chapter 18

Chapter 18 Operations improvement

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Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Operations improvement Operations improvement Operations strategy

Design

Operations management

Planning and control

Improvement

Total quality management organizes process improvement

Operations process improvement makes processes better

Failure prevention and recovery stop processes becoming worse

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Performance measures at different levels of aggregation Broad strategic measures

Functional strategic measures

Overall strategic objectives Market strategic objectives

Operations strategic objectives

Financial strategic objectives

Composite Customer performance Agility Resilience satisfaction measures Generic operations Cost Quality Dependability Speed Flexibility performance measures Transaction Defects per Mean time Customer Time to costs query time unit market between Some detailed failures Labour Order lead time Product performance Level of productivity customer range Lateness Throughput measures complaints complaints time Machine efficiency Scrap level

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Performance measures at different levels of aggregation Broad strategic measures

High strategic relevance and aggregation

Functional strategic measures Composite performance measures Generic operations performance measures Detailed performance measures

High diagnostic power and frequency of measurement

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The measures used in the balanced scorecard Financial performance measures To achieve strategic impact, how should we be viewed by shareholders? Internal process performance measures To achieve strategic impact, what aspects of performance should business process excel at?

Overall strategic objectives

Learning and growth performance measures

Customer performance measures To achieve strategic impact, how should we be viewed by customers?

To achieve strategic impact, how will we build capabilities over time?

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Prioritizing process objectives Priorities should be determined by … The

Your

IMPORTANCE

PERFORMANCE

of each competitive objective

in each competitive objective

IMPROVEMENT PRIORITIES

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

neutral

–ve

Achieved performance

High

neutral

–ve Low

Qualifying level

Achieved performance

High

Competitive benefit

Less important objectives

+ve

+ve

Low

Qualifying objectives Competitive benefit

Competitive benefit

Order-winning objectives

+ve

neutral

–ve Low

Achieved performance

High

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

9-point importance scale For this product or service, does this performance objective …

Order-winning objectives

1 …provide a crucial advantage with customers? 2 …provide an important advantage with most customers? 3 …provide a useful advantage with most customers? 4 …need to be up to good industry standard?

Qualifying objectives

Less important objectives

5 …need to be around median industry standard? 6 …need to be within close range of the rest of the industry? 7 …rate as not usually important but could become more so in future? 8 …very rarely rate as being important? 9 …never come into consideration?

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Temperature-controlled – overnight service IMPORTANCE to customers 1

2

3

4

PRICE

6

7

8

9

8

9

X

SERVQUAL (DISN.)

X

SERVQUAL (ORDER TAKE)

X

ENQUIRY LEAD-TIME

X

DROP QUOTE

X

WINDOW QUOTE DELIVERY PERFORMANCE

5

X X X

DELIVERY FLEXIBILITY VOLUME FLEXIBILITY

X

DOC. SERVICE

X 1

2

3

4

5

6

7

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

9-point performance scale For this product or service, is the achieved performance … 1 …consistently considerably better than our nearest Better than competitor’s? ses s competitors e oc pr r a l r i Sim stome s Cu tation ec exp

2 …consistently clearly better than our nearest competitor’s? 3 …consistently marginally better than our nearest competitor’s?

4 …often marginally better than that of most competitors? Same as s e ess c competitors o 5 …about the same as that of most competitors? r rp r ila Sim ustome s C tion a t c e exp

6 …often close to that of our main competitors?

Worse than es 7 …usually marginally worse than that of our main competitors? ss e c competitors o 8 …usually worse than that of most competitors? r pr r ila Sim ustome s C ion t a t ec exp

9 …consistently worse than that of most competitors?

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Temperature-controlled – overnight service PERFORMANCE against competitors 1

2

3

4

5

6

7

9

X

COST SERVQUAL (DISN.)

X X

SERVQUAL (ORDER TAKE) ENQUIRY LEAD-TIME

X

DROP QUOTE

X X

WINDOW QUOTE DELIVERY PERFORMANCE

X

DELIVERY FLEXIBILITY

X

VOLUME FLEXIBILITY

X

DOC. SERVICE Estimated

8

X 1

2

3

4

5

6

7

8

9

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

GOOD

1

better

EXCESS ?

2

than

APPROPRIATE

COMPETITORS

AGAINST

PERFORMANCE

3 4

same as

er w o L

6

y

IMPROVE

7

X worse than

BAD

5

cc a f do n u bo

lit i b a ept

X

URGENT ACTION

8 9 9

8

less important LOW

7

6

5

4

qualifying

3

2

1

order winning

IMPORTANCE FOR

CUSTOMERS

HIGH

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

GOOD

1

better

Delivery Volume flex.

2

X

than

COMPETITORS

AGAINST

PERFORMANCE

X

X X Servqual (Disn.)

4

same as

5

Doc service

6

Price/Cost

X

X

XDelivery flex.

7

worse than

BAD

Window quote

Drop quote

3

X

Servqual X (order take) X Enquiry Lead-time

8 9 9

8

less important LOW

7

6

5

4

qualifying

3

2

1

order winning

IMPORTANCE FOR

CUSTOMERS

HIGH

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Innovation Short-term, Short-term,dramatic dramatic Large Largesteps steps Intermittent Intermittent Abrupt, Abrupt,volatile volatile Few Fewchampions champions Individual Individualideas ideas&&effort effort Scrap Scrapand andrebuild rebuild New Newinventions/theories inventions/theories Large Largeinvestment investment Low Loweffort effort Technology Technology Profit Profit

Kaizen Effect Pace Timeframe Change Involvement Approach Mode Spark Capex Maintenance Focus Evaluation

Long-term, Long-term,undramatic undramatic Small Smallsteps steps Continuous, Continuous,incremental incremental Gradual Gradualand andconsistent consistent Everyone Everyone Group Groupefforts, efforts,systematic systematic Protect Protectand andimprove improve Established Establishedknow-how know-how Low Lowinvestment investment Large Largeeffort effort People People Process Process

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The plan–do–check–act (or ‘Deming’) improvement cycle, and the define–measure–analyze–improve–control (or DMAIC) ‘six sigma’ improvement cycle Define Plan

Do Control

Act

Check

Improve

Measure

Analyze

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The DMAIC cycle

Define – identify the problem, define requirements and set the goal

Control – establish performance standards and deal with any problems

Measure – gather data, refine problem and measure inputs and outputs

Analyze – develop Improve – develop improvement ideas, problem hypotheses, identify ‘root causes’ test, establish and validate solution, and hypotheses measure results

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Performance

‘Breakthrough’ improvement does not always deliver hoped-for improvements

Planned ‘breakthrough’ improvements

Actual improvement pattern

Time

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Performance

Continuous improvement

Standardize and maintain Improvement

Time

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Continuous improvement

Performance

PDCA cycle repeated to create continuous improvement

Plan Act

Do Check

Time

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Performance

Combined improvement

Combined ‘breakthrough’ and continuous improvement

Time

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Some common techniques for process improvement Input/output analysis

Flowcharts

Scatter diagrams x

Input

Output

x x

Cause–effect diagrams

Pareto diagrams

x x

x x

x

x x

x

‘Why-why’ analysis Why? Why? Why?

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

The sandcone model of improvement Cost Flexibility Speed Dependability Quality

Quality Quality + dependability Quality + dependability + speed Quality + dependability + speed + flexibility Quality + dependability + speed + flexibility + cost

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

BPR advocates reorganizing (reengineering) processes to reflect the natural processes that fulfil customer needs Functionally based processes Function 2

Function 3

Function 4

End-to-end process 2

End-to-end process 3

Business processes

Customer needs

End-to-end process 1

Customer needs fulfilled

Function 1

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Key Terms Test Performance measurement Measuring and assessing the various aspects of the performance of a process or of a whole operation. Polar diagram A diagram that uses axes, all of which originate from the same central point, to represent different aspects of operations performance. Benchmarking Comparing methods and/or performance with other processes in order to learn from them and/or assess performance.

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Key Terms Test Order-winning competitive factors Those that directly and significantly contribute to winning business. Qualifying competitive factors Those that have a minimum level of performance (the qualifying level) below which customers are unlikely to consider an operation’s performance to be satisfactory. Less important competitive factors Those that are neither order-winning nor qualifying, so that performance in them does not significantly affect the competitive position of an operation.

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Key Terms Test Importance–performance matrix A technique that brings together scores that indicate the relative importance and relative performance of different competitive factors in order to prioritize them as candidates for improvement. Breakthrough improvement An approach to improving operations performance that implies major and dramatic change in the way an operation works; for example, business process reengineering (BPR) is often associated with this type of improvement, also known as innovation-based improvement, contrasted with continuous improvement. Continuous improvement An approach to operations improvement that assumes many, relatively small, incremental improvements in performance, stressing the momentum of improvement rather than the rate of improvement; also known by the Japanese term kaizen, often contrasted with breakthrough improvement. Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Key Terms Test Kaizen Japanese term for continuous improvement. Improvement cycles The practice of conceptualizing problem solving as used in performance improvement in terms of a never-ending cyclical model, for example the PDCA cycle or the DMAIC cycle. PDCA cycle Stands for Plan–Do–Check–Act cycle, perhaps the best known of all improvement cycle models.

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Key Terms Test DMAIC cycle Increasingly used improvement cycle model, popularized by the Six Sigma approach to operations improvement. Business process reengineering The philosophy that recommends the redesign of processes to fulfil defined external customer needs. Process maps Diagrams that describe processes in terms of how the activities within them relate to each other (also known as process blueprinting or process analysis).

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007

Key Terms Test Cause–effect diagram A technique for searching out the root cause of problems; a systematic questioning technique, also known as an Ishikawa diagram. Pareto analysis/law A general law found to operate in many situations, which indicates that 20% of something causes 80% of something else, often used in inventory management (20% of products produce 80% of sales value) and improvement activities (20% of types of problems produce 80% of disruption).

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007