By

Karin Rheeder
Operations Performance
IALMBA

Operations Performance-
COSTS, SPEED,
FLEXIBILITY, QUALTIY
and DEPENDABILITY -
Transformation to
Organizational
Excellence
 CONTENTS

Introduction..........................................................................................................................2

How operations affect profits..........................................................................................2

Stakeholder perspective...............................................................................................2

The Five Operations Performance Objectives.................................................................3

1. Quality:...............................................................................................................3

2. Speed..................................................................................................................3

3. Depenability.......................................................................................................4

4. Flexibility...........................................................................................................4

5. Costs...................................................................................................................4

Trade-offs between performance objectives........................................................................5

My notes on operations performance..................................................................................5

Summary..............................................................................................................................7

Further reading.....................................................................................................................7

Key words for searching....................................................................................................10

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 INTRODUCTION

Operations Management is able to make or break any organization. Operations most of

the time encompasses the majority of the people and the bulk of the assets of the
organization. The critical factor is that Operations Management gives the Organization
the ability to compete by providing 1) the ability to respond to customers feedback 2)
develop capabilities to stay ahead of company.

HOW OPERATIONS AFFECT PROFITS

Operations should have a long term competitive advantage focus. Operations can
contribute significantly to financial performance of the company e.g. reducing overheads
of sales, forming operations teams that give added value. To reduce operating costs and
improving customer service can equal or even exceed the benefits of improving sales
volumes.

With Operations Management having such a major effect on business it is imperative that
the organization must have some method of assessing performance of the operations
management, operations function. This needs to done from the different perspectives:

1) How stakeholders view Operations Management 2) what top management expect of

Operations Function 3) Set of detailed operational objectives.

STAKEHOLDER PERSPECTIVE
A stakeholder(s) people/groups that have a legitimate interest in operations activities.
Some stakeholders are internal (employees), some external (societies, community groups,
company shareholders), it can be seen that operations need to satisfy a wide range of
stakeholders which may sometimes have conflicting expectations. Operations needs to
balance these expectations for the sustainability of the company.

Although the perspective differs of what aspect of operations is important the relationship
between the stakeholders and the organization is interactive and not only one way.

Lobby interest groups Shareholders Society

Directors/Top
Suppliers management Customers
Staff/Unions

Government Regulatory bodies

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 Stakeholder What stakeholder wants What operations wants
from operations from Stakeholder
Shareholders ROI Investment capital
Stability of earnings Long term commitment
Liquidity of Investments
Directors/Top Low acceptable operating Coherent, consistent, clear
management costs and achievable strategies
Secure revenue Appropriate investments
Well targeted investments
Low risk of failure
Future innovation
Staff Fair wages Attendance
Good working conditions Diligence/best efforts
Safe working conditions Honesty
Personal and working Engagement
development
Suppliers of material Early notice of Integrity of delivery,
services, equipment, etc. requirements quality, volume
Long term orders Innovation
Fair price Responsiveness
On time payment Progressive price
reduction

Society Minimize negative effects Support for organizations

from operations (noise, plans
traffic, etc.) and maximize
positive effects (jobs, local
sponsorship, etc.)

Typical stakeholders performance objectives (adapted from Operations

Management: Slack, et al.

The dilemma commercial companies face is to balance conflicting pressures of

maximizing profits on the one hand and with the expectation that they will manage in the
interest of society in general with accountability and transparency.

Corporate Social Responsibility I associated with stakeholder perspective of operations

management performance this forms part of both ethical and commercial point of view.

THE FIVE OPERATIONS PERFORMANCE OBJECTIVES

Broad stakeholder objectives and management objectives form the backdrop for strategic
operations but the day to day operations needs more detailed defined objectives. There
are five basic performance objectives:

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 1. QUALITY: to do the right thing and satisfy customers. Quality is a major
factor in customer satisfaction. Quality means consistency in producing the
product or service. Quality reduces costs, increase dependability.
2. SPEED: this increases the value to the customer. Speed is also important
internally because it reduces inventory, reduces risks (forecasting times are
shortened). Speed is especially important when life and death is the issue.
(medical industry)
3. DEPENABILITY: this is established over time and in the end it overrides all
other factors. It does not matter how cheap, fast, innovative a product/service is,
if the customer cannot depend that it will be delivered in time, at the right
quality, the customer will be lost. Dependability inside the organization is also
very important as if saves time and money as it reduces ineffective use of time
and resources. Dependability also gives stability within the organization, as
disruption effects quality of operations time which goes beyond time and costs.
4. FLEXIBILITY: is the ability to being able to change in either, what, how and
when so that the company is enabled to provide four types of requirements:
product/service flexibility ability of operations to introduce new or
modified products/services
mix flexibility ability to produce a wide or mix variety of
products/services
volume flexibility able to change level of output
delivery flexibility ability to change time of delivery

Flexibility inside the organization is also important as it speeds up responses to

change, saves time and maintains dependability.

Mass customization: give each customer a customized product/service but being able to
produce at high volumes to keep costs down. E.g. Apple flexibility of design which
gives the customer, within limits, the ability to design their own product.

Agility: this is a combination of all operations performance objectives but specifically

focus on speed and flexibility. This is also the ability of operations and supply chain can
respond to uncertainty in the market.

5. COSTS:

Every organization wants to keep costs low. Costs can be measured by productivity, there
are a few formulae to calculate productivity: (P = output input), (single factor P =
Output one input) and (multi-factor P = output all inputs)

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 Performance objectives have both external and internal effects.
External effects of Performance objectives Internal effects of
performance performance
objectives objectives
Short delivery times Fast throughput
Speed
Low price, high margin, or both High total productivity
Costs
Dependable delivery Reliable processes
Dependability
Frequent new products/services Ability to change
Wide product/service range
Flexibility
Volume & delivery adjustments
On specification Error-free processes
products/services
Quality

TRADE-OFFS BETWEEN PERFORMANCE OBJECTIVES

Trade-off refers when a company sacrifice one operations performance objective to

improve another performance objective. The concept of efficient frontier is used to
describe trade-offs and distinguish between repositioning performance on the efficient
frontier and improving performance by overcoming trade-offs.

MY NOTES ON OPERATIONS PERFORMANCE

Operations is the one element of an organization that is neglected until a major disaster
strike. In Compnay X the company was running perfectly and making lots of money,
until the economy started to slow down. Customers were releasing credit insurance
policies because they could not afford it anymore cash flow problems. Compnay X
was on the verge of losing one of their biggest customers but inter connected this
customer was also connected to the company that gave Company X the edge in the
market. I did intensive research of the business processes and operations within Company
X , Customer One and Database Owner Once and where the companies connected on a
business level. The outcome was that operations management in all these companies were
neglected time, money and inefficiency were at the root of the bottom line changes.

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 The five operations performance objectives were used to compile a detailed day to day
operations plan.

1. Speed: the paper trail that accompanied each credit transaction was a major
challenge. From submitting handover to getting to legal process sometimes took
up to three months. An electronic submission system was developed and a step
was added by starting with the credit application. This meant that the customers
critical information was captured from the very beginning.
2. Quality: in the electronic process a tick list was included which ensured that all
relevant supporting documents were submitted. If all the boxes were not ticked,
the submission would be pending and flagged with colour code so as to keep
the process on track. This meant that information which is the product had a
quick through time with high quality and accuracy.
3. Dependability: the process were no reliable with checks and balances and
delivery of accurate information. The dependability of the operations are good.
4. Costs: the actual costs of this process was cut by 95%, accuracy up by 98%,
increase in revenue from these new operations processes R65 million.
5. Flexibility: the system is highly flexible, as any adjustments from either internal
or external sources can now be accommodated on the electronic processes.

Instruction

Payment

Operations director

Receives claim within 45 days

Client sends claim electronically via Status Insight Senior

Receives claim immediately

Feed back Senior developerJunior developer

Receives claim immediately

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 Once the operations crisis was sorted out with Customer One and Database Owner One, a
full operations strategy was worked out and then for each business unit a detailed day to
day operational objectives were done. The overall operations management involved all
employees, all management and the decision making was much easier now. It is very
important that all employees understand the role he/she plays in the operations process.

SUMMARY

Chapter two of Operations Management is a very good guide for designing and
development of an operations strategy and operations plan. Useful guides and case
studies enhance the information. This text book is written in such a way that non
students or non-academics easily understands the content.

Operations management is a critical function of any organization and to balance the

importance with that of stakeholders is not easy. Most important is that each stakeholder
be made aware of the impact of their objectives on the operations. Through information
dissemination Company One could get all stakeholders to understand the importance of a
well-planned operations structure.

FURTHER READING

http://www.isixsigma.com

This site is an excellent portal for Quality Management Systems, in particular about Six
Sigma, but also other topics.

http://www.kema.com/products_and_processes/management_certification/

This site has useful information about testing of a company's quality, occupational health
and safety or environmental management system.

http://www.iso.org

This site has useful information about international standards, adopted by many
organizations

http://www.iec.org

This site has useful information about educational opportunities for engineering and

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 communications professionals, academics, and students via events, publications and on-
line education.

http://www.bsi-global.com

This site has useful information about international standards, adopted by many
organizations

http://www.toyota.co.jp/en/vision/production_system/index.html

This site has useful information about the Toyota Production System

http://en.wikipedia.org/wiki/Total_Quality_Management

This site has useful information about what the term TQM(Total Quality Management)
means

http://en.wikipedia.org/wiki/Kaizen

This site has useful information about what the term Kaizen means

http://en.wikipedia.org/wiki/Six_Sigma

This site has useful information about what the term Six Sigma means

http://en.wikipedia.org/wiki/Toyota_Production_System

This site has useful information about what the term TPS(Toyota Production System)
means

http://en.wikipedia.org/wiki/Theory_of_Constraints

This site has useful information about what the term TOC(Theory of Constraints) means

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 http://visual.ly/survival-guide-operational-performance-excellence

www.dominiondigital.com

Taylor, F. W. (1919). The Priniciples of Scienticfic Management. New York and London:
Harper and Brothers.

Baldrige Framework and Value System

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 TQM originated in Japan. Most people credit W. Edwards Deming, a
statistician who lectured on statistical process control in Japan after World
War II, with importing the idea to the U.S. Deming outlined 14 points of
TQM, and the philosophy took off from there. Other notable TQM
personalities include Kaoru Ishikawa, Philip Crosby, and Joseph Juran.

Deming, W. Edwards (1964) [1943]. Statistical Adjustment of Data.

Dover

Deming, W. Edwards (2000). Out of the crisis (1. MIT Press ed. Ed.).
Cambridge, Mass.: MIT Press. p. 88

Julian Birkinshaw, Professor of Strategic and International Management at

the London Business School, published his Four Dimensions of
Management in his 2010 book, Reinventing Management: Smarter
Choices for Getting Work Done, Revised and Updated Edition

KEY WORDS FOR SEARCHING

Operations Management

Operations Management deals with the design and management of products, processes,
services and supply chains. It considers the acquisition, development, and utilization of
resources that firms need to deliver the goods and services their clients want.

The survey of OM ranges from strategic to tactical and operational levels. Representative
strategic issues include determining the size and location of manufacturing plants,
deciding the structure of service or telecommunications networks, and designing
technology supply chains.

Tactical issues include plant layout and structure, project management methods, and
equipment selection and replacement. Operational issues include production scheduling
and control, inventory management, quality control and inspection, traffic and materials
handling, and equipment maintenance policies.1

The design, execution, and control of operations that convert resources into desired goods
and services, and implement a company's business strategy.2

1 http://mitsloan.mit.edu

2 http://www.businessdictionary.com

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 Operational Objective

Short-term goal whose attainment moves an organization towards achieving its strategic
or long-term goals. Also called tactical objective.3

Operating Costs

The expenses which are related to the operation of a business, or to the operation of a
device, component, piece of equipment or facility. They are the cost of resources used by
an organization just to maintain its existence.

Quality assurance

Refers to the processes and procedures that systematically monitor different aspects of a
service, process or facility to detect, correct and ensure that quality standards are being
met.

Flexibility

The ability to move the products within a manufacturing facility.

The ability to produce a product in different ways.

The set of products that the system can produce.

The ability to add new products in the system.

The ease to profitably increase or decrease the output of an existing system.

The ability to build out the capacity of a system.

The number of products a system currently can produce.

Agility

The ability of the system to adapt to market demands. Specifically flexibility and speed.

Productivity

The effectiveness of productive effort, especially in industry, as measured in terms of the

rate of output per unit of input.4

Stakeholders

3 www.businessdictionary.com

4 http://www.oxforddictionaries.com

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 A person, group or organization that has interest or concern in an organization.

Thank you

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