NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY

Department of Electronic Engineering

Engineering Management [TEE 3255]

8: Operational Excellence &

Differentiation
 Lesson Outline

• Introduction
• Tools for Achieving OE
• Implementation of Operational Excellence
• Differentiation
• Conclusion
Introduction
 Introduction

• Operational excellence (OE) refers to achieving a

superior level of productivity in all work
processes related to products/services offered by
an enterprise (Mitchell 2015).
 Introduction

• The purpose of achieving OE is to slash cost,

speed up cycle time, ensure work output quality
(right at the very first attempt), eliminate waste,
and utilize corporate knowledge efficiently.
 Introduction

• OE is very important however companies should

also focus on strategic differentiation.
• Both OE and strategic differentiation promote the
long-term health and sustain profitability.
 Introduction

• Jack Welch said, “An organization’s ability to

learn, and translate that learning into action
rapidly, is the ultimate competitive advantage.”
Tools for Achieving OE
 Tools for Achieving OE

• There are a number of tools that product/service

enterprises may adopt to improve their operations.
• Process Standardization
• Productivity Enhancement Programs
• Emerging Tools
• Big Data
Tools for Achieving OE
Process Standardization
 Process Standardization

• Engineers are expected to diligently implement

the engineering management functions of
planning, organizing, leading, and controlling in
order to continuously raise work productivity.
• They should also become aware of distinctive
methodologies that could aid in their attempt to
achieve OE.
 Process Standardization

• A variety of the work processes employed by a

product/service enterprise consist of procedures
and activities that may be standardized to a great
extent.
• Standardising the procedures results in cost
reduction, quality improvement, and process
optimization to derive OE.
 Process Standardization

• Constantly searching for best practices in

industries will provide good starting points from
which to standardize specific work processes of
significance.
• Publish well-tested procedures for highly complex
operations.
• Publish checklists for performing complex
procedures, in order to minimise errors.
Tools for Achieving OE
Productivity Enhancement Programs
 Lean Six Sigma

• Six Sigma is a well-known waste-reduction

methodology that has been applied with great
success in manufacturing industries.
• It employs the define, measure, analyse, improve,
and control (DMAIC) method to improve the
quality of standardized work processes.
 Lean Six Sigma

• Phases of Six Sigma are:

• Define specific goals to achieve
outcomes, consistent with customers
demand and business strategy
• Measure the defects of current
process
• Analyse problems ,cause and effects
must be considered
• Improve process on bases of
measurements and analysis
• Control process to minimize defects
 Lean Six Sigma

• DMADV
• Define the project
• Measure the opportunity
• Analyse the process options
• Design the process
• Verify the performance
 Lean Six Sigma

• The Lean principle centres on process speed.

• Together, Lean and Six Sigma strive to simplify
work complexity.
• This methodology requires that an enterprise
follow a well-defined procedure to speed up the
work processes and eliminate wastes in
delivering products/services.
 Lean Six Sigma

• Harvard Pilgrim, a health insurance company

located in Boston, Massachusetts, made the
following decisions:
• Transfer about 40% of the company’s noncore activities to outside vendors. These
activities include pharmacy-benefit management, disease management, behaviour
health management, and claims processing.
• Engage outside experts to perform data mining analyses in order to discover patients
who might be in the early stages of developing heart disease and diabetes, so that
these patients could be enrolled in preventive care or disease management programs
before their medical conditions become serious.
• Focus on distinctive activities that confer competitive advantage to the company. These
include customer service, design of new services, pricing health insurance, attracting
doctors into the network, selling to large customer groups, and marketing to individual
policyholders.
 Lean Six Sigma

• Lean Six Sigma has been demonstrated in many

cases to:
• Slash product/service costs by 30%–60%
• Decrease product/service delivery time by 50%
• Expand production capacity by 20% without adding
manpower.
 Lean Six Sigma

• In many Six Sigma projects, the technique of value

stream mapping may be applied to benefit the firm.
• Value stream mapping emphasises studying the
specific value that can be added by each activity
performed in a process, and simplifying the steps
needed to secure the required material and
information flows.
 Lean Six Sigma

• The failure mode and effect analysis is known to

add good value to an operational excellence
project. This method catches the potential modes
of failures before they actually occur, based on an
evaluation by groups of relevant experts
 Lean Six Sigma

• Six sigma project: treating water.

• Define: The unit for treating Water had never been able to handle the nameplate
capacity in 15 years. Treatment chemical costs were higher than other types of
treatment units.
• Measure: Confirmed flow rate through the system vs. nameplate.
• Analyse: Evaluation of the system found many measurements that were off by
over 100%. Hourly operations identified key variables in the operation of the unit
and the acceptable range of each. Conducted three different Designed
Experiments.
• Improve: Corrected the measurement problems. Found set of operating
variables that produced 107% of nameplate capacity at higher quality with lower
chemical use. Chemical use reduced by $180K per year.
• Control: Hourly operations trained, procedures modified, process to check
measurement instituted. Model for changes in inlet water conditions.
 Lean Six Sigma

• Six sigma project: parts failing after final machines.

• Define: Inspection is rejecting a high number of parts after final machines.
• Measure: Product yield was determined and number of defects in total to
establish defect yield and sigma value.
• Analyse: Machine operators, engineers and vendor identified variables that
could impact the production of defects. Range of acceptable levels
determined for each variable. Five different Designed Experiments were
conducted.
• Improve: Operating instructions changed to the conditions with the lowest
defect production consistent with capacity limits. Final product yield
increased 13%.
• Control: Control charts installed for each machine. Decision tree corrective
action plan provided for known defects and known corrective actions.
 Lean Six Sigma

• Six sigma project: web design.

• Define: Design a web site that ranks in the top ten (10) on all major search
engines and directories.
• Measure: Enter "six sigma" and check ranking in search engines.
• Analyse: URL name, title of pages, and other factors are major ranking criteria.
Reciprocal links and other routine activities aid in search engine ranking.
• Improve: Purchase URL with six sigma included, optimize each page, develop
reciprocal links, and perform other regular activities required to maintain traffic
and ranking.
• Control: Monitor ranking on search engines weekly. You can check on the
success of this project by entering "six sigma" in the search field of your
favourite search engine. The titles and descriptions may vary , the URL link is the
performance measure.
 Lean Six Sigma
99% Good (3.8 Sigma) 99.99966% Good (6 Sigma)
• 20,000 lost articles of mail per hour • Seven articles lost per hour
• Unsafe drinking water for almost 15
• One unsafe minute every seven
minutes each day
months
• 5,000 incorrect surgical operations per
week • 1.7 incorrect operations per week

• Two short or long landings at most major • One short or long landing every five
airports each day years

• 200,000 wrong drug prescriptions each

• 68 wrong prescriptions per year
year

• No electricity for almost seven hours each • One hour without electricity every 34
month years
 Web-Based Enablers

• Many web-based software tools are commercially

available to offer assistance in general activities
related to project management, customer
relationship management (CRM), enterprise
resource planning (ERP) and collaboration.
 Web-Based Enablers

• Customer Relationship Management (CRM) zeros

in on the process of understanding and satisfying
customers’ present and future requirements.
• Engineering professionals are usually engaged in
some part of CRM activities as related to e.g
product/service customization, problem solving,
operational assistance etc.
 Web-Based Enablers

• The following statistics support the importance of

this CRM function:
a) It costs five times more to sell to a new customer than to sell to an
existing one
b) A typical dissatisfied customer tells eight to ten people about the bad
experience
c) A company can boost its profit by 85% by increasing its annual
customer retention by only 5%
d) The odds of selling a service to a new customer are 15%; whereas
they are 50% with an existing customer
e) 70% of complaining customers will do business with the company
again if past service deficiencies are quickly corrected.
 Web-Based Enablers

• Enterprise Resources Planning (ERP) software is

designed to integrate all operations e,g, finance,
manufacturing, engineering, distribution, decision
support, procurement, knowledge management,
marketing and sales etc. into one IT system
• To achieve sustainable profitability, enterprises
need to plan, align, execute, and control all basic
business processes.
 Web-Based Enablers

• Supply chain management involves the formation,

maintenance, and monitoring of a complex
network of relationships with business partners
to secure the required flows of materials,
technologies, and information (e.g., demand
forecast, order processing, and order status
reporting), and finance (credit card information,
credit terms, payment schedule, and title
ownership arrangements).
 Web-Based Enablers

• Its goals are to lessen the time to market,

decrease the production cost, and supply the right
products/services at the right place and at the
right time
 Web-Based Enablers

• Project management deals with the management

of human and physical resources that are
required to attain a well-defined project objective
on time and within budget.
• The best practices in project management
emphasize the following key management issues:
scope, schedule, resources, cost, risk,
communications, and knowledge.
Tools for Achieving OE
Emerging Tools
 Web Services

• There are two specific types of web services.

• The first type is associated with application
services that are delivered to human users over
the web.
• The second type is related to applications modules
that are made accessible to other applications
over the Internet through XML-based protocols.
 Web Services

• Amazon, Sun Microsystems, Microsoft etc. are

known to be vendors of the first type services:
• Storage
• Computing - Elastic Cloud Computing (EC2)
• Database
• Flexible payment services (FPS)
• Build and host web applications
• Premium support
 Web Services

• The second type of web services deals with

creating modularized applications that interact
with other modularized applications, following
specific standards regarding language, data
description, data exchange, and connection
protocols
 Cloud Computing

• Cloud computing is a service concept, by which

client companies and individual customers are
able to “rent” computing services from specific
vendor companies that are capable of accessing
distributed and unused computing assets.
• The cloud, like a mainframe in the sky, is capable
of delivering personalized, distributed computing
efficiently.
 Mobile Computing

• Mobile computing refers to a computing

environment with physical mobility such that
users are enabled to access data, information, or
other logical objects from any device and in any
network, while on the move.
Tools for Achieving OE
Big Data
 Big Data

• Big data are high-volume, high-velocity and/or

high-variety information assets that require new
ways of processing (e.g., massively parallel
software running on thousands of servers) in
order to inform decision-making, discover
insights, and pursue process optimization.
• Examples of such data sets include web logs, social networks, social
data, Internet text and documents, Internet search indexing, call detail
records, medical records, large-scale e-commerce, photography
archives, and video archives.
 Big Data

• Developed economies make increasing use of

data-intensive technologies. As big data
represents a rich source of information, which
could be mined to foster competitive advantages,
its systematic use will have an important impact
on services in the future.
Implementation of Operational Excellence
 Implementation of Operational Excellence

1. Selection of OE Projects
2. Financial Viability of Selected OE Projects
3. Technical Feasibility
4. Management Commitment
5. Project Execution
6. Documentation and Lessons Preservation
7. Organizational Resizing due to Operational
Excellence
Differentiation
 Differentiation

• The differentiation strategy involves an attempt

to distinguish the firm’s products or services
from others in the industry.
• The organization may use creative advertising,
distinctive product features, exceptional service,
or new technology to achieve a product
perceived as unique.
 Differentiation

• Examples of products that have benefited from a

differentiation strategy include Harley-Davidson
motorcycles, Snapper lawn equipment, and
Gore-Tex fabrics, all of which are perceived as
distinctive in their markets. Service companies
such as Starbucks, Whole Foods Market, and
IKEA also use a differentiation strategy.
 Differentiation

• A differentiation strategy can:

• reduce rivalry with competitors if buyers are loyal
to a company’s brand.
• reduce the bargaining power of large buyers
because other products are less attractive, which
also helps the firm fight off threats of substitutes.
• erect entry barriers that a new entrant into the
market would have difficulty overcoming in the form
of customer loyalty.
Conclusion
 Conclusion

• OE is focused on doing things right (as related to

internal work processes, customer problem
solving, corporate knowledge management
practices, speed of service delivery, and other
supplemental service elements important to
customers).
 Conclusion

• Besides invoking the standard engineering

management functions, engineers must become
well versed in utilizing tools such as Lean Six
Sigma, web-based applications software, web
services, mobile computing and data mining.
 Conclusion

• Lean principle – Enhances the process speed.

• Process-standardisation (best practices) & Six
Sigma - Service quality.
• The combination of Lean and Six Sigma - will
simplify work complexity.
• Value stream mapping - helps to identify wastes
and which specific tasks add no value.
 Conclusion

• OE is accomplished by having increased process

speed, enhanced service quality, and minimized
service costs.
• OE can be further enhanced by an increase in
productivity, if web-based applications software is
selectively employed on a pay-as-you-go basis.
End of Operational Excellence