SOM Soumitra S Slides 2

strategic
operation
Soumitra Chowdhury
What is operations management?
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Operations management defined
Operations management is the activity

of managing the resources which are
devoted to the production and delivery
of products and services.
Back office operation Kitchen unit
in a bank manufacturing
operation
They are
all
Retail operation
operations
Take-out / restaurant
operation
The best way to start understanding the nature of
‘operations’ is to look around you
Everything you can see around you (except the flesh and
blood) has been processed by an operation
Every service you consumed today (radio station, bus

service, lecture, etc.) has also been produced by an
operation
Operations Managers create everything you buy, sit on,

wear, eat, throw at people, and throw away
A general model of
The operation’s
operations strategic
management objectives
Transformed Operations Operations The operation’s

resources … strategy strategy competitive role
and position
Materials
Information
Customers
Design Improvement
Operations Output
Input management products Customers
resources and
services
Transforming Planning
resources … and control
Facilities
Staff
Operations management at IKEA
Design a store layout
which gives smooth Ensure that the jobs of
Design elegant
and effective flow all staff encourage
products which can be
flat-packed efficiently their contribution to
business success
Site stores of an Continually examine

appropriate size in and improve
the most effective operations practice
locations
Maintain cleanliness Monitor and enhance

and safety of storage quality of service to
area customers
Arrange for fast
replenishment of
products
All operations are transformation processes …
Inputs Transformation process Outputs
that transform inputs …

into outputs
Some inputs are transformed resources
Some inputs are transforming resources
Transformed
resources …
Materials
Information
Customers
Output
Input products
resources Transformation process Customers
and
services
Transforming
resources …
Facilities
Staff
Outputs are products and services that add
value for customers
The output from most operations is a mixture of
products and services
Pure products – Outputs
that are exclusively
Crude oil production
Acme Whistles tangible
Aluminium smelting
Specialist machine tool

production Prêt a Manger Mixture of products
and services – Outputs
that are a mixture of
Restaurant
the tangible and the
intangible
IKEA
Information systems provider
Management consultancy
Mwagusi Safari Lodge
Pure services – Outputs
Psychotherapy clinic that are exclusively
intangible
A Typology of Operations
Low Volume High

High
High Variety Low
Variation in
High Low
demand
High Visibility Low
Implications Implications
Low repetition High repeatability

Each staff member Specialization
performs more of job Low Volume High
High Capital intensive
Less systemization
Low unit costs
High unit costs
Well defined
Flexible
Routine
Complex
High Variety Low Standardized
Match customer needs
Regular
High unit costs
Low unit costs
Changing capacity Stable

Anticipation Routine
Variation in
Flexibility High Low Predictable
In touch with demand demand High utilization
High unit costs Low unit costs
Short waiting tolerance Time lag between

production and
Satisfaction governed by consumption
customer perception Standardization
Customer contact skills High Visibility Low Low contact skills
needed
Received variety is high High staff utilization
High unit costs Centralization
Low unit costs
Implications
A Typology of Operations Implications
Low repetition High repeatability
Each staff member Specialization
performs more of job Low Volume High
High
Capital intensive
Less systemization
Low unit costs
High unit costs
Well defined
Flexible
Routine
Complex
High Variety Low Standardized
Match customer needs
Regular
High unit costs
Low unit costs
Changing capacity Stable

Anticipation Routine
Variation in
Flexibility High Low Predictable
In touch with demand demand High utilization
High unit costs Low unit costs
Short waiting tolerance Time lag between

production and
Satisfaction governed by consumption
customer perception Standardization
Customer contact skills High Visibility Low Low contact skills
needed
Received variety is high High staff utilization
High unit costs Centralization
Low unit costs
4 V’s profile of two operations
Low Volume High
High Variety Low
High Variation Low
High Visibility Low

Mwagusi Formule 1
Safari Lodge Hotel
Important to understand how different operations are positioned

on the 4 V’s.
Is their position where they want to be?
Do they understand the strategic implications?
Some interfunctional relationships between the operations
function and other core and support functions
Engineering/ Product/service
Understanding of the
technical capabilities and development
function constraints of the function
operations process
Analysis of new
technology options Understanding of
process technology
Accounting needs New product and
Provision service ideas
and finance Understanding of the
of relevant
function data capabilities and
Operations constraints of the
Financial analysis function operations process
for performance
and decisions Market
requirements
Marketing
Understanding of function
human resource needs Understanding Provision of systems for
of design, planning and
infrastructural control, and improvement
Recruitment
development and system
and training needs
Human Information
resources technology
function (IT) function
The strategic role and objectives
of operations
Source: Honda Motor Company
What is the role of the Operations function?
Operations as Operations Operations
implementer as as driver
supporter
Operations
Strategy Strategy
Operations Operations
Strategy
Operations Operations supports Operations
implements strategy strategy drives strategy
The strategic role of the Operations function
The 3 key attributes
Operations contribution
of Operations
Implementing Be dependable
Operationalize strategy
Explain practicalities
Supporting Be appropriate
Understand strategy
Contribute to decisions
Driving Be innovative
Provide foundation of strategy
Develop long-term capabilities
The four-stage model of Operations contribution
Redefining industry s STAGE 4

io n Give an
expectations
e rat operations
p
o fo advantage
ti on STAGE 3
Clearly the best in ib u
Increasing strategic impact
o ntr Link strategy

ng
the industry gc
with operations ir vi egy
i n D at
re as STAGE 2 str
As good as the Inc Adopt best g
rt in
competitors practice
p po y
g
Su ate
STAGE 1 g str
Holding the Correct the n tin
eme
organization back worst l
p gy
problems Im ate
str
Internally Externally Internally Externally
neutral neutral supportive supportive
Increasing operations capabilities
Broad strategic objectives for an operation
applied to stakeholder groups
Society
Increase employment
Enhance community well-being
Produce sustainable products
Ensure clean environment
Suppliers Customers
Continue business Appropriate product or
Develop supplier service specification
capability Consistent quality
Provide transparent Fast delivery
information Dependable delivery
Acceptable price
Shareholders Employees
Economic value from Continuous employment
investment Fair pay
Ethical value from Good working conditions
investment Personal development
The Operations function can provide a competitive advantage
through its performance at the five competitive objectives
Quality Being RIGHT
Speed Being FAST
Competitiveness
Dependability Being ON TIME
Flexibility Being ABLE TO CHANGE
Cost Being PRODUCTIVE
What do the terms quality, speed, dependability, flexibility
and cost mean in the context of operations?
Which enables you to do things cheaply (cost advantage)?
Which enables you to change what you do (flexibility advantage)?
Which enables you to do things quickly (speed advantage)?
Which enables you to do things on time (dependability advantage)?
Which enables you to do things right (quality advantage)?
The benefits of excelling
Minimum price, highest value
Cost
Quick Dependable
delivery delivery
Minimum cost,
Speed maximum value Dependability
Fast Reliable
throughput operation
Error-free Ability to
processes change
Quality Flexibility
Error-free Frequent new
products and products, maximum
services choice
What does Quality mean in …
… a hospital?
Patients receive the most appropriate treatment
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
… a bus company?
The buses are clean and tidy
The buses are quiet and fume-free
The timetable is accurate and user-friendly

… a supermarket?
The store is clean and tidy
Décor is appropriate and attractive
Goods are in good condition

Quality
‘Quality’ has several meanings. The two most common are …
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
Quality
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
Quality
External and
internal benefits
Cost
Speed Depend-
ability
Quality Flexibility
On-specification
products and
services
What does Speed mean in …
… a hospital?
The time between requiring treatment and receiving

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

is kept to a minimum
The time between dealers requesting a vehicle of a

particular specification and receiving it is minimized
The time to deliver spares to service centres is

minimized
… a bus company?
The time between a customer setting out on the

journey and reaching his or her destination is kept
to a minimum
… a supermarket?
The time for the total transaction of going to the

supermarket, making the purchases and returning
is minimized
Goods are immediately available
Speed
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
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
Speed
External and
internal benefits
Cost
Short delivery
lead-time
Speed Depend-
ability
Quality Flexibility
On-specification
products and
services
What does Dependability mean in …
… a hospital?
The proportion of appointments that are cancelled

is kept to a minimum
Keeping appointment times
Test results, X-rays, etc. are returned as promised
On-time delivery of vehicles to dealers
On-time delivery of spares to service centres
… a bus company?
Keeping to the published timetable at all points on

the route
Constant availability of seats for passengers
… a supermarket?
Predictable opening hours

Proportion of goods out of stock kept to a minimum
Keeping to reasonable queuing times
Constant availability of parking
Dependability
Externally – it enhances the product or service in the market, or at least

avoids customer complaints
It prevents late delivery slowing down throughput speed
It prevents lateness causing disruption and wasted time and effort,

therefore saving cost
Dependability
External and
internal benefits
Cost
Short delivery
Reliable
lead-time
delivery
Speed Depend-
ability
Quality Flexibility
On-specification
products and
services
Flexibility
Flexibility has several distinct meanings but is always associated with an
operation’s ability to 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
What does Flexibility mean in …
… a hospital?
Introducing new treatments
Providing a wide range of treatments
The ability to adjust the number of patients treated
The ability to reschedule appointments
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
… 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
… a supermarket?
The introduction of new lines
A wide range of goods stocked
The ability to adjust the number of customers served
The ability to get out-of-stock items
Flexibility
External and
internal benefits
Cost
Short delivery
Reliable
lead-time
delivery
Speed Depend-
ability
Quality Flexibility
Frequent new
products/services
On-specification Wide range
products and Volume and delivery
services changes
What does Cost mean in …
… a hospital?
Technology
Bought-in and facilities
materials costs
and
services
Staff
costs
Bought-in Technology
materials and facilities
and costs
services
Staff
costs
… a bus company?
Bought-in
materials Technology
and and facilities
services costs
Staff
costs
… a supermarket?
Technology
Bought-in and facilities
materials costs
and
services
Staff
costs
Cost
The cost of producing products and services is obviously
influenced by many factors such as input costs, but two
important sets are …
The 4 V’s: volume
variety
variation
visibility
The internal performance of the operation in terms of
quality
speed
dependability
flexibility
Cost
External and Low price, high
internal benefits margin, or both
Cost
Short delivery
Reliable
lead-time
delivery
Speed Depend-
ability
Quality Flexibility
Frequent new
products/services
On-specification Wide range
products and Volume and delivery
services changes
Operations strategy
Source: courtesy of Justin Waskovich
What is strategy?
Strategic decisions – means those decisions which …
Are widespread in their effect on the organization to

which the strategy refers
Define the position of the organization relative to its

environment
Move the organization closer to its long-term goals.
‘Operations’ is not the same as ‘operational’
‘Operations’ are the resources that create products and

services
‘Operational’ is the opposite of strategic, meaning day-to-

day and detailed
So, one can examine both the operational and the

strategic aspects of operations
The four perspectives on operations strategy
Top-down
perspective
What the business
wants operations
to do
Operations Market
resources requirement
perspective perspective
Operations
strategy
What operations What the market
resources can do position requires
operations to do
What day-to-day
experience suggests
operations should do
Bottom-up
perspective
Top-down and bottom-up perspectives of strategy
Corporate strategy
Business strategy
Operations strategy
Emergent sense of what the

strategy should be
Operational experience
The strategy hierarchy
Key strategic Influences on

decisions decision making
What business to be in? Economic environment
Corporate What to acquire? Social environment
strategy What to divest? Political environment
How to allocate cash? Company values and ethics
What is the mission? Customer/market dynamics

Business What are the strategic Competitor activity
strategy objectives of the firm? Core technology dynamics
How to compete? Financial constraints
How to contribute to the Skills of function’s staff

Functional strategic objectives? Current technology
strategy How to manage the Recent performance of the
function’s resources? function
The effects of the product/service life cycle on the
organization
volume
Sales
Introduction Growth Maturity Decline

Likely order Product/service Availability of Low price Low price
winners characteristics, quality Dependable
performance or products/services supply
novelty
Likely Quality Price Quality Dependable
qualifiers Range Range Range supply
Dominant Flexibility Speed Cost Cost

operations Quality Dependability Dependability
performance Quality
objectives
Different competitive factors imply different performance
objectives
Competitive factors Performance objectives
If the customers value these ... Then, the operations will need to
excel at these ...
Low price Cost
High quality Quality
Fast delivery Speed
Reliable delivery Dependability
Innovative products and services Flexibility (products and services)
Wide range of products and services Flexibility (mix)
Ability to change the timing or quantity Flexibility (volume and/or delivery)

of products and services
Operations strategy is …
‘… the decisions which shape the long-

term capabilities of the company’s
operations and their contribution to overall
strategy through the on-going
reconciliation of market requirements and
operations resources …’
Operations Market
resources requirements
What you What you What you What you

HAVE DO WANT NEED
to maintain from your

in terms of your operations to
operations capabilities and to ‘compete’ in
help you the market
capabilities satisfy markets ‘compete’
Strategic
reconciliation
The challenge of operations strategy formulation
An operations strategy should be:
Appropriate ...
Comprehensive ...
Coherent ...
Consistent over time ...
An implementation agenda is needed
When to start?
Where to start?
How fast to proceed?
How to coordinate the implementation

programme?
The five P’s of operations strategy implementation
Purpose – a shared understanding of the motivation,
boundaries and context for developing the operations
strategy
Point of entry – the point in the organization where the
process of implementation starts
Process – how the operations strategy formulation process
is made explicit
Project management – the management of the
implementation
Participation – who is involved in the implementation
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.”
Quality planning and control
Source: Archie Miles
The various definitions of quality
The transcendent approach views quality as synonymous with

innate excellence.
The manufacturing-based approach assumes quality is all about

making or providing error-free products or services.
The user-based approach assumes quality is all about providing

products or services that are fit for their purpose.
The product-based approach views quality as a precise and

measurable set of characteristics.
The value-based approach defines quality in terms of ‘value’.
High quality puts costs down and revenue up
Quality up
Processing
Rework and time down
Image up scrap costs
down
Service
costs down Inventory
Inspection and down
test costs
down
Sales Capital costs
volume up Complaint and
warranty costs down
down
Price
competition
down Scale
economies up Productivity
up
Revenue Operation costs

up down
Profits up
Perceived quality is governed by the gap between customers’
expectations and their perceptions of the product or service
Gap Gap
Customers’ Customers’
expectations perceptions
for the Customers’ Customers’
Customers’ expectations perceptions Customers’ of the
product or perceptions of the expectations product or
service for the
of the product or product or for the service
product or service service product or
service service
Expectations > Expectations = Expectations <

perceptions perceptions perceptions
Perceived quality is Perceived quality is Perceived quality is

poor acceptable good
The perception–expectation gap
Action required to ensure high Main organizational

perceived quality responsibility
Ensure consistency between Marketing, operations,

Gap 1 internal quality specification and product/service
the expectations of customers development
Ensure internal specification meets Marketing, operations,

Gap 2 product/service
its intended concept of design
development
Ensure actual product or service
Gap 3 conforms to internally specified Operations
quality level
Ensure that promises made to
Gap 4 customers concerning the product or Marketing
service can really be delivered
Quality characteristics of goods and services
Functionality – how well the product or service does the

job for which it was intended
Appearance – the aesthetic appeal, look, feel, sound
and smell of the product or service
Reliability – the consistency of performance of the
product or service over time
Durability – the total useful life of the product or service
Recovery – the ease with which problems with

the product or service can be rectified or resolved
Contact – the nature of the person-to-person contacts
that take place
Quality
Quality Reliability
fitness for purpose ability to continue
working at accepted
quality level
Quality of design Quality of conformance

degree to which faithfulness with which the
design achieves purpose operation agrees with design
Variables Attributes
things you can measure things you can assess
and accept or reject
Operations improvement
Source: Courtesy of Lotus-Haed, www.pixelpusher.co.za
Performance measures at different levels of aggregation
Broad strategic Overall strategic

measures objectives
Functional strategic Market Operations Financial

measures strategic strategic strategic
objectives objectives objectives
Composite
Customer
performance Agility Resilience
satisfaction
measures
Generic operations
performance Quality Dependability Speed Flexibility Cost
measures
Defects per Mean time Customer Time to Transaction
Some detailed unit between query time market costs
performance Level of failures Order lead time Product Labour
customer Lateness Throughput range productivity
measures complaints complaints time Machine
Scrap level efficiency
Performance measures at different levels of aggregation
Broad strategic High strategic

measures relevance and
aggregation
Functional strategic
measures
Composite performance
measures
Generic operations
performance measures
High diagnostic
Detailed performance power and
measures frequency of
measurement
The measures used in the balanced scorecard
Financial performance
measures
To achieve strategic impact,
how should we be viewed by
shareholders?
Internal process Customer performance

performance measures Overall strategic measures
To achieve strategic impact, objectives
To achieve strategic
what aspects of impact, how should we
performance should be viewed by
business process excel at? customers?
Learning and growth
performance measures
To achieve strategic
impact, how will we
build capabilities over
time?
Prioritizing process objectives
Priorities should be determined by …
The Your
IMPORTANCE PERFORMANCE
of each in each
competitive competitive
objective objective
IMPROVEMENT PRIORITIES
9-point importance scale
For this product or service, does this performance objective …
1 …provide a crucial advantage with customers?

Order-winning
2 …provide an important advantage with most customers?
objectives
3 …provide a useful advantage with most customers?
4 …need to be up to good industry standard?

Qualifying 5 …need to be around median industry standard?
objectives
6 …need to be within close range of the rest of the industry?
7 …rate as not usually important but could become more so

Less important in future?
objectives 8 …very rarely rate as being important?
9 …never come into consideration?
9-point performance scale
For this product or service, is the achieved performance …
Better than 1 …consistently considerably better than our nearest

ses competitor’s?
competitors
oces
lar pr 2 …consistently clearly better than our nearest competitor’s?
i r
Sim stome s 3 …consistently marginally better than our nearest competitor’s?
Cu tation
ec
exp
Same as 4 …often marginally better than that of most competitors?
es
competitors
roc ess 5 …about the same as that of most competitors?
rp
ila r
Sim ustome s 6 …often close to that of our main competitors?
C
c t ation
e
exp
Worse than es 7 …usually marginally worse than that of our main competitors?
competitorsc ess
o 8 …usually worse than that of most competitors?
r pr
ila r
Sim ustome s 9 …consistently worse than that of most competitors?
C t at ion
ec
exp
GOOD
1
better 2 EXCESS ?
than
APPROPRIATE X
3
ilit y
ab
ept
PERFORMANCE
COMPETITORS
f acc
same un do
bo
5
AGAINST
as
ow er
6 L IMPROVE
7
X
worse
8 URGENT
than ACTION
9
BAD
9 8 7 6 5 4 3 2 1
less order
important qualifying
winning
IMPORTANCE
LOW FOR HIGH
CUSTOMERS
Innovation Kaizen
Short-term,
Short-term,dramatic
dramatic Effect Long-term,
Long-term,undramatic
undramatic
Large
Largesteps
steps Pace Small
Smallsteps
steps
Intermittent
Intermittent Timeframe Continuous,
Continuous,incremental
incremental
Abrupt,
Abrupt,volatile
volatile Change Gradual
Gradualand
andconsistent
consistent
Few
Fewchampions
champions Involvement Everyone
Everyone
Individual
Individualideas
ideas&&effort
effort Approach Group
Groupefforts,
efforts,systematic
systematic
Scrap
Scrapandandrebuild
rebuild Mode Protect
Protectand
andimprove
improve
New
Newinventions/theories
inventions/theories Spark Established
Establishedknow-how
know-how
Large
Largeinvestment
investment Capex Low
Lowinvestment
investment
Low
Loweffort
effort Maintenance Large
Largeeffort
effort
Technology
Technology Focus People
People
Profit
Profit Evaluation Process
Process
The plan–do–check–act (or ‘Deming’) improvement cycle,
and the define–measure–analyze–improve–control
(or DMAIC) ‘six sigma’ improvement cycle
Define
Plan Do
Control Measure
Act Check Improve Analyze
The DMAIC Define – identify the
cycle problem, define
requirements and set
the goal
Control – establish Measure – gather

performance data, refine problem
standards and deal and measure inputs
with any problems and outputs
Improve – develop Analyze – develop

improvement ideas, problem hypotheses,
test, establish identify ‘root causes’
solution, and and validate
measure results hypotheses
‘Breakthrough’ improvement does not always deliver
hoped-for improvements
Planned ‘breakthrough’
improvements
Performance
Actual improvement
pattern
Time
Continuous improvement
Performance
Standardize and maintain
Improvement
Time
Continuous improvement
PDCA cycle repeated to create continuous improvement
Performance
Plan
Do
Act
Check
Time
Combined improvement
Combined
Performance
‘breakthrough’ and
continuous improvement
Time
The sandcone model of improvement
Cost
Flexibility
Speed
Dependability
Quality
Quality
Quality + dependability
Quality + dependability + speed
Quality + dependability + speed + flexibility
Quality + dependability + speed + flexibility + cost
Failure prevention and recovery
Source: Eurotunnel
Why systems fail
Failures inside the

operation
Supply failures Customer
failures
Design failures
Facilities failures
Staff failures
How failure is detected and analyzed
Failure detection mechanisms include:

– in-process checks
– machine-diagnostic checks
– point-of-departure interview
Failure analysis procedures include:

– accident investigation
– failure mode-and-effect analysis

– fault-tree analysis
The three tasks of failure prevention and recovery
Failure detection
and analysis
Finding out what is going
wrong and why
Improving system
Recovery
reliability
Stopping things going Coping when things do
wrong go wrong
Failure management
Prevention Mitigation Recovery
Normal Severity of Effect on

Failure
operation consequence customer
The stages in failure planning
Discover Act Learn Plan
What’s Inform Find root Analyze failure

happened cause
Contain Plan recovery
What Engineer out
Follow up
consequences
Managing improvement – the TQM
approach
Source: Corbis/Munshi Ahmed
Total quality management can be viewed as a natural extension
of earlier approaches to quality management
•Quality is strategic
Makes quality central •Teamwork
and strategic in the •Staff empowerment
organization •Involves customers and suppliers
•Quality systems
Broadens the
•Quality costing
organizational responsibility
•Problem solving
for quality
•Quality planning
Solves the root •Statistics
cause of quality •Process analysis
problems •Quality standards
Prevents ‘out of
•Error detection
specification’ products and
•Rectification
services reaching market
Quality Quality Total Quality

Inspection
control assurance Management
The internal customer–supplier concept involves
understanding the relationship between processes
Process 3
External External
supplier Process 1 Process 2 Process 6 customer
Process 5
Process 4
Between each process, the

requirements of the ‘customer’ process
must be understood and met by the
'supplier’ process
Total Quality Management
Includes all parts of the organization
Includes all staff of the organization

Source: Corbis/Richard T Nowitz
Includes consideration of all costs
Includes every opportunity to get things right
Includes all the systems that affect quality
Never stops
Porter’s Value Chain
Source: Joe Schwarz, www.joyrides.com
Main aspects of Value Chain Analysis
Value chain analysis is a powerful tool for managers to identify the key
activities within the firm which form the value chain for that organisation,
and have the potential of a sustainable competitive advantage for a
company.
Therein, competitive advantage of an organisation lies in its ability to

perform crucial activities along the value chain better than its
competitors.
When the system is managed carefully, the linkages can be a vital

source of competitive advantage.
Main aspects of Value Chain Analysis
The value chain analysis essentially entails the linkage of two areas.
1.Firstly, the value chain links the value of the organisations’ activities
with its main functional parts.
2.Then the assessment of the contribution of each part in the overall

added value of the business is made.
In order to conduct the value chain analysis, the company is split into
primary and support activities.
Primary activities are those that are related with production, while
support activities are those that provide the background necessary for
the effectiveness and efficiency of the firm.
Porter’s Value Chain
Firm’s infrastructure
activities
Support
Human
Humanresource
resourcemanagement
management
Technology and development
Procurement
Procurement
PROFIT
Operations
Marketing
Outbound
Operations
Marketing
Inbound
logistics
logistics
Service
Sales
Sales
&&
1–108
Primary activities
Primary Activities
Inbound Logistics.
Here goods are received from a company's suppliers. They are stored
until they are needed on the production/assembly line. Goods are moved
around the organisation.
Operations.
This is where goods are manufactured or assembled. Individual
operations could include room service in an hotel, packing of
books/videos/games by an online retailer, or the final tune for a new
car's engine.
Outbound Logistics.
The goods are now finished, and they need to be sent along the supply
chain to wholesalers, retailers or the final consumer.
Primary Activities
Marketing and Sales.

In true customer orientated fashion, at this stage the organisation
prepares the offering to meet the needs of targeted customers.
This area focuses strongly upon marketing communications and the

promotions mix.
Service.
This includes all areas of service such as installation, after-sales
service, complaints handling, training and so on.
Support Activities
Procurement.
This function is responsible for all purchasing of goods, services and
materials.
The aim is to secure the lowest possible price for purchases of the
highest possible quality.
They will be responsible for outsourcing (components or operations

that would normally be done in-house are done by other
organisations), and ePurchasing (using IT and web-based
technologies to achieve procurement aims).
Support Activities
Technology Development.
Technology is an important source of competitive advantage.
Companies need to innovate to reduce costs and to protect and

sustain competitive advantage.
This could include production technology, Internet marketing activities,

lean manufacturing, Customer Relationship Management (CRM), and
many other technological developments.
Support Activities
Human Resource Management (HRM).

Employees are an expensive and vital resource.
An organisation would manage recruitment and s election, training and

development, and rewards and remuneration.
The mission and objectives of the organisation would be driving force

behind the HRM strategy.
Firm Infrastructure.
This activity includes and is driven by corporate or strategic planning.
It includes the Management Information System (MIS), and other
mechanisms for planning and control such as the accounting
department.
The nature of planning and control
Source: Arup
Planning and control
Planning and control Operations

strategy Source: Arup
The market requires …

products and services
delivered to requested Operations
time, quantity and quality Design management Improvement
The operation supplies ...

delivered products and Planning and
services control
Planning is a formalization of
what is intended to happen at
some time in the future.
A plan does not guarantee that

an event will actually happen;
it is a statement of intention.
Although plans are based on

expectations, during their
implementation things do not
always happen as expected.
Control is the process of coping with any changes that affect the plan.
It may also mean that an ‘intervention’ will need to be made in the
operation to bring it back ‘on track’.
Planning is deciding what activities should take place in the operation
when they should take place
what resources should be allocated to them
Control is understanding what is actually happening in the

operation
deciding whether there is a significant deviation from
what should be happening
(if there is deviation) changing resources in order to
affect the operation’s activities
Significance of planning and control
Long-term planning and control
Months/years
Uses aggregated demand forecasts

Determines resources in aggregated form
PLANNING Objectives set in largely financial terms
Medium-term planning and control

Days/weeks/months
Time horizon
Uses partially disaggregated demand forecasts

Determines resources and contingencies
Objectives set in both financial and operations
terms
Short-term planning and control
Uses totally disaggregated forecasts or
actual demand
Hours/days
Makes interventions to resources to correct

CONTROL deviations from plans
Ad hoc consideration of operations objectives
Dependent and independent demand
Dependent demand
e.g. input tyre store in car plant
Demand for tyres is

governed by the number of
cars planned to be made
Dependent and independent demand
Independent demand
e.g. tyre fitting service
ACE
TYRES
Demand for tyres

is largely governed
Demand for tyres is governed by the
by random factors
type of car arriving, the fluctuations in
the number of cars arriving and how
many tyres need replacing
P:D ratios
Customer
orders
Obtain resources Produce product / service Deliver to customer
Produce to stock
D
P
Part produce to order
D
P
Produce to order
D
P
Resource to order
D
P
P:D ratios
Resource to order Dependent demand Each product or

service is large
compared with total
capacity of the
operation
Make to order
Each product or
service is small
compared with total
capacity of the
Make to stock
Independent demand operation
The activities of planning and control
When to Scheduling Loading How much

do things? to do?
In what Monitoring Are activities

Sequencing and control
order to do going to plan?
things?
Loading –
The reduction of time available for ‘valuable’ operating time
Maximum available time
Valuable operating time
Not worked
Quality (planned)
losses Slow- Not worked
running Equipment Set-up and
(unplanned)
equipment ‘Breakdown’ changeovers
‘idling’
failure
Finite and infinite loading of jobs on three work centres A, B and C
Finite loading limits the loading on each centre to their capacities, even if it means that jobs will be late.
Infinite loading allows the loading on each centre to exceed their capacities to ensure that jobs will not be
late
Finite loading Infinite loading
0
1
2
3 s
4 k
ee
5 W
A B C 6
A B C
Work centre Work centre
The hospital triage system
In Accident and Emergency

departments, patients arrive at
random. Medical staff must rapidly
devise a schedule. Patients with
serious illness need urgent
attention. Less urgent cases will
have to wait. Routine non-urgent
cases will have the lowest priority of
all.
Gantt chart showing the schedule for jobs at
each process stage
Process Week Week Week Week Week Week Week
stage 12 13 14 15 16 17 18
Initial spec. Job A Job B Job C Job D Job E
Pre-coding Job W Job A Job B Job C Job D
Coding Job X Job A Job B Job C
Compact. check Job Y Job X Job A Job B
Final test Job Z Job Y Job X Job A Job B
Mon Tue Wed Thur Fri Mon Tue
JOB
5 6 7 8 9 12 13
Table
Shelves
Kitchen
units
Bed
Scheduled V
activity time Time now
V
Actual progress
Mon Tue Wed Thur Fri Mon Tue
JOB
5 6 7 8 9 12 13
Wood
T S K
preparation
Assembly B T S S S
Finishing B T K
Paint S B T K
V Time Non-productive time

Scheduled
activity time V now
Actual progress
Pull and push philosophies of planning and control
PUSH CONTROL
CENTRAL OPS. PLANNING AND CONTROL SYSTEM FORECAST
Instruction on OR
what to make
and where to
send it
Work Work Work Work DEMAND

centre centre centre centre
Pull and push philosophies of planning and control
PULL CONTROL
Request Request Request Request
Work Work Work Work

centre centre centre centre DEMAND
Delivery Delivery Delivery Delivery
Shift allocation for the technical ‘hotline’:
(a) on a daily basis; (b) on a weekly basis
Mon Tue Wed Thu Fri Sat Sun
Number of staff 3 5 5 5 3 2 2
required
Peter Peter X X X X O O X
Marie X X X X X O O
Walter Jo
Claire X X X X O O X
Marie Claire Jo
Jo Walter O X X X X X O
Jo O X X X X X O
04:00 08:00 12:00 16:00 20:00
Shift pattern (24-hour clock) X Full day O Day off

(a) (b)
A simple model of control
Input Operation or Output

process
Intervention Monitor
Plans
Compare /
re-plan
The drum, buffer, rope, concept
Buffer of
inventory
Stage or Stage or Stage or Stage or Stage or

process A process B process C process D process E
Bottleneck
Communication rope controls drum sets
prior activities the beat
The operations challenge
Source: Provided by the Sea W: FS Project, Nasa/Goddard Space Flight Center and ORBIMAGE
Five of the challenges for operations managers
Globalization
Corporate social Environmental

responsibility responsibility
Operations
strategy
Design Improvement
Planning and
control
Technology Knowledge
management
Operations decisions have a corporate social responsibility
dimension
For example …
Product/service design – customer safety, recyclability of
materials, energy consumption
Network design – employment implications and
environmental impact of location
Layout of facilities – staff safety, disabled customer access
Process technology – staff safety, waste and product
disposal, noise pollution, fumes and emissions
Job design – workplace stress, unsocial working hours
Capacity planning and control – employment policies
Inventory planning and control – price manipulation
Globalization
Decision area Some globalization issues
Product/service design Transferability of product/service design
Adaptation of design to fit culture and legislation
Network design Location of global network of facilities
Ownership and capacity change legislation
Layout of facilities Cultural reaction to work organization
Process technology Serviceability and maintenance of technology
Skills availability
Job design Cost of labour
Skills availability
Cultural reaction to work requirements
Planning and control Cultural reaction to necessity for planning
(including MRP, JIT and Cultural reaction to need for flexibility
project planning and
control)
Globalization
Decision area Some globalization issues

Capacity planning and Differences in seasonality and demand patterns
control Legislation on part-time or temporary work contracts
Legislation and cultural view of flexible working
Inventory planning and Storage conditions and climatic sensitivity
control Cost of capital and other storage cost differences
Supply chain planning and Real cost of transportation
control Differences in contractual arrangements
Supplier conformance to employment standards
Quality planning and controlCultural views of acceptable quality
and TQM Cultural views of participation in improvement groups
Safety
Failure prevention and Maintenance support
recovery Cultural attitude to risk
Flexibility of response to failure
Some environmental considerations of operations
management decisions
Product/service design – recyclability of materials, energy consumption,
waste material generation
Network design – environmental impact of location, development of
suppliers in environmental practice, reducing transport-related energy
Layout of facilities – energy efficiency
Process technology – waste and product disposal, noise pollution, fume
and emission pollution, energy efficiency
Job design – transportation of staff to and from work, development in
environmental education
Planning and control (including MRP, JIT and project planning and control) –
material utilization and wastage, environmental impact of project
management, transport pollution of frequent JIT supply
Some environmental considerations of operations
management decisions (continued)
Capacity planning and control – over-production waste of poor planning,

local impact of extended operating hours
Inventory planning and control – energy management of replenishment
transportation, obsolescence and wastage
Supply chain planning and control – minimizing energy consumption in
distribution, recyclability of transportation consumables
Quality planning and control and TQM – scrap and wastage of materials,
waste in energy consumption
Failure prevention and recovery – environmental impact of process failures,
recovery to minimize impact of failures
Identifying waste minimization in packaging
Reduce
packaging
Yes
Can
packaging Reuse
Yes be Yes
reduced? Recycle
Is packaging No Can Yes
necessary? packaging
Source: Awe Inspiring Images/Photographers Direct
No be reused? Can
Eliminate No packaging
unwanted be Minimize
No
packaging recycled? packaging

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strategic

Operations management is the activity

Every service you consumed today (radio station, bus

Operations Managers create everything you buy, sit on,

Transformed Operations Operations The operation’s

Site stores of an Continually examine

Maintain cleanliness Monitor and enhance

Inputs Transformation process Outputs

that transform inputs …

Specialist machine tool

Low Volume High

High Variety Low

High Visibility Low

Low repetition High repeatability

Changing capacity Stable

Short waiting tolerance Time lag between

Changing capacity Stable

Short waiting tolerance Time lag between

Low Volume High

High Variety Low

High Variation Low

High Visibility Low

Important to understand how different operations are positioned

Redefining industry s STAGE 4

o ntr Link strategy

Increasing operations capabilities

Quality Being RIGHT

Speed Being FAST

Flexibility Being ABLE TO CHANGE

Cost Being PRODUCTIVE

Which enables you to do things cheaply (cost advantage)?

Which enables you to change what you do (flexibility advantage)?

Which enables you to do things quickly (speed advantage)?

Which enables you to do things on time (dependability advantage)?

Which enables you to do things right (quality advantage)?

Minimum price, highest value

Patients receive the most appropriate treatment

Treatment is carried out in the correct manner

Patients are consulted and kept informed

All assembly is to specification

The product is attractive and blemish-free

The buses are clean and tidy

The buses are quiet and fume-free

The timetable is accurate and user-friendly

The store is clean and tidy

Décor is appropriate and attractive

Goods are in good condition

Quality as the specification of

Quality as the conformance

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

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

It prevents errors slowing down throughput speed

It prevents errors causing internal unreliability and low

It prevents errors causing wasted time and effort, therefore saving

The time between requiring treatment and receiving

The time for test results, X-rays, etc. to be returned

The time between dealers requesting a vehicle of a

The time to deliver spares to service centres is

The time between a customer setting out on the

The time for the total transaction of going to the

Speed again has different interpretations, externally and internally

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