21.

Agenda final plenary OM class: Ongoing operations improvements (Chapters 18 and 20) CSR and OM (Chapter 21) Course closure: - Evaluation (qualitative) - Exam tips

21.1

21.2

Operations improvement

Operations strategy

Operations improvement makes processes better

Design Planning and control

Improvement

Organizing for improvement

Risk management stops processes becoming worse

21.2

21.3

Optimization of an organization is a never-ending process. If you sit back and do the same thing tomorrow as you did today, youll never make it.

21.3

21.4

Innovation or breakthrough improvement versus Kaizen or continuous improvement

Innovation
Short-term, dramatic Large steps Intermittent Abrupt, volatile Few champions Individual ideas and effort Scrap and rebuild New inventions/theories Large investment Low effort Technology Profit

Kaizen
Long-term, undramatic Small steps Continuous, incremental Gradual and consistent Everyone Group efforts, systematic Protect and improve Established know-how Low investment Large maintenance effort People Process

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21.5

Continuous improvement cycles

PDCA cycle repeated to create continuous improvement

Performance

Plan Act Do Check

Time

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21.6

Two improvement cycles

Plandocheckact (PDCA), or Deming improvement cycle, versus definemeasureanalyzeimprovecontrol (DMAIC) six sigma improvement cycle
Define

Plan

Do
Control Measure

Act

Check

Improve

Analyze

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21.7

The DMAIC cycle

Defineidentify problem, define requirements and set the goal Controlestablish performance standards and deal with any problems Measuregather data, refine problem and measure inputs and outputs Analyzedevelop problem hypotheses, identify root causes and validate hypotheses

Improvedevelop improvement ideas, test, establish solution and measure results

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Combined improvement

Performance

Combined breakthrough and continuous improvement

Time

21.8

21.9

Four broad approaches to managing improvement

Business process reengineering (BPR) a radical approach to improvement that attempts to redesign operations along customerfocused processes rather than on the traditional functional basis Total quality management (TQM) puts quality and improvement at the heart of everything that is done by an operation (see previous class) Lean an approach that emphasizes the smooth flow of items synchronized to demand so as to identify waste (see Class 10) Six Sigma a disciplined methodology of improving every product, process, and transaction All these improvement approaches share overlapping sets of elements

21.9

21.10

Some of the elements of improvement approaches

Emphasis on rapid change Radical/ breakthrough improvement Six Sigma Business process reengineering (BPR)

End-to-end processes

Emphasis on solutions what to do

Lean

Synchronized Reduce flow variation Emphasis on Waste education Perfection identification is the goal Improvement Customer Include all Continuous cycles relationships people improvement Total quality management (TQM) Emphasis on gradual change

Process based analysis Customer centric

Evidence-based decisions

Emphasis on methods how to do it Systems and procedures

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21.11

Many improvement techniques available

Scatter diagrams, which attempt to identify relationships and influences within processes; Flow charts, which attempt to describe the nature of information flow and decision-making within operations; Causeeffect diagrams, which structure the brainstorming that can help to reveal the root causes of problems; Pareto diagrams, which attempt to sort out the important few causes

from the trivial many causes;

Whywhy analysis that pursues a formal questioning to find root causes of problems.

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21.12

Essence of common improvement techniques

Input/output analysis Input Output

Flow charts

Scatter diagrams
x x x x x x x x x x

Causeeffect diagrams

Pareto diagrams

Whywhy analysis Why? Why?

Why?

21.12

21.13

Organizing for improvement

Operations strategy Operations management Improvement

Operations improvement makes processes better

Design

Organizing for improvement

Planning and control

Risk management stops processes becoming worse

21.13

21.14

Operations improvement should achieve fit between market requirements and operations performance

Current market requirements

requirements change

Extent of market

Intended market requirements

Level of market requirements

A
Extent of operations

resource capability change

Current operations performance

Intended operations performance

Level of operations performance

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21.15

Deviation from the line of fit can expose the operation to risk

Level of market requirements

Off the line of fit operations performance inadequate for market requirements

A
Off the line of fit operations performance not exploited in the market

Level of operations performance

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21.16

Information for improvement

Urgency, direction and priorities of improvement will be determined partly by whether the current performance of an operation is judged to be good, bad or indifferent.

Performance measurement is the process of quantifying action

Without performance measurement, it would be impossible to exert any control over an operation on an ongoing basis.

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21.17

Performance measures at different levels of aggregation

Overall strategic objectives Market strategic objectives Operations strategic objectives Financial strategic objectives

Broad strategic measures

Functional strategic measures

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

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21.18

Different standards give different messages

100 90 80 70 60 50 40 Time

Absolute performance = 100% Strategic goal = 95%

X
Actual performance = 83%
Competitor performance = 75% Last years average performance = 60%

X X X

X X

Performance by historical standards is GOOD. Performance against strategic goal is POOR. Performance against competitors is GOOD. Absolute performance is POOR.

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21.19

Types of benchmarking
Internal benchmarking is a comparison between operations or parts of operations which are within the same total organization

External benchmarking is a comparison between an operation and other operations which are part of a different organization
Non-competitive benchmarking is benchmarking against external organizations which do not compete directly in the same markets Competitive benchmarking is a comparison directly between competitors in the same, or similar, markets Performance benchmarking is a comparison between the levels of achieved performance in different operations Practice benchmarking is a comparison between an organizations operations practices and those adopted by another operation

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21.20

Prioritizing improvement objectives

Priorities should be determined by
The Your PERFORMANCE

IMPORTANCE of each competitive objective

in each competitive objective

IMPROVEMENT PRIORITIES

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21.21

Nine-point importance scale

For this product/service does this performance objective ......
1. Provide a crucial advantage with customers.

Order-winning objectives

2. Provide an important advantage with most customers.

3. Provide a useful advantage with most customers.

4. Need to be up to good industry standard.

Qualifying objectives

5. Need to be around median industry standard.

6. Need to be within close range of the rest of the industry.

7. Not usually important but could become more so in future. 8. Very rarely rate as being important. 9. Never come into consideration.

Less important objectives

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21.22

Temperature controlled Overnight service

IMPORTANCE to customers
1 2 3 4 5 6 7 8 9

PRICE SERVQUAL (DISN.) SERVQUAL (ORDER TAKE) ENQUIRY LEAD-TIME DROP QUOTE WINDOW QUOTE DELIVERY PERFORMANCE X X X X X X X

DELIVERY FLEXIBILITY
VOLUME FLEXIBILITY DOC. SERVICE
1

X X
2 3 4 5 6 7 8 9

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Nine-point performance scale

For this product/service is achieved performance ........

Better than competitors

1. Consistently considerably better than our nearest competitor. 2. Consistently clearly better than our nearest competitor. 3. Consistently marginally better than our nearest competitor.

Same as competitors

4. Often marginally better than most competitors. 5. About the same as most competitors. 6. Often close to main competitors. 7. Usually marginally worse than main competitors. 8. Usually worse than most competitors. 9. Consistently worse than most competitors.

Worse than competitors

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21.24

Temperature controlled overnight service

PERFORMANCE against competitors
1 2 3 4 5 6 7 8 9

COST SERVQUAL (DISN.) SERVQUAL (ORDER TAKE) ENQUIRY LEAD-TIME DROP QUOTE WINDOW QUOTE X X X X

X
X

DELIVERY PERFORMANCE
DELIVERY FLEXIBILITY VOLUME FLEXIBILITY DOC. SERVICE

X X X
1 2 3 4 5 6 7 8 9

Estimated

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Importance performance matrix (Continued)

1

GOOD

Delivery Volume flex

Better

than
3 4

Drop quote

Window quote

X X Servqual (Disn.)

PERFORMANCE AGAINST

COMPETITORS

Same as

5 6 7 8 9 9 8 7 6 5

Doc service Price/Cost

X
Servqual X (Order take)

Delivery flex

Worse than

Enquiry Lead-time
4 3 2 1

BAD

Less important

Qualifying

Order winning

LOW
21.25

IMPORTANCE FOR CUSTOMERS

HIGH

21.26

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

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21.27

Defining CSR

No common, universal definition Most definition contain 5 dimensions Environmental Social Triple P (People, Planet, Profit) Economic Stakeholder Voluntariness So CSR is NOT the same as philanthropy!

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21.28

Voluntariness of CSR?
Corporate responsibility is
60

40

20

A necessary cost of doing business

Something that gives us a distinctive position in the market

Meaningless if it includes what we would do anyway

A waste of money

(Data from Economist Intelligence Unit, Jan 2008)

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21.29

Corporate social responsibility

How executives view the importance (degree of priority) of corporate responsibility

Three years ago

Very high

High

Moderate

Low

Very low

Dont know

Today

Very high

High

Moderate

Low

Three years hence

Very high

High

Moderate Low Very low Dont know

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Five dimensions of CSR for operations managers

Stakeholder dimension Economic dimension Operations strategy decisions

Social dimension

Design decisions

Analyzing operations decisions Planning and control decisions

Improvement decisions

Environmental (sustainability) dimension

21.30

Voluntariness dimension

21.31

Examples of links between CSR and OM

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 waste reduction

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Some environmental considerations in OM

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/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.

Failure prevention and recovery Environmental impact of process failures, recovery to minimize impact of failures.

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Linking CSR & risk management

Assess the potential causes of, and risks from, any breach of ethical practice Prevent breaches of ethical practice occurring Mitigate the effects of any breach of ethical practice Recover from the effects of any breach of ethical practice

Breach of ethical practice

Negative consequence of breach of ethical practice

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Do ethical and financial performance trade-off? (Continued)

Simultaneously improving both ethical and financial performance , partly because extreme positions on either are becoming less acceptable
Societal pressure + reputational risk defining minimum ethical standards

Financial performance

Shareholder expectations defining minimum financial standards

Ethical performance

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Food for Thought: Ecological footprints

To supply the average persons basic needs in the United States, it takes 12.2 acres of land. In the Netherlands it takes 8 acres, and in India it takes 1 acre. Calculated this way, the Dutch ecological footprint covers 15 times the

area of the Netherlands. Indias ecological footprint is 1.35

of its area. Most dramatically, if the entire world lived like North Americans, it would take three planet earths to support the present world population.

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CSR in practice
Corporate Social Responsibility is listening and responding to the needs of a company's stakeholders. This includes the requirements of sustainable development. We believe that building good relationships with employees, suppliers and wider society is the best guarantee of long-term success. This is the backbone of our approach to CSR. (Marks and Spencer's, Retailer)

[Our vision is to] enable the profitable and responsible growth of our airports. One of our six strategies to achieve that purpose is to earn the trust of our stakeholders. Corporate responsibility is about how we manage our social and environmental impacts as part of our day to day business, in order to earn that trust. (BAA, Airport operator)

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External recognition CSR performance

DSM for the 5th consecutive year among the Global Sector Leaders In Chemicals

37

DSM Vision 2010: Retain top ranking in sustainability

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CSRs dark side: Reputation damage

21.38