Operations management and operations performance

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Operations Management

8th edition

Chapter 2

Operations Performance

Slack et al.’s model of operations management

In Chapter 2 – Operations performance – Slack et al. identify

the following 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?

Key questions

Three levels of operations performance

Stakeholder groups with typical operations objectives

People – The social

account, measured by

the impact of the

operation on the quality

of people’s lives

Planet – The environmental account,

measured by environmental impact of

the operation

Profit – The economic

account, measured by

profitability, return on

assets, etc. of the

operation

Sustainability

How operations can impact TBL performance (1 of 3)

• Recyclability of materials, energy consumption and 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

People – The social

account, measured by

the impact of the

operation on the quality

of people’s lives

Planet – The environmental account,

measured by environmental impact of

the operation

Profit – The economic

account, measured by

profitability, return on

assets, etc. of the

operation

Sustainability

How operations can impact TBL performance (2 of 3)

• Customer safety from products and services

• Employment impact of an operation’s location

• Employment implications of outsourcing

• Repetitive or alienating work

• Staff safety and workplace stress

• Non-exploitation of developing country suppliers

People – The social

account, measured by

the impact of the

operation on the quality

of people’s lives

Planet – The environmental account,

measured by environmental impact of

the operation

Profit – The economic

account, measured by

profitability, return on

assets, etc. of the

operation

Sustainability

How operations can impact TBL performance (3 of 3)

• 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

OM’s contribution to the ‘economic bottom line’

Employ skilled, enthusiastic people, and encourage them to contribute

ideas for cutting out waste and working more effectively.

Carefully monitor their customers’ perception of the quality of service they

are receiving and learn from any examples of poor service and always

apologise and rectify any failure to give excellent service.

Have invested in simply but appropriate systems of their own that allow

the business to plan and control its activities effectively.

Hold regular meetings where staff share their experiences and think

about how they can build their knowledge of customer needs, new

technologies and how their services will have to change in the future to

add value for their customers and help the business to remain

competitive.

Company A has operations managers who…

Last year’s financial details for Company A

Employ only people who have worked in similar companies before and

supervise them closely to make sure that they ‘earn their salaries’.

Have rigid ‘completions of service’ sheets that customers sign to say that

they have received the service, but they never follow up to check on

customers’ views of the service that they have received.

Have bought an expensive integrative system with extensive functionality,

because ‘you might as well invest in state-of-the art technology’.

At the regular senior managers’ meeting always have an agenda item

entitled ‘Future business’.

Company B has operations managers who…

Last year’s financial details for Company B

Original –

(sales volume =

50,000 units)

(€,000)

Option 1 –

sales campaign

Increase sales

volumes by 30%

to 65,000 units

(€,000)

Option 2 –

operations efficiency

Reduce operating

expenses by 20%

(€,000)

Option 3 –

‘speedy service’

Increase price

by 10%

(€,000)

Sales

revenue

5,000 6,500 5,000 5,500

Operating

expenses

4,500 5,550 3,800 4,500

EBIT 500 1,000 1,200 1,000

Investment

required

100 70

The effects of three options at Kandy Kitchens

Stakeholder What stakeholders want from the

operation

What the operation wants from

stakeholders

Shareholders Return on investment

Stability of earnings

Liquidity of investment

Investment capital

Long-term commitment

Directors/top

management

Low/acceptable operating costs

Secure revenue

Well-targeted investment

Low risk of failure

Future innovation

Coherent, consistent, clear and

achievable strategies

Appropriate investment

Staff Fair wages

Good working conditions

Safe work environment

Personal and career development

Attendance

Diligence/best efforts

Honesty

Engagement

Staff representative

bodies (e.g. trade

unions)

Conformance with national

agreements

Consultation

Understanding

Fairness

Assistance in problem solving

Suppliers (of

materials, services,

equipment, etc.)

Early notice of requirements

Long-term orders

Fair price

On-time payment

Integrity of delivery, quality and

volume

Innovation

Responsiveness

Progressive price reductions

Typical stakeholders’ performance objectives (1 of 2)

Stakeholder What stakeholders want from

the operation

What the operation wants

from stakeholders

Regulators

(e.g. financial

regulators)

Conformance to regulations

Feedback on effectiveness of

regulations

Consistency of regulation

Consistency of application of

regulations

Responsiveness to industry

concerns

Government

(local, national,

regional)

Conformance to legal

requirements

Contribution to

(local/national/regional)

economy

Low/simple taxation

Representation of local

concerns

Appropriate infrastructure

Lobby groups

(e.g.

environmental

lobby groups)

Alignment of the organization’s

activities with whatever the

group are promoting

No unfair targeting

Practical help in achieving aims

(if the organization wants to

achieve them)

Society Minimize negative effects from

the operation (noise, traffic, etc.

and maximize positive effects

(jobs, local sponsorship, etc).

Support for organization’s

plans

Typical stakeholders’ performance objectives (2 of 2)

The five operations’ performance objectives

Quality Being RIGHT

Speed Being FAST

Dependability Being ON TIME

Cost Being PRODUCTIVE

Being ABLE TO CHANGEFlexibility

Minimum cost,

maximum value

Minimum price, highest value

Fast

throughput

Quick

delivery

Reliable

operation

Dependable

delivery

Error-free

processes

On-

specification

products and

services

Ability to

change

Frequent new

products, maximum

choice

The benefits of excelling at the five objectives

Dependability

Cost

Speed

Quality Flexibility

Internal

benefits

External

benefits

What does Quality mean in… (1 of 4)

Patients receive the most appropriate treatment.

… a Hospital?

Treatment is carried out in the correct manner.

Patients are consulted and kept informed.

Staff are courteous, friendly and helpful.

… an automobile plant?

All assembly is to specification.

Product is reliable.

All parts are made to specification.

The product is attractive and blemish-free.

What does Quality mean in… (2 of 4)

… a bus company?

The buses are clean and tidy.

The buses are quiet and fume-free.

The timetable is accurate and user-friendly.

Staff are courteous, friendly and helpful.

What does Quality mean in… (3 of 4)

… a supermarket?

The store is clean and tidy.

Décor is appropriate and attractive.

Goods are in good condition.

Staff are courteous, friendly and helpful.

What does Quality mean in… (4 of 4)

Two common meanings of ‘Quality’

Quality as the specification of a product or service

e.g. Lower Hurst Farm produces organic meat raised

exclusively on its own farm

Quality as the conformance with which the product or service

is produced

e.g. Quick service restaurants like McDonald’s may buy

less expensive meat, but its conformance must be high

Irrespective of a product or service’s specification quality, producing it so it

conforms to its specification consistently brings benefits to any operation.

Externally – it enhances the product or service in the market, or at least

avoids customer complaints.

Internally – it brings other benefits to the operation.

It prevents errors slowing down throughput speed.

It prevents errors causing internal unreliability and low

dependability.

It prevents errors causing wasted time and effort, therefore saving

cost.

External and internal benefits of conformance quality

The time between requiring treatment and receiving treatment is kept to a minimum.

… a Hospital?

What does Speed mean in… (1 of 4)

The time for test results, X-rays, etc. to be returned is kept to a minimum.

What does Speed mean in… (2 of 4)

… an automobile plant?

Time between dealers requesting a vehicle of a particular specification and receiving it is minimized.

Time to deliver spares to service centres is minimized.

… a bus company?

The time between customer setting out on the journey and reaching his or her destination is kept to a minimum.

What does Speed mean in… (3 of 4)

… a supermarket?

The time for the total transaction of going to the supermarket, making the purchases and returning it is minimized.

The immediate availability of goods.

What does Speed mean in… (4 of 4)

Speed again has different interpretations externally and internally.

Externally – it means the elapsed time between a customer asking for a

product or service and getting it (in a satisfactory condition).

It often enhances the value of the product or service to customers.

Internally – it brings other benefits to the operation.

It helps to overcome internal problems by maintaining dependability.

It reduces the need to manage transformed resources as they pass

through the operation, therefore saving cost.

External and internal benefits of speed

What does Dependability mean in… (1 of 4)

Proportion of appointments that are cancelled kept to a minimum.

… a hospital?

Keeping appointment times.

Test results, X-rays, etc. returned as promised.

… an automobile plant?

On-time delivery of vehicles to dealers.

On-time delivery of spares to service centres.

What does Dependability mean in… (2 of 4)

… a bus company?

Keeping to the published timetable at all points on the route.

Constant availability of seats for passengers.

What does Dependability mean in… (3 of 4)

… a supermarket?

Predictable opening hours.

Proportion of goods out of stock kept to a minimum.

Keeping to reasonable queuing times.

Constant availability of parking.

What does Dependability mean in… (4 of 4)

Externally – it enhances the product or service in the market, or at least

avoids customer complaints.

Internally – it brings other benefits to the operation.

It prevents late delivery slowing down throughput speed.

It prevents lateness causing disruption and wasted time and effort,

therefore saving cost.

External and internal benefits of Dependability

Flexibility has several distinct meanings but is always

associated with an operation’s ability it change.

Change what?

 The products and services it brings to the market –

Product/service flexibility.

 The mix of products and services it produces at any one

time – Mix flexibility.

 The volume of products and services it produces – Volume

flexibility.

 The delivery time of its products and services – Delivery

flexibility.

Flexibility – what does it mean?

What does Flexibility mean in… (1 of 4)

Introducing new treatments.

… a Hospital?

A wide range of treatments.

The ability to adjust the number of patients treated.

The ability to reschedule appointments.

… an automobile plant?

The introduction of new models.

A wide range of options.

The ability to adjust the number of vehicles manufactured.

The ability to reschedule manufacturing priorities.

What does Flexibility mean in… (2 of 4)

… a bus company?

The introduction of new routes and excursions.

A large number of locations served.

The ability to adjust the frequency of services.

The ability to reschedule trips.

What does Flexibility mean in… (3 of 4)

… a supermarket?

The introduction of new goods.

A wide range of goods stocked.

The ability to adjust the number of customers served.

The ability to get out-of-stock items.

What does Flexibility mean in… (4 of 4)

… a hospital ?

Staff

costs

Technology

and facilities

costs

Bought-in

materials

and

services

What does Cost mean in… (1 of 4)

… an automobile plant?

Technology

and facilities

costs

Staff

costs

Bought-in

materials

and

services

What does Cost mean in… (2 of 4)

… a bus company?

Staff

costs

Technology

and facilities

costs

Bought-in

materials

and

services

What does Cost mean in… (3 of 4)

…. a supermarket?

What does Cost mean in………

Staff

costs

Technology

and facilities

costs

Bought-in

materials

and

services

What does Cost mean in… (4 of 4)

External and internal benefits of performance

objectives

Polar diagrams

Polar diagrams are used to indicate the relative

importance of each performance objective to an operation

or process.

They can also be used to indicate the difference between

different products and services produced by an operation

or process. Cost

Quality Flexibility

Dependa

bility Speed

Polar diagrams for a taxi service versus a bus

service

Polar diagrams for police performance

The measures used in the balanced scorecard

Trade-offs

‛Do you want it good, or do you want it Tuesday’?

‘No such thing as a free lunch’.

‘ You can’t have an aircraft which flies at the speed of

sound, carries 400 passengers and lands on an aircraft

carrier. Operations are just the same’. (Skinner)

‘Trade-offs in operations are the way we are willing to

sacrifice one performance objective to achieve excellence in

another’.

The ‘efficient frontier’ view of trade-offs