Building Sustainable Enterprises through a Process Centric View of Managing

Operations

Manoj Malhotra Moore School of Business

University of South Carolina

ABEPRO Conference

October 18, 2012

The Role of Operations in the Organization

Coordination among different business functions is necessary and key to developing a common strategy.

A Process View Process

Any activity or group of activities that takes one or more inputs, transforms them, and provides one or more outputs for its customers.

The Supply Chain View Each activity in a process should add value

to the preceding activities; waste and unnecessary cost should be eliminated.

The Supply Chain View Supplier relationship process – A process to select the suppliers of services, materials, and information

and facilitate the flow of these into the firm.

The Supply Chain View New service/product development – A process to

design and develop new services or products from customer or market inputs.

The Supply Chain View Order fulfillment process – A process to

produce and deliver services or products to the external customer.

The Supply Chain View Customer relationship process – A process that

identifies, attracts and builds relationships with external customers and facilitates the placement of orders.

The Supply Chain View Support Processes - Processes like Accounting, Human Resources, Engineering, and Information Systems that

provides vital resources and inputs to the core processes

Operations Strategy • Specifies the means by which operations

implements corporate strategy and helps build a customer-driven firm

• Corporate strategy provides an overall

direction that serves as the framework for carrying out all the organization's functions

Operations Strategy Corporate Strategy • Environmental

scanning • Core competencies • Core processes • Global strategies

Market Analysis • Market segmentation • Needs assessment

Competitive Priorities • Cost • Quality • Time • Flexibility

New Service/ Product Development • Design • Analysis • Development • Full launch

Operations Strategy

Decisions • Managing processes • Managing supply chains

Competitive Capabilities • Current • Needed • Planned

Performance Gap?

No

Yes

Competitive Priorities and Capabilities Competitive Priorities The critical dimensions that a process or supply chain must possess to satisfy its internal or external customers, both now and in the future.

Competitive capabilities The cost, quality, time, and flexibility dimensions that a process or supply chain actually possesses and is able to deliver.

Order Winners and Qualifiers Order Winners The criterion customers use to differentiate the services or products of one firm from those of another.

Order Qualifiers The minimum level required from a set of criteria for a firm to do business in a particular market segment.

Relationship of Order Qualifiers to Competitive Priorities

Relationship of Order Winners to Competitive Priorities

What is Process Strategy? Process Strategy The pattern of decisions made in managing processes, so that the processes will achieve their competitive priorities.

Process Strategy Decisions

Process Structure in Manufacturing • Job Process

• Batch – Small or Large

• Line

• Continuous Flow

Process Structure in Manufacturing

Production and Inventory Strategies • Make-to-Order

• Assemble-to-Order

– Postponement – Mass

Customization

• Make-to-Stock – Mass Production

Link of Competitive Priorities to Manufacturing Strategies

Decision Patterns for Manufacturing Processes

3 - 22

What is Process Analysis? Process Analysis The set of tools used to identify opportunities for improvement, document current processes, evaluate processes to find performance gaps, redesign processes, and implement desired changes.

Process Analysis Steps

Documenting the Process Flowchart – A tool to trace the flow of information, customers, equipment and materials through the various steps of a process. Swim Lane Flowchart – A visual representation that groups functional areas responsible for different sub-processes into lanes.

Flow Chart of Consulting

4 - 25

Swim Lane Flowchart in Manufacturing

Data Analysis Tools

• Checklists • Histograms and bar charts • Pareto charts • Scatter diagrams • Cause-and-effect diagrams (Fishbone) • Graphs

Redesigning the Process

• Generating Ideas: Questioning and Brainstorming • Ideas can be uncovered by asking six questions

1. What is being done? 2. When is it being done? 3. Who is doing it? 4. Where is it being done? 5. How is it being done? 6. How well does it do on the various metrics of

importance?

Managing and Implementing Processes • Seven common mistakes

1. Not connecting with strategic issues 2. Not involving the right people in the right way 3. Not giving the design teams and process analysts a

clear charter and then holding them accountable 4. Not being satisfied unless fundamental

“reengineering” changes are made 5. Not considering the impact on people 6. Not giving attention to implementation 7. Not creating an infrastructure for continuous process

improvement

Continuous Improvement • Kaizen • Problem-solving tools • PDSA Cycle

What is Six Sigma?

Six Sigma A comprehensive and flexible system for achieving, sustaining, and maximizing business success by minimizing defects and variability in processes.

Six Sigma Approach

X X X X

X X X X X

X X X X X X X X

Process average OK; too much variation

Process variability OK; process off target

Process on target with low variability

Reduce spread

Center process

X

X

X

X X

X X

X

X

Six Sigma Improvement Model Six Sigma Certification • Master Black

Belts

• Black Belts

• Green Belts

Acceptance Sampling Across the Supply Chain

• Acceptance Sampling – The application of statistical techniques to

determine if a quantity of material from a supplier should be accepted or rejected based on the inspection or test of one or more samples.

• Acceptable Quality Level – A statement of the proportion of defective

items that the buyer will accept in a shipment.

Acceptance Sampling Interface Firm A uses TQM or Six

Sigma to achieve internal process performance

Supplier uses TQM or Six Sigma to achieve internal

process performance

Yes No

Yes No

Accept blades?

Supplier Manufactures

fan blades TARGET: Firm A’s specs

Accept motors?

Motor inspection

Blade inspection

Firm A Manufacturers

furnace fan motors TARGET: Buyer’s specs

Buyer Manufactures

furnaces

What is Supply Chain Integration? Supply Chain Integration

The effective coordination of supply chain processes though the seamless flow of information up and down the supply chain.

Integrated Supply Chains • External Supply Chain Linkages

First-Tier Supplier Service/Product Provider Support Processes

Exte

rnal

Sup

plie

rs

Support Processes

Supplier relationship

process

New service/ product

development process

Order fulfillment process

Business-to-business

(B2B) customer

relationship process

External Consum

ers

Supplier relationship

process

New service/ product

development process

Order fulfillment process

Business-to-

business (B2B)

customer relationship process

Business-to-business

(B2B) customer

relationship process

Business-to-business

(B2B) customer

relationship process

Service/Product

Processes Supply Chain

Link Services/Products with Internal Processes

Link Services/Products with External Supply Chain

Link Services/Products with Customers, Suppliers, and Supply Chain Processes

Creating an Effective Supply Chain

Supply Chain Efficiency Curve To

tal c

osts

Supply chain performance

New supply chain efficiency curve with changes in design and execution

Inefficient supply chain operations Area of

improved operations

Improve perform-ance

Reduce costs

Supply Chain Design Pressures

• Dynamic sales volumes

• Customer service levels

• Service/product proliferation

Manufacturing Supply Chain

East Coast West Coast East Europe West Europe Retail

USA Ireland Distribution centers

Manufacturer USA Assembly

Poland USA Canada Australia Malaysia Tier 3 Raw materials

Germany Brazil USA China Tier 2 Components

Germany Mexico USA Tier 1 Major

subassemblies

• Financial measures – Total revenue – Cost of goods sold – Operating expenses – Cash flow – Working capital – Return on assets (ROA)

Measures of Supply Chain Financial Performance

Strategic Implications • Efficient supply chains

– Build-to-stock

• Responsive supply chains – Assemble-to-order – Make-to-order – Design-to-order

Environments Factor Efficient Supply

Chains Responsive Supply

Chains Demand Predictable, low

forecast errors Unpredictable, high

forecast errors

Competitive priorities

Low cost, consistent quality, on-time

delivery

Development speed, fast delivery times,

customization, volume flexibility, variety, top

quality New-

service/product introduction

Infrequent Frequent

Contribution margins

Low High

Product variety Low High

Design Features Factor Efficient Supply

Chains Responsive Supply

Chains Operation strategy

Make-to-stock or standardized services

or products; emphasize high volumes

Assemble-to-order, make-to-order, or

customized service or products; emphasize

variety Capacity cushion

Low High

Inventory investment

Low; enable high inventory turns

As needed to enable fast delivery time

Lead time Shorten, but do not increase costs

Shorten aggressively

Supplier selection

Emphasize low prices, consistent quality, on-

time delivery

Emphasize fast delivery time, customization,

variety, volume flexibility, top quality

Job Small Batch Large Batch Line Continuous Flow

Process

Serv

ice/

Prod

uct C

hara

cter

istic

s St

anda

rdiz

ed

Cus

tom

ized

Supply Chain Design Link to Processes

SCM Decisions Affecting ROA

Return on assets (ROA)

Increase ROA with higher net income

and fewer total assets

Total assets Achieve the same

or better performance with

fewer assets

Working capital Reduce working

capital by reducing inventory investment,

lead times, and backlogs

Fixed assets Reduce the number

of warehouses through improved

supply chain design

Net income Improve profits

with greater revenue and lower

costs

Total revenue Increase sales through

better customer service

Cost of goods sold Reduce costs of

transportation and purchased materials

Operating expenses Reduce fixed expenses by

reducing overhead associated with supply

chain operations

Net cash flows

Improve positive cash flows by reducing lead times and

backlogs

Inventory Increase inventory turnover

Trends in Operations Management • Global Competition

– Advantages: • Increased market penetration • Comparative cost advantages

– Disadvantages: • Political risks • Lower skilled workers • Vulnerability to supply chain disruptions

–Japanese Earthquake in March 2011

Trends in Operations Management

• Ethical, Workforce Diversity and Environmental Issues

– Ethical decision-making in different countries

– Environmental concerns

– Sustainability initiatives

What is Sustainability? Sustainability A characteristic of processes that are meeting humanity’s needs without harming future generations.

Supply Chains and Sustainability

Environmental Responsibility

Financial Responsibility

Social Responsibility

Supply Chains and

Sustainability

Sup ply Chain Sustainability Efforts Financial Responsibility Environmental Responsibility --- Reverse Logistics --- Efficiency Social Responsibility --- Disaster Relief Supply Chains --- Ethics

Sustainability across the Organization

• Environmental protection

• Productivity improvement

• Risk minimization

• Innovation

What is Reverse Logistics? Reverse Logistics The process of planning, implementing and controlling the efficient, cost-effective flow of products, materials, and information from the point of consumption back to the point of origin for returns, repair, remanufacture, or recycling.

Flows in a Closed-Loop Supply Chain Production

process Distribution/

Retailers

Product information

New service/product

development process Recycle

parts and materials

Remanufacture

Repair

Returns processor

Customers

Direct reuse

Waste disposal

Forward flow Reverse flow

Reverse Logistics • Financial Implications

– Fee

– Deposit fee

– Take back

– Trade-in

– Community programs

Energy Efficiency

• Carbon footprint

– The total amount of greenhouse gasses produced to support operations, usually expressed in equivalent tons of carbon dioxide (CO2)

Supply Chain Ethics

• Buyer-Supplier Relationships – Identifying ethical and unethical work practices

• Facility Location • Inventory Management

Supply Chain Ethics • Buyer-Supplier Relationships

– SA8000:2008 • Child Labor • Forced Labor • Health and Safety • Freedom of Association and Right to

Collective Bargaining • Discrimination • Discipline • Working hours • Compensation • Management Systems

Managing Sustainable Supply Chains • Develop a sustainable supply chain framework. • Gather data on current supplier performance

and use that information to screen new suppliers.

• Require compliance across all business units. • Engage in active supplier management utilizing

ethical means. • Provide periodic reports on the impact of supply

chains on sustainability.

Production and Operations Management International

Conference

Denver, USA May 3-May 6, 2012

Thank you!

Questions & Answers