Essential Guide to Operations Management: Concepts and Case Notes [2 ed.] 1032324260, 9781032324265

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Essential Guide to Operations Management

The revised and updated second edition of the popular and practical guide to contemporary operations management – now featuring a new chapter on managing sustainable supply networks. The Essential Guide to Operations Management explores fundamental operations management principles and shows how they are applied in real-life situations in both the services and manufacturing sectors. It adapts a strategic stance by providing a framework for effective decision-making: determining operations strategies; designing processes, products and work organisations; managing change through effective project management and technology transfer; exploring contemporary approaches to operations planning and control; and then managing quality and improvement strategies. As such, it addresses the needs of practising managers, postgraduate MBA and MSc students and final-year undergraduates in advanced operations management elective courses. The Essential Guide to Operations Management: Concepts and Case Notes, Second Edition, is supported by updated case studies throughout and online support materials for lecturers. David Bamford, PhD, is an experienced industrialist/academic who has published over 100 articles, book chapters and reports, as well as having presented widely on his topics to both academic and practitioner audiences. Knowledge transfer has been at the centre of David’s career strategy; it provides a focus and direction for his research, grant applications, publications, teaching and major administrative roles. His research interests are operations management improvement strategies, supply chain management, quality management, sports operations management, strategic organisational change and leadership. Paul Forrester, PhD, has specialisms in production and operations management, project management, supply management, quality management, cross-cultural management and research and development, all with a work organisation and social science perspective. He has over 30 years of lecturing and executive education experience and 20 years’ experience of directing MBA programmes at three top UK universities (Keele, Aston and Birmingham). In addition, Paul has practical experience in the carpet textiles, computer and automotive manufacturing sectors. Iain Reid, PhD, is a qualified industrial engineer who is recognised as an expert in operational agility, Industry 4.0, knowledge transfer in SMEs and new innovations professional services such as legal technologies. He has a talent for Knowledge Transfer Partnership (KTPs), developing collaborative partnerships across several industry sectors. He has undertaken research collaborations with universities across the world, including the University of Baltimore, USA, Swinburne University, Australia, the University of Palermo, Italy, and the University of Athabasca, Canada.

Essential Guide to Operations Management Concepts and Case Notes SECOND EDITION

David Bamford, Paul Forrester and Iain Reid

Designed cover image: © Getty Images Second edition published 2023 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2023 David Bamford, Paul Forrester and Iain Reid The right of David Bamford, Paul Forrester and Iain Reid to be identified as authors of this work has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. First edition published by Wiley 2010 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-032-32427-2 (hbk) ISBN: 978-1-032-32426-5 (pbk) ISBN: 978-1-003-31499-8 (ebk) DOI: 10.4324/9781003314998 Typeset in Bembo by codeMantra Access the Instructor and Student Resources: www.routledge.com/9781032324265

Contents

Acknowledgements 1 Operations Management in Context

vii 1

2 Designing Business Processes

15

3 Developing Service and Product Value

31

4 Operations Management and Digital Transformation

45

5 Controlling Enterprise Resources

57

6 Lean and Resilient Operations

72

7 Managing Sustainable Supply Networks

83

8 Managing Operations Strategically

99

9 Managing Quality Systems

112

10 Improving Global Operations

125

11 Operations Management in Practice

141

Index

151

Acknowledgements

In this textbook, we present a range of case examples that showcase the real-world ­application of theory in practice. In collating the examples, we have tried not to interfere with our contributors’ style because we believe this is an intricate part of getting the message across to the reader. The brief was given to the contributors to keep the level of technical detail to a minimum and provide some specific contextualisation. We wish to thank all the case contributors for their time, expertise and richness of examples provided. We have learned much from them. We hope the readers will too.

Contributors Aimée-Louise Baker, Head of Operations (Race Director), Human Race Ltd Alexander Dixon, BSc (Hons) MBA CIHCM Ben Cowcill, MSc, Head of Stadium Operations & Facilities, Bolton Wanderers FC Fatima-Zahra Zamzam, Russell IPM Dr Jim Bamford, York St John University Jon Tudor, Founder and Director, True North Excellence Jonathan Sibley, Manchester Metropolitan University Michael Kennedy, Senior Manager: Addleshaw Goddard LLP Lucy Pittaway, Manchester Metropolitan University Marcus Mayers, FRSA, MBA, APMP, Visiting Research Fellow, Manchester Metropolitan University Dr Marina Papalexi, Manchester Metropolitan University Dr Norman Ratcliffe, British Antarctic Survey Sonia Dumitru, Aviation Insider Vicky Roberts, Venue Operations Manager, Birmingham 2022 Commonwealth Games

1 Operations Management in Context

Figure 1.0  Conceptual Model of Operations Management

Introduction This chapter introduces the topic of operations management and outlines the structure and logic of the book. It defines some core theories, including the input–­transformation– output model, the principles of value, the five key performance indicators (KPIs) of quality, speed, dependability, flexibility and cost and the four Vs framework of volume, variety, variation and visibility. It suggests ways of conceptualising the scope of operations management by considering the components of an operations system, the life cycle of products and the organisational scope of operations management. Finally, to better conceptualise the topic, it provides a synopsis on the evolution of operations management, right up to the current emphasis on digitisation, servitisation, the triple bottom line and the importance of sustainable and resilient operations.

What Is Operations Management? Operations management is not merely a business function. It pervades the work of all managers to a greater or lesser degree, as they are required to operationalise their

DOI: 10.4324/9781003314998-1

2  Operations Management in Context

strategies into outcomes that create value for stakeholders, are concerned with the design of processes and products, need to control processes and systems appropriately and seek to improve the designs, processes and controls over time to deliver quality outcomes. This book is a contemporary and novel treatment of the important subject of operations management. It is structured around a conceptual teaching model, developed by the authors over the past 20 years, from multiple delivery of core operations management modules, which explores fundamental operations principles. Adopting a strategic stance throughout, this book provides a framework for effective decision-making to reflect the concerns of the contemporary manager. Each chapter develops an understanding of the theory and practice of key operational concepts to enable delivery of the strategy. The model centres upon the idea that operations management comprises three essential components: 1. Design of operations processes and the work of individuals 2. Planning and control of operations once designs are in place and operational 3. Ensuring the quality of outputs, and (wherever possible) improving on these However, these cannot be addressed in isolation. The essential element of effective operations management is the integration of these components. The book therefore contains three integrated chapters: 1. We need to understand operations management in context (Chapter 1). What is its purpose in a business sense? And how and where does it relate to the other business functions? 2. How might we manage operations strategically (Chapter 8)? Design, planning and control activities must not be conducted totally independently of one another, so we need the means to coordinate our activities within a formulated operations strategy. We believe that operations strategy is best covered not at the start or end of the text (as you find in most other operations management books), but in the middle, after the principles of design and operations planning and control are well understood. 3. We need to consider the implementation of the principles contained in this book, so we need to look at operations management in practice (Chapter 11) in the final chapter. Implementation is identified by practitioners as the most critical activity but is often overlooked or skimmed over in texts, so we address this head-on in this book. The conceptual model (Figure 1.0) offers a comprehensive view of the operations management function, and we have integrated contemporary topics such as agile and resilient operations, digital transformation and managing supply networks. But, before embarking on these topics, it is important that we fully grasp and comprehend what the practice of operations management comprises, and from where it has evolved in an historical and theoretical context. In many operations management textbooks, the term ‘customer’ is widely used to identify the recipients or consumers of the service or product offered. This language, however, can be distracting for many readers, as it appears biased towards private sector businesses. In most public sector and third sector settings, the recipients of the service

Operations Management in Context  3

or product are referred to in more meaningful terms. For example, hospitals treat ‘patients’, care services and consulting companies consider their ‘clients’ and educational institutions teach ‘students’. Although some of these organisations prefer to view end users as customers, many others believe the term does not adequately reflect the nature and complexity of their relationship. By extension, there is often a tendency to regard operations management textbooks, and what is taught in the classroom, as being somewhat irrelevant simply due to the loose use of the term customer, or a failure of the reader or student to grasp the term customer in its more generic sense. In this book, we do use the term customer in its more generic sense in places to refer to the recipient for the sake of brevity, but we have taken the effort at times to stress and remind the reader that operations systems serve clients, patients and students, and whatever other term an organisation might use.

Principles of Value The task of the operations manager can be summarised at a basic level as converting a range of resource inputs (such as budgets, stakeholders, information, expertise and capacity), through a transformation (the operations process), into a range of outputs (products and services, in addition to the achievement of objectives, addressing KPIs, etc.). This is represented by Figure 1.1. Of course, this needs to be designed with a focus on the value proposition of the transformation process. But what do we mean by value? From an operations perspective, value can be defined as ensuring the economic, ergonomic, aesthetic and technical aspects of the design of the product or service are met. These four elements translate into the operationalisation of processes and systems that will be capable of delivering the required output objectives. The various elements that make up the operations function are diverse and complex in nature. The operations manager must possess competencies in human resource management, strategic awareness, product knowledge, systems and organisational design and, at the operating level, planning and control. Moreover, the task of the operations manager is often misunderstood and relegated to a reactive rather than a positive and proactive role within the organisation. To indicate the importance of the operations function to the business, it is useful to identify five KPIs (5KPIs) for any operations system. These are quality, speed, dependability, flexibility and cost, where: 1. Quality reflects the extent to which operations are performed in line with specifications and/or satisfy the customer (i.e. getting things right). 2. Speed reflects how quickly and responsively we supply and deliver our products and services (i.e. doings thing quickly).

Figure 1.1  Input–Transformation–Output Model

4  Operations Management in Context

3. Dependability indicates our reliability to the customer or recipient of the product or service (i.e. doing things consistently and on time). 4. Flexibility reflects our ability to adapt and respond to differing needs (i.e. being able to change what we do). 5. Cost reflects the expense we have incurred in a financial sense to deliver the product and/or service to the recipient (i.e. doing things cheaply). Figure 1.2 is a representation of the above and can be used to indicate the priority or degree of importance (e.g. less important aspects in the centre, more important aspects towards the outside) for comparison or even gap analysis. In a simplistic sense, and in the ‘ideal world’, one might argue that an operation should seek to optimise all five of these performance objectives. If an operation delivers the best quality in the fastest time, more reliably, in the most flexible way and at the cheapest cost, it is inevitable that this operation would perform better and therefore more effectively than its competitors. However, this is a panacea. As Hill (1993) originally and others have since argued, operations management comprises a set of ‘trade-off’ decisions, whereby a decision to improve performance for one indicator often (though not always necessarily) results in a negative effect on another. The most obvious in this respect is cost. Often, decisions to reduce cost can impact quality, speed, reliability and flexibility if they are improperly thought through. This book will, later, indicate where costs and other indicators might be simultaneously improved, but we need to recognise there are often constraints on what we might be able to achieve. And this indicates the second important factor of operations management: it is about managing constrained resources (human, physical and financial) that place limitations on what we can achieve. In the same way as the performance objectives shown in Figure 1.2 can be used to compare and contrast different operations systems, so can the ‘four Vs’. Let us investigate each of these individually, starting with volume. Figure 1.3 shows low volume on the left side of the continuum and high volume on the right. Operations systems producing low volumes of products and services invariably result in low repetition of tasks, operations performing a large proportion of the job in hand, less systemisation and invariably high unit costs. The opposite applies to high-volume operations: greater repetition, a greater division of work, greater systemisation and lower unit costs through economies of scale. The other three Vs run counter to volume, with ‘high’ on the left side and ‘low’ on the right. This reflects the tendency for low-volume operations systems to have high variety, high variation and frequently higher visibility. So high-variety operations, those that produce a wide range

Figure 1.2  Five Key Performance Indicators (5 KPIs)

Operations Management in Context  5

Figure 1.3  Four Vs: Volume, Variety, Variation and Visibility

of products and services, offer flexibility, can cope with and match customer needs and tend towards higher unit costs. Low-variety operations, those that produce more standard products and services, have the opposite features. Variation reflects the ability of the operations systems to flex and change, usually in response to the nature of demand (frequent and rapid changes on the left side, very stable, unchanging demand on the right. High-­ variation operations systems feature the ability to change the capacity of output, anticipation, flexibility response and generally high unit costs. Finally, visibility reflects the extent to which operations facilities and workers are physically seen or capable of being monitored by customers and clients, or whether they are out of sight and contact (back-office type operations). High-visibility operations feature short waiting tolerance, the need for customer contact skills, variety and responsiveness in service and high unit cost. It has already been noted that the four Vs are arranged in Figure 1.3 so that volume is low on the left side of the scale and high on the right, whilst the other Vs run opposite to this. This is for a reason. The features of operations systems that occupy positions near the left side of the scale have flexibility as a major concern: the ability to be flexible in terms of range or response and/or to provide a flexible service. Conversely, operations systems with right-side profiles are concerned with repeatability: the ability to economically produce products and services in high volume and at a relatively low unit cost. An example at this point serves to illustrate this.

Example 1 You have decided to take a vacation at an Island Resort. You want to be accommodated in a small house by the ocean. It’s an oasis where people come to you and cook meals for your family, then slip away to leave you in peace. You don’t see anybody else. For this Island Resort volume would be relatively low, given our definitions above. The variety would be high. You expect them to provide a range of facilities. If you want to cycle, they would be able to provide a bicycle. If you want to Scuba Dive on the coral reef, they would be able to arrange this, plus transportation and any necessary instruction. The cost to you might be high, but the Resort can supply what you need. Variation

6  Operations Management in Context

is potentially high for the Island Resort because of the unpredictability and needs for varied control systems for the services. Finally, visibility is high. You want attentive service and are likely to have a short waiting tolerance: if you are paying considerable amounts of money, you want and expect efficient service, now. The Island Resort, therefore, needs to design and plan their operations with the needs of its customers in mind. The Resort needs excellently designed and constructed accommodation and administrative buildings; staff with good customer contact skills; there is a need to recruit flexible employees who seem genuinely pleased to meet and greet customers and efficiently respond to their every need. All this comes at a high cost, but the customer is willing to pay for this. Now contrast the Island Resort with a chain of Express Hotels, serving the needs of people who are on business or touring, and need to stay just one night, usually for about eight hours. The Express Hotel needs to have a bed, a television, tea and coffee making facilities and sometimes a telephone, not often though because we all have mobile phones. As a customer you need to be able to check-in and check-out quickly and know that the room meets a standard quality. You don’t care whether you see a member of staff or not. You just want to get into your room for the night, pay your bill and leave. You probably do not even want breakfast because you will take ‘breakfast to go’ with a coffee on your way to your next destination. So, in contrast to the Island Resort, volume is high, because the Hotel and customer alike require fast throughput and high repeatability. They are geared to a high volume of customers with very similar needs, and only willing to pay budget prices. Variety is low. Most of the Express Hotel chain’s rooms look and feel identical. Variation is low because you, as the customer, are not expecting any differences. There is a stable routine, predictable operations and high utilisation. Most of these hotels are located adjacent to major highway intersections so they are convenient and easy to get too. Visibility is low. Ideally you do not want to see anybody. After a long day’s work or journey you are in no mood to talk to anybody and just want to soak in the bath or take a shower, then get a good night’s sleep and depart. To summarise, the four Vs are used within organisations to assess their operations. Organisations can profile customer needs across the four continuums, compare this to their existing facilities (where the operations are currently placed in terms of product or service delivery) and also develop profiles for direct competitors. Such profiling enables gap analysis where, for example, one can identify any problematic differences between customer needs and actual delivery from our operations system, as well as comparative benchmarking against competitors.

The Scope of Operations Management Operations management relates to the function of an organisation concerned with the design, planning and control of resources to produce goods or provide services. As a discipline, it is not merely confined to a collection of techniques and quantitative methods. It makes appropriate use of the tools of operational research (OR) and statistics where relevant but is primarily concerned with the broader issues involved in the design, planning and control of products, services and processes. There are several ways to conceptualise the scope of operations management, some of which are suggested below. By Considering the Components of an Operations System Models of innovation suggest that any system should be considered as comprising three main elements: product (the output, the value created), process and work organisation. It is useful to consider the operations manager as having responsibilities in all three of these areas.

Operations Management in Context  7

By Considering the Life Cycle for Processes The operations management function is concerned with, and should have an input into, all stages in a system’s life cycle. The life cycle of introduction, growth, maturity and decline can be equated here, as illustrated in Figure 1.4. The responsibilities of the operations manager, therefore, should not be merely confined to the output/value creation (transformation) stage but at all stages of the process life cycle. By Considering the Organisational Scope of Operations Management ‘Operations Management’ should not be confused with the term ‘operational management’. The management of operations permeates all levels of organisational decision-­ making and is not merely confined to low-level and short-term decisions. The operations manager should, in turn, enter more widespread strategic debates in addition to maintaining contact with day-to-day operations. Thus, the scope of operations management in decision-making covers operational management right through to strategic management, as per Figure 1.5. The conceptual model employed in this book (Figure 1.0) identifies and distinguishes ‘design’ activities from operations ‘planning and control’ and ‘quality’. Design, which is covered in Chapters 2–4, involves: •

• •

Designing business processes: The organisation and arrangement of facilities, information and ‘flow’ and labour resources to enable the conversion of inputs (budgets, stakeholders, information, expertise and capacity, etc.) into outputs (providing services and goods, performing to KPIs, etc.). Developing service and product value: Interrelated with process design and the configuration of the processes in producing and delivering. Operations management and digital transformation: An activity frequently cited and identified as important but often overlooked in other texts. Design activity will always involve the transfer of ‘know-how’ to others in the design process. This is true whether we are talking about new processes (research and development transferred

Figure 1.4  The Process Life Cycle

8  Operations Management in Context

Figure 1.5 The Levels of Operations Management Decision-Making (Bennett and Forrester, 1993)

from the laboratory or simulation into regular operations) or the transfer of existing technologies (e.g. expanding operations, including establishing new facilities overseas based upon home operations as part of an international operations strategy). Planning and control of operations are contained within Chapters 5–7. Planning and control comprise the organising and monitoring of operations systems, projects and programmes, together with the feedback of variances from the plan for process or programme adjustment where necessary. It includes: • •

•

Controlling enterprise resources: The resources of the organisation (its facilities, people and materials) need to be effectively managed in terms of operational schedules, workflow, management and throughput. Lean, agile, resilient operations: The operations need to be managed in such a way that waste (of time, resources, money, effort, etc.) is minimised. Lean operations have evolved in terms of theories and practice since the 1980s, so to be competitive, organisations must grasp these proven and evidence-based principles. Managing sustainable supply networks: Organisations need to manage their supply network activity actively, and managers need to understand the complex interrelationships among suppliers and producers, people and technology. The value and importance attached to sustainable supply (environmentally, socially, ethically, and cost-efficiency) encompass much of the operational ‘value add’, and the management of these assets can be critical.

Regarding quality management, the main themes for operations managers include not only quality control but also an emphasis on improvement. This is the reason why this

Operations Management in Context  9

book punctuates the chapters on design and planning/control from quality management chapters with the coverage of managing operations strategically (Chapter 8). Our argument here is that ‘improvement’ forms the core of any effective operations strategy, so the main strategy chapter should be placed here to integrate and link preceding principles from the improvement process covered later. The main principles of quality management, covered in Chapters 9 and 10, include: •

Managing quality systems: Quality control systems need to be effectively designed and put into practice to enable the capture and evaluation of quality data and customer feedback, whether this data is quantitative or qualitative in nature.

•

Improving global operations: Contemporary practice stresses that operations systems should not stand still, merely adopting quality management systems that measure whether performance conforms to prior specifications. Instead, they should evolve with an emphasis on continuous improvement, whereby there is a commitment by the organisation to the future development of the operations.

The practice of operations and quality management is now accepted as an essential function. When one talks of a theory or discipline of operations management, there are a range of competencies required: human resource skills, technical knowledge, problem-­solving abilities, logic, quantitative methods and strategic insight. As a result, no single line of theory has emerged within the discipline. The model presented in this book provides a structure for understanding operations in context, but it needs to be appreciated that operations management has developed using theories and principles from a range of other disciplines. The final section of this chapter, therefore, now conveys a historical understanding of the subject.

The Evolution of Operations Management: From Craft Production to Sustainable Systems Operations management will now be set within its rich historical context. The major influences and developments in the subject over time will be highlighted. Figure 1.6 shows these historical influences in chronological order and should be referred to in conjunction with reading the following text. It illustrates the history of operations management and shows the major influences upon the subject through its development. Operations systems have always been in existence, albeit in different configurations to what one might expect to find today. Consider the ingenuity and industry involved in the following projects from history: Stonehenge on Salisbury Plain in the UK; the Egyptian Pyramids; the Great Wall of China; the cities, aqueducts and roads of the Roman Empire; and the programme of shipbuilding that preceded the sailing of the Spanish Armada in 1588. These would not have materialised without some form of operations management thinking. Prior to 1750, products were manufactured quite differently than they are today. Most production took place in the homes, cottages and workshops of independently trading craftsmen, hence the descriptive terms we tend to use nowadays of ‘the cottage system’ and ‘cottage industries’. Production before the advent of the Industrial Revolution can be characterised by direct contact between producers and consumers, little mechanisation and the production of bespoke, custom-made and personalised products.

10  Operations Management in Context

Figure 1.6  The Evolution of Operations Management as a Subject and Practice

The Industrial Revolution began in England in the 1700s. The early years can be summarised by two principal developments. First, there was a substitution of machines for human power. The inventors of machine power gave rise to the ‘Process School’, and their activities gave rise to the various engineering professions. Foremost amongst the early process developers were James Watt with the further development of the steam engine in 1764, Hargreaves and the ‘Spinning Jenny’, Cartwright’s ‘Power Loom’ and Maudsley’s ‘Screw Cutting Lathe’. These inventions gave the Industrial Revolution its initial impetus. This led to the increasingly widespread establishment of the ‘factory system’. Adam Smith’s The Wealth of Nations (from 1776) proclaimed the benefits of the division and specialisation of labour. Thus, activities came to be broken into small, specialised tasks assigned to workers through the process, as opposed to the craftsman’s ‘make-complete’ approach. Increased capital intensity through mechanisation and new ways of planning and controlling production workers using the principles of specialisation led to a move away from the cottage system to that of factory work.

Operations Management in Context  11

Two notable developments occurred in the nineteenth century. First was the concept of interchangeability. One of the earliest attempts at production using interchangeable parts was successfully accomplished by Eli Whitney, a manufacturer of rifles for the US government, in 1790. Whitney designed and built on an assembly line such that parts were produced to tight tolerances, enabling every part to fit right the first time into a rifle assembly. Previously, parts were handcrafted, or else they were merely sorted from large batches to find those components that fit together neatly or only required minor modifications. The concept of interchangeable parts was not easily grasped at first but is today taken for granted. By 1850, the cottage system was almost completely replaced by factory work. Industrial empires were being constructed by a new class of entrepreneurs and businessmen. By 1900, the high level of capital and production capacity, the expanded urban workforce, new Western markets and increasingly effective transportation and communication set the stage for the great production output explosion of the twentieth century. Around 1900, the scientific management approach was being developed. This was initially based upon the pioneering work of Frederick Winslow Taylor (1856–1915), outlined in his Principles of Scientific Management (Taylor 1911). At the time, scientific management represented a concerted attack on the prevailing techniques used in the management of production. The work of Taylor, Lilian and Frank Gilbreth and Henry Gantt, amongst others, was analytical and stressed the need for the development of standards for work and improved efficiency. There was little consideration, however, of human feelings, and most practitioners of scientific management viewed operators as mere extensions of their machines working within a wider, controlled system. Several ideas and techniques were developed at this time, including piecework payment systems, time and motion study, the principles of efficiency, standards and management by exception. Criticised as scientific management is today, and in many respects rightly so, its development constituted the first truly rigorous and structured theory of production management to replace the more general and less analytical methods of factory management used before. Scientific management principles culminated with the opening of the Ford Motor Company’s Rouge plant in Detroit to produce the Model-T. The Rouge plant featured standardised product designs using interchangeable parts; mass production; low costs; mechanised assembly lines; and high specialisation of labour. Ford was an adapter rather than an inventor of scientific management, and the Rouge plant formed the model for factory design and work organisation well into the twentieth century (the approach now commonly known as ‘Fordism’). So, around the 1920s, was born the era of mass manufacturing and standardised, low-variety products. In the 1930s, an opposing view to scientific management began to emerge, in which behavioural issues were identified as being important to productivity. Knowledge of psychological and sociological features started to influence job design, strategies for worker motivation and management control policies. The organisational forms of production and service companies have been influenced by several ‘behaviouralist’ theories and practical approaches. A seminal programme of research at this time was the Hawthorne Studies, a series of experiments conducted by researchers from the Harvard Business School at Western Electric Company that illustrated the importance of human aspects in determining output and productivity. These were later followed by further theories of motivation (see, e.g. Maslow, 1943; McGregor, 1960; Likert, 1961; Herzberg, 1974). A major contribution to our understanding of operations management was made by sociotechnologists. On the evidence of the development of work design in the British Coal

12  Operations Management in Context

Mining industry, the teamwork approach to flowline assembly at Philips, Eindhoven, and the experiences of Volvo in Sweden with autonomous group working, theorists (most predominantly from the Tavistock Institute) stressed the need for the parallel development of social and technical systems for the success of operations. More recently, the need for flexible labour to cope with changes in the market and environment has been identified. ‘Post-Fordism’ has now developed, whose supporters argue that the era of mass production is now over with more flexible and less rigid work structures now developing, which sees a revival of craft forms of operation and the need for multi-­skilling in the workforce. Of course, we also have the more recent arrival of zero hours contracts, which has created both opportunities and challenges, perhaps in equal measure. In terms of tools and techniques for operations management, we are indebted to the OR School. OR originated in the military and defence organisations of Britain and the USA in the 1940s, during World War II, to help solve problems of civilian defence, bombing strategies, transportation and military logistics. Subsequently, OR theorists turned to business and industry to apply their techniques. The spin-offs for operations management included new quantitative techniques for stock control, scheduling, forecasting, project management, quality control, simulation and linear programming, to name just a few. In the 1950s, OR was responsible for the introduction of computers in the management of operations. OR seeks to replace intuitive decision-making for large, complex problems with approaches that identify ‘optimal’ or ‘best’ solutions through analysis. It is in its logical and methodological approach that OR has contributed to the developing theory of operations management. There has been a vast expansion in the service and public sector industries since the 1960s. During this time, manufacturers and service operators have come to realise that they have a considerable amount to learn from one another and have innumerable areas of similarity in the management of their operations. All products have an element of physicality and service associated with them, and many services have some form of tangible product content (e.g. a McDonald’s burger is both a physical ‘good’, and associated with a ‘package of service elements’). The need to manage service operations efficiently and effectively is just as necessary as the productive management of manufacturing, especially as many service operations have high visibility for the customer or client. For example, all service operators have inventories to manage, quality to control, work to schedule, output to deliver, facilities to layout, employees to remunerate and so on. However, the lessons are not one-way. Manufacturing organisations are learning much in terms of customer care, service reliability and flexibility (so-called servitisation of their package of operations) from the service industries. The economic expansion of Asia, most notably Japan, since the 1960s has stimulated the development of alternative operations theory and practice. New concepts such as ‘just-in-time’ management, new approaches to quality and design management (such as Total Quality and Kaizen) and the encapsulation of these principles into ‘lean operations’ evolved in Japan particularly. This served as a warning of a new challenge to the traditional Western manufacturers. Another development has been the shift in emphasis from techniques and systems at the operating level to a broader and more balanced strategic perspective on operations. As indicated earlier in this chapter, operations management is not merely confined to low-level, limited-impact decision-making but has a strategic consequence. Businesses that expect to remain competitive now need to grasp this and ensure that product service and delivery live up to the claims made in advertising and promotion campaigns.

Operations Management in Context  13

New technologies have also had a profound impact on the design of original processes with the development of flexible and programmable systems. Most significantly, the control afforded by digital technology has made possible the provision of service solutions in mass volumes, in a wide variety of forms and, in some instances, configured to suit individual customer requirements (see an Amazon web page for examples of all these elements). Referring to Figure 1.6, it has been illustrated how the development of operations management has been closely tied to the emergence of several schools of thought over the last 200–300 years. In the 1800s, the prime focus was the management of the factory, but as scientific management practices became more widespread in the early twentieth century, the discipline changed from general factory management to production management. The wider operational perspective brought in by OR to encompass transportation, logistics and supply plus the growing need to incorporate and learn from service operations has broadened the discipline further. Now, subject to the influences of artificial intelligence, augmented reality, supply chain management disruption and the need for resilient and agile operations in the face of global challenges (e.g. COVID-19), the theory and practice of operations management continue to develop under the influence of different, and often conflicting, schools and paradigms.

Chapter Summary This chapter has introduced the topic of operations management and outlined the structure and logical presentation of the book. It has defined some core theories, including the input–transformation–output model, the basic principles of value, the five KPIs of quality, speed, dependability, flexibility and cost and the four Vs of volume, variety, variation and visibility. It suggested ways of conceptualising the scope of operations management by considering the components of an operations system, the life cycle of products and the organisational scope of operations management. Finally, to historically contextualise the topic, it provided a synopsis of the evolution of operations management.

Reflective Questions • • • • •

What is operations management? What is the I-T-O model? What are the five key performance indicators? What are the four Vs? Who was F.W. Taylor and what was their contribution?

Further Reading • • • • •

Bennett, D.J. and Forrester, P.L. (1993). Market-Focused Production Systems: Design and Implementation, Prentice Hall, Hertfordshire. Herzberg, F.I. (1974). Work and the Nature of Man, Crosby Lockwood Staples, London. Hill, T. (1993). The Essence of Operations Management, Prentice Hall, New York. Johnston, R., Shulver, M., Slack, N. and Clark, G. (2020) Service Operations Management: Improving Service Delivery, 5th Edn, Pearson, Harlow. Likert, R. (1961). New Patterns of Management, McGraw-Hill Inc., New York.

14  Operations Management in Context • • • • • • •

Maslow, A.H. (1943). Preface to Motivation Theory, Psychosomatic Medicine, Vol.5, Iss.1, pp. 85–92. McGregor, D. (1960). Theory X and Theory Y, Organization Theory, Vol.358, Iss.374, p. 5. Radnor, Z., Bateman, N., Esain, A., Kumar, M., Williams, S., Upton, D. (2015) Public Sector Operations Management, Routledge, London. Slack, N., Brandon-Jones, A., Burgess, N. (2022) Operations Management, 10th Edn, Pearson, Harlow. Smith, A. (1776, reprinted 1970) The Wealth of Nations, Everyman’s Library, London. Starr, M.K., Gupta, S.K. eds. (2017) The Routledge Companion to Production and Operations Management, Routledge, London. Taylor, F.W. (1911, reprinted 1967) The Principles of Scientific Management, Norton, New York.

Useful Websites • •

www.euroma-online.org. European Operations Management Association (EUROMA). www.informs.org. Institute for Operations Research.

Useful Academic Journals • • • • • • • • • • • • •

European Sport Management Quarterly International Journal of Operations and Production Management International Journal of Public Sector Management International Journal of Production Research International Journal of Quality and Reliability Management Journal of Health Organization and Management Journal of Operations Management Journal of Place Management and Development Managing Service Quality Manufacturing and Service Operations Management Production and Operations Management Production Planning and Control Supply Chain Management: An International Journal

2 Designing Business Processes

Figure 2.0  Conceptual Model of Operations Management

Introduction This chapter presents the principles behind the design of business processes and the options available. Processes are all around us, and their design and the organisation of resources impact all aspects of performance indicated by the 5KPIs discussed previously in this book. If we consider we have received poor service, then it does not only indicate there may have been an issue with the server’s attitude, but more likely than not some part of the operations and supply process has not delivered what we require to our satisfaction. And it is merely because this part of the process may not have been effectively managed operationally, but more likely that insufficient effort has been given to that process’s design to make it fit for purpose. Increasingly, given the increased complexity of the supply chain for operations, problems occur when these processes are poorly coordinated. In the UK, there are regular issues throughout the process for NHS hospital patient admissions and release, as problems persist with the coordination of emergency services, accident and emergency, the wards and social care for those deemed medically fit for release.

DOI: 10.4324/9781003314998-2

16  Designing Business Processes

All this causes the potential for delays, queues, bottlenecks and frustration with processes. Compare the issues here with the integration of online retailers (admittedly easier to accomplish) who can take orders, liaise with suppliers and deliver to the customer’s home address, often on the same day as ordering. Here, considerable attention has been given to the meticulous design of the processes, their interconnections and their integration. Service operations have distinctive features and particular challenges: production and consumption are usually simultaneous (the customer is usually present and part of the ‘transformation’), and it can be difficult to balance demand with capacity. A key question is: who are we designing the service process for? The service concept needs some thought, and the design of both physical and contact components are key concerns in design. The design of operations and wider supply systems, first and foremost, requires the organisation to determine and address the capacity required from the processes. This is of course influenced by the total demand and forecasts, but effective capacity planning and management involves exploring alternative ways of delivering capacity and the extent to which the production of a service or goods responds directly and immediately to demand, and these options are covered in this chapter. Business process design also requires analysis of alternative locations for these facilities prior to decisions on the configuration of processes on site. Capacity and location decisions are strategic in nature and not merely operational concerns. They involve considerable capital investment, as choices made at this early stage of process design are not easily or quickly revised. Furthermore, process decision-makers need to be aware of the implications of specific design choices when establishing and developing (or redesigning) operations systems. Understanding the relationships and potential trade-offs between key performance indicators (KPIs) for operations is important here; for example, a change to operations processes and system design made to reduce costs and increase productivity in the short term may result in reduced flexibility and a higher cumulative capital outlay in the long term. Flexible and agile systems of production and supply are attractive in that they offer benefits in terms of response and adaptability to market and technology change, or in the range of services and products an organisation might offer. Flexible and agile systems may also lead to improved levels of resilience, so often needed in contemporary businesses that operate under uncertain conditions (so clearly illustrated by production and supply network issues with the impact of COVID-19 through 2020–2022). The flipside is that excessive levels of flexibility can result in low productivity, high costs and strategic disadvantage – processes are no longer lean and cost competitive. Process design, therefore, is frequently a process of adopting appropriate systems for prevailing circumstances and contexts whilst balancing the productivity-flexibility dilemma outlined above. Designing business processes requires a combination of broader supply network considerations in conjunction with a more detailed design of operations systems more locally, and the contents of this chapter reflect this. It commences by exploring capacity management issues, the relationship between capacity and demand and broader macro-­ concerns relating to the location of facilities within the supply and distribution network. It then explores operations system design at a local or micro level by presenting the range and features of operations systems and a discussion of the issues in designing processes and configuring layouts. We then explore the behavioural aspects of process design, which have frequently been shown, historically and empirically, to outweigh technical and efficiency-based factors in ensuring the overall effectiveness of operations systems. Finally, the tools and techniques of business process design are presented, with a particular focus on value stream mapping.

Designing Business Processes  17

Reconciling Capacity and Demand Capacity is the ability of a process or operation to produce a given volume (i.e. produce a throughput of units or customers) and is determined by process choices made at the system design stage. It may seem obvious that operations need to be planned and controlled within capacity constraints, although it can be observed that many organisations are prone to setting unrealistic short- and medium-term operations plans that are unachievable given the processes and resources available to them. In human terms, this is often evident in terms of excessive workloads for employees and for customers’ long queues or delays in order fulfilment. Conversely, some organisations hold a relatively large ‘capacity cushion’ (the ability to serve many more customers or make more products than forecasted average demand would suggest) to enable flexibility in operations and ensure customer satisfaction. A large capacity cushion may be maintained where operations are subjected to uneven demand rates, uncertain demands, a changing product mix, uncertain capacity losses or where capacity comes in large portions and cannot be increased or decreased incrementally. These advantages must be balanced, however, against the high capital costs of holding surplus capacity. For example, consider the major supermarkets and the ‘extra’ checkouts that are available but unstaffed. Why do they have them? They are clearly there to cope with peak demand times and ensure fast customer throughput and optimise cash flows, but, of course, they would be adding unnecessary cost if manned during times when demand is low and cash-till operators experience times where they are redundant, merely waiting for the next customer to check out. The essential relationship between the production and supply of products and services and customer demand is illustrated in Figure 2.1, which succinctly defines the challenge of capacity management. The organisation must consider forecasted demand into the future for its products and services and ensure it invests resources and expertise in establishing operational processes that can satisfy the quantity and quality demands put upon them. This needs to be done with foresight – there is a lag between a recognition of more capacity needed following increased demand and having the processes in place to satisfy this in most cases, even if the organisation resorts to subcontracting operations or working overtime which, in themselves, often negatively impact quality, actual and perceived by the customer. It also needs to be stressed that demands for different products or services using similar or the same processes need to be ‘aggregated’ to ensure there are no oversights or underestimations of demand on the process causing bottlenecks and overloaded operational processes and supply chains in practice.

Figure 2.1  Matching Capacity to Demand

18  Designing Business Processes Table 2.1  Some Capacity Measures Operation

Input Measures

Output Measures

Hospital Theatre University Retail store Airline Factory Brewery

Beds available Number of seats Number of places Sales floor area Number of seats Machine hours available Volume of fermentation tanks

Patients treated per week Number of customers entertained per week Number of students graduating per year Items sold per day Number of passengers flown per week Units produced per week Litres produced per week

The ‘appropriateness’ of capacity planning in any part of the operation can be judged by the extent to which the plan: • • • • • • •

Minimises costs Maximises revenues Minimises working capital requirements Avoids quality problems Increases speed Improves dependability Enhances flexibility … and other reasons besides.

Capacity measures must be expressed in terms that are useful. They not only have to be appropriate and fit for purpose but also must be capable of accurate measurement. They should also be flexible enough to take account and give an indication of relative uncertainty. Seasonality is often an issue with operations processes, and so any capacity management system should take account of weekly/daily demand fluctuation. Capacity can be expressed in the form of ‘input’ measures (quantity of resource input) or ‘output’ measures (number of units produced). But which of these measures, input or output, is best? The answer is contingent on the type of operation and the constraints and variables of most importance to an organisation. Additionally, the concept of ‘utilisation’ is useful as a capacity measure, e.g. ‘room occupancy levels’ in hotels, ‘load factors’ for aircraft seats, etc. Table 2.1 provides a variety of capacity measures commonly used in capacity management. Aggregate Planning Capacity is very largely fixed and determined at the process design stage through the choice of facilities, labour resources committed and investment in appropriate technologies. This is an important part of long-term operations strategy and process planning for the organisation. But we have already mentioned the notion of ‘aggregating’ and matching demand to capacity above. Aggregate planning is, in effect, the medium-term planning of processes and operations. It establishes feasible operations plans to meet demand and/or agreed output where capacity is considered relatively fixed. The steps in aggregate planning have been identified by Hill as follows (Hill, 1993): 1. Forecast sales 2. Make-or-buy decision (possibility of appropriate outsourcing, partial or full)

Designing Business Processes  19

3. 4. 5. 6.

Select common measures of aggregate demand (input and output) Develop aggregate plans (to match medium-term demand) Select the planning horizon (two months ahead? Six months? Up to two years?) Smooth demand to match capacity (can some orders or demands be brought forward or delayed) 7. Identify the means to enable short-term capacity changes to meet demand fluctuations (e.g. overtime working, additional shifts and opening hours, subcontracting) 8. Determine the final aggregate plan The aggregate planning process is an iterative process, so organisations have typically revisited their plan and adjusted/updated their plan on a weekly, monthly or similar periodic basis. Increasingly though, with modern computerised enterprise planning packages and systems, aggregate plans can be dynamically and intelligently adjusted to take account of changes in demand or process issues as and when these arise. But the principle remains the same as in the past – follow the steps in aggregate planning as indicated above. So, what might a capacity plan look like in practice? There are three basic, identifiable types of capacity plans as illustrated in Figure 2.2: ‘Level Capacity’, ‘Chase Demand’ and ‘Manage/Change Demand’. A Level Capacity plan is where the organisation decides to retain capacity at a predetermined level throughout, regardless of the level of demand. For example, a furniture assembly factory has the capacity to produce 212 tables per week. The forecast predicts little demand at the beginning of the year but a peak in the summer months, perhaps coinciding with the demand from schools for a new school year commencing in September. The factory may therefore plan to store the initial surplus of tables made when capacity outstripped demand but then sell them later in the period when demand exceeds capacity. Similarly, a telephone call centre may employ level capacity planning, ensuring consistency of operations and employment of operators, but accepting that at times of high demand, callers will need to wait in a telephone queue for longer periods of time. Chase demand is when the organisation alters the capacity to match (chase) the demand. Supermarkets use this approach with their checkout staffing. Not all checkouts are constantly open, but when a peak in demand occurs, the store takes people from other areas and puts them on the checkouts – whether on a minute-by-minute operational basis or in terms of daily or weekly planning of operations. Organisations may decide to outsource and subcontract some of their work – for example, large domestic removal companies often subcontract business at peak times for house removals at

Figure 2.2  Basic Capacity Plans

20  Designing Business Processes

particular times of the year and emergency breakdown services will employ local garages with car mechanical engineers and pick-up trucks to cope in periods of high demand (e.g. rush hours, cold winter mornings, holiday times, when more demand is put on their services). Chasing demand, therefore, requires the organisation to rearrange its resources in some way to meet the immediate to medium-term fluctuations in demand. Manage/change demand is where the organisation decides to affect the level of demand and smooth it out to better fit with its capacity. This form of capacity planning is used extensively by hotels and airlines, which tend to have very fixed capacities (a finite number of planes and seats or a number of hotel rooms) and are not able to subcontract extensively or increase capacity by flexing employment numbers or working hours. The most obvious form of managing demand is the use of variable pricing mechanisms such as special offers to increase yield or occupancy rates in periods of lower demand or increasing the price when high demand occurs to ensure high returns and contribution to profit and reduce the demand to manageable proportions. Modern-day internet-based booking systems manage the demand intelligently and will adjust prices dynamically to reflect the number of bookings made and the availability of services, based upon set algorithms in the sales order processing and capacity planning software. Another form of managed demand capacity plan is the use of appointment systems, for example at hospitals and doctors’ surgeries, to level demand to match the availability of specialist medical staff and equipment. The three ways of reconciling capacity and demand described above are seldom used in isolation. Organisations frequently use two or more of these in their capacity planning logic, often at different times of the day, week or year. So, for example, in the UK, supermarkets have different manning levels throughout the summer holiday months when compared to the lead-up to Christmas, as during the summer holiday period fewer people shop compared to the Christmas rush (except, of course, for supermarkets located in holiday resorts!).

Location Choices The choice of location is a senior management decision. It is vital that organisations carefully consider the implications and risks of selecting the correct geographical region/location. Operations personnel can, and often do, participate in this decision process and offer a number of factors that influence the eventual choice of process location. When choosing a new location, it is important to consider where the facility under question lies within the physical distribution (or logistics) chain and wider supply network. The distribution systems for different products and services vary considerably, but a resource supply network would comprise several tiers, including labour supply for services, raw materials processing, component processing, manufacturing, wholesale and retail. The more ‘upstream’ a particular operation is in the supply and logistics network, the closer to the source of ‘resources’ the location will probably need to be. Likewise, the further downstream the operation, the nearer it tends to be to the customer to allow for speed and flexibility in delivery. This also means that upstream processes will have fewer locations than close-to-consumer downstream processes. As well as proximity to raw materials and upstream suppliers, the location of upstream processes for larger international organisations is normally subject to some form of PESTLE analysis. This technique was initiated by Aguilar (1967), and evolved into a balanced view of political, economic, social, technological, legal and environmental factors. Whereas downstream processes

Designing Business Processes  21

proliferate as the location of processes and services need to be close to geographically spread customers and consumers in order to ensure speed, fast response times, flexibility, agility and dependability in response to orders or requests made on the processes. The features of a typical resource supply network and distribution system are as follows: • • • • • • •

Economies of scale by concentrating upstream operations away from customers and suppliers/close to key suppliers. Wholesalers/resource suppliers keep large stocks from many suppliers, allowing retailers a choice of goods. Wholesalers located close to retailers to ensure a short lead time from order to delivery. Processing separated from warehousing, retailing, etc., allowing organisations in each tier to develop and use their own expertise. Manufacturers need not carry large stocks of finished goods. Retailers carry less stock as wholesalers offer reliable delivery times. Wholesalers place large orders and reduce unit prices.

Classification and Features of Operations Systems Operation processes cover a wide range of different situations. One could argue that each process has its own distinctive features and so generalisation to develop any form of system design theory is impossible. However, there is a need for a rationale for classifying operations systems so that each case is not treated as separate and unique. The parameters shaping systems design have been identified as ‘process tasks’ (the organisation of work), ‘process flow’ (the physical layout and arrangement of facilities) and ‘demand’ (its level and pattern). Generally speaking, low or unique volume processes, such as those in project-based organisations, specialist and professional services and craft-based production, tend to be product focused in their organisation of work, where the operator or person working in the process tends to accomplish all or most of the operational task, and facilities tend to have a fixed position layout. Medium-volume processes and those with intermittent demand (which, admittedly, covers a very wide spectrum) tend to have more division of labour in their work organisation and, therefore, tend towards functional layouts, in which products or people in process move from one functional area to another whilst ‘in process’. Examples here include many office and hospital layouts with a departmental type setup and the batch manufacture of components in the auto industry. High and continuous demand provides the organisation with the potential for more extreme divisions of labour, where processes are laid out with a sequential flow and the job of work for operators is very much task orientated, where the work is broken down into small units of work. Think here of fast-food restaurant processes and other mass service operations, such as flowline working in assembly industries. Figure 2.3 provides a typology of process types derived from the logic above, with specific terms used in the service and manufacturing industries indicated. The parameters of process tasks, process flow and volume are labelled as axes, and the features of each are shown against different types of operations – from project through to continuous processing operations in manufacturing and the three types of service operations: professional services, service shops and mass services. There are two other points to highlight from Figure 2.3. First, the ‘variety’ of service or goods production is juxtaposed against

22  Designing Business Processes

Figure 2.3  Typology of Operations Processes

‘volume’ of production, illustrating the inverse relationship between these parameters (high volume operations are often characterised by low-variety product environments, and vice versa). Second, the figure illustrates the logical ‘line of fit’ through the diagram if viewed as a graph, indicating that processes should be designed to ensure that they sit on or close to this line of fit depending on their characteristics (the parameters on the axes) for productivity and cost-effectiveness reasons, unless of course the organisation is striving to radically differentiate itself in some way from its competitors by designing or adopting processes that are away from this best-fitting line. An example helps in this latter case: it is generally regarded that children’s soft toys are most efficiently produced in high-volume factories, ensuring low cost for the consumer. However, one or two organisations have opened stores where the consumer can ‘build their own’ toys and personalise aspects of the products. This results in a much higher purchase cost for the consumer, but many are willing to pay extra for the differentiated experience of doing the final assembly themselves and the resultant personalised product.

Facilities Layout Design Other factors come into play in the design of processes, and in particular processes in service industries. The conventional typology of process types explained above focused

Figure 2.4  Visibility Considerations for Service Processes

Designing Business Processes  23

on three of the four Vs covered in Chapter 1 of this book, but (apart from considerations implied in the differentiation factor away from the line of fit) it does not really cover the ‘visibility’ element of the 4Vs. Figure 2.4 indicates differences between service and manufacturing processes and how visibility of the process by the customer impacts the design of these processes. In service processes, it is useful to distinguish between ‘front’ and ‘back room’ operations. This is because in a high proportion of service processes, the customer, client, patient or definition of a person is physically, virtually (i.e. real time/synchronously) present within the process and operations are performed. Thus, the customer, client, etc., ‘comes’ to the service in many cases, not merely the service product going to the customer (as we would expect in, for example, traditional, little-­ servitised manufacturing operations). This means the process and the environment of many service operations need the customer to be considered in designing the environment of the service operations so that they receive a high-quality experience. Of course, many processes for services can be operated as backroom activities, where the customer does not venture and has no clear visibility. Here, the process is best designed to ensure cost-effectiveness and efficiency, akin to the engineering-influenced design of factory operations. This distinction between front and back rooms also has consequences for the training and practice of operations and employees. Front-room and real-time operators meet with customers and clients directly and so, ideally, need to be competent in dealing with customers and clients as customer-facing individuals. This requirement is not so evident or critical for backroom staff.

Forms of Process Design Several key differences exist between service and manufacturing operations, including the nature of the product, customer involvement in the ‘production’, the importance of the time factor, aspects of quality control and assurance, the issue of inventories (none for services) and the very different distribution channels. A further complication with services is that production and consumption tend to be simultaneous. As the service process can be seen as part of the marketing mix, the service manager needs to be an operations and marketing manager. As service organisations do not tend to have clearly defined functional areas, the management of services can be highly complex. In general terms, the business processes can operate at two extremes: pure manufacturing (tangible product, with little or no contact with customers, e.g. mining, heavy engineering) and pure service (intangible product, with a high level of contact with customers, e.g. medical, legal, dental or professional services). The service package of most organisations is somewhere between these two extremes. To translate a service operations strategy into operational processes, it is necessary to define the ‘service concept’ and be clear on this. The service concept is the set of expected benefits that a customer or client buys to meet their needs and requirements; it is the overall intention of the service as seen from the customer or client’s perspective. This translates into several component parts that, together, comprise the ‘service package’. The service package typically comprises two main components: 1. The physical items, e.g. food in a restaurant 2. The part that involves contact with the customer, e.g. cutting of hair For example, an airline customer is influenced by seat comfort; meals in flight, attitude of cabin staff and boarding/disembarking process. If travelling on business, the passenger

24  Designing Business Processes

may want to work on the plane, whereas, if they are taking a holiday, the passenger will probably want to relax and possibly enjoy the in-flight entertainment system. There are also clear differences in the expectations of first-class, business-class and economy passengers. Thus, the airline company needs to provide a complete service package to satisfy the diverse needs of all its customers. Once the service package is designed, it is important to specially define standards of performance when the process is operational. This is because customers’ perceptions will vary. Usually, setting standards for the service contact elements is more difficult than setting standards for physical goods. Often, the individuality and intangibility of the service make it difficult to specify standards.

Behavioural Operations The development of management theory through the twentieth and into the twenty-­ first century indicates clearly that the effectiveness and efficiency of operations processes are not merely major factors in ensuring well-engineered design in terms of cost and efficiency. They are also impacted (some would say made or broken!) by the people working in these systems. Generally, ‘good’ process design and layout should ideally ensure that throughput times and costs are minimised by reducing movement, handling and inefficiencies. But effective process layouts should also address the need for ease of supervision and control by better design, enable flexibility and resilience to disruption and should (possibly above all else) pay attention to people at work and relationship issues. All this is to ensure the process continues to run smoothly and the quality of service or product is maintained. The process of designing, or of making a process choice, was conventionally based upon what might be termed ‘conventional engineering and systems wisdom’, often emanating from the view that process design is solely a technical concern. However, nowadays, a wider range of factors must be considered in the design and choice of processes, especially given that many competing organisations use their processes as a source of competitive advantage, providing order-winning criteria such as speed and response, agility, quality of provision, flexibility and choice, etc. Process design now tends to not merely consider the technical and volume/capacity aspects, but also wider strategic, market, organisational and human issues. From the 1970s onwards, theorists and practitioners have sought to develop alternative approaches to a fixed position, functional and line form layout in the organisation production and the work of employees. The broader, more business-oriented approach to process design outlined above has resulted in the development of innovative new systems. Two earlier examples were the development of ‘Group Technology’ (GT) and ‘Autonomous Working’. Group Technology and the Emergence of Cellular Layouts The concept of GT (also referred to as ‘cellular production’) was developed as an alternative to functional layouts as used in batch operations. It led to the use of the term ‘factory within a factory’, and this principle was later extended to the application of cellular layouts in services operations, an example being the shift from functional to ‘store within a store’ forms of layout in department stores and other retail environments (including food courts in large shopping malls). Parts, products and/or services

Designing Business Processes  25

are grouped into ‘families’ based on similarities in appearance, type, customer requirements and preferences or processing requirements. A cellular arrangement of processes has a number of important implications for work design. First, the use of cells enables discrete parts of the business to be dedicated to the production of products and services for distinctive customers or markets, even for discreet individual customers. Cellular layouts can significantly increase the customer or client focus within a business or public organisation and, importantly, install this within the people working in the cell who can now identify and relate to their own external customers and markets. The result of this is that although initial attempts at cellular manufacturing were driven by technical needs and desires, most cellular process designs today are driven primarily by the need to be more market focused and flexible to customer demands. Autonomous Group Working Autonomous Group Working was developed as a direct attempt to overcome the psychological, relationship and sociological problems associated with flowline production and short cycle tasks where little opportunity existed for job rotation and enlargement. In autonomous working, operators work independently of one another or are arranged into a number of small groups that, to achieve high-volume production, may be duplicated and identical within the operations of the organisation. Early examples and experiments with autonomous working occurred in the 1920s and 1930s in the classical human relations research under the banner of the Hawthorne Studies (e.g. see Roethlisberger and Dickson, 1939). Service operations have, in parallel, seen and sought to achieve the benefits of organising workforces into small, self-sufficient teams in appropriate situations. Like cellular operations, group working is best seen as a hybrid system. Group working is geared towards the breakdown of large, monolithic processes, such as production flowlines and large bureaucratic work organisations, in favour of smaller team working where individual and group tasks are performed independently rather than as just one ‘cog’ in a set of totally interdependent tasks within a large operation. In group working processes, employees are often trusted to self-organise and manage their activities. Sometimes the control over work might be that a certain quota of production volume is expected by the group in a set time period (usually a day or a week). In many environments, the control may be staff evaluation and appraisal systems, thus assessing performance over a longer term rather than the immediacy of day-today operations. This inevitably leads to opportunities for the rotation of tasks or more radical changes in the way work is performed should the operators or personnel desire. Responsibility for planning and local general management devolved from functional specialists and managers to the group level can also provide job enrichment. Finally, payment schemes are normally based on group, not individual, performance. Autonomous working, however, has been subject to some criticism. First, the productivity of auto producers such as Volvo, who have widely adopted group working, is frequently questioned in comparison to the most efficient Western and Japanese producers. Second, there is an argument that job rotation, enlargement and enrichment can take place in conventional processes and that group working is not the only way to make the work more fulfilling. Finally, it is widely accepted by advocates of group working that this form of working does not function satisfactorily in every national labour market and social context.

26  Designing Business Processes

Process Analysis and Value Stream Mapping Process analysis identifies and can be used to develop process maps for three different types of flows in the operations system, namely the flow of materials, the flow of people and the flow of information. It is useful to think about the processes involved in the operation of an airport, where all three types of flow are very apparent. Probably the most obvious flow is the movement and transit of passengers (people) around the facility, from arrival through check-in and security procedures, into the passenger lounge and shopping area and finally to the gate and boarding the plane. Simultaneously, there are flows of materials that form processes and need to be designed, including the flow of passengers’ bags from check-in to the plane for departures and from the plane to the baggage carousel for arrivals. Also, consider the movement of goods into the shops in the airport, and food both for restaurants and food outlets as well as onto the planes. Finally, information flows abound, including passenger details from check-in, security information, integration with airline schedules, expected arrival and departure times, etc. All these flows can be mapped and analysed to examine the design, productivity and efficiency of operations and their myriad processes. Process mapping is used in the emergent design and improvement of existing processes. Simply put, a map is developed of the existing process (current or ‘as is’ map), which is then analysed to identify areas for improvement. A new map is then developed with proposed or ‘to be’ implemented. This technique is also known as ‘value stream mapping’, i.e. mapping out the processes, identifying those activities that add value and improve these and eliminating non-value-adding activities. Within flowcharting, several flowcharting techniques and conventions can be used. Traditional techniques of process mapping were developed by production management specialists in the early twentieth century, and later process mapping techniques were similarly developed by systems analysts to improve the design of information systems and their inherent flows. The symbols used for both are illustrated in Figure 2.5. Process redesign underpins the practice of Business Process Reengineering (BPR), developed in the seminal text by Hammer and Champy (1993). BPR reviews all aspects in a single coordinated approach (i.e. people, process, technology and organisation) and

Figure 2.5  Some Conventional Process Mapping Approaches

Designing Business Processes  27

seeks performance breakthroughs through radical and discontinuous improvements, not merely incremental change. BPR adopts a process perspective of the business, whilst other approaches (it was argued by Hammer and Champy) generally retain a functional or organisational perspective. The overall intention of BPR is to have processes containing only those activities that add value. It has been much criticised, primarily as a return to scientific management with a little account of the human issues in organisation design and the organisation viewed as a set of mechanisms (business processes) that can be ‘engineered’ and primed for maximum efficiency. Furthermore, many people defined BPR as downsizing, yet another gimmick to exert power, influence and remove labour. Nonetheless, the basic logic of analysing the value streams for efficiency, increasing value and cutting our costs and non-value-adding activities wherever possible is a persuasive concept and has been accordingly used to develop many of the most efficient and customer-focused processes in operation today. The emphasis on waste removal of non-value-adding activities also chimes with the logic underpinning the need for lean operations and processes. Figure 2.6 provides an example of value stream map. A value stream map is, essentially, a pictorial representation of people, information or a material flow process, or a combination of these into one diagram. It considers the whole value stream from the start of the process to the end and identifies nonvalue-added activities and times between processes. In doing so, it helps in process design and redesign work to identify improvements and develop an implementation plan for these improvements. The approach involves developing a process map of the existing operations (called the ‘current state map’ or ‘AS-IS map’), critically analysing this for ways to eliminate or reduce non-essential tasks and then developing the improved process design in a ‘future state map’ (alternatively known as a ‘TO-BE map’). An improvement plan is then developed to enable the implementation of the new process design, bridging the gap between the current and future states of operations.

Figure 2.6 Value Stream Map of a Factory Process (Identity of the Original Organisation Removed)

28  Designing Business Processes

Chapter Summary One can appreciate from the contents of this chapter that the organisation of operations and its inherent processes have historically been a topic of immense debate and interest to systems designers and social scientists alike. This is especially true with respect to balancing the technical and efficiency needs of the processes with the impact on people working in the operations systems and the delivery of quality services and products to customers and clients. The relative features of the traditional forms of process designs have been questioned over the years, which has led to the emergence of ­peopleand customer-focused forms of operations design, including group working. And, of course, the design of service operations processes have particular challenges. The chapter finally covered process mapping and value stream mapping as key techniques in the analysis of processes, providing a basis and set of techniques for process redesign and improvement.

Reflective Questions • • • • • •

Why is the design of service processes particularly challenging? Define capacity from an operations perspective? What are the three types of capacity control? What is the typology of operations processes? What is process mapping? What is value stream mapping?

Example: Operations Planning Principles Sport Venue Operations We had to set out planning principles to start with. Everyone knew what we were trying to achieve [building a sports stadium], how we were trying to achieve it and why. And that was our blueprint of how we were going to put the event together. From those initial planning principles, it became very apparent what our plan was and how we were going to go forward. We then developed a series of venue operational planning sessions and as they went on throughout three years there were multiple iterations. So, this was very strategic. We came up with a schedule of accommodation and matrix of responsibility, a set of principle documents that are applicable to all and every situation and everyone should be working by them. It was really important that we got that right to start with, and we took not only experience from our transfer of knowledge system which runs across games, but also brought in my experience from different national governing bodies that I’ve worked for, different events companies and we also linked in the corporate side of things as well. So, it was key that we got those planning principles in place and that was the strategic part of it.

Example: Capacity and Demand Planning Sport Event Management When organising running events [running races], capacity is a huge part of knowing what we can do and are capable of, and what we find is the greater the capacity the more issues come to light. So,

Designing Business Processes  29

if we’ve a larger event, although it has a bigger budget, we’ll have challenges that will impact upon the smooth running. Like a certain supplier stretched to their maximum, so we’ll have to bring in additional suppliers for the same thing – such as enough portable toilets for 26,000 people as we need a set number of toilets on the run route and in the start and finish areas. Also, as sports events like running have got so big the use of race stewards is very important. We need to ensure that the roads are secure and that we’ve got enough stewards to do that. We’ve had to go to four different stewarding companies rather than one in the planning phase, and it’s a lot more complicated because then you have four key contacts at these suppliers to talk to rather than just one. So, the larger you get, the more complex it becomes in the planning phase and the design phase because you’re then having several meetings with lots of different suppliers, who don’t always pay attention to everything that’s communicated, which is why we communicate in many forms to ensure key information does not get lost, i.e. face to face meetings, briefing documents, emails, calls. Also, as there are hundreds of stewards on the day of the event, the communication on the ground must be well thought out to ensure any problems that do arise are managed quickly.

Example: Service Design Healthcare Services Operating theatres are both a production line and a service, in that you’ve got poorly patients coming in one end, you perform an operation on them, then you’ve got well and fit patients going out the other end. So, you can view that as a production line and manage it as a production line. However, because you’re not dealing with widgets, you’re dealing with real people, you must then add on the service element to it as well, which as you can imagine complicates things because the widget has a voice, the widget has feelings and the widget needs to be dealt with in a certain way. That means that it complicates the management of the operations much more than in a traditional factory setting. But also, because you’re actually transforming a person, it makes it more complicated than most traditional services might be. Now there’s a big parallel between things like getting your haircut and having a surgical operation. You go into a setting, and you are transformed in some way, albeit there are different degrees of severity and seriousness of the transformation, and it’s interesting that the NHS are quite reluctant to look at places like hairdressers for examples and for good design practice. However, the rest of the service sector industries look at the health service and steal their good examples.

Example: Layout Design The best airport design I’ve ever seen is in Tel Aviv, Israel. It’s designed so you slope down regardless of whether you’re arriving at the airport or departing. This makes it so much easier to wheel a suitcase, it really is a pleasure to travel through. One of my least favourite airports is Venice, because it’s full of carpets! This sounds like a small thing, but it makes it very difficult to move your luggage around, because of the additional drag on the wheels. Plus, I’ve noticed that they’re very difficult to keep clean! Who puts carpets in an airport? Who thought that was a good idea!

Further Reading • • •

Aguilar, F.J. (1967) Scanning the Business Environment, Macmillan, New York. Gilbreth, F. (1911) Motion Study, D. Van Nostrand Co, New York. Gyllenhammar, P.G. (1977) People at Work, Addison-Wesley, Boston.

30  Designing Business Processes • • • • • • • •

Hammer, M., Champy, J.A. (1993) Reengineering the Corporation, Harper-Collins, New York. Hayes, R.H., Wheelwright, S.C. (1984) Restoring our Competitive Edge, Wiley, New York. Hill, T. (1993) The Essence of Operations Management, Prentice Hall, New York. Johnston, R., Shulver, M., Slack, N., Clark, G. (2020) Service Operations Management, Pearson, Harlow. Porter, M. (1987) From Competitive Advantage to Corporate Strategy, Harvard Business Review, May/June, pp. 43–59. Roethlisberger, F.J., Dickson, W.J. (1939) Management and the Worker, Wiley, New York. Slack, N., Brandon-Jones, A., Burgess, N. (2022) Operations Management, 10th Edn, Pearson, Harlow. van Looy, B., Gemmel, P., van Dierdonck, R. (2013) Services Management: An Integrated Approach, 3rd Edn, Pearson, Harlow.

Useful Websites • •

• •

https://optimoroute.com/capacity-planning. Provides useful guidance and some interesting case examples on capacity planning and managing operations to meet demand. www.lean.org. The Lean Enterprise Institute’s website provides useful guidance and advice for improving process designs. The section on value stream mapping is especially helpful. At the time of print the specific webpage for this was www.lean.org/lexicon-terms/ value-stream-mapping. www.servicedesigntools.org. An openly available set of tools and online classes to assist designers of service operations and processes. www.tavinstitute.org. The site of the Tavistock Institute, pioneers of behavioural operations and sociotechnical thinking and the need for effective work organisation and job designs. Their pages provide a wealth of information and resources useful for the design of people-based operations processes.

3 Developing Service and Product Value

Figure 3.0  Conceptual Model of Operations Management

Introduction Traditionally, the development and design process of new services or products, or the timely redesign of existing ones, is the lifeblood of most organisations, especially those operating in competitive markets. However, the initial innovative idea or intelligent identification of market need does not, by itself, guarantee a successful service or product. If the service design or product provision is infeasible and requires excessive investment, or if it is not transferred from concept to delivery in an efficient way, then it is doomed to failure from the start, with severe consequences for the whole organisation (financial, reputation, etc.). The operations manager, therefore, must have timely inputs into the design process to ensure that logical decisions are taken regarding its operationalisation. One of the ongoing challenges for any operation manager is the coordination and control of both tangible and consideration of the intangible characteristics when developing a new service or product. Products such as laptops, automobiles, buildings, furniture and clothing

DOI: 10.4324/9781003314998-3

32  Developing Service and Product Value

take the simplest physical form. Whereas an intangible characteristic of the product or service is often more complex to manage and coordinate when it is non-physical, as it is unpredictable in terms of managing value (patents, branding, trademarks, knowledge and reputation). These factors must be considered when designing new products and services that form part of the value proposition. This chapter emphasises the impact of value through the evolution of existing designs throughout the service or product life cycle as well as the wider portfolio. We explore managing the design process and showcase the techniques of quality function deployment. Sections then cover aspects of liability, mass customisation and service value and finally service modularity is discussed.

The Value Proposition Good service or product design is often determined not only by the quality of the output but also by the economic, environmental, political and social impact of the services or products. A team-based approach, focusing on improving design, therefore seems appropriate, which involves participation and involvement from team members from a range of functional backgrounds. Value analysis (VA) is such an approach. VA is an analytical technique that purports to examine all the cost components of a product or service in relation to all its functional and quality elements. VA is a technique applied to the improvement of existing products and services. However, once its concepts have been used and appreciated by team members, these can be extended to the design of new products and services. The objective is to reduce the direct cost of the product/service whilst maintaining or improving its value to the customer. The essence of VA is that it uses a multi-­d isciplinary team whose members come from different functions and specialisms within the organisation. VA operates by identifying value features or specific functions of the product (economic, technical, aesthetic, ergonomic and environmental), examining alternative ways of achieving these and choosing the way that entails the least cost coupled with maximum satisfaction for the customer. The VA team tackles the project by progressing through five stages of product redesign analysis: familiarisation, speculation, evaluation, recommendation and implementation. Familiarisation All team members should become fully familiar with the product/service under analysis and its components and so need to consult drawings, specifications and cost breakdowns and see the physical parts and their construction. The team can draw on the expertise of its individual members, whereby the accountant might collate and explain the significance of the cost information, the designer can illuminate upon the original design concept, the operations people can detail the steps in the process, the marketing representative can give informed opinions upon customer perceptions and the value features of the product and so on. All the information gathered should be recorded for use in the next four stages of the VA exercise. Speculation This is the most creative stage of the VA process and should nevertheless be conducted in a structured way. The VA team takes each component of the product/service in turn

Developing Service and Product Value  33

and subjects it to critical examination. A checklist should be used to include such questions as ‘Can we eliminate it?’, ‘Can we use alternative materials?’, ‘Can we use an alternative supplier?’ and ‘Can we manufacture it/provide the service in a different way?’. Brainstorming techniques may well be employed to generate a wide range of uninhibited suggestions for each component, although the team should follow up any seemingly productive ideas to analyse their effect on the rest of the product/service and its overall cost and value. A smaller number of feasible or desirable changes will result from this. Evaluation At this stage, the team evaluates the design changes emerging from the speculation stage in more detail. The total effect of each alteration should be examined. Only when an alteration adds value for no additional cost, or maintains value at lower cost, will that change be forwarded for recommendation. Recommendation Normally, the team will produce a report containing their recommendations and then formally present these to senior decision-makers within the organisation. This allows for discussion and clarification of the recommended changes and those areas in which the existing product or service design could be improved. Decisions need to be taken that, in the opinion of the senior managers, will maximise design improvement, maximise cost savings or, more likely, balance each. Implementation The team should be in some way involved in following through and implementing those changes that have been sanctioned and then finish their analysis by calculating the degree to which the anticipated cost savings and increased value to the customer have been realised in practice.

New Services, New Products and Life Cycle A new service or product introduction presents a considerable risk for companies, but failure to design and present new ideas, or modifications of existing offerings, can lead to a loss in effectiveness/competitiveness and, in some cases, business/operational failure. The need for ‘new’ is explained by the notions of strategic threats and opportunities. There are many stimuli that prompt the need for new services or products, including the actions of competitors, changes in consumer tastes and step changes in innovation, to mention just three. The success of a new service or product is essential to sustain and increase an organisation’s income/viability in the future. An important concept in design is the concept of the life cycle. This concept is well known by marketing managers, but less well appreciated by operations managers. A service or product life cycle, an example of which is shown in Figure 3.1, tracks sales volume over time. The life cycle comprises four main phases: introduction, growth, maturity and decline. The life cycle often highlights important issues such as conceptualisation and idea generation. First, it shows that the life of a service or product version is never infinite.

34  Developing Service and Product Value

Figure 3.1  A Service or Product Life Cycle

Second, information regarding position or progress along the curve is required to trigger the timely development or revision of designs. Finally, it illustrates that delayed or late launches result in a fall-off in income and possible business failure, or an opportunity to execute a new service or product extension. Companies aim to manage their new activities and commonly aim to have a balanced portfolio of services or products with designs at different stages in their life cycles so that those in maturity can fund the costs of design and growth for others. Once the need for new services or products has been recognised, a decision must be made regarding the areas of potential opportunity. The strategy must then be refined in light of these deliberations, and specific new ideas must be screened and selected. Finally, the design programme must be agreed upon and initiated whilst simultaneously maintaining a commitment to any existing design projects.

Managing the Design Process When developing new services or products, several key organisational issues must be addressed, particularly with respect to the marketing, design, operational and service-­ oriented interfaces. This causes considerable problems that frequently need to be overcome in the management of the product or service through a number of life cycle programmes. Burns and Stalker use the definitions of ‘mechanistic’ organisation (to describe the qualities of what is traditionally seen as an efficient operations system) and ‘organic’ organisation (to illustrate the features of innovative design projects) (Burns and Stalker, 1966; Tidd and Bessant, 2020). The tacit knowledge qualities of a ‘good’ operations manager and a ‘good’ designer often reflect these features in their work. Operations managers seek order, stability and standardisation, whereas design and marketing see the need for change and frequent adaptation to customer needs. A simple but typical design process is shown in Figure 3.2, whereby customer or market needs are determined, then converted into a product specification, which leads on to design and development and, eventually, its provision. However, once operationalised, the market must continue to be evaluated, hence the circular iterations of

Developing Service and Product Value  35

Figure 3.2  The Product Design Process

future redesigns and product developments. Within the product design and development process, there exist a myriad of feedback iterations and reconsiderations, hence the two-directional arrows on the diagram. So, despite Figure 3.2 being simple in concept, underpinning it is a great deal of complexity that needs to be effectively managed and controlled.

Design Tool: Quality Function Deployment Quality Function Deployment (QFD) is a systematic procedure for translating the desired ‘voice of the customer’ into technical requirements and operational terms that use a ‘house of quality’ (referring to the shape of the comparison matrix; see Figure 3.3).

Figure 3.3  Quality Function Deployment – the ‘House of Quality’

36  Developing Service and Product Value

It focuses on the most important items that need to be improved and provides the mechanism to target selected areas where improvement would enhance competitive advantage. QFD integrates quality assurance into the design process – builds it in. Important components in the management of product/service design frequently include: • • • • •

Specification: detailing the exact type of service/product to be designed, the technical expectations, styling, operational needs, cost constraints, etc. Project Brief: giving wider terms of reference concerning project costs, timescales, project management reporting, etc. Solution: evolving a design solution can involve brainstorming, sketches, the use of computer-aided design (CAD), canvassing customers on alternative design options: the imaginative part of product design. Development: the testing, prototyping, experimentation and continual improvement of emergent designs. Legal Aspects: Design management requires a detailed consideration of the legal aspects of design, including product liability and patent laws.

Enhancing QFD QFD can be used as a stand-alone tool for scoping new services or products but can also be broken down from a total design perspective, such as automobiles for specific subsystems (e.g. how a car door functions, or electronic wing mirrors, airbags, central locking mechanisms). It can also be applied to more complex systems that use multiple tools and techniques, such as simulation models. It is necessary to distinguish between product development activities for which there are no existing systems and those situations where the new service or product needs to be capable of being provided within existing processes. The ‘Clausing Four-Phase Model’ (Cohen, 1995) is the most widely known and utilised of these approaches (for the complete process with all phases, see Figure 3.4). When designing products for operations, consideration needs to be given to the type of facilities and processes available, handling and storage, existing skills, the policy

Figure 3.4  QFD Cascade

Developing Service and Product Value  37

concerning subcontracting, the fit with the current product mix, current suppliers and existing materials, machine utilisation and quality standards, etc. For maximum operational efficiency in service or product development, the critical specification requirements of compatibility must be satisfied. However, a word of warning: compatibility is only one dimension in the decision. Should design be constrained in all instances using design for operations concepts? What about the important issues of satisfying customer needs and the need to encourage design creativity? Too much compatibility can lead to non-competitive products and a failure to invest in new process technology. This can inhibit the long-term development of an organisation with a reluctance to follow market trends or to diversify.

Service and Product Redesign Design should not stop with the launch of a product. It should continue through the life cycle in the form of reviews and redesign. Redesign could be prompted by a change in market needs or may occur in a structured manner with timed reviews. Product and service redesigns should not be left to evolve in an ad-hoc fashion, occurring only at crisis points. Rather, they should be a planned and proactive, not a reactive, activity.

Liability and Failure It is critical that a new product design should abide by and conform to modern product liability laws. Therefore, design work must recognise the constraints imposed by this legislation in all the markets in which the goods are to be sold. When one considers the potentially ruinous costs of prosecutions for liability, one can appreciate the critical need to consider these aspects. The most popular tool for reliability is Failure Mode and Effects Analysis (FMEA), the technique used for assessing process quality and reliability. FMEA covers both the design and process stages. FMEA can follow the life cycle not only during the development but also through the life and performance of the service or product (see Figure 3.5).

Figure 3.5  Process/Product Failure Mode and Effect Analysis

38  Developing Service and Product Value

Mass Customisation The conventional process of product development and supply chain management, which calls for adopting mass production approaches to accommodate ‘high-varietylow-­volume’ product offerings, can be addressed through the concept of mass customisation. This considers the product portfolio in terms of leveraging time-to-market, volume and variety (see Figure 3.6). Mass customisation depends on a series of external and internal factors, such as: 1. Customer demand for variety and customisation within an acceptable time and cost frame. 2. Knowledge, resources and experience must be shared collectively. 3. The ability to translate new customer demands into new products and services (see QFD), co-producing through dynamic networks. 4. Market conditions must be appropriate and provide a substantial advantage over competitors. Responding to shorter life cycles. 5. Products should be customisable through service modularity, similarity and reuse. 6. Supply chain should be ready and integrated with their supply chain. 7. Technology must be available, with integrated systems creating process flexibility. These factors have direct practical implications. Involving operations, product configuration, process and information technology and value chain network, whilst not excluding the development of a knowledge-based organisational structure.

Service Value Value has always been related to the functions and performance derived from the product itself. In terms of a perspective of service, value is rather derived from supporting and enhancing the customer’s use of products. Today’s customers are now more interested in the utility of the product or service and less interested in how the product is

Figure 3.6  Mass Customisation (adapted from Andreasen and Hein, 1987)

Developing Service and Product Value  39

Figure 3.7  Service Development (adapted from Tan et al., 2010)

used and maintained. Consumers are now offered service support to offer expert knowledge to optimise the performance of products and service design focusing on: • • • • •

Customer involvement Design of customer activities (e.g. service blueprinting) Design of service provision (e.g. service ecology, actor network) Touch points (e.g. the physical products and environment) Service experiences and service scenarios (acting out services)

This serviceability caters to product and design issues regarding maintenance and repair while embracing full life-cycle support. This service-orientated approach forms the underpinning of a business strategy and supplier–customer relationship (see Figure 3.7). The challenge is managing the product portfolio, which falls under the theme of service modularity.

Service Modularity Service modularity evolved from manufacturing and is a subset of mass customisation. A service module can be described as a system of components that offers a well-defined functionality via a precisely described interface and with which a modular service is composed, tailored, customised and personalised. This pre-packaged bundle can be mixed and matched by customers as they are linked via standardised interfaces (Voss and Hsuan, 2011). Interfaces can be determined by mapping the service, and delivery may involve human and/or digital transition from one element of the modular service to the next. The distinctive factor is the role of people who need to interface with the information of rules, guidelines, procedures and policy (module descriptors) through flexible interconnections of the service modules (see Figure 3.8).

Summary The design of services or products is a key concern for the operations manager. Though often seen primarily as the responsibility of the marketing design and service development functions, the reality is that for any organisation, successful design is only achieved

40  Developing Service and Product Value

Figure 3.8  Service Modularity (adapted from Bask, 2011)

if concepts are translated and operationalised effectively into reliable operational processes. An important consideration in any new service or product is the provision of value, and so elements of value and value management practices were reviewed within this chapter. This chapter has reviewed service and product design from an operations management perspective. Management of the design process, liability and failure and the need to pay attention to the product portfolio through mass customisation or service modularity throughout have been highlighted. Issues of concern, such as the need for service or product development and service-oriented design, were raised, but also the influencing factors of modularity and customisation across the portfolio of products and services were covered.

Reflective Questions • • • • •

What is the value proposition? What is the product life cycle? How can enhanced quality function deployment help the design process? Why is mass customisation important to the product portfolio? When should we use service modularity?

Example: Pre-operational Planning/Operational Design When I first arrived at the sports stadium as Safety Officer, it struck me that match days just happened really. Preparation meetings only happened the day before. It’s only once I’d had time to reflect on some of the processes that I realised the operations management input/transformation/ output model could be very useful. For example, internally we needed better input – we needed to start working on the plans for match day seven to ten days before the event. Like identifying what internal systems we needed, what are the key aspects, who needs to know? So, we now have an operations meeting, we call it a pre-Ops meeting, where we bring together ticketing, marketing,

Developing Service and Product Value  41

communications, community Safeguarding and all the key partners. We identify the standard issues and high-risk items – and we go around the room informing people and asking for input. It makes everybody feel that they are part of the operation, and that there would be no surprises or shocks on match day. The output from this is an operations document with the key notes on it – which moves from being a planning document, to a live document before match day. We also use a match day operations WhatsApp group – which sounds very simple but is actually really effective for communication of emergency numbers and sharing of documents and photos. We also now do a post-match debrief with the same core team, this happens after a couple of days so we know what has gone well and what we need to fix for next time. We found it was important not just to move on to the next match without reflecting.

Example: Developing Value Property Management Let’s talk about our reactive maintenance service. The existing system was designed around giving the engineers control over the system. The person who should be in control should be the customer and this has been put as second to the engineer’s control! Now, the current system works very well when we can deliver it the first time, with the materials available. So, a customer contacts us with a small problem, like loose door handles at their property. The engineer then phones them with a date and a time, and as long as they turn up on time and fix the door handles then that’s brilliant. Everybody’s happy. Where it doesn’t work is if anything happens to stop that booked appointment. Like the engineer is sick, or the previous job that day takes much longer, or different materials are needed, or another contractor is required or traffic delays. So, for anything that’s unusual our service is not as good. The performance metrics that are produced for this are either that we are excellent in the customers view, or that we could do better when the work doesn’t go well the first time. Obviously, we want to be excellent every time and make sure we deliver the service right the first time. So, the real challenge for us is keeping the customer updated at all times, every step of the way. At present we do that in a very manual manner – it has to be remembered, the engineers do it themselves. They have to remember that if something changes, they need to phone the customer and tell them. From an operations management point of view that’s a human failure point – plus, it’s a job that doesn’t need doing because we can use technology to do it for us. But fundamentally the problem at the moment is that the design of the service is wrong – at present it’s about making sure the engineers are in control and that they’re happy, whereas actually we need the customer to be delighted with what we do, and we need to remove the failure points.

Example: Developing Service Value Events Management Before we changed the systems, regardless of what the clients wanted or who the target audience was, we just put out the same sandwiches, the same types of crisps, the same drinks every single time. We weren’t looking at who the target audience were. We then had the realisation that we effectively have two different types of exhibitions to facilitate. We’ve got our trade exhibitions where people are on expenses, and we’ve got our public exhibitions where people are spending their own money. So, we needed to have a different offer, regarding the catering for each.

42  Developing Service and Product Value

For example, when we had our trade exhibitions, we decided to have really nice hot food counters where we’d sell roast carvery rolls, bacon sandwiches, hot dogs, baked potatoes, luxury coffee, more expensive crisps, sandwiches, baguettes that were made there, et cetera. This was all received well, and people were spending £10 to £15 on lunch. Whereas when we had our public exhibitions, that was far too expensive for the likes of our ‘Stitch and Creative Craft’ events. Grandmas were coming in with their own flask of coffee, and so we created a more basic offering of sandwiches, and they really liked that. It was the same with the queuing systems, we typically put the same queuing system in, regardless of the type of event because we didn’t care about how many food points were needed to facilitate the number of customers, we just cared about how many staff we had to bring in. We improved this system, so we were able to say to the client, you are going to have queues if you don’t have sufficient food points. If you pay a little bit more, you can have additional food points and it’s going to reduce your queues. If you have this kind of coffee, you’ll reduce your queues because it doesn’t take as long to make it, et cetera. You’re going to have better networking time.

So, we really started working with the client better to foresee the problems and actually explain how the operation will work and what impact that will have on event design.

Example: Service Design Festival Management The best experience I’ve had was at a little music festival where we drove onto the car park, walked straight through the gate and got into the campsite. That was a seamless entry, when they opened the gates there was plenty of space to get people through with few physical bottlenecks which is sometimes challenging in the typical rural environment [grassy fields] where festivals happen. They organised it so that the queues were quite self-explanatory. Then, when we needed to get out of the festival, it was equally well organised. Sometimes the worst thing for a festival is not being able to leave swiftly at the end – often it’s the bit everybody hates, often the most stressful. But they were really well organised, with plenty of stewards and staff helping people to get out of the car park. The worst festival experience I’ve had was one of those rare, beautiful days in the UK when it was gloriously hot. Unfortunately, the festival organisers didn’t have enough water taps dotted around the site in order that everybody can get drinks conveniently. You could get them, but you had to walk a long distance and then queue. This was really a failure of foresight, a failure of forecasting and a failure to respond to the situation. So, they obviously didn’t plan well, or did not believe the weather forecast, but also, they didn’t alter the setup during the weekend, which ran over three days. Over that period of time, if something is not going right, you have the time to fix it.

Example: Customer Value Sport Match Day Experience We really struggled when we tried to get more customers to engage with our changing service offering at the football club. It appeared to be because of a history of poor reputation, people didn’t want to engage. We even tried changing our name and that didn’t work, we had comments such as ‘who are these

Developing Service and Product Value  43

people? We’ve never heard of them’, so that didn’t work! We then tried to identify what would resonate most with our spectators, our fans, and it turned out to be the club mascot because he was always the most popular character whenever we did anything externally with all generations. So, we set up a social media account for our mascot, and our mascot started telling people, ‘Hey, do you want to come and see me on a match day?’, ‘Have you seen the player escorts, this could be you’. And because it was the mascot inviting them to be there, we saw a massive increase – we went from zero when we first started to over 1000 people involved on a match day in our first season. We were winning hearts and minds; we were doing good things and generating positive media attention about it, which was good for the organisation. Plus, we had lots of happy young people and families that engaged with the football club.

Example: Resilient System Design Cabin Crew Operations Sometimes a planned emergency may occur, when the flight crew are aware of a technical issue which may result in a crash landing and evacuation – but with sufficient time prior to landing to plan for it and communicate this to cabin crew. Time permitting, the cabin crew will give an emergency briefing to the passengers, which is like the pre-flight safety briefing but it’s more interactive, as after each instruction the crew will ask the passengers to demonstrate an understanding of what they have just been told. For example, ‘show me how you would adopt the brace position’, ‘point towards your nearest exit’. One of the focus points of this briefing is asking passengers to demonstrate how they would open and close their seatbelts, with a strong emphasis on the opening. Because, in past evacuations passengers who were not accustomed to air travel, upon hearing the command to open seat belts, reach for their sides feeling for a push release as they would in a car, rather than releasing the clasp used on aircraft seat belts.

Further Reading • • • • • • • • • •

Andreasen, M.M., Hein, L. (1987) Integrated Product Development, IFS (Publication) Ltd, London. Bask, A. (2011) Framework for Modularity and Customization: Service Perspective, Journal of Business and Industrial Marketing, Vol.26, Iss.5, p. 306. Bessant, J.R., Tidd, J. (2020) Managing Innovation: Integrating Technological, Market and Organizational Change, 7th Edn, Wiley, Hoboken. Burns, T., Stalker, G.M. (1966) The Management of Innovation, Tavistock Publications, London. Cohen, L. (1995) Quality Function Deployment: How to Make QFD Work for You, Addison Wesley, Reading. Kolarevic, B., Pinto, J. (2019) Mass Customization and Design Democratization, Routledge, New York. Peters, V.J.T., Meijboom, B.R., de Vries, E. (2018) Interfaces in Service Modularity: A Scoping Review, International Journal of Production Research, Vol.56, Iss.20, pp. 6591–6606. Tan, A.R., Matzen, D., McAloone, T.C., Evans, S. (2010) Strategies for Designing and Developing Services for Manufacturing Firms, CIRP Journal of Manufacturing Science and Technology CIRP, Vol.3, Iss.2, pp. 90–97. Tidd, J., Bessant, J.R. (2020) Managing Innovation: Integrating Technological, Market and Organizational Change. John Wiley & Sons, Chichester. Voss, C., Hsuan, J. (2011) Service Science: The Opportunity to Re-think What We Know About Service Design. The Science of Service Systems, Vol.I, pp. 231–244.

44  Developing Service and Product Value Useful Websites • • • •

https://asq.org. Has several free resources for quality management which are very useful as part of the design process. www.sciencedirect.com/topics/engineering/mass-customization. The link to use on the popular academic search engine directed toward aspects of mass customisation. https://theproductmanager.com/tools/best-product-design-software/. For a listing of best current software for designing new products. www.designcouncil.org.uk. The UK Design Council has available resources; especially useful regarding net zero and sustainability.

4 Operations Management and Digital Transformation

Figure 4.0  Conceptual Model of Operations Management

Introduction This chapter will introduce the topics of business intelligence and data analytics, with a section on operational analytics to demonstrate their pragmatic application and use. Business intelligence is an umbrella term that includes the applications, infrastructure and tools that enable the operationalisation of data – turning it into information to inform decision-making. Technology transfer can be defined as the transfer of knowledge relating to the design of processes, the provision of a service or the expertise of the support services pertaining to the operation. It, therefore, relates not only to the introduction of new hardware but also to the techniques and skills to operate it. Industry 4.0 relates to the fourth industrial revolution – more specifically, cyber-physical systems and their use globally. The application of digital technologies is a particular area of interest. All these aspects have a place within any study regarding operations management – ­especially with regards to digital disruption.

Business Intelligence Operations managers often try to make sense of data, create information, utilise knowledge and leverage wisdom in order to positively influence and control volume, variety, DOI: 10.4324/9781003314998-4

46  Operations Management and Digital Transformation

variation and visibility. Whether at the start of the operations process design (e.g. deciding to make or buy), during the provision of the service or product or indeed as part of the ‘after sales’ service support. Business intelligence accounts for the largest share of global business investment in information technology (Ransbotham and Kiron, 2017). This interconnectivity of data and information presents a strategic advantage for organisations and external networks. In terms of the allocation of resources, business intelligence systems have the capability to examine both organisational and technological perspectives, from well-defined historical databases to technology architecture through sharable platforms. The challenge is to create visibility of internal and external resources across the product life cycle (see Chapter 3, Figure 3.1) as well as make an impact across the product portfolio. Business intelligence has become a critical foundation for informed decision-making in creating greater operational flexibility, more transparent responsibilities and ultimately reducing operational risk.

Digital Transformation The decision to invest in this form of business intelligence system is referred to as digital transformation, which ideally creates seamless connectivity of technologies and people. This can result in improved productivity for the organisation and transparency across the network, but it can also potentially identify problems, vulnerabilities and opportunities critical to the operational decisions of the business. Digital transformation is crucial for sustaining competitive advantage and creating new business opportunities. Companies such as Amazon, Airbnb, Netflix and Uber have disrupted traditional business models and opted to use business analytics and data science to become nimbler in the connected, competitive digital world. The question is: to what extent can digital technologies enhance our operations? This digital transformation is happening to both services and products via new opportunities created through mobile technology, social media, data analytics, artificial intelligence (AI), blockchain, additive manufacturing, digital twins, autonomous vehicles, augmented and virtual reality. Organisations are now able to create digital operations, simulated through virtual environments, predicting the behaviour of customers and suppliers using forecasting models to create scenarios based on predictive analytics. Digital transformation requires organisations to continually challenge the status quo as businesses pivot their operations through integrating new digital technologies. There is a need to fundamentally change how individuals adopt technology, how disciplines accept technology, how organisations adapt it, and how policy integrates this technology transfer in order to change the way we operate whilst improving overall operational performance (e.g. see Figure 4.1). Whatever the scenario, the process of digital transformation is also a cultural one, affecting individuals, business functions, organisations and external networks. This especially applies to those networks that are closely related to the state of an organisation’s network in levelling-up operations through policy and practice.

Technology Transfer To actually operationalise business intelligence and digital transformation, technology transfer must be considered and understood. Companies and governments are the main

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Figure 4.1  Technology Transfer (adapted from Kane et al., 2019)

(but not the only) agents in technology transfer, which can be defined as the transfer of knowledge relating to the design of a service or product, development, distribution, supported by the service provision or expertise of the support services pertaining to the product/service, but also the techniques and skills to operate and maintain it. Historically, there are two core types of technology transfer: vertical and horizontal. The first of these, vertical (see Figure 4.2), is typical of domestic (single country based) and so-called ‘in-house’ transfer of new technology. Second, horizontal (see Figure 4.2) transfers existing technology from one context to another. In global operations, this is more common when new technologies are being transferred from industrialised to developing countries. Most transfers are hybrids of vertical and horizontal transfer: technologies invariably need to be adapted and/or refined; there will need to be a linkage between vertical and horizontal technology transfer. Technologies invariably need to be adapted and/or refined, and there will need to be a linkage between vertical and horizontal technology transfer. But should one always adapt/select technology to suit local needs or use a standardised/established technology?

Figure 4.2  Vertical and Horizontal Transfer of Technology

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The Components of Technology Transfer The first of these is ‘hardware’: the physical process technology people consider when thinking about technology (e.g. buildings, assembly lines, equipment, tools, components and raw materials). People and knowledge (humanware) reflect the fact that successful technology transfer is very much a human process of interchanging ideas and learning from them. To be successful (to achieve the set objectives in the transfer project), product, operations, equipment ‘know-how’ and training all need to be carefully considered. Finally, ‘software’, but not merely software in the computer sense; it must include manuals, procedures, documentation, information, etc.

Technology Transfer Contexts Of course, technology transfer involves many more scenarios, principally the transfer of technology: between industries, between functions, along the value chain, between suppliers and acquirers (senders and receivers) in different countries and international technology transfer. This foreign technology supply can be represented as per ­Figure 4.3. The left-hand side of the diagram represents the acquisition of technology through a one-off payment (licence fee, etc.) and perhaps the use of local agents to contextualise the transfer. This is typically for short-term tactical commercial gain. The right-hand side shows a degree of vertical integration with the purchase of a subsidiary (buying the company that makes/provides the required technology). This is commonly a strategic business decision for the long term.

Theories of Technology Transfer Traditional Theory When firms determine an appropriate mix of labour and capital, they will transfer technology to lower or minimise their costs. But there are some assumptions with this:

Figure 4.3  International Technology Transfer Channels

Operations Management and Digital Transformation  49

perfect competition; homogenous products; a high number of firms; and economic rationality. Contemporary theories attempt to overcome these limitations. Contemporary Theory A high proportion of companies compete not only on price but also through differentiation. Traditional theories are deficient in addressing this reality. Technology transfer, first and foremost, involves the transfer of expertise and knowledge, not just equipment or product technology. Well-codified technological knowledge is easier/less costly to transfer than new/unproven/disordered knowledge. Even well-ordered technologies will require face-to-face contact and the transfer of people from the sender to the recipient partner. Given the above, firms should attempt to transfer only those technologies that are well understood, or else pay a high price for the transfer.

Dimensions of Technology Transfer Technology transfer is rather an imprecise term that has several different contexts. For our purposes, we identify four dimensions of technology transfer: •

•

• •

International versus domestic TT: Transfer need not be only thought of as ‘international’ and national-boundary spanning. It goes on all the time between companies in national economies (research institutes to commercial organisations) as well as at the micro-level (from research & design/laboratory to operations). Commercial versus non-commercial: Commercial transfer of product/process know-how, but also considerable non-commercial TT, especially in relation to health, humanity, food and welfare (World Health Organization, Overseas Development Administration, numerous non-governmental organisations, third sector charities, etc.). Tangible goods versus intangible know-how: TT is most usually thought of as the purchase and/or installation of physical equipment. Of course, it can involve the transfer of knowledge, management tools and techniques – the so-called ‘know how’. Free versus proprietary knowledge: Free in the public domain (e.g. journals, scientific knowledge) versus more applied technological knowledge, which is within the domain of commercial organisations, may be protected by patents, or may be trade secrets – whose diffusion often has strings attached in monetary and contractual terms.

Elements in the Transfer Process There are a number of important elements to consider within the transfer process: • • •

Transfer item: what exactly is being transferred – product, process, know-how or combination? Who is the donor?: where is the technology coming from? Who has the proprietary rights, and is that person or organisation willing to grant access to the technology? Who is receiving the technology?: what is their existing knowledge base or skill set? How might they receive it?

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•

How will the technology be transferred?: licensing, direct purchase or how – there are many different ways, and combinations of these ways, to effect the transfer. This goes some way to explaining why TT is difficult to define.

The (Many) Mechanisms of Technology Transfer These include Turnkey (build-operate-transfer) projects; technological enclaves; licensing; joint ventures; patents; in-house transfers to foreign subsidiaries; emulation of a product or process; the purchase of naked and embodied technology; purchase of technological services; education abroad; site visits and job training abroad; international collaboration in research; published literature; meetings, seminars and conferences. Figure 4.4 illustrates the increasing levels of commitment, potential return and financial risk involved within the various formal agreements available for technology transfer. Amongst these, selling a ‘licence’ for the use of technology in exchange for royalty payments is more common in later stages, and there are issues of control. Wholly owned subsidiaries are used as a means of transferring technology to gain or maintain access in foreign markets and retain proprietary knowledge, whilst joint ventures reduce the capital cost and investment risk of the transfer process and can often enable the firm to acquire a wider range of technology. In terms of at what rate the technology can be transferred, there are many different factors. These can be identified as being production, technology and/or imitation effects, but demand from the market also influences this as well. Of course, the absorptive ability of the recipient is also a critical factor; can the technology be absorbed easily and quickly, or are the scientific and technological (including human resources) and social infrastructures not in place? See Figure 4.5. Important considerations also include technology span, the proposed number of users per technology application; technology scope, the spread of user application; few actual users, with the process characterised by ‘point-to-point’ technology transfer; and many users, in which case the ‘diffusion’ of technology becomes a critical issue. In reality, most transfers are hybrids of vertical and horizontal transfers. Technologies invariably need to be adapted and/or refined, and there will need to be a linkage between vertical and horizontal technology transfer. But should one always adapt/ select technology to suit local needs or use a standardised/established technology? See Figure 4.6.

Figure 4.4  Formal Agreements for Technology Transfer

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Figure 4.5  The Technology Transfer Process

Technology Acceptance Model One of the most influential models of technology acceptance is the Technology Acceptance Model (Davis, 1989). The framework looks at the predictability of information technology (IT/or digital) adoption through the perceived usefulness and ease of use influenced by individuals (see Figure 4.7). For example, an operations manager who perceives management systems as too difficult to navigate will be unlikely to want to adopt new technology, whilst an operations manager who interacts with technology in their own time (via social media, apps, online gaming, etc.) and views this as positive mental stimulation will be more likely to want to discover how management systems can support their decision-making. This could be through the development of blockchain and digital ledgers or trusting information within systems to manage resources and coordinate responses in the organisation, factoring in external drives and changes in business practices.

Figure 4.6  Technology Choice

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Figure 4.7  Technology Acceptance Model (adapted from Davis, 1989)

Industry 4.0 Over the last three decades, interconnected processes of globalisation and rapid technological change have profoundly disrupted the way organisations operate. Industry 4.0 (the fourth industrial revolution) is really the digitalisation of operations. It emerged in 2011 from a high-tech strategy project led by the German government, which positioned the following: Industry 1.0 relates to water and steam power that enabled mechanical production at the end of the eighteenth century; Industry 2.0 relates to the intensive use of electrical power and the division of labour in assembly lines that allowed mass production at the end of the nineteenth century and the beginning of the twentieth century; Industry 3.0 stems from the use of IT and electronics and the introduction of programmable logic controllers that enabled automated production in the second half of the twentieth century; and the goal of Industry 4.0 is to encapsulate real-time data across businesses and extended enterprises, from design to production, and to use between system elements to enhance productivity. Industry 4.0 technologies include cyber-physical systems, additive manufacturing, the Internet of Things (IoT) and smart factories. The service sector is exploring and applying AI, big data analytics (BDA), blockchain, the cloud and augmented reality and virtual reality (known as extended reality). These technologies are focused on mass productivity and performance, not only enhancing eternal factors such as customer experience, the supply chain network, the product cycle and servitisation, but also internally affecting business operations, decision-making and organisational structures, and holistically, where all business dimensions are involved (Kolagar et al., 2022). As these Industry 4.0 technologies are implemented, the sociotechnical end-to-end of the operations requires higher levels of human-technology interface to maintain the organisations core values and business goals to ensure a sustainable outcome.

Industry 5.0  and Behavioural Operations Whilst Industry 4.0 focuses on improving mass productivity and performance, through the provision of digital technologies between devices and applications, Industry 5.0 really considers the human factor (accountability, responsibility, wellbeing and job satisfaction) through the mass personalisation of internal and external networks, creating a social technological system. To enrich the predictability of data and create informed decision-making

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Figure 4.8  Scoping Digital Transformation

through the leveraging of analytics, Industry 5.0 is geared to enhancing the quality (fitness for purpose) of the operations by aligning technology with the critical thinking of humans. It focuses on bringing back human intelligence to the operations, enabling the ‘robots’ to share and collaborate with humans through intelligent workflows and systems. Another interesting benefit of Industry 5.0 is the potential for the provision of a more sustainable process, protecting the external and natural environment, see Figure 4.8. Behavioural operations management explores the human interaction of operational systems and processes. Specifically, those behaviours that impact operational performance and the ways in which controls, procedures and policy might impact performance, such as job satisfaction, motivation, ability to adapt and respond to individual differences. Of course, the goal of all this digital transformation is to provide prosperity, bringing strategic advantage whilst also respecting the boundaries of our society, our planet and the wellbeing of workers. These elements are at the centre of any operation and need careful consideration and facilitation in order to create resource-efficient and user-preferred solutions.

Summary Digital transformation and technology transfer are strategic issues often omitted from both the academic and practitioner literature. They have long-term strategic consequences for both the sending and recipient parties, as well as economic, social and political implications. Digital transformation and technology transfer equal ‘CHANGE’, and change is frequently difficult to implement in practice. For current examples, review the national and international press for the high-profile examples of technology and digital transfer successes and failures of Industry 4.0 and Industry 5.0 and the critical impact of behavioural operations in operational systems and processes.

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Reflective Questions • • • •

What is business intelligence? What is digital transformation? What are the foundations for Industry 4.0? What does it mean and where does it come from? What is Industry 5.0 and behavioural operations management?

Example: Digitisation One of the key areas where digitisation is really helping me now is using an agency for stewarding [matchday stewards required for sporting venues]. We used to have 80 stewards on our books but there was no efficient way of communicating with them – it was a very archaic system. We also had a lot of older stewards, who didn’t have a mobile phone and no email. So, the challenge was, how did we get in touch with them to say that the start time has changed, et cetera? Beforehand, I didn’t know who might turn up on the day, so I had to book extra stewards just in case some of them didn’t show up. I was regularly overbooking by 20%, just to make sure we had sufficient people on the day. We now use an agency which has designed an app, and they communicate that a certain number of shifts are available at the stadium. It also allows people to log in and log out for time and attendance, plus we can upload briefings through it. The benefits for the people using it are that there are no missed payments, the whole payment side is much faster. From our perspective it’s also more efficient and leaner. Because I don’t have to spend my Monday mornings filling in an Excel sheet with people’s hours, sending it over to wages, having them query me, et cetera. So, it’s the hours that you save, the amount of hassle it takes off you and people are getting paid on time.

Example: Digitisation Technology has been instrumental for us doing our jobs. We were luckily some of the only people in sport that continued to work throughout the pandemic [COVID-19]. We didn’t stop at any point and the only way we could have done that is through Teams [videoconferencing] on our laptops and making sure that we had the right digital tools. To be able to still do the planning phases and everything via our laptops, from the comfort of our own homes, that’s where technology has really, really helped us. It’s not perfect and we’ve had our complications with it, but it was part of our working day and our working lives since the start of the first lockdowns. We used technology well.

Example: Digital Transformation In implementing a new digital management system, it’s bringing a lot of benefits in terms of identifying the supply and demand of our products, the visibility over procurement data and a really good costing of products. The last of these is a very important element for the company – it used to take a lot of time and was not effective or accurate because people had to do it manually. This is a huge benefit itself. There is also the fact that now everyone has access to a centralised platform, which was not the case before, this speeds up the circulation of information between different teams. Of course, now that we are finalising the ability to use scheduling, this will reduce the time of communication to the customer massively, because we get live data of where we are with all the jobs. Our lead time used to be four days, sometimes a week, but now we’re working towards being able to respond on the same day. That’s a massive, massive change for the team.

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Example: Digital Supply Management Digital supply chains are a very challenging thing because you’re talking about business transformation, process transformation. Fools gladly go where angels fear to tread! A key lesson that I’ve learned, if you’re doing anything in digital spaces, is ensuring that there are very clear targets, processes, resources from both sides in the first six months of the project, and to define, agree and revise KPIs [key performance indicators] and objectives before you go too far. Because even if you do those in the contract phase, once you get started, you’ll find that they don’t work, and if you can’t measure it, you can’t manage it. A lot of data projects end up in this situation where they’re not measured but people still try managing them. Ultimately, if you don’t have KPIs you’re taking a huge risk as to whether the management strategy works or not.

Example: Legal Technologies Legal Tech is evolving at an alarming pace, ever since the deregulation of legal services and introduction of alternative business structures (ABS). As a business we have to exploit new opportunities to increase our operational efficiency and the effectiveness of lawyer time. We need to improve client experience and build a portfolio of legal products that can compete in a diverse market. In 2015, the team was a small group that mainly focussed on specific projects for clients or business as usual legal work for individual lawyers or teams in the firm. Today, we have a dedicated division of people who are responsible for the advancement of a range of aspects of legal service innovations. Some of us are tasked with tackling internal efficiencies, whilst others focus on client project work, legal tech consultancy and document automation. We also look towards creating bespoke products and keep an eye on future development through our research and development team. These initiatives are changing our business model and the way we deliver legal services. Today we offer a portfolio of legal services that can respond to a changing landscape, helping clients with regulatory change, bringing to life ideas from our lawyers and continuing to focus on new developments in legal service delivery. With a never say no attitude, our law firm has become more tech savvy, creating viable products and alternative services for our growing client list. As an innovation team, we don’t just work for our lawyers, we serve our clients and are always on the lookout for new and innovative ways of supporting our clients’ goals, this profession never sleeps and we must ensure that as a firm we embrace new ways of working. COVID was a prime example of having to adapt to a major change and rethink our engagement both internally and with clients, and was a good indicator of how prepared we are as an industry to do this.

Further Reading • • • • •

Abualqumboz, M., Chan, P., Bamford, D., Reid, I. (2020) Temporal Dimensions of Knowledge Exchanges in Horizontal Knowledge Networks, Journal of Knowledge Management, Vol.25, Iss.4, pp. 899–919. Cranmer, E., tom Dieck, M., Papalexi, M., Bamford, D. (2022) Internet of Things: Aspiration, Implementation and Contribution, Journal of Business Research, Vol.139, pp. 69–80. Davis, F.D. (1989) Perceived Usefulness, Perceived Ease of Use, and User Acceptance of Information Technology. MIS Quarterly, Vol.133, p. 319. Kane, G., Phillips, A., Copulsky, J., Andrus, G. (2019) The Technology Fallacy: How People Are the Real Key to Digital Transformation, The MIT Press, Cambridge. Kolagara, M., Parid, V., Sjödinac, D. (2022) Ecosystem Transformation for Digital Servitization: A Systematic Review, Integrative Framework, and Future Research Agenda, Journal of Business Research, Vol.146, pp. 176–200.

56  Operations Management and Digital Transformation • • •

Michalakopoulou, K., Bamford, D., Reid, I., Nikitas, A. (2021) Barriers and Opportunities to Innovation for Legal Service Firms: A Thematic Analysis-Based Contextualisation, Production Planning & Control, DOI: 10.1080/09537287.2021.1946329. Ransbotham, S., Kiron, D. (2017) Analytics as a Source of Business Innovation, MIT Sloan Management Review, Research Report, see: https://sloanreview.mit.edu/ Weking, J., Stöcker, M., Kowalkiewicz, M., Böhm, M., Krcmar, H. (2020) Leveraging Industry 4.0–A Business Model Pattern Framework, International Journal of Production Economics, Vol.225, p. 107588.

Useful Websites • • • •

www.infor.com/en-gb. Commercial site that shows the current state and examples for enterprise cloud applications. www.sciencedirect.com/topics/social-sciences/digitization. A link to the ScienceDirect academic search engine information on digitization. www.sciencedirect.com/topics/social-sciences/technology-transfer. A link to the ScienceDirect academic search engine information on technology transfer. www.sciencedirect.com/topics/computer-science/industry-4-0. A link to the ScienceDirect academic search engine information on Industry 4.0.

5 Controlling Enterprise Resources

Figure 5.0  Conceptual Model of Operations Management

Introduction Once an operations system has been designed and implemented, attention turns to its operational planning, monitoring and control on a day-to-day basis. This chapter introduces the basic concepts of planning and control. It is important to note that whilst many of the theories and concepts were developed for the control of physical stock, their use and application are equally applicable to many aspects of service operations (the key distinction is that instead of managing ‘stock’, the focus is often on capacity, e.g. people, time). Following a description of basic control theory, the management of capacity is covered in some detail as a link between longer-term design decisions and the operational planning of the system. This leads on to the process of ‘aggregate’ (or medium-term) planning, for which the forecasting of demand is an important prerequisite. At the operational level, operations planning will involve scheduling, and we shall consider some of the useful techniques developed. The introduction to planning and control ends with a review of bottleneck management or Optimised Production

DOI: 10.4324/9781003314998-5

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Technology (OPT), an important concept as it seeks to ensure continuous flow through processes with a minimum of queuing or waiting times. The second part of the chapter focuses on the control of resources and inventories (remembering that these can be more than just physical stock). The ‘art’ of ensuring that just enough assets (information, expertise, capacity, etc.) are available to satisfy requirements but that these are not excessive, tying up large amounts of working capital. This section therefore deals with ‘classical’ control and ‘economic order/batch quantity’ theory. This theory is, in effect, an attempt to balance out the costs of holding assets with the costs and consequences of running out (i.e. maintaining adequate service levels). Note that the economic batch quantity (EBQ) theory has received much criticism, particularly regarding the claim that it is an optimisation technique. The use of policies based upon EBQ has also been demonstrated as having shortcomings in practice, particularly in the face of ‘requirements planning systems’ and Japanese inspired ‘Just-In-Time’ ( JIT) and ‘Lean/Agile’ systems. A critique of statistical control and its problems in use are therefore reviewed. The chapter then turns its focus to managing enterprise resources, where we will define materials requirements planning (MRP) as the central module of most commercially available control software packages (including proprietary systems such as SAP, Sage and Oracle) before then covering manufacturing resources planning (MRPII), ERP and distribution requirements planning (DRP) applications.

Operations Planning and Control Control Theory The operation of any system can be represented by a simple input-output (‘I-O’) model (as shown in Figure 5.1), where inputs can be viewed as resources (labour, information, equipment, etc.) and outputs are the results. At a more conceptual level, the objectives of the business can also be taken as inputs, with measurements and results from the transformation process as the outputs. However, as can be seen in Figure 5.1, this system is completely open with no feedback of results from the operations systems to compare against inputs and objectives. There exists no mechanism for control. A ‘closed-loop’ system is required for effective control of operations so that outputs can be compared to inputs and the differences monitored.

Figure 5.1  An ‘Open’ System – No Control

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Figure 5.2  A ‘Closed-Loop’ System – In Control

This can then be used as the basis for corrective action. A closed-loop system is illustrated in Figure 5.2. This basic I-O model from systems theory represents any control system. The diagram illustrates the process by which outputs and results are compared to resource inputs, objectives, plans and targets. The types of control systems represented by this model include order progressing/chasing against schedules, cost control (budgeting), management of people and labour productivity, quality control and, if relevant, stock control. Capacity Management Capacity can be defined as the ability of a process or operation to produce a given volume under normal operating conditions and is very much determined by the process choices made at the system design stage (see Chapters 2 and 3). Operations, therefore, need to be planned and controlled within these capacity constraints. It is worth noting, however, that contrary to expected management practices of extreme cost efficiency, some companies hold a relatively large ‘capacity cushion’ to enable flexibility/confidence in responsive operations. A large capacity cushion may be maintained where operations are subjected to uneven demand rates, uncertain demands, a changing process mix, uncertain capacity losses or where capacity comes in large portions and cannot be increased or decreased incrementally. These advantages must be balanced, however, against the high capital costs of holding any surplus capacity. Aggregate Planning Capacity is normally fixed and determined at the process decision stage through the choice of design, layout and equipment. This might be seen as part of long-term planning. Aggregate planning is, in effect, the medium-term planning of operations. It establishes feasible operations plans to meet demand and/or agreed output where capacity is considered relatively fixed. The steps in aggregate planning are: 1. Forecast sales 2. Make-or-buy decision

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3. Select appropriate measures of aggregate (medium-term) demand 4. Develop aggregate (medium-term) plans 5. Select the planning horizon 6. Smooth out operational capacity 7. Identify the means to enable short-term capacity changes to meet demand fluctuations 8. Select and implement an aggregate (medium-term) plan Forecasting Demand Forecasting is a prerequisite for the management of operations because, without some reasonable estimate of future requirements, it is impossible to plan. The basic concept for all types of forecasting is looking back at past values (normally demand) and then extrapolating these into forecasts for the future. ‘Short-term forecasting’ is mostly employed in the management of day-to-day operations. The two most common short-term forecasting techniques used are the ‘moving average’ and the ‘exponentially smoothed average’ methods. Scheduling A schedule is the plan for performing a series of tasks set against a given timeframe. It is often known as the ‘production plan’ and is usually developed in close liaison with the sales and marketing functions. Note that whilst the language used originates from manufacturing, its application is equally relevant to service operations. It is useful to define two terms relevant to the scheduling task. First, ‘loading’ must be distinguished from scheduling. A load is the immediate timetable of work for a process and is usually regarded as having a shorter timescale (minutes and hours) than a schedule (days and weeks), hence the term ‘loading’. Second, the term ‘sequence’, meaning the order in which tasks or orders are to be performed, is often used within scheduling. Usually, the scheduling task is one of deciding the sequence of tasks based upon some form of order prioritisation within the constraints of capacity. Although it is relatively easy to recognise the scheduling task, it is sometimes not appreciated how complex an activity this can be. Scheduling problems are, in practice, extremely difficult to solve, as can be seen from the following example: •

•

Consider 3 orders (A, B and C) to be scheduled, or customers/clients waiting to be served in a process. The possible permutations of the order in which these are scheduled, assuming they pass through the same process, are: • ABC (i.e. A first, then B and finally C), ACB, BAC, BCA, CAB and CBA • = 6 sequences (can be calculated as 3! = i.e. 3 × 2 × 1 = 6) However, consider the permutations when there are 20 orders or customers to sequence and prioritise. Here the numbers of alternative sequences are: • 20! = 2,432,902,000,000,000,000 or 2,432,902 billion!

The situation is further complicated when one considers the following, which tends to occur in dynamic operations: •

Facilities are rarely all vacant and ready to be used when the schedule is decided

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• • • • • • • • • • • •

Sequences and operational requirements are rarely the same for all orders, products, customers or clients – and a single order of processes does not always need to be adhered to Estimated process times vary considerably in practice Facilities (people, equipment) do sometimes fail! Furthermore, schedules need to consider and make contingencies for: delivery due dates existing commitments asset availability variations in process efficiencies variations in capacities between departments planned downtime (e.g. holidays and maintenance) the possibility of absenteeism the levels of process failure resulting in rework and recovery, if needed

Under such circumstances, it is not practical to seek optimum solutions to scheduling problems; we could never expect to always find the ‘best answer’. Instead, production and service planners use a series of rules and logic to decide upon ‘reasonable solutions’. The usual process is to ascertain exactly which criteria the schedule should seek to achieve. Frequently, in practice, the schedule will be developed using simple priority sequencing rules, the most common of which include: • • • •

First come, first served Shortest processing time first (SPT) Earliest due date first Static slack (time to due date minus processing time)

Priority rules tend to be used in general cases. However, heuristic algorithms can be utilised for developing schedules. The most well-known is Johnson’s Algorithm for minimising total processing time when loading any number of jobs onto two processes, the method for that is shown below. Other scheduling algorithms include Johnson’s Algorithm for ‘n’ jobs on three processes, so-called ‘branch and bound’ techniques (including ‘dynamic programming’) and the ‘line of balance’ method. Method for Johnson’s Algorithm: 1. 2. 3. 4.

Find the SPT for operation 1 or 2. If the shortest time is on 1, place that job first; if on 2, place last. Apply steps 1 and 2 to the remaining jobs In the event of a tie, priority goes to the job with the shortest time on the other non-tied operation.

Other methods have been devised for scheduling. MRP has as its main objective the development of the ‘Master Production Schedule’ (MPS). JIT techniques may also have a bearing on immediate process loading. Another development in production planning and control is that of ‘OPT’.

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Optimised Production Technology (OPT) Based upon the ideas of Eli Goldratt (see The Goal by Goldratt and Cox, 2014), OPT is an approach to scheduling that can be neatly described as the ‘management of bottlenecks’. The basic premise underpinning OPT is that it is pointless to concentrate on increasing throughput at all processes within the total operation because the output rate of the system is determined by the rate of throughput at one or two bottlenecks in the system. The idea behind OPT is that scheduling activities and process improvement activities should concentrate on 100% loading at these bottlenecks and then try to increase output at them through continual improvement. The rest of the system, the ‘non-critical activities’, only needs to be loaded to support the rate of throughput at these bottlenecks (the ‘critical’ activities). Obviously, improvement in throughput rates on the critical activities may cause the bottlenecks to shift to other activities in the system, changing these to critical and increasing the output of the process.

Inventory and Resource Management Purchasing and Resource Management Purchasing and resource management is the (science-based) art of ensuring that just enough assets are available to economically meet both external and internal demand commitments. This section will introduce the ‘push’ systems, usually classified as statistical stock control. These include two specific policies, reorder level (ROL) and reorder cycle (ROC), and MRP. The next chapter will cover Japanese-inspired ‘pull’ systems, including JIT, lean, agile and resilient operations. Pareto analysis (or the 80/20 rule) is the classification of items using ABC categorisation and is used extensively within purchasing and asset management. • • •

‘A’ class items: 20% of volume = 80% of total value ‘B’ class items: 15% of volume = 15% of value ‘C’ class items: 65% of volume = 5% of value

This identifies the important few and the trivial many for the organisation (e.g. 80% of value with just 20% of available volume/asset/capacity). Stock (Asset) Control Parameters The design of any stock or asset control system is shaped by several parameters that result in a balancing of (often conflicting) requirements. These parameters are described below. Demand (A) The design of any stock/asset control or purchasing system needs to consider the following aspects of demand: • • •

The average demand per time period, usually expressed per annum (A) The variability of demand per period, usually expressed as a standard deviation (σ) The ‘lead-time’ order to receipt, of stock/asset (L)

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Ordering Costs (Co) There are fixed costs involved each time a separate order is raised. If orders are placed too frequently, these costs become excessive. Storage Costs (iCm) The costs of ‘holding’ material/assets, including direct costs of storage, deterioration, obsolescence, insurance and opportunity costs. Expressed as a percentage (i) of the prime cost or price paid for materials/assets (Cm). Service Levels The efficiency of any stock/asset control system is indicated by the level of service it provides to its customers (internal and external) in satisfying demand. In designing a stock/asset system, the company usually chooses the service levels it feels are appropriate to satisfy the customer but do not result in excessive costs of holding. The most common service levels adopted in practice are 95% and 99% (i.e. a 5% and 1% risk of a stock, respectively). These parameters, and the mathematical notions given (in brackets), are used in the design of statistical inventory control systems. The economic-order quantity (EOQ) theory is used to provide a cost-effective amount to purchase. See Figure 5.3. EOQ =

2A Co i Cm

The formula for calculating the EOQ: There are two basic inventory control policies commonly used: ‘ROL’ and ‘ROC’. Reorder Level Policy The ROL policy involves placing a fixed order, the EBQ, to replenish inventory when the stock level for a certain item falls below a fixed value, the ‘ROL’ (M). It requires the

Figure 5.3  Economic Order Quantity (EOQ)

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calculation of two values: the order quantity (EBQ) and the ROL (M). Figure 5.4 illustrates the operation of a ROL policy stock system. The formulae for these are as follows: EBQ =

2A Co and M = AL + kσ √ L i Cm

where A = average demand per period L = lead time in time periods k = no. of std. normal deviates (NB: k = 1, Vendor Service Level = 84.1%; k = 2, VSL = 97.7%; k = 3, VSL + 99.9%). So, the ROL policy incorporates a fixed-order quantity (EBQ) and a variable-order cycle (time between orders), as triggered by depletion below M. Reorder Cycle Policy Under this type of system, an order is placed at predetermined times with a fixed period between orders. At each periodic review, the stock held is compared to a calculated ‘maximum stock level’ (S), and the difference between the two becomes the order size. So, contrary to the ROL policy, ROC has a variable-order quantity and a fixed-order cycle. The ROC system requires calculation of the review period (R) and the maximum stock level (S). The formulae for these are as follows: No.of reviews per year, r =

Ai Cm 2 Co

therefore R = 52 r (weeks)or 12 r (months)

S = A(R + L)+kσ √ (R + L) The operation of a ROC policy system is shown in Figure 5.5.

Figure 5.4  Stock Control Using a Reorder Level Policy

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Figure 5.5  Stock Control Using a Reorder Cycle Policy

Statistical Inventory Control in Practice The ROL and ROC policies have several comparative advantages and disadvantages connected with them in practice. These are given in Figure 5.6. Both forms of statistical stock control policy, however, have been exposed as having further limitations. To illustrate this, consider the distinction between products that have ‘independent’ and ‘dependent’ demand patterns. Items are said to have independent demand when orders for their replenishment do not depend upon the demand for any other item (e.g. the finished product and spares). Where demand does depend upon higher-level items, including components, subassemblies and raw materials, it is said to have dependent demand. Some forms of requirements planning (e.g. MRP) are more effective for the purchasing and stock control of items with dependent demand.

Managing Enterprise Resources: MRP, MRPII, ERP and DRP Materials Requirements Planning (MRP) MRP is the core element of any enterprise resource system. It comprises several separate modules that integrate to form the overall planning package. The modules include: • •

The master production schedule (MPS) – The MPS is a management commitment to produce certain volumes of finished products in particular time periods into the future. This should not be confused with a sales forecast. The bill of material (BOM) – The BOM is, in effect, the parts breakdown or ‘recipe’ for a finished product. It usually consists of the ‘product structure file’, which holds details of the parts and materials that make up each finished product, and the ‘product master file’, holding details concerning parts numbers, units of measurement, lead times for procurement/manufacture, etc.

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Figure 5.6  Comparison of ROL versus ROC

• •

The inventory status file – The ‘stock file’ that keeps a record of all stock balances and transactions. Thus, it holds information on the location and condition of materials. The MRP algorithm – The calculation module that takes the information contained in the MPS, BOM and inventory status files and converts them into output reports that detail the planned times for ordering materials or initiating their manufacture to satisfy the production schedule for the finished product. Figure 5.7 illustrates the basic interaction between components of an MRP system.

Operation of an MRP System The MRP algorithm operates by taking the MPS, relating this to the BOMs file and thus generating gross requirements for each component or raw material. These requirements are then compared with the amount outstanding in stock by reference to the

Figure 5.7  Relationship Between MRP Modules

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Figure 5.8  The MRP Calculation Process

inventory status file so that net requirements (to make or to order) can be determined. Finally, these requirements are offset by the lead times involved to arrive at the planned start times at which to initiate the start of operations or the purchase of assets. This operation is illustrated schematically in Figure 5.8. MRP in Practice So far, we have considered MRP with the assumption that exact requirements are ordered at distinct points in time. In practice, this is over-simplistic: for example, ordering quantities may need to be in batched units, for example, in tens or dozens, etc. Additionally, there may be problems with failure rates and the set-up times for processes. These complications can be considered in the operation of variations of the basic MRP programme. Batch sizing is possible within the operation of an MRP system through the incorporation of a series of rules. These include: • • •

‘Fixed quantity’ rules, where ordering is only allowed in quantities of specific increments ‘Fixed period coverage’ rules, where order times are specified and the assets for the next order period are batched and ordered together, thus reducing costs of repetitive small ordering Complex ‘dynamic’ rules, for example, where total least cost is the objective and so a programme dynamically calculates requirements and order times by balancing out ordering and holding costs

The setting of ‘safety stocks’ to avoid the risk of stockouts is also viable within MRP. These can be set in terms of fixed quantities, safety times and percentage increases in requirements (where scrap or waste variation is an issue). MRPII, ERP and DRP MRPII takes control of a stage further by considering the resources available. It, therefore, recognises when a requirements plan is infeasible (e.g. schedules generated are

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Figure 5.9  Coverage of MRP, MRPII, DRP and ERP

greater than capacity) and takes measures to remedy this. MRPII integrates computer control of assets with other areas within the business, including finance, marketing, sales, design, engineering, etc. MRPII is often seen as closing the control feedback loop by constant monitoring and upgrading of the business’ computer-based systems. MRPII, then, is not a newer version of MRP. Rather, MRP forms the asset control module of an MRPII system, whereas MRPII is concerned with the effective operation and control of the wider systems (Figure 5.9). DRP applies MRP logic to the total supply or logistics chain. It schedules the purchase and movement of assets through the supply chain and therefore extends MRPtype control to all types of internal/external stock transactions. Enterprise resources planning (ERP) plans how the business resources (assets, employees, customers, etc.) are acquired and moved from one state to another.

Summary The first section of this chapter reviewed the main concepts and techniques of operations planning and control. The theory of control was introduced, and then the topics of capacity management and scheduling (including OPT) were discussed. The section illustrated that operations planning and control can be a highly complex process with a myriad of decisions, options and variables that may influence or disrupt operations

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plans. It has been illustrated how the use of heuristics can be used to assist the planner in arriving at reasonable solutions to capacity and scheduling problems. The second section covered inventory management in detail. Classical stock control theory using the notion of EOQs shows the relationship between demand, costs of ordering, costs of stockholding and service levels. EOQ theory provides the basic principles for asset management. It was demonstrated how MRP and broader ERP can be used in situations of dependent demand and how they more effectively manage inventory than simple ROL or ROC inventory systems. Controlling enterprise resources through effective inventory movement and the efficient management of working capital in the business is the ‘life blood’ of the organisation. Finally, the management of operations and enterprise resources via MRP, MRPII, ERP and DRP was explained and compared with earlier forms of operations planning and control.

Reflective Questions • • • • •

What is basic control theory? What is operational scheduling? What is Pareto analysis (the 80/20 rule)? What is an economic-order quantity? What is MRP/MRPII/ERP/DRP?

Example: Enterprise Resource Planning Our company decided to go for an ERP [Enterprise Resource Planning] system because of a need for growth, but a more strategic growth of the business in a controlled manner. The type of products that we manufacture can be produced by our competitors, even though an area of our expertise is quality and the R&D of the product. We noticed that the market was becoming increasingly competitive and realised it would be very difficult to scale up the business without having to spend massively in terms of new people and machines. So, we decided on a business improvement project to optimise our processes and operations, to look at how inputs and outputs define our success. However, a real challenge for this was the difficulty in getting information about our processes. We found it difficult to get accurate data to measure or quantify, mainly because the company had very dated systems in place – we used Sage 50 for accounting, Stock Plus to manage the warehouse and Excel smart sheets for requisitions of raw material for planning. Actual production was managed on paper, which had to be scanned and entered on the drive of the company. Getting information was difficult – that’s where the idea for ERP came from. The return on investment was something the company wanted to invest in, given the opportunity to map, measure and improve our systems – so we were not reliant on individuals constantly chasing progress of jobs in orders.

Example: Operations Planning and Control Planning a research field campaign starts several months in advance. The excessive time is required because a lot of the specialist equipment is built to order, you cannot just pop down to a DIY store and buy it. We do not have a standard operating procedure, but there is a checklist in my head of everything we need, the resources required. The planning really starts at the research proposal stage when we are preparing for a grant application. The big things are staff recruitment, getting the right people, then getting the correct equipment, which is dependent on the required sampling strategy. In my area you need to work out the power analysis [statistical method] so we know how many

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samples to collect, and that determines how long you need to be in the field, how many people with what skills are required to do the work. Then there are the considerations of logistics, how you get people where they need, equip them and accommodate them. A big issue, particularly with our work, is health and safety. We often send people into very remote locations; they are a long way from home and help, so we need to make sure they are fit and healthy, that all the health and safety procedures are appropriate and that they have correct PPE [personal protective equipment]. Finally, there is a lot of work to do with arranging the necessary and required permits, such as environmental permits and animal welfare permits, because most of our work involves handling wildlife. Once you are in the field, it is about managing your time and the team. Sending field teams into remote locations can sometimes result in friction, so we need to try and harmonise things so that cannot happen. It is challenging, you put people who have never met each other before in isolated locations and challenging, difficult circumstances. Usually, it works well but we need to manage the day-to-day work plan around weather conditions, and motivate people to work late and long hours, because we are perhaps a week behind due to transport delays and bad weather and must catch up.

Example: Operations Planning and Control Sport Event Management When organising running events [running races] we need to make sure that we have enough crew and volunteers [people]. We have a number for what we would ideally like, but we also have an absolute minimum number of volunteers. When we calculate this, we have a buffer [extra] to allow for people not turning up. For example, we always have a buffer on our volunteers because we know there’s going to be approximately a 20% drop out rate for those who said they would come along. So, we always make sure that we’ve got 20% more than we think we need as the minimum.

Example: Operations Planning and Control Railway Line Upgrades The whole organisation was dysfunctional. There weren’t proper lines of communication. There wasn’t a plan, and it certainly wasn’t managed to any kind of ISO 9000 standard or anything like that. Everyone was busy trying to do stuff as quickly as possible – the designers were designing as much as possible; the installers were installing as much as possible. But with a lack of control this led to a lot of rework. We were losing money. How did we fix it? Well, a key point of control was that people needed permission to go on the railway track to install the new equipment. The original setup was that we would book out the entire railway every night, and then anybody can go wherever they wanted and do whatever they needed. So, we brought in a very simple system – access planning. Using this no one could request access to the railway unless they had a method statement, explaining what they were going to do, where and why. These were initially required seven days in advance. What happened? Well, some of the engineers complained that they didn’t have access and went to their managers. Their managers would come and see our team, and then one of our directors would come to us and tell us to provide access. This was the interesting bit, because we would agree, but there was only so many times the director would come over – before they started telling the engineers that they had to fill in the required method statement. As a result of this, within a month and a half we had everybody producing a method statement for what they were going to do, between four and seven days in advance.

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This meant that we now were able to do some planning and assessment of progress. We could measure what has been done overnight. Plus, we went from a situation where we had to book out the entire railway overnight to only needing much smaller sections, this led to a 95% improvement in efficiency. We put the simplest control measure in place for a billion-pound project, which was a bit like planting trees in a swamp – one tree took route and from that, others began to flourish, so we got to the point where we had a two-month plan and then a three-month plan.

Further Reading • • • •

Goldratt, E.M., Cox, J. (2012) The Goal: A Process of Ongoing Improvement, North River Press, New York. Nariswari, N.P.A., Bamford, D., Dehe, B. (2019) Testing an AHP Model for Aircraft Spare Parts, Production Planning & Control, Vol.30, Iss.4, pp. 329–344. Reid, I., Bamford, D., Ismail, I. (2019) Reconciling Engineer-to-Order Uncertainty by Supporting Front-end Decision-Making, International Journal of Production Research, Vol.57 Iss.21, pp. 6856–6874. Shingo, S. (1989) A Study of Toyota Production System, Productivity Press, New York.

Useful Websites • • • • • •

www.cips.org. The Chartered Institute for Procurement and Supply. www.goldratt.com. The Goldratt Institute. www.inventoryops.com. Links to inventory articles and organisations. www.oracle.com. Oracle, business software company. www.sage.com. Sage, online software company. www.sap.com. SAP, business software company.

6 Lean and Resilient Operations

Figure 6.0  Conceptual Model of Operations Management

Introduction In recent years, increasing attention has been paid to alternative methods of operations planning and control. Lean and Just in Time ( JIT) were widely adopted by Japanese organisations, and for many years, provided them with a distinct competitive advantage. This chapter outlines the development of these philosophies and the techniques beyond lean towards agility and business resilience. Following an introduction to lean and the evolution of JIT, the chapter outlines the impact of agile thinking on more resilient operations that are often disrupted by the performance of the supply chain network. The chapter concludes with a general discussion regarding the contemporary understanding of business resilience and operational transparency.

Lean Thinking Lean involves removing waste, for example, analogy with the human body: slimmed down, fit and healthy. Waste is defined as ‘anything other than the minimum amount DOI: 10.4324/9781003314998-6

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of equipment, materials, parts, space and worker’s time, which are absolutely essential to add value to the product’ (Shoichiro Toyoda, Chairman, Toyota, 1992–99). The original lean principles were outlined for the western companies by Womack, Jones and Roos in 1991 with their book, The Machine That Changed the World. They were, of course, referring to the principles of lean production and implementing lean production. The book initiated the drive towards increased efficiency; first in the manufacturing sector and now within the public service sector (e.g. see Bamford et al., 2015). Lean is today a strategy for remaining competitive by identifying and eliminating wasteful steps in products and processes using the following practices: • • • • •

Improvement of equipment reliability Quality at the source Continuous flow operations Pulling services and products ‘through’ the system Continuous improvement

Lean operations use less human effort, space, capital investment, materials and time between the customers’ order and delivery. The basic goal is to get more done with less by minimising work-in-progress (WIP) at all stages of the process, shortening process cycle times, time to market and eliminating all sorts of waste. Such wastes can be roughly defined as overproduction, waiting, transportation, inefficient processing, inventory, unnecessary motion, service and product defects and unutilised talent. The core principles of lean can be summarised as follows. Running the Operations Lean operations equal a lean organisation, and the main principles of this are: transferring the maximum number of tasks and responsibilities to those people actually adding value to operations; having in place a system for detecting defects and inefficiencies that quickly traces every problem, once discovered, to its ultimate root cause; implementing dynamic work teams and widespread multi-skilling (manual, clerical and problem-­ solving tasks); engendering an air of reciprocal obligation, managers must be seen to value skilled workers. Lean Design To succeed in the design phase there are four key aspects: (i) Leadership: the ‘large project leader’ with defined responsibility; (ii) Teamwork: the tightly knit team; (iii) Communication: the ability to solve critical problems early on; (iv) Simultaneous Development: of both products and processes. Lean Supply Management The key facets of lean supply have a great deal in common with JIT: they involve suppliers early on in the design process; devolve responsibility for design; establish prices and analyse costs jointly; use ‘market-minus’ rather than ‘supplier-cost-plus’ pricing systems; use value engineering, value analysis and kaizen to reduce costs in design and over the life cycle of the product/component; use JIT methods for ordering and inventory control in the supply chain; and suppliers to assume responsibility for quality.

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Dealing with Customers in Lean Operations Three key aspects exist with regard to the customers: (i) Brand Loyalty: engage in active, not passive, selling; (ii) Customer Information: treat the buyer as an integral part of the manufacturing process and its information systems (the use of information technology); (iii) Distribution Systems: ensure the system is lean in terms of inventory.

Just in Time (JIT) JIT is a wide-ranging philosophy of waste removal on a continuous path towards driving operational excellence. It concentrates on improvement as opposed to conventional Western approaches that strive for optimisation (e.g. of cost). One of the wastes, such as WIP, is not often seen as an asset but as an excess that serves to hide the causes of root problems. Figure 6.1 provides an example of what is revealed when the levels of inventory are reduced (unreliable supplier deliveries; defective components; poorly coordinated processes). JIT actually creates the opportunity and provides the focus needed to improve these areas within the operation, thereby creating a more efficient, effective and potentially more profitable operation. It originated in Japan and demands high quality, on-time delivery and cost reductions. It is, therefore, indicative of many of the contemporary ideas on the role of manufacturing currently prevailing. The core philosophy of JIT relates to the supply of resources to each stage of the operation when, and only when, required (not before or after). The use of resources at any stage creates a need (a trigger) for them from the previous stage. This implies that no resources are held in advance of requirements or in expectation of future demand, but in practice, there will always be an element of buffering (having just enough resources to keep things moving) with JIT or any other system. When implemented, JIT results in a ‘pull’ mode of operation of the type described above, addressing the known issues with ‘Push’ stock systems, which involve costs of ordering, lead times/set-up times and holding costs. JIT, in contrast, actively ‘attacks’ these and any other problems that prevent synchronisation of the operating systems. There exists much confusion over the use of the term JIT and what it should encompass. It is best thought of as functioning in two discrete but related areas: in-house (internal) inventory management and the management of supplier deliveries (external). Common approaches to each of these facets of JIT will now be presented.

Figure 6.1  The JIT Pond Analogy (adapted from Shingo, 1996)

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Implementing JIT Organisations, particularly those in the West, have experienced problems when attempting to implement JIT. The following are just a few that are commonly encountered. First, the practice of bulk purchasing and safety stocks continues to have great attraction for price reductions and contingency management but runs contrary to the JIT philosophy. Second, lengthy changeovers serve to justify the continuance of large batch production. Therefore, JIT has more commonly been implemented for assembly-­ style operations and not for preceding operations. Finally, resources from outside must be available at short notice with appropriate lead times. This causes severe problems unless suppliers and vendors are extremely well coordinated and able to communicate and respond efficiently. As a result, JIT suppliers tend to be local, and quite commonly, they are forced to hold stocks for vendors to draw from. Of course, the question arises as to whether the holding of resources is just being pushed back up the supply chain. Having considered issues such as those above, there exist a number of approaches one may adopt when implementing JIT. For internal JIT, these include: 1. Improve resource quality and reduce the number of defects 2. Reduce setup times to allow for lower cost and more frequent ‘changeovers’ 3. Reduce batch sizes when manufacturing or assembling products, and so reduce WIP 4. Locate resource inventories in identifiable areas, and then set about reduction When adopting JIT for supplier deliveries, the following may be used: 1. 2. 3. 4.

Buy from fewer outlets by reducing the supplier base Reduce the delivery sizes of incoming batches Increase the frequency of deliveries to compensate for (2) Establish long-term relationships (partnerships) with suppliers and work with them, not against them, for the purpose of continual improvement

Internal JIT Systems The most widely known and publicised operations control system in existence today is the Toyota ‘Kanban’. Toyota’s Kanban system has been used within operations departments for many years and is defined as a ‘signpost’. When resources are used, the Kanban triggers the previous process for the supply of more. Kanban (which often have a reference code to accompany a resource through the process) controls the overall value of internal resources and creates real-time data points across key operations.

JIT Supply The art of JIT supply management is ensuring that just enough resources arrive from suppliers at precisely the right time: not too early, as this results in high holding costs, and not too late, as this would disrupt and possibly stop the operation. Typically, JIT supply management involves giving suppliers tight and rigid schedules, but with a very short time horizon (e.g. requirements for the next day rather than the next month). The

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supplier is then expected to deliver on a frequent basis to ensure JIT and just enough resources. In some companies, most notably in the car industry, a number of final assembly plants have integrated supplier operations into their own internal Kanban systems. Thus, the receipt of an empty container acts as a trigger for the supplier to manufacture and/or ship more material. The use of JIT supposes a very close association between vendor and supplier. To summarise, these objectives are often achieved by reducing the number of suppliers, reducing delivery order sizes and increasing the frequency of deliveries. Supply chains are therefore characterised by long-term relationships and a commitment from both parties to work together in the improvement of operations rather than against one another, as is frequently the case in Western industries where vendors are known to issue threats and ultimatums to suppliers.

JIT Through Continuous Improvement The use of JIT in a company is usually linked to programmes of quality management through continual improvement. JIT sees inventory as the root of all evil(!), which contradicts the view of inventory as an asset (on the financial management profit and loss account). In JIT, excessive resource or inventory in a system is seen as an indication of fundamental problems and inefficiencies; it is seen as hiding the problems that exist. It is useful here to refer back to the commonly used ‘pond’ analogy (see Figure 6.1), which illustrates the issue of excessive stockholding and how JIT can be used to identify and tackle key problems within operations systems. The resources or inventory in this example is seen as being a ‘sea’ and the higher the stockholding, the higher the water level. The stock level, however, covers a whole host of problems, illustrated as ‘rocks’. By gradually lowering the resource level through reductions, one can then uncover problems as they occur; the largest problems will become apparent first as these will be the larger rocks. When a problem is discovered, the organisation must switch into problem-solving mode and attempt to remove it or reduce it in size. When this is done, the inventory level can be reduced again and the next problem can be identified and solved. This objective of JIT fits well with continual improvement and must be viewed as complementary in the development and improvement of business operations.

Operational Agility The evolution from ‘CRAFT’ to ‘MASS’, then ‘MASS’ to ‘LEAN’, has paved the way for the beginnings of a ‘LEAN’ to ‘AGILE’ transformation. This trend within operations management practices has been brought about largely through advances in digitalisation and technology of services and products, how they come to market, as well as how they behave through the life cycle. The ability to respond to supply issues, operations and distribution networks is key in terms of enhancing operational transparency. The capability to react and share customer needs and market changes whilst simultaneously controlling quality and costs can provide a distinct competitive advantage. Agile is seen as the next step after lean in the evolution of efficient operations. Whilst lean requires the stability of demand, agile is adopted when the operations need to respond to fluctuations in demand, to respond to uncertainty and complexity, uncertainty and perhaps changing market conditions. This ability allows the pivot of operations in response to unplanned, unforeseen activities due to market demands or unique

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customer requirements (see Mack et al., 2015). This approach simplifies the challenges of planning and scheduling, lead-time uncertainty and the demands for lower setup and holding costs (safety stock). Agility facilitates the ability to detect and seize market opportunities with speed and surprise. Operational agility requires rethinking of organisational structures, business processes, information systems, logistics and particular mindsets.

Implementing Agility The systematic procedure for implementing operational agility commences with a business environment audit to assess the business environment (competition, voice of the customer, supply chain capabilities, social, technological, environmental, economical and political) and create risk priorities, as represented in Figure 6.2. You will note that this is similar to the quality function deployment ‘house of quality’ shown in Chapter 3 (see Figure 3.3). The framework below focuses on the external environment that impacts the internal resources that need additional support from tools and techniques that can create a competitive advantage for products and services. The framework scopes out the impact on resources such as people, product, process, organisation, operation and ‘STEEP’ (social, technical, environmental, economical and political). This is in response to customisation, configuration of services and products, shortened development lead times and efficient scaling up and down of operations in terms of cost and time. Additionally, one must consider addressing new technology adoption, supplier chain configurations and alliances, without neglecting high skilled employee training, and customer after sales service.

Figure 6.2  Stages of Implementing Operational Agility (adapted from Reid et al. 2016)

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Value Chain The ‘value chain’ is a useful concept to refer to when determining both operational and supply chain strategies (see Porter, 1985). Operations and supply strategies are determined by deciding how process, service and logistics activities are distributed geographically. Value chain analysis provides an indication of where international competitiveness might be generated. It can indicate where the distinctive order-winning properties of a firm’s product might be developed, and provides guidance for facility/ location decisions. Outsourcing is a common phenomenon when the organisation is seen as being too highly vertically integrated, when seeking to reduce staff levels (lower costs and increase flexibility) or when there is a desire to increase return on capital employed (ROCE). There are related dangers, though. High levels of outsourcing can result in a reduction in organisational knowledge/skills, a resultant loss of distinctive competencies, hidden costs such as the redesign of systems and ongoing overheads of managing supply. The rule of thumb, therefore, is that outsourcing should only be done for strategic reasons, not merely for short-term cost reductions. Understanding the supply chain network and infrastructure is essential for supply chain/ logistics and procurement managers. There are many modes of procuring products and services, etc. In making the choice of mode or, more precisely, which combination of modes to use, decisions should be guided by the predictability of the mode, the cost of procuring and other factors such as environmental friendliness, ethical practice and sustainability. It is important to note the influence of technology and digital trends on supply chain management. The integration of e-commerce and supplier-customer information systems from digital communication technologies has enabled increased benefits for effective supply chain management. These often represent themselves as tighter operational control, efficient responses to customer requests, improved marketing communications and relationship management and faster (including electronic) delivery of services and goods.

Operational Risk Uncertainty has become a major issue for today’s operations managers. Organisations allocate resources and funds towards developing risk strategies in order to protect or future proof their existing and new services and products. For example, corporate risk now considers multiple disciplines requiring interdisciplinary control and understanding across an organisation, such as procurement, finance, operations and marketing. Faced with demand uncertainty and the volatility of resources and prices, simulation-based models are increasingly being used to create compliance models and scenarios. For example, see Figure 6.3. In terms of the supply chain, effective management of disruption risks now needs to be more transparent. Supply chain and procurement managers are expected to recognise the Bullwhip Effect (see Lee et al., 1997) in terms of how customer/supplier orders can exhibit an increase in variability when moving up the supply chain, when in fact orders are actually stable.

Resilient Operations Creating resilient operations is really about the ability to plan and prepare for, absorb, respond to, adapt to new conditions and recover from disasters. An important feature

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Figure 6.3  Risk Management Framework (adapted from Kaplan and Mikes, 2012)

of resilience is the ability to recover and retain critical operational functionality in response to a wide range of threats, both known and unknown. Pal et al. (2014) presented five contributors to creating a resilient operation: material/systems, finance, social, network and human resource goodwill. To become more operationally resilient, a business should be able to evaluate cross-domain alternatives designed to enhance the operations in terms of: 1. 2. 3. 4.

Plan for adverse events Absorb stress Recover Predict and prepare for future stressors and adapt to new potential threats

The assessment should, therefore, identify the critical functionality of operational processes in response to adverse events.

Operational Transparency A related issue to the above is increasingly becoming a useful design feature of o ­ peration – that of full disclosure of operation/processes knowledge transfer in terms of lessons learnt. It is worth considering that operational transparency measures can lower the tolerance of failure for organisations that are associated with a higher risk and thus restrain their innovations by relying on familiar or more established technologies.

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The concept of operational transparency also has potential implications for policymakers, such as encouraging pharmaceutical regulators to support organisations to re-engage with higher-risk innovations in their pursuit for solutions over pursuing novel and so-called ‘breakthrough’ practices in the long term.

Summary This chapter has illustrated the tools and techniques of JIT and lean, the link to operational practice and the concept of continuous improvement as being an essential part of the process. The chapter has introduced and examined the impact of agility for those businesses requiring higher levels of responsiveness to reconfigure internal processes and create greater flexibility across the organisation. This ability to potentially seek to differentiate their activities from competitors by clever use of the value chain and the development of supportive supplier partnerships is sometimes very useful. We showcased the foundation stones for operational risk review and the profound effect it can have upon the resource capabilities required to respond to a wide range of threats, both known and unknown. Furthermore, the chapter introduced operational resilience and recovery, and finally, the concept of operational transparency was mentioned in terms of the importance of acknowledging lessons learnt.

Example: Kanban System – Lean Pharmaceutical Supply Chain I’d like to talk about the application of a lean tool, Kanban, to enhance efficiency of stock control. This was to be implemented by a group of cooperative pharmacists. The original setup had a central warehouse to service the area, and the warehouse worked with 120 pharmacists to smoothly supply pharmaceutical products on time. The objective was to deliver the products within an hour of the order being placed, but the challenge was that they had to manage 900 different types of products: 80% of those were predictable, approximately 20% were new products. Unfortunately, during the delivery process, they faced significant inventory control issues, for example pharmaceutical products being expired – waste generation, and also their online system was insufficient, e.g. most of the times it said that products were available, but they weren’t, which created a huge confusion to the pharmacists. Therefore, a need to develop a more effective and efficient system – delivering products on time and satisfying customers – was identified, which created a great opportunity for the application of a ‘two bin’ Kanban system to achieve it. But how does this system work? Simple – for the chosen products we physically put two boxes (called bins) within the pharmacies and once the first box is empty, this acts as a signal that the box should be returned to the warehouse to be refilled. Meanwhile, the second box is pulled forward on the shelf and the products within that are used. Of course, the actual signal is digital – it could be a text or an email. But important questions need to be answered to set the system up: Which products are suitable? How big do the boxes need to be/or how many and what type of individual products do they need to hold? This will determine the approximate usage time for the stock being held. So, to make those decisions, we can use Pareto analysis, the ABC categorisation, with Group A being the products that are very expensive or sensitive, such as cancer treatment medicines. Then we have Group B which are not too expensive, but we don’t use every day, then Group C which are inexpensive products such as paracetamol which we need regular access to.

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Before implementing Kanban, 22 days of inventory was held for all products. We set up the system so that Group A were in the store inventory for four days, Group B for ten days and Group C for 30 days. This was to control inventory and avoid waste. After the application of this Kanban system, we found that the company could store 56.80% fewer products and reduce the cost of holding stock by 71.8%.

Example: Lean and Resilient Operations For an aircraft to gain its certification to be used commercially it has to demonstrate it can evacuate its full configuration of passengers in a maximum of 90 seconds, but with only half of the exits usable. An impressive example of this is the Airbus A380, which holds over 600 passengers and has eight pairs of exits. Of course, this all relies on Standard Operating Procedures and practice. On board the aircraft, each cabin crew member has responsibility for an exit door, in addition to having additional responsibilities like retrieving certain pieces of equipment during an evacuation process. This involves training on how to operate a particular door in the event of an emergency, which is refreshed every year through recurrent training. Crew are trained to know the correct procedure for lots of situations: What to do if your exit is blocked? What to do if you can’t open your assigned door? What if the electric power system fails? What if the emergency slides don’t inflate? What to do if one of the slides is punctured by somebody bringing their hand luggage or not removing high heels? In addition to the technical aspect of operating the door, there’s an element of crowd control involved because it’s a moment when passengers will panic and engage in activities that slow down the evacuation process, like grabbing baggage from the overhead lockers. So, an interesting thing taught to cabin crew as part of this process is to always use positive commands rather than negative commands. Crew are trained to say ‘leave your bag’ and not ‘don’t take your bag’ in case the first word is missed. They would say ‘exit blocked, go that way’ rather than ‘don’t use this exit’.

Example: Lean and Six Sigma I want to talk about the choice between Lean and Six Sigma and the pros and cons between the two approaches. The great thing about Six Sigma is you can drill down into massive detail to solve a massive problem, which can have big benefits to the business. Lean takes a waste eradication view, so it’s about removing the waste from the processes, so the problems don’t appear in the first place. Of course, the main purpose of problem solving is to create a stable process, then you can apply continuous improvement. Quite often we’ll go into a company, and we can see that they apply some of the lean principles, because they say it’s ‘common sense’ to do those things. Some companies apply Lean methods without knowing it because Lean is common sense. My observation is that it’s common sense not commonly done! So, regarding lean, it’s not a specialism like Six Sigma. With Six Sigma, let’s say you invest in an individual for 18 months and allow them to become a black belt. That’s a lot of investment for one person, but they do become an expert and as an expert it’s brilliant because they can solve massive problems. But the question is this: Do you want 250 people saving you £1,000 or do you want one person saving you £250,000? That equation is really the difference between Lean and Six Sigma. Lean can really make a difference across the whole organisation, if led correctly!

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Further Reading • • • • • • • • • • • •

Andersson, G., Lynch, M., Johansen, F., Fineide, M., Martin, D. (2020) Exploring Perceptions of Lean in the Public Sector, Public Money & Management, Vol.43, Iss.1, pp. 64–72. https://doi.org/10.1080/09540962.2020.1847454. Bamford, D., Forrester, P., Dehe, B., Leese, R.G. (2015) Partial and Iterative Lean Implementation: Two Case Studies, International Journal of Operations and Production Management, Vol.35, Iss.5, pp. 702–727. Kaplan, R., Mikes, A. (2012) Managing Risks: A New Framework, Harvard Business Review, Vol.90, pp. 48–60. Kraft, T., Valdés, L., Zheng, Y. (2018) Supply Chain Visibility and Social Responsibility: Investigating Consumers’ Behaviors and Motives, M&SOM, Vol.20, Iss.4, pp. 617–636. Lee, H. Padmanabhan, L., Whang, S. (1997) Information Distortion in a Supply Chain: The Bullwhip Effect, Management Science, Vol.43, Iss.4, pp. 546–558. Mack, O., Krämer, A., Burgartz, T. (2015) Managing in a VUCA World, Springer, Heidelberg. Munos, B.H., Chin, W.W. (2011) How to Revive Breakthrough Innovation in the Pharmaceutical Industry, Science Translational Medicine, Vol. 3, Iss.89, p. 89cm16. Pal, R., Torstensson, H., Mattila, H. (2014) Antecedents of Organizational Resilience in Economic Crises: An Empirical Study of Swedish Textile and Clothing SMEs, International Journal of Production Economics, Vol.147, Part B, pp. 410–428. Porter, M.E. (1985) Technology and Competitive Advantage, Journal of Business Strategy, Vol.5, Iss.3, pp. 60–78. Reid, I., Ismail, H., Sharifi, H. (2016) A Framework for Operational Agility: How SMEs Are Evaluating Their Supply Chain Integration.  Managing in a VUCA World, Vol.I, pp. 151–168. Shingo, S. (1996) Quick Changeover for Operators: The SMED System, Productivity Press, New York. Womack, J.P., Jones, D.T., Roos, D. (2007) The Machine that Changed the World, Free Press, New York.

Useful Websites • • • • •

www.leanuk.org. The Lean Enterprise Academy. www.lean.org. Lean Enterprise Institute. www.agility.org. Agility Institute. www.shingoprize.com. Shingo Prize for Excellence in Manufacturing. www.mckinsey.com/business-functions/operations/our-insights/lean-management-oragile-the-right-answer-may-be-both. A McKinsey & Company thought piece on lean management and agility.

7 Managing Sustainable Supply Networks

Figure 7.0  Conceptual Model of Operations Management

Introduction The management of supply is an exciting, challenging and important topic. This is especially the case given the value and importance attached to the need for sustainable supply – networks and supply chains managed in a positive manner environmentally, socially and ethically, as well as for cost efficiency. For some organisations, it encompasses much of the ‘value add’ and the effective and efficient management of these assets can be critical to organisational success. Cousins et al. (2008) show that a 1% cost saving on supply activity is equivalent to a 10% increase in sales in revenue terms. This statistic motivates service and production organisations (both public and private) to manage their supply networks proactively and with due regard to reputational image. Managers need to understand the complex interrelationships among suppliers and producers, people and technology in relation to managing their supply channels. This chapter, therefore, provides an up-to-date introduction to contemporary supply management principles and practice, providing analytical frameworks along the way to help in the analysis and design of supply networks. DOI: 10.4324/9781003314998-7

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Figure 7.1  Supply Management Terminology

Sustainable Supply Network Principles It is important to be clear on terminology when talking about supply management. The term supply chain management is widely and commonly used in everyday language, but one needs to be more precise in the use of language when managing supply operations. Figure 7.1 illustrates the terms supply dyad, chain and network. A supply ‘dyad’ is the direct relationship between two parties, the seller and the buyer of goods and services. A supply ‘chain’ represents the linkages between buyers and sellers, from the upstream source through to the ultimate end-customer (consumer) of a particular product or service. In reality, organisations are engaged and partake in a large number of separate supply chains, each one relating to a particular individual or group of services or products in their portfolio. It is, therefore, more useful to think in terms of supply ‘networks’ because organisations manage numerous, sometimes thousands, of individual supply chains. Hence, it is more beneficial to use the more generic term ‘supply management’ as opposed to ‘supply chain management’, because managing supply is more about managing networks of suppliers and customers, especially when devising effective supply management strategies. Figure 7.2 is an expanded representation of a supply network and introduces several further terms used in supply management. An effective supply manager sees their organisation as the focal point in a wider supply network, with upstream and downstream ‘tiers’ of suppliers and customers. In their own tier in the supply network for their sector or industry, they are joined by collaborating with these other organisations, especially if this tier in the supply network is subject to power imbalances with suppliers and/or customers. Or where, for example, research and development costs are high, making it beneficial to work together in partnership. This type of relationship is sometimes termed ‘coopetition’, i.e., a combination of collaboration and competition. Upstream from the focal organisation’s operations are its suppliers; thus, this is often termed the ‘supply side’ of the network. Organisations supplying the focal operation directly are known as first-tier suppliers. Their suppliers represent second-tier suppliers to the focal operation and so on. Potentially, and especially for downstream organisations, there may be many tiers of upstream supply. Downstream from the focal organisation is the ‘demand side’. This represents customers to whom the organisation sells directly (the first-tier customers), through to second- and third-tier customers and so on. The final tier downstream is the final customer, the consumer. It is important for supply and operations managers more generally to be aware of the wider supply network and the dynamics and management of relationships within

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Figure 7.2  Supply Network

it. Effective supply strategies will only be formulated or emerge when an organisation manages in such a holistic way, rather than attempting to micromanage individual supply chains. Figure 7.3 introduces further important terms used in supply management: vertical integration, intermediation and disintermediation. Organisations decide whether to operate merely at their focal tier of operation, relying on external suppliers and customers, or whether to operate forward or backward in the supply network, to become more self-reliant in supply. Or, downstream, to take ownership and control over the distribution of their products and services. This process is known as vertical integration, and the organisation will therefore decide upon its extent of integration, backwards or forwards in the supply network (and maybe both). Intermediaries or agents will often occupy positions in certain tiers of the network, but there has been a tendency in recent

Figure 7.3  Vertical Integration, Intermediaries and Disintermediation

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years to bypass these intermediary organisations and deal directly with upstream suppliers and downstream (often end customers or consumers) in the network. This is often referred to colloquially as ‘cutting out the middleman’. An example is the airline and travel industry, where airlines sell tickets directly to passengers, cutting out travel agent businesses. Clearly, a main driver for this has been the development of the Internet and the desire for leaner operations with reduced numbers of operations/transactions. This phenomenon, where traditional tiers in the supply network are effectively removed, is known as ‘disintermediation’. This discussion flows nicely into the next section, make or buy decisions, which effectively addresses the question of whether an organisation should purchase a service or materials from an outside supplier or incorporate the production of the service or item in-house, whether for economic, self-sufficiency or control purposes.

Make or Buy Decisions The decision to procure a good or service from a supplier or to produce it in-house is fundamental at the operational level of organisation. However, the tendency to outsource or commit to self-sufficiency via vertical integration runs to the heart of an organisation’s supply management strategy. If we consider the motor industry as an example, we can observe a tendency to move away from self-sufficiency and high levels of vertical integration of historical mass manufacturers (such as The Ford Motor Company in the 1930s) to modern-day manufacturers who outsource and buy-in the vast majority of materials and services from suppliers, albeit with high levels of power and control within the supply network. Traditional economic theory suggests that an organisation should not make in-house any product or service that a supplier can provide for less. This may seem very obvious, but it has defined decisions to make or buy in organisations over many years and continues to do so. Today, many services that were previously conducted in-house are outsourced to suppliers. At one time, it would have been inconceivable that business processes such as human resource services, indirect purchasing, warehousing and transportation (including third- and fourth-party logistics management) would have been trusted to an outside organisation. But they are very prevalent across all sectors of the economy today. Some organisations choose to outsource design, entrusting specialist design houses or their suppliers to manage these key processes. Many factors drive the make or buy decision in addition to cost. Therefore, theories explaining and guiding the make or buy decision have emerged, including transaction cost economics (TCE) and the resource-based view (RBV) of organisations. TCE originates from the seminal work of Coase (in 1937) and has been most notably further developed by Oliver Wilkinson from the mid-1970s to date. It is useful in providing a more sophisticated view of the make or buy decision and recognises that economic cost is only one factor. Williamson explained that an understanding of transaction cost economising is central to the study of organisations. TCE helps to overcome some of the limitations of classical cost economics thinking by considering the wider context of the business or organisation. It argues that the organisation should be seen as a complex web of transactions that characterise the existence and scope of that organisation and that are impacted by the whole array of internal and external extenuating factors affecting that organisation.

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Figure 7.4 The Make or Buy Decision Process explained using Transaction Cost Economic Theory

Employing the TCE perspective is useful when considering whether to make or buy as it attempts to characterise the nature of the decision to procure or source in-house, as shown in Figure 7.4. The idea behind TCE is that the ‘whole’ transaction cost should be considered rather than just the price of the bought material or service. In fact, the price or cost is just one, often less significant, factor when one takes into account all the considerations underpinning any transaction. TCE is essentially based on the interaction of a number of assumptions, namely: • •

Two transactional assumptions, these being ‘asset specificity’ and ‘uncertainty’ Two behavioural assumptions, ‘bounded rationality’ and ‘opportunism’

Asset specificity refers to the transferability of an asset within a buyer–supplier relationship, that is, the degree to which the asset could be easily and readily adapted for other purposes. So, if the asset (whether a process, know-how, expertise, etc.) could easily be situated and transferred between the buyer and supplier, it makes the possibility for a decision to make or buy more likely. If not, the asset, therefore, remains at one or other part and therefore restricts the scope to change decisions. The uncertainty assumption relates to the organisations desire, wherever possible, to reduce risk and become more resilient to adverse effects in the supply network. Bounded rationality acknowledges the tendency for decision makers to act with a degree of reasonableness, including, for example, basing decisions on cost, but recognises that many managers do not have to optimise profit but, in reality, have to satisfy different objectives such as the other key performance indicators (KPIs) we have introduced in earlier chapters. Finally, the behaviour of managers and therefore their decisions are subject to opportunism, where people are driven and therefore take decisions in their own self-interest. Consideration

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Figure 7.5  The Resource Based View Applied to the Make or Buy Decision

of all these factors, argues Williamson, reflects the true and full cost of transactions impacting the decision to buy in or produce particular products, materials or services. The RBV of decision-making provides a further alternative perspective on the decision to make or buy. RBV was first popularised by Barney (in 1991) and centres around how organisations can exploit their strategic resources and capabilities to achieve sustainable competitive advantage. In terms of the make or buy decision, it centres on the capabilities required to produce a particular product or service within the organisation. Is the organisation able to do this itself, or is it better procured from and done by an outside supplier? Figure 7.5 illustrates the decision-making process using RBV. Three linked questions provide the basis for consideration when determining the make or buy decision: • • •

Have we got the capabilities required to make this product or service? If not, can we develop these capabilities? Again, if not, can we acquire the required capabilities?

If the answer to any of these questions is ‘Yes’, it is likely to lead to a ‘make’ decision to produce the product or service in-house. If the answer to all three questions is ‘No’, it is probable that the organisation is best advised to procure the service or item in question from an outside supplier. One could justifiably argue that none of the theoretical perspectives above fully explains or should solely determine the decision to make in-house or source an item externally. However, taken together, they illustrate the many factors that come into play affecting the procurement decision and, more widely, the attractiveness or otherwise of vertical integration. We will now take this theme further by considering the wider issues involved in outsourcing.

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Outsourcing, Offshoring and Near/Reshoring If a decision is made to procure a service, product or materials, the organisation then commits itself to ‘outsourcing’, thereby exposing itself to the many issues involved when relying on external supply. In reality, of course, all organisations are engaged in outsourcing, as they are never able to produce all products and services in-house and need to rely upon upstream suppliers in the supply network. From a strategic perspective, some organisations are more open to widespread outsourcing and may adopt policies where this is encouraged, whereas other organisations may be more inclined to vertical integration. Whatever the extent of outsourcing in an organisation, it is imperative that outsourcing decisions are made for a good reason and ongoing supply with external partners is managed effectively, as there are many caveats involved here. Outsourcing is defined as contracting or otherwise using an external partner to provide services or make items that were in the past produced in-house by its own employees and processes. Despite the wide array of justifications as to why an organisation may opt to buy-in, the reality is that many organisations employ outsourcing as a shorter-­ term cost-cutting measure. Whilst it is clear there is sometimes merit for this, it is imperative that an organisation takes a broader business view and only adopts a policy of outsourcing if this is of strategic advantage over the longer term. Advantages of outsourcing include the potential to access new technologies and distinctive competencies offered by outside organisations, being able to access the knowledge and expertise of a much larger talent pool without the need to directly employ extra people, having access to resources without having to commit to their ownership and potentially lower costs, including reduced labour costs. Clearly, the organisation will need to balance any tradeoffs between KPIs, including cost, quality, speed, flexibility and reliability to ensure continued resilience and mitigate potential risks in supply. This leads us to acknowledge that there are issues and drawbacks when outsourcing, including concerns about potential loss of control, negative impacts on any of the KPIs, communication problems with suppliers and a potential impact on company ethos and culture. At its most extreme, outsourcing can result in a reduction of competences and resources within the organisation, leaving a shell of an organisation that has no sustainable reason for continuing to exist into the future. In short, outsourcing should not be done for short-term and short-sighted reasons, but for the longer-term strategic advantage where the advantages and disadvantages have been acknowledged and properly assessed. Decisions to outsource products, materials and services will often lead to the production of those items being ‘offshored’ or bought in from overseas suppliers. However, offshoring can also take place when an organisation decides to invest in overseas facilities and shifts operations to these facilities from its home country. Offshoring enables organisations to take advantage of lower factors of production, whether these are related to land, labour or capital. Often, decisions to outsource are primarily driven by a desire to reduce labour costs and, therefore, the overall cost of doing business. ­H istorically, offshoring has been most closely associated with manufacturing products overseas, but there has been a move to procuring services from overseas suppliers, driven particularly by information communication and technologies allowing for improved planning and control. An obvious example is the establishment and use of overseas call centres provided by third-party suppliers or, occasionally, an organisation’s own overseas facility. As for outsourcing, offshoring presents an array of potential caveats that need to be properly assessed and any drawbacks weighed up against the

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advantages. Such an assessment should include an analysis of the potential trade-offs between the operation’s KPIs. Whilst for many years organisations have reaped the cost benefits of offshoring, it is clear that reliance on overseas supply can be problematic, has several inherent risks and can undermine the resilience of individual supply chains in practice. There are several reasons for this. First, there has been a shift in emphasis from lean operations to more agile operations and supply downstream, close to market business activities. Speed and flexibility are of great importance in the performance of agile operations, so sourcing items and managing operations from far distant shores presents problems, particularly in relation to long lead times due to distances of travel and time involved. In recent years, there has been an observable trend towards ‘nearshoring’ and ‘reshoring’ of operations in supply networks. Nearshoring is when a decision is made to shift production and supply from far distant shores to a closer geographical location. So, for example, European organisations may shift operations and/or procurement from low-cost labour economies in South Asia to nearer countries such as Turkey or Morocco, thus reducing distances of travel, increasing speed and allowing for more flexibility and change. Reshoring is where an organisation goes further by moving its operations or procurement back to its home country. In addition to the advantages of speed and flexibility, reshoring may lead to better control, improved quality and better communication between, for example, research and development and production operations. There has been a trend for organisations that previously used telephone call centres in low labour-cost countries to return these facilities back home and thus improve the quality of service to their customers and users (even if only for a perceived quality improvement on the part of the customer).

Buyer–Supplier Relationships Supplier relationship management is a critically important undertaking for the effective management of supply networks. In recent years, there has been no shortage of advice for supply managers concerning the benefits of good supplier relationship management, the value of partnership within contractual agreements and the value of integrating operations planning and control systems across buyer-supplier organisational boundaries. More critical commentaries point to the consequences of imbalances of power in supply networks, resulting in the potential for exploitation of less powerful suppliers and customers in supply chains. Supply managers must also acknowledge that relationships are nuanced, some involving very close collaboration and partnership, whereas others are more effectively conducted at ‘arm’s length’. Supplier portfolio analysis provides an excellent basis for determining what type of relationship to have with suppliers. The most influential work on portfolio analysis was provided by Kraljic (in 1983). Peter Kraljic presented a ‘portfolio matrix’ to assist supply managers in their analysis of different suppliers and provide guidance for how these suppliers might be managed and the type of relationship that should be engendered. Kraljic’s work is seminal, as it did more than merely inform supply managers on how to categorise their suppliers and then deal with them. It showed that supply management was not merely a purchasing and procurement function where the aim was simply to obtain the lowest cost ‘best deal’. It elevated procurement and supply to strategic importance in the business – that supply management is multi-faceted and has major implications for the success and sustainability of organisations in the long term. Kraljic argued

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Figure 7.6  Kraljic’s (1983) Supplier Portfolio Matrix

and demonstrated that supply and portfolio management helps us to understand how important and critical different suppliers are to the business. It helps the supply manager determine the appropriate time and number of resources to allocate to the sourcing process for each supplier. It helps to align the sourcing process with the organisation’s strategic goals and direction, doing this by helping organisations to categorise and then effectively manage the suppliers in their portfolio. The matrix is shown in Figure 7.6. Kraljic’s matrix comprises two axes, representing external and internal factors. The external variable relates to the complexity of the supply market, whereby the more complex the supply market, the higher the risk to supply. The internal variable reflects the impact on the business of supply, from low importance and low impact to those procured items and services that can have a high negative or positive effect on performance. The matrix is a two-by-two box, resulting in four categories of procurement based upon high and low positions on each axis. The four categories are: 1. Routine: Procurement items and services in this category have a low impact on the business, and there are likely to be many problems with supply. The supply market for these bought-in items is not complex, substitute items are readily available, and there is a competitive supply market with many suppliers to choose from. There is little need for time and effort in developing close relationships with these suppliers – the time invested in doing this would simply not be worthwhile. 2. Leverage: The supply of items in this category has more of an effect on the business’s profitability and performance, so it is worthwhile taking the time to achieve what is traditionally seen as the ‘best deal’ for these products and services, especially as the organisation is in a relatively strong power position with many suppliers to choose from. 3. Bottleneck: Here, there are potential issues and problems with the continuity of supply. Whilst the items may not have a major impact on overall performance,

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there is a risk of non-delivery or supply chain delays given the complexity of the supply market. The organisation is best advised to ensure the continuity of supply by working with suppliers – it will be worth the effort to avoid future problems occurring. 4. Critical – sometimes called Strategic: These are supply items or services that have a large impact on the business and where the organisation needs to recognise the complexity and power relation in the supply market. It is for these suppliers that the closest relationships and partnerships are developed, forged and managed. They are often high-value supply items, critical to the value proposition offered by the organisation. Sometimes organisations view the supply of these items as so critical that they might seek to vertically integrate and acquire supplier organisations or develop their own in-house facilities to produce the product or create the service. In categorising procured services and products on the matrix, the supply manager can determine the best procurement strategy in terms of managing supply and supplier relationships. It assists in informing the organisation where time and resources are best afforded, and time invested will pay off in the long term. It considers the relative power the organisation has over its suppliers: • •

The left-hand quadrants in Figure 7.6 (Leverage and Routine) indicate strong relative power over suppliers and so where the organisation should seek to exploit its market position and a more arms-length approach to suppliers. The right-hand quadrants (Critical and Bottleneck), where there is a weaker position relative to suppliers, the advice is for the organisation to build its market position and develop close and meaningful partnerships and trust with suppliers.

It is clear, therefore, that effective supply requires a nuanced approach to supplier relationship management. Whereas the Kraljic supplier portfolio matrix provides a basis for determining the best approach for individual suppliers and the overall strategy for an organisation, we can add some further comments about relationship management here. It should always be remembered that a relationship is a process over time. It is not static but dynamic, and it develops and changes and therefore needs effective monitoring and management. A supply manager needs to understand the context within which the relationship sits, both in terms of supplier categorisation and the history of the relationship, which may have bearing on the future. In short, a contingent approach is needed.

Sustainable Supply Networks and the Triple Bottom Line In addition to operational efficiency and effectiveness, there has been an increasing emphasis on the social and environmental sustainability of supply networks in recent years. We can relate the discussion here back to earlier discussions in this book on value features and how to improve the attractiveness of an organisation’s services and products in the eyes of its customers and clients. But the importance of sustainable supply goes far beyond this, as it involves the ethical obligations of the organisation. Environmentally friendly and ethical supply are closely related to the principles of corporate social responsibility, the notion of organisations taking responsibility for their actions within wider society. So, in addition to sustainable and ethical supply being increasingly viewed as a

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value feature by customers and clients, there is pressure from wider stakeholders in the business to adopt greener and more socially responsible networks of supply. Addressing sustainability also enables the organisation to reduce reputational risk. There have been many examples over recent years of major firms and organisations receiving negative attention following reports of child labour and other exploitation being used in upstream tiers of their supply chains. Sustainable and ethical supply management behaviour is also increasingly being driven by social and environmental legislation, where organisations are mandated to be planet and society friendly. Finally, and perhaps most importantly, a strong argument is that sustainable and ethical supply behaviour should emerge and be driven by the values in the ethos within the organisation itself. ‘The bottom line’ has been used in business throughout history to indicate the importance of financial metrics when assessing any course of action. Traditionally, decisions have been driven by cost, and operations’ performance has been primarily measured in terms of its impact on the bottom line of the profit and loss account. An important and useful concept here is the notion of the ‘triple bottom line’ (sometimes shortened to TBL or 3BL). This term was first coined by John Elkington in 1994 and promoted and popularised in the paper ‘Cannibals with forks: the triple bottom line of 21st century business’ (Elkington and Rowlands, 1999). The TBL represents an extended spectrum of values and criteria for measuring performance, namely the three pillars of social, ecological and economic impact. These three pillars are often shortened to the 3Ps of people, planet and profits – representing a TBL, thus: •

• •

People: Supply managers should ensure fair and beneficial business practices, including free and fair trade, partnerships, collaboration with and use of non-­ governmental organisations, eliminating exploitative and damaging practices that impact individuals, local communities and society at large. Planet: Organisations need to develop natural capital through their supply operations and ensure they minimise or reverse environmental damage in their activities. Profit: Supply managers should still, of course, be mindful of financial and economic performance, including cost management and profitability, though this is now just one of three considerations, not the sole bottom line.

Corporate Social Responsibility Over several years, the corporate social responsibility and supply networks of many leading organisations have come under considerable scrutiny concerning the ethics of their operations, as evidenced by tales of the exploitation of workers and individuals and a perceived lack of conscience on the part of some major organisations. As discussed above, global supply, resulting in increased levels of outsourcing and offshoring, has dramatically changed the supply landscape. It has increased the number of companies that have outsourced their operations to low-wage countries to save costs and expand their influence in emerging economies. But perhaps the resultant problems should not only be laid at the door of these organisations? The reality is that labour laws in some countries are barely existent and, if they do exist, are often rarely adhered to. This can result in reputational damage to organisations and brands and a rising number of recalls (as upstream suppliers cut corners beyond the control of downstream customers). It also, quite justifiably, leads to the questioning of the ethical conscience of some organisations. The lesson here is that an ethical supply chain and wider network require careful thought

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in their design and demand a correspondingly thorough investigation and diagnosis of outsourcing activities and ethical issues by the organisation concerned. The planet element of TBL thinking manifests in many ways in contemporary supply network management, including green supply, waste recycling, design for disassembly, regenerative design and reverse logistics. There is a further argument that lean thinking and Japanese practices of ‘muda’ (waste reduction) are contributing to more sustainable supply. These practices have waste removal (in its various guises) at their heart: a desire to do more with fewer resources. However, although leanness and the removal of waste are preached as best practices in inventory management, this is not always extended to sustainable practices in supply chains. An interesting concept here is ‘cradle-to-cradle’ (C2C) production and supply. Traditionally, organisations have adopted a ‘cradle-to-grave’ approach, sometimes termed ‘take, make and dump’, where natural resources are extracted from the ground, processed and transported through supply networks, used by customers and then disposed of back into the ground at the end of life. C2C, by comparison, advocates that wherever possible, resources and materials extracted from the ground should be designed with a view to reuse, recyclability and ease of decomposition if returned to the ground and biosphere. The term ‘circular economy’ is also often used to denote the cycles of use and reuse within C2C supply networks as compared with the detrimental features of the ‘linear economy’ implied by cradle-to-grave supply and operations.

Electronic and Digital Supply Management As we have observed previously in this book, technological change and the development of computerised systems since the 1950s have impacted all aspects of operations management. Nowhere has this been more evident than in the field of supply management, where electronic and digital planning, control and integration of supply are nowadays common practices. This manifests itself in the form of ‘enterprise requirements’ and ‘sales and operations planning’ systems for traditional tangible goods, but it has also opened new channels for innovative digital products and services. Traditional supply networks are characterised by the linear flow of items from upstream to downstream, from one tier of supply to the next and onwards to the final customer. Each tier of supply is heavily dependent on delivery from the previous tier, and any failure to supply on-time or on-quality items often results in missed delivery deadlines and potentially disappointed customers. Even the introduction of electronic supply management systems, such as materials requirements planning (MRP), did not fully address these issues, as fundamentally they amounted to the automation of traditional linear processes. The subsequent development of the Internet has led to the development of more advanced digital supply management to replace the linear systems of the old. The main advantage of an Internet-based digital supply management system is that it provides increased visibility of the supply chains within the network. In the most efficient digital supply networks, this ‘near real-time’ visibility provides organisations the ability to identify problems and dislocations in their supply chains at an early stage, enabling them to take corrective action to mitigate such circumstances. Digital supply management also has implications for supplier relationships. Fundamentally, it requires not just the sharing of information and transparency across organisational boundaries but also relies upon the integration of planning and control systems and/or the willingness to have

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data and information available for scrutiny on the Internet. This sharing of information and visibility of all tiers of supply for all stakeholders results in more complex relationships between supply partners. Thus, supplier relationship management becomes even more important given that mutual trust between partners is an absolute prerequisite for digital control systems to work effectively in practice. Digital supply management systems still require traditional good practices in terms of forecasting and demand planning, inventory and warehouse management, logistics transportation and general procurement management. But digital systems go a step further by introducing real-time tracking to the supply chain using digital sensors, providing this information on Internet-based platforms and mining data from processes in the supply chain in an intelligent way. These developments, taken together, have in recent years been referred to as ‘big data’ and come under the umbrella of the concept known as the ‘Internet of Things’ (IOT). In summary, digital supply management systems enable downstream organisations to collect and analyse data and assess well in advance whether they will receive the items they expect and require in the right quantities. Thus, digital systems, when effectively implemented, have predictive capabilities for all stakeholders within a supply network and so enable effective decisions to be made to ensure continuity of supply. Clearly, Amazon was an early exponent of digital supply management, starting with the sale of books and then expanding into all product and service areas, and continues to maintain its leading position in many avenues of the consumer retail industry. But there is barely an organisation, small or large, that is not reliant on digital supply management to some extent or other in the world today. The advent of digital supply has also stimulated the development and introduction of a whole array of electronically delivered services. Such services are delivered over the Internet and are as diverse as streaming and content services, software, social media, travel websites, banking services and other activities such as video-based consultation and health services. Whilst some of these online services are provided in real time and synchronously, others are delivered asynchronously (not simultaneously). The impact and importance of digital supply can really be appreciated when one considers the emergence of some of the largest corporations in world business today, for example, Alphabet Inc. (Google parent company), Meta (formerly Facebook Inc.) and the Microsoft Corporation. We have also seen longer-established and more traditional organisations diversify and add digital services to their product portfolios, including the British Broadcasting Corporation (BBC), major banks around the world and both national and private health services. Amazon, with its Prime streaming services, is also engaged in digital delivery and other services, having moved beyond its original retail sector. But, once again, it is not only large organisations that have taken advantage of or have been impacted by the digital supply revolution. The provision of digital services has provided immense opportunities for smaller organisations and new start-up businesses. In fact, some of the largest corporations in the world today by sales turnover, most notably those mentioned before, are relatively new businesses that have grown from start-up entrepreneurial foundations where their founders entered business based on innovative new digital service ideas. Technological advances in digital supply management continue apace. The advancement of blockchain technology into the future is expected to have a profound effect on the management of supply networks. Blockchain technology is expected to provide the platform for full interconnectivity of supply networks from the source to the end

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customer. This will require a profound change in mindset within organisations and in the systems required to effectively manage and control supply chains. The expectation is that blockchain technology will provide stakeholders with even more access to data and information with the effect of reducing communication errors even more. Furthermore, blockchain technology relies upon trust as a fundamental requirement in its operation, thus increasing even more importance of effective supplier relationship management.

Chapter Summary and Examples This chapter has covered the main concepts and principles underlying contemporary supply management, which can be a very demanding area for organisations but can also provide a significant competitive edge if managed effectively. Supply networks and individual supply chains need to be managed with due regard to sustainability, so that they perform to high standards environmentally, socially and ethically, as well as for cost efficiency. Supply management is not simply a technical subject. It requires careful management of the complex interrelationships among suppliers and producers, people and technology. This chapter has therefore provided coverage of supply management practice relevant to all sectors of the economy, providing analytical frameworks to assist the manager in the analysis and design of supply networks.

Reflective Questions • • • • •

Describe a supply network. What two core theories should be considered for the make/buy decision? What is reshoring? What is the Kraljic Matrix? What is the triple bottom line?

Example: Managing Suppliers How should we go about finding a supplier and building supplier relationships? Well, you can have a process where you get potential suppliers to spend hours filling in pre-qualification information to explain why they’re capable of doing the job. Or you can simply meet somebody at an event and think that their company looks okay so you give them a contract. I’ve worked in companies where both approaches have been used! The problems are that you get people who are very, very good at filling out forms and have relevant certification, but how do we find out if they are good, bad or indifferent at what they do? So, it’s really about supply risk management and risk mitigation. If you’re a large company the approach will be to eliminate risk. For example, if suppliers are not ISO 9001 compliant, they’ll be eliminated from bidding as they don’t have a basic standard. If you get an ISO 9001 complaint supplier relationship may struggle because you’re one of 1,000 customers or their processes are so rigid, so in these circumstances you won’t get the focus that you need from the supplier. All companies have weaknesses and strengths, and when you’re choosing somebody to work with it’s about understanding those strengths and weaknesses and your own organisation, it’s strategy, it’s how you will deal with any weaknesses. It’s very much around risk management.

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Example: Supplier Leading System Implementation The implementation of our ERP [Enterprise Resource Planning] system was very much led by the vendor because they already had templates and structure, which we followed. We had project steps on Smartsheets that myself and the project manager from the ERP system put our progress on. For example, in the first month we didn’t involve the end users because that was more about data gathering, reviewing, cleaning data, putting together databases, et cetera. And then we had visits from the ERP vendor technical consultant to the Operations Director to go through the processes and define them, and to confirm that yes, this is the way we want to progress with these processes. That took around four months then we defined a middle management team which was responsible for certain areas of the business mainly: sales, customer care, production, lab, warehouse accounting, et cetera. And we chose each of them to be the main users who would test the system. Once we went live the vendor was still part of the implementation, because it was about correcting, reviewing errors and information that we had on the system. The bugs that existed here and there! So, the supplier really was central to the whole experience of implementing the system.

Example: Managing Sustainable Supply Networks Lean and pull logistics has many benefits but there are risks associated with it, such as poor relationships with suppliers – perhaps they are not reliable and not applying just in time approaches. This could mean that we don’t get our products on time, and that the lean system will fail. But as we gain more experience across the supply network, we can perhaps mitigate those risks.

Further Reading • • • • • • • • • • • •

Barney, J. (1991) Firm Resources and Sustained Competitive Advantage. Journal of Management, Vol.17, Iss.1, pp. 99–120. Bowersox, D.J., Cross, D.J., Bixby-Cooper, M., Bowersox, J.C. (2020) Supply Chain Logistics Management, 5th Edn, McGraw-Hill, New York. Chopra, S. (2019) Supply Chain Management: Strategy, Planning, and Operation, Pearson, Harlow. Christopher, M. (2016) Logistics and Supply Chain Management, 5th Edn, Pearson, Harlow. Cousins, P., Lamming, R., Lawson, B., Squire, B. (2008) Strategic Supply Management, FT Prentice-­Hall, Harlow. Elkington, J., Rowlands, I.H. (1999) Cannibals with Forks: The Triple Bottom Line of 21st Century Business, Alternatives Journal, Vol.25, Iss.4, p. 42. Harrison, A., van Hoek, R., Skipworth, H., Aitken, J. (2019) Logistics Management and Strategy, 6th Edn, Pearson, Harlow. Heinis, S., Bamford, D., Papalexi, M., Vafadar, A. (2022) Services Procurement: A Systematic Literature Review of Practices and Challenges, International Journal of Management Reviews, Vol.24, pp. 352–372. Kraljic, P. (1983) Purchasing Must Become Supply Management, Harvard Business Review, September, pp. 109–117. Lysons, K. (2020) Procurement and Supply Chain Management, 10th Edn, Pearson, Harlow. Mena, C., van Hoek, R., Christopher, M. (2021) Leading Procurement Strategy, 3rd Edn, Kogan-Page, London. O’Brien, J. (2022) Supplier Relationship Management: Unlocking the Value in Your Supply Base, 3rd Edn, Kogan-Page, London.

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Reid, I., Matthias, O., Bamford, D. (2019) Management Consultancy’s Role in Delivering Lasting [Triple Bottom Line] Benefits, Production Planning & Control, Vol.30, Iss.5–6, pp. 476–492. Slack, N., Brandon-Jones, A. (2022) Operations Management, 10th Edn, Pearson, Harlow. van Weele, A.J. (2018) Purchasing and Supply Chain Management, 7th Edn, Cengage, Boston.

Useful Websites • • • • • •

www.cips.org. Chartered Institute of Procurement and Supply (CIPS). www.american-purchasing.com. American Purchasing Society. www.ascm.org. Association for Supply Management (ASM, formerly APICS, American Production and Inventory Control Society). www.ismworld.org. Institute for Supply Management (ISM). www.supplychaindigital.com. Supply Chain Management Association of Canada. www.euroma-online.org. European Operations Management Association (EUROMA).

8 Managing Operations Strategically

Figure 8.0  Conceptual Model of Operations Management

Introduction This book began by providing a context for operations management, including a brief history lesson in terms of where it came from and the influences on its evolution. It moved on to cover design aspects and then control systems. This chapter will cover how strategies are formulated and what they can do for us, some of the conflicts involved, and structured approaches to implement strategies within operations management. How do we manage all this strategically? The chapter reviews existing theory and practice in what has been a developing area of study since the 1980s. The strategic frameworks provided by Hill (2005) and Hayes and Wheelwright (2008) and the concept of the Efficient Frontier are presented and examined below.

What Is Strategy? Strategy is the pattern of decisions and actions taken to move the organisation towards a predetermined future state. It is the series of decisions made over time, the total pattern. DOI: 10.4324/9781003314998-8

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This is more than just one decision, and it is after the combination of disciplines within an organisation fitting together (e.g. finance, marketing, operations). The environment makes it contextually specific, as its content and features are contingent on its sector of the economy, e.g., hospitality, pharmaceutical, manufacturing and service. In terms of long-term goals, every organisation needs to acknowledge and specify what these are and understand what ‘long term’ within their sector means; every sector has at least some knowledge of this. But what is long-term? It is different for different sectors. For example: the education sector, five years; the healthcare sector, three years; manufacturing, two to three years; exhibitions organising, three to five years; pharmaceuticals ten to fifteen years.

The Role of Strategy in Operations Management Skinner (1978, 1985) taught us that in practice, the operations management function tends to be either a ‘competitive weapon’ or a ‘millstone’ for an organisation and that it is seldom neutral. Skinner argued that by adopting a strategic approach to managing operations, the organisation can achieve a competitive edge over its rivals. By not paying sufficient attention to the product or service provided and its links with corporate objectives, operations processes can impede corporate success even when corporate objectives have been well stated and an effective marketing strategy has been formulated. Operational management is focused on the ‘short term’, ranging from one to twelve months, depending on the market sector. Think of the difference between the operational life cycles for festivals and concerts (days/weeks) versus mobile phones (years). Operational management is the focus on the specific operational ‘value add’, the transformation part of the process and the delivery of the service. Operations strategy can be ‘long term’, say from one to ten years, depending on the market sector. The level of analysis is macro; it looks at the entire organisation. This is not just a physical boundary; it can be across national boundaries and globally. For example, think of Amazon, McDonald’s, Apple, etc. But why are operations sometimes viewed as having little or no strategic importance? Because operations usually perform defined tasks, they do the transformation ‘bit’: they provide the point of service. What they do is immediate – it is often visible and happening now. According to Hill (2005), this reactive perception of the role is due to: • • • •

The operations managers’ view of themselves The organisation’s view of the operations manager’s role Operations managers are often too late in the corporate debate The operations managers’ lack of business language

Consequently, operations management input is often omitted in strategy development. Why? Because the operations people do not get invited to the meetings because they are providing the service, making the products and ‘fire-fighting’ to resolve immediate problems in the process. They are too busy re-designing and optimising the ‘systems’, attempting to make them lean and agile and managing difficult suppliers and demanding customers and clients. This all takes time and substantial effort. Frequently, the operations management staff, their input and their expertise are omitted from strategy formulation because strategic development is done by the senior team

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under the auspices of the Chief Executive Officer (CEO) or equivalent. It is prepared by the people who get paid most: senior executives and board members, the directors and the CEO. Their role is to develop and implement strategies. One might argue that although they have a vested interest to get it right, they also need to prove their own worth by way of contribution. Sometimes this means that other opinions are omitted from the decision-making process. Operations, as the key service providers, the ‘transformation’ people, should have a central role in terms of developing the strategic competitive advantage. Within every successful company, they do indeed play a central role in ensuring processes align with the strategies adopted.

Identifying Order Qualifiers and Order Winners? For a ‘strategic difference’ in operations and to link marketing and operations, organisations need to identify and distinguish between what have become known as order qualifiers and order winners: • •

Order-qualifying criteria get a service or product into the marketplace or on to customers’ and clients’ shortlists and keep them there (conforms to the basic requirements: ability to supply; registration to required quality standards; etc.). Order-winning criteria give the product or service superiority over the offerings of competing or alternative organisations.

Typical order qualifiers and winners include price (cost), design, quality, delivery speed, delivery reliability, demand flexibility, product/service range, colours/patterns, economy of use, design leadership, technical support, after-sales service, etc.

The ‘Hayes and Wheelwright’ Framework Robert Hayes and Steven Wheelwright developed a useful framework intended to provide guidance for managers when attempting to evolve their strategies and operations (Hayes and Wheelwright, 2008). Whilst originally written with the manufacturing sector in mind, the premise is applied equally well to the service sector. This is represented in Figure 8.1. The four stages are: • • • •

•

Stage 1 – Internally neutral: Minimise operations negative potential Senior managers view the operations function as neutral; it is incapable of influencing competitiveness success. The emphasis here is to minimise any negative influence that it may have upon corporate and market developments. Stage 2 – Externally neutral: Achieve parity with competitors Senior managers see operations as important only in so much as they match the effectiveness and efficiency of competitors in the same industry. Here, the emphasis is upon following industry practices in managing the workforce, avoiding large step innovations in process technologies and viewing economies of scale and efficiency as the most important factors. Stage 3 – Internally supportive: Provide credible support to the business strategy

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Figure 8.1  Hayes and Wheelwright Four Stage Model

•

• •

Senior managers expect operations to support and strengthen the company’s competitive position. They see the contribution of operations as deriving from, and dictated by, corporate objectives. They ensure decisions made are consistent with corporate and marketing strategies, that strategy is translated in terms meaningful to personnel, and are proactive in developing longer term strategies at the functional/operational level. Stage 4 – Externally supportive: Pursue an operations-based competitive advantage This is where senior executives see operations capabilities as having a significant influence upon overall competitiveness. So, operations strategy is not merely determined by internal corporate and marketing strategies but will allow operations executives to have a meaningful role in contributing to the development of the company and its collective strategies. In some cases, this will result in the realisation that operations are the key ‘competitive weapon’ within the organisation.

Managers can identify at which stage their companies are in this framework and therefore identify changes that need to be made within the organisation to progress to the next stage.

Structured Approaches to Formulating Operations Strategy Most of the available advice concerning operations strategy tends to be promotional and highly prescriptive without providing any meaningful structure for the detailed analysis of operations decision-making. An approach to the analysis and formulation of operations strategy has been produced that provides a practical guideline for the development of strategies, the Hill (2005) framework.

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Hill’s Framework for Analysing Operations Strategy Hill summarises his arguments and discussion within his ‘framework for reflecting strategy issues in corporate decisions’. This framework is adapted and presented in Figure 8.2. Fundamental to the framework is an understanding of step three: ‘how products win orders in the market-place’. In turn, it is argued that the mix of these comes from two major sources: (i) the customer, client or market needs as reflected in corporate strategies; or (ii) the inherent features of the operating system on the other. The organisation must identify the order-winning criteria for its output, i.e., the correct balance between the factors detailed above, and then reflect these in its corporate objectives, market strategy and operations system design. The five steps in the framework are defined as: 1. 2. 3. 4.

Define corporate objectives Determine marketing strategies to meet these objectives Assess how different products/services win orders against competitors Establish the most appropriate mode to manufacture these sets of products or provide these sets of services – process choice 5. Provide the infrastructure required to support the production/operations process The Hill framework demonstrates how market and competitive decisions are, and should be, linked with decisions on operations system design. Moreover, it explores the relationships from the ‘bottom-up’ and illustrates how excellence in operations can provide order-winning characteristics for services and products that may not have been recognised as winners by corporate decision-makers and marketing managers. The framework can be used in two ways: (i) for the assessment and evaluation of the effectiveness of operations in relation to corporate objectives and product markets; and (ii) as a guide for developing new, market-focused strategies and systems in operations. As such, it represents a significant contribution to the study of operations strategy and process decisions.

Figure 8.2  Framework for Analysing Operations Strategy (adapted from Hill, 2005)

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Figure 8.3  The Business Model Canvas (adapted from Osterwalder and Pigneur, 2010)

The Business Model Canvas The business model canvas represented in Figure 8.3 is a one-page overview presenting: what you do (or want to do); and how you go about it. It enables structured conversations around management and operations strategy by laying out the crucial activities and challenges involved with an initiative and how they relate to each other. This visual format, first introduced by Osterwalder and Pigneur (2010), is useful for both existing and new organisations and helps to tangibly link operations to the organisation’s value proposition. The Strategy Development Cycle From our own collective experience, the following procedure, shown in Figure 8.4, is a very useful guide for operational strategy development. Here, the corporate vision and strategy (1) are used to generate specific objectives (2). These organisational objectives define appropriate metrics (3) (key performance indicators (KPIs)), which then help determine explicit actions (4) (e.g. who, what, where, when and who). Stage four, action (4), then enables the creation of a plan (5) that can be shared appropriately, and this then demands an appropriate review (6), which is often omitted, to provide feedback into stage four (action 4) and perhaps inform the next cycle of vision and strategy development (1). Of course, organisations often create their own mechanisms for strategy development. The above is a simple representation of what is required for a logical and reasonable methodology. Strategy and the Product Life Cycle Figure 8.5 represents the four distinct stages of the product’s life (introduction/growth/ maturity/decline). In terms of strategic applications, this is something that needs to be thought through carefully. The strategy adopted at different points in time for products within an organisation makes the difference between companies being successful or not.

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Figure 8.4  Strategy Development

Achieving a Competitive Edge Through the Efficient Frontier Hill (2005) provides an interesting insight into the activities of strategy formulation and translation. However, it adheres to a top-down and rather overly market-deterministic view of operations system development. A further criticism is that it says very little about the people, the ‘human’ resource (HRM). Quality programmes are frequently used as the strategic vehicle to change the attitudes and beliefs of employees and thus enable operational activities to be more market-focused and customer/client-orientated. Within operations strategies, the market-driven approach has led to a partial retreat from traditional scientific management and ‘Fordist’ techniques, which seek to exploit economies of scale, minimise costs and maximise labour productivity. These approaches did not place a high emphasis upon the notion of continual improvement. Typically, optimisation of operations was sought, usually to minimise total costs, but little attempt was made to improve the parameters upon which such optimisation was based, such as reducing costs of supply and so lowering the economic-order quantity.

Figure 8.5  The Product Life Cycle

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The concept of competitive advantage was really established by Michael Porter in the 1980s. Porter posited that the source of competitive advantage is within the firm’s capacity to differentiate itself from the competition. As a development of this, businesses are often focused on aspects of the so-called ‘competitive edge’, the notion of having an advantage over competitors and generating greater revenues/margins than others in the sector, achieved through cost reduction and restructure, varied product offerings, an efficient supply and distribution network or exceptional customer support services. Sustaining a competitive edge is generally the goal for all organisations, regardless of their sector. An interesting and relevant development of this concept is that of the Efficient Frontier, originally from finance theory but since developed within management theory. This concept can best be explained through an example, as per Figure 8.6. Let us consider six companies that operate within a similar sector, for example, serving food. Creating a simple representation with cost efficiency on the vertical axis and variety on the horizontal axis allows the placement of companies based upon their perceived performance in these two areas. Company one and company six are operating on a hypothetical ‘efficient frontier’, where they clearly perform best within that sector against certain criteria. For example, let us consider Company 1 as having high-cost efficiency and low variety (such as McDonald’s fast-food restaurants) and Company 6 as having high variety but low-cost efficiency (for example, any Michelin-starred restaurant). The other companies represented within the sector (Companies 2–5) have neither the extreme cost efficiency nor extreme degree of variety. This type of representation, therefore, allows for an overview of the current state within a specific domain. An important note is that the axes labels are not limited to just variety and cost efficiency. They could be almost any combination of useful criteria to allow comparison and strategy development; they can be changed to better represent the sector and to make the representation useful. For example, within transport systems, the axes labels could be considered cost efficiency versus dependability or cost efficiency versus

Figure 8.6  The Efficient Frontier

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flexibility. The choice would be driven by the operational representation needed to help inform strategic planning. This technique, when designed, developed and facilitated accordingly, has the potential to provide an organisation with a strategy towards achieving competitive advantage. Performance Objectives The areas in which strategic improvements are sought are numerous; some examples will be given here. There is an obvious progression from macro strategy development to discussions involving specific performance objectives. As indicated in Chapter 1, the performance objectives KPIs are usually given as: • • • • •

Quality: doing things right the first time Speed: doing things fast Dependability: doing things when you say you are going too Flexibility: being able to change what you do Cost: doing things cheaply or at a price the market will bear

These ‘5 KPIs’, in combination, give us the polar diagram. See Figure 8.7. This can be usefully employed to justify, communicate and legitimatise changes in strategy and approach by overlaying the ‘footprint’ of one company over another. Note that each of these independent performance objectives has a distinct relationship with the others. They are interdependent: if we want to be the fastest and provide the best quality, it is going to increase the cost. This obviously has an impact upon strategic planning and needs to be factored in. At its most basic level, it means companies cannot change what they want to because of the consequences involved. Much attention has been given to the reduction of lead times in terms of service or product design. The faster an organisation can move from the original design specification to provision of that service or product, the more attractive the item will be to the market or clients. Similarly, short delivery lead times, from the placing of an order to receipt of the service or goods, will attract customers and clients who, given the choice,

Figure 8.7  Performance Objectives Polar Diagram – Company Comparison

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prefer delivery sooner rather than later. Attention has also been given to increasing the level of operational flexibility and widening the range of tasks that can be accomplished within the existing operational systems to satisfy the specific and specialised needs of individual customers. Costs remain an important factor because of their direct relation to profit and selling prices. In addition to improved labour productivity, however, much greater importance is now given to the reduction of costs through lowering inventory levels and increasing stock turnovers. Quality also has an integral part to play in the operations strategy of the market-driven company. Quality can be viewed in two different ways: in a product sense and, more holistically, in an organisational context. Quality and reliability are important attributes for any product, and levels of sales are often determined by a company’s past reputation in these areas. However, quality, in its wider organisational sense, is often seen as fundamental in establishing and maintaining the appropriate culture and attitudes within the organisation. Total quality management (TQM) and its associated methods and processes are, as a result, now seen as important components of operations strategy.

Summary This chapter considered the process of operations strategy formulation and provided guidance on how this may be conducted. The literature on operations strategy was reviewed and seems to suggest that a strategic, top-down and market-orientated approach to operations should be taken by managers so that quality and service become integral parts of the strategy alongside factors such as cost and efficiency. The range of processes required by the market and the response demands in terms of time to market and order response are critical areas in which the company should seek to satisfy its customers. This calls for flexibility within operations to cope with these demands. Decision makers must understand and analyse the main inputs or key parameters to the process of strategy formulation when developing a manufacturing strategy. These criteria include the corporate policy and objectives of the organisation, its market strategy, and an internal audit of the competencies within the operations and supporting functions of the business. In doing so, an appropriate and realistic strategy can be developed, and from this, strategies for separate operations units can be set. Of course, the strategic operational intent of the organisation needs to recognise the cumulative effect and impact of appropriate planning and action throughout the system. Specifically, the business strategy needs to drive the operational strategy (the pattern of decisions and actions), which then needs to be used to inform the design of appropriate systems and processes within the operational domain to deliver against the developed strategy. Following that, appropriate control systems must be established that allow for transparency of the results achieved through the designed systems. Then, there is the necessity to acknowledge that no operational system is ever perfect and that continuous improvement is a business necessity. These operational elements (strategydesign-­control-improvement) should then feed back to the overall business strategy to determine fitness for the purpose of the operations design. As a final thought, it should be acknowledged that operations strategies also have an ethical dimension – business and operations strategy decisions impact communities, regions and sectors. The effect on quality-of-life issues is important. Corporate social responsibility (CSR) and the aspects of associated operational risk need to be considered carefully throughout strategic planning cycles.

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Reflective Questions • • • • •

What is Strategy? What are Order-Qualifying and Order-Winning Criteria? What is the Hayes and Wheelwright model? What is the Business Model Canvas? What is the Efficient Frontier?

Example: Strategy Planning – Digital Systems The decision of choosing our ERP [Enterprise Resource Planning] system sat with our leadership team, but I started with a discovery stage by analysing the current processes and noting down the requirements from sales, production, quality, logistics, accounting. We were then able to state what we wanted to try and achieve, and what we were currently struggling with for each of these processes. This allowed the creation of a prioritised requirements list with the help of the Operations Director, who was the project sponsor. So, then we needed to put together a strategic business plan where we introduced what an ERP system was, what the tangible and intangible benefits were and a detailed return on investment analysis. Then we managed to find funding for the ERP system – and I think the strategic plan provided the appetite for the business to actually invest in it.

Example: Strategy – Police In the police force we have gold, silver, bronze which fit with strategy, tactical, operational. So, for any major operation the gold Commander will be in charge, and they set the strategy – so it’s all about clear, concise messages, for example about keeping the peace. Then, we need to tailor what we’re actually going to do on the day to the specific context. Within police operations a key takeaway for me is that the strategy, tactics, operations can be developed on an ongoing basis – they can be developed and improved so we don’t do the same thing every time. It all must fit so that the operations on the ground align with the desired strategy. Of course, we also need some control in place – usually on budgets! For example, if a communicated strategy is to keep the peace at a football match, then we can simply order 1,000 officers and we have a successful outcome. But the strategy needs also to say that we must manage efficiently and effectively, and provide some parameters for that, to give clear direction.

Example: Strategy – Property Management So, we know that where we have an overall corporate strategy, that is then translated into an operational strategy and then into proper operations management practices with standard operating procedures. Where it goes wrong is when somebody doesn’t think through those steps and jumps to ‘why don’t we just do it this way’? That sometimes works, but when it doesn’t then we don’t get the outcome desired from the corporate strategy, often because it’s not linked. There is no golden thread from one to the other, and that’s where you have to have a senior management point of you, you have to have the vision to say this is the outcome we need, and we’re going to empower you to implement this, but we’re also going to check in with you on a regular basis and use metrics to tell us whether what you do is meeting the corporate strategic aim. This has to happen because without that visibility, you’ll just be blindsided – you don’t know what’s going on. Now you could get lucky, you could just do something and get it right, you could

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make it up as you go along – we all know that an overall strategic plan does not ensure success, but it really gives you better odds than not having one at all. Because if you don’t have one, you’re just flapping in the wind!

Example: Strategy – Sport Events With England Netball, we had very clear strategic objectives within the events and venue operations team because it was such a time of transition for that sport, it went from a grassroots sport to everyone knowing about it. With other sport venue operations, we would be given games time objectives in advance, things that we needed to achieve. For example, British Athletics had a ‘pathway to success framework’ that they followed to make sure we were hitting targets and participation levels and engagement. It was all the things we all had to be aware of that counted towards that framework, and also made sure we were successful getting Olympic funding. It’s things as simple as getting people in the door that could make the difference between whether you get your full funding or 50% funding, so it’s important to the national governing bodies and they have a clear strategy.

Example: Strategy Deployment Using Hoshin Kanri US tech company with £55 billion turnover, 16 global manufacturing sites and a President of Manufacturing who was trying to line all those sites to the overall operations plan for the next five years. For this he used Hoshin Kanri [strategy deployment], but a problem that became apparent was the people side of the implementation. More specifically the leadership of the people, because Hoshin Kanri requires soft skills in coaching your people in how to use it, because it’s a global approach with localised input. When it works it allows frontline staff in remote locations to direct their effort – their operations effort – towards the key strategic alignment. But it comes unstuck because each Business Unit has a leadership team that needs to understand it. So, the takeaway for me was that at the headquarters level, the senior leadership team may understand the concepts behind it, but actually the application and the delivery at a localised level requires additional support and knowledge and know-how. They need to be taught through a coaching process, because to do anything successfully over a period of time, you need to have practice and routine, and practice and routine. Quite often with policy deployment senior leadership just says, ‘there it is, run with it’, but then the staff don’t know how to run with it because it is quite complicated and they’ve not been taught. Part of the solution is therefore providing the education behind it, because you might have a great strategy, but you need to follow it up with the education and support to get buy-in, and to get buy-in staff need to understand it and practise it.

Further Reading • • • • • •

Brown, S., Bessant, J., Jia, F. (2018) Strategic Operations Management, Routledge, London. Hayes, R.H., Wheelwright, S.C. (2008) Restoring Our Competitive Edge: Competing Through Manufacturing, Wiley Ltd., New York. Hill, T. (2005) Operations Management, 2nd Edn, Palgrave Macmillan, New York. Osterwalder, A., Pigneur, Y. (2010) Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers (Vol. 1). John Wiley & Sons, Hoboken. Porter, M.E. (2008) The Five Competitive Forces That Shape Strategy, Harvard Business Review, Vol.86, Iss.1, pp. 25–40. Priolo, R. (2019) What Is Hoshin Kanri? Planet Lean. Retrieved from https://planet-lean. com/what-is-hoshin-kanri/

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Skinner, W. (1978) Manufacturing in the Corporate Strategy, Wiley, New York. Skinner, W. (1985) Manufacturing: The Formidable Competitive Weapon, Wiley, New York. Zhang, Z., Bamford, D., Moxham, C., Dehe, B. (2012) Strategy Deployment Systems Within the UK Healthcare Sector: A Case Study, International Journal of Productivity and Performance Management, Vol.61, Iss.8, pp. 863–880.

Useful Website •

www.innovateuk.org. Research and Innovation, useful UK resource site with strategic resources.

9 Managing Quality Systems

Figure 9.0  Conceptual Model of Operations Management

Introduction Definitions and interpretations of what comprises ‘quality’ vary considerably. In addition, even once defined, how to best manage quality is open to considerable debate. This chapter sets the scene on various views and dimensions of quality systems management. At its most basic quality control is the measurement of variables or attributes and the use of these data to assess the quality of the operational output. It provides an indication of where changes, if any, should be made to processes, procedures and perhaps even the people working in the organisation. To aid this, several statistical methods have been developed and widely adopted since the 1920s; however, these do come with a ­warning – before adoption, an organisation must pay attention to the means of measurement and whether statistical tools are appropriate to their circumstances. This chapter considers the tools of quality control and the issues identified above.

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Definitions of Quality It has been said, ‘Good quality does not necessarily mean high quality. It means a predictable degree of uniformity and dependability at low cost with a quality suited to the market’ (Deming, 1982). In attempting to adopt an operationally strategic focus on issues of quality, it is necessary to appreciate that people have different and often blurred conceptions of what quality really is. Quality is often associated with expense, as in the case of a Rolex watch, for example. However, it is quite possible to pay a high price for something and receive inferior service, or to pay a relatively low price in return for something of ‘high’ perceived quality. Definitions of quality depend in no small part on the respective market and the intended use. It is worthwhile to see quality as a perceived characteristic that varies with each individual, and a common description of quality is ‘fitness for purpose’. All organisations need to recognise that quality is central to both current and future business success and survival. Indeed, businesses in general require certain standards of quality service to simply retain their customers. Examination of quality only has a purpose when it is related to its actual function and application. So, a brass paper clip could be considered a quality product for attaching sheets of paper together but poor as a tie clip. It is therefore useful to consider quality as a function of two specifics: 1. Its specified design 2. Conformance to this specification Traditionally, quality assurance systems have been developed where the emphasis has been placed on conformance via the use of ‘inspection’ and ‘testing’ procedures, ‘quality control’ (feeding back quality information for decision-making purposes) and ‘quality audit’ (control of the quality system itself ). Techniques for the control of quality conformance tend to be statistical in nature and include ‘statistical process control’ (SPC) or Six Sigma (6σ) for the quality measurement of in-house operations and ‘acceptance sampling’ for the control of incoming or brought-in operations. Quality assurance via assessment of conformance to design specifications can be viewed as a policy of ‘detection’. This can be contrasted with the emphasis within quality systems on the design of the product or service; a ‘prevention’ policy that is focused on delivering a right-first-time service or product.

Quality Systems When considering the operation of a quality management system, it is useful at a fundamental level to consider it as comprising three levels of measurement and control. These three levels are: (i) measure; (ii) control; and (iii) quality audit and management (see Figure 9.1). Level 1 – Inspection Quality inspection comprises the measurement and evaluative activities that take place to assess the quality of incoming and outgoing operations at each stage. It also incorporates

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Figure 9.1  Overview of a Basic Quality System

‘work-in-progress’ (WIP), or part-finished service or production inventory. Inspection takes many forms, and measuring performance can involve measuring time, volume, dimensions, weight or perhaps more qualitative checks on appearance, perceived views on innate quality, service provision, etc. But inspection by itself is not enough; it is what the organisation does with the inspection data that is important. Hence the need for the next level in the quality system: control. Level 2 – Control Quality control involves evaluating data from quality inspection, identifying any variations to the desired standards and then feeding these data back to earlier stages in the process to enable adjustments to be made to processes, procedures and/or people wherever necessary. Control, in the context of quality control, does not fully assure quality. The question may arise as to whether the standards are good enough, the control procedures are appropriate or measuring equipment is accurate enough. It is for these reasons, amongst many others, that the quality inspection and control systems must be periodically audited and managed. This is the next level in the quality system. Level 3 – Audit Quality audit is, in effect, control of the quality control system. It works at all levels. In its simplest form, it can involve the checking and calibration, where necessary, of equipment such as timers, gauges, rulers, weighing machines, weights or algorithms/ computer programmes. It may involve a periodic assessment of the use of control data and whether appropriate actions are taken. A high-level form of quality audit has developed, the ISO 9000 Quality System Series. Under this system, ‘external assessors’, or auditors, of quality control procedures are engaged. If the quality systems in use are deemed satisfactory, i.e., they comply with set international standards, the organisation is awarded an appropriate quality certificate for a set period of time, after which the company will be subject to another review. Sometimes the auditor and award are not part of international standard but rather from a specific company – usually an important customer. For example, Unilever, or consider healthcare providers such as the UK National Health Service (NHS).

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Unfortunately, this type of setup is not efficient because you employ people to inspect, control and audit, but they are not actually adding any value to the operation. They are looking for problems or defects that should not have happened anyway. Ideally, we should design efficient processes that have a repeatable system built into them for effectiveness and efficiency. So, a tangible way of reducing costs and thereby improving overheads is to remove the inspection level; another way of doing it is to improve the output quality and the repeatability by designing or redesigning it to function ‘right first time’. Most operations and businesses strive for this effect, but there are some exceptions. For example, anything that is safety critical, such as transport services, healthcare, pharmaceutical production and aircraft manufacture, requires lots of inspection because there are serious consequences if something goes wrong, and so lots of testing takes place. This is part of the reason that some services and products are so very expensive. International Quality Standards Many ‘standards’ exist for companies to achieve accreditation against. Often, the type of standard chosen by companies is specific to the sector within which they operate. For example, ISO Standards 9001 (used by organisations to demonstrate their ability to provide operations that meet customer and regulatory requirements and to demonstrate continuous improvement), 14001 (set out the criteria for an environmental management system), 45001 (international standard for occupational health and safety manager) and 27001 (international standard on how to manage information security). The International Standard Series, ISO9000, was first published in 1987 and was largely based on the British Standard, BS5750, which had been around since 1979. The current version of ISO 9001 has requirements for accreditation contained within multiple criteria ranging from defining specific top-level management responsibilities for ownership of the quality management system to the focus on customer satisfaction, which obviously requires appropriate data and information/feedback (see www.iso.org). These ISO standards are designed to be broadly applicable to any organisation seeking registration, of whatever size, in any sector, whether service- or manufacturing-based. They are also periodically updated, for example, the ISO 9001 (1994) series did not strictly deal with: continuous improvement; leadership; people involvement; customer delight; or business results. These were viewed as major weaknesses of the standard, and the 2000 revision incorporated two major additions: (i) continuous improvement methods (what and how do companies improve); (ii) resources planning and management (how are resources planned, allocated and managed, and what are the results). The standard was also simplified somewhat, with five requirement clauses replacing a rather extensive twenty criteria (note that the twenty criteria sit within the five criteria). The current version (2015) has seven quality management principles (customer focus – ­leadership – engagement of people – process approach – improvement – evidence-based decision-making – relationship management) and sections/clauses that each concentrate on the requirements involved in different aspects of the quality management system (context of the organisation – leadership – planning – support – operation – ­performance evaluation – improvement). External auditors are responsible for assessing a company’s operations against the ISO requirement clauses, and only when they are convinced the organisation satisfies the set criteria will that company be awarded the ISO accreditation.

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Despite the attractions of accreditation, certification and award schemes as a means of auditing companies quality systems and procedures, there are many critics of such schemes. Some of the main arguments are: • • • • •

It is still seen as only an indication, not a guarantee, of product or service quality. Many organisations are forced or feel obliged to register and receive such awards by their own customers (no registration = no sales). The procedures and documentation demanded by ISO are still widely criticised as being overly bureaucratic. Does the existence of procedures and manuals necessarily mean that they are followed? Does the external auditor readily understand the operations of the organisations they visit?

The Responsibility and Organisation for Quality It is widely recognised that accountability for quality cannot be abdicated by any individual working within an organisation. A ‘total’ approach to quality management is advocated, where responsibility for quality is disseminated throughout the organisation at all levels to all departments. A quality system based upon shared responsibility by all individuals and functions provides an effective means of assuring the upkeep and improvement of quality standards. Despite the need to disperse responsibility for quality throughout the organisation, there is still a need to determine how quality control activities will be carried out and where these operations will be located. There are many options here, and choices include the incorporation of quality: • • •

as a department in its own right (unbiased but at risk of isolation) within the operations function (but perhaps questions of objectivity and independence from operational pressures?) within the technical function (with a design function, but possibly too inward-­looking?)

So, although the need for widespread responsibility for quality throughout a company exists, there needs to be some organisational decision-making regarding where the focus of quality management activities should be located. For this reason, most organisations still employ a quality manager.

Supplier/Customer Relationships Incoming quality from suppliers is a crucial factor in determining operational quality; the relationship between supplier and customer has received much attention over recent years. If we are to accept that quality of design is of even greater long-term significance than quality of conformance, then one may appreciate why organisations develop collaborations with suppliers and encourage their participation in new product design programmes. All companies now do this to some extent. It is important to note that individual organisations are not merely either suppliers or customers; they are both at once. Organisations buy in services and products from others, in addition to producing output in the form of services and goods. It is also

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important to note that a consumer is not merely at the end of the overall value chain. All organisations are consumers of the services of other organisations. It is imperative that they pay attention to supplier/customer relationships and understand that they are both at once and need to adopt appropriate means of quality control for both the assessment of their own in-house activities and the assessment of the quality of incoming services and perhaps materials. These assessment methods are outlined in the rest of this chapter.

Measuring Quality When measuring quality, a distinction can be drawn between the measurement of quality by ‘variables’ and by ‘attributes’. Measurement by variables can occur when quality can be calibrated against a scale or in numbers (e.g. speed/time, volume, variety, size, weight). Measurement by attributes occurs where no scale exists (e.g. a light bulb either works or it does not). It is also useful to distinguish between quality measurement activities for the purpose of controlling operations processes and the assessment of bought-in services from an outside supplier. Internal control of processes is most commonly achieved via the measurement of variables, whereas the assessment of incoming resources is most frequently made by attributes. As stated previously, organisations act as both producers and consumers at the same time. They will, therefore, all be involved with process control and quality ‘inspection’ to varying degrees. So, in addition to organising the quality system, recognising and managing the costs of quality and defining responsibilities, they must be aware of the specific techniques that are available for both the control of processes and the assessment of bought-in materials and services. Many forms of quality control exist, but two forms have been extensively used in organisations to ensure operations attain and maintain the required standards. These are Six Sigma/SPC, widely used for the control of processes where measurement is by variables, and acceptance sampling where assessment of incoming goods and services to the organisations is assessed based on attributes. Each of these will now be considered in turn, with straightforward acceptance sampling being considered first. Acceptance Sampling The batch assessment of incoming materials normally results in one of two basic decisions: reject or accept. One could inspect 100% of incoming items, but this is costly and very time-consuming (e.g. think about supermarkets receiving all the goods during a 24-hour cycle, no time there to inspect). Therefore, a sampling approach is normally adopted, commonly known as ‘acceptance sampling’. The technique is essentially one of making a decision regarding the ‘acceptable quality level’ (AQL). This is the proportion of incoming goods in the form of defects that an organisation is willing to accept (could be 1%, 2%, etc.). These percentages and the degree of reliability of this method are mathematically calculated. Six Sigma (or Statistical Process Control) SPC has been popularised by the widespread adoption and introduction of “Six Sigma” (6σ) within businesses. The phrase Six Sigma refers to the degree of process control; when

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a process operates at ‘Six Sigma’, the variation is so small that processes are 99.9996% on target/within range (or, put another way, 3.4 defects per million opportunities). SPC is used for the quality control of processes by variables and makes use of ‘process control charts’, as devised in the 1920s by Dr. Shewhart of the Bell Telephone Laboratory in the USA. The Shewhart Control Chart indicates when a process is changing (i.e. becoming unstable). The approach is known as SPC because it controls the process using the numbers generated by that process. SPC charts can be used for many processes, for example: • • • •

The time it takes to process anything For example, checking on customers at a hotel; scanning items at the supermarket; order taking; making paint The number of supplier/customer complaints per month The level of chlorine in water

SPC relies upon the measurement of the mean average of variables and their variability around the mean and assumes a ‘normal’ distribution of variables around that mean (see Figure 9.2). The so-called ‘normal’ distribution is created by collecting over 31 data points and plotting their distribution about their mean. Mathematically, this is known as the Central Limit Theory and will create a ‘bell curve’ shape (as it has the outline of a bell), the normal distribution. For example, wooden pencils are produced in a continuous length and then chopped to size. If we assume a continuous length of pencil travels down a track and is chopped by a blade at regular intervals, we might get some variation in length. If we collect 31 or more samples, measure their lengths and plot the results, we will see a normal distribution (a bell curve) much like that in Figure 9.2. Remember, only with over 31 data points does the Central Limit Theorem apply. This can then be utilised because the bell curve can be of different shapes and this can inform our knowledge of the reliability of the process. Using the example of the pencils, if there is little variation in the measured length, the bell curve will be ‘tall’ and ‘thin’ (see Figure 9.3, distribution A); an ideal state. However, if there is great variation in length, the curve might more resemble that of distribution C, which is so-called ‘short’ and ‘wide’. Not an ideal state in terms of process control. The consequences of this state

Figure 9.2  Normal Distribution

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are that some pencils may be too long (giving raw material away for free) and some too short (the customer does not receive the length as advertised). These data are useful because with it we can predict the percentage of pencils that are not fit for purpose (being too long or too short). The theory behind this technique also allows us to factor in other issues, such as the range (the difference between the ‘smallest’ and the ‘largest’) and the actual tolerance required by the customer, the specification. Two main forms of charts are used: the average or ‘X-Bar’ chart, which tests for significant changes in sample means, and the range or ‘R’ chart, which tests for significant changes in the spread of variables. The R chart is always used in conjunction with the X-Bar chart. Example uses include call waiting times in call centres; call dealing times in call centres; processing speed through supermarket checkouts; processing speed through airline check-in desks, etc. An ‘X-Bar’ averages control chart (see Figure 9.4) is constructed in the following way: 1. 2. 3. 4.

Plot the sample number on the horizontal axis Calculate the sample mean, X-Bar Calculate and draw in upper and lower action and warning limits Plot sample averages on the vertical axis

In addition, the ‘range’ chart is especially useful when collecting large data sets from continuous operations. Under these conditions, we do not measure and plot every data point; instead, ‘sets’ are grouped together (in fives, tens, etc.) and the average of that group is plotted. This has the advantage of presenting the information in a condensed way. The disadvantage is that by using averages of the data points, the actual measurements can become softened or blurred. For instance, see Table 9.1.

Figure 9.3  Different Shape Bell Curves

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Figure 9.4  X-Bar Chart

Note that the averages in the table are the same, but the variation in the sample points is substantial. This is highlighted in a range chart (see Figure 9.5). An ‘R’ range chart is constructed using the following methods: Plot sample number Plot sample number on the horizontal axis Calculate the average range (w) Calculate and draw in the upper action and warning limits only (since a lower limit would indicate an improvement) 5. Plot sample ranges on the vertical axis

1. 2. 3. 4.

SPC is, according to Juran (1979), ‘A data-driven process-improvement methodology’. It is a statistical concept that tracks the amount of variation in a process relative to the set specification or customer requirement. When a process operates at Six Sigma (within six standard deviations), the variation is so small that services or products are provided Table 9.1  Why Are Range Charts Useful?

Sample 1 Sample 2 Sample 3 Sample 4 Sample 5 Average Range (R)

Day 1

Day 2

21 24 22 23 22 22.4 3

16 29 17 28 22 22.4 13

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Figure 9.5  R Chart

99.9996% defect free (or 3.4 defects per million, Figure 9.6). Employing Six Sigma involves extensive specialist training of key personnel; they become certified practitioners (holding coloured ‘belts’ to indicate their level of expertise in application: e.g. Green, Black and Master Black Belt). Organisations must also have the ‘right’ quality environment/culture/system in place to become a ‘Six Sigma company’. The implementation of Six Sigma requires a Six Sigma Champion, careful project selection, a project Sponsor, a Master Black Belt, other Black Belts on the team, a project team: Green Belts (often as part of their training) and others. But who uses it and why? From the mid-1980s, first Motorola and then General Electric (GE) have implemented it into their operations processes and claimed major multi-­m illion-dollar savings. Six Sigma is often very popular with senior management, sometimes being used ‘politically’ within organisations to demonstrate management

Figure 9.6  Six Sigma (6σ) Process Capability

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commitment to improvement both internally and to external stakeholders. Various consulting organisations offer attractive training packages, and their use moved rapidly into the service industry, including Bring sample, financial services and healthcare providers. But is it an improvement method or a philosophy to be adopted? A robust formal taught approach often used is ‘DMAIC’: Define, Measure, Analyse, Improve and Control. However, a criticism that most practitioners agree upon is that it provides little attention to the ‘soft’ issues (i.e. the people). As a final thought, Six Sigma does provide a clear mechanism for turning process data into information, and can directly inform elements of operational control. It also provides a useful guide for a logical progression through problem-solving and directing when and which tools to use.

Summary The management of quality is a wide-ranging and rather complex issue. On the one hand, it could be seen as assuring quality using statistical techniques. This would ensure operations output attains or surpasses pre-identified standards. However, one should not ignore the rather more qualitative aspects when managing quality: the issues of where responsibility for quality lies and how best to organise quality being issues to which we shall return in later chapters. It is also important to note that the design of processes has a profound effect on their output quality; thus, quality management comprises not just attention to conformance to specification but also ensuring that said specification of the process is correct and appropriate in the first place. The chapter also considered the accreditation, certification and award schemes open to organisations from external bodies. These are largely an attempt to improve the standard of quality assurance systems employed by organisations to increase confidence in the quality of processes, services and goods. They also provide vendors with increased confidence in the suppliers they deal with as they can discriminate between companies having accreditation (and therefore having passed an external examination) and those that do not. However, these schemes do have their critics, who see them as an imposition and question their merit in light of the required and necessary increased bureaucracy within organisations’ quality management systems. Furthermore, this chapter contemplated the way in which quality is measured and distinguished between the control of quality where measurement is made by variables and by attributes. It is noted that organisations tend to collate detailed data based upon measurements of variables, and the commonly adopted Six Sigma/SPC approach to this form of quality control has been presented. From a customer perspective, however, decisions on quality and fitness for purpose, for example, at goods inward inspection, are often based upon attribute data, most commonly deemed as either acceptable or unacceptable. Acceptance sampling and the use of attribute charts are commonly used for the quality assurance of incoming goods and services.

Reflective Questions • • • •

What is Quality? What is a quality system? How do we measure quality? What is statistical process control/Six Sigma?

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Example: Definition of Quality Quality is consistently meeting the standard required by the customer at the lowest practicable price. For me, particularly in a small company, you’ve got to delight the customer. If you don’t get repeat business you will cease to exist, it’s not necessarily about the quality of the output, it’s often about the quality of the relationship. A key part of those relationships is honesty. If your customer trusts you to tell the truth, and to fix the issues, you are at an advantage over large commercial organisations that defend themselves through the contract and commercial managers or lawyers. It boils down to what is your competitive advantage: paying for an army of lawyers? or taking the profit hit and doing what your customer wants?

Example: Definition of Quality When I think of quality, I always think of the customer and what they are willing to pay for a service or a product. So ‘quality’ to me is the ability to deliver for a customer what they want, to the exact specification required. Quality is based on what the customer believes they want and then our job is to ensure that we deliver what the customer wants and needs, to the level they expect it to be at.

Example: Service Quality Match Day Experience Our new Chief Executive Officer was very clear in telling us that our job was to win hearts and minds. There was a very definite Corporate Social Responsibility function in what he saw our department doing, he wanted us to do things on match day, but also develop a full calendar of events with the community. This was more than just working with young people, for example, we also did work with military veterans. Each of our home games was themed, so for the game that fell closest to Remembrance Sunday our job was to engage with the veteran community across the North-West, and to do that we employed a veteran as a military liaison officer – because there is a big difference in language between civilian and military personnel. But, to make all this work we had to have clear operational timetables and run sheets and production schedules and site plans, schedules and systems, processes, things like that.

Example: Service Quality In any sector, how you deal with the customer service side of things often has a big impact because all the evidence shows if there’s a quality issue and a customer makes a complaint, if you deal with that complaint in a proactive manner you get, not just repeat custom, you get them turning into advocates for you. It used to be said that if somebody likes your service, they’d tell four people, but if they didn’t like it, they’d tell 14. However, if somebody likes a service, they may leave a four-star review. If they don’t like your service, they will tell the entire world through TripAdvisor, Trust Pilot, et cetera. So, particularly with today’s social media and modern environment, you’ve got to think about the quality.

Example: ISO 9000 In my experience I have never seen ISO 9001 companies outperform non-ISO 9001 companies. With or without the accreditation, I don’t see a difference in quality or delivery. I view ISO 9001

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as a procurement barrier for ensuring that companies without sufficient resources or depth of capability cannot bid for business. When you start having layers of management, then you actually need systems and processes, and some standards in places are helpful, but I don’t necessarily value ISO 9001 as the best or the most appropriate way of doing that. It just happens to be the de facto way of doing it.

Further Reading • • • •

Bamford, D., Dehe, B. (2016) Service Quality at the London 2012 Games – a Paralympics Athletes Survey, International Journal of Quality and Reliability Management, Vol.33, Iss.2, pp. 142–159. Dale, B., Bamford, D., van der Wiele, T., (2016) Managing Quality: An Essential Guide and Resource Gateway, 6th Edn., John Wiley & Sons, New York. Deming, W.E. (1982) Out of the Crisis, Cambridge University Press, Cambridge. Juran, J.M. (1979) Quality Control Handbook, McGraw Hill, New York.

Useful Websites • • • •

https://asq.org/. American Society for Quality. www.iso.org/home.html. International Organization for Standardization (ISO). Details on ISO 9000 and other standards. www.qualitydigest.com. Quality Digest. Access to magazine, news and tips on quality management. www.ukas.com. UK accreditation service.

10 Improving Global Operations

Figure 10.0  Conceptual Model of Operations Management

Introduction It is recognised that in-process ‘inspection’ and post operations ‘rectification’ are not enough by themselves to improve operations. Refining processes, after the fact, is a risky approach to adopt. Waiting until systems fail can damage reputation, goodwill and, of course, the bottom line. There is therefore a need for the design of ‘quality management systems’ and specific ‘procedures’ to ensure operations are consistently improved. Of course, there are several quality ‘standards’, against which organisations can be certified as having an improvement system in place (such as ISO 9001 – see Chapter 9). The challenge is how to make any improvement operationally efficient and effective. In the wise words of Shigeo Shingo, the Japanese industrial engineer and expert on the Toyota Production System, ‘There are four purposes of improvement: easier, better, faster, and cheaper. These four goals appear in the order of priority’ (Shingo, 2017). Ultimately, improving operations succeeds for two reasons: when changes are brought in for a specific purpose and solve a problem, and when it is administratively convenient

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for all parties. Interestingly, it is often the second of these elements that creates failure to improve – the challenges of operationalising the solution. To address this, academic authors and practitioners advocate a wide-ranging concept of quality management and methods for its improvement. Most notable amongst the ‘quality gurus’ are Deming, Juran, Feigenbaum, Crosby and Taguchi. The basic arguments of each of these are presented in the first part of this chapter, followed by a detailed description of a range of operations improvement programmes (and some criticism of these approaches). The use of quality award schemes is then introduced, and the latter sections explore the challenges of improving global operations and then we provide a summary and some examples.

Writers on Quality Management W Edwards Deming Deming (1982, 1986) advocated that quality is management’s responsibility and management should embrace the philosophy that mistakes and defects are not acceptable. Deming saw quality as being analogous to ‘delighting the customer’. Commonly seen as the father of quality control in Japan (where he worked following the Second World War), he argued that employees should be able to report problems without fear of recrimination and that a series of tools, particularly statistical techniques, should be developed to measure and control quality. Deming provided 14 points for ensuring high product quality and customer satisfaction in its broadest sense. These included points such as ceasing dependence on mass inspection, breaking down barriers between departments and instituting a vigorous program of education and training. He also provided us with several memorable quotes, such as: ‘In God we trust; all others must bring data’; ‘If you can’t describe what you’re doing as a process, you don’t know what you’re doing’; ‘A bad system will beat a good person every time’. Joseph Juran Another pioneer of quality management practice in Japan (where he worked following the Second World War), Juran advocated a trilogy: quality planning; control; and improvement ( Juran and Gryna, 1980). He believed that ‘annual improvement’ through target setting (as in cost budgeting), ‘hands-on management’ and training are fundamental in achieving quality excellence. Juran defined quality as meaning ‘fitness for use’, and so covered the following areas: • • • • •

Quality of Design (design concept and specification) Quality of Conformance (match between the finished product and its specification) Availability (reliability and maintainability in use) Safety (risk of injury due to product hazards) Field Use (delivery performance, service and condition at point of use)

Juran provided a seven-stage ‘breakthrough sequence’ for quality management. This included (i) breakthrough in attitudes; (ii) identifying the few vital projects; (iii) organising for a breakthrough in knowledge; (iv) conducting the analysis; (v) determining how to overcome resistance to change; (vi) instituting the change; (vii) instituting controls (see Juran and Gryna, 1980).

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Juran also provided us with several memorable quotes, such as: ‘Without a standard there is no logical basis for making a decision or taking action’; ‘Every successful quality revolution has included the participation of upper management. We know of no exceptions’; ‘Goal setting has traditionally been based on past performance. This practice has tended to perpetuate the sins of the past’. Armand Feigenbaum Feigenbaum developed the concept of Total Quality Control (TQC), better known as Total Quality Management (TQM), whereby everyone in the organisation shares responsibility for quality and should seek to detect and correct errors and defects at the source. Like Deming and Juran, Feigenbaum was an American, although it was the Japanese who first made the total quality concept work at the level of the individual worker (see Feigenbaum, 1983). A useful quotation from Feigenbaum: ‘In the phrase “Quality Control” the word quality does not have the popular meaning of “best” in any absolute sense. It means “best for certain customer conditions’”. These conditions are (a) the actual use and (b) the selling price. Kaoru Ishikawa Ishikawa was influenced by Deming, Juran and Feigenbaum and is credited with the conception and introduction of the practice of quality circles. He saw the need for all employees, not just a few specialists, to participate in quality improvement and also invented one of the most widely used techniques used by quality circles, the ‘fishbone’ or ‘Ishikawa’ diagram (see Ishikawa, 1972). Useful sayings: ‘Quality control starts and ends with training’; ‘Failure is the seed of success’. Philip Crosby Crosby, formerly Vice President and Director of Quality for ITT, argued it does not cost money to improve quality; rather, the benefits of improved quality far outweigh the time and resources spent on its achievement. Crosby advocates a goal of ‘Zero Defects’ (ZD) and continual improvement towards this objective. His 14-Point Programme for quality programme included: management commitment; quality measurement; corrective action; goal setting; and recognition (see Crosby, 1979). Memorable sayings: ‘It is always cheaper to do the job right the first time’; ‘Quality is free. It’s not a gift, but it’s free. The “unquality” things are what cost money’. Genichi Taguchi Taguchi developed an approach to quality assurance entitled ‘Quality Engineering’. The objective is to design and develop high-quality products in a way that reduces costs. Taguchi methods are in fact highly complex, but they involve experiments on the process and statistical analyses, supplemented by interactive team sessions to discuss the data and results. The aim of this is to identify the factors contributing to the product’s quality problems and then determine the operations methods and process settings that optimise quality (see Taguchi, 1986).

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Best quote: ‘Cost is more important than quality, but quality is the best way to reduce cost’. Masaaki Imai Imai’s main contribution to the field of quality management was his attempt to identify exactly what the Japanese notion of quality management involved. He argued that in Japan the emphasis is upon constant, incremental and ‘never-ending’ improvement of quality, what he termed ‘Kaizen’ ( Japanese for continuous improvement). Furthermore, his book, which is effectively a ‘how to do it’ handbook, went on to identify 16 components that, together, comprise kaizen within Japanese companies. This included profit planning; customer satisfaction; just-in-time ( JIT) production; systems improvement; total productive maintenance (TPM); and top management commitment (see Imai, 1986). He also popularised the use of 5S (Sorting, Straighten, Sweeping, Standardising and Sustaining), a method for organising a workplace. The key targets of 5S are workplace morale and efficiency. Memorable sayings: ‘Ask why five times’; ‘Seek the wisdom of ten people rather than the knowledge of one’. Summarising the Writers on Quality Whilst on the one hand, it can be argued that the above writers have been most influential in spreading the need for quality amongst managers, there are some criticisms one can draw in relation to the writers on quality. These include: 1. Many of the writers are extremely prescriptive. There is often a lack of depth to analysis and a lack of theoretical framework to their work. As a result, assumptions are made that may or may not hold for individual organisations. 2. Advocates of quality management often tend to accept what has been said by the quality gurus as ‘gospel’. Practising managers and, in some cases, quality management academics, unquestioningly accepted the views of many of these writers. 3. Some of the writings conflict with present-day perceived best practices. For example, a cursory read of Deming displays an assumption of functional organisation structures in the way that he suggests departments should see the next upstream department as the customer. Modern-day organisations may, in fact, resolve their quality problems more effectively through the adoption of a product-focused or cellular organisation structure instead of developing the supplier-customer relationships advocated by Deming. However, the central proactive common theme underlying these works is that quality involves all people in the organisation and should not merely be seen as the domain of a specialist quality control department. Management should see itself as ultimately responsible for quality and service to the customer. The above philosophies have greatly shaped the various practices employed by organisations in the management of quality. It is to these practices – the various techniques and programmes – that we turn to in the rest of the chapter.

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Programmes for Quality Improvement Over the last 30 years, several approaches and group methods have been developed that seek to tackle the wider issues of quality improvement. In keeping with the views of the writers discussed above, the philosophy behind all these approaches is that ‘quality is not just nice to have, but essential’, ‘quality is everyone’s responsibility’ and that organisations must strive for ‘continuous improvement’. For the purposes of this book, the quality improvement programmes that merit discussion are ZD, Quality Circles, Kaizen, Quality Improvement Teams, Quality Function Deployment, Value Analysis, TQM, Quality Costing, Business Process Reengineering and Six Sigma. Note that ‘Lean’ was covered in Chapter 6. Zero Defects A ZD programme (pioneered by Crosby in the late 1960s) aims to reverse the attitude of ‘that’s good enough’ to one that strives for perfection in quality and service: a ‘right first time’ attitude. The approach recognises two ways to change attitudes: (i) through output/customer awareness; (ii) through quality awareness. In ZD, individuals are shown that their own tasks are important. ZD is a campaign-based approach, and therein lies its drawbacks. There are arguments that the approach is simplistic, takes no account of individual motivation factors, requires a high degree of cooperation from all, does not tend to infiltrate suppliers and is rather dated today. However, it is interesting that the use of the phrase ‘zero’ has re-entered management speak with regard to aspects of sustainability, e.g. ‘zero carbon’. Quality Circles Quality circles (originated by Deming in the 1950s and then popularised across Japan in the 1970s) are voluntary groups of employees (612 people) who meet on a regular basis and provide a long-term focus for improvement. Each group has a leader, and meetings tend to follow a formal structure. The overall programme within a company is usually coordinated by a ‘facilitator’, and there is close liaison with management to ensure that the problems worked on tie in with company strategy. The quality circle approach assumes quality-­ conscious employees and usually offers no direct financial incentive to circle members. Quality circles normally require training in quality matters and problem-solving techniques such as Brainstorming (free flow idea generation), Pareto (the 80/20 rule), Cause and Effect (‘Fishbone’ or ‘Ishikawa’) Diagrams, Statistical Process Control (SPC) and Six Sigma. At the conclusion of a project, circles normally conduct a formal presentation of recommendations to senior management (the decision-makers). Typically, a quality circle project will comprise the following steps: 1. Brainstorm a list of problems and issues 2. Select a project from the list in (1) using Pareto analysis 3. Represent the problem on a fishbone diagram to illustrate and categorise the main causes 4. Collect information and analyse 5. Develop solution 6. Recommendations

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The benefits of quality circles are usually defined as follows: • •

Improved employee relations; improved quality; increased motivation/responsibility for quality; employees more receptive to new methods and ideas; and provides a forum for discussion/communication Quality circles also have some challenges regarding implementation: senior management commitment is critical to their success; there can be resentment from employees: a feeling that the workforce is doing management’s job; frequently, there is resentment from managers who see circles as eroding their prerogatives

The concept has continued to be used by Japanese companies and is experiencing a reintroduction across many sectors. Kaizen Imai (1986) used the Japanese term for continuous improvement, ‘kaizen’, to sum up the approach of Japanese manufacturing companies over the last 40 years in achieving and then maintaining consistently high process quality levels. However, use of the term has come to mean something more specific. For example, in the UK, Kaizen programmes usually involve establishing management-initiated corrective action teams comprising individuals who are predominantly not improvement professionals. Kaizen projects tend to run over a concentrated time span, typically a week, and involve the secondment of team members from their normal jobs and duties. This style of improvement is much more like a task force (short term and with a specific focus). The emphasis with Kaizen is upon ‘implementation’, and it is usually considered that a project is not complete until the results have been achieved and consistently maintained. So, although the project is a ‘one-off’, the actual cumulative improvement process is continuous. Quality Improvement Teams The term Quality Improvement Team (QIT) is a general term that covers a range of small group quality improvement activities; these can be anything from a totally voluntary quality circle team approach to a relatively highly structured, mandatory and management-­initiated kaizen programme. The QIT term and others like it (e.g. continuous improvement groups, process improvement groups) are popular because they enable managers to detach their quality improvement programmes from labels such as quality circles and kaizen, which have, in some cases, received bad press. The other benefit is the degree of ‘tailoring’ that can be done to ensure a better fit between the improvement methodology chosen and the organisation’s culture. Quality Function Deployment Quality Function Deployment (QFD) was originated by Akao in the 1960s, whilst at Mitsubishi. It is a process that brings together and analyses the essential elements and important characteristics of the phases in the process life cycle (introduction, growth, maturity and decline) from its conception through design, development, delivery, distribution, use and, finally, termination. It focuses and coordinates skills within the organisation and encourages teamwork between personnel from different functional

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areas within the business. By recognising the interrelationships between the design/ engineering properties of the process and the customers’ requirements, appropriate actions can be taken at every stage of the life cycle so that customer needs are effectively anticipated, prioritised and incorporated. See Chapter 3 for fuller detail. Value Analysis Value analysis (or value method/value engineering, was originated by Miles in the 1950s) is a systematic method developed at General Electric. It reviews design, procurement and operations to reduce overall costs. It is also closely associated with the continuous improvement of products (and processes), as it seeks to increase customer satisfaction from existing resources through the adoption of teamwork within the organisation. See Chapter 3 for fuller detail. Total Quality Management Total Quality Management (TQM) was developed by Deming in the 1950s from lessons learned from Japanese organisations. It is a broad philosophy and applied process of implementing a formalised structure of management education and activities for dealing with quality issues. It assumes that most quality issues can be handled by focused management activity, leading to improved quality of work and greater levels of quality in the whole organisation. This will in turn lead to higher levels of distinctive quality at an acceptable and competitive cost. TQM as a philosophy of quality has been summarised as: ‘Quality equals delighting the customer’. The distinctive approach of TQM can be summarised as comprising seven basic principles: 1. 2. 3. 4. 5. 6. 7.

The Approach = Management-led The Scope = Company-wide The Scale = Everyone is responsible The Philosophy = Prevention not detection The Standard = Right-first time The Control = Cost of quality The Theme = Continuous improvement

TQM was an extremely popular concept and has been afforded considerable attention in academic journals. There are, however, two fields of thought. The first has a positive view of TQM that sees its adoption as the saviour of many laggard companies in the West that have learned from Japanese practice. The second camp has a more critical perspective on TQM: • •

What comprised TQM varied considerably between different organisations. It was often difficult to link causes with effects when assessing the success of some organisations. The comparative ease with which some companies claimed to have changed their organisational cultures can be questioned. Culture runs deeper than attitudes: it relates to the underlying assumptions, beliefs and values of people within the organisation that have been built up, in some cases, over many decades. It is argued that

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•

TQM only changed attitudes, and unless considerable effort was made by senior managers, the underlying culture within the organisation reverts to type, particularly when faced with external challenges. If one accepts that TQM was an umbrella term and that, in practice, its implementation involved the introduction of various quality improvement programmes (as detailed above), then many of the arguments made above also hold for TQM. These criticisms centred around creating a veneer of customer focus and increased industrial democracy, but often the underlying motivation was for managers to increase their relative power over workers and trade unions. This explains why, even though it is difficult to argue against the value of increasing quality, service and customer focus, many people within organisations and their trade union representatives were sceptical as to the motives of managers in introducing TQM.

Costs of Quality It was first introduced by Juran in the 1950s. In the field of quality management, there has been considerable attention paid to the quantification of quality to judge the benefits and costs that might accrue from alternative courses of action and approaches. In Chapter 9, we considered the use of statistics in the control of quality, but this bears little relation to the broader business objectives of an organisation. Crosby popularised the idea of costing quality and provided an approach that enables the analysis of quality matters in relation to their financial impact upon the organisation. Quality is a desirable and essential attribute of services and products. It is useful, therefore, to identify the areas where a company would incur penalties (costs of quality) were it not for the quality assurance system. These can be categorised as follows: 1. Quality Costs at the Design stage: ensuring the right balance between design ‘precision’ and operational feasibility, e.g. tolerances not set too tightly as to be impossible to achieve – usually contained within the category of ‘costs of prevention’. 2. Quality Costs of Conformance associated with: • internal failure (e.g. failure/rejection and rework) • external failure (e.g. rework, complaints and returns) • appraisal (e.g. inspection, checking, testing, audit and supplier rating schemes) • prevention (e.g. advanced planning, inspection and training) So, if we consider quality of design as a prevention cost, there are essentially four types of quality costs: internal failure, external failure, appraisal and prevention. Needless to say, these costs of quality must be carefully managed to ensure the cost-effectiveness of the quality system to the business as a whole. Increasing costs of quality for one category can result in reduced costs for another category of quality costs. The key, therefore, is in maintaining the correct balance between the different categories of cost to minimise overall costs of quality. Prevention Costs – Costs of Planning for Quality • • •

salaries and development costs for new product or service design reliability studies and new process equipment design costs of prototyping and of rigorously testing process performance

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• •

the analysis of processes to improve performance and the implementation of process ontrol plans (e.g. Six Sigma, testing) developing and operating formal training programmes

Appraisal Costs – Testing and Inspection Costs (Incoming Goods, Work in Progress and Finished Goods) • • •

salaries for inspectors, supervisors and cost of equipment maintaining instruments (calibration of equipment, etc.) personnel gathering information and analysing quality measurements

Failure Costs – Two Types Internal Failure Costs • • •

Failure/rejection and rework costs (labour, material and overhead costs associated) corrective action (the error rectification costs from time spent determining the causes of failure and correcting process problems) Downgrading costs (including the lost revenue resulting from selling at a lower price because it does not meet specifications)

External Failure Costs for an Organisation Include • • • •

Costs of customer complaints and returns (investigating complaints and taking corrective action) Warranty claim costs (the costs of repair or replacement under warranty) Process liability costs (the cost of defence in legal action and in settlements can, if the organisation is not careful, be seen as external failure costs) Product recall costs (administration and direct costs of adjusting faulty products)

It has been estimated by Crosby that 60–90% of an organisation’s total cost of quality were in the form of internal and external failure costs. It was assumed that managers could not easily control or influence such variations in quality and that they were an accepted fact of business life. Traditionally, the typical reaction of managers to high failure costs was to increase inspection, thereby increasing appraisal costs. Failure costs would then fall, but appraisal costs would rise, creating minimal improvement in quality at source or indeed in profitability. It is now recognised that to improve quality and profitability, companies must concentrate on quality assurance by design; hence, they should consider investing more heavily in prevention. In practice, organisations have realised that an increase in the costs of prevention will have benefits downstream in reduced appraisal and failure costs, thus reducing total costs of quality (see Figure 10.1). Therefore, many organisations have concerned themselves with measuring and recording their costs of quality in financial terms and then tracking the effects of actions such as increasing or reducing expenditure in each cost category to observe the impact on overall costs of quality and, hence, profitability. In so doing, they hope to reach a lower level of costs through achieving a near-to-optimal balance between the different costs of quality categories (see Figure 10.2).

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Figure 10.1  Quality Costing Behaviour

Costing quality, both in terms of prevention and assigning values to ‘non-­conformances’, provides a way of linking decisions concerning where emphasis should be placed in quality management to the business needs (e.g. profitability) of the business. However, costing quality does present some problems: 1. It is often impossible to assign exact and accurate values to the costs of quality. Figures for the costs of quality are, therefore, at best only estimates and, at worst, open to considerable doubt/challenge. 2. What items should be incorporated into each category of costs? For example, what proportion of research and design (R&D) costs should be apportioned to costs of prevention? Should the lost revenue and opportunity costs of poor reputation resulting from external failures be included in the failure costs? Again, if so, then how can this be calculated?

Figure 10.2  Optimal Quality Costs

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Six Sigma Developed by Smith at Motorola in the mid-1980s, it was later made the central business strategy of General Electric by CEO Jack Welch. The premise is straightforward: when a process operates at Six Sigma, the variation is so small that services or products are provided 99.9996% defect-free (or 3.4 defects per million, Figure 10.3). But is it an improvement method or a philosophy to be adopted? Some say it is merely a repackaging of TQM and the other quality tools. Indeed, there have been tailored improvement initiatives, such as ‘Lean Six Sigma’ approaches. Six Sigma does provide a useful guide for a logical progression through problem-solving and in directing when and which tools to use. One formally taught approach is DMAIC: define, measure, analyse, improve and control. A criticism that most practitioners agree upon is that it provides little attention to the ‘soft’ issues (i.e. the people). See Chapter 9 for fuller detail. Criticisms of Quality Improvement Programmes Some criticisms of the various quality improvement programmes adopted by organisations over the past decades have been covered in the subsections above. However, some further points for discussion can be raised here: 1. Many of the quality improvement programmes assume the existence of a compliant and pliable workforce. Perhaps the success of some of these programmes is because workers and trade unions in the West have reduced powers due to economic circumstances and industrial action legislation. Under such circumstances, to what level have employees taken quality improvement in the form of these programmes truly to their hearts? 2. To what extent are these programmes window dressing in the interests of positive publicity and customer relations by senior managers? To what degree are they an attempt to cover over existing and perennial problems within the organisation? 3. Many of these programmes present a threat to conventional management-trade union negotiations. Are workers content to see direct individual relationships between individuals and managers replace collective bargaining in the workplace? 4. It is often difficult for people to complain about the imposition of these programmes because of the risk of appearing ‘anti-quality’. Most are ‘pro-quality’ in principle, but should there perhaps be more open debate as to the ways and means of achieving optimal quality levels in place of the imposition of new quality initiatives so often foisted on the workforce by over-zealous managers? This section has summarised a wide range of quality improvement programmes introduced by managers. No single programme is a panacea to solve all problems. Rather, an organisation must select those programmes and an appropriate approach that seem most suited to their own circumstances, whilst guarding against launching so many new initiatives as to confuse its employees. To succeed, the concept of quality improvement programmes becoming a ‘favour of the month’ must be avoided at all costs. The key to this is long-term senior management commitment.

Quality Award Schemes Several award schemes for companies displaying ‘excellence’ in quality management exist to recognise and publicise best practices. To an extent, these schemes can serve

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the same purpose as formal quality improvement programmes; in theory, they unite a company around a central idea or concept and provide a degree of improvement focus for the business. In this case, with an external view. Well-known award schemes range from the Deming Prize, the Malcolm Baldrige National Quality Award (MBNQA) and the European Foundation for Quality Management (EFQM) Excellence Award to national and regional awards within various countries. Probably the most well-known award worldwide is the US Baldrige Award, whereby each year companies enter and are assessed on a marking scheme for their quality systems, product quality, customer service, etc. The highest scorers receive an award in recognition of their performance and excellence. The European Union introduced a similar scheme exclusively for companies operating in Europe; the EFQM operates its Excellence Award, using their ‘Excellence Model’ to provide the framework for assessing organisations (see Figure 10.3). The claimed benefits of quality awards include a structured approach, identified strengths and areas for improvement, helping management understand TQM, helping develop, manage and integrate improvement activities, enabling progress to be measured and recognised and identifying best practices. According to Dale et al. (2016), difficulties experienced with quality awards include a lack of commitment and enthusiasm, time-consuming nature of the process, not knowing where to start, selling the concept to staff, people not realising the need for documented evidence, lack of cross-functional integration and assessments done in time to link to business plans. Many organisations now see such award schemes as an important part of their quality initiative: receipt of an award is taken as a useful benchmark in comparison with other companies and helps to publicise the company as ‘excellent’ regarding quality and service.

Figure 10.3  EFQM Excellence Model (efqm.org, 2022)

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Challenges of Global Operations Our organisations have developed and exist in a world that is constantly evolving. There are several aspects that must be considered when developing operations strategy, designing operations systems, putting in place operations control mechanisms and allowing/ expecting operations improvement. These are globalisation and geopolitics (opportunities/language and cultural issues), supply chain management, corporate social responsibility, sustainability, digital technologies and problems regarding all aspects of communication within organisations. Resilient operations must consider these wider, longer-term opportunities and challenges. Operating globally has many advantages (economies of scale, cost, etc.) but also many issues (supply chain delays, increased/unpredictable competition, etc.). So, how should organisations improve their operations? Organisations need to consider the ‘environmental’ conditions under which they operate. Changing legislation, stakeholder demands, economic instability and breakdown in some countries, etc. These must all be factored into and balanced with any improvement methodology adopted, as should the overriding strategy that the company is employing. Whatever improvements are made, they must fit with the current and projected strategic trajectory of the firm, not just the operational aspect. Of course, sometimes the drive to innovate can be a purely pragmatic decision, as suggested by the quality guru W. Edwards Deming, ‘You don’t need to change – your survival is not mandatory’. But opportunities exist not just to survive but thrive, if companies approach innovation the right way, through the applied use of operational data, digital systems and being customer focused. It really can be a winwin situation.

Summary This chapter has presented improvement as a holistic philosophy, which, if one had to summarise in a phrase, entails the introduction of programmes to increase the customer focus and quality awareness of individuals and groups within an organisation. The chapter took a tour through the main writers on quality and introduced their core concepts. Several ‘programmes’ for improvement were presented, and a section was incorporated that detailed criticism against many of them. Finally, quality award schemes were briefly presented, and we reflected on the challenges of global operations.

Reflective Questions • • • • •

Who were the main writers of the original quality management? What are some typical programmes for quality improvement? What is quality costing? What are quality award schemes? What are the challenges of global operations?

Example: Process Improvement – Events Management We had an external catering company that did all the catering for the events across the country. Exeter, Birmingham, Glasgow and Manchester. But they had this culture of just taking the order and providing the most basic of service, they didn’t give any personal attention to the client, nor did

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they take on board any feedback from clients in terms of either complaints or how the food could be improved. They just didn’t appear to care at all. It was a cycle of complaints. As the Head of Events at the time, this was a real problem because I was the one dealing with all the complaints and our Head of Sales was very much relying on repeat business. We had conferences and associations coming in on an annual basis and the only way they were going to commit to another contract was if they could guarantee that the catering was going to improve. So, it became a real issue, and I was given the beautiful task of kind of stepping away from events for a time and going in as a consultant with this external company to try and find where the faults were, and to force improvement because if they didn’t then do it, we were going to terminate the contract. Unfortunately, they just didn’t take on board any feedback from clients or me and were on a continuous loop of doing the same thing repeatedly. So, they did end up losing the contract with us. We then made the decision to bring the catering for events in-house, which was a big change because most large events management companies still have external caterers do all their catering. But we decided we wanted to have a ‘one team’ approach which we had adopted for the rest of the company. We needed to understand where the problems were and got some key people involved in planning meetings with clients. It meant that we bought the chef, the middle managers and supervisors to the meetings from the outset. As soon as we started planning the meetings, they were brought in. So rather than just receiving the event catering schedule through an email, they were very much part of the planning process, and they took full ownership of it, particularly the chef. He really evolved from being someone who just sent out the same dishes all the time to somebody who became more innovative. We also sent him on some amazing courses, and he became a MasterChef in certain culinary areas and able to work with our big clients. The solution here was to get a team working together so they have some element of control and therefore much better ownership of their area.

Example: Continuous Improvement Sport Events Management For the Commonwealth Games we have a transfer of knowledge system which goes from games to games. It’s operated by the Commonwealth Games Federation, and it identifies what worked well and what didn’t, what can we improve. To do this each functional area is responsible for putting a post event report together, to make sure that we can learn from the previous games. We’ve been working on all those documents that will go to the State of Victoria [Australia] for the games in 2026. Alongside the report we run ‘Observer Programs’ for staff from the next games. They come here, they sit with us for a couple of weeks and literally mirror our roles. It’s so important that they see what happens – the meetings that we’re having, the complications that we’re coming across.

Example: Improving Operations Science Expeditions As part of the permitting process, we must report back to the authorising body on how things went. This includes the science elements, logistical problems, issues with animal welfare, damage to environment, et cetera. It is a process that is very formalised, this tends to be the repository required when we get back.

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Example: Process Improvement Sport event Management How do we capture good practice and areas for improvement after a running event? What is hard as a road race director is that you are in the event control centre for some events. You’re not actually seeing the events on the ground, so you rely a lot on the managers who are – so we ask all our managers on the ground to take photos and then supply their personal feedback. Also, social media is a very, very good tool. It’s a very good indicator because people are posting constantly about the event and if they’re happy or sad, they will post about it. So, you do see both extremes and this gives you an idea as to how people felt on the day. We also send out a survey to all our runners, and we ask them specific questions about operations, but also about the experience. For example: Did you think there were enough toilets? Did you think there was enough water? Did you enjoy the entertainment? So, we learn from that how people felt on the day as well. Plus, we also ask our suppliers for their feedback as well – what went well, what can go better next time? After we get the survey information back, we have a full day debrief with all the different ­departments – partnerships, marketing, operations, et cetera – we all come together and fully debrief everything that we think went right, what went wrong. Everyone’s very honest in the room and then we look at how we can improve for the following year.

Example: Process Improvement Healthcare Patient Transport Systems We had a major issue with non-urgent transport at an NHS hospital group. The existing system was really not fit for purpose. It cost too much and was not effective or efficient. Patients were missing appointments because of limited transport – which had a severe knock-on effect for the health system in the local area. So, we really needed to look at this from an operations management perspective and see what could be redesigned and improved. The first part of the conversation was to try and find out why it hadn’t been improved before. It was described by more than one person as a ‘poison chalice’, something too difficult to tackle, because ‘we’re not transport people’. Interestingly, when we looked at this from an operations management perspective, we were able to make some very quick improvements and savings. For example, there were no common taxi arrangements – so each clinic had a separate budget and used a different taxi company to service their patients. This meant there were no economies of scale – no negotiation – a lot of inefficiencies – and no real control of the budget. Everybody just spent what they needed. What did we do? We put in a very straightforward common taxi contract across the health system. This saved a large amount of money, but more importantly, it actually improved the service quality. We also negotiated for the use of school buses outside key peak school times – because they were only being used for two hours in the morning and two hours in the afternoon – so the vehicles were available between 9:30 am and 2:00 pm. By looking at the capability and capacity in the area that was underutilised, we discovered we could share it. Another quick example, a major supermarket had just finished building a new store next to one of our clinics. The supermarket had a courtesy bus running from the town centre – we asked them nicely if we could direct patients towards their service, they readily agreed on the basis that the patients may well go shopping at the same time!

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Further Reading • • • • • • • • • •

• • •

Crosby, P.B. (1979) Quality Is Free, McGraw-Hill, New York. Dale, B., Bamford, D., van der Wiele, T, (2016) Managing Quality: An Essential Guide and Resource Gateway, 6th Edn, John Wiley & Sons, Chichester. Deming, W.E. (1982) Quality, Productivity and Competitive Position, MIT Press, Cambridge. Deming, W.E. (1986) Out of the Crisis, MIT Press, Cambridge. Feigenbaum, A.V. (1983) Total Quality Control: Engineering and Management, McGraw-Hill, New York. Imai, M. (1986) Kaizen: The Key to Japan’s Competitive Success, McGraw-Hill, New York. Ishikawa, K. (1972) Guide to Quality Control, Asian Productivity Press, Tokyo. Juran, J.M. (2001) Juran’s Quality Handbook, 5th Edn, McGraw-Hill, New York. Juran, J.M., Gryna, F. (1980) Quality Planning and Analysis, McGraw-Hill, New York. Mayers, M., Shah, R., Bamford, D. (2022) 21st Century Transport Innovation…? How the UK Is Leading the World Through Real Time Data Analytics and Agile Operational Response, Transport Times, https://www.transporttimes.co.uk/news. php/21st-Century-Transport-Innovation…-642/ Shingo, S. (2017) Kaizen and the Art of Creative Thinking: The Scientific Thinking Mechanism, Productivity Press, Tokyo. Taguchi, G. (1986) Introduction to Quality Engineering, Asian Productivity Press, Tokyo. Taguchi, G., Chowdhury, S., Wu, Y. (2005) Taguchi Quality Engineering Handbook, John Wiley & Sons, Inc., Hoboken.

Useful Websites • • • • • •

www.apqc.org. American Productivity and Quality Centre. www.baldrige.nist.gov. National Institute of Standards and Technology (details of the Baldrige Award). www.efqm.org. European Foundation for Quality Management, details of the European Quality Award. www.kaizen.com. Kaizen Institute. www.juse.or.jp/deming_en/. The Deming Prize. www.qfdi.org. QFD Institute.

11 Operations Management in Practice

Figure 11.0  Conceptual Model of Operations Management

Introduction We have suggested that operations management comprises three essential components: (i) design of operations processes and the work of individuals; (ii) planning and control of operations once designs are in place and effective; and (iii) ensuring the quality of operations processes and (wherever possible) improving on these. But these cannot be addressed in isolation. The essential element of effective operations management is the integration of these components. The book, therefore, contains three integrating chapters: Operations Management in Context (Chapter 1); Managing Operations Strategically (Chapter 8); and Operations Management in Practice (Chapter 11), which provides a summary and further application examples of operations management.

Operations Management in Practice Consider that everything you do from getting up in the morning to going to bed is a process: having a wash, dressing, making a cup of tea, brushing your teeth, putting on DOI: 10.4324/9781003314998-11

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your coat and shoes, etc. All of these are operations with specific processes and therefore could be analysed, assessed, reviewed and improved. When you consider operations management, reflect on the fact that they are everywhere, everything is a process and particularly with relation to services. Between 75% and 85% of gross domestic product (GDP) in developed countries is in the service sector, and whilst the core operations management theories, frameworks and learning originated in and developed from manufacturing over the past 150 years, most of the application is now in the service sphere. Of course, services are particularly challenging operations because they require an instantaneous transformation in real time and that the user, the consumer, the customer, is directly involved in the process. Having the user present is particularly challenging for many reasons, not least from a design perspective, where a key question would be ‘who do you design your services for?’. The highest common denominator (those with the most experience, expertise and expectations) or the lowest common denominator (perhaps those who may never have experienced the service before and who do not have many comparisons)? Or some identified group in between? Examples of service operations are many: airport operations; healthcare; the law; sports operations; festival operations; etc. Let us consider these one at a time: 1. Airport Operations: When you transit from the kerb side to wing side operations, you are processed several times, and that is all service-related through the airport infrastructure and design. For example, when you enter the departure hall, you may drop off your bags, which is a process and it’s a service. You will then have your identification confirmed and security screening of your hand luggage and ‘body’ before entering the duty-free shopping area (which is designed around a combination of marketing and operations to provide passengers with opportunities to make some purchases). Then it is through to the air side operations where you are processed prior to boarding and getting onto the aeroplane (so-called ‘wing side’). All these elements are an operation – they have capacity, they are subject to demand and they have many standard operating procedures (SOPs). 2. Healthcare Operations: These try to be both effective and efficient whilst providing perhaps one of the most challenging service operations. For example, consider your own doctor, your general practitioner (GP) and the operations setup of their clinic. Look at the size of the waiting room, the number of chairs and the available capacity of that environment. Look at the number of doctors and healthcare professionals within the clinic and what they can facilitate. We can examine their breadth of qualifications and combine these with the number of hours available to provide an operational figure for capacity that can be offset against predicted demand. Likewise, in hospitals, from a macro (big picture) perspective, the hospital is one big operation (input – transformation – output), but if we break this down into individual units such as the emergency room, it’s an operation with lots of linked elements that has a strategic intent, a design against the strategy, control systems around the design and then the need and necessity for improvement. 3. Law Operations: For example, the law courts process cases. Think of solicitors; think of anything to do with law. Everything’s a process: marriages, divorces, litigation, systems in a law firm, processing the billable hours, case management and e-discovery. 4. Stadium Sports Operations: Consider crowd science (how to get people into an environment safely, seat them and then get them out again). Think of the instantaneous

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transformation of the atmosphere within a stadium (co-creation…), which can be process-led or scripted. Consider the entertainment pre-game, during (half time) and post-game. 5. Music Concert Operations: Using a standardised layout design, the need to bring in bespoke stage designs, equipment and resources to allow the show to be put on. Additionally, they need to ensure that the right people are at the right place at the right time. Furthermore, large musical venues always have merchandise available – these are a collection of processes in and of themselves (each merchandise outlet is an individual operation). Of course, the same rationale applies to music festivals, theatres, cinemas, etc., but each has its own unique set of operational challenges to be considered. In addition to the above, also consider: third sector and voluntary organisations; higher education; further education; local government; national government; social housing; fire, police and ambulance services; the armed services (both national and international). What we are really considering is the drive for the strategic intent of the organisation to inform the design of the processes and then necessitate elements of control of said processes. Then the need and necessity for improvement because all systems, processes, markets and environments develop and mature. This outline of strategy, design, control and improvement is something that can inform future strategy, both in terms of the operational processes and also in terms of the business.

Servitisation in Operations Continuing the theme of how operations strategies have changed in recent years, we can see a blurring of the divide between industries and operations, traditionally seen as either manufacturing or service. The reality is most operations deliver both tangible products and intangible/digitally based service elements in their packages to customers and clients. The term servitisation is used to portray these strategies and deserve further exploration here. Servitisation as a concept emerged in the late 1980s and 1990s (see, e.g. Vandermerwe and Rada, 1988), but came to real prominence in the business models of organisations and the literature in the early 2000s (e.g. Oliva and Kallenberg, 2003). The concept of servitisation developed to reflect changes in product offerings for manufacturing businesses but has since been extended as it is relevant across all sectors (Baines et al., 2017; Raddats et al., 2019). The notion is that, in contemporary competitive environments, it is simply not sufficient in most cases merely to provide only the core product or service, as customers are looking for additional value-adding features in their choice between alternative providers. The servitisation of operations can therefore be defined as a strategy of creating and sustaining value by adding additional services to current products. In some cases, servitisation strategies even go so far as to replace tangible projects entirely with a service. Additionally, we can view servitisation as the extension of the provision of a core service with additional value-adding services. Examples here include local government organisations not only providing a basic service to citizens but also additional information and support via online services. Most fast-food restaurants and coffee shops do not only provide food and drinks but offer additional valued services

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such as an ambiance in which to work, read or socialise, including free Wi-Fi access, plus additional services including apps and multiple channels for ordering and collecting food and drinks. Servitisation, therefore, represents a shift in the business models of organisations that requires considerable thought and design to ensure the operationalisation of these add-on or replacement services, ensuring customer and client needs and provision of value propositions align. The main benefits of servitisation have been recognised by Denizon consultants (2022) along the following lines: 1. Servitisation provides financial benefits by establishing a more secure revenue stream via a continuing connection between service and product providers, customers and clients. They position that loyal customers result in sustained and potentially increasing profitability and organisational success. 2. It improves the retention rate by developing long-term relationships and mutual dependency with customers and clients. 3. Organisations now provide both the service/product and the solution. This is important as customers and clients in the 2020s are looking for solutions, ongoing support and value add-ons. This means, for example, for-profit companies can earn more from the core services or basic goods they manufacture and offer to their customers. Given the logic and rationale behind servitisation as explained above, the movement of service and product providers in offering additional services seems inevitable. However, the process is not without issues. In some organisations, the process of servitisation, similar to the criticisms of lean implementation, has resulted in a ‘hollowing out’ of their organisation. That is to say, where the core product or service was their differentiating point, abandoning the clear focus on that element can result in problems where other organisations are equally or more competent in providing the additional services, in the package being offered to customers or clients. This argument links back to the view that organisations should, wherever possible, seek to sustain or exploit their core competencies. Abandoning or distracting from these inevitably leads to a loss of market share. Therefore, organisations should think clearly about their business model as they move towards servitisation and ensure they do not become ‘redundant’ in the eyes of customers and clients going forward into the future.

Risk, Resilience and Transparency There is a growing evolution of ‘lean’ towards more ‘resilient’ and ‘sustainable’ operations. With today’s complex infrastructures, resilient operations are critical for the daily functioning of society and its ability to withstand and recover from business challenges, natural disasters, pandemics and cyber-security attacks. Operational resilience requires initiatives that expand business continuity in terms of flexibility and maturity whilst creating mechanisms able to respond to and withstand disruption. This is needed whilst also creating an appetite for opportunity risk and a tolerance for potential disruption of service to internal and external stakeholders (such as employees, customers, business partners, etc.). Of course, all this is needed whilst maintaining the operational agility of inter-organisational resources and external supply chain capabilities through more transparency across the supply chain network.

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Figure 11.1  Operations Management Evolution and Maturity

Organisations and the operations within them do constantly evolve, but there is also perhaps a need to become more operationally transparent. For example, the lessons learnt in drug manufacture during the race for a certified vaccine during the COVID-19 pandemic, such as the nature of disclosure in terms of risks (e.g. failures) and those of open innovation (e.g. number of patents). However, it is worth considering that operational transparency measures can lower the tolerance of failure for organisations that are associated with a higher risk and thus restrain their innovations, making them rely on familiar, reliable and established technologies. Operational transparency may lower the risk and support incremental innovation as firms prioritise small improvements in their existing research and development (R&D) over amplified innovation. The concept of operational transparency also has implications for the external environment, such as the supply chain, and for policymakers. For instance, encouraging pharmaceutical regulators to support organisations to re-engage with higher-risk innovations in their pursuit of success over pursuing novel evolutionary practices in the long term. Since the inception of ‘lean’, ‘agile’ and ‘resilience’, operations within organisations perhaps now need to focus on their ‘sustainability’ through the promotion of ‘transparency’. This cumulative effect speaks to the complexity, evolution and continuing maturity of the operations management discipline. There is not just one best way of operationalising ‘value add’ within organisations – there are potentially many good ways. Operational choices, therefore, need to be informed by evidence-based practice as well as knowledge of the latest tools, techniques and frameworks. See Figure 11.1 for a representation of this perspective.

Making It All Work Operations management is about supporting the organisation and delivering systems that move the business strategy forward. The contribution of the operations is often key because it delivers the ‘transformation’ and ‘additionality’. The operations function tangibly adds value and therefore creates something that people are willing to pay for. How effectively the function performs this role will, in the short term, determine how effective, efficient or profitable the business is. The long-term impact of operations can greatly influence the survivability of the organisation – whether it can adapt to a changing ‘environment’ and then recognise and maximise opportunities as they arise.

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Figure 11.2  Continual Contribution of Operations

The operations strategy must support the broader business strategy, and a useful illustration is that of driving a car. When driving, one must constantly scan the environment: far ahead, to the middle ground, and to the immediate surroundings. As a sequence, this is done very quickly and provides essential data as to the future (e.g. what is on the road ahead). The important element is then the translation of this ‘data’ into useful ‘information’, with which decisions can be made. This will ultimately determine both the response and action. The same is true of the operations function, which can provide this ‘translation’ of data into ‘information’ for the business. See Figure 11.2. To review, operations management involves considering the strategic intent of the organisation and operation, the informed design of appropriate processes, the setting of suitable control for the resources involved (e.g. the key performance indicators (KPIs)) and the systematic improvement of systems in line with the consequent maturing/new challenges of the output requirements. Examples of challenges include business ethics, environmental responsibility and sustainability, an ageing population, skills shortages, quality of working life, etc. These all impact what is possible regarding operational solutions, and often the most effective and efficient response to an operational problem may not always be feasible because of the related implications (cost/time/other consequences?).

Summary The task of the operations manager can be summarised at a basic level as converting a range of resource inputs, through the operations process, into a range of outputs. However, the various elements that together make up this management function are diverse and complex in nature. The operations manager must have competencies in human resource management, strategic awareness, product knowledge, systems and organisational design and, at the operating level, planning and control. Moreover, the task of the operations manager is frequently misunderstood and often relegated to a reactive rather than proactive role within the organisation. This is a mistake. As this book has demonstrated, through the application of proven operational tools and techniques, the function has a tangible contribution to make to the emergent strategies and initiatives of any business.

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Reflective Questions • • • • •

List examples of service operations. What is servitisation? Strategy-design-control-improvement, what are the related implications? What is operational risk? What is operational resilience?

Example: Use of Statistics Never underestimate the value of statistics and wherever possible employ people who totally understand statistics. Remember that however good you are at statistics, there’s always someone who’s better. However, the people who do the statistical analysis will return junk if they’re not properly managed, and if interpretation of those results doesn’t happen. So, make sure the people who are managing your statisticians understand what needs to be done and delivered from an operational and strategic perspective. You need to make sure that what you tell the statisticians to deliver is relevant to the challenges at hand, and also that the person the statistics come back to actually understands what those numbers mean. So, your statistics need to be turned into some kind of KPI [key performance indicator]. Really, it’s about knowledge of the whole system, how does one part of the system impact on another, and what are the critical paths or critical interfaces? How can you measure those points and issues quantitatively, and manage decisions to keep things on the ‘risk log’ [problems that may happen] and off the ‘issues register’ [problems that have happened]? When you are managing, it always comes back to a key mantra, ‘If you can’t measure it, you can’t manage it’.

Example: Failure to Implement Innovation Failure to implement operational innovation often comes down to fear and nervousness. Why didn’t the company go through with the actual application of a good idea? Usually because the people there were not familiar with the system, they were not familiar with the application of the approach. So, they were not ready to take the risk to apply innovative operational systems, even ones that have been proven elsewhere. This is often so frustrating, but I think there are some really interesting lessons to learn within that type of situation.

Example: Operational Project Success (Polar Fieldwork)? We know that the project has gone well if all our staff remained healthy and safe, and we did not damage any birds or the environment, those are key considerations. Also, that we spent the available research funds but have not gone over budget. That is always important. It means we got the budgeting right and hopefully collected appropriate data. The academic journal paper that emerges from the research is often down to the findings, and that depends on what the animals were doing, and unfortunately it is difficult to control that. Likewise, it depends on how you set up the research. Let us say you created a project to test a hypothesis but during the research found that the hypothesis was unsupported, it was wrong. Any paper written from the data is not going to be a good one! So, I am happy if we have a good data set that is publishable, and the ultimate mark of quality is the academic journal paper that comes out of it, the impact it creates.

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Example: Sport Event Operational Challenges Sport Event Management What are the challenges on the day with running events [running races]? Well, various things really. Sometimes you must move things around, so you need to plan to have enough wiggle room with your suppliers to be able to move stuff around. So, whether that’s toilets, stewards or catering – if they’ve been delayed or some do not show up, you make sure you can try and move them from one area to another area – so you get some of the right things at the right place! It’s not ideal, but it keeps the event functioning.

Example: Festival Operations Management Music festivals are a beautiful microcosm of operations management. Looking at it from an operations angle would allow the organisers to perform better, and the participants to have a better experience. Festivals are rather unique in that you artificially put people in a setting that has no infrastructure until a week before the event takes place. They traditionally take place on a greenfield site over three or four days along a country road somewhere, and you’ll get 15,000 or 50,000 people suddenly arriving in cars and vans and caravans – usually driving down roads that are not designed for it. There are a whole range of operations management issues that need to be looked at when setting up a temporary music event or festival, such as: if people are driving in by road, how do you deal with traffic management? How do you deal with stakeholder engagement with the entire local community? You have to arrange car parking in a safe, secure environment that they can get in and out of – this is important because when it rains most car parks and fields turn to mud! Then you have the added complication of providing a campsite for most of them, feeding people for three days and also dealing with the waste products. Anybody who’s been to a festival will know the most complained about service element is often the toilet facilities! Are there enough? Are they in the right places? Are they cleaned regularly? You also have to think about layout and flow on the site, how do you want people to move around it? Where do you put the water points? Where do you put the food outlets? Where do you put the bars? Where do you locate the main stage? Once people are on the site, how do you maintain security? – which needs to be with a light touch but a strong enough presence. Of course, you also need to plan for things like the turnaround times on the stage areas. Often festivals split the stage into two or more areas, with one band performing whilst another one set up – this means less downtime for the crowd. Some festivals have revolving stages – so whilst one band plays a second sets up behind, then the whole thing revolves to face the crowd, the first band then leaves and a third band begins setting up. Operationally this is all designed for the enjoyment of the crowd, and to reduce downtime between entertainment.

Example: Challenges of Continuous Improvement? What’s the biggest challenge we have seen regarding continuous improvement in companies? It’s not the tool set, it’s the lack of leadership. Many companies that we visit in our work are great at using the tools of continuous improvement, but eventually the use of these stops because the senior leadership does not understand what their role is. The difference when the Japanese use this technique is that the management is there to remove the bottlenecks, so the people can actually do the work.

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This needs a different mindset in the leadership team – for them to be a role model, a coach and a supporter, to remove the obstacles for the people who are doing the work. An issue with scene is that the improvement approaches are delegated by management. However, ideas such as Lean cannot be delegated, they need to be embraced by the leadership team, and this fundamental lack of understanding is one of the critical reasons why improvement fails. The leaders forget that they must understand the approach and the change needed in themselves first, because leadership is an output of behaviours and lean is a behavioural system as well as a technical system.

Example: Advice for Implementing New Management System A top tip for implementing a new management system? If it wasn’t for the supplier, who pushed us to make our teams work on the processes, and all of the system, we wouldn’t have implemented the system on time. My learning from that is not to be afraid to delegate to the other users and make them responsible to learn the system, because otherwise they’re never going to know how to use it.

Example: Working with Operational Stakeholders There are so many parties [stakeholders] involved within the Olympic Games. You are looking at about 50 stakeholders that all need to have a say in different strategic planning principles. But each has slightly different objectives and it’s making sure that those are balanced in a way for your venue stadium operations team to be able to work and operate day to day. All of this is to make sure that it’s balanced in a way, so we are achieving the right things at the right time and with the right people. As a stadium operations manager my job is to bring all of that together to make sure that everything is being achieved and worked towards, and that we’re successful in delivering that for all the different parties.

Example: Layout and Flow (Applied!) I roll my clothes, so they are not folded, and take up less space. If my suitcase is going to be full, I lay everything I need out in front of me and then start assembling it like Tetris. Of course, always try to put heavy things at the bottom, but do put other bulky items in first, and then fit the rolled clothes around them. When packing, people usually try to keep types of clothes together, such as shirts, jeans, et cetera. I find there’s more order in chaos when trying to squeeze as much as possible into a small suitcase – so this means slotting things in wherever they fit best, rather than trying to keep specific things together. That may mean two shirts are rolled up in opposite corners of your bag while the third is wrapped around a nice bottle of South African wine! Also, have a pull along suitcase with four wheels not two. Four wheels are much easier to manoeuvre through barriers and across airports. Plus, from a body posture perspective four wheels are much better for your back.

Further Reading • •

Baines, T., Bigdeli, A., Bustinza, O., Guang Shi, V., Baldwin, J., Ridgway, K. (2017) Servitization: Revisiting the State-of-the-Art and Research Priorities, International Journal of Operations and Production Management, Vol.37, pp. 256–278. Denizon (2022) What Is Servitisation? https://www.denizon.com/what-is-servitisation. Accessed 18 July, 2022.

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Oliva, R., Kallenberg, R. (2003) Managing the Transition from Products to Services, International Journal of Service Industry Management, Vol.14, pp. 160–172. Raddats, C., Kowalkowski, C., Benedettini, O., Burton, J., Gebauer, H. (2019) Servitization: A Contemporary Thematic Review of Four Major Research Streams, Industrial Marketing Management, Vol.83, pp. 207–223. Vandermerwe, S., Rada, J. (1988) Servitization of Business: Adding Value by Adding Services, European Management Journal, Vol.6, pp. 314–324.

Index

Note: Bold page numbers indicate tables and italic numbers indicate figures. 80/20 rule 62 acceptance sampling 117 agile systems 76–77, 77; design of business processes 16; nearshoring and reshoring 90 Asia, alternative theories originating from 12 AS-IS maps 27 asset specificity 87 autonomous group working 25 Barney, J. 88 batch sizing 67 behaviouralist theories and approaches 11 behavioural operations 24–25, 53 bills of materials (BOM) 65, 66, 67 blockchain technology 95–96 bottlenecks, management of 62 bounded rationality 87 Burns, T. 34 business intelligence 45–46 business model canvas 104, 104 business process reengineering (BPR) 26–27 buyer-supplier relationships 90–92, 91, 116–117 capacity planning: aggregate planning 18–19, 59–60; chase demand plans 19, 19–20; cushions 59; demand and 17, 17, 19, 19–20; design of business processes 16, 17, 17–20, 18, 19; level capacity plans 19, 19; manage/ change demand plans 19, 20; seasonality 18; types of plans 19, 19–20; utilisation 18 cellular layouts 24–25 Central Limit Theory 118 chains, supply 84 chase demand plans 19–20 Clausing Four-Phase Model 36, 36

closed systems 58–59, 59 competitive advantage 106 constraints 4 continuous improvement 76, 148–149 control theory 58, 58–59, 59 corporate social responsibility 93–94 cost as KPI 4 Cousins, P. 83 cradle-to-cradle (C2C) production and supply 94 Crosby, P. 127 current state maps 27 customers: lean operations and 74; use of term 2–3 customer value 42–43 customisation, mass 38, 38; service modularity 39, 40 decision-making: Hill’s framework 102–103, 103; locations 20–21; make or buy 86–88, 87, 88; scope of operations management 7, 8; trade-off decisions 4 demand: capacity planning and 17, 17, 19, 19–20; forecasting 60; stock control and 62 Deming, W.E. 126 dependability as KPI 4 design, lean 73–74 design of business processes: behavioural operations 24–25; capacity planning 16, 17, 17–20, 18, 19; competitive advantage and 24; facilities layout design 22–23, 29; flexible and agile systems 16; forms of process design 23–24; impact of 15–16; implications of choices 16; locations 16, 20–21; operations systems, classification and features of 21–22; planning principles 28; process analysis 26, 26–27, 27; service industries 16, 29

152 Index digital transformation 54; business intelligence 45–46; digitisation 54; impact on processes 13; Industry 4.0 45, 52; Industry 5.0 52–53, 53; legal technologies 55; process of 46; supply management 55, 94–96; technology acceptance model 51, 52; technology transfer 46–50, 47, 48, 50, 51 disintermediation 85, 86 distribution requirements planning (DRP) 67–68, 68 dyads, supply 84 economic-order quantity (EOQ) 63, 63–64 Efficient Frontier 106, 106–107 electronically delivered services 95 enterprise resource systems 65–68, 66, 67, 68, 69 ethics: strategic perspective 108; supply management 92–94 evaluation as stage in value analysis 33 evolution of operations management 9–13, 10 facilities layout design 22–23, 29 failure mode and effects analysis (FMEA) 37, 37 familiarisation as stage in value analysis 32 Feigenbaum, A. 127 five KPIs 3–4, 4 flexibility 5; as KPI 4 flexible and agile systems 16; see also agile systems flow, types of 26 Fordism 11 forecasting demand 60 four V’s 4–6, 5 future state maps 27 global operations 137 Goldratt, Eli 62 group technology (GT) 24–25 group working, autonomous 25 Hayes and Wheelwright framework 101–102, 102 healthcare services 29 Hill, T. 4, 100, 102–103, 103, 105 history of operations management 9–13, 10 Hoshin Kanri, strategy deployment using 110 Imai, M. 128, 130 implementation as stage in value analysis 33 Industrial Revolution 9–13 Industry 4.0 45

Industry 5.0 52–53, 53 innovation 147 input-output models 58, 58–59, 59 input-transformation-output model 3, 3 integration of operations management components 2 interchangeability 11 intermediation 85, 85–86 international operations 137 Internet-based supply management 94–96 Internet of Things (IOT) 95 inventory and resource management 62–68, 63, 64, 65, 66, 67, 68; just in time (JIT) 74, 74–76 inventory status files 66, 66, 67 Ishikawa, K. 127 ISO 9000 114 Johnson’s Algorithm 61 Juran, J. 126–127 just in time (JIT) 74, 74–76 Kaizen 130 Kanban system 75, 80–81 key performance objectives: five 3–4, 4; strategy and 107, 107–108; trade-offs between 16 Kraljic, P. 90–92, 91 layout of facilities 29; cellular layouts 24–25; design of 22–23 lead times 107–108 lean operations: customers and 74; design 73–74; examples 80–81; just in time (JIT) 74, 74–76; principles of 73–74; supply management 73; thinking behind 72–73; triple bottom line 94 legal technologies 55 level capacity plans 19, 19 liability and failure 37, 37 life cycle of processes 7, 7 lifecycle of services/products 33–34, 34, 104, 105 loading 60 locations, design of business processes and 16, 20–21 make or buy decisions 86–88, 87, 88 manage/change demand plans 19, 20 manufacturing industries: typology of operations processes 21–22, 22; visibility of processes 22, 23 market-driven approach to strategy 105–106

Index  153 mass customisation 38, 38; service modularity 39, 40 mass production 11 master production schedules (MPS) 65, 66 materials requirements planning (MRP) 65–68, 66, 67, 68 modularity, service 39, 40

process mapping 26, 26–27, 27 process redesign 26–27 process tasks 21–22, 22 product value see service and product value public sector industries, relevance to 12 purchasing and resource management 62–65, 63, 64, 65

nearshoring 90

quality: acceptance sampling 117; assurance 113; audit 114–115; award schemes 135–136, 136; circles 129; continuous improvement 138; control 113, 114; costs of 132–134, 134; definitions 113, 123; examples 137–139; improvement programmes 129–135, 134; inspection 113; international standards 115– 116; ISO standards 114, 115–116, 123–124; Kaizen 130; as KPI 3, 4; measuring 117–122, 118, 119, 120, 120, 121; organisation for 116; quality function deployment (QFD) 35–37, 36, 130–131; quality improvement teams (QIU) 130; responsibility for 116; service 123; Six Sigma 117–122, 118, 119, 120, 120, 121, 135; strategy and 108; supplier/customer relationships 116–117; systems 113–116, 114; total quality management (TQM) 131–132; value analysis 131; writers on 126–128; zero defects 129

offshoring 89–90 open systems 58, 58 operational research (OR) 12 operations management: components of 2; conceptual model of 1, 2; contribution of 145–146, 146; evolution of 9–13, 10; examples 147–149; integration of components 2; organisational scope of 7, 7–9, 8; scope of 6–9, 7, 8 operations systems: classification and features of 21–22, 22; components of 6; lifecycle of 7 opportunism 87–88 optimised production technology (OPT) 62 ordering costs (Co) 63 order qualifiers/order winners 101 organisational scope of operations management 7, 7–9, 8 Osterwalder, A. 104, 104 outsourcing 78, 89–90 Pal, R. 79 Pareto analysis 62 performance objectives: five 3–4, 4; strategy 107, 107–108; trade-offs between 16 Pigneur,Y. 104, 104 planning and control: aggregate planning 59–60; capacity management 59; control theory 58, 58–59, 59; examples 69–71; forecasting demand 60; inventory and resource management 62–68, 63, 64, 65, 66, 67, 68; materials requirements planning (MRP) 65–68, 66, 67, 68; optimised production technology (OPT) 62; scheduling 60–62; see also capacity planning Porter, M. 106 portfolio analysis, supplier 90–92, 91 Post-Fordism 12 pre-operational planning 40–41 process analysis 26, 26–27, 27 processes: life cycle of 7, 7; operations management and 142; service industries 142–143 process flow 21–22, 22

R charts 119, 120, 121 recommendation as stage in value analysis 33 redesign of services and products 37 relationships, buyer-supplier 90–92, 91 reorder cycle (ROC) 62, 64, 65, 66 reorder level (ROL) 62, 63–64, 64, 66 repeatability 5 reshoring 90 resilient operations 78–79, 81, 144, 145 resilient system design 43 resource-based (RBV) of organisations 88, 88 resource management 62–68, 63, 64, 65, 66, 67, 68; just in time (JIT) 74, 74–76; value chains 78 resources supply network and distribution system 20–21; see also supply management risk 78, 79, 145 scheduling 60–62 scientific management 11 scope of operations management 6–9, 7, 8 seasonality 18 sequence 60 service and product value: customer value 42–43; developing value 41–42; liability

154 Index and failure 37, 37; lifecycle of services/ products 33–34, 34; management of design process 34–35, 35; mass customisation 38, 38; new services/products 33, 34; operations management and 31–32; quality function deployment (QFD) 35–37, 36; redesign of services and products 37; resilient system design 43; service design 42; service modularity 39, 40; service value 38–39, 39; value analysis 32–33; value proposition 32–33 service concept 23 service industries: design of business processes 16; digital services 95; healthcare services 29; processes in 142–143; relevance to 12; service package 23–24; visibility of processes 23 service levels 63 service modularity 39, 40 service package 23–24 services industries: typology of operations processes 21–22, 22; visibility of processes 22 service value 38–39, 39 servitisation in operations 143–144 Six Sigma 81, 117–122, 118, 119, 120, 120, 135 Skinner, W. 100 social responsibility, supply management and 92–94 sociotechnology 11–12 speculation as stage in value analysis 32–33 speed as KPI 3 stakeholders 149 Stalker, G.M. 34 standards for service contact 24 statistical process control 117–122, 118, 119, 120, 120, 121 statistical stock control 62–65, 63, 64, 65 statistics, use of 147 stock control: just in time (JIT) 74, 74–76; parameters 62 storage costs (iCm) 63 strategy: business model canvas 104, 104; defining 99–100; deployment using Hoshin Kanri 110; Efficient Frontier 106, 106–107; ethical dimension 108; examples 109–110; Hayes and Wheelwright framework 101–102, 102; Hill’s framework 102–103, 103; market-driven approach 105–106; in operations management 100–101; order qualifiers/order winners 101; performance objectives 107–108; product lifecycle and

104, 105; quality and 108; shift towards 12; strategy development cycle 104, 105; structured approach 102–105, 103, 104, 105 supply chains 84; make or buy decisions 86–88, 87, 88; reshoring 90 supply management: blockchain technology 95–96; buyer-supplier relationships 90–92, 91; cradle-to-cradle (C2C) 94; digital transformation 55; disintermediation 85, 86; dyads 84; electronic and digital 94–96; examples 96–97; importance of 83; intermediation 85, 85–86; just in time (JIT) 74, 74–76; lean 73; nearshoring 90; offshoring 89–90; outsourcing 89–90; portfolio analysis 90–92, 91; quality and 116–117; risk 78, 79; terminology 84, 84–86; triple bottom line and 92–94; upstream/ downstream tiers 84, 85; value chains 78; vertical integration 85, 85 supply network and distribution system: location of organisations and 20–21; see also supply management sustainable supply networks: blockchain technology 95–96; buyer-supplier relationships 90–92, 91; cradle-to-cradle (C2C) 94; disintermediation 85, 86; dyads 84; electronic and digital 94–96; examples 96–97; importance of 83; intermediation 85, 85–86; make or buy decisions 86–88, 87, 88; nearshoring 90; offshoring 89–90; outsourcing 89–90; portfolio analysis 90–92, 91; principles 84–86, 85; reshoring 90; terminology 84, 84–86; triple bottom line and 92–94; upstream/downstream tiers 84, 85; vertical integration 85, 85 Taguchi, G. 127–128 technology: blockchain 95–96; impact on processes 13; supply management and 94–96; transfer 46–50, 47, 48, 50, 51 technology acceptance model 51, 52 TO-BE maps 27 total quality management (TQM) 131–132 trade-off decisions 4; key performance indicators 16 transaction cost economics (TCE) 86–88, 87 transfer, technology: adaptation/selection for local needs 47–48, 51; agreements for 50, 50; contexts for 48, 48; defined 45; dimensions 49; element of process of 49–50; hardware and software 48; international channels

Index  155 48; mechanisms of 50, 51; rate of 50, 51; theories 48–49; timescale 47; vertical and horizontal 47, 47 transparency, operational 79–80, 144–145, 145 triple bottom line, sustainable supply networks and 92–94 uncertainty assumption 87 utilisation 18 value: defined 3; principles of 3, 3–6, 5; see also service and product value

value analysis 32–33, 131 value chains 78 value stream mapping 26–27, 27 variation, high-low 5, 5 variety, high-low 4–5, 5 visibility, high-low 5, 5 visibility of processes 22, 23 volume: low-high 4, 5; processes 21–22, 22 X-Bar charts 119, 120 zero defects 129