Session XIV-Controlling (April 25, 2008)

8/3/2019 Session XIV-Controlling (April 25, 2008)

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Operations ManagementOperations Management

Operations management

encompasses such topics as productivity,

value chain management,

e-manufacturing, and quality.


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What is operations management?What is operations management?

refers to therefers to the design, operation, and controldesign, operation, and controlof the transformation processof the transformation process that convertsthat convertssuch resources as labour and raw materialssuch resources as labour and raw materials

into goods and services that are sold tointo goods and services that are sold tocustomers.customers.

In other wordsIn other words, operations management is, operations management isthe design, operations, and control of thethe design, operations, and control of thetransformation process that convertstransformation process that convertsresources into finished goods or services.resources into finished goods or services.


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The Operations SystemThe Operations System

Inputs

People

Technology

Capital

Equipment

Materials

Information

Transformation

Process

Outputs

Goods

Services


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Just as every organization produces something,Just as every organization produces something,

every unit in an organization also produces something.every unit in an organization also produces something.

Marketing, finance, research andMarketing, finance, research and

development, human resources, anddevelopment, human resources, andaccounting converts inputs into outputs suchaccounting converts inputs into outputs such

as sales, increased market share, high ratesas sales, increased market share, high rates

of return on capital, new and innovativeof return on capital, new and innovativeproducts, motivated and committedproducts, motivated and committed

employees, and accounting reports.employees, and accounting reports.


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Managing ProductivityManaging Productivity

Productivity is the overall output of goods orProductivity is the overall output of goods orservices produced divided by the inputs neededservices produced divided by the inputs needed

to generate that output.to generate that output.

For countries,For countries, high productivity can lead tohigh productivity can lead toeconomic growth and development. Employeeseconomic growth and development. Employeescan receive higher wages and company profits cancan receive higher wages and company profits canincrease without causing inflation.increase without causing inflation.

For individual organizations,For individual organizations, increased productivityincreased productivitygives them a more competitive cost structure andgives them a more competitive cost structure andthe ability to offer more competitive prices.the ability to offer more competitive prices.


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Demings 14 Points forDemings 14 Points for

Improving Managements ProductivityImproving Managements Productivity(W.E. Deming, Improvement of Quality and Productivity Through(W.E. Deming, Improvement of Quality and Productivity Through

Action by Management. National Productivity Review)Action by Management. National Productivity Review)

1.1. Plan for the long-term future.Plan for the long-term future.

2.2. Never be complacent (content) concerning theNever be complacent (content) concerning thequality of your product.quality of your product.

3.3. Establish statistical control over your productionEstablish statistical control over your productionprocesses and require your suppliers to do so asprocesses and require your suppliers to do so aswell.well.

4.4. Deal with the best and fewest number of suppliers.Deal with the best and fewest number of suppliers.

5.5. Find out whether your problems are confined toFind out whether your problems are confined toparticular parts of the production process or stemparticular parts of the production process or stem

from the overall process itself.from the overall process itself.


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Improving Managements ProductivityImproving Managements Productivity

6.6. Train workers for the job that you are asking themTrain workers for the job that you are asking them

to perform.to perform.

7.7. Raise the quality of your line supervisors.Raise the quality of your line supervisors.

8.8. Drive out fear.Drive out fear.

9.9. Encourage departments to work closely togetherEncourage departments to work closely together

rather than to concentrate on departmental orrather than to concentrate on departmental ordivisional distinctions.divisional distinctions.

10.10. Do not adopt strictly numerical goals.Do not adopt strictly numerical goals.


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Improving Managements ProductivityImproving Managements Productivity

11.11. Require your workers to do quality work.Require your workers to do quality work.

12.12.

Train your employees to understand statisticalTrain your employees to understand statistical

methods.methods.

13.13. Train your employees in new skills as the needTrain your employees in new skills as the need

arises.arises.

14.14. Make top managers responsible for implementingMake top managers responsible for implementingthese principles.these principles.


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Strategic Role of Operations ManagementStrategic Role of Operations Management

Today, successful organizations recognize the crucialToday, successful organizations recognize the crucial

role that operations management plays as part of therole that operations management plays as part of the

overall organizational strategy to establish andoverall organizational strategy to establish and

maintain global leadership.maintain global leadership.

The strategic role that operations management playsThe strategic role that operations management plays

in successful organizational performance can bein successful organizational performance can beseen clearly as more organizations move towardseen clearly as more organizations move toward

managing their operations from a value chainmanaging their operations from a value chain

perspective.perspective.


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Value Chain ManagementValue Chain Management

ValueValue

The performance characteristics, features andThe performance characteristics, features andattributes, and any other aspects of goods andattributes, and any other aspects of goods and

services for which customers are willing to give upservices for which customers are willing to give up

resources (usually money).resources (usually money).

For example,For example, when you purchase Karna Dass newwhen you purchase Karna Dass new

CD at Tic Toc, youre exchanging (giving up) moneyCD at Tic Toc, youre exchanging (giving up) money

in return for the value you need or desire from thein return for the value you need or desire from theproduct (the CD) providing music during your eveningproduct (the CD) providing music during your evening

study time.study time.


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How is value provided to customer?How is value provided to customer?

Through the transformation of raw materials andThrough the transformation of raw materials and

other resources into some product or service that endother resources into some product or service that end

users need or desire where, when, and how theyusers need or desire where, when, and how they

want it.want it.

That seemingly simple act of turning a variety ofThat seemingly simple act of turning a variety of

resources into something that customers valueresources into something that customers value

and are willing to pay for involves a vast array ofand are willing to pay for involves a vast array ofinterrelated work activities performed by differentinterrelated work activities performed by different

participantsparticipants (suppliers, manufacturers, and even(suppliers, manufacturers, and even

customers)customers) that is, it involves the that is, it involves the value chainvalue chain..


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TheThe value chainvalue chain isis

the entire series of organizational work activitiesthe entire series of organizational work activities

that add value at each stepthat add value at each step

beginning with the processing of raw materialsbeginning with the processing of raw materialsandand

ending with the finished productending with the finished product

in the hands of end users.in the hands of end users.


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Value Chain ManagementValue Chain ManagementValue chain managementValue chain management The process of managing the entire sequence ofThe process of managing the entire sequence of

integrated activities and information about productintegrated activities and information about productflows along the entire value chain.flows along the entire value chain.

In contrast to supply chain management, which isIn contrast to supply chain management, which is

internally oriented and focuses on efficient flow ofinternally oriented and focuses on efficient flow ofincoming materials (resources) to the organization,incoming materials (resources) to the organization,value chain management is externally oriented andvalue chain management is externally oriented andfocuses on efficient flow of incoming materials andfocuses on efficient flow of incoming materials andoutgoing products and services.outgoing products and services.

While supply chain management is efficiencyWhile supply chain management is efficiencyoriented (its goal is to reduce costs and make theoriented (its goal is to reduce costs and make theorganization more productive), value chainorganization more productive), value chain

management is effectiveness oriented and aims tomanagement is effectiveness oriented and aims tocreate the highest value for customers.create the highest value for customers.


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Value Chain ManagementValue Chain ManagementGoal of Value Chain ManagementGoal of Value Chain Management(Who has the power in the value chain?)(Who has the power in the value chain?)

Ultimately customers are the ones with power. Theyre theUltimately customers are the ones with power. Theyre theones who define what value is and how its created andones who define what value is and how its created andprovided.provided.

The goal of value chain management is to create a valueThe goal of value chain management is to create a valuechain strategy that meets and exceeds customers needschain strategy that meets and exceeds customers needs

and desires and allows for full and seamless integrationand desires and allows for full and seamless integrationamong all members of the chain.among all members of the chain. A good value chain is one in which a sequence ofA good value chain is one in which a sequence of

participants work together as a team, each adding someparticipants work together as a team, each adding somecomponent of value such as faster assembly, morecomponent of value such as faster assembly, more

accurate information, better customer response and service,accurate information, better customer response and service,and so forth to the overall process.and so forth to the overall process. The better the collaboration among the various chainThe better the collaboration among the various chain

participants, the better the customer solutions. When valueparticipants, the better the customer solutions. When valuechain is created for customers and their needs and desireschain is created for customers and their needs and desiresare satisfied, everyone along the chain benefits.are satisfied, everyone along the chain benefits.


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Requirements for Value Chain ManagementRequirements for Value Chain Management

Six Requirements for Successful Value Chain Management

Employees

Leadership

Organizational Cultureand Attitudes

Coordination andCollaboration

ValueChain

Strategy

OrganizationalProcesses

Technology Investment(IT)


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1. Coordination and Collaboration

Each partner in the value chain must identify things

they may not value but that customers do.

And sharing information and being flexible as far

as who does what in the value chain are important

steps in building coordination and collaboration.

This sharing of information and analysis requires

more open communication among the various

value chain partners.


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2. Technology Investment

The payoff from the investment is that information

technology can be used to restructure the value

chain to better serve end users.


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3. Organizational Processes

Value chain management radically changes

organizational processes that is, the ways that

organizational work is done.

Managers must critically evaluate all organizational

processes from beginning to end by looking at core

competencies the organizations major skills,capabilities, and resources to determine where

value is being added. Non-value-adding activities

should be eliminated.


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3. Organizational Processes

Three important conclusions about organizational processes

can be made:

Better demand forecasting is necessary andpossible

because of closer ties with customers and suppliers.

Selected functions may need to be done collaboratively with

other partners in the value chain. This collaboration mayeven extend to sharing employees.

New measures are needed for evaluating performance of

various activities along the value chain.


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4. LeadershipStrong and committed leadership is necessary to

identify what value is, how that value can best be

provided, and how successful those efforts have been.

Managers should start with a vision or mission statement that

expresses the organizations commitment to identifying,

capturing, and providing the highest possible value to customers.

They should clarify expectations regarding each employees role

in the value chain.


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5. Employees/Human Resources

The three main human resource requirements for

value chain management are

flexible approaches to job design,

an effective hiring process, and

ongoing training.


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6. Organizational Culture and Attitudes

Those cultural attitudes include sharing, collaborating,

openness, flexibility, mutual respect, and trust.

These attitudes encompass not only the internal

partners in the value chain, but extend to external

partners as well.


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Benefits of Value Chain Management

Collaborating with external and internal partners inCollaborating with external and internal partners in

creating and managing a successful value chaincreating and managing a successful value chain

strategy requires significant investments in time,strategy requires significant investments in time,

energy, and other resources, and a seriousenergy, and other resources, and a seriouscommitment by all chain partners.commitment by all chain partners.

The major benefit can beThe major benefit can beimproved customer service.improved customer service.


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Obstacles to Value Chain Management

People

OrganizationalBarriers

CulturalAttitudes

Obstacles to ValueChain Management

RequiredCapabilities


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Organizational BarriersOrganizational Barriersinclude refusal or reluctanceinclude refusal or reluctanceto share information, reluctance to shake up the statusto share information, reluctance to shake up the status

quo, and security issues (system and Internetquo, and security issues (system and Internet

securities).securities).

Cultural AttitudesCultural Attitudes

Unsupportive cultural attitudes especially trust andUnsupportive cultural attitudes especially trust and

control. Too much trust also can be a problem. Justcontrol. Too much trust also can be a problem. Justabout any organization is vulnerable to theft ofabout any organization is vulnerable to theft of

intellectual propertyintellectual property that is, proprietary company that is, proprietary company

information thats critical to its efficient and effectiveinformation thats critical to its efficient and effective

functioning and competitiveness.functioning and competitiveness.


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Required CapabilitiesRequired Capabilities

A number of capabilities that value chain managementA number of capabilities that value chain management

must have.must have.

Several of these areSeveral of these are

coordination and collaboration,coordination and collaboration,

the ability to configure products to satisfy customersthe ability to configure products to satisfy customersand suppliers, andand suppliers, and

the ability to educate internal and external partners.the ability to educate internal and external partners.


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PeoplePeople the organizational members the organizational members if refuse to beif refuse to beflexible, its going to be difficult to make the necessaryflexible, its going to be difficult to make the necessary

changes to meet changing situational demands.changes to meet changing situational demands.

Value chain management takes an incredible amountValue chain management takes an incredible amount

of time and energy by an organizations employees.of time and energy by an organizations employees.

Managers must motivate those high levels of effortManagers must motivate those high levels of effort

from employees, which isnt easy to do.from employees, which isnt easy to do.

Another major problem is the lack of experiencedAnother major problem is the lack of experienced

managers who are able to lead value chainmanagers who are able to lead value chain

management initiatives.management initiatives.


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Quality InitiativesQuality Initiatives

One of the issues in operations management.One of the issues in operations management.

Quality problems are expensive.Quality problems are expensive. Example, itExample, it

cost Toshiba Corporation $2.1 billion to settle acost Toshiba Corporation $2.1 billion to settle a

lawsuit over defects in its laptop computers.lawsuit over defects in its laptop computers.

Quality can be defined as the ability of aQuality can be defined as the ability of a

product or service to reliably do what itsproduct or service to reliably do what its

supposed to do and to satisfy customersupposed to do and to satisfy customerexpectations.expectations.


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Quality Dimension of Goods and ServicesQuality Dimension of Goods and Services

Product Quality DimensionsProduct Quality Dimensions

1.1. Performance Operating characteristicsPerformance Operating characteristics

2.2. Features Important special characteristicsFeatures Important special characteristics

3.3. Flexibility Meeting operating specifications over someFlexibility Meeting operating specifications over someperiod of timeperiod of time

4.4. Durability Amount of use before performance deterioratesDurability Amount of use before performance deteriorates

5.5. Conformance Match with pre-established standards.Conformance Match with pre-established standards.

6.6. Serviceability Ease and speed of repair or normal serviceServiceability Ease and speed of repair or normal service

7.7. Aesthetics How a product looks and feelsAesthetics How a product looks and feels

8.8. Perceived quality Subjective assessment of characteristicsPerceived quality Subjective assessment of characteristics

(product image)(product image)


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Quality Dimension of Goods and ServicesQuality Dimension of Goods and Services

Service Quality DimensionsService Quality Dimensions

1.1. Timeliness Performed in promised period of timeTimeliness Performed in promised period of time

2.2. Courtesy Performed cheerfullyCourtesy Performed cheerfully

3.3. Consistency Giving all customers similar experiences eachConsistency Giving all customers similar experiences eachtimetime

4.4. Convenience Accessibility to customersConvenience Accessibility to customers

5.5. Completeness Fully serviced, as requiredCompleteness Fully serviced, as required

6.6. Accuracy Performed correctly each timeAccuracy Performed correctly each time


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How is quality achieved?How is quality achieved?

A good way to address quality initiatives is to think inA good way to address quality initiatives is to think interms of the management functionsterms of the management functions planning, planning,

organizing and leading, and controlling organizing and leading, and controlling that need tothat need to

take place.take place.

Planning for QualityPlanning for Quality

Managers must have quality improvement goalsManagers must have quality improvement goals

and strategies and plans formulated to achieveand strategies and plans formulated to achieve

those goals.those goals.

Goals can help focus everyones attention towardGoals can help focus everyones attention toward

some objective quality standard.some objective quality standard.


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Organizing and Leading for QualityOrganizing and Leading for Quality

Organizations with extensive and successful qualityOrganizations with extensive and successful quality

improvement programs tend to rely on twoimprovement programs tend to rely on two

important people approaches:important people approaches:

cross-functional work teams andcross-functional work teams and

self-directed or empowered work teams.self-directed or empowered work teams.


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Controlling for QualityControlling for Quality

Quality improvement initiatives arent possibleQuality improvement initiatives arent possible

without having some way to monitor and evaluatewithout having some way to monitor and evaluate

their progress.their progress.

Whether it involves standards for inventory control,Whether it involves standards for inventory control,

defect rate, raw materials procurement, or any otherdefect rate, raw materials procurement, or any other

operations management area, controlling for qualityoperations management area, controlling for quality

is important.is important.


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ISO 9000ISO 9000 is a series of international quality managementis a series of international quality management

standards established by the International Organization forstandards established by the International Organization forStandardization, which set uniform guidelines for processesStandardization, which set uniform guidelines for processes

to ensure that products conform to customer requirements.to ensure that products conform to customer requirements.

This type of certification is becoming a pre-requisite forThis type of certification is becoming a pre-requisite fordoing business globally. Gaining ISO 9000 certificationdoing business globally. Gaining ISO 9000 certification

provides proof that a quality operations system is in place.provides proof that a quality operations system is in place.

The 2002 survey of ISO 9000 certificates showed that theThe 2002 survey of ISO 9000 certificates showed that thenumber of registered sites worldwide exceeded 561,000,number of registered sites worldwide exceeded 561,000,

an increase of almost 10 percent from the previous year.an increase of almost 10 percent from the previous year.

And these certificates had been awarded in 159 countries.And these certificates had been awarded in 159 countries.

Documents

Session XIV-Controlling (April 25, 2008)