1.4 Managing Operations Performance
Operations should provide a competitive advantage. You need to keep in mind the strategy hierarchy:
Corporate Strategy (What business should we be in?)
->
Business Strategy (How should we compete?)
->
Functional Strategy (How should we support this?)
The four stage model provides a framework for how operations contribute to competitiveness
Stage 1: Internally neutral; Objective is to minimize the negative impact of operations; does not provide any contribution; either do not realize or do not appreciate
Stage 2: Externally neutral; Objective is for operations to help the business maintain parity with its competitors; performs as well, still does not provide competitive advantage; are aware but did not start to improve
Stage 3: internally supportive; Objective is for operations to provide credible support for business strategy; provides a competitive edge, as good as other operations in its sector but is not yet being exploited
Stage 4: externally supportive; Objective is for operations to provide a source for competitive advantage; source of persistent competitive advantage; operations function are world-class
There are several aspects to operational performance and they are interlinked and each contributes to each other:
\- Do things right the first time (Quality)
\- Do things quickly (Speed)
\- Do things on time (Dependability)
\- Do different things or do things differently (Flexibility)
\- Do things with fewer resources (Cost)
They have both an internal and an external meaning.
For an example see Book 4, page 13: Hospital, Car factory, Bus Company, Supermarket
One of the most important measures is how resources (transforming and transformed) are used. The four Es (Economy, Efficiency, Effectiveness, Ethics) are important here.
Earlier companies looked mainly at financial performance but the changing business no longer has much value to operations management. This was done mainly because overheads were minimal but
\- More automation meant these measurements would become problematic
\- Management focused not on entire organization but on parts
\- It looked at past rather than future and now you need to focus on continued improvement
\- It neglected customer satisfaction and quality
Cost is only one of five sources for competitive advantage. In the 1980s performance measurements systems were introduced to provide clear and common-sense measurements that reflect trends and long-term improvements, support decision-making and direct and motivate workers. Two of these methods are activity-based costing (ABC) and the balanced scorecard.
The essence of an effective performance management system is measuring the right things and the measures must be balanced, dynamic, timely, efficient, measure key processes and focus on customer satisfaction. You need to create a closed loop so that performance measures result in corrective action.
Set performance objectives -> Develop performance criteria -> Take action and measure results -> Assess results and decide what to do
Emphasis multiple perspectives
Emphasis the whole system
Emphasis the future
Lean production came from Toyota and focused on removing waste in automobile assembly.
\- Waste from producing defects
\- Waste in transportation
\- Waste in inventory
\- Waste from over-production
\- Waste of waiting time
\- Waste in processing
\- Waste of motion
The quality gaps model by Parasuraman is another method (See Certificate).
The 5-S model focused on a clean and tidy workplace as a good indicator of high performance.
\- Proper arrangement and organization
\- Orderliness
\- Clean-up
\- Cleanliness
\- Discipline
Page 19 of Book 4 provides a nice guideline on assessing a company based on these methods.