JMP 5023 OPERATIONS & TECHNOLOGY MANAGEMENT FRAMEWORKS FOR OPERATIONS MANAGEMENT

INTRODUCTION Managers make many important decisions that affect how an organization provides value to its customers. To know if decisions are effective and to guide the organization on a daily basis, they need a means of understanding performance at all levels of the organization as well as in operations.

INTRODUCTION Good decisions are facilitated through measurement, the act of quantifying the performance criteria of organizational units, goods and services, processes, people, and other business activities.

INTRODUCTION Key questions related to measurement in operations include:  How should we measure the performance of goods and services?  How should we measure the performance of processes throughout the value chain?  How should we measure overall organizational performance and how does it relate to internal operations?

THE SCOPE OF PERFORMANCE MEASUREMENT Good performance measures enable managers to control processes and make decisions on the basis of facts, not opinions. Selecting the right measures—not too many and not too few is a very important decision that all managers must make.

The Scope of Performance Measurement The list below details various categories of Performance measurements. Financial Customer & market Safety Quality Time Flexibility Innovation & learning Productivity Frameworks for Operations Measurement

The Scope of Business and Operations Performance Measurement

SCOPE OF PERFORMANCE MEASURES Financial Measures Often take top priority in for-profit organizations. Traditional financial measures include revenue, return on investment, operating profit, pretax profit margin, asset utilization, growth, earnings per share, and other liquidity measures.

SCOPE OF PERFORMANCE MEASURES Financial Measures (cont.) Cost of quality is not used in most organizations; it measures what poor quality is costing an organization. Nonprofit organizations focus more on minimizing costs and maximizing value to their target markets, customers, and society.

SCOPE OF PERFORMANCE MEASURES Customer and Market Measures An effective customer-satisfaction measurement system provides a company with customer ratings of specific goods and service features and indicates the relationship between those rating and the customer’s likely future buying behavior. Measured in three areas: 1) goods quality, 2) service quality, and 3) response time. Other customer focused measures include: customer complaints, loyalty, customer retention, warranty claims, service guarantee claims, service upsets/failures.

SCOPE OF PERFORMANCE MEASURES Safety Measuring safety is vital to all organizations, as the well- being of its employees and customers should be an organization's principal concern. Performance measures include accident rates, parts per million of arsenic in public water supply, or security in a hotel room.

SCOPE OF PERFORMANCE MEASURES Quality Quality measures the degree to which the output of a process meets customer requirements. Goods quality relates to the physical performance and characteristics of a good. A common measure of goods quality is the number of defects per unit, which is computed by dividing the total number of defects found by the number of items examined. Nonconformities per unit are often reported as rates per thousand or million, and the measure dpmo—defects per million opportunities—is often used

SCOPE OF PERFORMANCE MEASURES Dimensions of quality including : a)Performance : a good’s primary operating characteristics. Example: automobile brakes stop the vehicle. b) Features: bells and whistles. Example-reclining seats. c)Reliability : probability of the manufactured good working over a certain time. Example – vehicle engine always starts on cold days. d)Conformance: the degree to which characteristics match pre-established standards. Example - vehicle door does not leak water.

SCOPE OF PERFORMANCE MEASURES Another Way to Think About Quality  Critical defect -- one that judgment and experience indicate will surely result in hazardous or unsafe conditions for individuals using or experiencing the good or service.  Major defect -- one that is not critical but is likely to materially reduce the usability of the good or service for its intended purpose.  Minor defect -- one that is not likely to materially reduce the usability of the good or service for its intended purpose.

SCOPE OF PERFORMANCE MEASURES Service quality is consistently meeting or exceeding customer expectations and service delivery system performance for all service encounters. –Tangibles -- physical facilities, uniforms, equipment, vehicles, and appearance of employees (i.e., the physical evidence). –Reliability -- ability to perform the promised service dependably and accurately. –Responsiveness -- willingness to help customers and provide prompt recovery to service upsets. –Assurance -- knowledge and courtesy of the service- providers, and their ability to inspire trust and confidence in customers. –Empathy – caring attitude and individualized attention provided to its customers.

SCOPE OF PERFORMANCE MEASURES Service Quality  Every service encounter provides an opportunity for error. Errors in service creation and delivery are sometimes called service upsets or service failures.  In services, a measure of quality analogous to defects per unit is errors per million opportunities (epmo).  Environmental quality focuses on designing and controlling work processes to improve the environment.

SCOPE OF PERFORMANCE MEASURES Time Time relates to two types of performance measures: -the speed of doing something (average) and -the reliability of doing something (variance). Processing time is the time it takes to perform some task. Queue time is a fancy word for wait time—the time spent waiting. Cycle time refers to the time it takes to accomplish one cycle of a process that performs work.

SCOPE OF PERFORMANCE MEASURES Time Manufacturing lead time represents the time between the release of an order to production and shipment to the customer. Purchasing lead time is the time required to obtain the purchased item, including order preparation, supplier lead time, transportation, and receiving and storage. Sometimes processing, cycle, and lead time are used interchangeably making things confusing in the real world. Always ask for a definition of these terms to see how the organization is using it.

SCOPE OF PERFORMANCE MEASURES Flexibility Flexibility is the ability to adapt quickly and effectively to changing requirements. Goods and service design flexibility is the ability to develop a wide range of customized goods and services to meet different or changing customer needs. Volume flexibility is the ability to respond quickly to changes in the volume and type of demand.

SCOPE OF PERFORMANCE MEASURES Innovation and Learning Innovation refers to the ability to create new and unique goods and services that delight customers and create competitive advantage. Learning refers to creating, acquiring, and transferring knowledge and modifying the behavior of employees in response to internal and external change.

SCOPE OF PERFORMANCE MEASURES Productivity Productivity = Quantity of Output/Quantity of Input Productivity is often confused with efficiency or effectiveness. Efficiency is the degree to which a process generates outputs with the minimal consumption of inputs or generates a maximum amount of outputs for a given amount of inputs. Effectiveness is achieving the organization's objective, mission, or goal through the eyes of the customer; that is, doing the right things efficiently.

Productivity Productivity = Quantity of Output/Quantity of Input Productivity is expressed in one of three forms: 1.Total Productivity = Total Output/Total Input 2.Multifactor Productivity = Total Output/Subset of Inputs 3.Partial Factor Productivity = Total Output/Single Input SCOPE OF PERFORMANCE MEASURES

Examples of Partial Productivity Measures

Linking Internal and External Performance Measures Managers must understand the cause-and-effect linkages between key measures of performance. These relationships often explain the impact of operational performance on external results. The quantitative modeling of cause-and-effect relationships between external and internal performance criteria is called interlinking.

Designing Performance Measurement Systems for Operations 1.Identify all customers of the value chain and determine their requirements and expectations. 2.Define the work process that provides the good or service. 3.Define the value-adding activities and outputs that compose the process. 4.Develop specific performance measures. 5.Evaluate the performance measures to ensure their usefulness.

Example of a Pizza Ordering and Delivery Process

Models of Organizational Performance 1.Malcolm Baldrige National Quality Award Framework 2.Balanced Scorecard 3.Value Chain Model 4.Service-Profit Model