Q1 Operations Management and

its Application in Different

Businesses
BY ADMIN ⋅ JUNE 15, 2007 ⋅ EMAIL THIS POST ⋅ PRINT THIS POST ⋅ POST A COMMENT

According to Naylor ‘operations management is concerned with creating, operating and controlling a

transformation system that takes inputs of a variety of resources and produces outputs of goods and

services needed by customers.’ (John Naylor, Introduction to operations management, page 5, second

edition, 1996)

Operations management is as necessary and appropriate in a manufacturing organization as it is in a

service organization. It is not just to do with the producing a ‘product’ more effectively and efficiently, it is

to do with producing any output. Although obviously a key area that operations management can

contribute to is the ‘operations’ or production function itself.

Manufacturing and services: differences

The differences between manufacture and service operations are obvious when the service is entirely

produced at the delivery point. Some examples are: entertainment, fast food and medical diagnosis. When

the service is regularly it is achievable to reduce costs by standardization of goods and incorporation of

rules to make operations and control straightforward. On the other hand, such mass service operations

are different from mass production.

For mass service operations customer care is very important while for mass production technical skills in

arranging flows of goods come first. . The largest part of successful firms have discovered ways of getting

staff to apply interactive skills routinely and repetitively when the customer is so directly involved in the

process.

Manufacturing

Operations management is combined by the following elements:

 Supply chain
 Quality control
 Project management
 Inventory control
 Equipment and material planning

Supply chain

A supply chain is the process of moving goods from the customer order through the raw materials stage,

supply, production, and distribution of products to the customer. All organizations have supply chains of

varying degrees, depending upon the size of the organization and the type of product manufactured.

These networks obtain supplies and components, change these materials into finished products and then

distribute them to the customer.

(http://www.rosshorwood.com/eQualitySeal/SupplyChainDefinitions.html 1/2/2006)

Here we will analyze how the supply chain works in a just in time manufacture.

As we can see in figure 1, supply chain includes the suppliers, the process, the inventory and the

customers.

Suppliers—>Process—>Inventory—–>Customers

Figure 1 – Just in time manufacture

Suppliers

The selection of suppliers has to do with the selection of resources. These resources can be categorized as

follows:

 Material resources
 Capital equipment
 Labour
 Information

There are such types of purchasing strategies such as supply base optimization, global sourcing, longer

term suppliers relationships, early supplier design involvement etc.

A company that produces clothes for example needs many different types of raw materials in order to

design a variety of men’s and women’s clothing in several levels of quality. If this company deals only with

local suppliers it takes the risk to buy a specific type of raw materials and in expensive price, but if it
follows global sourcing it may find a variety of raw material and in better prices. Also the selection of the

location that has its plant and the equipment of it are significant. In the era of globalization many

companies have its plants in developing countries (China, India, Hong Kong etc) where are tax-free, there

is good infrastructure (airports, ports, highways), the labor is cheap, and the government offers free land

to companies to have their plants. Furthermore in these countries companies can find high-tech

equipment in very low prices. Companies equip their plants with the latest technology machines, that

provides them fast and secure production.

Also the information flow in the organization is a very serious aspect of the supply chain. Companies use

several tools as ERP, CRM and other in order to improve the information flow. CRM (Customer Relationship

Management), is a process or methodology used to learn more about customers’ needs and behaviours in

order to develop stronger relationships with them. ERP (Enterprise resource planning), is a suite of module

software applications that help companies better manage their businesses.

For example Best Buy that has transformed its supply chain from a high-volume distribution mechanism

to a customer-facing operation that drives strategy as well as product. According to Ken Cotrill from

Harvard Business Week (http://hbswk.hbs.edu/item.jhtml?id=5175&t=operations&iss=y 2/2/2006) Best

Buy by using new information systems develops its supply chain by having greater access to information

and better information flow. The supply chain is being relied upon to recover the flow of information.

Sales associates will have access to detailed data on product flows from the time an item is manufactured

to its arrival at a shop and will thus be able to provide customers with more reliable information on when

objects will be available. And stores will be able to communicate changes in floor plans to distribution

centres where loads are built and dispatched.

According to Bob Willett, Best Buy’s chief information officer and executive vice president of operations,

the company is developing this communication capability as part of a three-year project to revamp its IT

systems. Furthermore that dispatchers and store associates will have better information on the status of

loads. For instance, there will be automatic aware about incidents such as delays in port. A new tool for

predictive modelling saves information on past problems; when similar situations occur, it recalls the

solutions. Administrators can utilize this data to help them execute corrective actions. In addition, some

seventeen Best Buy suppliers are using a process known as collaborative planning, forecasting, and

replenishment (CPFR) that automates replenishment by linking suppliers and buyers electronically.

Production
The production process is essentially affected by the inventory policy that the company follows. When a

company does not want to keep many products in its inventory assembles just in time system (JIT). A

broad set of developments in operations management over the past 10 years had as a basis the JIT

system. These include lean manufacturing, mass customization, business process reengineering, total

productive maintenance, agile manufacturing, and quick response distribution systems. These can

collectively be termed time based operations management.

There are many ways of looking at just – in – time system. These are through the five zeros, kanban

system, and other. Here we will analyse the Kanban system. Kanban can take a number of forms but

essentially does the same job. Product Kanban is the most straightforward form of Kanban.

For example, when a company uses Product Kanban, production or materials ordering upstream is only

carried out when a downstream operation signals it is needed i.e. a component is used downstream and it

is simply replaced. The signal may be a painted square on the ground (when the square is empty of

components then that is the signal to produce upstream), a card (when a component is used a card is

passed upstream) or even so-called fax-ban or e-ban. Whatever the signal the effect is the same when a

set number of components are used (1-10,000 depending on the component) then and only then will

upstream operations receive the authority to begin production or order a specified number of that

component to fill the requirement.

Distribution channels

There are several ways that products can be delivered to customer. One is through retail shops that

customers goes there and buy the product, another is direct from the factory to customer through online

order etc.

Nowadays is very common customers buying products online, giving their order waiting the product in

front of their door posted or delivered by parcel companies. According to comScore Networks, which

tracks consumer behavior, in America some $82 billion was spent in 2005 buying things over the internet,

24% more than in 2004. (The Economist, February 11th – 17th 2006, page63). Furthermore that according

to The Economist the boom is global, especially now that more companies are outsourcing production.

Companies can cut costs by using the internet to sell their products direct to the customers and not pay

too much in logistics to transfer their products to resellers or retailers. Furthermore that, customers are

very excited when they do not have to leave their home or their job in order to go to the shop but they

wait the product be delivered to them.

Services

In order to understand how supply chain works in the service industry we will use an example of a call

center.

Suppliers

As countries adopt more open outward oriented approaches to economic growth and development, and

local markets throughout the world are being deregulated and liberalized, foreign firms are looking to

locate part of the service process in other countries where there are cost advantages. These might be

cheaper resources of labor, raw materials and components, or have preferential government regulation.

Although developing countries may present high levels of risk they also present the potential for higher

levels of profit. Many developing countries with growing economies and increasing incomes may be the

idealistic place for foreign firms to transfer their service providers there.

The advantages are:

 24×7 operations: dispersing call centers across the world assists organizations in creating true
“round-the-clock” operations at a lower cost than manning a call center 24 hours a day in the US or in
Europe.
 Employees’ interest: call center’s employees in Europe and US often are young unqualified and
inexperienced people that see this job as a stop-gap job and that inflects negatively to the quality of
the provided service. In addition in developing countries and especially in India the same work attracts
University graduates that see the call centers as offering a career .
 Flexibility: using hosted services, organizations have the flexibility to switch the offshore location
for the call center, based, for example, on changing the business needs, or political or cost changes,
and provide better services to its customers.
 Access in new technology: In developing countries technological innovations are almost an
everyday phenomenon. IT companies from all over the world have their labs there and new products
come in touch with the public earlier there
 Cost reduction: In developing countries the labor cost is very low. It is immensely profitable for
companies to colder customer service centers in the United States and Europe, and move them to
India, where the workers are paid about $2,400 US per year (http://www.gnp.org/india.htm
6/5/2004).
 As it concerns the information flow in many traditional call centers have now implemented a
Customer Relationship Management (CRM) system. A CRM system enables your customers to have a
consistent level of customer service across all channels of communications. This encompasses
inbound calls, emails, faxing, text chat and web collaboration.

The extensive interaction between a customer and the call center agent requires a sophisticated CRM

system. A tremendous amount of data is generated, which is captured and then accessed by the user. If a

customer sends an email and later contacts a live service agent by phone, the agent has immediate access
to the entire customer history, including the email. The technology and functionality of a CRM system

enables the call center agent to deliver a high level of service to the customers.

Production & Distribution channels

The JIT scheduling concept of regularity has wide potential in service operations. In call center it is

common to have regular questions from customers. Also as far as it concerns the distribution channels in

the service industry and more specific in a call center, there is a direct relationship between the customer

and the company, avoiding resellers, retailers and other interveners.

Total quality management

Total Quality Management is a management approach that originated in the 1950′s and has steadily

become more popular since the early 1980′s. Total Quality is a description of the culture, attitude and

organization of a company that strives to provide customers with products and services that satisfy their

needs. The culture requires quality in all aspects of the company’s operations, with processes being done

right the first time and defects and waste eradicated from operations.

(http://www.isixsigma.com/library/content/c021230a.asp 2/2/2006)

Total quality management can be applied both on manufacturing production and services.

Services

There are many theories and techniques that total quality management has. Here we will be concentrated

on the six sigma method.

Vytra call center.

Vytra Inc. is a New York HMO with 250,000 customers and 30 basic product lines. They have used Six

Sigma since 1997. Vytra implemented Activity Information Modelling (AIM) in its Call Centre, reduced its

costs by over $500,000 (16%) and improved numerous dimensions of its service quality. They now know

the exact cost of each service, product and customer that they use for accurate pricing, profit forecasting

and product design. (Case Study link)

AIM-Activity Information Modelling TM was developed by Gary Meyer. It collects, organizes, analyses and

models thousands of data points about activity, service-product and customers in a few weeks. AIM’s
models deliver precise cost and quality information as well as the causes and drivers of performance so

changes can be made quickly. AIM and its related technologies and methodologies are being used by more

than 300 organizations throughout the US and Canada.

Finding Cost Opportunities in Poor Quality

AIM collected, analyzed and measured these Six Sigma metrics within Vytra’s operations:

 The resolution of every call type in 22 quality dimensions such as “closed to the customer’s
satisfaction”, “closed – customer no satisfied”, “transferred to Care Management”, etc.
 The quality metrics and process times of all 8 services the Call Center provides.
 The quality and process time of all 61 different call type procedures.
 The quality and service metrics for each of its 31 customer segments.

Q2

Operational strategies refers to the methods companies use to reach their objectives. By developing
operational strategies, a company can examine and implement effective and efficient systems for
using resources, personnel and the work process. Service-oriented companies also use basic
operational strategies to link long- and short-term corporate decisions and create an effective
management team.

Corporate Strategy

Corporate strategies involve seeing a company as a system of interconnected parts. Just as the
muscles of the heart depend on brain functions in a human body, each department in a company
depends on the others to stay healthy and achieve desired outcomes. The additional core strategies
that a company uses should support the corporate strategy and use cross-functional interactions.

Customer-driven Strategies

Operational strategies should include customer-driven approaches to meet the needs and desires of
a target market. To do so, a company must develop strategies that evaluate and adapt to changing
environments, continuously enhance core competencies and develop new strengths on an ongoing
basis. When evaluating environments, a company should monitor market trends to take advantage
of new opportunities and avoid possible threats.

Developing Core Competencies

Core competencies are the strengths and resources within a company. While core competencies can
vary by industry and business, they can include having well-trained staff, optimal business locations
and marketing and financial expertise. By identifying core competencies, a company can develop
processes such as customer satisfaction, product development and building professional
relationships with stakeholders.

Competitive Priorities

The development of competitive priorities comes from the creation of a corporate strategy, market
analysis, defining core processes and conducting a needs analysis. To create competitive priorities,
an organization evaluates operational costs, the quality of a product or service, the time it takes to
develop and deliver a good or service and the flexibility of a good or service with regard to variety,
volume and customization. Competitive priorities should include being able to provide a quality
product or service at a fair cost that consistently meets the needs of a customer.

Product and Service Development

Strategies behind the development of products and services should consider design, innovation and
added values. When developing new customer products, a company can decide to be a leader in
introducing a new product or service, wait for the introduction of innovations on the market to
improve upon them or wait to see if a company’s innovation is successful before moving forward.
When developing a service, companies should consider packaging it with immediately observable
and psychological benefits and support services. When developing a good or service, a company
should consider the wants of its customers, how its stands against the competition and how its
technical measures relate to its customers’ needs.
Q3

Product design specification (PDS)

We can model the production of the PDS for a given product using a process flow diagram. One
example of such a diagram is given in Figure 3.
Figure 3 A product design sub-system

Long description

This diagram assumes that a conceptual design for a product already exists and so concentrates on
how we resolve the conflict between the shape of a product, the choice of material and the selection
of a process to make it. It is clear that the output of any useful design system should be a
specification detailing the way in which the product is to be made, and the standard to which it is to
be manufactured. Such a specification will take into account the company's manufacturing capability,
the relative performance of candidate materials, the behaviour of the market and many other
technical and commercial factors.
The design activity is triggered by an idea for a product. However, there is not usually much point
making a product if you can't sell it so the idea is usually coupled with information concerning the
market and expressed in terms of a market need. The market need is defined by the PDS which
evolves with the product, starting out as the expression of often only a vague idea but gradually
increasing in complexity and detail as the product design takes shape. One approach to ensuring a
comprehensive PDS is the use of a PDS checklist.
It would be a mistake to think that this checklist is a prescription to design solutions. The important
thing to realise is that the PDS increases in detail as the design becomes progressively refined and
each of the questions in the list will have to be asked on a number of occasions, the answers
becoming more comprehensive on each iteration. One attempt to describe this iterative development
of the PDS uses the spiral design model, as shown in Figure 4.
Figure 4 A spiral design model of PDS development

Long description

Here the idea of needing to reconsider the three areas of product shape, material properties and
process capability is repeated. The increasing size of the spiral represents the fact that the amount
of detailed information on the PDS grows with each iteration.
Inevitably, the parts of the PDS you consider important depend on your viewpoint and purpose.
Consider, for example, the contrasting viewpoints of an engineer who works for a foundry and is
trying to use up spare manufacturing capacity profitably, and an aeronautical engineer working on a
new form of anti-stall flap for an airliner. Product teams with expertise in engineering design,
marketing and production are required if a balance is to be maintained through the design activity.
The leader of this team, often known as the product champion, will be chosen for his or her particular
skills depending on the nature of the product. The one skill, however, which is always needed by
such a person is leadership.

Q4

In today’s fast-paced manufacturing environment, improvements need

to be identified and implemented as quickly as possible. In fact, in
some industries it may mean the difference between profit and loss.
Managers play a key role in identifying opportunities for improvement,
having the experience and breadth of knowledge about a business, but
they cannot do it all. There is simply no way to get around the need to
involve all employees in the process of changing and improving things.

Improvement begins with measurement in any, or all, of the major

categories of a company’s operation, namely safety, quality, delivery,
productivity and cost. Measures convey how a company is doing,
which is something every employee of that company wants to know.
Measures in these specific categories help to focus everyone’s efforts
on the things that matter most. Equally important is that these
measures help employees understand the business and their roles in it
a little better.

Whatever measures are targeted, they should be developed, recorded

and communicated by the employees who work in those areas. As
such, these measures should be based on data that is easily obtained
in a timely manner (and probably without the need of a computer).
Making employees responsible for managing the measures establishes
ownership. Managers also must support the selected measures, and
the best way to show support is to spend time reviewing and
discussing the measures each day. This can be done in as little as five
minutes, but they are likely some of the most important minutes a
manager can spend.

So why are effective, employee-owned measures so critical to

improvement? There are some inherent benefits, driven by these five
steps:

1. Create targets or expectations. We likely have all heard the phrase

“what gets measured gets managed.” Setting targets or expectations
provides everyone with clarity on performance. If our target is to ship
100 orders per day and we ship 50, underperformance is recognized by
the entire organization. Then if we ship 150 orders, everyone knows it
was a good day. Over time, targets will indeed drive performance.

2. Track performance. Through collection and displaying of key

measures, everyone gains a sense of performance over a period of
time. Trends can be identified and comparisons made. There may be a
positive correlation (when one measure goes up, the other goes up), a
negative correlation (when one measure goes up, the other goes down)
or no correlation between selected measures.
3. Analyze performance. Here is where the improvement effort begins
to take shape as we gain an understanding of how we are performing
in relation to our targets. We will also gain insight as to why some
targets are routinely met while we encounter difficulty trying to meet
others. Previously unanticipated dependencies, supplier issues,
equipment reliability or resource constraints may be revealed during
this analysis.

4. Correct performance. This requires categorizing problems by

severity, likely with the help of a Pareto chart, which can separate the
“useful many” from the “vital few.” The most severe problems will
require further analysis until root causes, not just symptoms, are
discovered. Many root-cause tools can be employed, such as the “Five
Whys” and cause-and-effect diagrams. As each root cause is identified,
appropriate corrective action can be applied, leading to the required
performance improvement.

5. Review performance. Measures help to “close the loop” by ensuring

solutions deliver the desired results or presenting alternatives if the
desired results are not realized. Of course, reviewing performance is
continuous. An improvement made today may simply be the starting
point for another improvement required in the future.

Even if the analyzing, correcting and reviewing steps need to be

repeated numerous times, their ultimate purpose is to drive
measurable improvement in the organization.

Ideally, the employees who own these measures will track, analyze,
correct and review performance. However, they may need some help to
do this, and this is an area where managers can lend support.
Providing some clues as to what the data may mean can help
employees contend with a rather difficult performance issue in their
particular areas. Often, just a few encouraging words can reinforce the
importance of the measures and the employees’ roles in trying to make
the operation better. Finally, by simply being available to review the
measures with the employees, managers will solidify the employee
ownership/manager support model so critical to a meaningful
continuous improvement effort in any company.
Continuous improvement is based on a Japanese Concept called Kaizen, is the philosophy of
continually seeking ways to improve operations. It invloves identifying benchmarks of excellent
practices and instilling a sense of employee ownership of the process. The focus can be on:

 Reducing the length of time required to process requests for loans in bank

 The amount of scrap generated at a milling machine or the number of employee injuries.

 Continuous improvement can also focus on problems with customers or suppliers, such as
customers who request frequent changes in shipping quantities and suppliers that to
maintain high quality.

The bases of the continuous improvement philosophy are the beliefs that virtually any aspect of an
operation can be improved and that the people most closely associated with an operation are in the
best position to identify the changes that should be made. Consequently, employee involvement
plays a big role in continuous improvement programs.

Q5

Human factors: Workload

Why is workload important?
Humans have limited capability for processing information (such as from displays, alarms, documentation
and communications), holding items in memory, making decisions and performing tasks. Excess workload
can result in human performance issues such as slower task performance and errors such as slips,
lapses or mistakes. It should also be noted that underload can also lead to human performance issues
such as boredom, loss of situation awareness and reduced alertness. Workload issues may be more
relevant in times of downsizing or temporarily during peaks (such as incidents or turnarounds).

Workload is related to competence (e.g. some tasks can require less processing in experienced
personnel), working hours/patterns (e.g. underload in nightshift control room operators), organisational
change (where tasks or roles are changed) and staffing levels. Workload may be higher in some
industries/roles where there is an inadequate supply of skilled staff. A high (or perceived high) workload
not only adversely affects safety, but also negatively affects job satisfaction and, as a result, contributes to
high turnover and staff shortages.

An assessment of workload may be required if you wish to determine whether you have sufficient staff; if
capacity exists for additional tasks, or whether personnel can cope with emergencies, incidents or
process upsets.

Workload should be assessed if new tasks, equipment, or systems are introduced; or where changes are
made to roles and responsibilities.
 Key principles in workload
 Performance can be affected by workload being too high - or too low.
 Workload can ‘drift’ over time as new activities are added gradually.
 Ensure that workload has been assessed for emergency situations as well as for normal
operating ("steady state") conditions.
 Consider the whole team, and whether tasks can be redistributed between team members or
shifts.
 Assess the balance of workload across a shift - can the timing of activities be redistributed to
spread workload (e.g. issuing Permits to Work at several periods rather than just at the start of the
shift)?
 Workload should be reconsidered during unusual activities, such as ‘campaign maintenance’, or
start-up activities on process plants.
 Experienced operators may be able to utilise strategies for handling high task demands; whereas
inexperienced staff may be less able to cope (think about when you were learning to drive).
 Perform a task analysis to understand exactly what staff are required to do, when, and what
information they need to perform these tasks. Involve the workforce in these analyses.
 Task analysis should consider both physical and mental workload.
 Ensure that workload assessment considers visual inputs (e.g. scanning display screens, looking
out of windscreens, CCTV), auditory inputs (telephones, radios, alarms), cognitive activities (analysis
of inputs, decision making) and psychomotor skills (physical actions, such as controlling a process
using a mouse, keyboard, or buttons and levers).
 Consider not just the number of personnel, but how they are being utilised.
 Set clear roles and responsibilities, ensuing that staff are clear on their priorities. This will help to
ensure that even when workload is high, staff are able to focus on key activities.
 Some tasks may be re-allocated from humans to machines/computers, or vice-versa; considering
human performance, safety, maintainability, personnel requirements etc.