RDI

Master of Business Administration

Operations Management
Word Count: 3893

July 12
2010

Student ID: STU19585

Author: Teena Macanah Venkatasamy

Authors Note

For confidentiality purposes the name of the company has been omitted.

Operations Management

Contents

Introduction.................................................................................................................................... 1 1.1 Company Background ......................................................................................................... 1

Overview of problem .................................................................................................................... 2 2.1 Relationship to operations management .......................................................................... 2

3 4

Processes ...................................................................................................................................... 4 Operations theory ......................................................................................................................... 6 4.1 i. ii. iii. iv. 4.2 i. ii. iii. Planning ................................................................................................................................. 6 Aim and objectives ............................................................................................................... 6 Process, dependencies and outputs ................................................................................. 6 Resources, milestones and schedules ............................................................................. 6 Risks ................................................................................................................................... 7 Controlling ............................................................................................................................. 7 Monitoring .............................................................................................................................. 7 Assessing .............................................................................................................................. 8 Correcting .............................................................................................................................. 8

Operations practice ...................................................................................................................... 9 5.1 i. ii. iii. iv. 5.2 i. ii. iii. Planning ................................................................................................................................. 9 Aim and objectives ............................................................................................................... 9 Process, dependencies and outputs ................................................................................. 9 Resources, milestones and schedules ............................................................................. 9 Risks ................................................................................................................................... 9 Controlling ........................................................................................................................... 10 Monitoring ............................................................................................................................ 10 Assessing ............................................................................................................................ 11 Correcting ............................................................................................................................ 13

5.3 6

Critics ................................................................................................................................... 14

Improvement Concepts ............................................................................................................. 15 6.1 i. ii. iii. iv. v. 6.2 i. ii. iii. DMAIC .................................................................................................................................. 15 Define ................................................................................................................................... 15 Measure ............................................................................................................................... 15 Analyse ................................................................................................................................ 15 Improve ............................................................................................................................ 16 Control.................................................................................................................................. 17 Lean Thinking ..................................................................................................................... 18 Add nothing but value (Eliminate waste) ........................................................................ 18 Center on the people who add value .............................................................................. 18 Flow value from demand (Delay commitment) .............................................................. 19

References .................................................................................................................................. 20 7.1 7.2 Ebooks ................................................................................................................................. 20 Websites .............................................................................................................................. 20

Operations Management

1 Introduction
All organisations make products be it tangible goods or intangible services. Operations management deals with the set of operations required to make the products and the way the operations are designed, planned, organised and controlled (Waters, 1999). Today there is increased emphasis on operations management because of its strategic importance regarding performance, quality and customer satisfaction. This report looks at operations management in a particular company; the operational concerns and the recommended approach for process improvement.

1.1 Company Background

ABC Corporation is a leading global company which specializes in Payroll and Human Resource Management (HRM) solutions. The holding company is found in the United States. ABC Corporation outsources its back-office operations in several countries including Mauritius. Mauritius was chosen as the service provider for payroll and IT solutions.

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ABC Corporation in US

ABC UK Ltd

ABC Mauritius Ltd

UK Department

US Department

Human Resource

Administration

Finance

Networks

Operations

Operations

IT

IT

Figure 1.1: Hierarchical view of organisational structure

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2 Overview of problem
The crystal-reporting team in the US IT department is responsible for creating online reports for the US customers. However, there were a lot of complaints from customers regarding the service delivery. The issues identified were: Customers were getting their reports after the expected date Reports were not accurate Lack of support

Productivity and customer satisfaction was impacted as a result. Developers were spending most of their time doing reworks and did not have enough time to create new reports. Consequently, there was a decrease in revenue generated from the sale of reports.

2.1 Relationship to operations management

Performance problems like the ones mentioned above are largely due to inefficient operations systems. It is therefore vital to understand how the organisation transforms its input into outputs. The value chain model as proposed by Professor Daft (2008) can be used to analyse operations. Figure 2.1 shows the value chain for the crystal-reporting team. In the ideal situation, developers transform customer requirements into accurate, useful and timely information which is displayed on the report (change of form). The end result is a satisfied customer. Where the transformation involves a change of form and the outputs do not conform to expectations then operation managers need to look at both the inputs and the technical core.

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Figure 2.1: Value chain model for crystal-reporting team

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3 Processes
The normal working time for the crystal-reporting team is from three to eleven am EST. There are several processes involved in the creation of reports which are intended for US customers. The client first submits a request through the online portal which is then assigned to a business analyst (BA) in the US. The BA contacts the customer to obtain all the requirements. The hours needed to work on the report and the expected delivery date is estimated based on the complexity of the request and resource availability. The requirements documentation is then uploaded on a system which can be accessed by the reporting team in Mauritius. When several projects with approximately the same delivery dates have been created, the resource managers inform the team leader in Mauritius who then assigns resources to work on them. Projects are obtained every week. The reports which have a closer due date are assigned first. Work allocation is done every Friday, giving developers only one week to complete all their projects. Two resources work on a project; one develops the report and the other tests it. On average, resources work on ten projects per week. If the specification is unclear, which was the case most of the time, developers need to ask clarifications from the BA. With eight to ten hours difference between Mauritius and the US, developers need to wait at least one day before they can get a feedback. The slow response time accounted for most of the late deliveries. There is always a rush to deliver reports when deadlines have been exceeded. Consequently, the majority of the reports delivered were not designed accurately. Reworks needed to be completed within two days of receipt. Completed reports are uploaded on the server and can be accessed through the web. The crystal-reporting team is also supposed to provide support to their customers. However, because of the time difference, most of the time clients did not get anyone to assist them. Their request would be attended on the following day.

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Figure 3.1: Process map for crystal-reporting team

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4 Operations theory
Planning and controlling are two important functions which are needed to ensure that operations run effectively and produce products and services as they should (Pycraft, 2000).

4.1 Planning
Planning is the process of establishing objectives and determining beforehand how to achieve these objectives (Haugan, 2002). It involves the identification and scheduling of tasks and resources to meet goals. Effective planning not only ensures that objectives are met but that they are achieved on time. A plan is effective when the following criteria have been met (Roberts, 2010): i.

Aim and objectives

Every project should have a purpose which is realistic and achievable. Goals set at the operational level should be specific and measurable, the objective being to give a sense of direction to the team. Goals also help to determine if there is a deviation from target.

ii.

Process, dependencies and outputs

The plan should also list the products or services provided to the customer. More importantly, it should consider the characteristics that will make the output appeal to the customer. According to Daft (2008), the design of services should achieve the following objectives: producibility, cost, quality, reliability and timing. It should be noted that the service will depend on the process and vice versa (Water et al, 1999), so the operational plan should also consider how the design of the process will yield the expected level of service.

iii.

Resources, milestones and schedules

Resources accomplish the tasks required to meet goals. Resources can be both human and artificial. In the planning stage, it is important to identify the number of people required to work on the project and whether appropriate skills and technology are available. A schedule is the expected duration for established milestones and is important for time management. Capacity planning is a technique that can help management decide whether there are enough resources to meet demands.

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Risks
During the planning stage, it is necessary to identify potential risks so that corrective and preventive actions can be taken to set things right. In any operation, there is always the risk that objectives will not be met and in such case it is important to define control mechanisms for monitoring performance.

Comments Most of the time, the above criteria are sufficient for ensuring that objectives are met. However, in some cases, stakeholders commitment is also essential to carry out the plan. The best plan will not work when: Employee morale, motivation and job satisfaction are low or the workers are just lazy. Top management is not convinced that operational goals are aligned with strategic objectives. Planning is a skill which is built through experience. Although people can learn the steps of effective, it is often difficult to put them into practice. Therefore, it is important that the person designated as operations manager be someone who is knowledgeable.

4.2 Controlling
Control refers to the systematic process of regulating activities to make them consistent with expectations established in plans, targets, and standards of performance (Daft, 2008). RDI (2010) has listed three stages in project control:

i.

Monitoring
The first step in the control process involves the decision about what needs to be monitored. It is important that monitored measures relate to performance objectives like quality, time and cost. Having the correct data is crucial for monitoring and as such operation managers need to decide what information is essential, where to get it and how often to collect it (Daft, 2008). The decision regarding performance measures is often subjective especially in the service sector. Intangible factors like quality and customer satisfaction are also difficult to measure because of difference in perceptions (Water et al, 1999).

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Question 3

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In some cases, employee cooperation is important to collect measures. As an example, a call center can monitor the number of calls received without depending on the employee. However, the employees input is necessary to track whether they have been able to help the client.

ii.

Assessing
It is important to establish standards of performance so that employees know what to do. Standards are specific criteria that need to be achieved and provide a basis for comparison. Standards are used to identify any deviation from target and should be communicated clearly. Setting standards can prove difficult. A 5% error rate can seem to be a good standard but what if another company is achieving a rate of 3%. If the latter is a competitor then it might be better to set the same or a higher standard. Another consideration that should be taken is whether the standard is achievable because it might be possible that the competitor has more skilled labour. After setting standards, actual performance should be compared against the targets. This involves collecting information on the monitored measures at specific intervals and analysing them using charts or dashboards.

iii.

Correcting
When performance deviates from standard, management must find the cause of the problem and take actions, either corrective or preventive, to remedy the situation. Potential impacts, alternative solutions and cost implications should be identified. This stage will be ineffective if problems are distorted which can prevent their true source from being identified.

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Operations Management

5 Operations practice
A comparison between operations theory and the actual practice can provide some insight on the origin of the operations problems in the crystal-reporting team.

5.1 Planning
i. Aim and objectives
Although the purpose of the crystal-reporting team was to create reports, there was no specific goal as to how many reports the team should produce in a given period. Reports were created on an ad-hoc basis. This might be one of the reasons why deadlines could not be met; there was no flexibility to match an increase in demand.

ii.

Process, dependencies and outputs

Although delivery could be achieved from Mauritius within reasonable costs, the process could not ensure that the service was of quality, reliable and timely. The first two issues relate to quality control and will be discussed in section 4.2. As mentioned earlier, process and service are closely linked. When the process for the outsourcing of reports was designed, due consideration was not given to the time zone constraint and how this would affect the service.

iii.

Resources, milestones and schedules

Mauritius had the right skills and technology but it could meet its deadlines. The explanation lies in the difference between design capacity and effective capacity. A staff is supposed to work thirty-five hours per week, however not all hours are productive. Because of quality issues, resources were spending a lot of their time doing corrections which accounted for the high utilisation but low productivity. However, during work allocation and scheduling (development, testing, and delivery) consideration was not given to the time spent on reworks and clarifications. Consequently, staffs were overloaded and could not deliver as expected.

iv.

Risks
The crystal-reporting team did not have a risk mitigation plan and the absence of a clear goal made it difficult to determine the extent to which the operation was deviating from its objectives.

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5.2 Controlling

i.

Monitoring
The performance measures used for the crystal- reporting team are as follows: Number of late deliveries Number of reworks Productivity

The team has a system which could track the above measures however employee participation was needed to get the correct figures. However not all reworks were logged as employees did not want their performance appraisal to be affected. Whilst the above measures can be used to track performance they are not sufficient to give a complete picture of a problem. The following metrics are missing: Number of development and testing not started on time

Tracking activities which have not started can contribute to reduce late deliveries. Number of reworks because of changes in requirements Number of reworks due to errors on report The categorisation of reworks can help identify to what extent testing is not being done effectively and how many changes are being provided freely to customers. Number of client requests received after 12 EST

Customer support is an integral part of the service delivery operation in Mauritius. Although the team was aware that there was a problem regarding this area, it did not have sufficient data for monitoring especially concerning client calls after office hours. One solution would have been to use a system which converts voice messages into audio files and emails them to a specific email address. Efficiency

Tracking the actual time spent on a project over the estimated hours provides an indication on staff skill and whether estimates have been made correctly. This in turn can indicate whether customers are being billed more than agreed.

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ii.

Assessing
The crystal-reporting team had established high standards regarding late deliveries, productivity and rework which were not unrealistic under ideal conditions. However, targets were not being met. The fact that there was no clear goal in the planning stage also made it difficult to assess whether the resources were being utilised effectively.

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Reworks
% Reworks
30 20 10 0 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Target Year 0 Year 1

Missed Deadlines
% Deadlines Missed 60 40 20 0 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Target Year 0 Year 1

Productivity
Productivity %
100 Target Year 0 Year 1 0 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

50

Figure 5.1: Charts showing variations in performance metrics

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iii.

Correcting
The crystal-reporting team knew that late deliveries were partly due to delay in getting clarifications but unfortunately the time zone constraint made it difficult to find a suitable solution to the problem. Work was allocated in advance in order to overcome late delivery and low productivity. The two issues were also tied to reworks but it was difficult to determine the relationship because employees were not logging all their reworks. The link would have been more apparent if efficiency had been monitored. The reality was that employees were logging rework hours on new projects. If a report was estimated at 5 hours, employees would log 8 hours. By looking at the skills and experience of an employee and the report definition it is possible to judge whether the time taken is realistic. Preventive actions could have been taken if the sources of these problems had been identified. Inaccurate visibility on reworks also prevented a clear view on quality issues and might be the reason why no concrete action was taken to improve the quality of service. Employees were just informed that quality issues would have a negative impact on their performance review which in managements opinion was sufficient to make employees react. Potential impacts identified were a decrease in revenue and a negative feedback from top management.

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5.3 Critics
In my opinion, the planning and controlling functions were not performed effectively in the crystal-reporting team. The operations management was affected as a result. The operation manager plays an important role in ensuring that objectives are achieved on time. However, in this case, it can be concluded that the latter was not experienced enough to manage the operation. Moreover, there were no employee issues which would have the planning process. It is also worth noting that the consequences can be drastic if changes are not made to improve the situation. Mauritius can lose the outsourcing contract to competitors like India and China if the customer service continues to be poor. The operations manager should have given serious thought to that when considering potential impacts in the future.

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6 Improvement Concepts
Customer satisfaction is vital to a businesss survival. The crystal-reporting team needs to improve its processes in order to provide quality service which consists of delivering accurate reports on the promised date and supporting customers when required. Currently the team has capacity problems which can be solved by hiring more employees. However, this solution is not enough to guarantee service excellence. Quality management systems such as those mentioned below, are proven methods for improving the quality of service in an operation. These methods should be used on a continuous basis and should be conducted by employees who have received appropriate training.

6.1 DMAIC
DMAIC is a Six Sigma quality improvement methodology (SixSigma.us, 2010) consisting of five steps. DMAIC can improve the planning and controlling activities in the following ways:

i.

Define
This stage involves the identification of critical success factors that are most important to customers that is accuracy and on-time delivery. Targets for improvement are then defined, for example, a 50% reduction in late delivery and errors.

ii.

Measure
The existing system is measured to determine the current baseline. Valid and reliable metrics are then chosen which would help monitor progress towards the established goal. This step will necessitate a review to the existing performance metrics and determining whether they are adequate. Data collection methods should also be reviewed by looking for additional sources of information like customer surveys.

iii.

Analyse
Through the use of quality improvement tools, the system is then analysed to identify ways to eliminate gap between current and desired process. A common tool is the use of cause-and-effect diagram to identify the root causes of a problem (MindTools, 2010). Using this technique along with others, it is possible to establish that late delivery is caused by improper planning and high number of reworks as mentioned in sections 5.1 and 5.2 (iii). Likewise, because of the high volume of reworks insufficient

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time was spent on testing. Other tools like control charts can be used to forecast demand and plan for capacity.

Figure 6.1: Cause-and-effect diagram for late deliveries

iv.

Improve
Creative solutions are devised to improve quality and system performance. For example inaccuracy can be reduced as follows: Employees should provide their input on how many reports they can deliver, and this should be used as a basis for setting operational goals. Work-In-Progress reports should be readily available. Business analysts should consult the WIP report before scheduling projects Errors occur frequently because requirements are wrongly understood and testing is not done properly. It might help to train employees so that they understand the nature of the work of their customers and consequently their requirements. The testing process should be changed. Testing should be done by business analysts since they are the one who worked on the requirements. Testers should produce test cases and the results obtained should be uploaded on a STU19585 Page 16

Question 5 & 6

Operations Management change management system like Clearquest. The system can then be used to track errors found and whether they have been resolved.

Improvements made to reduce errors will also contribute to reduce the workload on employees which will in turn enable them to meet their deadlines. Late delivery can also be reduced through lean management as mentioned in section 6.2. Reworks can be tracked as follows: A voicemail system that ties into the company's email system can be used to track customer requests and complaints. Management can ask for support from customers on quality initiative and ask them to copy the operations management on reworks for better follow ups. A better visibility on reworks will also facilitate the work allocation process. The working hours can also be increased from 35 to 40 to allow for flexibility in demand.

v.

Control
The improved system should be institutionalised by a change in incentives, policies and procedures for example employees can be demoted if they do not implement the new testing procedure. Planning should be done according to the work-in-progress. An ongoing monitoring plan should be developed, implemented and documented. For example projects which are not urgent should be rescheduled as soon as late deliveries or errors start to exceed the threshold level. In this respect, the client contract should contain a clause stipulating that delivery dates are to be treated as estimates.

Implementing DMAIC can significantly reduce the number of defects in a process, a defect being anything outside customer expectations. The aim of six sigma is usually to bring the defect to 3.4 defects per million (SixSigma, 2010).

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6.2 Lean Thinking

The lean philosophy is about delivering the most value from the customers perspective while consuming the fewest resources (LEI, 2010). Lean management can be applied in the crystal-reporting team to improve the process and delivery time. According to Poppendieck (2002), the basic principles of lean thinking are:

i.

Add nothing but value (Eliminate waste)

The first step is to identify what activities and resources are necessary to create value. Once this is understood, everything else is a waste and should be eliminated. When creating reports, the activities which add value are the analysis, design, development and testing while the resources are the business analysts and the developers and testers. The waste represents the time spent waiting for clarifications and explanations. In order to reduce waiting time, the following changes can be implemented: A night shift should be introduced which cover the normal working hours in the US. Developers will be then able to get in touch with business analysts on the same day. Moreover, it will be easier to provide support at that time. A knowledge management system can be created where previous asked questions or issues are documented. Developers can look for clarifications and answers on the system instead of waiting for the business analyst. Developers should ask clarifications directly from customers instead of waiting for business analysts to get explanations from clients.

ii.

Center on the people who add value

Poppendieck (2002) writes that lean organisations transfer the maximum number of tasks and responsibilities to those workers who actually add value. She argues that the standardised process in software engineering devalues the skill of the developer. Instead of having business analysts in the US, management should train the local developers to do the analysis and design phase. Giving more responsibility to developers will make them feel more valued and at the same time take ownership of the quality of the report. There will also be less distance between the developer and the customer and hence less chance of miscommunication. Another advantage is the decrease in the number of resources with regards to foreign BAs. Encouraging developers to think instead of just following instructions will also enable them to provide better advice and support.

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iii.

Flow value from demand (Delay commitment)

The focus behind lean management is to make products so fast that it can be made to order. The crystal-reporting team can follow these steps to make their process more efficient. Standard reports can be used as templates. This will prevent developers from creating reports from scratch and consequently save considerable time in finishing their work. Automated testing can be used to test standard guidelines which need to be present in all reports. Developers usually notify their customers by email when their report is ready. Most of the time customers do not view their report on the same day; they can take at least a week if the report is not urgent. That is why most of the reworks come at the same time. By conducting user acceptance testing (UAT) some time before the delivery date, it is possible to identify errors or changes earlier and fix them more quickly. Moreover, a lot of clients ask for assistance in running their reports, a step which can be avoided with UAT.

The changes mentioned will allow reports to be created in a shorter time frame and delivered on time to customers and thereby increase customer satisfaction.

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7 References

7.1

Ebooks

Brown, S., Blackmon, K., Cousins, P. (2001). Operations Management: policy, practice and performance improvement. Great Britain: Butterworth-Heinneman. Daft, R.L. (2008). New Era of Management. Britain: Thomson Haugan, G. (2002). Project planning and scheduling. USA: Management Concepts, Inc. Lewis, M., Slack, N. (2003). Operations Management: Critical Perspectives on Business and Management. Great Britain: Routledge. Pycraft, M. (2000). Operations Management. South Africa: Pearson Education. Rowbotham, F., Azhashemi, M., Galloway, L. (2000). Operations Management in Context. Great Britain: Butterworth-Heinneman. Shim, J., Siegel, J. (1999). Operations Management. New York: Barrons Educational Series. Waters, D., Waters, C.D.J. (1999). Operations Management. Great Britain: Kogan Page Limited.

7.2

Websites

ASQ. Continuous Improvement. Retrieved June 30, 2010, from http://www.asq.org/learnabout-quality/continuous-improvement/overview/overview.html Fehlmann, T. Defect Density Prediction with Six Sigma. Retrieved June 30, 2010, from http://www.e-p-o.com/Bibliographie/DefectDensityPrediction.pdf Kannan, N. Decision Making with Causes and Effect Analysis and DOE. Retrieved June13, 2010, from http://www.isixsigma.com/library/content/c050711a.asp LEI. What is Lean?. Retrieved June 30, 2010, from http://www.lean.org/WhatsLean/ MindTools. Plan-Do-Check-Act. Retrieved June 30, 2010, from http://www.mindtools.com/CXCtour/PDCA.php

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Operations Management Poppendieck, M. Principles of Lean Thinking. Retrieved June 25, 2010, from http://www.poppendieck.com/papers/LeanThinking.pdf MindTools. Cause and effect diagrams. Retrieved July 5, 2010, from http://www.mindtools.com/pages/article/newTMC_03.htm RDI. (2010). Managing Operations, Unit 1. Retrieved June13, 2010, from http://moodle.bl.rdi.co.uk/file.php/109/content/output/28%20%20Operations%20management/05_01.html RDI. (2010). Managing Operations, Unit 2. Retrieved June13, 2010, from http://moodle.bl.rdi.co.uk/file.php/109/content/output/28%20%20Operations%20management/05_02.html RDI. (2010). Managing Operations, Unit 3. Retrieved June13, 2010, from http://moodle.bl.rdi.co.uk/file.php/109/content/output/28%20%20Operations%20management/05_03.html Roberts, T. Project Plans: 10 Essential Elements. Retrieved June 20, 2010, from http://www.projectsmart.co.uk/project-plans-10-essential-elements.html SixSigma.us.DMAIC Six Sigma. Retrieved July 06, 2010, from http://www.6sigma.us/dmaicstep-one-define.php SixSigma. Six Sigma Definition. Retrieved July 06, 2010, from http://www.isixsigma.com The Open University.Understanding operations management. Retrieved June 20, 2010, from http://openlearn.open.ac.uk/course/view.php?id=1612 The institute for working futures. Plan and Develop Transport and Logistics Business. Retrieved June 20, 2010, from http://www.marcbowles.com/courses/adv_dip/module6/overview/overview.htm Tough, M. Setting Job Performance Standards. Retrieved June 30, 2010, from http://www.sideroad.com/Management/performance-standard.html

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