Chapter 11: Strategic Leadership Chapter 8 Production and operations management

Chapter 11: Strategic Leadership Learning outcomes Explain what is meant by the term ‘operations management’ Understand some of the basic concepts of operations management Understand the relationship between operations and strategy Explain the roles of operations within strategy Understand the concept of planning operations capacity Understand the importance of product design and transformation process design

Chapter 11: Strategic Leadership Learning outcomes (continued) Understand the concept of quality management Explain the cost-of-quality concept Understand the importance of inventory management within operations management Understand the most recent operations management approaches and philosophies Understand the importance of operations management in the services environment

Chapter 11: Strategic Leadership Key terms Capacity planning Concurrent engineering Continuous improvement Control Customer involvement Environmentally friendly Flexibility Inventory Inventory management Job shops Just-in-time (JIT) Lead time Manufacturability Operations management Quality assurance Quality function deployment (QFD) Stock-keeping unit (SKU) Supply chain operating reference (SCOR) model Total quality management (TQM) Transformation process Work-in-process (WIP)

Chapter 11: Strategic Leadership Outline Introduction Strategic and planning concepts Quality management Inventory management Current approaches and philosophies Operations management in the service sector Conclusion

Chapter 11: Strategic Leadership Introduction Operations management is the decisions made about the operations function and the management of the transformation process to ensure that value is provided to the customer at a cost that will ensure a profit to the company’s shareholders Four types of decisions: Process Quality Capacity Inventory

Chapter 11: Strategic Leadership Introduction (continued)

Chapter 11: Strategic Leadership Introduction (continued) Five core management processes: Plan: balancing demand and supply Source: acquiring inputs Make: transforming into products Deliver: managing and filling customer orders Return: from customer or to suppliers

Chapter 11: Strategic Leadership Outline Introduction Strategic and planning concepts Quality management Inventory management Current approaches and philosophies Operations management in the service sector Conclusion

Chapter 11: Strategic Leadership Strategic and planning concepts Two types of strategy decisions relate to operations: Structural decisions include: Facilities Capacity Process technology Supply network Infrastructural decisions include: Planning and control Quality Human resources New product development Performance measurement

Chapter 11: Strategic Leadership Strategic and planning concepts (continued) Five positioning decisions lead to operations objectives: Quality: doing things right Speed: doing things fast Dependability: doing things on time Flexibility: changing what you do Cost: doing things cheap Excelling in one or more of these performance objectives is critical to obtain a competitive advantage. Excelling at most of these objectives is costly and does not provide competitive advantages in all industries.

Chapter 11: Strategic Leadership Strategic and planning concepts (continued) Capacity planning can be broadly defined as: ‘... the process of determining the production capacity needed by an organisation to meet changing demands for its products. In the context of capacity planning, capacity is the maximum amount of work that an organisation is capable of completing in a given period of time.’ (Wikipedia, 2008)

Chapter 11: Strategic Leadership Strategic and planning concepts (continued) Three capacity planning strategies:

Chapter 11: Strategic Leadership Strategic and planning concepts (continued) Concurrent engineering is a term used to describe the process of collective product design by all affected functions in an organisation. A product is designed for: Manufacturability Procurement Storage and transport Environmental friendliness

Chapter 11: Strategic Leadership Strategic and planning concepts (continued) Quality function deployment is a planning tool used to fulfil customer expectations through a disciplined approach to: product design; engineering; and production. It provides in-depth evaluation of a product, with the focus remaining on integrating the customer’s specifications and quality requirements throughout the product design process.

Chapter 11: Strategic Leadership Strategic and planning concepts (continued) Four criteria need to be considered when designing the transformation process: Flexibility: adjusting for customer requirements Technology: an enabling factor Customer involvement: ensuring customer satisfaction Supply chain configuration: location, partner relationships and complexity

Chapter 11: Strategic Leadership Strategic and planning concepts (continued) Competitive criteria inform the decision as to which of the following four types of transformation processes should be deployed: Job shops Batch processes Repetitive processes Continuous flow processes

Chapter 11: Strategic Leadership Strategic and planning concepts (continued) The purpose of planning and control is to make decisions to ensure that operations run effectively and make the correct products: in the appropriate quantities; at the appropriate time; and at the appropriate level of quality.

Chapter 11: Strategic Leadership Strategic and planning concepts (continued) Planning and control activities are: Strategic operations planning Aggregate planning Master production schedule Activity scheduling Expediting Timescales play a significant role in planning and control activities:

Chapter 11: Strategic Leadership Outline Introduction Strategic and planning concepts Quality management Inventory management Current approaches and philosophies Operations management in the service sector Conclusion

Chapter 11: Strategic Leadership Quality management Four stages can be identified in the progression of the concept of quality: Quality inspection: verifying final quality Quality control: inspection and corrective action Quality assurance: quality planned and designed Total quality management (TQM): company-wide quality focus The cost of quality has four components: Internal failure cost: inside the company External failure cost: at the customer Appraisal cost: detecting defects Prevention cost: preventing defects

Chapter 11: Strategic Leadership Quality management (continued)

Chapter 11: Strategic Leadership Quality Management (continued)

Chapter 11: Strategic Leadership Outline Introduction Strategic and planning concepts Quality management Inventory management Current approaches and philosophies Operations management in the service sector Conclusion

Chapter 11: Strategic Leadership Inventory management Inventory refers to material resources that are stored for usage at a later stage either through transformation from a raw to a finished state, or through use in the current state. Different categories of inventory: Raw materials inventory Work-in-process inventory Finished goods inventory Inventory management aims to optimise three targets: Customer service Operating costs Inventory costs

Chapter 11: Strategic Leadership Outline Introduction Strategic and planning concepts Quality management Inventory management Current approaches and philosophies Operations management in the service sector Conclusion

Chapter 11: Strategic Leadership Current approaches and philosophies Just in time (JIT) Started in Toyota manufacturing plants Aims at reducing or eliminating all waste from inventory in the transformation process Lean systems Similar to JIT Focus is on the total business, not only production Theory of constraints Focus attention on the one bottleneck that limits a system’s ability to maximise throughput Total quality management Putting quality as the major differentiating factor

Chapter 11: Strategic Leadership Outline Introduction Strategic and planning concepts Quality management Inventory management Current approaches and philosophies Operations management in the service sector Conclusion

Chapter 11: Strategic Leadership Operations management in the service sector Most principles applicable to production environment, but service sector is increasing in importance The characteristics of service include: Intangibility: non-physical Inconsistency: quality dependent on ability Inseparability of customer from provider Inventory: service cannot be stored Challenge is to transfer and apply the operations management principles to the service environment

Chapter 11: Strategic Leadership Outline Introduction Strategic and planning concepts Quality management Inventory management Current approaches and philosophies Operations management in the service sector Conclusion

Chapter 11: Strategic Leadership Conclusion It is important for the logistics manager to understand: The influence that production and operations have on the logistics system The influence that the logistics system have on production and operations A company needs to find a balance between the efficiencies of both in order to optimise the total system and not of each in isolation.