Chapter 1 · Operations and processes

All organizations have ‘operations’ that produce some mix of products and services.

The economic sector of an operation is less important in determining how it should be managed than its intrinsic characteristics. All parts of the business manage processes so all parts of the business have an operations role and need to understand operations management. All processes have inputs of transforming and transformed resources that they use to create products and services. Transformed resource inputs to a process are materials, information, or customers. All processes have transforming resources of facilities and people. A process perspective can be used at three levels: the level of the operation itself, the level of the supply network, and the level of individual processes. Most operations produce a mixture of tangible products and intangible services. Processes are defined by how the organization chooses to draw process boundaries. All operations should be expected to contribute to their business by controlling costs, increasing revenue, making investment more effective and growing long-term capabilities. The way in which processes need to be managed is influenced by volume, variety, variation and visibility. Operations management activities can be grouped into four broad categories: directing the overall strategy of the operation, designing the operation’s products, services and processes, planning and controlling delivery, and developing process performance.

Chapter 2 · Operations strategy Operations strategy should articulate a ‘vision’ for the operations function’s contribution to overall strategy. Operations performance objectives can be grouped together as quality, speed, dependability, flexibility and cost. The interpretation of the five performance objectives will differ between different operations. The relative importance of the five performance objectives depends on how the business competes in its market. An operation’s strategy should articulate the relationship between operations objectives and the means of achieving them. Operations strategies should reflect top-down corporate and/or business objectives. Operations strategy should reflect bottom-up experience of operational reality. Operations strategy should reflect the requirements of the business’s markets. Different customer needs imply different priorities of performance objectives. The long-term objective of operation strategy is to build operations-based capabilities. In the short term, operations cannot achieve outstanding performance in all its operations objectives simultaneously. In the long term, a key objective of operations strategy is to improve all aspects of operations performance. Operations that lie on the ‘efficient frontier’ have performance levels that dominate those which do not. An operation’s strategic improvement path can be described in terms of repositioning and/or overcoming its performance trade-offs.

Chapter 3 · Supply network design

Reducing the number of suppliers can reduce transaction costs and enrich supplier relationships.

Assessing the advisability of outsourcing should include how it impacts on relevant performance

objectives.

Assessing the advisability of outsourcing should include consideration of the strategic importance of the

activity and the operation’s relative performance.

An operation should only change its location if the benefits of moving outweigh the costs of operating in

the new location plus the costs of the move itself.

All types of operation exhibit economy of scale effects where operating costs reduce as the scale of

capacity increases.

Diseconomies of scale increase operating costs above a certain level of capacity resulting in a minimum

cost level of capacity.

Changing capacity in large units of capacity reduces the chance of achieving demand – capacity balance.

Capacity leading strategies increase opportunities to meet demand.

Capacity lagging strategies increase capacity utilization.

Using inventory to overcome demand –capacity imbalance tends to increase working capital

requirements.

Chapter 4 · Process design 1 – positioning

The design of any process should be governed by the volume and variety it is required to produce.

Process types indicate the position of processes on the volume–variety spectrum.

Moving off the ‘natural diagonal’ of the product–process matrix will incur excess cost.

Resources in low volume-high variety processes should be arranged to cope with irregular flow.

Resources in high volume-low variety processes should be arranged to cope with smooth, regular flow.

Process technology in high volume, low variety processes is relatively automated, large-scale and closely

coupled when compared to that in low volume, high variety processes.

Job designs in high volume, low variety processes are relatively closely defined with little decision-

making discretion and needing action to help commitment when compared to those in low volume, high

variety processes.

Chapter 5 · Process design 2 – analysis

Processes should always be designed to reflect customer and/or market requirements.

A process’ performance can be judged in terms of the levels of quality, speed, dependability, flexibility,

and cost it achieves.

Process flow objectives should include throughput rate, throughput time, work-in-process, and resource

utilization; all of which are interrelated.

Process mapping is needed to expose the reality of process behaviour.

Process design must respect task precedence.

Process analysis derives from an understanding of the required process cycle time.

Allocating work equally to each stage in a process (balancing) smoothes flow and avoids bottlenecks.

Little’s law states that throughput time = work-in-progress x cycle time.

Variability in a process acts to reduce its efficiency. Process variability results in simultaneous waiting and resource under-utilization. Process design involves some choice between utilization, waiting time, and variability reduction.

Chapter 6 · Product and service design processes

Product and service design is a process and can be managed using the same principles as any other

process.

Product/service design processes can be judged in terms of their levels of quality, speed, dependability,

flexibility and cost.

Any product/service design process should involve a number of stages that move a design from a

‘concept’ to a fully specified state.

A key design process objective should be to reduce the complexity of the design through

standardization, commonality, and modularization.

For product/service design processes to be effective they must be adequately resourced.

Effective simultaneous design reduces time-to-market.

The product/service design process requires strategic attention early, when there is the most potential

to affect design decisions.

Chapter 7 · Supply chain management

The supply chain concept applies to the internal relationships between processes as well as the external

relationships between operations.

The performance of an operation in a supply chain does not necessarily reflect the performance of the

whole supply chain.

Supply chains with different end objectives need managing differently.

‘Functional’ products require lean supply chain management; ‘innovative’ products require agile supply

chain management.

All supply chain relationships lie on a spectrum from ‘transactional’ to ‘partnership’.

True ‘partnership’ relationships involve mutual sacrifice as well as mutual benefit.

Supplier selection should reflect overall supply chain objectives.

Unsatisfactory supplier relationships can be caused by requirements and fulfillment perception gaps.

Unsatisfactory customer relationships can be caused by requirement and fulfillment perception gaps.

Demand fluctuations become progressively amplified as their effects work back up the supply chain.

The bullwhip effect can be reduced by information sharing, aligning planning and control decisions,

improving flow efficiency, and better forecasting.

Chapter 8 · Capacity management

Any measure of capacity should reflect the ability of an operation or process to supply demand.

Capacity management decision should reflect both predictable and unpredictable variations in capacity

and demand.

Capacity is a function of product/service mix, duration, and product service specification.

The greater an operation’s market knowledge, the more capacity management will focus on predictable

demand-capacity mismatches.

Attempting to increase market knowledge and attempting to increase operations flexibility, present

alternative approaches to capacity management, but are not mutually exclusive.

The higher the base level of capacity, the less capacity fluctuation is needed to satisfy demand.

For any capacity plan to meet demand as it occurs, its cumulative production line must always lie above

its cumulative demand line.

The learning from managing capacity in practice should be captured and used to refine both demand

forecasting and capacity planning.

Chapter 9 · Inventory management

Inventory should only accumulate when the advantages of having it outweigh its disadvantages.

For any stock replenishment activity there is a theoretical ‘optimum’ order quantity that minimizes total

inventory-related costs.

For any stock replenishment activity, the timing of replenishment should reflect the effects of uncertain

lead time and uncertain demand during that lead time.

Different inventory management decision rules are needed for different classes of inventory.

The maintenance of data accuracy is vital for the day-to-day effectiveness of inventory management

systems.

Chapter 10 · Resource planning and control

Customers’ perceptions of an operation will partially be shaped by the customer interface of its planning

and control system.

An operation’s planning and control system can enhance or inhibit the ability of its suppliers to support

delivery effectiveness.

Planning and control systems should integrate information from all relevant organizational functions.

ERP systems are only fully effective if the way a business organizes its processes is aligned with the

underlying assumption of its ERP system.

For any given level of demand a planning and control system should be able to indicate the implications

for the loading on any part of the operation.

An operation’s planning and control system should allow for the effects of alternative schedules to be

assessed.

A planning and control system should be able to detect deviations from plans within a time scale that

allows an appropriate response.

Pull control reduces the build-up of inventory between processes or stages.

The constraints of bottleneck processes and activities should be a major input to the planning and

control activity.

Chapter 11 · Lean synchronization

When buffer inventory is used to insulate stages or processes it localizes the motivation to improve.

Focusing on synchronous flow exposes sources of waste.

Focusing on lean synchronization can initially reduce resource utilization.

Simple, transparent flow exposes sources of waste.

Delivering only and exactly, what is needed and when it is needed, smoothes flow and exposes waste.

Change-over flexibility reduces waste and smoothes flow.

Variability in product/service quality, or quantity, or timing, acts against smooth flow and waste

elimination.

The advantages of lean synchronization apply at the level of the process, the operation, and the supply

network.

Chapter 12 · Quality management

Quality is multifaceted, its individual elements differ for different operations.

An appreciation of, involvement in, and commitment to quality should permeate the entire

organization.

Perceived quality is governed by the magnitude and direction of the gap between customers’

expectations and their perceptions of a product or service.

Effective investment in preventing quality errors can significantly reduce appraisal and failure costs.

High levels of variation reduce the ability to detect changes in process performance.

Statistical-based control gives the potential to enhance process knowledge.

Chapter 13 · Improvement

Performance improvement is the ultimate objective of operations and process management.

Performance measurement is a prerequisite for the assessment of operations performance.

Without strategic clarity, key performance indicators cannot be appropriately targeted.

Performance measures only have meaning when compared against targets.

Improvement is aided by contextualizing processes and operations.

Breakthrough and continuous improvement are not mutually exclusive.

Continuous improvement necessarily implies a never-ending cycle of analysis and action.

Breakthrough improvement necessarily implies radical and/or extensive change.

Improvement is facilitated by relatively simple analytical techniques.

The popularity of an improvement approach is not necessarily an indicator of its effectiveness.

There is no one universal approach to improvement.

Chapter 14 · Risk and resilience

Failure will always occur in operations, recognizing this does not imply accepting or ignoring it.

Resilience is governed by the effectiveness of failure prevention, mitigation and recovery.

A ‘failure to understand failure’ is the root cause of a lack of resilience.

Subjective estimates of failure probability are better than no estimates at all.

Simple methods of fail-safeing can often be the most cost effective.

Successful failure recovery can yield more benefits than if the failure had not occurred.

Chapter 15 · Project management

The difficulty of managing a project is a function of its scale, complexity, and uncertainty.

All projects have stakeholders with different interests and priorities.

Project stakeholders have responsibilities as well as rights.

Different stakeholder groups will need managing differently.

Different projects will place different levels of emphasis on cost, time, and quality objectives.

The activity of project management requires interpersonal as well as technical skills.

A prerequisite for project planning is some knowledge of times, resources, and relationships between

activities.

Probabilistic activity time estimates facilitate the assessment of a project being completed on time.

Only accelerating activities on the critical path(s) will accelerate the whole project.