Operations Strategy - Process of Operations Strategy Substitute for St

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Operations Strategy 9:

Operations Strategy 9 Process of Operations Strategy – Substitutes for Strategy Ch 9 Slack & Lewis

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This chapter concerns the process of using substitutes for strategy The process of achieving sustainable alignment of market requirements with operations resources The process of using substitutes for strategy The process of implementing operations strategy

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Look at five of the most commonly adopted approaches to operations that are often used as ‘substitutes for strategy Total Quality Management (TQM) Lean Operations Business Process Reengineering Enterprise Resource Management Six-Sigma

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‘an effective system for integrating the quality development, quality maintenance and quality improvement efforts of the various groups in an organisation so as to enable production and service at the most economical levels which allow for full customer satisfaction. Feigenbaum (generally held to be the originator of the term) defines TQM as…

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The elements of TQM Meeting the needs and expectations of customers Covering all parts of the organisation Including every person in the organisation Examining all costs which are related to quality, especially failure costs Getting things ‘right first time’ Developing the systems and procedures which support improvement’

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Leadership People Policy and strategy Partnership and resources Processes People results Customer results Society results Key performance results EFQM (European Foundation for Quality Management) excellence model

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EFQM excellence model - Leadership People Policy and strategy Partnership and resources Processes People results Customer results Society results Key performance results Leadership – how leaders develop and facilitate the achievement of the mission and vision, develop values required for long-term success and implement these through appropriate actions and behaviour, and are personally involved in ensuring that the organisation’s management system is developed and implemented.

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EFQM excellence model – People, policy and strategy, partnerships and resources Policy and strategy – how the organisation implements its mission and vision through a clear stakeholder-focused strategy, supported by relevant policies, plans, objectives, targets and processes. Processes People results Customer results Society results Key performance results People – how the organisation manages, develops, and releases the knowledge and full potential of its people. Partnerships and resources – how the organisation plans and manages its external partnerships and internal resources to support its policy and strategy and the effective operation of its processes. Leadership

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Leadership People Policy and strategy Partnership and resources People results Customer results Society results Key performance results Processes – how the organisation designs, manages and improves its processes in order to support its policy and strategy and fully satisfy, and generate increasing value for, its customers and other stakeholders. EFQM excellence model – Processes

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EFQM excellence model – People results, customer results and society results Processes People Policy and strategy Partnership and resources Key performance results Customer results – this includes customers’ loyalty and their perceptions of the organisation’s image, product and services, sales and after-sales support. People results – this covers employees’ motivation, satisfaction, performance and the services the organisation provides for its people. Society results – this relates to the organisation’s performance as a responsible citizen, its involvement in the community in which it operates, and any recognition it might have received. Leadership

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EFQM excellence model – Key performance results People Policy and strategy Partnership and resources Processes People results Customer results Society results Key performance results – this shows the financial and non-financial outcomes of the organisation’s planned performance, including such things as cash flow, profit, meeting budgets, success rates and the value of intellectual property. Leadership

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TQM elements in the four operations strategy decision categories Decision areas Market competitiveness Process technology Resource usage Development And organisation Provide resources to support quality Use quality as performance criterion Quality Performance objectives Dependability Speed Flexibility Cost Capacity Supply network Capacity

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Decision areas Capacity Market competitiveness Process technology Resource usage Development And organisation Continuous quality emphasis with suppliers Purchase using quality criterion Work on functional barriers Quality Performance objectives Dependability Speed Flexibility Cost Supply network Supply network TQM elements in the four operations strategy decision categories (Continued)

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Decision areas Capacity Supply network Market competitiveness Process technology Resource usage Development And organisation Built-in quality in process Statistical process control Enhance quality capability Quality as a performance criterion Quality Performance objectives Dependability Speed Flexibility Cost Process technology TQM elements in the four operations strategy decision categories (Continued)

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Decision areas Capacity Supply network Market competitiveness Process technology Resource usage Development and organisation Long-term plans Quality culture Continuous improvement Quality performance measurement and control Training and education emphasis Operational supervision is important Communication Appropriate organisational structure Quality Performance objectives Dependability Speed Flexibility Cost Development and organisation TQM elements in the four operations strategy decision categories (Continued)

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The lean approach aims to meet demand instantaneously, with perfect quality and no waste It means that the flow of products and services always delivers… exactly what customers want (perfect quality) in exact quantities (neither too much nor too little) exactly when needed (not too early or too late) exactly where required (not to the wrong location) at the lowest possible cost. It results in items flowing rapidly and smoothly through processes, operations and supply networks.

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The lean approach to operations includes….. Customer-based demand triggers Synchronised flow Involvement behaviour Waste elimination Waste from irregular flow Waste from inexact supply Waste from inflexible response Waste from variability

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Work centre Work centre Work centre buffer inventory buffer inventory Lean flow – how do items move through your processes? Traditional approach – ‘Push’

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Work centre Work centre Work centre Work centre Request Delivery Request Delivery Request Delivery Lean flow – how do items move through your processes? Traditional approach – ‘Push’ …Don’t send anything anywhere…. Make them come and get it…

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Behaviour Synchronization Waste elimination Customer focus The four elements

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WIP Defective materials Rework Scrap Downtime Productivity problems Productivity problems Reduce the level of inventory (water) to reveal the operation’s problems WIP Defective materials Rework Scrap Downtime

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Lean elements in the four operations strategy decision categories Decision areas Market competitiveness Process technology Resource usage Development And organisation Sacrifice high utilisation for fast and dependable throughput Quality Performance objectives Dependability Speed Flexibility Cost Capacity Supply network Capacity

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Decision areas Capacity Market competitiveness Process technology Resource usage Development And organisation Supplier development to ensure quality and delivery conformance Integrated supply network coordination to ensure synchronous flow Work on functional barriers Quality Performance objectives Dependability Speed Flexibility Cost Supply network Supply network Lean elements in the four operations strategy decision categories (Continued)

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Decision areas Capacity Supply network Market competitiveness Process technology Resource usage Development And organisation Small flexible technology Emphasis on equipment reliability Reduce process variability Quality Performance objectives Dependability Speed Flexibility Cost Process technology Lean elements in the four operations strategy decision categories (Continued)

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Decision areas Capacity Supply network Market competitiveness Process technology Resource usage Development and organisation Continuous improvement through waste elimination Smooth synchronised flow exposes waste People motivation and involvement through reduced buffering Quality Performance objectives Dependability Speed Flexibility Cost Development and organisation Lean elements in the four operations strategy decision categories (Continued)

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BPR has been defined as….. the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, service and speed. Hammer, M. and Champy, J. (1993) ‘Reengineering the Corporation: A manifesto for business revolution’, Harper Business What is Business process reengineering BPR

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BPR advocates reorganising (re-engineering) processes to reflect the natural processes that fulfil customer needs Function 1 Customer needs Customer needs fulfilled Functionally based processes Function 2 Function 3 Function 4 Business processes End-to-end process 1 End-to-end process 2 End-to-end process 3

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BP elements in the four operations strategy decision categories Decision areas Market competitiveness Process technology Resource usage Development and organisation Balance capacity across end-to-end processes Quality Performance objectives Dependability Speed Flexibility Cost Capacity Supply network Capacity

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BPR elements in the four operations strategy decision categories Decision areas Capacity Market competitiveness Process technology Resource usage Development and organisation Internally, customers become their own supplier rather than depending on another function Quality Performance objectives Dependability Speed Flexibility Cost Supply network Supply network

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BPR elements in the four operations strategy decision categories Decision areas Capacity Supply network Market competitiveness Process technology Resource usage Development and organisation Information technology is an enabler of cost reduction Quality Performance objectives Dependability Speed Flexibility Cost Process technology

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BPR elements in the four operations strategy decision categories Decision areas Capacity Supply network Market competitiveness Process technology Resource usage Development and organisation - Locate decision making at the lowest practical level - Rethink business processes in a cross-functional manner - Dramatic cost reductions can come from the elimination of unnecessary process steps Quality Performance objectives Dependability Speed Flexibility Cost Development and organisation

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Enterprise Resource Planning (ERP) is described as… a complete enterprise-wide business solution that integrates the planning, resource allocation, and control of activities of all parts of the business. The intent is that all transaction information is entered into the system at its source and done only once, with all relevant information brought together and integrated.

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Web-integrated Enterprise Resource Planning (Collaborative Commerce, c-commerce) The development of ERP Enterprise Resource Planning (ERP) Manufacturing Resource Planning (MRPII) Increasing integration of information systems Increasing impact on the whole supply network Material Requirements Planning (MRP)

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Because software communicates across all functions, there is absolute visibility of what is happening in all parts of the business. The discipline of forcing business process-based changes is an effective mechanism for making all parts of the business more efficient. There is better ‘sense of control’ of operations that will form the basis for continuous improvement. It enables far more sophisticated communication with customers, suppliers and other business partners. It is capable of integrating whole supply chains including suppliers’ suppliers and customers’ customers. The benefits of ERP

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ERP integrates several systems Integrated database Senior management and stakeholders Employees Suppliers Customers Purchasing and supply applications Operations applications Financial applications Strategic reporting applications Sales and marketing applications Delivery and logistics applications Service applications HRM applications Front-office staff Back-office staff

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ERP elements in the four operations strategy decision Categories Decision areas Market competitiveness Process technology Resource usage development and organisation Coordinate capacity planning Quality Performance objectives Dependability Speed Flexibility Cost Capacity Supply network Capacity

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ERP elements in the four operations strategy decision categories (Continued) Decision areas Capacity Market competitiveness Proces technology Resource usage Development and organisation Link with and coordinate with suppliers’ and customers’ planning systems ‘ Quality Performance objectives Dependability Speed Flexibility Cost Supply network Supply network

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Decision areas Capacity Supply network Market competitiveness Process technology Resource usage Development and organisation Very substantial investment in IT capability Quality Performance objectives Dependability Speed Flexibility Cost Process technology ERP elements in the four operations strategy decision categories (Continued)

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Decision areas Capacity Supply network Market competitiveness Process technology Resource usage Development and organisation - Must have fit between the ERP’s structure and the operation's processes - Very substantial training and familiarisation required - Requires data integrity Quality Performance objectives Dependability Speed Flexibility Cost Development and organisation ERP elements in the four operations strategy decision categories (Continued)

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What is Six Sigma? Named because it requires the natural variation of processes (± 3 standard deviations or ‘sigma’) should be half their specification range. So the specification range of a product or service should be ± 6 the standard deviation of the process. Now the definition of Six Sigma has widened to be defined as… … a disciplined methodology of defining, measuring, analysing, improving, and controlling the quality in every one of the company’s products, processes, and transactions – with the ultimate goal of virtually eliminating all defects’

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The elements of Six Sigma Customer - driven objectives Use of evidence Structured improvement cycle Structured training and organisation of improvement Process capability and control Process design Process improvement

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Define – identify problem, define requirements and set the goal Measure – gather data, refine problem and measure inputs and outputs Analyse – develop problem hypotheses, identify ‘root causes’ and validate hypotheses Improve – develop improvement ideas, test, establish solution and measure results Control – establish performance standards and deal with any problems The DMAIC cycle used in Six Sigma

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Six Sigma elements in the four operations strategy decision categories Decision areas Capacity Supply network Market competitiveness Process technology Resource usage Development and organisation Emphasis on process control Quality Performance objectives Dependability Speed Flexibility Cost Process technology

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Six Sigma elements in the four operations strategy decision categories (Continued) Decision areas Capacity Supply network Market competitiveness Process technology Resource usage Development and organisation - Improvement through a structured decision- making cycle - Strong evidence- based methodology - Very substantial training required Emphasis on process knowledge Quality Performance objectives Dependability Speed Flexibility Cost Development and organisation

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Some points for discussion How much should one be influenced by the experiences of other organisations? Operations that rely on others to define what is ‘best practice’, are always limiting themselves to currently accepted methods of operating or currently accepted limits to performance. Best practice is not ‘best’ in the sense that it cannot be bettered, it is only ‘best’ in the sense that it is the best one can currently find.

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Some points for discussion (Continued) Senior managers sometimes use these new approaches without fully understanding them. If senior managers do not understand these approaches, how can the rest of the organisation take them seriously? Not every approach fits every set of circumstances. So understanding in detail what each approach means must be the first step in deciding whether it is appropriate. The details of these approaches are not simply technical matters. They are fundamental to how appropriate the approach could be in different contexts.

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Some points for discussion (Continued) All these approaches are different. Does the approach emphasise a gradual, continuous approach to change, or a more radical ‘breakthrough’ change? What is the balance between whether the approach emphasises what changes should be made or how changes should be made?

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Each of the ‘new approaches’ positioned in terms of their emphasis on what changes to make or how to make the changes, and whether they emphasise rapid or gradual change Emphasis on rapid change Emphasis on gradual change Emphasis on what to do Emphasis on how to do it Six Sigma BPR ERP Lean TQM

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Some points for discussion (Continued) These approaches are not strategies but they are strategic decisions. Operations strategy is the reconciliation of market requirements and operations resource capabilities. Operations strategy is individual and specific to one organisation at one point in time, but these approaches are generic. An individual enterprise’s market requirements and operations resource capabilities are unique. They are an important part of a strategy, but not strategies in themselves.

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