Operations – II Value chain basics Chitra Duvedi

Operations Evolution First Revolution.: Ford Motor Co –Single Product. –Vertical Integration Second Revolution: Toyota Motor Co –Wide Variety –Long term relationship with suppliers. Suppliers located in geographic proximity to plant Third Revolution: –Mass Customization. ( Product service Bundling) –Geographically dispersed Network/Supply Chain –Medium term relationship with suppliers Suppliers have to maintain technology and cost leadership.

Value chain 3 The Invisible Throughput & Invisible Waste The Visible Throughput & Visible Waste Operating Cycle QCDIMSQCDIMS

4 Value stream map What are the activities that are adding value? What are non value adding activities? How do I minimize NVA activities?

Value Stream? Customer, Plant, Vendors & Service providers –Visible waste –Invisible waste 5

6 Process Measurement –Area of concern –Measurement basic –Process under control –Capable Process –Predictable performance

Customer? Who is the customer? Who are the stakeholders? What do we mean by adding value?

Customer Needs Satisfaction Fulfilled Requirements Un-fulfilled Requirements Revealed Expected (Unspoken) E xciting (Unspoken) Dissatisfaction

Customer expectations Survey Focus group Observing the usage

Nature of Service on offer Corporate Image Word of mouth communication Personal needs Post experience Expected service Perceived service Service delivery Staff’s understanding of service requirements Translation of perceptions into service system Management’s perception of customer External communication to customers GAP GAP 1 GAP4 GAP 5 GAP 3 GAP 2 GAP model

Toyota Production System Approach to Production –Build only what is needed –Stop if something goes wrong –Eliminate anything which does not add value\ Philosophy of Work –Respect for Workers –Full utilization of workers’ capabilities –Entrust workers with responsibility & authority

Changing the Mental Model Setup Time Industry Knowledge: Die Change is Expensive - Don’t Change Dies Taiichi Ohno: Economics Requires Many Dies Per Stamping Machine One Minute Die Change

Principles of Lean Thinking 1. Eliminate Waste 2. Increase Feedback 3. Delay Commitment 4. Deliver Fast 5. Build Integrity In 6. Empower the Team 7. See the Whole

Principle 1: Eliminate Waste Waste Anything that does not create value for the customer Prime Directive of Lean Thinking Create Value for the customer Improve the Value Stream

15 Waste - Visible –Defects –Overproduction –Transportation –Waiting –Inventory –Motion –Over Processing

Invisible waste Handoffs Useless Information Wishful Thinking Discarded Knowledge Communication Barriers Lost ideas Lost energy Lost initiative 16

Principle #2: Build Quality In Why? How to build quality in Poka Yoke

P rinciple #3: Create Knowledge Knowledge Creation Knowledge Retention Knowledge Use

Principle #4: Defer Commitment Set based concurrent process Design for change

Principle #5: Deliver Fast Automation Design Quality Deliver Most important 25% Quality Function Deployment

Principle #6: Respect People Quality Circles

Principle #7: Optimize the Whole Delays Queues Speed Throughput Sometimes you may want to slow down Whole value stream – optimization beyond software development

Principle #8: Add Value to the Customer Who is our customer What is “valuable” to him

24 How to Improve –Automation of manual activity –Work elimination –Transfer of responsibility (and persons?) from one department to other –Job redesign –Measurement plan for tracking the performance –Documentation of procedures –Training of procedures –Organization restructure

Alignment of Operations system design & product service bundle offering Product/service bundle Attributes –Product Cost –Product delivery-response time –Product variety/customization –Product Quality Operations System Attributes –Process cost RM Cost, Process Cost, Assets Utilization –Process flow time –Process flexibility –Process quality

Cost of service Service Level Low High Operations System design: Managing Cost Service Tradeoffs

Elements of Operations system Design : –Structure Facility –Capacity, Location Process Technology Vertical Integration –Infrastructure Workforce Operations Planning & Control Information flow, Inv. & Op. Plg. Quality systems Sourcing Policies Organization structure

Operations Innovations : Enhancing Operations Performance Business Process Innovations: Reconfiguration Product/Service bundle Innovations Product design innovations Process technology innovations –Processes within firm –Processes across chain

Operations systems: Typology Product Versus Service Delivery lead time Product variety Nature of Demand uncertainty Order Penetration Point Focus – Functional / Product

Operations Innovations Change Value offering based on Operations capabilities Dell, National Panasonic Improve efficiency & responsiveness of Post order processes Postpone the point of differentiation –Paint Industry Change Value addition curve –Dell Capacity pooling in services Yield Management

Order Penetration Point SOURCEMAKE COMPONENTSASSEMBLYDELIVERY SOURCEMAKE COMPONENTSASSEMBLYDELIVERY SOURCEMAKE COMPONENTSASSEMBLYDELIVERY Customer Order Customer Order Customer Order

Stages in Strategic Role of Operations Stage 1: Minimize negative potential of Operations Stage 2: Achieve parity with competitors: externally neutral Stage 3: Provide credible support to business strategy: internally supportive Stage 4: Pursue an Operations-base competitive advantage

Operations based Competitive advantage Toyota Dell Computers Wal-Mart Southwest Airlines Tata Steel

Operations Managers: Enhancing Capabilities Developing Business orientation Developing Supply chain orientation Developing Project Management capabilities –Continuous Improvement Projects ( Bottom driven) –Breakthrough projects ( top driven) –Learning Projects Learning to use new set of tools & Technologies –Restructure process using IT –Use sophisticated finance tools to take care of supply and demand related uncertainty

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