Operations improvement Chapter 18 Operations improvement Source: Courtesy of Lotus-Haed, www.pixelpusher.co.za

Operations improvement Operations improvement Operations strategy Operations process improvement makes processes better Operations management Total quality management organizes process improvement Design Improvement Failure prevention and recovery stop processes becoming worse Planning and control

Performance measures at different levels of aggregation Overall strategic objectives Broad strategic measures Market strategic objectives Financial strategic objectives Operations strategic objectives Functional strategic measures Customer satisfaction Resilience Agility Composite performance measures Quality Dependability Speed Flexibility Cost Generic operations performance measures Some detailed performance measures Defects per unit Mean time between failures Lateness complaints Customer query time Order lead time Throughput time Time to market Product range Transaction costs Level of customer complaints Scrap level Labour productivity Machine efficiency

Performance measures at different levels of aggregation High strategic relevance and aggregation High diagnostic power and frequency of measurement Broad strategic measures Functional strategic measures Composite performance measures Generic operations performance measures Detailed performance measures

The measures used in the balanced scorecard Financial performance measures To achieve strategic impact, how should we be viewed by shareholders? Internal process performance measures To achieve strategic impact, what aspects of performance should business process excel at? Customer performance measures To achieve strategic impact, how should we be viewed by customers? Overall strategic objectives Learning and growth performance measures To achieve strategic impact, how will we build capabilities over time?

Prioritizing process objectives Priorities should be determined by … The IMPORTANCE of each competitive objective Your PERFORMANCE in each competitive objective IMPROVEMENT PRIORITIES

Order-winning objectives Qualifying objectives Competitive benefit performance +ve neutral –ve Low High Achieved Order-winning objectives Qualifying level +ve neutral –ve Low High Qualifying objectives Competitive benefit Achieved performance +ve neutral –ve Low High Less important objectives Competitive benefit Achieved performance

9-point importance scale For this product or service, does this performance objective … Order-winning objectives 1 …provide a crucial advantage with customers? 2 …provide an important advantage with most customers? 3 …provide a useful advantage with most customers? Qualifying objectives 4 …need to be up to good industry standard? 5 …need to be around median industry standard? 6 …need to be within close range of the rest of the industry? Less important objectives 7 …rate as not usually important but could become more so in future? 8 …very rarely rate as being important? 9 …never come into consideration?

Temperature-controlled – overnight service IMPORTANCE to customers 1 2 3 4 5 6 7 8 9 PRICE X SERVQUAL (DISN.) X SERVQUAL (ORDER TAKE) X ENQUIRY LEAD-TIME X DROP QUOTE X WINDOW QUOTE X DELIVERY PERFORMANCE X DELIVERY FLEXIBILITY X VOLUME FLEXIBILITY X DOC. SERVICE X 1 2 3 4 5 6 7 8 9

9-point performance scale For this product or service, is the achieved performance … Better than competitors 1 …consistently considerably better than our nearest competitor’s? 2 …consistently clearly better than our nearest competitor’s? 3 …consistently marginally better than our nearest competitor’s? Similar processes Customer expectations 4 …often marginally better than that of most competitors? 5 …about the same as that of most competitors? 6 …often close to that of our main competitors? Same as competitors 7 …usually marginally worse than that of our main competitors? 8 …usually worse than that of most competitors? 9 …consistently worse than that of most competitors? Worse than competitors

Temperature-controlled – overnight service PERFORMANCE against competitors 1 2 3 4 5 6 7 8 9 COST X SERVQUAL (DISN.) X SERVQUAL (ORDER TAKE) X ENQUIRY LEAD-TIME X DROP QUOTE X WINDOW QUOTE X DELIVERY PERFORMANCE X DELIVERY FLEXIBILITY X VOLUME FLEXIBILITY X DOC. SERVICE X 1 2 3 4 5 6 7 8 9 Estimated

X X EXCESS ? APPROPRIATE Lower bound of acceptability IMPROVE URGENT 1 EXCESS ? GOOD better 2 than APPROPRIATE X 3 4 Lower bound of acceptability same 5 as URGENT ACTION PERFORMANCE COMPETITORS AGAINST IMPROVE 6 7 X 8 worse than 9 BAD 9 8 7 6 5 4 3 2 1 less order qualifying important winning IMPORTANCE LOW FOR HIGH CUSTOMERS

X PERFORMANCE COMPETITORS IMPORTANCE CUSTOMERS Delivery Volume flex. better than same as worse less important qualifying order winning 1 2 3 4 5 6 7 8 9 IMPORTANCE FOR CUSTOMERS LOW HIGH PERFORMANCE AGAINST COMPETITORS GOOD BAD Volume flex. X Drop quote Delivery Window quote Servqual (Disn.) Doc service Price/Cost Delivery flex. Servqual (order take) Enquiry Lead-time

Innovation Kaizen Short-term, dramatic Long-term, undramatic Effect Large steps Intermittent Abrupt, volatile Few champions Individual ideas & effort Scrap and rebuild New inventions/theories Large investment Low effort Technology Profit Long-term, undramatic Small steps Continuous, incremental Gradual and consistent Everyone Group efforts, systematic Protect and improve Established know-how Low investment Large effort People Process Effect Pace Timeframe Change Involvement Approach Mode Spark Capex Maintenance Focus Evaluation

The plan–do–check–act (or ‘Deming’) improvement cycle, and the define–measure–analyze–improve–control (or DMAIC) ‘six sigma’ improvement cycle Plan Do Check Act Define Measure Analyze Improve Control

Define – identify the problem, define requirements and set the goal The DMAIC cycle Control – establish performance standards and deal with any problems Measure – gather data, refine problem and measure inputs and outputs Analyze – develop problem hypotheses, identify ‘root causes’ and validate hypotheses Improve – develop improvement ideas, test, establish solution, and measure results

‘Breakthrough’ improvement does not always deliver hoped-for improvements Planned ‘breakthrough’ improvements Performance Actual improvement pattern Time

Continuous improvement Standardize and maintain Improvement Performance Time

Continuous improvement PDCA cycle repeated to create continuous improvement Plan Performance Do Act Check Time

Combined ‘breakthrough’ and continuous improvement Combined improvement Combined ‘breakthrough’ and continuous improvement Performance Time

Some common techniques for process improvement Input/output analysis Input Output Flowcharts Scatter diagrams x Cause–effect diagrams Pareto diagrams ‘Why-why’ analysis Why?

The sandcone model of improvement Cost Quality + dependability + speed + flexibility + cost Flexibility Quality + dependability + speed + flexibility Speed Quality + dependability + speed Dependability Quality + dependability Quality

Functionally based processes Customer needs fulfilled BPR advocates reorganizing (reengineering) processes to reflect the natural processes that fulfil customer needs Functionally based processes Function 1 Function 2 Function 3 Function 4 End-to-end process 1 End-to-end process 2 End-to-end process 3 Customer needs Business processes Customer needs fulfilled

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

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

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

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

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

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