requires its own mould. the average cost of a mould is around €80,000 with some costing more than €360,000. a sensor detects when a container is full and a robot trolley is automatically sent. the robots travel between the machines, picking up boxes and leaving empty ones so production can be continued. the automation means that few people are required for the process. the robots transport the boxes to conveyors, which move them into the stor- age area where robotic cranes stack them until they are
needed. From there some pieces go to the ‘decoration’ stage where they are individually painted. Decoration is the most expensive part of the Lego process. other pieces go straight to packing, where the Lego sets take their final form. in the packaging process the pieces go into a machine that separates them individually, counts them using optical sensors, and places them in their box. the automatic movement system knows exactly how much a box should weigh at any stage and as the packing process continues, high-precision scales mon- itor the weight of the box. any deviation, even of a few micrograms, sets off an alarm. at the end of the pro- cess the boxes are sealed shut, automatically weighed to ensure there are no missing components, checked by a worker trained to look for things like plastic bags sticking out of the box, packed by a robot six to a case, and finally sent off for distribution.
Quality assurance staff perform frequent inspections and tests on the various Lego elements, such as drop, torque, tension, compression, bite and impact tests to make sure the toys are robust and safe. only about 18 of every million Lego elements produced, (that is 0.00002 per cent) fail to pass the tests. in addition, throughout the process, the company tries to achieve high levels of environmental sustainability. plastic is extensively recy- cled in the factory. all scrap, for example the plastic that fills the channels that take the hot plastic into moulds, or faulty pieces that escape from automated handling, are ground up and used back into the production process. similarly, the transparent plastic that is used to clean the channels when the production colour is changed in a moulding machine are also ground up and sold to other companies that produce other plastic products.
M01_SLAC8678_08_SE_C01.indd 6 06/02/16 5:03 PM
ChaPter 1 operations management 7
● the marketing (including sales) function – which is responsible for communicating the organization’s services and products to its markets in order to generate customer requests;
● the product/service development function – which is responsible for coming up with new and modified services and products in order to generate future customer requests;
● the operations function – which is responsible for the creation and delivery of services and products based on customer requests.
In addition, there are the support functions which enable the core functions to operate effectively. These include, for example, the accounting and finance function, the technical function, the human resources function and the information systems function. Remember that different organizations will call their various functions by different names and will have a different set of support functions. Almost all organizations, however, will have the three core functions, because all organizations have a fundamental need to sell their products and services, meet customer requests for services and products, and come up with new services and products to satisfy customers in the future.
In practice, there is not always a clear division between the three core functions or between core and support functions. This leads to some confusion over where the boundaries of the operations function should be drawn. In this book we use a relatively broad definition of operations. We treat much of the product/service development, technical and information systems activities and some of the human resources, marketing, and accounting and finance activities as coming within the sphere of operations management. We view the operations function as compris- ing all the activities necessary for the day-to-day fulfilment of customer requests within the constraints of environmental and social sustainability. This includes sourcing services and products from suppliers and delivering services and products to customers.
It is fundamental to modern management that functional boundaries should not hinder efficient internal processes. Figure 1.2 illustrates some of the relationships between opera- tions and other functions in terms of the flow of information between them. Although it is not comprehensive, it gives an idea of the nature of each relationship. However, note that the support functions have a different relationship with operations than the other core func- tions. Operations management’s responsibility to support functions is primarily to make sure that they understand operations' needs and help them to satisfy these needs. The rela- tionship with the other two core functions is more equal – less of ‘ this is what we want ’ and more ‘ this is what we can do currently – how do we reconcile this with broader business needs? ’
table 1.1 Some activities of the operations function in various organizations
internet service provider
Fast food chain international aid charity
Furniture manufacturer
maintain and update hardware Update software and content respond to customer queries implement new services ensure security of customer data
Locate potential sites for restaurants provide processes and equipment to produce burgers etc. maintain service quality Develop, install and maintain equipment reduce impact on local area, and packaging waste
provide aid and development projects for recipients provide fast emergency response when needed procure and store emergency supplies Be sensitive to local cultural norms
procure appropriate raw materials and components make sub-assemblies assemble fi nished products Deliver products to customers reduce environmental impact of products and processes
✽ ✽ ✽ Operations principle Operations principle Operations principle
M01_SLAC8678_08_SE_C01.indd 7 06/02/16 5:03 PM
8 Part One Directing the operation
WhY iS OPeratiOnS ManaGeMent iMPOrtant in ALL tYPeS OF OrGaniZatiOn?
In some types of organization it is relatively easy to visualize the operations function and what it does, even if we have never seen it. For example, most people have seen images of an auto-
mobile assembly. But what about an advertising agency? We know vaguely what these agencies do – they create the advertisements that we see in magazines and on television – but what is their operations function? The clue lies in the word ‘create’. Any business that creates something must use resources to do so, and so must have an operations activity. Also the automobile plant and the advertising agency do have one important element in common: both have a higher objective – to make a profit from creating and delivering their products or services.
Yet not-for-profit organizations also use their resources to create and deliver services, not to make a profit, but to serve society in some way. Look at the following examples of what opera- tions management does in five very different organizations and some common themes emerge.
Product/service development
function
Technical function
The broad scope of operations management’s
responsibilities
Accounting and finance
function
Human resources (HR)
function
Core functions
Support functions
Information systems (IS)
function
Marketing function
Operations function
Process technology
needs
Process technology
options
Provision of relevant data
Communicating the capabilities and constraints of
operations processes
New product/ service ideas
Financial analysis for performance measurement and decision
making
Communicate human resource
needs
Recruitment, development and training
Communicating information
system needs
Systems for design, planning and control and
improvement
Market requirements
Communicating the capabilities and constraints of
operations processes
Figure 1.2 the relationship between the operations function and other core and support functions of the organization
✽ ✽ ✽ Operations principle Operations principle Operations principle Operations principle Operations principle Operations principle
M01_SLAC8678_08_SE_C01.indd 8 06/02/16 5:03 PM
ChaPter 1 operations management 9
Automobile assembly factory – Operations manage- ment uses machines to effi ciently assemble products that satisfy current customer demands
Physician (general practitioner) – Operations manage- ment uses knowledge to eff ectively diagnose conditions in order to treat real and perceived patient concerns
Management consultant – Operations management uses people to eff ectively create the services that will ad- dress current and potential client needs
Disaster relief charity – Operations management uses ours and our partners' resources to speedily provide the supplies and services that relieve community suff ering
Advertising agency – Operations management uses our staff ’s knowledge and experience to creatively present ideas that delight clients and address their real needs
Start with the statement from the ‘easy to visualize’ automobile plant. Its summary of what operations management does is: ‘ Operations management uses machines to efficiently assemble products that satisfy current customer demands. ’ The statements from the other
so ur
ce : s
h ut
te rs
to ck
.c o
m : s
up er
ge n
ija la
c so
ur ce
: s h
ut te
rs to
ck .c
o m
: s tu
ar t J
en n
er so
ur ce
: s h
ut te
rs to
ck .c
o m
: i n
d ia
n st
o ck
im ag
es so
ur ce
: g et
ty im
ag es
: a Fp
/ r
o m
eo g
ac ad
so ur
ce : a
la m
y im
ag es
: a d
ri an
s h
er ra
tt
M01_SLAC8678_08_SE_C01.indd 9 06/02/16 5:03 PM
10 Part One Directing the operation
organizations were similar, but used slightly different language. Operations management used not just machines but also ‘knowledge, people, our and our partners’ resources', and ‘our staffs’ experience and knowledge', to ‘efficiently (or effectively, or creatively) assemble (or produce, change, sell, move, cure, shape, etc.) products (or services or ideas) that satisfy (or match or exceed or delight) customer (or client or citizens' or society) demands (or needs or concerns or even dreams).’
So whatever terminology is used there is a common theme and a common purpose to how we can visualize the operations activity in any type of organization – small or large, service or manufacturing, public or private, profit or not-for-profit. Operations manage- ment uses ‘resources to appropriately create outputs that fulfil defined market requirements’ (see Fig. 1.3). However, although the essential nature and purpose of operations manage- ment is the same in any type of organization, there are some special issues to consider, particularly in smaller organizations and those whose purpose is to maximize something other than profit.
Operations management in the smaller organization Operations management is just as important in small organizations as it is in large ones. Irrespective of their size, all companies need to create and deliver their service and products efficiently and effectively. However, in practice, managing operations in a small or medi- um-size organization has its own set of problems. Large companies may have the resources to dedicate individuals to specialized tasks but smaller companies often cannot, so people may have to do different jobs as the need arises. Such an informal structure can allow the company to respond quickly as opportunities or problems present themselves. But decision making can also become confused as individuals' roles overlap. Small companies may have exactly the same operations management issues as large ones but they can be more diffi- cult to separate from the mass of other issues in the organization. However, small opera- tions can also have significant advantages; the short case on Torchbox illustrates this.
Transforming resources
Operations management uses...
Resources to
People
Technology
Knowledge
Information
Partners
etc.
Demands
Needs
Concerns
Dreams
Etc.
E�ectively
E�ciently
Creatively
Reliably
Accurately
etc.
Transformation objectives
Nature of the objectives
Customers’ objectives
Nature of the product/service
Nature of the transformation
Performance standard
The operation’s customers
Appropriately
Produce
Assemble
Sell
Move
Cure
Diagnose
Shape
Fabricate
etc.
Create
Services
Products
Ideas
Solutions
Knowledge
etc.
Outputs that
Meet
Satisfy
Exceed
Delight
etc.
Fulfil
Current
Potential
Perceived
Emerging
Real
etc.
Defined
Customer
Citizens’
Clients’
Society's
etc.
Market Requirements
Figure 1.3 Operations management uses resources to appropriately create outputs that fulfil defined market requirements.
M01_SLAC8678_08_SE_C01.indd 10 06/02/16 5:03 PM
ChaPter 1 operations management 11
OPeratiOnS in PraCtiCe
We may take it for granted, yet browsing websites, as part of your studies, your job, or your leisure, is an activity that we all do – proba- bly every day, probably many times each day. so it is important . all organizations need to have a web presence if they want to sell prod- ucts and services, interact with their customers, or promote their cause. and, not surprisingly, there is a whole industry devoted to design- ing websites so that they have the right type of impact. in fact, taken over the years, web development has been one of the fastest grow- ing industries in the world. But it is also a tough industry. not every web design company thrives, or even survives beyond a couple of years. to succeed, web designers need tech- nology skills, design capabilities, business awareness and operational professionalism. one that has succeeded is torchbox, an independently owned web design and development company based in oxfordshire. Founded back in 2000, it now employs 30 people, providing ‘ high-quality, cost-effective, and ethical solutions for clients who come primarily, but not exclusively, from the charity, non-governmental organisations and public sectors ’.
co-founder and technical Director tom Dyson has been responsible for the technical direction of all major developments. ‘ There are a number of advantages about being a relatively small operation ’, he says. ‘ We can be hugely flexible and agile, in what is still a dynamic mar- ket. But at the same time we have the resources and skills to provide a creative and professional service. Any senior manager in a firm of our size cannot afford to be too specialised. All of us here have their own specific responsibilities; however, every one of us shares the overall responsibility for the firm's general development. We can also be clear and focused on what type of work we want to do. Our ethos is important to us. We set out to work with clients who share our commitment to environmental sustainability and responsible, ethical business practice; we take our work, and that of our clients, seriously. If you're an
arms dealer, you can safely assume that we're not going to be interested. '
nevertheless, straightforward operational effective- ness is also essential to torchbox's business. ‘ We know how to make sure that our projects run not only on time and to budget ’, says olly Willans, also a co-founder and the firm's creative Director, ‘ but we also like to think that we provide an enjoyable and stimulating experience – both for our customers’ development teams and for our staff too. High standards of product and service are important to us: our clients want accessibility, usability, performance and security embedded in their web designs, and of course, they want things delivered on-time and on-budget. We are in a creative industry that depends on fast- moving technologies, but that doesn't mean that we can't also be efficient. We back everything we do with a robust feature-driven develop- ment process using a kanban project management method- ology which helps us manage our obligations to our clients .'
the ‘kanban’ approach used by the torchbox web development teams originated from car manufacturers like toyota (it is fully explained in chapter 15 ). ‘ Using sound operations management techniques helps us constantly to deliver value to our clients ’, says tom Dyson. ‘ We like to think that our measured and controlled approach to handling and controlling work helps ensure that every hour we work pro- duces an hour's worth of value for our clients and for us. ’
torchbox: award-winning web designers 2
Operations management in not-for-profit organizations Terms such as ‘competitive advantage’, ‘markets’ and ‘business’, which are used in this book, are usually associated with companies in the for-profit sector. Yet operations management is also relevant to organizations whose purpose is not primarily to earn profits. Managing
so u
rc e:
s h
u tt
er st
o ck
.c o
m : t
o ri
a
M01_SLAC8678_08_SE_C01.indd 11 06/02/16 5:03 PM
12 Part One Directing the operation
the operations in an animal welfare charity, hospital, research organization or government department is essentially the same as in commercial organizations . Operations have to take the same decisions – how to create and deliver service and products, invest in technology, contract out some of their activities, devise performance measures, improve their operations performance, and so on. However, the strategic objectives of not-for-profit organizations may be more complex and involve a mixture of political, economic, social or environmental objec- tives. Because of this there may be a greater chance of operations decisions being made under conditions of conflicting objectives. So, for example, it is the operations staff in a children’s welfare department who have to face the conflict between the cost of providing extra social workers and the risk of a child not receiving adequate protection. Nevertheless the vast major- ity of the topics covered in this book have relevance to all types of organization, including non-profit ones, even if the context is different and some terms may have to be adapted.
OPeratiOnS in PraCtiCe
médecins sans Frontières (msF; also called Doctors Without Borders) is an independent humanitarian organization pro- viding medical aid where it is most needed, regardless of race, religion, politics or gender, and raising awareness of the plight of the people it helps in coun- tries around the world. its core work takes place in crisis situa- tions – armed conflicts, epidem- ics, famines and natural disasters such as floods and earthquakes. the teams deliver both medical aid (including consultations with a doctor, hospital care, nutri- tional care, vaccinations, surgery, obstetrics and psychological care) and material aid (including food, shelter, blankets, etc.). each year, msF sends around 3,000 doctors, nurses, logisticians, water and sanitation experts, administrators and other professionals to work alongside around 25,000 locally hired staff. it is one of the most admired and effec- tive relief organizations in the world. But no amount of fine intentions can translate into effective action without superior operations management. as msF says, it must be able to react to any crisis with ‘ fast response, efficient logistics systems, and efficient project management ’.
msF makes every effort to respond quickly and effi- ciently to crises around the world. its response procedures are continuously being developed to ensure that it reaches those most in need as quickly as possible. the process has five phases: proposal, assessment, initiation, running the project, and closing. the information that prompts a pos- sible mission can come from governments, the interna- tional community, humanitarian organizations such as the
United nations, financial bodies such as the humanitarian aid Department of the european commission (echo), or msF teams already present in the region. once the information has been checked and validated, msF sends a team of medical and logistics experts to the crisis area to carry out a quick evaluation. the team assesses the situa- tion, the number of people affected, and the current and future needs, and sends a proposal back to the msF office. When the proposal is approved, msF staff start the process of selecting personnel, organizing materials and resources, and securing project funds. initiating a project involves sending technical equipment and resources to the area. in large crises, aircraft fly in all the necessary materials so that the work can begin immediately. thanks to its pre- planned processes, specialized kits and the emergency stores, msF can distribute material and equipment within 48 hours, ready for the response teams to start work as soon as they arrive. most msF projects generally run for
MSF operations provide medical aid to people in danger 3
▼
so u
rc e:
g et
ty im
ag es
: a Fp
/ L
ee c
el an
o
M01_SLAC8678_08_SE_C01.indd 12 06/02/16 5:03 PM
ChaPter 1 operations management 13
the new operations agenda Over the last few years, changes in the business environment have had a significant impact on the challenges faced by operations managers. Some of them are in response to changes in the nature of the demand side. Many (although not all) industries have experienced increas- ing cost-based competition while simultaneously their customers' expectations of quality and variety have increased. Markets have become more global, sometimes meaning a demand for a higher variety, or even totally customized products and services. Rapidly developing (often digital) technologies are leading to more frequent, new product/service introductions. Customers have increased ethical and environmental sensitivity. Also, the impact of new pro- cess technologies, in both manufacturing and service, is having a dramatic effect, radically altering the operating practices of almost every industry. This leads to operations having to change the way they create their products and services, serve their customers, relate to stake- holders and involve their workforce. Just as importantly, globalized supply markets are open- ing new options in how operations source input goods and services. Very few businesses have not at least considered purchasing from out- side their own geographic area. But while bringing opportunities for cost savings, a bigger supply market also brings new problems of long supply chains, supply vulnerability and reputational risk. All this has led to new pressures for which the operations function has needed to develop responses. Figure 1.4 identifies just some of the operations responses to these business pressures. (If you do not recognize some of the terms in Figure 1.4 , do not worry – we will explain them throughout the book.) These responses form a major part of a new agenda for operations. Parts of this agenda are trends which have always existed but have accelerated, such as globalization and increased cost pres- sures. Part of the agenda involves seeking way to exploit new technologies, most notably the Internet. Of course, the items in Figure 1.4 are not comprehensive, nor are they universal. But very few operations functions will be unaffected by at least some of these issues.
What iS the inPut–tranSFOrMatiOn–OutPut PrOCeSS?
All operations create and deliver service and products by changing inputs into outputs using an ‘input–transformation–output’ process. Figure 1.5 shows this general transformation pro- cess model that is the basis of all operations. Put simply, operations are processes that take
somewhere between 18 months and three and a half years. Whether an emergency response or a long-term healthcare project, the closing process is roughly similar. once the critical medical needs have been met (which could be after weeks, months or years depending on the situation), msF begins to close the project with a gradual withdrawal of staff and equipment. at this stage, the pro- ject closes or is passed on to an appropriate organization. msF will also close a project if risks in the area become too great to ensure staff safety.
Whether it is dealing with urgent emergencies, when material might need to be on an aircraft within 24 hours, or a long-running programme where a steady supply of equipment and drugs is vital, everything msF does on the ground depends on an efficient logistics system. it is based on the principle that msF staff should always have exactly the right materials for the job at hand. so msF has developed and produced pre-packaged disaster kits
ready for transport within hours, including a complete surgical theatre the size of a small conference table and an obstetrics kit the size of a two-drawer file. there is an ongoing process of revising the kits every time a new drug or medical tool becomes available.
to make sure it is reacting as quickly as possible, msF has four logistical centres based in europe and east africa plus stores of emergency materials in central america and east asia. these purchase, test and store equipment so that aircraft can be loaded and flown into crisis areas within 24 hours. the pre-packaged disas- ter kits are custom-cleared within the logistics centres, ready for flight. But not all supplies are needed quickly. if it is not a dire emergency, msF reduces its costs by ship- ping the majority of material and drugs by sea. Because of this, it is vital to monitor stock levels and anticipate future needs so that orders can be placed up to three months in advance of expected requirements.
✽ ✽ ✽ Operations principle Operations principle Operations principle
M01_SLAC8678_08_SE_C01.indd 13 06/02/16 5:03 PM
14 Part One Directing the operation
in a set of input resources which are used to transform something, or are transformed them- selves, into outputs of services and products. And although all operations conform to this gen- eral input–transformation–output model, they differ in the nature of their specific inputs and outputs. For example, if you stand far enough away from a hospital or a car plant, they might look very similar, but move closer and clear differences do start to emerge. One is a service
Risk management
Internet-based integration of
operations activities
Fast time to market
Global operations networks
Customer relationship
management
Mass customization
Co-creation of service Operating
models
Internet of things
‘Big data’ analysis
3D printing
Algorithmic decision making
Enterprise resource management
Environmentally sensitive design
Business recovery planning
Developments in the business, technical,
social, regulatory and political environment
Sustainability
Flexible working patterns
Supplier partnership and development
Figure 1.4 Changes in the business environment are shaping a new operations agenda
Input resources
Output products and services
Value- added for customers
THE TRANSFORMATION
PROCESS
Transformed resources • Materials • Information • Customers
Transforming resources
• Facilities • Staff
Figure 1.5 all operations are input–transformation–output processes
M01_SLAC8678_08_SE_C01.indd 14 06/02/16 5:03 PM
ChaPter 1 operations management 15
operation delivering ‘services’ that change the physiological or psychological condition of patients, the other is a manufacturing operation creating and delivering ‘products’. What is inside each operation will also be different. The hospital contains diagnostic, care and therapeutic processes whereas the motor vehi- cle plant contains metal forming machinery and assembly processes. Perhaps the most important difference between the two operations, however, is the nature of their inputs. The hospital transforms the customers themselves. The patients form part of the input to, and the output from, the operation. The vehicle plant transforms steel, plas- tic, cloth, tyres and other materials into vehicles.
inputs to the process One set of inputs to any operation’s processes is transformed resources. These are the resources that are treated, transformed or converted in the process. They are usually a mix- ture of the following:
● Materials – operations which process materials could do so to transform their physical properties (shape or composition, for example). Most manufacturing operations are like this. Other operations process materials to change their location (parcel delivery compa- nies, for example). Some, like retail operations, do so to change the possession of the mate- rials. Finally, some operations store materials, such as warehouses.
● Information – operations which process information could do so to transform their infor- mational properties (that is, the purpose or form of the information); accountants do this. Some change the possession of the information, for example market research companies sell information. Some store the information, for example archives and libraries. Finally, some operations, such as telecommunication companies, change the location of the information.
● Customers – operations which process customers might change their physical properties in a similar way to materials processors: for example, hairdressers or cosmetic surgeons. Some store (or more politely accommodate ) customers: hotels, for example. Airlines, mass rapid transport sys- tems and bus companies transform the location of their custom- ers, while hospitals transform their physiological state. Some are concerned with transforming their psychological state , for exam- ple most entertainment services such as music, theatre, television, radio and theme parks. But customers are not always simple ‘pas- sive’ items to be processed. They can also play a more active part in many operations and processes. For example, they create the atmosphere in a restaurant; they provide the stim- ulating environment in learning groups in education; they provide information at check-in desks; and so on. When customers play this role it is usually referred to as ‘co-production’ because the customer plays a vital part in the provision of the product/service offering.
Some operations have inputs of materials and information and customers, but usually one of these is dominant. For example, a bank devotes part of its energies to producing printed statements by processing inputs of material, but no one would claim that a bank is a printer. The bank also is concerned with processing inputs of customers at its branches and contact centres. However, most of the bank’s activities are concerned with process- ing inputs of information about its customers’ financial affairs. As customers, we may be unhappy with badly printed statements and we may be unhappy if we are not treated appro- priately in the bank. But if the bank makes errors in our financial transactions, we suffer in a far more fundamental way. Table 1.2 gives examples of operations with their dominant transformed resources.
The other set of inputs to any operations process is transforming resources . These are the resources which act upon the transformed resources. There are two types which form the ‘building blocks’ of all operations:
✽ ✽ ✽ Operations principle Operations principle Operations principle
✽ ✽ ✽ Operations principle Operations principle Operations principle
M01_SLAC8678_08_SE_C01.indd 15 06/02/16 5:03 PM
16 Part One Directing the operation
● facilities – the buildings, equipment, plant and process technology of the operation; ● staff – the people who operate, maintain, plan and manage the operation. (Note that we
use the term ‘staff’ to describe all the people in the operation, at any level.)
The exact nature of both facilities and staff will differ between operations. To a five-star hotel, its facilities consist mainly of ‘low-tech’ buildings, furniture and fittings. To a nuclear- powered aircraft carrier, its facilities are ‘high-tech’ nuclear generators and sophisticated electronic equipment. Staff will also differ between operations. Most staff employed in a factory assembling domestic refrigerators may not need a very high level of technical skill. In contrast, most staff employed by an accounting company are, hopefully, highly skilled in
their own particular ‘technical’ skill (accounting). Yet although skills vary, all staff can make a contribution. An assembly worker who con- sistently misassembles refrigerators will dissatisfy customers and increase costs just as surely as an accountant who cannot add up. The balance between facilities and staff also varies. A computer chip man- ufacturing company, such as Intel, will have significant investment in physical facilities. A single chip fabrication plant can cost in excess
of $5 billion, so operations managers will spend a lot of their time managing their facilities. Conversely, a management consultancy firm depends largely on the quality of its staff. Here operations management is largely concerned with the development and deployment of con- sultant skills and knowledge.
Outputs from the process Products and services are different. Products are usually tangible things whereas services are activities or processes. A car or a newspaper or a restaurant meal is a product, whereas a service is the activity of the customer using or consuming that product. Some services do not involve products. Consultancy advice or a haircut is a processes (though some products may be supplied in support of the service, such as a report or a hair gel). Also, while most products can be stored, at least for a short time, service only happens when it is consumed or used. So accommodation in an hotel room for example will perish if it is not sold that night, a restau- rant table will remain empty unless someone uses it that evening.
Most operations produce both products and services Some operations create and deliver just services and others just products, but most operations combine both elements. Figure 1.6 shows a number of operations (including some described as examples in this chapter) positioned in a spectrum from ‘pure’ products to ‘pure’ service. Crude oil producers are concerned almost exclusively with the product which comes from their oil wells. So are aluminium smelters, but they might also deliver some services such as technical
table 1.2 Dominant transformed resource inputs of various operations
Predominantly processing inputs of materials
Predominantly processing inputs of information
Predominantly processing inputs of customer
all manufacturing operations mining companies retail operations Warehouses postal services container shipping line trucking companies
accountants Bank headquarters market research company Financial analysts news service University research unit telecoms company
hairdressers hotels hospitals mass rapid transports theatres theme parks Dentists
✽ ✽ ✽ Operations principle Operations principle Operations principle
M01_SLAC8678_08_SE_C01.indd 16 06/02/16 5:03 PM
ChaPter 1 operations management 17
advice. Services in these circumstances are called facilitating services. To an even greater extent, machine tool manufacturers deliver facilitating services such as technical advice and applications engineering. The services delivered by a restaurant are an essential part of what the customer is paying for. It is both a manufacturing operation which creates and delivers meals and a provider of service in the advice, ambience and service of the food. An information systems provider may create software ‘products’, but primarily it is providing a service to its customers, with facilitating products. Certainly, a management consultancy, although it produces reports and documents, would see itself primarily as a service provider. Finally, pure services solely cre- ate and deliver services, a psychotherapy clinic, for example. Of the ‘Operations in practice’ examples in this chapter, LEGO (or at least the part of the LEGO Group we described in this chapter) produces tangible products, and Pret A Manger both creates and ‘serves’ its products. It therefore has substantial service content. Médecins Sans Frontières sup- plies physical aid in emergencies, but also intangible advice and medical help.
Torchbox’s customers receive no physical product but are paying for the design and func- tionality of the website designs. Likewise, hotels such as Formule 1 are close to being pure services, although they both have some tangible elements such as food.
Increasingly the distinction between services and products is dif- ficult to define and not particularly useful. Software has moved from being primarily a product (sold on a disk) to an intangible download when sold over the Internet to an even less tangible rental or subscrip- tion service based ‘in the cloud’. A restaurant meal is both a product and also a service as it is delivered and consumed. Indeed we would argue that all operations are service providers which may create and deliver products as part of the offering to their customers. This is why
Operations in practice examples from this chapter
Pure products
Pure services
Crude oil production
Examples
Aluminium smelting
Specialist machine tool production
Restaurant
Information systems provider
Management consultancy
Psychotherapy clinic
LEGO
Médecins Sans Frontières
Pret A Manger
Torchbox
Formule 1 / Ski Verbier
Figure 1.6 the output from most operations is a mixture of products and services. Some general examples are shown here together with some of the operations featured as ‘operations in practice’ examples in this chapter
✽ ✽ ✽ Operations principle Operations principle Operations principle
✽ ✽ ✽ Operations principle Operations principle Operations principle Operations principle Operations principle Operations principle
M01_SLAC8678_08_SE_C01.indd 17 06/02/16 5:03 PM
18 Part One Directing the operation
operations management is important to all organizations. Whether they see themselves as manufacturers or service providers is very much a secondary issue.
Customers Customers may be an input to many operations (see earlier) but they are also the reason for their existence. If there are no customers (whether business customers, users or consumers), there will be no operation. So it is critical that operations managers are aware of customers’ needs, both current and potential. This information will determine what the operation has to do and how it has to do it (the operation’s strategic performance objectives) which in turn defines the service/product offering to be designed, created and delivered.
OPeratiOnS in PraCtiCe
pret a manger is proud of its customer service. ‘ We'd like to think we react to our customers’ feelings (the good, the bad, the ugly) with haste and absolute sincerity ’, it says. ‘ Pret customers have the right to be heard. Do call or email. Our UK Managing Director is available if you would like to discuss Pret with him. Alternatively, our CEO hasn’t got much to do; hassle him! ’
it is a bold approach to customer service, but pret has always been innovative. Described by the press as having ‘revolutionized the concept of sandwich making and eating’, pret a manger opened its first shop in London and now has over 260 shops in the UK, new York, hong Kong and tokyo. it says that its secret is to focus continually on the quality of its food and of its service. pret avoids the chemicals and preserv- atives common in most ‘fast’ food. ‘ Many food retailers focus on extending the shelf life of their food, but that’s of no interest to us. We sell food that can’t be beaten for freshness. At the end of the day, we give whatever we haven’t sold to charity to help feed those who would otherwise go hungry .’ pret a manger shops have their own kitchen where fresh ingredients are delivered every morning, with food pre- pared throughout the day. the team members serving on the tills at lunchtime will have been making sandwiches in the kitchen that morning. ‘ We are determined never to forget that our hardworking people make all the difference. They are our heart and soul. When they care, our business is sound. If they cease to care, our business goes down the drain. In a retail sector where high staff turnover is normal, we’re pleased to say our people are much more likely to stay around! We work hard at building great teams. We take our reward schemes and career opportunities very seriously. We don’t work nights (generally), we wear jeans, we party!’
customer feedback is regarded as being particularly important at pret. examining customers’ comments for improvement ideas is a key part of weekly management meetings, and of the daily team briefs in each shop.
moreover, staff at pret are rewarded in cash for being nice to customers. they collect bonuses for delivering outstanding customer service. every week, each pret outlet is visited by a secret shopper who scores the shop on such performance measures as speed of ser- vice, product availability and cleanliness. in addition the mystery shopper rates the ‘engagement level’ of the staff; questions include, ‘Did servers connect with eye contact, a smile and some polite remarks?’ assessors score out of 50. if the store gets 43 points or more every team mem- ber receives an extra payment for every hour worked; and if an individual is mentioned by the mystery shop- per for providing outstanding service, he or she gets an extra payment. ‘ The emphasis on jollity and friendliness has been a winner’, said James murphy of the Future Foundation, a management consultant. ‘In the highly competitive sandwich market, that’s been a big contrib- utor to their success.’ But not everyone agrees with using mystery shoppers. ‘It is the equivalent of asking one cus- tomer in a shop what they thought at that exact moment, and then planning an entire store- improvement strategy around the one piece of feedback’, says Jeremy michael of the service management group, another consultancy.
Customer service at Pret a Manger 4
so u
rc e:
g et
ty im
ag es
: B lo
o m
b er
g /
c h
ri s
r at
cl iff
e
M01_SLAC8678_08_SE_C01.indd 18 06/02/16 5:03 PM
ChaPter 1 operations management 19
What iS the PrOCeSS hierarChY?
So far we have discussed operations management, and the input–transformation–output model, at the level of ‘the operation’. For example, we have described ‘the web designer’, ‘the bank’, ‘the sandwich shop’, ‘the disaster relief operation’, and so on. But look inside any of these operations. One will see that all operations consist of a collection of processes (though these processes may be called ‘units’ or ‘departments’) interconnecting with each other to form a network. Each process acts as a smaller version of the whole operation of which they form a part, and transformed resources flow in between them. In fact, within any operation the mechanisms that actually transform inputs into outputs are these processes. A ‘process’ is an arrangement of resources and activities that transform inputs into outputs that sat- isfy (internal or external) customer needs. They are the ‘building blocks’ of all operations, and they form an ‘internal network’ within an operation. Each process is, at the same time, an internal supplier and an internal customer for other processes. This ‘internal customer’ concept provides a model to analyse the internal activities of an operation. It is also a useful reminder that, by treating internal customers with the same degree of care as external cus- tomers, the effectiveness of the whole operation can be improved. Table 1.3 illustrates how a wide range of operations can be described in this way.
Within each of these processes is another network of individual units of resource such as individual people and individual items of process technology (machines, computers, storage facilities, etc.). Again transformed resources flow between each unit of transform- ing resource. So any business, or operation, is made up of a network of processes and any process is made up of a network of resources. But also any business or operation can itself be viewed as part of a greater network of businesses or operations. It will have operations that supply it with the services and products it needs and unless it deals directly with the end consumer, it will supply customers who themselves may go on to supply their own customers. Moreover, any operation could have several suppliers, several customers and may be in competition with
table 1.3 Some operations described in terms of their processes
Operation Some of the operation's processes
airline passenger check-in assistance, baggage drop, security/seat check, board passengers, fl y passengers and freight around the world, fl ight scheduling, in-fl ight passenger care, transfer assistance, baggage reclaim, etc.
Department store source merchandise, manage inventory, display products, give sales advice, sales, aftercare, complaint handling, delivery service, etc.
police service crime prevention, crime detection, information gathering/ collating, victim support, formally charging/detaining suspects, managing custody suites, liaising with court/justice system, etc.
ice cream manufacturer
source raw materials, input quality checks, prepare ingredients, assemble products, pack products, fast-freeze products, quality checks, fi nished goods inventory, etc.
✽ ✽ ✽ Operations principle Operations principle Operations principle Operations principle Operations principle Operations principle
M01_SLAC8678_08_SE_C01.indd 19 06/02/16 5:03 PM
20 Part One Directing the operation
other operations creating similar services or products to itself. This network of operations is called the supply network. In this way the input–transformation–output model can be used at a number of different ‘levels of analysis’. Here we have used the idea to analyse businesses at three levels: the process, the operation and the supply network. But one could define many different ‘levels of analysis’, moving upwards from small to larger processes, right up to the huge supply network that describes a whole industry.
This idea is called the hierarchy of operations and is illustrated for a business that makes television programmes and videos in Figure 1.7. It will have inputs of production, technical and administrative staff, cameras, lighting, sound and recording equipment, and so on. It transforms these into finished programmes, music videos, etc. At a more macro level, the business itself is part of a whole supply network, acquiring services from creative agencies, casting agencies and studios, liaising with promotion agencies, and serving its broadcast- ing company customers. At a more micro level within this overall operation there are many
The supply network-flow between operations
The operation-flow between processess
Processes-flow between resources (people and facilities)
The ‘Set and props manufacturing’ process
The programme and video supply network
The programme and video operation
Studios
Casting agency
Creative agency
Promotion agency
Program/ video maker
Broadcasting company
Marketing and sales
Finance and accounting
Production unit
Post production
Engineering
Set and props manufacture
Set construction
Props acquisition
Set finishing
Set design
Figure 1.7 Operations and process management requires analysis at three levels: the supply network, the operation and the process
M01_SLAC8678_08_SE_C01.indd 20 06/02/16 5:03 PM
ChaPter 1 operations management 21
individual processes: workshops manufacturing the sets; marketing processes that liaise with potential customers; maintenance and repair processes that care for, modify and design tech- nical equipment; production units that shoot the programmes and videos; and so on. Each of these individual processes can be represented as a network of yet smaller processes, or even individual units of resource. So, for example, the set manufacturing process could comprise four smaller processes: one that designs the sets, one that constructs them, one that acquires the props, and one that finishes (paints) the set.
Operations management is relevant to all parts of the business The example in Figure 1.7 demonstrates that it is not just the operations function that manages processes; all functions manage processe s . For example, the marketing function will have pro- cesses that create demand forecasts, processes that create advertising campaigns and processes that create marketing plans. These processes in the other functions also need managing using similar principles to those within the operations function. Each function will have its ‘technical’ knowledge. In market- ing, this is the expertise in designing and shaping marketing plans; in finance, it is the technical knowledge of financial reporting. Yet each will also have a ‘process management’ role of producing plans, poli- cies, reports and services. The implications of this are very important. Because all managers have some responsibility for managing processes, they are, to some extent, operations managers. They all should want to give good service to their (often internal) customers, and they all will want to do this efficiently. So, operations management is relevant for all functions, and all managers should have some- thing to learn from the principles, concepts, approaches and techniques of operations manage- ment. It also means that we must distinguish between two meanings of ‘operations’:
● ‘Operations’ as a function , meaning the part of the organization which creates and delivers services and products for the organization’s external customers.
● ‘Operations’ as an activity, meaning the management of the processes within any of the organization’s functions.
Table 1.4 illustrates just some of the processes that are contained within some of the more common non-operations functions, the outputs from these processes and their ‘customers’.
Business processes Whenever a business attempts to satisfy its customers’ needs it will use many processes, both in its operations and in its other functions. Each of these processes will contribute some part to fulfilling customer needs. For example, the television programme and video
Critical commentary
the idea of the internal network of processes is seen by some as being over-simplistic. in reality the relationship between groups and individuals is signifi cantly more complex than that between commercial entities. one cannot treat internal customers and suppliers exactly as one does external customers and suppliers. external customers and suppliers usually operate in a free market. if an organization believes that in the long run it can get a better deal by purchasing services and products from another supplier, it will do so. But internal customers and suppliers are not in a ‘free market’. they cannot usually look outside either to purchase input resources or to sell their output services and products (although some organizations are moving this way). rather than take the ‘economic’ perspective of external commercial relationships, models from organizational behaviour, it is argued, are more appropriate.
✽ ✽ ✽ Operations principle Operations principle Operations principle Operations principle Operations principle Operations principle
M01_SLAC8678_08_SE_C01.indd 21 06/02/16 5:03 PM
22 Part One Directing the operation
production company, described previously, creates and delivers two types of ‘product’. Both of these involve a slightly different mix of processes within the company. The company decides to reorganize its operations so that each product is created from start to finish by a dedicated process that contains all the elements necessary for its production, as in Figure 1.8 . So customer needs for each product are entirely fulfilled from within what is called an ‘end-to-end’ business
process. These often cut across conventional organizational boundaries. Reorganizing (or ‘re-engineering’) process boundaries and organizational responsibilities around these busi- ness processes is the philosophy behind business process re-engineering (BPR) which is discussed further in Chapter 16 .
hOW DO OPeratiOnS anD PrOCeSSeS DiFFer?
Although all operations processes are similar in that they all transform inputs, they do differ in a number of ways, four of which, known as the four Vs, are particularly important:
● The volume of their output. ● The variety of their output. ● The variation in the demand for their output. ● The degree of visibility which customers have of the creation of their output.
the volume dimension Let us take a familiar example. The epitome of high-volume hamburger production is McDonald’s, which serves millions of burgers around the world every day. Volume has impor- tant implications for the way McDonald’s operations are organized. The first thing you notice is the repeatability of the tasks people are doing and the systemization of the work where
table 1.4 Some examples of processes in non-operations functions
Organizational function Some of its processes Outputs from its processes Customer(s) for its outputs
marketing and sales
planning process Forecasting process order taking process
marketing plans sales forecasts confi rmed orders
senior management sales staff , planners, operations operations, fi nance
Finance and accounting
Budgeting process capital approval processes invoicing processes
Budgets capital request evaluations invoices
everyone senior management, requesters external customers
human resources management
payroll processes recruitment processes training processes
salary statements new hires trained employees
employees all other processes all other processes
information technology
systems review process help desk process system implementation project processes
system evaluation systems advice implemented working systems and aftercare
all other processes in the business
✽✽✽ Operations principle Operations principle Operations principle
M01_SLAC8678_08_SE_C01.indd 22 06/02/16 5:03 PM
ChaPter 1 operations management 23
standard procedures are set down specifying how each part of the job should be carried out. Also, because tasks are systematized and repeated, it is worthwhile developing specialized fryers and ovens. All this gives low unit costs. Now consider a small local cafeteria serving a few ‘short-order’ dishes. The range of items on the menu may be similar to the larger opera- tion, but the volume will be far lower, so the repetition will also be far lower and the number of staff will be lower (possibly only one person) and therefore individual staff are likely to perform a wider range of tasks. This may be more rewarding for the staff, but less open to systemization. Also, it is less feasible to invest in specialized equipment. So the cost per burger served is likely to be higher (even if the price is comparable).
the variety dimension A taxi company offers a relatively high-variety service. It is prepared to pick you up from almost anywhere and drop you off almost anywhere. To offer this variety it must be relatively flexible. Drivers must have a good knowledge of the area, and communication between the base and the taxis must be effective. However, the cost per kilometre travelled will be higher for a taxi than for a less customized form of transport such as a bus service. Although both provide the same basic service (transportation), the taxi service has a higher variety of routes and times to offer its customers, while the bus service has a few well-defined routes, with a set schedule. If all goes to schedule, little, if any, flexibility is required from the bus operation. All is standardized and regular, which results in relatively low costs compared with using a taxi for the same journey.
the variation dimension Consider the demand pattern for a successful summer holiday resort hotel. Not surprisingly, more customers want to stay in summer vacation times than in the middle of winter. At the height of ‘the season’ the hotel could be full to its capacity. Off-season demand, however,
Programme set and props manufactur
Programme post production
Music video post production
Music video marketing and
sales
Music video production unit
Programme finance and accounting
Engineering
End-to-end process for programme production
Programme marketing and
sales
Programme production unit
Music video finance and accounting
Music video set and props manufacture
End-to-end process for music video production
Figure 1.8 the television and video company divided into two ‘end-to-end’ business processes, one dedicated to creating programmes and the other dedicated to creating music videos
M01_SLAC8678_08_SE_C01.indd 23 06/02/16 5:03 PM
24 Part One Directing the operation
could be a small fraction of its capacity. Such a marked variation in demand means that the operation must change its capacity in some way, for example by hiring extra staff for the summer. The hotel must try to predict the likely level of demand. If it gets this wrong, it could result in too much or too little capacity. Also, recruitment costs, overtime costs and under-utilization of its rooms all have the effect of increasing the hotel’s costs operation com- pared with a hotel of a similar standard with level demand. A hotel which has relatively level demand can plan its activities well in advance. Staff can be scheduled, food can be bought and rooms can be cleaned in a routine and predictable manner. This results in a high utiliza- tion of resources and unit costs which are likely to be lower than those hotels with a highly variable demand pattern.
the visibility dimension Visibility is a slightly more difficult dimension of operations to envisage. It means how much of the operation’s activities its customers experience, or how much the operation is exposed to its customers. Generally, customer-processing operations are more exposed to their cus- tomers than material- or information-processing operations. But even customer-processing operations have some choice as to how visible they wish their operations to be. For exam- ple, a retailer could operate as a high-visibility ‘bricks and mortar’, or a lower visibility web- based, operation. In the ‘bricks and mortar’, high-visibility operation, customers will directly experience most of its ‘value-adding’ activities. Customers will have a relatively short wait- ing tolerance , and may walk out if not served in a reasonable time. Customers’ perceptions, rather than objective criteria, will also be important. If they perceive that a member of the operation’s staff is discourteous to them, they are likely to be dissatisfied (even if the staff member meant no discourtesy), so high-visibility operations require staff with good customer contact skills. Customers could also request services or products which clearly would not be sold in such a shop, but because the customers are actually in the operation they can ask what they like! This is called high received variety. This makes it difficult for high-visibility operations to achieve high productivity of resources, so they tend to be relatively high-cost operations. Conversely, a web-based retailer, while not a pure low-contact operation, has far
lower visibility. Behind its website, it can be more ‘factory-like’. The time lag between the order being placed and the items ordered by the customer being retrieved and dispatched does not have to be minutes, as in the shop, but can be hours or even days. This allows the tasks of finding the items, packing and dispatching them to be standard- ized by staff who need few customer contact skills. Also, there can be relatively high staff utilization . The web-based organization can also centralize its operation on one (physical) site, whereas the ‘bricks and
mortar’ operation needs many shops close to centres of demand. Therefore, the low-visibility web-based operation will have lower costs than the shop.
Mixed high- and low-visibility processes Some operations have both high- and low-visibility processes within the same operation. In an airport, for example, some activities are totally ‘visible’ to its customers such as informa- tion desks answering people’s queries. These staff operate in what is termed a front-office environment. Other parts of the airport have little, if any, customer ‘visibility’, such as the bag- gage handlers. These rarely seen staff perform the vital but low-contact tasks, in the back-of- fice part of the operation.
the implications of the four Vs of operations processes All four dimensions have implications for the cost of creating and delivering services and products. Put simply, high volume, low variety, low variation and low customer contact all help to keep processing costs down. Conversely, low volume, high variety, high variation and high customer contact generally carry some kind of cost penalty for the operation. This is why
✽ ✽ ✽ Operations principle Operations principle Operations principle
M01_SLAC8678_08_SE_C01.indd 24 06/02/16 5:03 PM
ChaPter 1 operations management 25
OPeratiOnS in PraCtiCe
Ski Verbier exclusive it is the name of the company that gives it away: ski Verbier exclusive Ltd is a provider of ‘upmarket ’ ski holi- days in the swiss winter sports resort of Verbier. With 23 years’ experience of organizing holidays, ski Verbier exclusive looks after luxury proper- ties in the resort that are rented from their owners for letting to ski Verbier exclusive’s clients. the properties vary in size and the configuration of their rooms, but the flexibility to reconfig- ure the rooms to cater for the varying requirements of client groups is impor- tant. ‘ We are very careful to cultivate as good a relationship with the owners, as we are with our clients that use our hol- iday service’ , says tom avery, Joint founder and Director of the company. ‘ We have built the business on develop- ing these personal relationships, which is why our clients come back to us year after year (40% to 50% of clients are returners) . We pride ourselves on the personal service that we give to every one of our clients; from the moment they begin planning their ski holiday, to the journey home. What counts is experience, expertise, obsessive eye for detail and the understated luxury of our chalets combined with our ability to customise client experience. ’ and client requests can be anything from organizing a special mountain pic- nic complete with igloos, to providing an ice sculpture of Kermit the Frog for a kids’ party. the personal concierge service begins from the moment the client books. the company ’s specialist staff have all lived and worked in Verbier and take care of all details of the trip well in advance, from organ- izing airport transfers to booking a private ski instructor, from arrang- ing private jet or helicopter flights to Verbier ’s local airport, to making lunch reservations in the best moun- tain restaurants. ‘ We cater for a small, but discerning market ’, says tom. ‘ Other companies may be bigger, but with us it’s our personal service that clients remember. ’ however, snow does not last all the year round. the company ’s busiest period is mid-December to mid-april. that is when all the prop- erties that the company manages are full. the rest of the year is not so busy,
but the company does offer bespoke summer vacations in some of its properties. these can be either self- catering, or with the full concierge service that clients get in the ski season. ‘ We adapt to clients’ requirements ’, says tom. ‘ That is why the quality of our staff is so important. They have to be good at working with clients, be able to judge the type of relationship that is appropriate, and be committed to providing what makes a great holiday. That’s why we put so much effort into recruiting, training and retaining our staff.’
Formule 1 hotels are high-contact operations – they are staff- intensive and have to cope with a range of customers, each with a variety of needs and expectations. so, how
two very diff erent hospitality operations
▼
so u
rc e:
a la
m y
im ag
es : B
st ar
im ag
es so
u rc
e: a
la m
y im
ag es
: s ki
V er
b ie
r ex
cl u
si ve
L td
M01_SLAC8678_08_SE_C01.indd 25 06/02/16 5:03 PM
26 Part One Directing the operation
the volume dimension is drawn with its ‘low’ end at the left, unlike the other dimensions, to keep all the ‘low-cost’ implications on the right. To some extent the position of an operation in the four dimensions is determined by the demand of the market it is serving. However, most operations have some discretion in moving themselves on the dimen- sions. Figure 1.9 summarizes the implications of such positioning.
can a highly successful chain of affordable hotels avoid the crippling costs of high customer contact? Formule 1, a subsidiary of the French accor group, manages to offer outstanding value by adopting two principles not always associated with hotel operations – standardization and an innovative use of technology. Formule 1 hotels are usually located close to the roads, junctions and cities that make them visible and accessible to prospective customers. the hotels themselves are made from state- of-the-art volumetric prefabrications. the prefabricated units are arranged in various configurations to suit the characteristics of each individual site. all rooms are 9 square metres in area, and are designed to be attractive, functional, comfortable and soundproof. most impor- tant, they are designed to be easy to clean and maintain. all have the same fittings, including a double bed, an
additional bunk-type bed, a wash basin, a storage area, a working table with seat, a wardrobe and a television set. the reception of a Formule 1 hotel is staffed only from 6.30 am to 10.00 am and from 5.00 pm to 10.00 pm. outside these times an automatic machine sells rooms to credit card users, provides access to the hotel, dispenses a security code for the room and even prints a receipt. technology is also evident in the washrooms. showers and toilets are automatically cleaned after each use by using nozzles and heating elements to spray the room with a disinfectant solution and dry it before it is used again. to keep things even simpler, Formule 1 hotels do not include a restaurant, as they are usually located near existing ones. however, a continental breakfast is available, usually between 6.30 am and 10.00 am, and of course on a ‘self-service’ basis!
Volume
Implications Implications
Low High
VarietyHigh Low
Variation in demand High Low
VisibilityHigh Low
Low repetition Each sta� member performs more of each task Less systemization High unit costs
High repeatability Specialization Capital intensive Low unit costs
Well defined Routine Standardized Regular Low unit costs
Stable Routine Predictable High utilization Low unit costs
Time lag between production and consumption Standardization Low contact skills High sta� utilization Centralization Low unit costs
Flexible Complex Match customer needs High unit costs
Changing capacity Anticipation Flexibility In touch with demand High unit costs
Short waiting tolerance Satisfaction governed by customer perception Customer contact skills needed Received variety is high High unit costs
Figure 1.9 a typology of operations
✽ ✽ ✽ Operations principle Operations principle Operations principle Operations principle Operations principle Operations principle
M01_SLAC8678_08_SE_C01.indd 26 06/02/16 5:03 PM
ChaPter 1 operations management 27
Worked example
Figure 1.10 illustrates the different positions on the dimensions of the ski Verbier exclusive operation and the Formule 1 hotel chain ( see the ‘operations in practice’ exam- ple above). at the most basic level, both provide the same basic service. they accom- modate people. Yet they are very different: ski Verbier exclusive provides luxurious and bespoke vacations for a relatively small segment of the ski holiday market . its variety of services is almost infinite in the sense that customers can make individual requests in terms of food and entertainment. Variation is high with four months of 100 per cent occupancy, followed by a far quieter period. customer contact, and therefore visibility, are also very high (in order to ascertain customers’ requirements and provide for them). all of this is very different from the Formule 1 branded hotels, whose customers usually stay one night, where the variety of services is strictly limited, and business and holiday customers use the hotel at different times, which limits variation. most notably, though, customer contact is kept to a minimum. ski Verbier exclusive has very high levels of ser- vice, which means it has relatively high costs. its prices therefore are not cheap – certainly not as cheap as Formule 1, which has arranged its operation in such a way as to provide a highly standardized service at minimal cost.
Ski Verbier exclusive
The Formule 1 hotel brand
Visibility
Variation
Variety
VolumeLow
High
High
High
High
Low
Low
Low
Figure 1.10 the four Vs profiles of two very different hospitality operations
What DO OPeratiOnS ManaGerS DO?
The exact details of what operations managers do will, to some extent, depend on the way an organization defines the boundaries of the function. Yet there are some general classes of activities that apply to all types of operation irrespective of whether they are ser- vice, manufacturing, private or public sector, and no matter how the operations function is defined. We classify operations management activities under the four headings: direct, design, deliver and develop.
● Directing the overall strategy of the operation. A general understanding of operations and processes and their strategic purpose and performance, together with an appreciation of how strategic purpose is translated into reality, are prerequisites to the detailed design of operations and process. This is treated in Chapters 1 to 5 .
● Designing the operation’s resources and processes. Design is the activity of determining the physical form, shape and composition of operations and processes in line with the ser- vices and products that they create. This is treated in Chapters 6 to 9 .
M01_SLAC8678_08_SE_C01.indd 27 06/02/16 5:03 PM
28 Part One Directing the operation
● Planning and control process delivery . After being designed, the delivery of services and products from suppliers and through the total operation to customers must be planned and controlled. This is treated in Chapters 10 to 15 .
● Developing process performance. Increasingly it is recognized that operations man- agers, or any process managers, cannot simply routinely deliver services and products in the same way that they always have done. They have a responsibility to develop the capabilities of their processes to improve process performance. This is treated in Chapters 16 to 19 .
Operations management impacts environmental sustainability It is worth noting at this point that many of the activities of operations managers have a huge impact on their organization’s environmental sustainability. Environmental sustain- ability means (according to the Brundtland Report from the United Nations) ‘ meeting the needs of the present without compromising the ability of future generations to meet their own needs ’. Put more directly, it means the extent to which business activity negatively impacts the natural environment. It is clearly an important issue, not only because of the obvious impact on the immediate environment of hazardous waste, air, and even noise, pollution, but also because of the less obvious, but potentially far more damaging, issues around global warming.
It is important to operations managers because the pollution-causing disasters which make the headlines seem to be the result of a whole variety of causes – oil tankers run aground,
nuclear waste is misclassified, chemicals leak into a river, or gas clouds drift over industrial towns. But in fact they all have something in common. They were all the result of an operations-based failure. Somehow operations procedures were inadequate. Less dramatic in the short term, but perhaps more important in the long term, is the environmental impact of products which cannot by recycled and processes which consume large amounts of energy. In fact many of operations management’s environmental issues are concerned with waste. Operations management decisions in product and service
design significantly affect the utilization of materials both in the short term and in long-term recyclability. Process design influences the proportion of energy and labour that is wasted as well as materials wastage. Planning and control may affect materials wastage (packag- ing being wasted by mistakes in purchasing, for example), but also affects energy and labour wastage. Improvement, of course, is dedicated largely to reducing wastage. Here environ- mental responsibility and the conventional concerns of operations management coincide. Reducing waste, in all its forms, may be environmentally sound but it also saves cost for the organization.
the model of operations management We can now combine two ideas to develop the model of operations and process management that will be used throughout this book. The first is the idea that operations and the processes
that make up both the operations and other business functions are transformation systems that take in inputs and use process resources to transform them into outputs. The second idea is that the resources both in an organization’s operations as a whole and in its individual processes need to be managed in terms of how they are directed , how they are designed , how delivery is planned and controlled, and how they are developed and improved. Figure 1.11 shows how these two ideas go together. This book will use this model to examine the more important decisions that should be of interest to all managers of oper- ations and processes.
✽ ✽ ✽ Operations principle Operations principle Operations principle Operations principle Operations principle Operations principle
✽ ✽ ✽ Operations principle Operations principle Operations principle Operations principle Operations principle Operations principle
M01_SLAC8678_08_SE_C01.indd 28 06/02/16 5:04 PM
ChaPter 1 operations management 29
OPeratiOnS in PraCtiCe
hp began recycling hardware as far back as 1987, when it was the only major computer manufacturer to oper- ate its own recycling facility. since then hp has recov- ered over 227 billion pounds (1.27 billion kilograms) of products for reuse or recycling. its recycling programme seeks to reduce the environmental impact of its prod- ucts, minimizing waste going to landfills by helping customers discard products conveniently in an envi- ronmentally sound manner. recovered materials, after recycling, have been used to make various products, including auto body parts, clothes hangers, plastic toys, fence posts, and roof tiles.
hp has developed a standard for management of hardware at the end of its useful life to ensure the hard- ware is responsibly recycled or recovered. it also helps other electronics recyclers to work effectively with its products by providing disassembly instructions to them.
more than 75 per cent of its ink cartridges and 24 per cent of LaserJet toner cartridges are manufactured with what is known as ‘closed loop’ recycled plastic. this indi- cates that ink cartridges that include recycled plastic will contain 50–70 per cent recycled plastic and LaserJet toner cartridges that include recycled plastic will contain 10–20 per cent recycled plastic. hp sees its recycling service as providing an easy way to recycle. its specially developed state-of-the-art processes are designed to make sure that computer hardware, empty hp printing supplies and other items are recycled responsibly. the hp recycling programme includes such customer-friendly features as recycling hp inkjet and LaserJet cartridges for free, recycling any brand of computer hardware, being able to use its online ordering tool to request recycling services, and recycling hp Large Format and Banner media for free.
hP's recycling activities 5
to be a great operations manager you need to… 6 so, you are considering a career in operations management, and you want to know, ‘is it for you?’ What skills and personal qualities will you need to make a success of the job as well as enjoying yourself as you progress in the profession? Well, the fi rst thing to recognize is that there are many diff erent roles encompassed within the general category of ‘operations management’. someone who makes a great risk control system designer in an investment bank may not thrive as a site manager in a copper mine. a video game project manager has a diff erent set of day-to- day tasks when compared with a purchasing manager for a hospital. so the fi rst skill you need is to understand the range of operations-related responsibilities that exist in various industries; and there is no better way to do this than by reading this book! however, there are also some generic skills that an eff ective operations manager must possess. here are some of them. how many of them do you share?
● Enjoys getting things done – operations management is about doing things. it takes energy and/or commitment to fi nishing tasks. it means hitting deadlines and not letting down customers, whether they are internal or external.
● Understands customer needs – operations man- agement is about adding value for customers. this means fully understanding what ‘value’ means for customers. it means ‘putting your- self in the customer’s place’: knowing what it is like to be the customer, and knowing how to ensure that your services or products make the customer’s life better
▼
so u
rc e:
a la
m y
im ag
es : t
et ra
im ag
es
M01_SLAC8678_08_SE_C01.indd 29 06/02/16 5:04 PM
30 Part One Directing the operation
Transformed resources • Materials • Information • Customers
Transforming resources • Facilities • Staff
Input resources
Output products and services
Value added for customers
Operations management
Deliver – improving the operation’s capabilities
Direct – steering operations
and processes
Design – shaping processes,
products and services
Develop – planning and
controlling ongoing operations
Chapter 10 Planning and control of operations Chapter 11 Capacity management Chapter 12 Supply chain management Chapter 13 Inventory management Chapter 14 Planning and control systems Chapter 15 Lean operations
Chapter 16 Operations improvement Chapter 17 Quality management Chapter 18 Risk and recovery Chapter 19 Project management
Chapter 6 Process design Chapter 7 Layout and flow Chapter 8 Process technology Chapter 9 People in operations
Chapter 1 Operations management Chapter 2 Operations performance Chapter 3 Operations strategy Chapter 4 Product and service innovation Chapter 5 The structure and scope of operations
Figure 1.11 a general model of operations management
● Communicates and motivates – operations management is about directing resources to produce services or prod- ucts in an effi cient and eff ective manner. this means articulating what is required and persuading people to do it. interpersonal skills are vital. operations managers must be ‘people people’.
● Learns all the time – every time an operations manager initiates an action (of any kind) there is an opportunity to learn from the result. operations management is about learning, because without learning there can be no improvement, and improvement is an imperative for all operations.
● Committed to innovation – operations management is always seeking to do things better. this means creating new ways of doing things, being creative, imaginative, and (sometimes) unconventional.
● Knows his or her contribution – operations management may be the central function in any organization, but it is not the only one. it is important that operations managers know how they can contribute to the eff ective working of other functions.
▼
M01_SLAC8678_08_SE_C01.indd 30 06/02/16 5:04 PM
ChaPter 1 operations management 31
● Capable of analysis – operations management is about making decisions. each decision needs to be evaluated (sometimes with very little time). this involves looking at both the quantitative and the qualitative aspects of the decision. operations managers do not necessarily have to be mathematical geniuses, but they should not be afraid of numbers!
● Keeps cool under pressure – operations managers often work in pressured situations. they need to be able to remain calm no matter what problems occur.
Critical commentary
the central idea in this introductory chapter is that all organizations have operations processes which create and deliver services and products and all these processes are essentially similar. however, some believe that by even trying to characterize processes in this way (perhaps even by calling them ‘processes’) one loses or distorts their nature, depersonalizes or takes the ‘humanity ’ out of the way in which we think of the organization. this point is often raised in not-for-profi t organizations, especially by ‘professional’ staff . For example, the head of one european ‘medical association’ (a doctors’ trade union) criticized hospital authorities for expecting a ‘sausage factory service based on productivity targets’ . no matter how similar they appear on paper, it is argued, a hospital can never be viewed in the same way as a factory. even in commercial businesses, professionals, such as creative staff , often express discomfort at their expertise being described as a ‘process’.
● operations management is the activity of managing the resources which are devoted to the creation and delivery of service and products. 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.
❯ What is operations management?
SuMMarY anSWerS tO KeY QueStiOnS
● operations management uses the organization’s resources to create outputs that fulfi l defi ned 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.
❯ Why is operations management important in all types of organization?
M01_SLAC8678_08_SE_C01.indd 31 06/02/16 5:04 PM
32 Part One Directing the operation
❯ What is the input–transformation–output process?
❯ What is the process hierarchy?
● 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.
● most operations create and deliver a combination of services and products, rather than being a ‘pure’ service or ‘product’ product operation.
● all operations are part of a larger supply network which, through the individual contribu- tions 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.
❯ how do operations and processes differ?
❯ What do operations managers do?
● operations and processes differ in terms of the volume of their outputs, the variety of out- puts, 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.
● responsibilities can be classed in four categories – direct, design, deliver and develop:
● Direct includes understanding relevant performance objectives, setting an operations strategy, managing innovation and the scope of the operation.
● Design includes the design of the operation and its processes and its resources.
● Delivery includes the planning and controlling of the activities of the operation.
● Develop includes the improvement of the operation over time.
● increasingly operations managers have a responsibility for an operations environmental performance.
M01_SLAC8678_08_SE_C01.indd 32 06/02/16 5:04 PM
CaSe StuDY Design house partnerships at Concept Design Services
‘ I can't believe how much we have changed in a relatively short time. From being an inward looking manufacturer, we became a customer focused “design and make” opera- tion. Now we are an integrated service provider. Most of our new business comes from the partnerships we have formed with design houses. In effect, we design products jointly with specialist design houses that have a well-known brand, and offer them a complete service of manufacturing and distri- bution. In many ways we are now a “business-to-business” company rather than a “business-to-consumer” company. ’ ( Jim thompson, ceo, concept Design services (cDs))
cDs had become one of europe’s most profitable home- ware businesses. originally founded in the 1960s, the com- pany had moved from making industrial mouldings, mainly in the aerospace sector, and some cheap ‘homeware’ items such as buckets and dustpans, sold under the ‘Focus’ brand name, to making very high-quality (expensive) stylish homewares with a high ‘design value’.
the move into ‘Concept’ products the move into higher margin homeware had been mas- terminded by Linda Fleet, cDs’s marketing Director, who had previously worked for a large retail chain of paint and wallpaper retailers.
‘ Experience in the decorative products industry had taught me the importance of fashion and product development, even in mundane products such as paint. Premium-priced colours and new textures would become popular for one or two years, supported by appropriate promotion and features in lifestyle magazines. The manufacturers and retailers who created and supported these products were dramatically more profitable than those who simply provided standard ranges. Instinctively, I felt that this must also apply to homeware. We decided to develop a whole co-ordinated range of such items, and to open up a new distribution network for them to serve up-market stores, kitchen equipment and specialty retailers. Within a year of launching our first new range of kitchen homeware under the “Concept” brand name, we had over 3000 retail outlets signed up, provided with point-of-sale display facilities. Press coverage generated an enormous interest which was reinforced by the product place- ment on several TV cookery and “lifestyle” programmes. We soon developed an entirely new market and within two years Concept products were providing over 75 per cent of our revenue and 90 per cent of our profits. The price realization of Concept products is many times higher than for the “Focus” range. To keep ahead we launched new ranges at regular intervals. ’
the move to the design house partnerships ‘ Over the last four years, we have been designing, manu- facturing and distributing products for some of the more
prestigious design houses. This sort of business is likely to grow, especially in Europe where the design houses appre- ciate our ability to offer a full service. We can design prod- ucts in conjunction with their own design staff and offer them a level of manufacturing expertise they can’t get elsewhere. More significantly, we can offer a distribution service which is tailored to their needs. From the custom- er’s point of view the distribution arrangements appear to belong to the design house itself. In fact they are based exclusively on our own call centre, warehouse and distri- bution resources. ’
the most successful collaboration was with Villessi, the italian designers. generally it was cDs’s design expertise which was attractive to ‘design house’ partners. not only did cDs employ professionally respected designers, but also it had acquired a reputation for being able to translate difficult technical designs into manufacturable and salea- ble products. Design house partnerships usually involved relatively long lead times but produced unique products with very high margins, nearly always carrying the design house’s brand.
‘ this type of relationship plays to our strengths. our design expertise gains us entry to the partnership but we are soon valued equally for our marketing, distribution and manufacturing competence.’ (Linda Fleet, marketing Director)
Manufacturing operations all manufacturing was carried out in a facility located 20 km from head office. its moulding area housed large injection-moulding machines, most with robotic mate- rials handling capabilities. products and components passed to the packing hall, where they were assembled and inspected. the newer, more complex products often
ChaPter 1 operations management 33
so u
rc e:
a la
m y
im ag
es : m
ik h
ai l t
o ls
to y
M01_SLAC8678_08_SE_C01.indd 33 06/02/16 5:04 PM
34 Part One DIRECTING THE OPERATION
had to move from moulding to assembly and then back again for further moulding. All products followed the same broad process route but with more products need- ing several progressive moulding and assembly stages, there was an increase in ‘process flow recycling ’ which was adding complexity. One idea was to devote a sepa- rate cell to the newer and more complex products until they had ‘bedded in’. This cell could also be used for testing new moulds. However, it would need investment in extra capacity that would not always be fully utilized. After manufacture, products were packed and stored in the adjacent distribution centre.
‘When we moved into making the higher margin Concept products, we disposed of most of our older, small injection-moulding machines. Having all larger machines allowed us to use large multi-cavity moulds. This increased productivity by allowing us to produce several products, or components, each machine cycle. It also allowed us to use high quality and complex moulds which, although cumber- some and more difficult to change over, gave a very high quality product . For example, with the same labour we could make three items per minute on the old machines, and 18 items per minute on the modern ones using multi moulds. That’s a 600 per cent increase in productivity. We also achieved high dimensional accuracy, excellent sur- face finish, and extreme consistency of colour. We could do this because of our expertise derived from years making aerospace products. Also, by standardising on single large machines, any mould could fit any machine. This was an ideal situation from a planning perspective, as we were often asked to make small runs of Concept products at short notice.’ (Grant Williams, CDS Operations Manager)
Increasing volume and a desire to reduce cost had resulted in CDS subcontracting much of its Focus products to other (usually smaller) moulding companies.
‘We would never do it with any complex or Design House partner products, but it should allow us to reduce the cost of making basic products while releasing capacity for higher margin ones. However there have been quite a few “teething problems”. Coordinating the production schedules is currently a problem, as is agreeing quality standards. To some extent it’s our own fault. We didn’t realise that subcontracting was a skill in its own right. And although we have got over some of the problems, we still do not have a satisfactory relation- ship with all of our subcontractors.’ (Grant Williams, CDS Operations Manager)
Planning and distribution services The distribution services department of the company was regarded as being at the heart of the company ’s customer service drive. Its purpose was to integrate the efforts of design, manufacturing and sales by plan- ning the flow of products from production, through the distribution centre, to the customer. Sandra White, the Planning Manager, reported to Linda Fleet and was
responsible for the scheduling of all manufacturing and distribution, and for maintaining inventory levels for all the warehoused items
‘We try to stick to a preferred production sequence for each machine and mould so as to minimise set-up times by starting on a light colour, and progressing through a sequence to the darkest . We can change colours in 15 minutes, but because our moulds are large and technically complex, mould changes can take up to three hours. Good scheduling is important to maintain high plant utilisation. With a higher variety of complex products, batch sizes have reduced and it has brought down average utilisation. Often we can’t stick to schedules. Short-term changes are inevitable in a fashion market. Certainly better forecasts would help…but even our own promotions are sometimes organised at such short notice that we often get caught with stockouts. New products in particular are difficult to forecast , especially when they are “fashion” items and/ or seasonal. Also, I have to schedule production time for new product mould trials; we normally allow 24 hours for the testing of each new mould received, and this has to be done on production machines. Even if we have urgent orders, the needs of the designers always have priority.’ (Sandra White)
Customer orders for Concept and design house part- nership products were taken by the company ’s sales call centre located next to the warehouse. The individual orders would then be dispatched using the company ’s own fleet of medium and small distribution vehicles for UK orders, but using carriers for the Continental European market . A standard delivery timetable was used and an ‘express delivery ’ service was offered for those customers prepared to pay a small delivery pre- mium. However, a recent study had shown that almost 40 per cent of express deliveries were initiated by the company rather than customers. Typically this would be to fulfil deliveries of orders containing products out of stock at the time of ordering. The express delivery ser- vice was not required for Focus products because almost all deliveries were to five large customers. The size of each order was usually very large, with deliveries to cus- tomers’ own distribution depots. However, although the organization of Focus delivery was relatively straightfor- ward, the consequences of failure were large. Missing a delivery meant upsetting a large customer.
Challenges for CDS Although the company was financially successful and very well regarded in the homeware industry, there were a number of issues and challenges that it knew it would have to address. The first was the role of the design department and its influence over new product development.
New product development had become particularly important to CDS, especially since it had formed alliances with design houses. This had led to substantial growth in
M01_SLAC8678_08_SE_C01.indd 34 06/02/16 5:08 PM
ChaPter 1 operations management 35
both the size and the influence of the design department, which reported to Linda Fleet.
‘Building up and retaining design expertise will be the key to our future. Most of our growth is going to come from the business which will be bought in through the creativity and flair of our designers. Those who can combine creativity with an understanding of our partners’ business and design needs can now bring in substantial contracts. The existing business is important of course, but growth will come directly from these people’s capabilities.’ (Linda Fleet)
But not everyone was so sanguine about the rise of the design department.
‘It is undeniable that relationships between the design- ers and other parts of the company have been under strain recently. I suppose it is, to some extent, inevitable. After all, they really do need the freedom to design as they wish. I can understand it when they get frustrated at some of the constraints which we have to work under in the man- ufacturing or distribution parts of the business. They also should be able to expect a professional level of service from us. Yet the truth is that they make most of the problems themselves. They sometimes don’t seem to understand the consequences or implications of their design decisions or the promises they make to the design houses. More seri- ously they don’t really understand that we could actu- ally help them do their job better if the cooperated a bit more. In fact, I now see some of our design house partners’ designers more than I do our own designers. The Villessi designers are always in my factory and we have developed some really good relationships.’ (grant Williams)
the second major issue concerned sales forecasting, and again there were two different views. grant Williams was convinced that forecasts should be improved.
‘Every Friday morning we devise a schedule of production and distribution for the following week. Yet, usually before Tuesday morning, it has had to be significantly changed because of unexpected orders coming in from our customers’ weekend sales. This causes tremendous disruption to both manufacturing and distribution operations. If sales could be forecast more accurately we would achieve far high utiliza- tion, better customer service, and, I believe, significant cost savings.'
however, Linda Fleet saw things differently. ‘Look, I do understand Grant’s frustration, but after all, this
is a fashion business. By definition it is impossible to forecast accurately. In terms of month-by-month sales volumes we are in fact pretty accurate, but trying to make a forecast for every week end every product is almost impossible to do accurately. Sorry, that’s just the nature of the business we're in. In fact, although Grant complains about our lack of forecast accu- racy, he always does a great job in responding to unexpected customer demand.’
Jim thompson, the managing Director, summed up his view of the current situation.
‘Particularly significant has been our alliances with the Italian and German design houses. In effect we are position- ing ourselves as a complete service partner to the designers. We have a world-class design capability together with man- ufacturing, order processing, order-taking and distribution services. These abilities allow us to develop genuinely equal partnerships which integrate us into the whole industry’s activities.’
Linda Fleet also saw an increasing role for collaborative arrangements.
‘It may be that we are seeing a fundamental change in how we do business within our industry. We have always seen ourselves as primarily a company that satisfies con- sumer desires through the medium of providing good ser- vice to retailers. The new partnership arrangements put us more into the “business to business” sector. I don't have any problem with this in principle, but I'm a little anxious as to how much it gets us into areas of business beyond our core expertise.’
the final issue which was being debated within the com- pany was longer term, and particularly important.
‘The two big changes we have made in this company have both happened because we exploited a strength we already had within the company. Moving into Concept products was only possible because we brought our high- tech precision expertise that we had developed in the aerospace sector into the homeware sector where none of our new competitors could match our manufacturing excellence. Then, when we moved into design house part- nerships we did so because we had a set of designers who could command respect from the world class design houses with whom we formed partnerships. So what is the next move for us? Do we expand globally? We are strong in Europe but nowhere else in the world. Do we extend our design scope into other markets, such as furniture? If so, that would take us into areas where we have no manufac- turing expertise. We are great at plastic injection mould- ing, but if we tried any other manufacturing processes, we would be no better than, and probably worse than, other firms with more experience. So what’s the future for us?' ( Jim thompson, ceo cDs)
QueStiOnS 1 Why is operations management important in CDS?
2 Draw a four Vs profile for the company ’s products/ services.
3 What would you recommend to the company if it asked you to advise it in improving its operations?
M01_SLAC8678_08_SE_C01.indd 35 06/02/16 5:04 PM
36 Part One Directing the operation
1 read the ‘operations in practice’ case on pret a manger. (a) identify the processes in a typical pret a manger shop together with their inputs and outputs. (b) pret a manger also supplies business lunches (of sandwiches and other take-away food). What are the implications for how it manages its processes within the shop? (c) What would be the advantages and dis- advantages if pret a manger introduced ‘central kitchens’ that made the sandwiches for a number of shops in an area?
2 compare and contrast torchbox and pret a manger in terms of the way that they need to manage their operations.
3 Visit a hotel (other than Formule 1) and a sandwich or snack shop (other than pret a manger). observe how each operation appears to work: for example, where customers go, how staff interact with them, how big it is, how the operation has chosen to use its space, what variety of products/services it offers, and so on. think about how these shops are similar to Formule 1 and pret a manger, and how they differ.
4 reread the ‘operations in practice’ case on Lego. Lego also lends its name to a chain of Lego-themed amusement parks aimed at younger children and families. although the Lego group has a share in the parks, they are largely owned and operated by a theme park com- pany – merlin entertainments. Visit the website for one of these theme parks (or visit an actual site if you want a day out) and compare the Lego manufacturing operation with the theme park operations using the four Vs.
5 Visit and observe three restaurants. compare them in terms of the four Vs. think about the impact of volume, variety, variation and visibility on the day-to-day management of each of the operations and consider how each operation attempts to cope with its volume, variety, variation and visibility.
6 (Advanced) Find a copy of a financial newspaper ( Financial Times , Wall Street Journal , The Economist , etc.) and identify one company which is described in the paper that day. Using the list of issues identified in Figure 1.4 , what do you think would be the new operations agenda for this company?
SeLeCteD Further reaDinG
anupindi, r. and Chopra, S. (2013) Managing Business Process Flows , 3rd edn, Pearson, harlow.
takes a ‘process’ view of operations; it is mathematical but rewarding.
Barnes, D. (2007) Operations Management: An international perspective , Cengage Learning, Boston, Ma.
a text that is similar in outlook to this one, but with more of a (useful) international perspective.
Brandon-Jones, a . and Slack, n. (2008) Quantitative Analysis in Operations Management , Financial times Prentice hall, harlow.
a useful short book covering some of the more advanced quantitative aspects of operations management.
hall, J.M. and Johnson, M.e. (2009) When should a process be art, not science?, Harvard Business Review , March.
PrOBLeMS anD aPPLiCatiOnS
M01_SLAC8678_08_SE_C01.indd 36 06/02/16 5:04 PM
ChaPter 1 operations management 37
one of the few articles that looks at the boundaries of conventional process theory.
hammer, M. and Stanton, S. (1999) how process enterprises really work, Harvard Business Review, november–December.
hammer is one of the gurus of process design. this paper is typical of his approach.
Jacobs, F.r. and Chase, r.B. (2012) Operations and Supply Chain Management, 3rd edn, McGraw- hill/irwin, new York.
there are many good general textbooks on operations management. this takes a supply chain per- spective, though written very much for an american audience.
Johnston, r., Clark, e. and Shulver M. (2012) Service Operations Management, 4th edn, Pearson, harlow.
What can we say! a great treatment of service operations from the same stable as this textbook.
Slack, n. and Lewis, M.a. (eds) (2005) The Blackwell Encyclopedic Dictionary of Operations Management, 2nd ed, Blackwell Business, Oxford.
For those who like technical descriptions and definitions.
M01_SLAC8678_08_SE_C01.indd 37 06/02/16 5:04 PM
intrOduCtiOn operations are judged by the way they perform. however, there are many ways of judging performance and there are many different individuals and groups doing the judging. also, performance can be assessed at different levels. so in this chapter we start by describing a very broad approach to assessing operations performance at a societal level that uses the ‘triple bottom line’ to judge an operation’s social, environmental and economic impact. We then look at how operations performance can be judged in terms of how it affects an organization’s ability to achieve its overall strategy. the chapter then looks at the more directly operational- level aspects of performance – quality, speed, dependability, flexibility and cost. finally we examine how performance objectives trade off against each other. on our general model of operations management the topics covered in this chapter are represented by the area marked on figure 2.1 .
Operations performance
Key questions
❯ why is operations performance vital in any organization?
❯ how is operations performance judged at a societal level?
❯ how is operations performance judged at a strategic level?
❯ how is operations performance judged at an operational level?
❯ how can operations performance be measured?
❯ how do operations performance objectives trade off against each other?
2
Topic covered in this chapter
Operations management
Direct
Design Develop
Deliver
Direct
Operations performance
The structure
and scope of operations
Operations strategy
Operations management
Product and service innovation
Figure 2.1 this chapter examines operations performance
M02_SLAC8678_08_SE_C02.indd 38 06/02/16 4:52 PM
CHAPTER 2 OPERATIONS PERFORMANCE 39
WHY IS OPERATIONS PERFORMANCE VITAL IN ANY ORGANIZATION?
It is no exaggeration to view operations management as being able either to ‘make or break’ any business – not just because the operations function is large and, in most businesses, repre- sents the bulk of its assets and the majority of its people, but because the operations function gives the power to compete by providing the ability to respond to customers and by develop- ing the capabilities that will keep it ahead of its competitors in the future. But when things go wrong in operations, the reputational damage can last for years. For example, air travel depends on the smooth and efficient operation of airport terminals, so when Terminal 5 at London’s Heathrow Airport first opened and there was chaos on its opening days, it was seen by many as one of the most public failures of basic operations management in the modern history of aviation. The problems included a lack of adequate training in new systems, con- fusing signage, slow baggage handling and a failure to understand how the terminal’s indi- vidual processes needed to be integrated. It needed an extra 400 volunteer staff and courier companies to wade through the backlog of late baggage, and 200 flights in and out of the terminal were cancelled in its first three days. Now, the terminal works well and is popular with passengers, but it has taken time to shake off the poor reputation it gained in those first chaotic days.
So, to understand the importance of operations management, one must first understand why things can go wrong in operations and their impact. We will deal with the nature of oper- ations failures in Chapter 18 , but the first point to make is that when operations do go wrong it can be very obvious. Look at the various high-profile problems and disasters reported in the news. Very many of them are the direct result of poor operations management. From bank ATM failures that inconvenience an operation’s customers, to air crashes that kill them, oper- ations failures are both obvious and serious. Not that all operations failures have to be dra- matic. One could argue that simply doing what has always been done is a failure to exploit opportunities to do things better. In this view, what is sometimes known as ‘keeping the show on the road’ rather than exploring chances for improvement is also a failure. However, do not think that operations management is just about avoiding failure; its contribution to an organization’s overall success if far greater than that. Operations management can ‘make’ the organization in several ways. First, operations management is concerned with doing things better – better quality, better service, better responsiveness, better reliability, better flexibility, better cost, and better use of capital invested in facilities. And it is this focus on ‘better’, on improvement, that can potentially make operations the driver of improvement for the whole organization. Second, through the continual learning that can come from its improvement activities, operations management can build the ‘difficult to imitate’ capabilities that can have a significant strategic impact. (We will deal further with this issue in the next chapter on operations strategy.) Third, operations management is very much concerned with ‘process’, with how things are done. And there is a relationship between process and outcome. Good operations management is the best way to produce good products and services.
Of course, operations managers will always face new challenges, not only when they have major new projects to manage like Terminal 5, but also more generally as their economic, social, political and technological environment changes. Many of these decisions and challenges seem largely economic in nature. What will be the impact on our costs of adding a new product or ser- vice feature? Can we generate an acceptable return if we invest in new technology? Other decisions have more of a ‘social’ aspect. How do we make sure that all our suppliers treat their staff fairly? Yet others have an environmental impact. Are we doing enough to reduce our carbon footprint? What is more, the ‘economic’ decisions also have an environmental aspect to them. Will a new product feature make end-of-life recycling more difficult? Will the new technology increase pollution? Similarly the ‘social’ decisions must be made in the context of their economic consequences. Sure, we want suppliers to treat staff well, but we also need to
✽ ✽ ✽ Operations principle Operations principle Operations principle
M02_SLAC8678_08_SE_C02.indd 39 6/2/16 12:55 PM
40 PART ONE DIRECTING THE OPERATION
make a profit. And this is the great dilemma. How do operations managers try to be, simul- taneously, economically viable while being socially and environmentally responsible? This is why we start our treatment of operations performance at the ‘societal’ level, looking at the ‘triple bottom line’.
OPERATIONS IN PRACTICE
It is not surprising perhaps that a company whose prod- ucts help other firms to operate more sustainably should itself be keen to stress its own environmental and social performance. This certainly is true for Novozymes, the Denmark-based company, whose worldwide production of enzymes, micro-organisms, and biopharmaceutical ingredients help its customers in the household care, food and beverage, bioenergy, agriculture and pharmaceutical industries to ‘ make more from less, while saving energy and generating less waste '. Novozymes is the world leader in what it terms ‘bioinnovation’, particularly in the field of enzyme production and application. Enzymes are pro- teins that, in nature, initiate biochemical reactions in all living organisms. It is enzymes that convert the food in our stomachs to energy and turn the falling leaves in the for- est to compost. Novozymes’ operations find enzymes in nature and optimize them so that they can replace harsh chemicals, accelerate its customers' production processes and minimize the use of scarce resources. These enzymes are widely used in many industries, including, for exam- ple, laundry and dishwashing detergents (where they remove stains and enable low- temperature washing), while other enzymes improve the quality of bread, beer and wine, or increase the nutritional value of animal feed. They are also used in the production of biofuels where they turn starch or cellulose from biomass into sugars that can be fermented to ethanol.
How does Novozymes judge its own performance? It is a commercial company with investors who expect a return on their investment, but the company also strives to balance good business for its customers and its share- holders with the impact it has on environmental and social change. In terms of the conventional financial per- formance of its operations, the company tracks revenues from its various markets as well as its raw materials costs, productivity improvements, investment in research and development, sales and administrative costs, as well as the effects of such operational factors as the product mix at its processing operations. Of course, Novozymes also monitors how good its operations are at interacting with customers and suppliers.
In terms of its environmental performance, Novozymes has two aspects to monitor. The first is its products and services' impact on its customers' performance. The com- pany conducts peer-reviewed life cycle assessment (LCA)
studies to document the environmental impact of its biosolutions for its customers and advise them on ways to reduce their CO 2 emissions. As regards its own oper- ations, Novozymes attempts to reduce the consump- tion of natural resources (including water usage) every year and mitigate the negative environmental impact of its production processes. Likewise, the improvement in energy efficiency is driven by continuous process optimi- zations and the implementation of energy-saving projects at their global production sites. But all production pro- cesses produce waste and by- products, so Novozymes seeks continual improvement in the amount of waste and by-products that are sent for landfill or incineration. This has the double effect of reducing the cost of waste treat- ment as well as minimizing the company's environmen- tal footprint. As a result of these efforts, the Dow Jones Sustainability Index, a global sustainability benchmark, has ranked Novozymes among the top 3 per cent of com- panies in the chemical industry sector.
The company also track several aspects of its social performance. These include: employee satisfaction and development, diversity and equal opportunities, occu- pational health and safety, compliance with human rights and labour standards, corporate citizenship efforts and business integrity. Perhaps most impres- sively, Novozymes sets long-term performance targets in key aspects of its performance that are integrated into incentive schemes throughout the organization. Long-term financial performance is measured conven- tionally through the rate of sales growth, profitability and the return on invested capital. However, in addition,
Novozymes 1
▼
So u
rc e:
S h
u tt
er st
o ck
.c o
m : S
er ge
y N
iv en
s
M02_SLAC8678_08_SE_C02.indd 40 6/2/16 12:55 PM
CHAPTER 2 OPERATIONS PERFORMANCE 41
Performance at three levels Looking at the example of how Novozymes monitors and reports its performance demon- strates the point that ‘performance’ is not a straightforward or simple concept. First, it is multi-faceted in the sense that a single measure can never fully communicate the success, or otherwise, of something as complex as an operation. Several measures will always be needed to convey a realistic overview of the various aspects of performance. Second, per- formance can be assessed at different levels, from the broad, long-term, societal level of Novozymes’ environmental monitoring, for example, to its more operational-level con- cerns over how it improves day-to-day efficiency, or how it serves its individual custom- ers. In the rest of this chapter we will look at how operations can judge its performance at three levels:
● The broad, societal level, using the idea of the ‘triple bottom line’. ● The strategic level of how an operation can contribute to the organization’s overall
strategy. ● The operational level, using the five operations ‘performance objectives’.
These three levels of operations performance are illustrated in Figure 2.2 .
HOW IS OPERATIONS PERFORMANCE JUDGED AT A SOCIETAL LEVEL?
No operation exists, or performs, in isolation. The decisions that are made within any opera- tion and the way it goes about its day-to-day activities will affect a whole variety of ‘stakehold- ers’. Stakeholders are the people and groups who have a legitimate interest in the operation’s activities. Some stakeholders are inter- nal, for example the operation’s employees; others are external, for example customers, society or community groups and a company’s shareholders. Some external stakeholders have a direct commercial relationship with the organization, for example suppliers and custom- ers; others do not, for example industry regulators. In not-for-profit operations, these stakeholder groups can overlap. So, voluntary workers in a charity may be employees, shareholders and customers all at once. However, in any kind of organization, it is a responsibility of the operations function to understand the (sometimes conflicting) objec- tives of its stakeholders and set its objectives accordingly. Figure 2.3 illustrates just some of the stakeholder groups who would have an interest in how an organization’s operations func- tion performs. But although each of these groups, to different extents, will be interested in operations performance, they are likely to have very different views of which aspect of perfor- mance is important. Nevertheless, if one is to judge operations at a broad societal level, one must judge the impact it has on its stakeholders.
Novozymes also has a number of ‘impact targets’. Within five years the company says that its aim is to:
● reach 6 billion people, especially in emerging mar- kets, with its products that enhance sustainability;
● educate by providing knowledge of the potential of biology to 1 million people by training in factories, local-community outreach and involvement with universities and business schools;
● catalyse five global partnerships for change through high-impact partnerships with public and private organizations to create answers for a sustainable world;
● deliver 10 transformative innovations that change the lives of many people and fulfil sustainability goals.;
● save the world 100 million tons of CO 2 a year through customers applying its products;
● enable its employees to develop their skills.
✽ ✽ ✽ Operations principle Operations principle Operations principle
M02_SLAC8678_08_SE_C02.indd 41 6/2/16 12:55 PM
42 PART ONE DIRECTING THE OPERATION
Corporate social responsibility (CSR) This idea that operations should take into account their impact on a broad mix of stakeholders is often termed ‘corporate social responsibility’ (generally known as CSR). According to the UK government’s definition: ‘CSR is essentially about how business takes account of its economic, social and environmental impacts in the way it operates – maximizing the benefits and minimiz- ing the downsides…Specifically, we see CSR as 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.’ A more direct link with the stakeholder concept is to be found in the definition used by Marks and Spencer, the UK-based retailer: ‘Corporate Social Responsibility…is listening and responding to the needs of a company’s stakeholders. This includes the requirements of sustainable development. We believe that building good relationships with employees, suppliers and wider society is the best guarantee of long-term success. This is the backbone of our approach to CSR.’
The issue of how CSR objectives can be included in operations management’s activities is of increasing importance, from both an ethical and a commercial point of view. It is treated several times at various points throughout this book.
The triple bottom line One common term that tries to capture the idea of a broader approach to assessing an organ- ization’s performance is the ‘triple bottom line’2 (TBL, or 3BL), also known as ‘people, plant and profit’. Essentially, it is a straightforward idea: simply that organizations should measure
Operations strategic impact
Risk Capital
Learning
People
Planet
Sustain – ability
Revenue
Profit
Cost
• Quality • Speed • Dependability • Flexibility • Cost
Operational level – operations performance objectives
Strategic level – operations strategic impact
Societal level – operations sustainability
Figure 2.2 Three levels of operations performance
M02_SLAC8678_08_SE_C02.indd 42 6/2/16 12:55 PM
CHAPTER 2 OPERATIONS PERFORMANCE 43
Customers • Acceptable price • Good service • Quality o�erings
Shareholders • Return on investment • Stability of earnings • Liquidity of investment
Government • Conformance to legal requirements • Contribution to economy
Regulatory bodies • Conformance to regulations • Feedback on e�ectiveness of regulations
Lobby groups • Alignment of the organization’s activities with whatever the groups are promoting
Suppliers • Early notice of requirements • Long-term orders • Fair price • On-time payment
‘Society’ • Minimize negative e�ects from the operation (noise, tra�c, etc.) • Maximize positive e�ects (jobs, local sponsorship, etc.)
Top management • Acceptable profit • Return on investment • Low risk of failure • Future innovation
Sta� • Fair wages • Good working conditions • Personal/career development
Sta� representative bodies • Conformance with national agreements • Consultation
Figure 2.3 Stakeholder groups with typical operations objectives
OPERATIONS IN PRACTICE
In most counties it is a principle that is enshrined in law: companies must look after the interests of their owners; in other words, their shareholders. But that is beginning to change. Since 2005 the UK, for example, has allowed people to form ‘community interest companies’ that have a broader set of objectives. Some argue that con- ventional ‘for-profit firms’ come under pressure to dis- card social goals in favour of increasing profits. Charities and ‘non-profit firms’ are constrained in their ability to raise capital when they need to grow. Similarly, in 2012 Yvon Chouinard, founder and owner of Patagonia Inc., the outdoor-clothing firm that designs, develops and markets clothing and gear for a wide range of outdoor sports, became the first business person to take advan- tage of a new law in California that gave businesses greater freedom to follow strategies which they believe benefit society as a whole rather than simply concentrat- ing on maximizing profits. According to Mr Chouinard,
Patagonia is one of the new ‘benefit corporations’ (usu- ally called ‘B Corps’). To meet the criteria as a B Corp, a firm should have a clear and unequivocal social and/ or environmental mission, and a legal responsibility to respect the interests of workers, the community and the environment as well as its shareholders. It must also issue
Patagonia, a B Corp 3
▼
So u
rc e:
S h
u tt
er st
o ck
.c o
m : R
o b
er to
C au
ci n
o
M02_SLAC8678_08_SE_C02.indd 43 6/2/16 12:55 PM
44 PART ONE DIRECTING THE OPERATION
themselves not just on the traditional economic profit that they generate for their owners, but also on the impact their operations have on society (broadly, in the sense of communities, and individually, for example in terms of their employees) and the ecological impact on the environ- ment. The influential initiative that has come out of this triple bottom line approach is that of
‘sustainability’. A sustainable business is one that creates an acceptable profit for its owners, but minimizes the damage to the environment and enhances the existence of the people with whom it has contact. In other words, it balances economic, environmental and societal inter- ests. This gives the organization its ‘licence to operate’ in society. The assumption underlying the triple bottom line (which is not universally accepted) is that a sustainable business is more likely to remain suc-
cessful in the long term than one which focuses on economic goals alone. Only a company that produces a balanced TBL is really accounting for the total cost of running its operations.
The social bottom line (People) – the social account, measured by the impact of the operation on the quality of people’s lives The idea behind the social bottom line performance is not just that there is a connection between businesses and the society in which they operate – that is self-evident. Rather it is that businesses should accept that they bear some responsibility for the impact they have on society and balance the external ‘societal’ consequences of their actions with the more direct internal consequences, such as profit. At the level of the individual, social bottom line per- formance means devising jobs and work patterns which allow individuals to contribute their talents without undue stress. At a group level, it means recognizing and dealing honestly with employee representatives. In addition, businesses are also a part of the larger community and, it is argued, should be recognizing their responsibility to local communities by helping to pro- mote their economic and social well-being.
Some ways that operations can impact the social bottom line performance include the following:
● Customer safety from products and services ● Employment impact of an operation’s location
independently verified information on its social and environmental impact in addition to its financial results.
Patagonia's Mission Statement goes like this: ‘ Build the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environ- mental crisis .’ The company uses environmentally sen- sitive materials (organic cotton, recycled and recyclable polyester, and hemp among them) and both sponsor and participate in a host of environmental initiatives that range from promoting wildlife corridors to combating genetic engineering. Its employees enjoy good benefits, including generous healthcare, subsidized day care, flex- ible work schedules and paid time off for environmental internships. Many employees share the company's val- ues, care about quality and are active in environmental and community causes. But, like most clothing compa- nies, Patagonia outsources its production. So how does it ensure that the company's values are also upheld in its supply chain? It is important, it says, to work with
suppliers ‘ that share our values of integrity and environ- mentalism. In the past, we found we didn't have to make a lot of extra effort to achieve this. Our demand for high quality and our close relationships with the small number of factories we did business with pretty much assured it. It really is true that you can't make good products in a bad factory, and we did business with some of the world's best. They were, for the most part, efficient and well run. The people who worked in them tended to have a lot of experience. Despite high employee turnover elsewhere in the garment industry, these factories were able to retain employees because they paid them fairly and treated them humanely. ’ Transparency is also important. In an effort to understand the social and environmental impacts of its supply chain, Patagonia launched its Footprint Chronicles , in which it traces the environmental and social impact of products from design through fibre creation to construc- tion to shipment to its warehouse.
✽ ✽ ✽ Operations principle Operations principle Operations principle
M02_SLAC8678_08_SE_C02.indd 44 6/2/16 12:55 PM
CHAPTER 2 OPERATIONS PERFORMANCE 45
● Employment implications of outsourcing ● Repetitive or alienating work ● Staff safety and workplace stress ● Non-exploitation of developing country suppliers.
The environmental bottom line (Planet) – the environmental account, measured by environmental impact of the operation Environmental sustainability (according to the World Bank) means ‘ ensuring that the over- all productivity of accumulated human and physical capital resulting from development actions more than compensates for the direct or indirect loss or degradation of the environment ’. Put more directly, it is generally taken to mean the extent to which business activity negatively impacts the natural environment. It is clearly an important issue, not only because of the obvi- ous impact on the immediate environment of hazardous waste, air and even noise pollution, but also because of the less obvious, but potentially far more damaging, issues around global warming. Operations managers cannot avoid responsibility for environmental performance. It is often operational failures which are at the root of pollution disasters and operations deci- sions (such as product design) which impact on longer term environmental issues.
Some ways that operations can impact the environmental bottom line performance include the following:
● Recyclability of materials, energy consumption, waste material generation ● Reducing transport-related energy ● Noise pollution, fume and emission pollution ● Obsolescence and wastage ● Environmental impact of process failures ● Recovery to minimize impact of failures.
OPERATIONS IN PRACTICE
Holcim is a global company, based in Switzerland, and employs around 80,000 people, with production sites in around 70 countries. It is one of the world's leading man- ufacturers and distributors of cement and aggregates (for example, crushed stone, gravel and sand). It also supplies ready-mix concrete and asphalt as well as offering con- sulting, research, trading, engineering and other services. But, along with other companies in this sector, Holcim faces some considerable challenges in pursuing its sus- tainability objectives. After all, cement manufacture is an activity that has a significant impact on almost every aspect of sustainability and social responsibility. Concrete is the second most used resource in the world after water. As the chief ingredient in concrete, cement is therefore a key requirement of modern society, but its manufacture is a resource- and energy-intensive process. This possi- bly explains why Holcim put so much effort into its sus- tainable development strategies. It aspires, it says, ‘ to be the world's most respected and attractive company in our industry, creating value for all our stakeholders, by placing sustainable development at the core of our business strat- egy aims to enhance this value, safeguards our reputation
and contributes to continued success ’. Holcim's strategy and its approach to value creation attempts to integrate economic, environmental and social impacts using the ‘triple bottom line’ approach.
To achieve its triple bottom line business goals, Holcim has established a set of group-wide performance targets. But, before targets are met, the company aims to understand its current performance. Holcim does this
Holcim works with the ‘triple bottom line’ 4
▼
So u
rc e:
G et
ty Im
ag es
: B lo
o m
b er
g /
Ph ili
p p
S ch
m id
li
M02_SLAC8678_08_SE_C02.indd 45 6/2/16 12:55 PM
46 PART ONE DIRECTING THE OPERATION
The economic bottom line (Profit) – the economic account, measured by profitability, return on assets, etc., of the operation The organization’s top management represent the interests of the owners (or trustees, or electorate, etc.) and therefore are the direct custodians of the organization’s economic per- formance. Broadly this means that operations managers must use the operation’s resources effectively, and there are many ways of measuring this ‘economic bottom line’. Finance spe- cialists have devised various measures (such as return on assets etc.), that are beyond the scope of this book, to do this.
Some ways that operations can impact the financial bottom line performance include the following:
● Cost of producing products and services ● Revenue from the effects of quality, speed, dependability and flexibility ● Effectiveness of investment in operations resources ● Risk and resilience of supply ● Building capabilities for the future.
We will build on these ‘economic bottom line’ issues in the next section on judging opera- tions performance at a strategic level.
HOW IS OPERATIONS PERFORMANCE JUDGED AT A STRATEGIC LEVEL?
Many (although not all) of the activities of operations managers are operational in nature. That is, they deal with relatively immediate, detailed and local issues. However, it is a cen- tral idea in operations management that the type of decisions and activities that operations
by establishing consistent measurement and report- ing techniques, as well as implementing management systems to monitor progress toward its goals. Yet CSR- related performance measurement systems should not,
says Holcim, be separate from the more conventional business systems. To work effectively, CSR performance systems are integrated into overall business processes and supported by appropriate training.
Critical commentary
The dilemma with using this wide range of triple bottom line, stakeholders or CSR to judge operations performance is that organizations, particularly commercial companies, have to cope with the confl icting pressures of maximizing profi tability on the one hand, with the expectation that they will manage in the interests of (all or part of ) society in general with accountability and transparency, on the other. Even if a business wanted to refl ect aspects of performance beyond its own immediate interests, how is it to do it? According to Michael Jensen of Harvard Business School, ‘ At the economy-wide or social level, the issue is this: If we could dictate the criterion or objective function to be maximized by fi rms (and thus the performance criterion by which corporate executives choose among alternative policy options), what would it be? Or, to put the issue even more simply: How do we want the fi rms in our economy to measure their own performance? How do we want them to determine what is better versus worse? ' 5 He also holds that using stakeholder perspectives gives undue weight to narrow special interests who want to use the organization's resources for their own ends. The stakeholder perspective gives them a spurious legitimacy which ‘ undermines the foundations of value-seeking behaviour ’.
M02_SLAC8678_08_SE_C02.indd 46 6/2/16 12:55 PM
CHAPTER 2 OPERATIONS PERFORMANCE 47
managers carry out can also have a significant strategic impact. Therefore, if one is assessing the performance of the operations function, it makes sense to ask how it impacts the organi- zation’s strategic ‘economic’ position. We will examine that in more detail the way that oper- ations management can think about the strategic role. But, at a strategic level, there are five aspects of operations performance that we identified as contributing to the ‘economic’ aspect of the triple bottom line that can have a significant impact, see Figure 2.4.
Let us start by looking at how operations affect profit. At a simple (and simplistic) level, profit is the difference between the costs of producing products and services and the reve- nue the organization secures from its customers in exchange. (In public sector operations an equivalent, although difficult to measure, performance metric could be ‘welfare per unit of expenditure’.)
