Introduction to Operations Management Part 1

INTRODUCTIONto

Operations Management

Chapter 1, The Operations Function

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Chapter Outline

• Definition of Operations Management• Decisions at Pizza U.S.A.• Operations Decisions - A Framework• Cross-Functional Decision Making• Operations as a System• Contemporary Operations Themes

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Definition ofOperations Management

•Operations is responsible for supplying the product or service of the organization. •Operations managers make decisions regarding the operations function and its connection with other functions. •Operations managers plan and control the production process and its interfaces within the organization and with the external environment.

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Key Points in OM Definition

Decisions the operations manager must make

Functions in the organization.

Process for producing goods and services

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Major Decisions at Pizza USAA Framework for OM

• Process– How to produce & deliver

• Quality– Criteria, measurement & process for achieving

• Capacity– Physical facilities & labor

• Inventory– What, when & how much?

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Cross-FunctionalDecision Making

• Operations as the primary function.• Other primary functions:– Marketing– Finance

• Supporting functions: all others• Major cross-functional decisions (See Table

1.1)

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Operations as a Process

Transformation(Conversion)

Process

Input Output

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Operations as a Process

TransformationFabrication

Input OutputTransformationAssembly

Fabrication: making the parts

Assembly: putting the parts together

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Operations as a Process (Figure 1.1)

Transformation(Conversion)

Process

EnergyMaterials

LaborCapital

Information

Goods orServices

Feedback information forcontrol of process inputsand process technology

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Relation of Operations to its Environment(Figure 1.2)

Operations transformation systemSuppliers

HumanResources

Marketing

Accounting Finance MIS

Engineering

SOCIETY

GOVERNMENT

ExternalEnvironment

CUSTOMERS

COMPETITORS

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Contemporary Operations Themes

• Service and Manufacturing (differences and implications)

• Customer-Directed Operations• Time Reduction (Lean Operations)• Integration of Operations and Other Functions• Environmental Concerns• Supply Chain Management• Globalization of Operations

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Environmental Concerns

“Volkswagen, Germany’s biggest car maker, was reported to be setting aside DM1 billion ($470m) to pay for compliance with a European directive that will come into force in 2007 forcing car makers to pay for recycling their vehicles. New cars will be

required to be 85% recyclable.” --The Economist, 15 February 2001

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Globalization: Who took my job?

• Early 1990s• Small town near Charlotte, NC• Aluminum smelter closed after 50 years• Only significant industry in town• In many families, several generations had

worked there. Now all out of work.• Who caused it to close?

Miklós Németh

WHO!?!?!?

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U.S. production of aluminum dropped dramatically in the early 1990s because the Russians dumped aluminum on the world market. Why? The opening of the Hungarian border, 2 May 1989, led to the fall of the Berlin Wall in November, 1989, which led to the breakup of the Soviet Union in 1991, which caused them to downsize their military, which gave them overcapacity in aluminum production, which caused them to dump in the world markets, which led to the closing of U.S. smelters such as the one near Charlotte, NC.

Miklós NémethWas the Hungarian Prime Minister who opened the

border on 2 May 1989.

Moral of the StoryIn an age of globalization, you never know who

will be the competition or who is doing something that will affect your job or your life.

The aluminum workers in NC had never heard of Miklós Németh, but he ultimately cost them

their jobs.

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Summary

• Definition of Operations Management• Decisions at Pizza U.S.A.• Operations Decisions - A Framework• Cross-Functional Decision Making• Operations as a System• Contemporary Operations Themes

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End of Chapter One

OPERATIONS and SUPPLY CHAIN STRATEGY

Chapter 2

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Outline

1. Operations Strategy Model2. Emphasis on Operations Objectives3. Linking Strategies4. Operations Competence5. Global Scope of Operations

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Operations Strategy Model (Figure 2.1)

Consistent pattern of decisions

Internalanalysis

Externalanalysis

Mission

DistinctiveCompetence

Objectives(cost, quality, flexibility, delivery)

Policies(process, quality systems, capacity,

and inventory)

Operations Strategy

Business strategy

Functional strategies inmarketing, finance,engineering, human

resources, andinformation systems

Results

Corporate strategy

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Distinctive Competence

“Something an organization does

better than any competing

organization that adds value for

the customer.”

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Operations Strategic Objectives

• Quality• Flexibility—schedule or product change• Delivery – Time– Reliability

• Cost efficiency

How does a firm use them to gain a competitive advantage, and how do they trade-off?

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Examples of Important Policies in Operations (Table 2.2)

Policy Type Policy Area Strategic Choices Process Span of process

Automation Process flow Job specialization Supervision

Make or buy Handmade or machine–made Flexible or specialized Project, batch, line, or continuous Centralized or empowered workers

Quality Systems

Approach Training Suppliers

Prevention or inspection Technical or managerial training Selected on quality or cost

Capacity Facility size Location Investment

One large or several small facilities Near markets, labor, or materials Permanent or temporary

Inventory Amount Distribution Control Systems

High or low levels of inventory Centralized or decentralized warehouses Control in great detail or less detail

Policy types = decisions in Chapter 1.

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Linking Operations to Business Strategies

• Business strategy alternatives– Product imitator• Operations must focus on keeping costs low. (generic

drugs)

– Product innovator• Operations must maintain flexibility in processes,

labor and suppliers. (Rubbermaid)

• Order qualifiers and Winners– Qualifiers: why you consider the product– Winners: why you choose the product

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Operations Competence

To be sustainable, a distinctive competence must not only be unique, it must be difficult to imitate or copy.

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Examples of Operations Distinctive Competence

• Skills of employees• Proprietary equipment or processes• Rapid continuous improvement• Well developed partnerships• Location • Organizational knowledge• Proprietary information or control systems

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Global Scope of Operations• “Traditional” versus “Global” company, i.e.

companies operating in one country vs. those operating in many.

• Characteristics of “Global Corporation”: facilities, products, suppliers, transportation…

• Operations must have a global distinctive competence.

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Summary

• Operations Strategy Model• Emphasis on Operations Objectives• Linking Strategies• Operations Competence• Global Scope of Operations

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End of Chapter Two

Product Design

Chapter 3

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Outline• DESIGN PROCESS

– Strategies for New-Product Introduction

– New-Product Development Process

– Cross-Functional Product Design

• DESIGN TOOLS

– Quality Function Deployment

– Design for Manufacturing• Value Analysis

• Modular Design

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Why Does Operations Care?

• In the old days, “over the wall”• Now– must be able to make it• technology• availability of resources

– must have the capacity– must deliver a quality product or service– must decide inventory policies

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Strategies for New-Product Introduction

• Market Pull (“We Make What We Can Sell”)– food industry

• Technology Push (“We Sell What We Can Make”)– electronics

• Interfunctional View– personal computers

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New Product Development Process

• Concept Development

• Product or Service Design

• Pilot Production/Testing

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New Product Design Process (Figure 3.2)

Pilot production/testing Final process design

Preliminary process design

Concept development

Product design

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New Product Design Process

•To be ISO 9000 certified, an organization must define and follow a new product design process.

•ISO = International Organization for Standards.

•We will talk about it more in Chapter 8.

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Cross Functional Product Design (Figure 3.3)

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Why Don’t Different Areas Cooperate?

• They don’t speak the same language.• They have different performance measures.• They tend to have different personality types, i.e.

they don’t think alike.• They are defensive about their own turfs.• They are in different physical locations.• They “don’t have time.”

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Quality Function Deployment (QFD)

• Also known as “House of Quality”• Developed in Japan in 1972.• Tool for concurrent design of products• Customer Attributes (“Voice of the

Customer”)• Engineering Characteristics (“Voice of the

Engineer”)• Tradeoffs• Competitors’ Comparison

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HOUSE OF QUALITY (QFD)

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Design for Manufacturing (DFM)

• Value Analysis (or engineering)– Simplification of products and processes

• Modular Design–Multiple products using common parts,

processes and modules.

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Value Analysis

• Terms in Value Analysis:– Objective: primary purpose of the product– Basic Function: Makes the objective possible– Secondary Function: How to perform the basic function

• Value analysis seeks to improve the secondary function, e.g. how to open a can or make a tool box.

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Objectives of Value Analysis

• Enhance the design of a good or service to provide higher quality at the same price, or the same quality at a lower price.

• Modify the design of production process to lower the cost of a good or service while maintaining or improving quality.

• In other words, improve the ratio of usefulness (quality) to cost.

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DFM: An Example

(c) Final design

Design for push-and-snap assembly

(b) Revised design

One-piece base & elimination of fasteners

(a) The original design

Assembly using common fasteners

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DFM: An Example (continued)

a. Original Design

• 24 different parts to assemble

• 7 unique parts to manage in inventory

b. Revised Design

• 4 different parts to assemble

• 3 unique parts to manage in inventory

c. Final Design

• 2 parts to assemble and manage

Question: How easy would it be to detect an assembly error with each of the designs?

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Modular Design

• Allows greater variety through ‘mixing and matching’ of modules

• Develops a series of basic product components (modules) for later assembly into multiple products

• Reduces complexity and costs associated with large number of product variations

• Easy to subcontract production of modules

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Dana’s “Rolling Chassis”

A module they make for Chrysler.

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Summary• DESIGN PROCESS

– Strategies for New-Product Introduction

– New-Product Development Process

– Cross-Functional Product Design

• DESIGN TOOLS

– Quality Function Deployment

– Design for Manufacturing• Value Analysis

• Modular Design

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End of Chapter Three

PROCESS SELECTION

Chapter 4

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Chapter Outline

• Product-Flow Characteristics• Classification by Type of Customer Order• Process Selection Decisions• Product-Process Strategy• Focused Operations• Mass-customization• Cross Functional Decision Making

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Product-Flow Characteristics

• Types of Product Flow– Line Flow– Batch Flow– Project Flow

• Characteristics of Flows (see Table 4.1)

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Line Flow(metal bracket, see fig. 4.1)

paintdrill bend

Task or work station

Product flow

cut

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Batch Flow (three metal brackets, see fig. 4.2)

Cut Paint

Task or work station Product flows

Bend

Drill

Batch ABatch BBatch C

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Classification by Type of Customer Order

• Make to Stock (MTS)• Make to Order (MTO)• Assemble to Order (ATO)

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Make to Stock (MTS)

• Produce finished goods; customer buys

from inventory

• Advantage: smooth production

• Disadvantage: inventory

• Key performance measures (next slide)

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MTS Performance Measures

• Service level (orders filled when requested)

• Inventory turnover (sales/avg. inventory)

• Back order fill rate

• Inventory accuracy

• Time to replenish

• Others, such as shrinkage rate

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Make to Order (MTO)• Start production when customer orders.

• Advantage: no finished goods inventory

• Disadvantage: intermittent production

• Key performance measures– Lead time

– Orders completed on time (or late)

– Quality measures

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Assemble to Order (ATO)• Make parts and subassemblies; finish when

customer places order.• Advantages: less inventory, faster service• Disadvantage: some WIP inventory• Key performance measures– speed of service

– inventory levels

– quality of product and service

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MTS and MTO ComparisonCharacteristics Make-to-Stock Make-to-OrderProduct Producer-specified

Low varietyInexpensive

Customer-specifiedHigh varietyExpensive

Objectives Balance inventory,capacity, and service

Manage delivery leadtimes and capacity

Main operationsproblems

ForecastingPlanning productionControl of invenntory

Delivery promisesDelivery time

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Make-to-Stock (Figure 4-3)

customer

Forecast orders

Production

Finished Goods Inventory

Product

Customer OrderProduct

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Make-to-Order (Figure 4-3)

customer

Production

Product

Customer Order

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Assemble-to-Order (Figure 4-3)

customer

Forecast orders

Production of Subassemblies

Inventory

of Subassemblies

Customer order

ProductAssembly of the

Order

Subassembly

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Process Selection Decisions

• Process characteristics matrix

• Factors affecting process choice

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Process Characteristics Matrix (Table 4.3)

Characteristics Make-to-Stock Make-to-Order Assemble-to-Order

Line Flow

Auto Assembly Line Oil refinery Cannery Cafeteria

Auto assembly line Dell Computers Motorola Pager

Batch Flow

Machine shop Fast food Glassware factory Costume Jewelry

Machine shop Restaurant Hospital Custom jewelry

Project

Speculation homes Commercial painting

Buildings Movies Ships Portraits

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Factors Affecting Process Choice

• Market conditions and competition• Capital requirements• Labor supply and cost• State of technology

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Product-Process Strategy

• Strategy must consider not only the product or service, but also how to produce it.

• As many industries move through their product life cycles, they also move through a process life cycle. e.g. the traditional bread bakery vs. the modern automated bakery.

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Product Life Cycle Stages

Low volume-low standardization, one of a kind

Multiple products, low volumeFew major products, higher volumeHigh volume-high standardization, commodity

product

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Process Life Cycle Stages

Jumbled flow (job shop)Disconnected line flow (batch)Connected line flow (assembly line)Continuous flow

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PRODUCT-PROCESS MATRIX (Figure 4.4)

ILow volume-low standardization, oneof a kind

CommercialPrinter

HeavyEquipment

Automobileassembly

SugarRefinery

IIMultiple products,low volume

IIIFew major productshigher volume

IIIHigh volume-highstandardization,commodity products

PRODUCT STRUCTURE (Product Life Cycle)P

RO

CESS

STR

UC

TU

RE (

Pro

cess L

ife C

ycle

)

IJumbled flow(job shop)

IIDisconnectedline flow(batch)

IIIConnectedline flow(assemblyline)

IVContinuousflow NONE

NONE

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Focused Operations

• Company may have products or services with different volumes and levels of standardization.

• Mixing them in the same operation can cause significant problems.

• Focus involves separating different products or services in the same facility into PWPs.

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Types of Focus

• Product focus• Process type• Technology• Volume of sales• Make-to-stock and make-to-order• New products and mature products

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Mass Customization

• Possible because of flexible manufacturing

• Based on economies of scope instead of economies of scale, i.e. a high variety of products from a single process.

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Forms of Mass Customization

• Mass-customized services (e.g. Hertz)• Modular production & ATO (e.g. Dell)• Fast changeover (e.g. Motorola)• Postponement (e.g. Hewlett-Packard)

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Cross-Functional Decision Makingor, who has a stake in process choice?

• Marketing wants fast response to customer demand

• Finance must find the funds to configure the process

• HR must provide the properly skilled workers• IT must serve different data requirements• Accounting must be flexible in setting performance

measures

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Summary

• Product-Flow Characteristics• Classification by Type of Customer Order• Process Selection Decisions• Product-Process Strategy• Focused Operations• Mass-customization• Cross Functional Decision Making

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End of Chapter Four

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Service Process Design

Chapter 5

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Chapter 5: Outline

• Defining Service• Service Guarantees/service recovery• The Service-Product Bundle• Cycle of Service• Customer Contact• Service Matrix• Service/Profit Chain

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The Shift to Services

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Services in Europe

“The Service Sector accounts for about 70 percent of the European economy.”

Source: Wall Street Journal, 4 March 2005, p. A13

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Definition of ServiceKey Concepts

• No finished goods inventory• Intangibility of the product• Simultaneous production and consumption• Difficulty in defining and measuring quality

and productivity• Other Differences between Manufacturing and

Service (See Table 5.1)

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Production of Services vs. GoodsTypical Differences

• Services are process focused.

• Customers served as first come, first served.

• Labor is scheduled, not the customer.

• Location often near customers.

• Result: service production tends to be less

efficient than production of goods.

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Related Concepts

• Service guarantee

– Analogous to a guarantee for a product

– Requires specific criteria and responses

• Service Recovery

–What you do to compensate the customer for bad

service.

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The Service/Product Continuum

• Pure Service

– No product with intrinsic value involved. e.g. lawyer

• Service/Product bundle

– Combination of product with service (most common)

• Pure Product

– Very rare. Yard sale. Blacksmith.

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Service-Product BundlesThe Service-Product Bundles has three parts:

• physical goods (facilitating goods)—what you can carry away

• tangible service (explicit service)—what the seller does for you.

• psychological service (implicit service)—how you feel about it.

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Comparison of Goods and Services (Figure 5.1)

100% 75% 50% 25% 0% 100%75%50%25%

Self-service groceries

Automobile

Installed carpeting

Fast-food restaurant

Gourmet restaurant

Auto maintenance

Haircut

Consulting services

Goods Services

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Moments of Truth• Moment of Truth = customer contact with a

service system.• Service is defined as the cumulative effect

of all the moments of truth.• One failed moment of truth can cause

failure of the entire service.

• Therefore, service systems must be designed as a whole, not in parts.

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Moments of Truth

Examples from book:• SAS airlines has 50,000 moments of

truth per day.• Marriott hotels has 6,000,000 moments

of truth per day.

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Cycle of Service for an Airline (Figure 5.2)

LeavesAirport

ReceiveBaggage Arrives at

airport

Customer requestsschedule information

Makesreservation

Checksbaggage andchecks in forflight

Proceeds to gateand security check

Receivesboarding pass

Boardsaircraft

Receivesin-flightservice

DepartsPlane

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Customer Contact (1)

• Definition of “contact”—interaction between service provider and the customer. Each “moment of truth” is a contact.

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Customer Contact (2)Potential inefficiency in services is a function of

the amount of customer contact• Why?– Customer determines the time– Customer determines the order of service– Customer influences what happens during the

service

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Customer Contact (3)• High contact (front room) services– Direct customer contact– Customer has control of process

• Low-contact (back room) services– Out of sight of customer– Provider has control of process

• Goal: move as much activity as possible to the back room—why?

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Service Matrix (Figure 5.3)

Low High

Low

High

Service factoryAirlinesTruckingHotelsResort and recreation

Degree of Interaction and Customization

Mass servicesRetailingWholesalingSchoolsRetail aspects ofcommercial banking

Professional ServicesLawyersDoctorsAccountantsArchitects

Service shopHospitalsAuto repairRepair services

Deg

ree o

f Lab

or

inte

nsit

y

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Links in the service-profit chain(See Figure 5.4)

• Internal service quality, leads to…• Employee satisfaction, leads to…• Employee retention & productivity, lead to…• External service value, leads to…• Customer satisfaction, leads to…• Customer loyalty, leads to…• Revenue growth & profitability (the goal)

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Summary

• Defining Service• Service Guarantees/service recovery• The Service-Product Bundle• Cycle of Service• Customer Contact• Service Matrix• Service/Profit Chain

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End of Chapter Five

Choice of Technology

Chapter 6

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Outline of Chapter 6

• Definition• Computer-Integrated Manufacturing• Automated Offices and Services• Enterprise Resource Planning Systems• The Internet and the e-Business• Technology Choice

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Definition1 “Technology is a set of processes, tools,

methods and equipment used to produce goods and services.”

2 This is the technology of the production process, not of the goods and services themselves.

3 What is wrong with statement 2? In services, we have simultaneous production & consumption, so the two cannot be separated.

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Computer Integrated Manufacturing (CIM)

• “Factory of the Future”

• Computer Aided Design (CAD)

• Computer Aided Manufacturing (CAM)

– Group Technology (GT)

– Flexible Manufacturing Systems (FMS)

• Numerically Controlled (NC) Machines and Robotics

• Economies of Scope

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Computer Aided Design (CAD)

• Benefits to operations:– Participate in concurrent design process– Less proliferation of parts– Shorter throughput time– Faster implementation of engineering changes– Link to manufacturing process choices

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Computer Aided Manufacturing (CAM)

• Can streamline batch operations– Use of group technology (GT)

• Can add flexibility (FMS)– Multiple model auto production lines

• Computer-aided process planning (CAPP)

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Batch Layout

A

A A A

B

B

B

B

C C D

C D

D

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Group Technology Layout

A

C

B

D

A

B

C

D

C

A

D

B

C

D

A

B

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U-Shaped Cell Layout

A

C B

D A

B C

D

C

A D

B C

D A

B

= work station

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NC Machines & Robotics

• NC Machines are automated but don’t have ‘arms’ as robots do–Early NC machines were mechanically

controlled–Later controlled by tape–Now controlled directly by computer• e.g. computer controlled lathe

• Robots: can imitate human motions– e.g. welding machines in auto plant

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Automated Offices and Services

• Transformation in offices: typical functions–Handling messages–Typing or keyboarding files–Copying printed or electronic materials–Filing–Keeping a calendar

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Impact on Services

• Bringing the industrial model (production line approach) to services

• Services gaining efficiency of product focus (e.g. ATM machines)

• Physical & geographic boundaries falling (on-line banking, e-business)

• Making possible productivity increases in services.

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Automated Office

• Impact of automation on offices–Changing role of secretaries–Redistribution of work–Different ways of interacting with

customers–Decentralization

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Pay for parking with a mobile phone

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Enterprise Resource Planning (ERP) Systems

• Integration of functions through common database–Forces standard systems throughout

company

• ERP as the backbone of Supply Chain Management

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Enterprise Resource Planning (ERP) Systems

• Some ERP software vendors–SAP (Systems, Applications & Products)–Baan (was Dutch, now IBM)–PeopleSoft (purchased by Oracle)–J.D. Edwards (purchased by PeopleSoft)–Oracle

• See: www.erpfans.com

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The Internet and e-Business

• Growth of e-Business and B2B Commerce– Order entry, reverse auctions, etc.

• Business to Consumer (B2C)• Types of e-Business (see Table 6.3):

e-Market companies (e-bay.com)e-Service providers (travelocity.com)e-Retailers and wholesalers (amazon.com)e-Producers (Cisco)

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Technology Choice (1)

• Role of technology strategy

–Must support enterprise strategy, e.g. is the

distinctive competence to be low price, product

variety, fast throughput……?

• Technology decision needs to be made with

the strategy & system in mind, not on a

machine by machine basis.

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Technology Choice (2)

• Must provide minimally acceptable return on investment

• Must consider the effect on the workers, i.e. socio-

technical system.

– Technological determinism

– Social & human consequences

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Sociotechnical Design

TechnicalTechnicalSocialSocial

SociotechnicalD

esign

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Summary

• Definition• Computer-Integrated Manufacturing• Automated Offices and Services• Enterprise Resource Planning Systems• The Internet and the e-Business• Technology Choice

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End of Chapter Six

Process-Flow Analysis

Chapter 7

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Outline of Chapter 7

• Systems Thinking• The Process View of Business• Measuring Process Flows• Flowchart Analysis• Materials-Flow Analysis• Information-Flow Analysis• Service Blue Printing• Business Process Reengineering (BPR)

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Systems Thinking• Definition of a “system”–Whole > sum of parts

• Application of systems thinking to businesses– “Can’t sell from an empty wagon.”– Defining systems boundaries

• Role of “cross functional” teams in systems analysis– Systems thinking requires cross-functional teams

to include all affected functions.

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Process View of Business

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Measuring Process Flows

• Little’s Law– Relates number of items in the system to arrival

rate and length of time in the system.– Formula:

I = T x RI = average number in the systemT = average throughput timeR = average flow rate into the process

• Assumes system is in a ‘steady state’

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Applications of Little’s Law

• Manufacturing • Waiting lines• Invoice processing• Legal office transactions• Accounts receivable processing• Etc.

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Measuring Process Flows

• Capacity of a system = capacity of the most constraining resource.– This resource is called a ‘bottleneck.’

• The flow rate of a process is the minimum of– Supply– Demand– Capacity

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Flow-Process Chart Analysis

• Purpose: to describe a process visually to find ways

of improving the current process.

– Find repetitive operations

– Identify bottlenecks

– Describe directions and distances of flows (people,

material and information)

– Reduce waste

• Required for certifications such as ISO9000.

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Process Flow Analysis Might Change:

• Raw materials• Product (output) design• Job design• Processing steps used• Management control information• Equipment or tools• Suppliers• i.e. Anything but customers may be

changed!!

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Steps in process flowchart analysisusing the systems approach

1. Select a process to study

2. Form a team to analyze & improve the system

3. Decide on the objectives of the analysis

4. Define customers and suppliers

5. Flowchart the existing transformation process

6. Develop improved process design

7. Gain management approval of the improved design

8. Implement the new process design

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Symbols for Flow-Process Chart

Operation (a task or work activity)

Inspection (an inspection of the product forquantity or quality)

Transportation (a movement of material fromone point to another)

Storage (an inventory or storage of materialsawaiting the next operation)

Delay (a delay in the sequence of operations)

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Questions to Ask in FPA

• What does the customer need?, operations are necessary? Can some operations be eliminated, combined, or simplified?….

• Who is performing the job? Can the operation be redesigned to use less skill or less labor? Can operations be combined to enrich jobs? ….

• Where is each operation conducted? Can layout be improved? ….

• When is each operation performed? Is there excessive delay or storage? Are some operations creating bottlenecks? …..

• How is the operation done? Can better methods, procedures, or equipment be used? ….

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Information Flow Analysis

• Purpose: to improve the efficiency and effectiveness of the process.

• Types of information flow:– Information is the product of operation– Information is used for management control

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Symbols for Information Processing Flow Chart

Origin of record (used to identify an operation that involves the additionof significant data to a blank form)

Subsequent writing (a step in which significant data is added to an existingrecord)

Handling operations (any nonproductive step, such as sorting, stapling, orfolding)

Move (a step in which the record is transported from one person, department,or work place to another)

Inspection (used when the step involves examination of the quality orclearness of a record)

Delay, file, and destroy (identifies a point or time at which the record isinactive

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Service Blue Printing

• Flow charting of a service operation• Shows the ‘cycle of service.’• Points on SBP are “moments of truth”• Ask the same questions as in PFA (what, who,

where, when, and how)

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Business Process Reengineering (BPR)

• BPR defined (Hammer and Champy,

1993)

• BPR Philosophy

• Principles of BPR

• Success of BPR

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BPR Defined• BPR is “the fundamental rethinking

and radical redesign of business [or organizational] processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed.”

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BPR Defined• This is in contrast to incremental

change or continuous improvement of an existing process.• “If I were recreating this company

today, given what I know and given current technology, what would it look like?”

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BPR Philosophy Does the reengineering consultant see the

glass as half full or half empty?

Neither. It’s the wrong size of glass!

Or, should it be a glass? …or a liquid?

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Principles of BPR

• Organize around outcomes• Have the people who do the work, process

their own information• Put the decision point where work is

performed and build control into the process• Eliminate unnecessary steps in the process

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The Success of BPR

• According to Hammer & Champy, 50-70

percent of the organizations attempting BPR

do not achieve the results they expected.

Why?

• Because they make one or more of the 17

common mistakes:

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BPR Mistakes• Trying to fix a process instead of changing it

• Not focusing on business processes

• Focusing only on the process redesign

• Neglecting people’s values & beliefs

• Settling for minor results

• Quitting too early

• Constraining the scope of the problem & effort

• Letting corporate culture & mgmt attitudes get in the way

• Trying to reengineer from the bottom up

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BPR Mistakes (cont.)

• Assigning a leader who doesn’t understand BPR

• Skimping on the resources

• Not making BPR a top corporate priority

• Trying to do too much at once & dissipating resources.

• Concentrating only on design & not implementation.

• Trying to keep everyone happy.

• Pulling back if people resist.

• Dragging out the effort & taking too long.

Source: Hammer & Champy, Reengineering the Corporation, chapter 14.

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Summary

• Systems Thinking• The Process View of Business• Measuring Process Flows• Flowchart Analysis• Materials-Flow Analysis• Information-Flow Analysis• Service Blue Printing• Business Process Reengineering (BPR)

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End of Chapter Seven

Managing Quality

Chapter 8

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Chapter 8 Outline

• Quality Definitions• Service Quality• Quality Planning, Control, and Improvement• The Quality Gurus• ISO 9000 Standards• Malcolm Baldrige Award• Quality and Financial Performance• Why Some Quality Improvement Efforts Fail

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Quality

Meeting, or exceeding, customer requirements now and in the future.

i.e. the product or service is fit for the customer’s use

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Dimensions of Quality

QUALITYQuality

ofConformance

FieldService

The“Abilities”

Qualityof

Design

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Quality of Design

• Determined before the product is produced• Translates the “wishes” of customers into

specifications• Concurrent design through the QFD process.

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Quality of Conformance

Producing a product to meet the specifications

(independent of quality of design)

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Abilities

• Availability (Continuity of service to customers)

• Reliability (Length of time that a product can be used before it fails—MBTF)

• Maintainability (Restoration of the product or service once it has failed—MTTR)

UptimeAvailability

Uptime Downtime

MTBF

AvailabilityMTBF MTTR

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Field Service• Warranty and repair or replacement of the

product after it has been sold.• Also called customer service, sales

service, or just service• Dimensions–Promptness–Competence– Integrity

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Different Types of Quality (Figure 8.1)

Quality of market research

Quality of concept

Quality of specification

Technology

Employees

Management

Reliability

Maintainability

Logistical support

Promptness

Competence

Integrity

Quality of design

Quality of conformance

Availability

Field service

Customersatisfaction

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Service Quality

• Service measures are perceptual or subjective• SERVQUAL most popular measure– Tangibles– Reliability– Responsiveness– Assurance– Empathy

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The Quality Cycle

MARKETINGInterprets customer needsWorks with customer to

design product to fitoperations

Interpretation of needs

CUSTOMERSpecifies quality needs

Needs

OPERATIONSProduces the product or

services

QUALITY CONTROLPlans and monitors

quality

Product

ENGINEERINGDefines design conceptPrepares specifications

Define qualitycharacteristics

Specifications

Concurrent engineering team

(QFD)

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Quality Cycle in Mass Transit System

County planningRegional planningState transportation agency

PlannerScheduler

RoutesSchedulesBudgets

MethodFacilitiesEquipment

EvaluationInspectionAuditsSurveysHearings

Public

Operations office

Rider’sneeds

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Implementation of quality improvement through the quality cycle

Define quality attributes on the basis of customer needs

Decide how to measure each attributeSet quality standardsEstablish appropriate tests for each standardsFind and correct causes of poor qualityContinue to make improvements

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The Quality Gurus

• W. Edwards Deming (1900-1993)

• Joseph Juran (1904- )

• Phillip Crosby (1926- 2001)

• plus many others

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W. Edwards Deming

• The 14 Management Principles• Advocate of statistical process control• Emphasis on continuous improvement• PDCA Wheel• http://www.deming.org/

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CI Methodology: PDCA Cycle (Shewart/Deming Wheel)

1. Plan a change aimed at improvement.

1. Plan

2. Execute the change.

2. Do

3. Study the results; did it work?

3. Check

4. Institutionalize the change or abandon or do it again.

4. Act

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Root Causes of Quality Problems

• Text: “…most quality problems are caused by poor systems, not by the workers.”

• Deming: 90 percent of quality problems are caused by management.

• J.D. Power: at least 2/3 of the long-term quality problems in autos are engineering and design problems.

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Joseph Juran• Quality “Trilogy”—planning,

control and improvement

• Emphasis on management

• “Quality Handbook”

• 100 years old on 24 Dec 2004

• http://www.juran.com/main.html

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Phillip Crosby

• Zero defects

• 14-step quality implementation

program

• Emphasis on “conformance”

in the definition of quality

• Quality is Free

• http://www.philipcrosby.com/main.htm

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Crosby’s Absolutes of Quality Management

• Quality means conformance to requirements• Problems are functional in nature• There is no optimum level of defects• Cost of quality is the only useful measurement• Zero defects is the only performance standard

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When 99.9% Quality is Not Enough (Table 8.2)

• Two million documents would be lost by IRS each year• 22,000 checks would be deducted from the wrong bank

account in the U.S.• 1,314 phone calls in the U.S. would be misrouted each

day• 12 babies would be given to the wrong parents each day• Two plane landings daily at O’Hare would be unsafe.• The space shuttle would explode every time it is

launched.

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How Much Quality is Enough?

• 1999: 98,000 deaths from medical errors in the U.S., 7000 from medication errors.

• Only 80% of hospitals in the U.S. have procedures in place to avoid operating on the wrong body parts.

• IRS agents give bad or no information 43 percent of the time (in 2002 study by Dept. of Treasury)

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ISO 9000

• Guidelines for designing, manufacturing, selling, and servicing products.

• Selecting an ISO 9000 certified supplier provides some assurance that supplier follows accepted business practices in areas covered by the standard.

• Required by many companies, esp. in Europe, before one can be a supplier.

• www.iso.ch

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QS 9000

• Quality Standards for the U.S. automobile industry.

• Imbeds ISO 9000 in many of its standards.

• http://www.os-9000.org

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ISO 9000 StandardsQuality Management Principles

• Principle 1 Customer focus • Principle 2 Leadership • Principle 3 Involvement of people • Principle 4 Process approach • Principle 5 System approach to management • Principle 6 Continual improvement • Principle 7 Factual approach to decision making • Principle 8 Mutually beneficial supplier relationships

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ISO 14000

• Series of standards covering environmental management systems, environmental auditing, evaluation of environmental performance, environmental labeling, and life-cycle assessment.

• Intent is to help organizations improve their environmental performance through documentation control, operational control, control of records, training, statistical techniques, and corrective and preventive actions.

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Malcolm Baldrige Award

• Established in 1987 to promote better quality management practices and improved quality results by American industry.

• Named for Malcolm Baldrige, former Secretary of Commerce

• Given to at most two companies in each of five categories (see next slide)

• Criteria and points (See Table 8.4 and the Web site: http://baldrige.org/)

Categories for the Baldrige Award

• Manufacturing companies or subsidiaries that– produce and sell manufactured products or manufacturing

processes or– produce agricultural, mining, or construction products.

• Service companies or subsidiaries that sell service• Small businesses• Health care organizations• Educational institutions

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The 2004 Baldrige Award recipients:(60 applicants)

The Bama Companies, Tulsa, OK. (manufacturing category) Texas Nameplate Company, Inc., Dallas, TX. (small business category) [repeat winner. Also in 1998]

Kenneth W. Monfort College of Business, UNC, Greeley, CO. (education category)

Robert Wood Johnson University Hospital Hamilton, Hamilton, NJ. (health care category).

No Winner in the Service Category.

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Quality and Financial Performance

• Quality costs– Prevention costs– Appraisal Costs– Internal Failure Costs– External Failure Costs

• Incurring prevention costs can lead to avoiding or reducing the other three.

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How Quality Contributes to Profitability

IMPROVED PROFITABILITY

QUALITY(Design and conformance)

LowerCosts

Reducedwaste

Greaterproductivity

GreaterValue

Increased marketshare

Revenuegrowth

Improvedmargins

Improved assetutilization

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Reasons for Failure in Quality Improvement Programs

• Focus on short-term financial results• “Blame the employee” syndrome• Belief in “tradeoffs” in quality (don’t believe

“quality is free”)• Management interference with true teamwork• Sloppy procedures and processes

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More Reasons for Failure in Quality Improvement Programs

• Lack of top management support• Resistance to change• Internal politics and rivalries• Belief the quality is just the latest buzz word• Insufficient training• Management mobility

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Summary

• Quality Definitions• Service Quality• Quality Planning, Control, and Improvement• The Quality Gurus• ISO 9000 Standards• Malcolm Baldrige Award• Quality and Financial Performance• Why Some Quality Improvement Efforts Fail

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End of Chapter Eight