CHAPTER 18 MANAGING OPERATIONS

Every organization “produces’ something, whether it’s a good or a service. This chapter
focuses on how organizations do that through a process called operations management.
We also look at the important role that managers play in managing those operations.
Focus on the following learning outcomes as you read and study this chapter.

Learning Outcomes
18.1 Explain the role of operations management.
18.2 Define the nature and purpose of value chain management.
18.3 Describe how value chain management is done.
18.4 Discuss contemporary issues in managing operations.

You’ve probably never given much thought to how organizations “produce” the goods and
services that you buy or use. But it’s an important process. Without it, you wouldn’t have a
car to drive or McDonald’s fries to snack on, or even a hiking trail in a local park to enjoy.
Organizations need to have well-thought-out and well-designed operating systems,
organizational control systems, and quality programs to survive in today’s increasingly
competitive global environment. And it’s a manager’s job to manage those things.

LEARNING OUTCOME 18.1

THE ROLE OF OPERATIONS MANAGEMENT

Four Seasons Hotels and Resorts has tens of properties in about 35 countries. As the
company expands into more locations every year, it strives to offer consistent and reliable
service whether the operations are in Cairo, Riyadh, Amman, Paris, or Bangkok. But how
can the company sustain such consistency given the variety of places in which in it
operates and the diversity people who are employed? Success is determined by the
company knowing how to manage its operations.
What is operations management? The term refers to the transformation process that
converts resources into finished goods and services. Exhibit 18–1 portrays this process in a
very simplified fashion. The system takes in inputs—people, technology, capital,
equipment, materials, and information—and transforms them through various processes,
procedures, work activities, and so forth into finished goods and services. Because every
unit in an organization produces something, managers need to be familiar with operations
management concepts in order to achieve goals efficiently and effectively.
Operations management is important to organizations and managers for three reasons: It
encompasses both services and manufacturing, it’s important in effectively and efficiently
managing productivity, and it plays a strategic role in an organization’s competitive
success. Let’s look at each.
Exhibit 18-1 The Operations System

SERVICES AND MANUFACTURING

Kababji restaurants, a famous Lebanese restaurant, has been expanding its franchises
throughout the Middle East with locations in Bahrain, Jordan, Kuwait, Qatar, Saudi Arabia,
Sudan, and the UAE, making it the prominent Lebanese food chain. Kababji has had to rely
on an efficient system in order to achieve such success0.
Every organization produces something. Unfortunately, this fact is often overlooked except
in obvious cases, such as in the manufacturing of cars, cell phones, or lawnmowers. After
all, manufacturing organizations produce physical goods. It’s easy to see the operations
management (transformation) process at work in these types of organizations because raw
materials are turned into recognizable physical products. But that transformation process
isn’t as readily evident in service organizations because they produce nonphysical outputs
in the form of services. For instance, hospitals provide medical and health care services
that help people manage their personal health, airlines provide transportation services
that move people from one location to another, a cruise line provides vacation and
entertainment services, military forces provide defense capabilities, and the list goes on
and on. Service organizations also transform inputs into outputs, although the
transformation process isn’t as easily recognizable as it is in manufacturing organizations.
Take a university, for example. University administrators bring together inputs—
professors, books, academic journals, technology materials, computers, classrooms, and
similar resources—to transform “unenlightened” students into educated and skilled
individuals who are capable of making contributions to society.
The reason we’re making this point is that many economies in the world are dominated by
the creation and sale of services. In the United States, for instance, over 78 percent of all
economic activity is services, and in the European Union, it’s nearly 71 percent.4 In the
Arab countries, it accounts for a high of 78% in Lebanon, 67% in Jordan, 56% in Syria, 54%
in Tunisia,52% in Kuwait, about 49-51% in Egypt, Morocco, Oman, Yemen, and UAE, 43% in
Bahrain, 38% in Saudi Arabia, 32% in Qatar, 30% in Algeria, 28% in Iraq, and 26% in Libya.5
MANAGING PRODUCTIVITY
A jetliner has some 4 million parts. Efficiently assembling such a finely engineered product
requires intense focus. Boeing and Airbus, the two major global manufacturers, have
copied techniques from Toyota. However, not every technique can be copied because
airlines demand more customization than do car buyers, and there are significantly more
rigid safety regulations for jetliners than for cars.6 United Pharmaceuticals uses an ERP
system (enterprise resource planning) to better manage its operations. Nidal Awartany,
Information System Manager at United Pharmaceuticals said: "We're keen on acquiring the
best ERP solution for the major role it plays in supporting our competency level, especially
when it comes to utilized resources, increase our productivity and improving the quality of
our services1.
Although most organizations don’t make products that have 4 million parts and most
organizations can’t function without people, improving productivity has become a major
goal in virtually every organization. For countries, high productivity can lead to economic
growth and development. Employees can receive higher wages, and company profits can
increase without causing inflation. For individual organizations, increased productivity
provides a more competitive cost structure and the ability to offer more competitive
prices.

Organizations that hope to succeed globally are looking for ways to improve productivity.
For example, McDonald’s Corporation drastically reduced the time it takes to cook its
french fries—65 seconds as compared to the 210 seconds it once took—saving time and
other resources.10 Skoda, the Czech car company owned by Germany’s Volkswagen AG,
improved its productivity through an intensive restructuring of its manufacturing process.12
Aluminium Bahrain (Alba)'s drive towards lean transformation and global competitiveness
led to impressive resulty as the company has been focusing on reaching record new
production milestones that set new standards in quality, safety and cost savings. The team
recently produced 250 metric tons of slabs in a single shift, and in the process, exceeded
the average production figures per shift that revolve around 100 to 150 tons. These
results were a direct consequence of the company's efforts to strengthen efficiency levels
through increased collaboration in problem solving and idea generation, decrease of
unnecessary waste and turnaround time, reduction in costs and development of bottom-
up solutions2.

Hikma Pharmaceuticals (headquartered in

Jordan), a leading generic pharmaceutical
company with a significant presence in the
Middle East and North Africa (”MENA”)
region, the United States and Europe,
operates in a very sensitive domain requiring
the utmost care and consideration. The
company establishes its leading role in
delivering high quality products through its
flexible manufacturing strategy and continuos
investment in research and development. This
requires an extensive degree of operational
coordination and control.
Source: Company website www.hikma.com

Productivity is a composite of people and operations variables. To improve productivity,

managers must focus on both. The late W. Edwards Deming, a renowned quality expert,
believed that managers, not workers, were the primary source of increased productivity.
He outlined 14 points for improving management’s productivity (see Exhibit 18–2). A close
look at these suggestions reveals Deming’s understanding of the interplay between people
and operations. High productivity can’t come solely from good “people management.” A
truly effective organization will maximize productivity by successfully integrating people
into the overall operations system. speaking at the company's annual Suggestion Scheme
Awards ceremony, Abdulla Kalban, President & CEO of Dubai Aluminium Company Limited
("Dubal"), affirmed that "for any organization to succeed, its employees must be involved
and engaged. The resulting empowerment enriches the work experience and brings out
the best in every person — which in turn leads to improvements in quality, safety, cost,
environment, through-put and customer service.3"

Exhibit 18-2 Deming’s 14 Points for Improving Productivity

1. Plan for the long-term future.
2. Never be complacent concerning the quality of your product.
3. Establish statistical control over your production processes and require your
suppliers to do so as well.
4. Deal with the best and fewest number of suppliers.
5. Find out whether your problems are confined to particular parts of the production
process or stem from the overall process itself.
6. Train workers for the job that you are asking them to perform.
7. Raise the quality of your line supervisors.
8. Drive out fear.
9. Encourage departments to work closely together rather than to concentrate on
departmental or divisional distinctions.
10. Do not adopt strictly numerical goals.
11. Require your workers to do quality work.
12. Train your employees to understand statistical methods.
13. Train your employees in new skills as the need arises.
14. Make top managers responsible for implementing these principles.
Source: W.E. Deming, “Improvement of Quality and Productivity Through Action by Management,” National
Productivity Review, Winter 1981–1982, pp. 12–22. With permission. Copyright 1981 by Executive Enterprises,
Inc., 22 West 21st St., New York, NY 10010-6904. All rights reserved.

STRATEGIC ROLE OF OPERATIONS MANAGEMENT

Modern manufacturing originated over 100 years ago in the United States, primarily in
Detroit’s automobile factories. The success that U.S. manufacturers experienced during
World War II led manufacturing executives to believe that troublesome production
problems had been conquered. These executives focused, instead, on improving other
functional areas, such as finance and marketing, and paid little attention to manufacturing.
However, as U.S. executives neglected production, managers in Japan, Germany, and other
countries took the opportunity to develop modern, computer-based, and technologically
advanced facilities that fully integrated manufacturing operations into strategic planning
decisions. The competition’s success realigned world manufacturing leadership. U.S.
manufacturers soon discovered that foreign goods were being made not only less
expensively but also with better quality. Finally, by the late 1970s, U.S. executives
recognized that they were facing a true crisis and responded. They invested heavily in
improving manufacturing technology, increased the corporate authority and visibility of
manufacturing executives, and began incorporating existing and future production
requirements into the organization’s overall strategic plan. Today, successful organizations
recognize the crucial role that operations management plays as part of the overall
organizational strategy to establish and maintain global leadership.14
The strategic role that operations management plays in successful organizational
performance can be seen clearly as more organizations move toward managing their
operations from a value chain perspective, which we discuss next.
LEARNING OUTCOME 18.2

WHAT IS VALUE CHAIN MANAGEMENT, AND WHY IS IT IMPORTANT?

It’s 11 P.M., and you’re reading a text message from your parents, saying they want to buy
a laptop for you for your birthday and that you should order it. You log on to Dell’s Web
site and configure your dream machine. You hit the order button, and within three or four
days, your dream computer is delivered to your front door, built to your exact
specifications, ready to set up and use immediately to write the management assignment
that’s due tomorrow. Or consider the example of Toys"R"Us Middle East. They buy
merchandise from all over the world and deal with more than 300 manufacturers,"
explains Devrim Anadol, buying and logistics manager. The retailer currently operates in
many areas of the Middle East and it thus depends on the excellent support from third
party logistics partners to secure a competent supply chain. "Considering the number of
countries and the number of vendors that we deal with, our operation requires a flawless
process and great teamwork," Anadol emphasises. "To ensure the smooth flow of the
supply chain, it is imperative that the logistics ‘parts' work in perfect unison."In terms of
these logistics ‘parts', Toys"R"Us relies on major 3PL players to help them deliver their
successful operations, including Agility, UPS, DHL and Aramex. Without such cooperation
with their partners, the company would have had a totally different and most probably less
efficient operating system4.
As these examples show, closely integrated work activities among many different players
are possible. How? The answer lies in value chain management. The concepts of value
chain management have transformed operations management strategies and turned
organizations around the world into finely tuned models of efficiency and effectiveness,
strategically positioned to exploit competitive opportunities.
WHAT IS VALUE CHAIN MANAGEMENT?
Every organization needs customers if it’s going to survive and prosper. Even a not-for-
profit organization must have “customers” who use its services or purchase its products.
Customers want some type of value from the goods and services they purchase or use, and
these customers decide what has value. Organizations must provide that value to attract
and keep customers. Value is defined as the performance characteristics, features and
attributes, and any other aspects of goods and services for which customers are willing to
give up resources (usually money). For example, when you purchase a new music CD , a
new pair of boots online at the company’s Web site, a cheeseburger at the drive-through
location near campus, or a haircut from your local hair salon, you’re exchanging (giving up)
money in return for the value you need or desire from these products—providing music
during your evening study time, keeping your feet warm and fashionable during winter’s
cold weather, alleviating the lunchtime hunger pangs quickly since your next class starts in
15 minutes, or looking professionally groomed for the job interview you’re going to next
week.
How is value provided to customers? Through transforming raw materials and other
resources into some product or service that end users need or desire when, where, and
how they want it. However, that seemingly simple act of turning varied resources into
something that customers value and are willing to pay for involves a vast array of
interrelated work activities performed by different participants (suppliers, manufacturers,
and even customers)—that is, it involves the value chain. The value chain is the entire
series of organizational work activities that add value at each step, from raw materials to
finished product. In its entirety, the value chain can encompass the supplier’s suppliers to
the customer’s customers.16
Value chain management is the process of managing the sequence of activities and
information along the entire value chain. In contrast to supply chain management, which is
internally oriented and focuses on efficient flow of incoming materials (resources) to the
organization, value chain management is externally oriented and focuses on both incoming
materials and outgoing products and services. Whereas supply chain management is
efficiency oriented (its goal is to reduce costs and make the organization more productive),
value chain management is effectiveness oriented and aims to create the highest value for
customers.17
GOAL OF VALUE CHAIN MANAGEMENT
Who has the power in the value chain? Is it the suppliers providing needed resources and
materials? After all, they have the ability to dictate prices and quality. Is it the
manufacturer who assembles those resources into a valuable product or service? Their
contributions in creating a product or service are quite obvious. Is it the distributor that
makes sure the product or service is available where and when the customer needs it?
Actually, it’s none of these! In value chain management, ultimately customers are the ones
with power.18 They’re the ones who define what value is and how it’s created and
provided. Using value chain management, managers hope to find that unique combination
where customers are offered solutions that truly meet their unique needs incredibly fast
and at a price that competitors can’t match.
The goal of value chain management is therefore to create a value chain strategy that
meets and exceeds customers’ needs and desires and allows for full and seamless
integration among all members of the chain. A good value chain is one in which a sequence
of participants work together as a team, each adding some component of value—such as
faster assembly, more accurate information, better customer response and service, and so
forth—to the overall process.19 The better the collaboration among the various chain
participants, the better the customer solutions. When value is created for customers and
their needs and desires are satisfied, everyone along the chain benefits. For example, Eros
Group, the sole distributor of many world-renowned brands in the Middle East launched the
‘Delivery on Demand’ Service for Samsung mobile products. Eros Group runs vans with
Samsung mobile stocks to serve independent retail outlets on a real time basis. Deepak
Babani. CEO of Eros Group, indicated that “with the launch of this service the turn around
time will be reduced for stock availability benefiting the dealers & ultimately the end
consumers.”5
BENEFITS OF VALUE CHAIN MANAGEMENT
Collaborating with external and internal partners in creating and managing a successful
value chain strategy requires significant investments in time, energy, and other resources,
as well as a serious commitment by all chain partners. So why would managers ever
choose to implement value chain management? A survey of manufacturers noted four
primary benefits of value chain management: improved procurement, improved logistics,
improved product development, and enhanced customer order management.21
LEARNING OUTCOME 18.3

MANAGING OPERATIONS BY USING VALUE CHAIN MANAGEMENT

Managing an organization from a value chain perspective isn’t easy. Approaches to giving
customers what they want that may have worked in the past are likely no longer efficient
or effective. Today’s dynamic competitive environment demands new solutions from
global organizations. Understanding how and why value is determined by the marketplace
has led some organizations to experiment with a new business model, a concept we
introduced in Chapter 8. For example, IKEA transformed itself from a small Swedish mail-
order furniture operation into one of the world’s largest furniture retailers by reinventing
the value chain in that industry. The company offers customers well-designed products at
substantially lower-than-typical prices in return for their willingness to take on certain key
tasks traditionally done by manufacturers and retailers, such as getting furniture home and
assembling it.22 The company’s creation of a new business model and willingness to
abandon old methods and processes has worked well.
REQUIREMENTS OF VALUE CHAIN MANAGEMENT
Exhibit 18–3 shows the six main requirements of a successful value chain strategy:
coordination and collaboration, technology investment, organizational processes,
leadership, employees, and organizational culture and attitudes.

Exhibit 18–3 Value Chain Strategy Requirements

Coordination and Collaboration. For the value chain to achieve its goal of meeting and
exceeding customers’ needs and desires, collaborative relationships must exist among all
chain participants.23 Each partner must identify things they may not value but that
customers do. And sharing information and being flexible in terms of who in the value
chain does what are important steps in building coordination and collaboration. This
sharing of information and analysis requires open communication among the various value
chain partners. For example, Kraft Foods believes that better communication with
customers and with suppliers has facilitated timely delivery of goods and services.24 Dulsco
Qatar which outsources manpower to Qatar’s oil and gas, construction, and logistics
sectors relies on the constant feedback from to help them focus on quality and optimize
our processes6.
Technology Investment. Successful value chain management isn’t possible without a
significant investment in information technology. The payoff from this investment,
however, is that information technology can be used to restructure the value chain to
better serve end users. The Landmark Group, one of the most successful retailers in the
Middle East, invest extensively in IT infrastructures to support their operations7
Organizational Processes. Value chain management radically changes organizational
processes—that is, the ways that organizational work is done. When managers decide to
manage operations using value chain management, old processes are no longer
appropriate. All organizational processes must be critically evaluated, from beginning to
end, to see where value is being added. Non-value-adding activities should be eliminated.
Questions such as “Where can internal knowledge be leveraged to improve the flow of
material and information?” “How can we better configure our product to satisfy both
customers and suppliers?” “How can the flow of material and information be improved?”
and “How can we improve customer service?” should be answered for each and every
process. For example, when managers at Deere and Company implemented value chain
management, a thorough process evaluation revealed that work activities needed to be
better synchronized and interrelationships between multiple links in the value chain
needed to be better managed. They changed numerous work processes divisionwide in
order to do this.26 Three important conclusions can be made about organizational
processes. First, better demand forecasting is necessary and possible because of closer ties
with customers and suppliers. In the airline business, many airlines in the region such as
Royal Jordanian and Middle East Airlines have implemented sophisticated revenue
management software solutions that help these companies realize revenue increases
through more accurate demand forecasting and revenue optimization solutions.
Second, selected functions may need to be done collaboratively with other partners in the
value chain. A’saffa Poultry Farms in Oman has collaborated with Wally’s as their only
supplier for chicken products. Through a persistent effort to expand and improve
operations, including such collaboration agreements, A’saffa has been able to continue
their road to success8.
Finally, new measures are needed for evaluating performance of various activities along
the value chain. Because the goal in value chain management is meeting and exceeding
customers’ needs and desires, managers need a better picture of how well this value is
being created and delivered to customers. For example, when Nestlé USA implemented
value chain management, it redesigned its metrics system to focus on one consistent set of
measurements—including, for instance, accuracy of demand forecasts and production
plans, on-time delivery, and customer service levels—that allowed the company to more
quickly identify problem areas and take actions to resolve them.28
Leadership Successful value chain management isn’t possible without strong and
committed leadership. From top organizational levels to lower levels, managers must
support, facilitate, and promote the implementation and ongoing practice of value chain
management. Managers must seriously commit to identifying what value is, how that
value can best be provided, and how successful those efforts have been. A culture where
all efforts are focused on delivering superb customer value isn’t possible without serious
commitment on the part of the organization’s leaders.
Also, it’s important that managers outline expectations for what’s involved in the
organization’s pursuit of value chain management. Ideally, this starts with a vision or
mission statement that expresses the organization’s commitment to identifying, capturing,
and providing the highest possible value to customers. Then, managers should clarify
expectations regarding each employee’s role in the value chain. But clear expectations
aren’t important only for internal partners. Being clear about expectations also extends to
external partners.
Employees/Human Resources. We know from our discussions of management theories
throughout this textbook that employees are the organization’s most important resource.
Without employees, there would be no products produced or services delivered—in fact,
there would be no organized efforts in the pursuit of common goals. Not surprisingly,
employees play an important role in value chain management. The three main human
resource requirements for value chain management are flexible approaches to job design,
effective hiring process, and ongoing training.
Flexibility is the key to job design in value chain management. Traditional functional job
roles—such as marketing, sales, accounts payable, customer service, and so forth—don’t
work with value chain management. Instead, jobs must be designed around work
processes that create and provide value to customers. It takes flexible jobs and flexible
employees.
In a value chain organization, employees may be assigned to work teams that tackle
particular processes and may be asked to do different things on different days, depending
on need. In such an environment—where customer value is best delivered through
collaborative relationships that may change as customer needs change and where there
are no standardized processes or job descriptions—an employee’s ability to be flexible is
critical. Therefore, the organization’s hiring process must be designed to identify
employees who have the ability to learn and adapt.
Finally, the need for flexibility also requires that there be a significant investment in
continual and ongoing employee training. Whether that training involves learning how to
use information technology software, how to improve the flow of materials throughout the
chain, how to identify activities that add value, how to make better decisions faster, or
how to improve any number of other potential work activities, managers must see to it
that employees have the knowledge and tools they need to do their jobs efficiently and
effectively.
Organizational Culture and Attitudes The last requirement for value chain management is
having a supportive organizational culture and attitudes. From our extensive description of
value chain management, you could probably guess the type of organizational culture
that’s going to support its successful implementation! Those cultural attitudes include
sharing, collaborating, openness, flexibility, mutual respect, and trust. And these attitudes
encompass not only the internal partners in the value chain but extend to external
partners as well.
OBSTACLES TO VALUE CHAIN MANAGEMENT
As desirable as the benefits of value chain management may be, managers must tackle
several obstacles in managing the value chain, including organizational barriers, cultural
attitudes, required capabilities, and people (see Exhibit 18–4).
Exhibit 18–4 Obstacles to Value Chain Management
Organizational Barriers Organizational barriers are among the most difficult obstacles to
handle. These barriers include refusal or reluctance to share information, reluctance to
shake up the status quo, and security issues. Without shared information, close
coordination and collaboration is impossible. And the reluctance or refusal of employees to
shake up the status quo can impede efforts toward value chain management and prevent
its successful implementation. Finally, because value chain management relies heavily on a
substantial information technology infrastructure, system security and Internet security
breaches are issues that need to be addressed.
Cultural Attitudes. Unsupportive cultural attitudes—especially trust and control—can be
obstacles to value chain management. The trust issue—both lack of trust and too much
trust—is a critical one. To be effective, partners in a value chain must trust each other.
There must be a mutual respect for, and honesty about, each partner’s activities all along
the chain. When that trust doesn’t exist, the partners will be reluctant to share
information, capabilities, and processes. But too much trust can also be a problem. Just
about any organization is vulnerable to theft of intellectual property—that is, proprietary
information that’s critical to an organization’s efficient and effective functioning and
competitiveness. You need to be able to trust your value chain partners so your
organization’s valuable assets aren’t compromised.31 Another cultural attitude that can be
an obstacle is the belief that when an organization collaborates with external and internal
partners, it no longer controls its own destiny. However, this just isn’t the case. Even with
the intense collaboration that’s important to value chain management, organizations still
control critical decisions such as what customers value, how much value they desire, and
what distribution channels are important.32
Required Capabilities. We know from our earlier discussion of requirements for the
successful implementation of value chain management that value chain partners need
numerous capabilities. Several of these—coordination and collaboration, the ability to
configure products to satisfy customers and suppliers, and the ability to educate internal
and external partners—aren’t easy. But they’re essential to capturing and exploiting the
value chain. Many of the companies we’ve described throughout this section endured
critical, and oftentimes difficult, self-evaluations of their capabilities and processes in order
to become more effective and efficient at managing their value chains.
People. The final obstacles to successful value chain management can be an organization’s
people. Without their unwavering commitment to do whatever it takes, value chain
management won’t be successful. If employees refuse to be flexible in their work—how
and with whom they work—collaboration and cooperation throughout the value chain will
be difficult to achieve.
In addition, value chain management takes an incredible amount of time and energy on
the part of an organization’s employees. Managers must motivate those high levels of
effort from employees, which is not an easy thing to do.
LEARNING OUTCOME 18.4

CURRENT ISSUES IN MANAGING OPERATIONS

Rowe Furniture has an audacious goal: Make a sofa in 10 days. It wants to “become as
efficient at making furniture as Toyota is at making cars.” Reaching that goal, however,
requires revamping its operations management process to exploit technology and
maintaining quality.33 Rowe’s actions illustrate three of today’s most important operations
management issues: technology, quality initiatives and goals, and mass customization.
TECHNOLOGY’S ROLE IN OPERATIONS MANAGEMENT
As we know from our previous discussion of value chain management, today’s competitive
marketplace has put tremendous pressure on organizations to deliver, in a timely manner,
products and services that customers value. Smart companies are looking at ways to
harness technology to improve operations management. Citibank UAE switched to
Etisalat's managed WAN service to reduce costs and achieve a technology advantage.
Overall, Citibank says it has realized a cost saving of around 35% through switching to a
managed WAN9.

Zuhair Ali Taraif, Vice President and Country

TI Head for Citibank, demonstrates how
collaborating with a trustworthy competent
supplier worked for Citibank
"To us, Etisalat is not only a service provider
but it is a partner and we have built the
relationship with them over the years. We
always work with them openly for any cost
saving or other opportunities in the market
that they think can enhance our customer
service, through introducing new
technology. We have worked with Etisalat
on many projects which have allowed us to
gain experience from the expertise of
Etisalat," .
Source; Network Middle East

Although an organization’s production activities are driven by the recognition that the
customer is king, managers still need to be more responsive. For instance, operations
managers need systems that can reveal available capacity, status of orders, and product
quality while products are in the process of being manufactured, not just after the fact. To
connect more closely with customers, production must be synchronized across the
enterprise. To avoid bottlenecks and slowdowns, the production function must be a full
partner in the entire business system.
Technology is making such extensive collaboration possible. Technology is also allowing
organizations to control costs, particularly in the areas of predictive maintenance, remote
diagnostics, and utility cost savings. For instance, new Internet-compatible equipment
contains embedded Web servers that can communicate proactively—for example, if a
piece of equipment breaks or reaches certain preset parameters indicating that it’s about
to break, it asks for help. Technology can do more than sound an alarm or light up an
indicator button. For instance, some devices have the ability to initiate e-mail or signal a
pager of a supplier, the maintenance department, or a contractor, describing the specific
problem and requesting parts and service. How much is such e-enabled maintenance
control worth? It can be worth quite a lot if it prevents equipment breakdowns and
subsequent production downtime.
Managers who understand the power of technology to contribute to more effective and
efficient performance know that managing operations is more than the traditional view of
simply producing the product. Instead, the emphasis is on working together with all the
organization’s business functions to find solutions to customers’ business problems.
QUALITY INITIATIVES
Quality problems are expensive. Many experts believe that organizations unable to
produce high-quality products won’t be able to compete successfully in the global
marketplace. What is quality? When you consider a product or service to have quality,
what does that mean? Does it mean that the product doesn’t break or quit working—that
is, that it’s reliable? Does it mean that the service is delivered in a way that you intended?
Does it mean that the product does what it’s supposed to do? Or does quality mean
something else? Exhibit 18–5 provides a description of several quality dimensions. In this
case, we define quality as the ability of a product or service to reliably do what it’s
supposed to do and to satisfy customer expectations.
How is quality achieved? That’s an issue managers must address. A good way to look at
quality initiatives is with the management functions—planning, organizing and leading, and
controlling—that need to take place.
Planning for Quality. Managers must have quality improvement goals and strategies and
plans to achieve those goals. Goals can help focus everyone’s attention on some objective
quality standard. For instance, Caterpillar has a goal of applying quality improvement
techniques to help cut costs.36 Although this goal is specific and challenging, managers and
employees are partnering together to pursue well-designed strategies to achieve the goals,
and they are confident they can do so. Telecom Egypt emphasizes quality in its initiatives
as it operates within a marketplace that is increasingly becoming more competitive and
more global.
Organizing and Leading for Quality. Because quality improvement initiatives are carried
out by organizational employees, it’s important for managers to look at how they can best
organize and lead them. At Casper & Gambinis, a chain of internationally franchised
restaurant-cafes headquartered in Beirut, emphasizes quality through documented
recipes, training handbooks, employee evaluations, and customer feedback. Their website
welcomes visitors with an inspiring quality statement: It is said that true quality only comes
from higher intentions, sincere efforts, intelligent direction and skilful execution

Organizations with extensive and successful quality improvement programs tend to rely on
two important people approaches: cross-functional work teams and self-directed, or
empowered, work teams. Because all employees, from upper to lower levels, must
participate in achieving product quality, it’s not surprising that quality-driven organizations
rely on well-trained, flexible, and empowered employees.
Controlling for Quality. Quality improvement initiatives aren’t possible without a means of
monitoring and evaluating their progress. Whether it involves standards for inventory
control, defect rate, raw materials procurement, or other operations management areas,
controlling for quality is important. At LibanPost, the Lebanese mail distributor company,
quality control measures include having a 24-hour National Control Center, daily
assessment meetings, and corrective amendments10
QUALITY GOALS
To publicly demonstrate their quality commitment, many organizations worldwide have
pursued challenging quality goals, the two best known of which are ISO 9000 and Six
Sigma.
ISO 9000. ISO 9000 is a series of international quality management standards established
by the International Organization for Standardization (www.iso.org), which sets uniform
guidelines for processes to ensure that products conform to customer requirements. These
standards cover everything from contract review to product design to product delivery.
The ISO 9000 standards have become the internationally recognized standard for
evaluating and comparing companies in the global marketplace. In fact, this type of
certification can be a prerequisite for doing business globally. Achieving ISO 9000
certification provides proof that a quality operations system is in place.
A recent survey of ISO 9000 certificates—awarded in 170 countries—showed that the
number of registered sites worldwide was almost 900,000, an increase of 16 percent over
the previous year.42
Six Sigma. Motorola popularized the use of stringent quality standards more than 30 years
ago, through a trademarked quality improvement program called Six Sigma.43 Very simply,
Six Sigma is a quality standard that establishes a goal of no more than 3.4 defects per
million units or procedures. What does the name mean? Sigma is the Greek letter that
statisticians use to define a standard deviation from a bell curve. The higher the sigma, the
fewer the deviations from the norm—that is, the fewer the defects. At One Sigma, two-
thirds of whatever is being measured falls within the curve. Two Sigma covers about 95
percent. At Six Sigma, you’re about as close to defect free as you can get.44 It’s an
ambitious quality goal! Although Six Sigma is an extremely high standard to achieve, many
quality-driven businesses are using it and benefiting from it. For instance, General Electric
company executives estimate that the company has saved billions in costs since 1995.45
Other companies in the Arab region pursuing Six Sigma initiatives include Abu Dhabi
Health Services Company (UAE), Batelco (Bahrain) , Al Madina Logistics Services (Oman),
Belden (UAE), Nugul Group (Jordan), Orange Business Services 9Egypt)and QIB (Qatar).
Quality Goals Summary. Although it’s important for managers to recognize that many
positive benefits come from obtaining ISO 9000 certification or Six Sigma, the key benefit
comes from the quality improvement journey itself. In other words, the goal of quality
certification should be having work processes and an operations system in place that
enable organizations to meet customers’ needs and employees to perform their jobs in a
consistently high-quality way.
MASS CUSTOMIZATION
The term mass customization seems like an oxymoron. However, the design-to-order
concept is becoming an important operations management issue for today’s managers.
Mass customization provides consumers with a product when, where, and how they want
it.47 Companies as diverse as BMW, Ford, Levi Strauss, Wells Fargo, Mattel, and Dell
Computer are adopting mass customization to maintain or attain a competitive advantage.
Mass customization requires flexible manufacturing techniques and continual customer
dialogue.48 Technology plays an important role in both.
With flexible manufacturing, companies have the ability to quickly readjust assembly lines
to make products to order. Using technology such as computer-controlled factory
equipment, intranets, industrial robots, bar-code scanners, digital printers, and logistics
software, companies can manufacture, assemble, and ship customized products with
customized packaging to customers in incredibly short time frames. Dell is a good example
of a company that uses flexible manufacturing techniques and technology to custom-build
computers to customers’ specifications.

Exhibit 18–5
Quality Dimensions of Goods and Services
Product Quality Dimensions

1. Performance—Operating characteristics
2. Features—Important special characteristics
3. Flexibility—Meeting operating specifications over some period of time
4. Durability—Amount of use before performance deteriorates
5. Conformance—Match with preestablished standards
6. Serviceability—Ease and speed of repair or normal service
7. Aesthetics—How a product looks and feels
 8. Perceived quality—Subjective assessment of characteristics (product image)
Service Quality Dimensions
1. Timeliness—Performed in promised period of time
2. Courtesy—Performed cheerfully
3. Consistency—Giving all customers similar experiences each time
4. Convenience—Accessibility to customers
5. Completeness—Fully serviced, as required
6. Accuracy—Performed correctly each time

Sources: Adapted from J.W. Dean, Jr., and J.R. Evans, Total Quality: Management, Organization and
Society (St. Paul, MN: West Publishing Company, 1994); H.V. Roberts and B.F. Sergesketter,
Quality is Personal (New York: The Free Press, 1993): D. Garvin, Managed Quality: The Strategic
and Competitive Edge (New York: The Free Press, 1988); and M.A. Hitt, R.D. Ireland, and R.E.
Hoskisson, Strategic Management, 4th ed. (Cincinnati, OH: SouthWestern, 2001), p. 211.

0
Executive Magazine, Issue 113. December, 2008. Lebanon - Kabab-ji’s stars and stripes.
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