chapter 18

C

hapter 18

O

perations

improvement

Operations improvement

Operations

strategy

Design

_Improvement

Planning and

control

Operations

management

Operations

improvement

Total quality

management

organizes process

improvement

_Failure

prevention and

recovery stop

processes

becoming worse

Operations

process

improvement

makes processes

better

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

Agility

Resilience

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

Detailed performance

measures

Broad strategic

measures

Functional strategic

measures

Composite performance

measures

Generic operations

performance measures

Overall strategic

objectives

Customer performance

measures

To achieve strategic

impact, how should we

be viewed by

customers?

Internal process

performance measures

To achieve strategic impact,

what aspects of

performance should

business process excel at?

Financial performance

measures

To achieve strategic impact,

how should we be viewed by

shareholders?

Learning and growth

performance measures

To achieve strategic

impact, how will we

build capabilities over

time?

Prioritizing process objectives

Priorities should be determined by …

IMPROVEMENT PRIORITIES

The

IMPORTANCE

of each

competitive

objective

Your

PERFORMANCE

in each

competitive

objective

C

om

pe

tit

iv

e

be

ne

fit

performance

+ve

neutral

–ve

Low

High

Achieved

Order-winning

objectives

Achieved

Qualifying

level

+ve

neutral

–ve

Low

High

Qualifying

objectives

C

om

pe

tit

iv

e

be

ne

fit

Achieved

performance

+ve

neutral

–ve

Low

High

Less important

objectives

C

om

pe

tit

iv

e

be

n

ef

it

Achieved

performance

Order-winning

objectives

For this product or service, does this performance objective …

9-point importance scale

1 …provide a crucial advantage with customers?

2 …provide an important advantage with most customers?

3 …provide a useful advantage with most customers?

4 …need to be up to good industry standard?

5 …need to be around median industry standard?

6 …need to be within close range of the rest of the industry?

7 …rate as not usually important but could become more so

in future?

8 …very rarely rate as being important?

9 …never come into consideration?

Qualifying

objectives

Less important

objectives

IMPORTANCE to customers

1 2 3 4 5 6 7 8 9

X

X

X

X

X

X

X

X

X

PRICE

SERVQUAL (DISN.)

SERVQUAL (ORDER TAKE)

ENQUIRY LEAD-TIME

DROP QUOTE

WINDOW QUOTE

DELIVERY PERFORMANCE

DELIVERY FLEXIBILITY

VOLUME FLEXIBILITY

DOC. SERVICE

X

Temperature-controlled – overnight service

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?

9-point performance scale

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

Sim

ilar p

roce

sses

Sim

ilar p

roce

sses

Sim

ilar p

roce

sses

Cus

tom

er

expe

ctati

ons

Cus

tom

er

expe

ctati

ons

Cus

tom

er

expe

ctati

ons

1 2 3 4 5 6 7 8 9

PERFORMANCE against competitors

Temperature-controlled – overnight service

COST

SERVQUAL (DISN.)

SERVQUAL (ORDER TAKE)

ENQUIRY LEAD-TIME

DROP QUOTE

WINDOW QUOTE

DELIVERY PERFORMANCE

DELIVERY FLEXIBILITY

VOLUME FLEXIBILITY

1 2 3 4 5 6 7 8 9

X

X

X

X

X

X

X

X

X

DOC. SERVICE

X

Estimated

better

than

same

as

worse

than

less

important

qualifying

winning

order

1

2

3

4

5

6

7

8

9

1

2

3

4

5

6

7

8

9

IMPORTANCE

FOR

CUSTOMERS

LOW

HIGH

P

E

R

F

O

R

M

A

N

C

E

A

G

A

IN

S

T

C

O

M

P

E

T

IT

O

R

S

G

O

O

D

B

A

D

URGENT

ACTION

IMPROVE

APPROPRIATE

EXCESS ?

X

X

Low

er b

oun

d of

acc

epta

bility

better

than

same

as

worse

than

less

important

qualifying

winning

order

1

2

3

4

5

6

7

8

9

1

2

3

4

5

6

7

8

9

IMPORTANCE

FOR

CUSTOMERS

LOW

HIGH

P

E

R

F

O

R

M

A

N

C

E

A

G

A

IN

S

T

C

O

M

P

E

T

IT

O

R

S

G

O

O

D

B

A

D

Volume flex.

X

Drop quote

X

Delivery

_X

Window

quote

X

Servqual

(Disn.)

X

Doc service

_X

X

Price/Cost

_X

Delivery flex.

X

Servqual

(order take)

X

Short-term, dramatic

Large steps

Intermittent

Abrupt, volatile

Few champions

Individual ideas & effort

Scrap and rebuild

New inventions/theories

Large investment

Low effort

Technology

Profit

Short-term, dramatic

Large steps

Intermittent

Abrupt, volatile

Few champions

Individual ideas & effort

Scrap and rebuild

New inventions/theories

Large investment

Low effort

Technology

Profit

Effect

Pace

Timeframe

Change

Involvement

Approach

Mode

Spark

Capex

Maintenance

Focus

Evaluation

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

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

Innovation

Kaizen

The plan–do–check–act (or ‘Deming’) improvement cycle,

and the define–measure–analyze–improve–control

(or DMAIC) ‘six sigma’ improvement cycle

Define

Measure

Analyze

Improve

Control

Plan

Do

Check

Act

Plan

Define

– identify the

problem, define

requirements and set

the goal

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

Control

– establish

performance

standards and deal

with any problems

The DMAIC

cycle

P

er

fo

rm

an

ce

Time

Planned ‘breakthrough’

improvements

Actual improvement

pattern

‘Breakthrough’ improvement does not always deliver

hoped-for improvements

P

er

fo

rm

an

ce

Time

Continuous improvement

Standardize and maintain

Improvement

P

er

fo

rm

an

ce

Time

PDCA cycle repeated to create continuous improvement

Continuous improvement

Plan

Do

Check

Act

P

er

fo

rm

an

ce

Time

Combined

‘breakthrough’ and

continuous improvement

Combined improvement

Some common techniques for process improvement

Cause–effect diagrams

‘Why-why’ analysis

Why?

Why?

Why?

Flowcharts

Scatter diagrams

x

x

x

x

x

x

x

x

x

x

x

Input/output analysis

Input

Output

Pareto diagrams

Cost

Quality + dependability + speed + flexibility + cost

Flexibility

Quality + dependability + speed + flexibility

Speed

Quality + dependability + speed

The sandcone model of improvement

Dependability

Quality + dependability

Quality

BPR advocates reorganizing (reengineering) processes

to reflect the natural processes that fulfil customer needs

Function 1

C

u

st

o

m

er

n

ee

d

s

C

u

st

o

m

er

n

ee

d

s

fu

lf

ill

ed

Functionally based processes

Function 2

Function 3

Function 4

B

u

si

n

es

s

p

ro

ce

ss

es

End-to-end process 1

End-to-end process 2

End-to-end process 3

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

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).