SMART OPERATIONS & SUPPLY CHAIN MANAGEMENT

CHAPTER 1: OPERATIONS AND PROCESSES

1.2 DOES THE ORGANISATION TAKE A PROCESS PERSPECTIVE?

1. Describe the input-transformation-output model and give examples of transformed resources

The input-transformation-output model is the general

transformation process model that is used to describe the nature of
processes and operations. All processes and operations are input-
transformation-output systems that use transforming resources,
such as people and facilities (technology, buildings…). to work on
transformed resources that are materials, information, customers.
The aim is to produce products and services for the final customers.

The transformed resources are the ones that are changed in some
way within a process, for example in a bank, processing materials
could mean printing statements of accounts for its customers; customers are processed by giving them advice regarding their
financial affairs; and finally, in a bank it is important to process information about costumers’ financial affairs.

When the main transformed resource is the customers themselves,

it is useful to distinguish between “front-office” processes that act
on customers directly and so they have a high customer visibility
and “back-office” processes that provide indirect services that
support the front-office in some way and that have a low customer
visibility. The boundary between front and back office is not clean,
it depends on the visibility to customers for different processes.

2. Which are the three levels of analysis of a process perspective?

Operations and process management uses the process

perspective to analyse businesses at three levels: the operations
function of the business, the higher and more strategic level of
the supply network; and at a lower, more operational level of
individual processes.

OPERATIONS LEVEL
Let’s start from the middle: an operation is an arrangement of
processes and at this level we need to know the role of each
process in the operation and the relationship between them.
The operation part of a business is itself an input-
transformation-output system, which transforms various inputs
to produce a range of different products and services. Some
operations produce just products and others just services, but
most produce outputs that are a blend of the two. If we consider operations as producing services, we should consider the role
of customers on an operation’s output too. We have to introduce the concept of co-creation that is the idea of customer
involvement (ex: supermarket- they pick the items, take them to the checkout, pack them and transport them home)

We assist to a phenomenon that is called servitisation that is the delivery of a service component as an added value, when
providing products: companies are now willing to serve their customers to a mix of product and services.

 Example: Philips lighting

Philips lighting responded to developments in their markets adopting the servitisation practice, offering the so called ‘lighting-as-
a-service” where they take care of their customers’ lighting needs, from the initial design and installation to the operation and
maintenance. By doing this, customers can save money because they pay only for the light they use, while at the same time
avoiding the disturbance of having to replace and dispose of burnt-out bulbs.
SUPPLY NETWORK LEVEL
At a higher level, we have the level of the supply network that is an arrangement of operations, a collection of interconnected
operations, and we need to know the role of e ach operation in the network and the relationship between them. The main
question for an operation manager is: “Does my operation make a contribution to the supply network as a whole?”, so are we
good suppliers to our customers and good customers to our suppliers? (->chapter 4 and chapter 7)

INDIVIDUAL PROCESS LEVEL

At the lower level we consider the flow between resources (people and facilities) because it is the level of the process, and a
process is an arrangement of resources. Whole businesses, and even whole supply networks, can be viewed as networks of
processes. Thinking in this way, it prompts the question of whether the people who operate each process have a clear ‘line of
sight’ forward through the external customers and backwards to understand what is required from internal suppliers.

Processes are defined by how the organisation chooses to draw process boundaries. One way of redefining boundaries is to
consider the end-to-end set of activities that fulfil customer needs.

3. Describe the Studio Division example in terms of three levels analysis and end-to-end structure

Studio Division (SD) makes programmes for itself and other media companies.
At the level of operation – SD produces media files, but its real output is the creativity and artistry that is captured in the
programmes.
At the level of the supply network – They specialise in certain types of work in which they have high level of expertise, while
they outsource other activities.
At the level of individual processes – many smaller processes contribute directly or indirectly to the production of programmes
(engineering, client relationship, finance, and costing…)

It is organized as 99.9% of companies of the world according to a

functional way: division processes are clustered into functions
defined by the type of the activity they perform: client
relationship, engineering, production etc... This process reflects
the final custom perspective, this is why it is so good. The
customer is whoever is out of my process, not only the client. It
can also be an internal customer.

Processes could be reorganized around end-to-end business

processes that fulfil defined customer needs (dotted lines)

1.3 DOES OPERATIONS AND PROCESS MANAGEMENT HAVE A STRATEGIC IMPACT? yes

1. What is the triple bottom line?

Operations should judge themselves on the triple bottom line principle, also known as ‘people, planet and profit’. The
organization should measure themselves not just on the traditional economic profit that they generate for their owners, but also
on the impact their operations have on society and the ecological impact on the environment. A sustainable business balances
economic, environmental, and societal interest and make an equilateral triangle. A sustainable business is more likely to remain
successful in the long term than one that focuses on economic goals alone.

2. Which are the areas of strategic impact?

At the level of enterprise, operations can have an impact on 5 areas:
1. It has to keep costs under control. It can reduce costs of producing products and services by being efficient. The more
productive the operation is at transforming inputs into outputs the lower will be the cost of producing a unit of output.
2. It can increase revenue by increasing customer satisfaction through quality, service and innovation. *
3. It can reduce the risk of operational failures, because well-designed processes should have less chance of failing and
more chance of recovering quickly from failure.
 4. It can make investments more effective. It should be aiming to get the best possible return on that investment
5. It can build capabilities that will form the long-term basis for future competitiveness and innovation
*At the level of an operation’s process, there are 5 aspects of operations and process performance that affect customer
satisfaction and business competitiveness. They contribute to the success of the organization as a whole:

I. Quality- doing things right

II. Speed- doing things fast
III. Dependability- doing things on time
IV. Flexibility- the ability to vary or adapt
V. Cost- doing things cheaply

1.4 ARE PROCESSES MANAGED TO REFLECT THEIR OPERATING CIRCUMSTANCES?

Not necessarily. Processes differ, particularly in what are known as the four Vs
1. Describe the 4Vs model

The way in which processes need

to be managed is influenced by
volume, variety, variation in
demand, and visibility.
VOLUME: Processes with a high
volume of output will have a high
degree of repeatability that leads
to a high level of specialisation of
the staff for each task. High
volume processes can exploit
economies of scale and be
systematised. So, it is often
worthwhile developing specialised
technology. (Mc Donald’s or KFC)
VARIETY: processes that produce
a high variety of products and
services, require enough inbuilt
flexibility to cope with a wide
variety of activities and to match
the customers’ needs. So, they are more complex and costly. (Taxi company has a higher cost per km travelled than a bus service
which route is defined and standardised)
VARIATION IN DEMAND: high variation processes must be able to change their output levels to cope with highly variable and/or
unpredictable levels of demand. If the demand is predictably constant, all activities can be planned in advance. But when
demand is unpredictable, extra resources will have to be designed into the process to provide a ‘capacity cushion’ and that can
absorb unexpected demand. So, processes with high variation have to keep in touch with the demand and to be flexible. This
leads to high unit costs. (High-fashion has to cope with seasonality and uncertainty of whether or not a particular style will be
popular, while conventional business suits have a predictable and constant demand; Panettone)

VISIBILITY: this term indicates how much of the process is experienced directly by customers, or how much the process is
exposed to its customers. High visibility processes add value while the customer is present, in some way, and therefore must be
able to manage customers perceptions of their activities. In high visibility processes we have a short waiting tolerance: The time
lag between customer request and response has to be near immediate. In high-visibility process high contact skills are needed.
(In an airport some processes have high-visibility (front-office) such as check-in desks, information desks, restaurant; others are
back-office parts of the operation with low-visibility, as cleaning, loading meals on to the aircraft…)

Generally high volume together with low variety, variation, and visibility facilitate low-cost processes (leftl: at the high-cost end
of the four Vs there could be the personal banker/advisor), while low volume together with high levels of variety, variation and
visibility all increase process costs (right: at the low-cost end of the four Vs there could be the ATMs or app-based transactions).
1.5 IS OPERATIONS AND PROCESS DECISION-MAKING APPROPRIATE?

Operations managers use a common set of decisions and activities to manage operations and processes. These activities can be
clustered under 4 groupings: directing the overall strategy of the operation; designing the operations’ products, services, and
processes; planning and controlling process delivery; and developing process performance.

However, there are always overlaps and interrelationships between the categories. Yet, no matter what type of decision,
operations managers use models to help them make decisions. Some models are quantitative (EOQ), some are qualitative (three
levels analysis), but in practice a blend of qualitative and quantitative is often the most useful approach. All models are
simplifications of a far more complex reality.

CHAPTER 2: OPERATIONS AND STRATEGIC IMPACT

2.1 DOES THE OPERATION HAVE A STRATEGY?
One can identify what an operations strategy should do. First, it should take significant stakeholders into account. They are the
people and groups who have a legitimate interest in the operation’s strategy. They include employees, customers, societies or
community groups, shareholders, suppliers, and industry regulators. Second, it should articulate a vision for the operations
contribution. A common approach to summarising operations contribution is the Hayes and Wheelwright Four-Stage model.

1. Describe the Hayes and Wheelwright model (stages 3 and 4)

Hayes and Wheelwright’s Four-Stage model of operations contribution is a graph operations capabilities-strategic impact that
sees operations as moving from implementation of strategy, through to supporting strategy and finally to driving strategy. The
higher you go the strongest is your impact in strategic operations. There are 4 stages:

Stage 1: INTERNAL NEUTRALITY

This is the poorest level of contribution by operations
function. Other functions regard it as holding them back
from competing effectively by just avoiding the bigger
mistakes. Its goal is to be ignored. Its vision is to be
‘internally neutral’.

Stage 2: EXTERNAL NEUTRALITY

The operation measures itself against its competitors’
performance and tries to be appropriate by adopting ‘best
practice’ ideas and norms of performance from them. they
try to be as good as competitors, so its vision become
‘externally neutral’.

Stage 3: INTERNALLY SUPPORTIVE

The vision now is to be clearly the best in the market. They may try to achieve this gaining a clear view of the company’s
competitive or strategic goals and linking strategy with operations. The operation tries to be ‘internally supportive’ by providing
a credible operations strategy.

Stage 4: EXTERNALLY SUPPORTIVE

The vision of the company for the operations function is to provide the foundation for competitive success. The operation
strategy leads to the company success by redefining the standards and the expectations of the sector (Toyota with TPS: new way
of manufacturing cars; IKEA). The operation is central to strategy-making, operations are creative and proactive, and innovative
because they are trying to be ‘one step ahead’ of competitors and to give an operations advantage. This vision in externally
supportive.
THE FOUR PERSPECTIVES ON OPERATIONS STRATEGY
None of these four perspectives alone give the full picture of what operation strategy is.

2.2 DOES OPERATIONS STRATEGY REFLECT BUSINESS STRATEGY? (TOP-DOWN)

1. What is the top-down approach?
A top-down perspective reflects what the whole group or business wants to do.
It often identifies three related levels of strategy: corporate strategy that should position the corporation in its global economic,
political, and social environment; Business strategy that guides the business in relation to its customers, market, and
competitors and defines ts role within the corporate group; Functional strategy that considers what part each function should
play in contributing to the strategic objectives of the business. Each function needs to consider how best they should organise
themselves to support the business’ objectives, this is why it is called ‘top-down’. So, in order to understand strategy at any
level, one has to place it in the context of what it is trying to do (level above) and how it is trying to do it (level below).

A good top-down perspective should provide clarity and connection. Correspondence and coherence are two requirements of
the top-down perspective. At the first level, we have the business strategy. At the second level, we have the functional strategies
such as marketing, operations, finance. At the third level, we have the operations strategy. Correspondence is consistent with
business strategy. We have correspondence between business and operations strategy and between operations, strategy, and
operations decisions. We should consider coherence across functional strategies and coherence within operations strategy.

One way of achieving this is to devise a business model that integrates with an operating model. These two concepts overlap-
with the operating model indicating how processes, resources, technology, people, measures, and responsibilities are to be
organised to support the business model.

2.3 DOES OPERATIONS STRATEGY ALIGN WITH MARKET REQUIREMENTS? (OUTSIDE-IN)

1. What is the outside-in approach?
The outside-in perspective is an approach to see if the operations strategy is aligned with market requirements. Operations
strategy should reflect the market position of the business. And because. Companies compete in different ways. The operations
function should respond by providing the ability to perform in a manner that is appropriate for the intended market position.
This is called a market or outside in perspective on operations strategy. It involves translating market requirements into
performance objectives, that will affect customer satisfaction.
The five performance objectives are: quality, speed, dependability, flexibility, and cost. The interpretation of the five
performances objectives will be different for different operations.
The relative importance of the five performances objectives depend on how the business competes in its market. We should
distinguish between those performance objectives that are order winners and those that are qualifiers.
2. What is the difference between order-winners and qualifiers?
Order winners: are those things that directly and
significantly contribute to winning business. Do you
regarded by customers as key reasons for purchasing the
product or service. Or their winners show a steady and
significant increase in their contribution to
competitiveness as the operation gets better at providing
them. For example, Apple’s winning criteria is quality.

Qualifier: are those aspects of competitiveness where the

operations performance has to be above a particular level
just to be considered by the customer. Once you have
reached the qualifying level of performance, that's
enough because any further improvement is unlikely to
gain the company much competitive benefits.
The yesterday order winners become the today's qualifiers.

3. How does the product/service life cycle influence the performance objectives? (Make an example)

The life cycle of a product service is divided into 4 stages.

Introduction, growth, maturity, and decline. Products and
services will require different operations strategies in each stage
of their life cycle, and it will influence the performance
objectives in terms of volume, customers, competitors, order-
winner and qualifiers and the dominant process performance
objectives.

Introduction stage- When a product/service is first introduced, it

is likely to be offering something new in terms of its design or
performance. There is the possibility to have high customization
or frequent design changes. For this reason, the dominant
process performance objectives that have to be considered are
flexibility to cope with these changes and quality to maintain
product service performance.

Growth stage- the stage in which product service gains market

acceptance and so there is a rapid growth in sales volumes. The standardisation increases. It is necessary to keep up with
demand through rapid and dependable response and maintain quality levels. In other words, in this stage the dominant process
performance objectives are speed, dependability and quality.

Maturity stage- market needs start to be fulfilled by larger companies with standardised designs. In this stage, sales slow down
and level off. Competition will emphasise price, so operations will be expected to get the costs down. Cost and dependability are
the main process performance objectives.

Decline stage- after time, sales will decline. The market will be dominated by price competition. Therefore, cost-cutting
continues to be important.

2.4 DOES OPERATIONS STRATEGY LEARN FROM OPERATIONAL EXPERIENCE? (BOTTOM-UP)

1. What is the bottom-up approach?
Operations strategy should reflect the bottom-up experience of operational reality. Learning from day-to-day activity, to
cumulatively build strategic capabilities. It stresses the concept of ‘emergent strategies’, that means that many strategic ideas
emerge over time from operational experience rather than originating exclusively at a senior level. Operations’ objectives and
actions should be shaped by the knowledge it gains from day-to-day activities. So, the bottom-up perspective should involve:
 Capturing the learning that comes from routine operations activities; and
 Transforming that learning into strategically valuable knowledge.
The advantage is that bottom-up element is more ‘plugged-in’ everyday experience, and it is at the operational day-to-day level
of experience where trends first become evident.

2.5 DOES OPERATIONS STRATEGY DEVELOP THE CAPABILITY OF ITS RESOURCES AND PROCESSES? (INSIDE-OUT)
1. What is the inside-out approach?
The inside out approach is the idea of the basis of long- term competitive capabilities deriving from the operations, resources,
and processes. In the longer term, operations strategy must build the capabilities within its resources and processes that will
allow the business to provide something to the market that its competitors find difficult to imitate or match. It is influenced by
the resource-based view (RBV) (develop resources that can build capabilities) of the firm that sees firms being able to protect
their competitive advantage through barriers to imitation. ‘Difficult to imitate’ resources can be classified as strategic if they are
scarce or imperfectly mobile or imperfectly imitable or imperfectly substitutable.

2. What is the VRIO framework?

The VRIO framework (Jay Barney, 1990s) is the most common way of
applying the RBV. To see if an operations contributes to sustainable
competitive advantage, we may answer 4 questions:
1) Are the capabilities Valuable?
2) are the capabilities Rare?
3) Are the capabilities inimitable?
4) Is operations organized to exploit capabilities?
All these factors are time dependent.
‘O’ of organization is a prerequisite. With effective organization
there is the potential for operations resources to contribute to
competitiveness. If their capabilities are also valuable, then parity
with competitors should be possible. With the addition of rarity, a
short-to medium-term competitive advantage is possible. With the
addition of inimitability, also the long-term competitive advantage is possible.

2.6 ARE THE FOUR PERSPECTIVES OF OPERATIONS STRATEGY RECONCILED?

None of the four perspectives individually can give a full picture of any operations strategy. But together they do provide a good
idea of how operations are contributing strategically. For an effective operations strategy, the four perspectives must be
reconciled.
1. Describe the operations strategy matrix
The operations strategy matrix is one method of checking the
reconciliation between the inside out and outside in perspectives. It
brings together market requirements and operations resources to
form the two dimensions of a matrix and it tests whether these two
factors fit together. It describes operations strategy as the
intersection of a company’s performance objectives, such as quality,
speed, dependability, flexibility, cost, (According to stars we see the
importance of parameters) and strategic decisions that it makes
(strategic design, delivery, and development decisions) *. An
operations strategy should articulate the relationship between
operations’ objectives and the means of achieving them.
Disadvantage: it doesn’t show hoe the balance changes over time -> line of fit

*Examples of strategic decisions: should the operation outsource some of its activities or take more activities in-house? Where
should operations sites be located?
2. Describe the ‘line of fit’ model
The line of fit model shows how operations strategy
attempt to reconcile market requirements and operations
capabilities over time (outside-in and inside-out). An
operation positioned on the ‘line of fit’ has operations
capabilities that match its market.
A position below the line of fit means that the operation is
failing to exploit its operations capabilities. A position
above the line of fit means that it risks damaging its reputation or brand by failing to live up to its market promises.
Position A is good because it has achieved fit, even if at a low level. Position D is better, it has also achieved fit, but at a much
higher level. Who is definitely wrong are C and B. C is worst because it serves a high demanding market without having enough
operations capabilities.

2.7 DOES OPERATIONS STRATEGY SET AN IMPROVEMENT PATH?

1. Which are the objectives of an efficient operation? ?
The purpose of operations strategy is to improve the business’ performance relative to its competitors in the long term. It has to
consider the trade-off between performance objectives in terms of the ‘efficient frontier’ model. The trade off principle implies
that improvement in on performance objective can only be gained at the expense of another. For example, you can improve cost
efficiency by reducing the variety of products and services. In the short term, operations cannot achieve outstanding
performance in all its operations objectives simultaneously; in the long term it should increase the effectiveness by overcoming
trade-offs and improving all aspects of operations performance.

2. Describe the efficient frontier

(a)Operations that lie on the efficient frontier have performance
levels that dominate those that do not. The righter you are the
better you are in cost efficiency. (For example, Ford T was at the
righter side but with zero variety "You can have it (Ford Model T)
in any color as long as it's black”). If an operation is on the
convex line, that is the efficient frontier, it means that no
company is better in terms of the ratio variety-cost efficiency.
Operations A, B, C, D all have chosen a different balance
between variety and cost efficiency. Operation X has an inferior
performance because operation A can offer higher variety at the
same level of cost efficiency. And operation C offers the same variety but with better cost efficiency. Operation B has the same
ratio between the two performance objectives, but is achieving them more effectively than X.

(b)Those with a position on the efficient frontier will want to improve their operation’s effectiveness by overcoming the trade-
off. For example, B is the Toyota with the introduction of free airbags. -> B1 Toyota overcame the trade-off and moved the
efficient frontier further: higher variety and higher cost efficiency. By improving operations, a new efficient frontier has been
created.

3. how can we use trade-offs of performances to improve operations effectiveness?

Improving the effectiveness of an operation by pushing
out the efficient frontier requires different approaches
depending on the original position of the operation on
the frontier. For both operations, P and Q effectiveness is
being improved through increasing the focus of the
operation on a narrow set of performance objectives,
and accepting an even further reduction in other aspects.
For example, operation P could adopt more extreme
operations practices that emphasise variety, sacrificing
cost efficiency
The operation-within-an-operation (plant-within-a-plant)
concept is linked with the idea that a business can segment its operations processes to match the segmentation of the market.
For example, a business that manufacturers paint for interior decoration may serve two quite distinct markets (domestic and
professional markets). So, from one single position, a business may choose to move to two different positions, one that only
makes paint for the domestic market and the other that only makes paint for the professional market.

An operations strategy improvement path can be described in terms of repositioning and/or overcoming its performance trade-
offs. Many companies attempt to give the best of both worlds to their customers. A permanent expansion of the efficient
frontier is best achieved by overcoming trade-offs through improvements in operations practice. For example, our supermarket
manager has to deal with the tourist trade off between staff utilisation and customer waiting time. By devising a flexible system
of staff allocation (core staff and other staff ‘on-call’), the manager can both improve customer service and keep staff utilisation
high.

CHAPTER 4: OPERATIONS SCOPE AND STRUCTURE

Scope= what an operation is going to do itself and what it will buy from suppliers (->decisions: vertical integration and degree of
outsourcing)
Structure= the overall shape of the supply network (-> decisions: network configuration, capacity, location)

4.1 DOES THE OPERATION UNDERSTAND ITS PLACE IN ITS SUPPLY NETWORK?
1. What is a supply network?
“A supply network is an interconnection of organizations that relate to each other through upstream and downstream linkages
between the different processes and activities that produce value in the form of products and services to the ultimate customer”.

The company is the focal operation. Before there is the

Upstream supply side with first-tier suppliers and second-
tier supplier that supply the first-tier suppliers but can also
directly supply the operation. Similarly, on the other side,
there is the downstream demand side with the first-tier
customers and second-tier customers. The suppliers and
customers that have a direct contact with the operation are
its immediate supply network. The flow through the
network of customer-supplier relationships is a two-way
process with items flowing one way and information
flowing the other.

So, there is a physical flow from upstream to downstream

and an informational flow from downstream to upstream.

2. Why is it important to consider the whole supply network?

It is important to consider the supply network perspective because it helps:
 Being in touch with the real market
 An understanding of competitiveness
 Identifying significant links in the network: the downstream and upstream operations that contribute most to end-
customer service
 Focus on long-term issues involving examining technology and market changes constantly.

4.2 HOW VERTICALLY INTEGRATED SHOULD THE OPERATION’S NETWORK BE? (scope)
‘Vertical integration’ is the extent to which an organization owns the network of which it is a part. It is defined by the direction
(Backward/upstream or forward/downstream vertical integration), by the extent and balance of integration. A balanced network
relationship is one where one stage produces only for the next stage and totally satisfies its requirements.

1. Which are the advantages and disadvantages of vertical integration?

ADVANTAGES
1. It secures dependable access to supply or markets: it can
give a more secure supply (backward) or bring a business
closer to its customers (forward). For example, Apple
designed in-house both its hardware and some of its
DISADVANTAGES
1. It creates an internal monopoly
2. You can’t exploit economies of scale
 software.
2. It may reduce costs: “we can do it cheaper than our
supplier’s price”
3. It may help to improve product or service quality: “this
product gives us the key identifying factor for our products
and services”
4. It helps in understanding other activities in the supply
network
3. It results in loss of flexibility because a high proportion of
costs are fixed costs
4. It cuts you off from innovation
5. It distracts you from core activities: all companies have
things that they need do be good at. And it is easier to be
exceptionally good at something if the company focuses
exclusively on it.

4.3 HOW DO OPERATIONS DECIDE WHAT TO DO IN-HOUSE AND WHAT TO OUTSOURCE? (scope)
Outsourcing is also known as the ‘do-or-buy’ decision. It means deciding to buy-in products or services rather than perform the
activities in-house. We outsource some part of the activity (  vertical integration is for the whole operations)

1. How in-house and outsource supply may affect an operation’s performance objectives?
Performance objective ‘Do it yourself’ in-house supply ‘Buy it in’ outsourced supply
Quality  Easier to trace quality problems  Supplier with specialized knowledge and
 Improvement can be more immediate experience
 Risk of complacency  Motivation through market pressures
 Communication more difficult
Speed  Synchronized schedules which speeds  Commercial pressure encourages good
throughput of materials and information performance
 Internal customers may be low priority  Delivery delays

Dependability  Helped by easier communications
 Internal customers may receive low priority
Flexibility  Closeness to the real needs of a business
can alert in-house operation to required
changes
 The ability to respond is limited by the scale
and scope of internal operations
Cost  The business captures the profits that
would be given to suppliers
 Difficult to gain economies of scale
 Difficult to benefit of process innovation
 Late delivery penalties in the contract can
encourage good performance
 Organizational barrier may inhibit
communication
 Suppliers with wider capabilities and abilities
to respond to changes
 May have to balance conflicting needs of
different customers
 Exploit economies of scale
 Also costs of communication and coordination
need to be considered

2. Describe the decision logic of whether to outsource or not

The effect of outsourcing on the operation’s performance
objectives is important but there are other factors to
consider: the strategic importance of the activity, if the
company has specialized knowledge, if the company’s
operations performance is superior and if the significant
operations performance improvement is likely.

DEFINITIONS
Offshoring= obtaining products and services from operations that are based outside one’s own country
Globalization= products, RM, money, technology, and ideas move across national boundaries. For example, Apple can design its
products in California, while Asian assembly lines assemble them.
Reshoring= the opposite of offshoring. For example, Zara manufactures some of its ‘steady-selling’ items in low-cost factories in
Asia but makes those garments with less predictable demand closer to its market.

Since Covid-19 pandemic, the risk of depending on offshore supply has become increasingly considered.
4.4 WHAT CONFIGURATION SHOULD A SUPPLY NETWORK HAVE? (structure)
1. Which are some new trends in supply network configuration?
 Reducing the number of individual suppliers
 Disintermediation: in order to make contact directly with customers’ customers or suppliers’ suppliers
 Co-opetition: mix between cooperation and competition. All the players in the network, whether they are customers,
suppliers, competitors or complementors, can be both friends and enemies at different times.
 Business ecosystem

2. Describe the supply network relationships

dyadic: individual interaction between two specific operations
in the network, such as supplier—focal operation and focal
operation-customers. Dyads does not reflect the real essence
of a supply network
Tryads are the bases of a supply network.
It is strategically important because:
I. organization performance is dependent to supplier’s performance
II. the buyer has less control over service delivery to its customers
III. direct link between service provider and customer
IV. the buyer has difficulties in understanding what is happening between supplier and customer
V. this hinders the buyer from building important knowledge

3. How the supply network changes by increasing the operations complexity?

We can distinguish 4 models that represent increasing options for customers but increasing operations complexity.
1) Single-channel model: the relationship between a retailer and its customer is straightforward
2) Multi-channel model: as more methods of communication become available, the complexity increases. Each channel of
communication is treated as an independent entity. (Store, phone, app, social media, web)
3) Cross-channel mode: the cross-functionality of channels is enhanced to provide a better shopping experience to
customers
4) Omnichannel model: provide a all-inclusive customer experience by fully integrating all possible channels. It requires a
high degree of technical sophistication and coordination between internal functions.

4.5 HOW MUCH CAPACITY SHOULD OPERATIONS PLAN TO HAVE? (structure)

When an organization has to cope with changing demand, a number of capacity decisions need to be taken. These include
choosing the optimum capacity for each site, balancing the various capacity levels of the operations in the network, and timing
the changes in the capacity of each part of the network.

1. How to choose the optimum capacity level?

operations try to exploit the economies of scale: operating
costs reduce as the scale of capacity increases. But trying to
win too much from an economy of scale can be a
disadvantage and the company can enter in a diseconomy of
scale, above a certain level of capacity operating costs
increase.

If you are too small is not good, but also being too big can
have disadvantages. From an operational manager point of
view, it is smarter to do not use 100% capacity, but to keep a
high-quality service level, for example
Advantages of being small:
1) Locating near to ‘hot spots’ that can tap into local knowledge network
2) Responding rapidly to regional customer needs and trends
3) Taking advantage of the potential for human resource development
4) Exploring radically new technologies

2.When new capacity is to be introduced? (Timing of capacity change)

Advantages and disadvantages of capacity-leading and capacity-lagging
There are 3 strategies:
I. Capacity- leads demand: there is always sufficient
capacity to meet forecast demand
II. Capacity lags demand: demand is equal or greater than
capacity
III. Smoothing with inventory: inventory built up during
the lead time is used to help meet demand during the
lag times

Advantages
Capacity-leading  Always sufficient capacity to meet demand,
strategies therefore revenue is maximized, and
customers satisfied
 Most of the time there is a ‘capacity
cushion’ that can absorb extra demand if
forecasts are pessimistic
 Any critical start-up problems with new
operations are less likely to affect supply
Capacity-lagging  Always sufficient demand to keep the
strategies operation working at full capacity, therefore
unit costs are minimized
 Over-capacity problems are minimized if
forecasts prove optimistic
 Capital spending on the operation is delayed
Smoothing with  All demand is satisfied; therefore, customers
inventory strategy are satisfied, and revenue is maximized
 Utilization of capacity is high and therefore
costs are low
 Very short-term surges in demand can be
met from inventories
Disadvantages
 Utilization of the plants is always relatively low,
therefore costs will be high
 Risks of even greater (or even permanent)
over-capacity if demand does not reach
forecast levels
 Capital spending on capacity will be early
 Insufficient capacity to meet demand fully,
therefore reduced revenue and dissatisfied
customers
 No ability to exploit short-term increases in
demand
 Under-supply position even worse if there are
start-up problems with the new operations
 The cost of inventories in terms of working
capital requirements can be high. This is
especially serious at a time when the company
requires funds for its capital expansion
 Risks of product deterioration and
obsolescence

4.6 WHERE SOULD OPERATIONS BE LOCATED? (structure)

1. Why relocate?
When operations do move, it is usually because of changes in demand (to meet higher demand an operation could expand its
existing site, choose a larger site in another location, or keep its existing location and find a second location for an additional
operation) or changes in supply (cost, availability of the supply)
When operations change their location, their assumption is that the potential benefits of a new location will outweigh the costs
of operating in the new location plus the cost of the move itself. We use a scientific method evaluating potential changes in
location. First, we identify alternative options and then, evaluating each option against a set of rational criteria:
i. Capital requirements
ii. Market factors: the image of the location and its convenience for customers
iii. Cost factors: labor, land, and utility costs
iv. Future flexibility
v. Risk factors

4.7 FORECASTING – DOES THE OPERATION HAVE AN IDEA OF FUTURE DEMAND

Every day we do forecast, forecast is important across business. Forecasts are necessary to help managers make decisions about
resourcing the organization for the future
Example 1: we have to forecast how many primary-aged children will turn up at school in five years’ time.
We can simply look at the birth statistics, but there are also other contextual variables that have a significant impact such as:
death rate between children, immigration and emigration, amount of housing stock.

1. Which decisions should we consider while forecasting?

Decisions to make
 Data to be considered (right variables in your analysis and recent data)
 Time horizon (forecast might be needed for the short term, medium term, and long term)
 Granularity (more accurate forecasting for groups or family of products -> you will have lower error rate or even
forecast at a product level)
 Accuracy (there should be an estimation of errors, our forecasting must be solid)
 Budget
Step 0: problem definition
 Method
Step 1: model selection
Step 2:
Step 3. Model development
2. Which are the qualitative methods? Step 4. Simulation
Qualitative methods are based on opinions, past experience, best guesses, casual relationships. Step 5. Error analysis
PANEL APPROACH DELPHI METHOD SCENARIO
Step PLANNING
6. forecasting
Group of experts that talk openly best known method the panel of experts design future
and freely. The advantage is that 1. Questionnaire to experts scenarios and evaluate the risks.
there are several brains working 2. The replies are analyzed, summarized, and They put plans in place to try to
together. returned anonymously to all the experts avoid the ones that are least desired
The disadvantages are: difficult to 3. The experts reconsidered their original and taking action to follow the most
reach a consensus, bandwagon response in the light of the replies and desired.
effect (emerge the idea of the one arguments put forward by the other experts
with the higher status), even experts 4. The process is repeated to conclude with a
can get wrong consensus or with a narrower range of decisions
Disadvantages: the questionnaire and the panel
of experts should be appropriate

3. Which are the quantitative methods?

a) TIME SERIES ANALYSIS:
This approach uses historical data to model the future demand patterns
-> we plot a variable over time, and we see the trend so the direction of the
data.

->we look at the seasonality by taking out the mean deviation from the trend line

->after taking out trend and seasonal effect, what remains is the casual variation
The weakness is that we ignore casual variables
There are two approaches to forecasting based on time series analysis:
(+Multiplicative seasonal model)

Moving-average forecasting Exponential Smoothing

Takes the previous n periods (4-7), calculates the average It forecasts demand in the next period by considering the
demand over n periods and uses this average as a forecast of actual demand in the current period and the forecast that
the next period’s demand was previously made for the current period
1 F t=α A t −1 + ( 1−x ) F f −1
F t= ( A t−4 + A t−3 + At −2+ A t−1 )
4 α is the smoothing constant that govern the balance
Drawbacks: between the responsiveness of the forecast to changes in
it gives equal weight to all previous n periods demand and the stability of the forecast
It does not use data from beyond the n periods

b) CASUAL MODELLING: describes and evaluates the cause-effect relationships between the key variables through regression
analysis. It Employs techniques to understand the strength of relationships between the network of variables and the impact
they have on each other.
 Ex: ice-cream company
The main influence on demand is the average temperature of the previous
week. We have to create a regression model; its complexity increases as the
number of factors increases.

You have to find a correlation between two variables (statistically significant)

in order to use one to predict the other. Ex: temperature and ice cream.

CHAPTER 5: PROCESS DESIGN 1 – POSITIONING

Defining process resources: broadly position the process resources in terms of the volume and variety of products or
services that it is required to produce (layout, process technology, jobs design)
5.2 DO PROCESSES MATCH VOLUME-VARIETY REQUIREMENTS?
1. Describe the product-process matrix
Volume and variety go together in an inverse relationship. High-variety
processes are normally low in volume and vice versa. So, processes can
be positioned on the spectrum between low volume and high variety,
and high volume and low variety. At different points on this spectrum,
processes can be described as distinct process types that should lie
close to the diagonal of the matrix. This is called the natural line of fit
and represents the most appropriate process design for any volume-
variety position. A process that lies off the diagonal will have higher
operating costs.

Processes that are on the right have an excess of flexibility; processes

that are on the left have an excess of rigidity and products might be
over-standardized. In both cases, the result is higher costs.

2. Which are the process types that lay on the diagonal of the product-process matrix?

We can have both manufacturing and service processes that

lay around the diagonal.

(we have alternative layouts for particular process types,

depends on the relative importance of performance
objectives of the process, especially cost and flexibility )

Project High customized products Advertising agencies, movie FIXED POSITION

 processes High variety and low volume with intermittent production companies, FUNCTIONAL
UFACTURING PROCESS TYPES process flow and complex process tasks construction companies
Jobbing I increase the volume and so the variety Precision engineers FUNCTIONAL
processes decrease, but it is still high CELL LAYOUT
More and smaller items than the project
processes
Batch process I need to balance costs of set up and cost of Machine tool manufacturing, FUNCTIONAL
inventory. I’m in the middle, the same position components parts of CELL LAYOUT
as service shops automobiles, production of
clothes
Mass processes The volume increase, with a narrow variety Car manufacturing plant, beer CELL LAYOUT
bottles, frozen pizza PRODUCT
LAYOUT
Continuous There is a smooth flow from one part of the Petrochemical refineries, PRODUCT
processes process to another. electricity utilities, internet server LAYOUT
High volume and low variety
Professional High-variety and low-volume processes Management consultants, FIXED POSITION
SERVICE PROCESSservices
TYPES High level of customization, people-based lawyers’ practice, architects FUNCTIONAL
CELL LAYOUT
Service shops Service is provided via a mix of front and back- Banks, schools, restaurants, FUNCTIONAL
office activities. Standardized product that is hotels CELL LAYOUT
influenced by a process customized to the
customer’s needs
Mass services Many customer transactions and little Supermarkets, airport, call CELL LAYOUT
customization centers PRODUCT
Product oriented, value added in the back LAYOUT
office

5.3 ARE PROCESS LAYOUTS APPROPRIATE?

The layout should reflect volume and variety. Resources in low-volume, high-variety processes should be arranged to cope with
irregular flow; resources in high-volume, low-variety should be arranged to cope with regular flow.

1. Which are the different process layout types?

There are four basic layout types that correspond to different

position on the volume-variety spectrum.

The selection of the layout depends on the relative

importance of the performance objectives of the process,
especially cost and flexibility.

Advantages Disadvantages Examples

 Fixed position -Very high mix and product -High unit costs Power generator
The recipient of the processing flexibility -Scheduling of space and constructor
is stationary and the -Product or customer not moved or activities can be difficult Open-heart
equipment, machinery, plant, disturbed -Can mean much movement of surgery
and people who do the -High variety of tasks for staff plant and staff
processing move as necessary
Functional -High mix and product flexibility -Low facilities utilization Hospitals,
Similar activities or resources -Relatively robust in the case of -Can have very high WIP or supermarkets
are located together disruptions customer queuing
-Relatively easy supervision of -Complex flow can be difficult
equipment or plant to control
Cell -Can give a good compromise -Can be costly to rearrange Lunch products
Family of elements that can be between cost (efficiency) and existing layout area in a
treated with the same flexibility (variety) -Can need more plant and supermarket,
machines -Fast throughput equipment maternity unit in
-Group work can result in good -Can give lower plant utilization a hospital
motivation

Product
The transformed resources flow
along a line. The sequence of
required activities corresponds
to the sequence in which the
processes have been located
-Low unit costs for high volume -Can have low mix flexibility Car assembly,
-Gives opportunities for -Not very robust if there is self-service
specialization disruption cafeteria
-Materials or customer movement -Work can be very repetitive
are convenient

 Servicescapes (high visibility processes): the look and feel of the environment within an operation or process- ambient
conditions, space factors, signs in a service operation will create an ‘environmental experience’ for both employees and
customers, and this experience should support the service concept. Every factor that influence this experience will lead
to certain responses. The response can be cognitive (what people think), emotional (what people feel), and
psychological (their body experience).

5.4 ARE PROCESS TECHNOLOGIES APPROPRIATE?

Process technologies: machine’s equipment and devices that help processes to transform materials, information, and customers

1. How process technology can reflect volume and variety?

Process technology should reflect volume and variety. In

particular, the degree of automation in the technology, the scale
and/or scalability of the technology (the capacity of the
technology to process work), and the coupling and/or
connectivity of the technology (the extent to which it is
integrated with other technologies) should be appropriate to
volume-variety.

Low volume and high variety require manual, general-purpose,

small-scale, and flexible technologies. By contrast, high volume
and low variety processes require automated, dedicated, and
large-scale technologies that are sometimes relatively inflexible.

Newer technologies can achieve flexibility at lower cost, bending the diagonal. Digitization and the increase computing power
embedded in many new technologies has made it easier to achieve lower costs while not having to sacrifice the ability to
provide variety.
5.5 ARE JOB DESIGN APPROPRIATE?

1. How job design can reflect volume and variety?

Job design is about how people carry out their tasks within a
process. It is particularly important because it governs people’s
expectations and perceptions of their contribution to the
organisation, as well as being a major factor in shaping the
culture of the organisation. Some aspects of job design are
common to all processes, such as safety, ethical issues, and
work-life balance. However, other aspects of job design are
influenced by volume and variety. In particular, the extent of
division of labour, the degree to which jobs are defined and the
way in which job commitment is encouraged.

Broadly, high variety and low volume processes require broad,

relatively undefined jobs with decision-making discretion. Such jobs tend to have intrinsic job commitment.

By contrast, high volume and low variety processes tend to require jobs that are relatively narrow in scope and closely defined,
with relatively little decision-making discretion. This usually means some action is needed in the design of the job to help
maintain commitment. These job design approaches are:

 Job enlargement: giving more tasks (horizontal dimension)

 Job enrichment: enlarge you autonomy on making decisions (vertical dimension).It helps reducing repetition
(maintenance)
 Job rotation: moving individuals periodically between different sets of tasks to provide some variety in their activities
and to reduce monotony
 Empowerment: enhancing individuals’ ability to change hoe they do their jobs
 Team working

DIVISION OF LABOUR
Advantages Disadvantages
- It promotes faster learning - It is monotonous
- Automation becomes easier - It can cause physical injury
- Non-productive work is reduced - It can mean low flexibility and poor robustness

CHAPTER 6: PROCESS DESIGN 2 – ANALYSIS

It is a detailed analysis of the activities of the process that involves calculating the objectives of the process, the sequence of activities,
allocation of tasks and capacity, and its ability to incorporate the effects of variability. It is the complementary activity to the broad positioning
of processes (chapter 5). How individual processes are designed is important to any operation because they are the building block of an
operation. (-> Changi Airport)

6.2 ARE PROCESS PERFORMANCE OBJECTIVES CLEAR?

1. Which objectives have to be considered in process design?
Process design must reflect the relative priority of the normal
performance objectives of quality, speed, dependability,
flexibility, and cost. At a more detailed level, process design
defines the way units flow through an operation. Therefore,
more ‘micro’ performance objectives are useful in process
design. These are:

1. Throughput rate: the n° of units completed by the process

per unit of time
2. Throughout time: the elapsed time between a unit entering
the process and its leaving the process
3. Work-in-process: the n° of units in the process
4. The utilization of process resources: the % of total available time in which the process is working
The design factors that will influence the flow objectives are the:
 Variability of output arrival to the process
 Configuration of the resources and activities within the process
 Capacity of the resources at each point in the process
 Variability of the activities within the process

6.3 HOW ARE PROCESSES CURRENTLY DESIGNED?

1. What is the process mapping?
Process mapping is a technique that allows understanding how the current process operates. There are different levels of
process mapping:
 High-level process mapping: more aggregated level, processes are drawn as input-transformation-output processes.
There are no details of how inputs are transformed into outputs.
 Outline process map: identifies the sequence of activity in a general way
 Detailed process map: describes how the activities within the process relate to each other- they identify the different
types of activities and show the sequence of activities.

2. What is process visibility?

The process can be mapped to show the visibility of each activity to the customer. The boundary between high and low visibility
is called the ‘line of visibility’. Processes with a high level of customer ‘visibility’ cannot be designed in the same way as back-
office processes. In front office processes, customers experience the process, and this experience will affect customer
satisfaction. It is important to design customer experience including sights, sounds, smells, atmosphere… we have to introduce
the concept of servicescape. The touchpoints are the points of contact between a process and a customer. The features of a
process at the touchpoints are called clues. The emotions that result from these clues contain the messages that the customer
will receive. There are different techniques to improve customer’s experience:
 Map the route customers take capturing the touchpoints
 Ask staff to act as a surrogate customer and conduct a ‘walk-through audit’
 Ask what customer is intended to and actually think and score it.

6.4 ARE PROCESS TASKS AND CAPACITY CONFIGURED APPROPRIATELY?

1. which are the issues in understanding if process tasks and capacity are appropriately configured?
 Task precedence: described by using a precedence diagram to define what activities must occur before others. It
includes the individual activities, the relationship between these activities, the work content (time necessary to
perform the task), and the time necessary to perform each activity within the task
 Series and parallel configurations
 Cycle time and process capacity (how much capacity is needed by the process in order to meet the cycle time)-
bottlenecks (stage of process with the longest allocation of work, it dictates the output of the whole process)
 Process balancing
 Throughput, cycle time and work-in-process

2. What is a long-thin configuration, and which are its advantages?

we can arrange all the activities (7) in a series arrangement of

stages.
N° of stages= total work content / cycle time
= (11+12+10+10) / 12= 43 / 12 = 3.58 -> 4 stages
Where the cycle time is determined by the bottleneck
Advantages:
 More controlled flow: easy to manage
 Simple material handling
 Lower capital requirements: only one piece of
equipment would need to be purchased; on short-
fat configuration every stage would need one
 More efficient operation
3. What is a short-fat configuration, and which are its advantages?

All tasks are performed at individual stages, all of which are arranged
in parallel. Each stage produces one computer every 43 minutes. So,
every 43 min they will produce 4 computers, so the average output
rate is one computer every 43/4=10.75 min

The advantages are:

 Higher mix of flexibility: each stage could specialize in
different types of products or services
 Higher volume flexibility: stages can be closed as
required
 Higher robustness: if one stage breaks down, the others
are unaffected.
 Less monotonous work: here the staff repeat the tasks
every 43 min, in the long-thin they repeat the task every
12 min

We can also have an intermediate configuration, such as the four stages arranged as two parallel arrangements

4. What does process balancing mean?

Balancing a process involves attempting to allocate activities to each

stage as equally as possible in order to smooth flow and avoid
bottleneck. The effectiveness is measured by:

balancing loss ¿

5. What is the Little’s Law? Give a numeric example

Little’s law is a mathematical relationship that relates cycle time to work-in-process and throughput time.
Throughput time=Work-in-process x cycle time → Work-in-process= throughput time x throughput rate

Cycle time (c)= time between completed units emerging from a process. The smaller the cycle time, the faster the throughput
rate and the greater the capacity
Throughput rate (Tr)= the reciprocal of cycle time = the n° of units completed by the process per unit of time
Throughput time (Tt)= the elapsed time between a unit entering the process and its leaving the process
Work-in-process (WIP)= n° of units in the process

Example 1: computer test and repair process with four stages: the cycle time is 12 min (loading of the bottleneck) and the WIP is
4 units (one at each stage assuming there is no space for inventory between stages)

Throughput time = WIP x cycle time = 4 x 12 = 48minutes

Example 2: IT support unit: all workstations have to be renovated and there is only one week in which to do it (40h).
Last year: This year:
Work-in-process (WIP): 500 workstations Work-in-process (WIP): 530 workstations
Time available: (Tt): 40 hours Time available (Tt): 40 hours
Average time to renovate (c): 2 hours Average time to renovate (c): 1.5 hours
1 1 1 1
Tr= = =0.5 per technician N Tr= = =0.67 per technician N
c 2 c 1.5

WIP= Tt x Tr WIP= Tt x Tr
500= 40 x 0.5N -> N= 25 technicians 500= 40 x 0.67N -> N= 19.88 technicians
6. Determine how many parallel stations are necessary given: 4000pcs/day, 8h/shift, work content:3 min/pc

60 min
8h x
Cycle time= Time available h
be processed ¿= =0,12 min/ pcs
n° ¿ 4000
N° parallel station= total work content x cycle time =3 /0,12= 25

6.5 IS PROCESS VARIABILITY RECOGNIZED?

1. Which are the causes and the types of variability?

The sources of variation are:
1. The late (or early) arrival of material, information or customers at a stage within the process
2. The temporary malfunction or breakdown of process technology within a stage of the process
3. The necessity for recycling ‘misprocessed’ materials, information, or customers to an earlier stage in the process
4. The misrouting of material, information or customers within the process that then needs to be redirected
5. Each product or service being processed might be different
6. Products or service, although essentially the same, might require slightly different treatment
7. With any human activity there are slight variations in the physical coordination and effort on the part of the person
performing the task that result in variation in activity times, even of routine activities.
All these sources of variation within a process will interact with each other, but result in two fundamental types of variability:
1) Variability in the demand for processing at an individual stage within the process, usually expressed in terms of
variation in the inter-arrival times of units to be processed (arrival time variability)
2) Variation in the time taken to perform the activities (activity time variability)

ACTIVITY TIME VARIABILITY: variability in a process acts to reduce its efficiency. If we consider the processing time variability in
a synchronized process, we see that the cycle time will need to accommodate the longest activity time at any of the stages. The
idle time at each stage is the cycle time minus the average activity time at that stage. The extra lost time is the result of activity
time variability that leads to a reduction of efficiency.
When movement is synchronized, the inter-arrival time at each stage is fixed at the cycle time; without synchronization it is
variable.

ARRIVAL TIME VARIABILITY: Process variability results in simultaneous waiting and resource underutilization. The relation
between process waiting time and utilization is a rectangular function in ‘no variability’ condition

2. What is the OM triangle?

In practice, there is a combination of activity and arrival time

variation. Generally, as a process moves closer to 100 per cent
utilization the higher the average waiting time will become.
The greater the variability, the more the waiting time
utilization deviates from the simple rectangular function of
the ‘no variability’ conditions. This phenomenon is called ‘OM
triangle’.

We have three options:

- Accept long average waiting times and achieve high utilization (point X)
- Accept low utilization and achieve short average waiting time (point Y)
- Reduce the variability in arrival times, activity time, or both and achieve higher utilization and short waiting times (point
Z)
CHAPTER 7: SUPPLY CHAIN MANAGEMENT
Supply chain management (SCM) the flows of information products and services between the main strings (or chains) of
operations and processes that form an organisations supply network. Most principles applied to external organisation-to-
organisation networks can also be applied to internal process-to-process networks.

It is difficult to manage a SC because the 5 objectives are no more the objectives of my company, but the objectives of the whole
supply chain

7.1 IS THE NATURE OF SUPPLY CHAIN MANAGEMENT UNDERSTOOD?

1. Which are the objectives of a supply chain?
The fundamental objective of SCM is to satisfy the needs of the end customer. So, each operation (or process) in the network
should contribute to whatever mix of quality, speed, dependability, flexibility, cost, and sustainability.
Quality: the quality of a product/service when it reaches the end customer is a function of the quality performance of every
operation in the chain.
Speed: we should achieve a balance between speed as responsiveness to customer’s demand and speed as fast throughput.
Dependability: of responsiveness guarantees ‘on-time’ delivery keeping excessive resources, while dependability of throughput
time reduces uncertainty.
Flexibility: means the chain’s ability to cope with changes and disturbances
Cost: cost incurred within each operation to transform inputs into outputs, plus the transaction costs of trading with suppliers
Sustainability: buying from local suppliers, choosing environmentally friendly products…

2. Which are the characteristics of a lean supply chain with functional products and an agile supply chain with innovative
products?
There is an alignment between product and service characteristics
(functional or innovative) and supply network designs (lean or
agile), this idea has been proposed by Professor Marshall Fisher.

EFFICIENT (LEAN) SUPPLY CHAIN: more appropriate for functional

products and services for which the demand Is stable and
predictable, with few changes and low variety, and low profits
margins. These lean policies focus on minimizing cost, maximizing
the utilization of all resources. They include keeping inventories or
service capacity low (-> fast throughput) and have low-cost
suppliers. The objective is to be efficient.
Examples: bucket, bread

RESPONSIVE (AGILE) SUPPLY CHAIN: more appropriate for

innovative products with uncertain and unpredictable demand,
high variety, and high profit margins. These agile policies focus on
high service levels and responsive supply to the end customer. They include a deployed inventory or service capacity as close as
possible to the customer, flexible suppliers, and low throughput time.
Examples: mobile phone, fashion bag

Un practice, some firms take a hybrid approach. For example, Inditex, operates a predominantly agile supply network, but still
has aspects of lean within some of its activities.

7.2 WHAT TYPE OF SUPPLY CHAIN RELATIONSHIP SHOULD BE ADOPTED?

1. Which are the benefits of transactional and partnership supply chain?

Transactional relationship benefits -market based Partnership relationship benefits

- Retains competition between alternative suppliers,
so it can minimize the actual price paid for
purchased services
- If demand changes, customer can change the
number and type of suppliers
- Wider variety of innovation sources (but access may
- Higher levels of loyalty to customers than
transactional relationships
- Reduced time and effort of frequent re-contracting
- Reduced transaction costs
- Reduced cost of compliance monitoring
- Fewer quality failures
 be harder than in partnership relationships),
especially useful when market is fast growing
- Useful in assessing a supplier before potential move
to partnership model
- Good for one-off irregular purchases
- Earlier failure identification
- Emphasis on joint problem-solving during failure
episodes, rather than assigning blame
- Generation of increased value by leveraging shared
competences

7.3 HAS THE SOURCING CONFIGURATION BEEN DETERMINED?

1. Which are the advantages of a multiple sourcing approach?
Multiple sourcing Single sourcing Delegated sourcing Parallel sourcing
involves obtaining a product or a Involves buying all of one Involves a tiered approach You have a single sourcing,
service component from more product or service to managing supplier but in parallel you have an
than one supplier and it is component from a single relationships. alternative. The aim is to
commonly seen in competitive supplier. Generally, these provide the advantages of
markets. The focus is on price components are of strategic both multiple and single
and dependability. There is a importance. There is a sourcing.
parallelism between parallelism between
Disadvantages Advantages
transactional relationship and partnership relationships and
multiple sourcing. single sourcing.

Help maintain competition in the
supply network
-Reduce supply risk
-Increase flexibility in face of
supplier failure or changes in
customer demand
-Wider range of knowledge and
expertise
-Prevent supplier dependance
-It requires effort to ensure
consistent service quality
-Hard to encourage supplier
commitment
-encourage more
commitment and effort, and
high-quality service
(Basis of Toyota)
-increased risk of lock-in
-increase price pressure
-reduction in the firm’s
bargaining power
-reduce the number of first- -maintains competition
tier suppliers while -allows switching in
simultaneously allowing a circumstances of supplier
focus on strategic partners failure
-can alter dynamics of the Complex to manage
supply market
-risk of creating mega-
suppliers with significant
power in the network

2. Describe the Kraljic Matrix (pag 247)

The Kraljic Matrix shows how the sourcing decision is dependent on product characteristics. Sourcing strategy is governed partly
by the risk or complexity in the supply market, and partly by the criticality of the item to the business. It is possible to define 4
positions (4 quadrants):

Leverage Strategic
Very critical, but these components are easier to source Both complex to acquire and critical to the business
How critical is the item to the business
as there are many available suppliers (->price
 competitive)
Delegated sourcing Single sourcing or delegated sourcing or parallel
Examples: touch screen and display, camera, speaker sourcing
Example: processor
Non-critical Bottleneck
Noncritical and easily available in the market. The Not so critical, but difficult to find.
supply risk is low because there are many alternative
suppliers.
Single sourcing is common because of the lack of choice
Multiple sourcing is the most common in the supply market
Examples: phone packaging, screws in phone Example: battery

Supply market risk or complexity

7.4 HAS THE APPROACH TO SUPPLIER SELECTION AND NEGOTIATION BEEN DETERMINED?
1. Which are the steps in engaging suppliers?

1 Initial qualification: aims to establish a minimum threshold for a supplier to be considered and relates to technical
capability, operations capability, and financial capability.
2 Measurement criteria should then be determined, factoring in the relative importance of different performance
objectives.
3 Information collection to inform the supplier selection decision
4 Making the final selection through scoring assessment methods (weighted score method, Total Cost of Ownership that
provide detailed information on all possible costs associated with procurement)
5 Once the preferred supplier has been identified, negotiation takes place to agree the key terms of agreement.
(Negotiation tactics include emotion, logic, threats, bargaining, compromise).

7.5 ARE SUPPLY CHAINS RUN EFFECTIVELY?

1. What is a Service-level agreement SLA?

It is necessary to manage the two-way flow of information between customers and suppliers and factoring the multi-layered
nature of such relationships. Service-level agreements are often employed to help formalize expectations between parties in a
supply network.

2. Which are the common mismatches between customers and suppliers’ perceptions?
Unsatisfactory supply chain can be relationships can be caused by:
 Requirement perception gap: gap between how the customer describe what is required and how the supplier interprets
it.
 Fulfilment perception gap: misalignment between the view of the customer and how the supplier believe it is
performing
 Supplier improvement gap: gap between wat the customer wants from its supplier and how it perceives its supplier’s
performance
 Supplier performance gap: gap between the supplier’s perception of the customer needs and its own assessment of
performance.

3. How to manage logistics?

Logistic is the activity of moving products from suppliers to their customers. We go from a first-party logistics (1PL) where the
logistic activity is an entirely internal process to a fifth-party logistics providers that broaden their scope further to include e-
business. The Internet of Things IoT has had a significant impact on logistics in providing firms with much more accurate
information on where products are in the supply network. It permits more effective coordination and cost savings.
7.6 ARE SUPPLY CHAIN DYNAMICS UNDER CONTROL?
1. What is the Forest / Bullwhip effect and how to solve it?
The Bullwhip effect is when a small disturbance at one end of the chain causes increasingly large disturbances as it works its way
upstream. In other words, the further you go from the final market, the bigger the amplification and the fluctuations are. Its
main cause is the desire by different links in the supply chain to manage their levels of activity or inventory sensibly. These
dynamics have harmful impacts on the supply network, such as inefficiencies, delays, and customer dissatisfaction.
How can we solve this?
1 Align all the cannels of information and supply: for example, allowing an upstream supplier to manage the inventories
of its downstream customer
2 Increase operational efficiency throughout the supply chain by simplifying the whole chain
3 Improve forecast accuracy: the more accurate the estimates, the less capacity is required to buffer uncertainty
4 Share information throughout the supply chain: it is important to have an overview of what is happening throughout
the chain. by transmitting information, all the operation can monitor true demand, free of distortions. It is important to
make information on end-customer available to upstream operations.

2. What is a blockchain and what is its role in supply chain management?

A blockchain is a decentralized, digitalized, public ledger of transactions. A ‘bloc’ is a record of new transactions. When each
block is completed (verified) it is added to the chain, thus creating a chain of blocs or blockchain. There are 5 basic principles:
1 It uses distributed databases: all participants have access to the entire database
2 It uses peer-to-peer transmission: direct communication between peers
3 It is transparent and can be used anonymously
4 Its records are irreversible
5 It uses computational logic

CHAPTER 8: CAPACITY MANAGEMENT

Capacity management is the activity of coping with mismatches between demand and supply. Capacity management should be
integrated across levels because each level constrains what can be done in the level below and can provide feedback for the level
above. In the long-term we have strategic capacity planning (ch. 4) that concerns sites and sites’ locations; the medium term
includes the aggregate number of people and degree of subcontracted resources (ch 8); the short. Term capacity management
concerns loading activities on individual processes.

1. Describe the capacity management framework (pag 276)

8.2 HAVE PATTERNS OF DEMAND BEEN UNDERSTOOD AND INFLUENCED?

1. How can we manage the mismatch between capacity and demand?

On the demand side of the capacity management framework there are two related tasks: understanding patterns of demand
and deciding how to influence these patterns. In order to manage the demand side, we can consider the demand management
and the yield management.

a Demand management: involves changing the pattern of the demand by stimulating off-peak demand or constraining peak
demand. Some methods used is demand management are:
 Constraining customer access: customers may only be allowed access at particular times
 Price differentials: increasing prices during high demand periods and reducing prices during low demand periods
 Scheduling promotion: increase promotion during quieter periods to encourage demand
 Service differentials: increase service in periods of low demand
 Creating alternative products and services: to fill capacity in quiet periods (ski resorts organized mountain activities
during the summer)
b Yield management: used to maximize revenues by operations that have relatively fixed capacities. It is useful when the
market can be segmented, the service cannot be stored, and the service is sold in advance. For example, Airline fit all these
criteria. Overbooking capacity can be used to compensate for passengers who do not show up for the flight. Or hotels that
use price discounting at quiet times, outside of holiday periods.

8.3 HAS THE OPERATION’S CURRENT CAPACITY BEEN DETERMINED?

1. What is the operation’s current capacity? On what does it depend? How to estimate it?
Capacity (“the ability to supply”) is the maximum level of value-added activity over a period of time that the process can achieve
under normal operating conditions. Capacity estimates depend on the mix of products or services supplies – as the mix changes,
so too does the effective capacity. We can overcome problems caused by variation mix by using aggregated capacity even if it
means some degree of approximation. They also depend on the time over which they are supplied – the level of activity and
output that may be achievable over short periods of time is not the same as the capacity that is sustainable on a regular basis.
Capacity depends also on specification of products and services: some operations are able to increase their output by reducing
the specification of their output during busy periods. A reduction in capacity is called ‘capacity leakage’ and one method of
measuring it is called overall equipment effectiveness (OEE).

2. How the OEE is calculated? Make an example

The OEE (overall equipment effectiveness) measures the capacity leakage. This index is the product of availability, performance
(or speed), and quality of product and services that the process creates. At the best it can be equal to 1.
OEE = a x p x q

8.4 HAVE STRATEGIE FOR MANAGING THE ‘SUPPLY SIDE’ BEEN CONSIDERED?
In the supply side, first, we have to set the base capacity, second, we have to evaluate two alternative methods of managing
supply: Level capacity and chase capacity plans.

1. How to set the base capacity?

The base capacity is influenced by three main factors:
 The relative importance of the operation’s performance
objectives
 The perishability of the operation’s outputs
 The degree of variability in demand or supply
High service levels (because capacity results in a cushion, so we
can flex output to give responsive customer service), high
perishability (because outputs cannot be stored for long
periods) of an operation’s outputs and high degree of variability
either in demand or supply, all encourage a relatively high level
of base capacity.
The greater the variability, the more extra capacity will be
needed to compensate for the reduced utilization of available
capacity. We can try to decrease the variability in order to reach a point in which we have both good capacity utilization and
good throughput time (-> chapter 5)

2. Which are the methods that fix the base capacity?

  Level capacity plan: stabilize the demand and keep its level
fixed throughout the planning period, regardless of the
fluctuations in forecast demand.
When non-perishable materials are not sold, they can be transferred to inventory. If the inventory is not possible, demand
fluctuations are absorbed through underutilization. The more demand fluctuates, the higher the level of underutilization.

 Chase capacity plan: attempts to match demand pattern closely by varying levels of capacity. I customize the capacity
according to the variation in demand. A pure chase plan is usually adopted by operations that are not able to store their
output, such as customer-processing operations or manufacturers of perishable products.

There are different methods for adjusting capacity: overtime (staff working longer than their normal working times),
annualized hours (staff contracted to work a set number of hours per year instead of per week), staff scheduling (arranging
working times to vary the aggregate number of staff available for working at any time), using part-time staff…

8.5 HAVE THE CONSEQUENCES OF CAPACITY MANAGEMENT DECISIONS BEEN CONSIDERED?

Most organizations mix demand-side (demand and yield management) and supply-side (level and chase plans) capacity
management strategies to maximize performance.
1. Which methods are used to examine the consequences of capacity decisions?

1 Factoring in predictable versus unpredictable demand variation.

When demand is stable and predictable it is quite easy; when demand is changeable, but the change is still
predictable, capacity adjustments may bee needed but al least they can be planned in advance (Panettone), with
unpredictable demand operations have to react quickly.

2 Using cumulative representations to plan capacity

It is useful to plot both the cumulative demand on an operation
and its cumulative ability to supply, over time. (Productive days
represent the ‘ability to supply’). For any capacity plan to meet
demand as it occurs, its cumulative production line must always
lie above the cumulative demand line (Plan B is feasible). The
area between the cumulative production line and demand
curves represents the amount of inventory carried over the
period. This gap can be reduced by adopting a chase capacity
plan (C). this reduces the average time products spend as
inventory, but incurs costs associated with changing capacity
levels. The marginal cost of making capacity change increases
with the size of the change.

3 Taking a longitudinal perspective to plan capacity.

 Dynamics of capacity management
A good manager has to balance between different time perspective (long, medium and short terms).

2. How the capacity should be controlled? – the dynamics of capacity management

Capacity management is a dynamic process with decisions reviewed period by period. It is essential that capacity decisions made
in one period reflect the knowledge accumulated from experiences in previous period.
 Looking with a vertical approach we see that the update
forecast from general market factors is the input of the
planned capacity. We find the actual capacity from the
planned capacity without capacity leakage. Actual capacity
and actual demand are the inputs according to which we
calculate performance levels as costs, revenue, working
capital, customer satisfaction. If capacity is in excess of
demand, customer demands can be met but underutilised
capacity and possibly inventory will increase costs. If capacity
is less than demand, the operations resources will be fully
utilised, but at the expense of being unable to meet all
demand. We have to consider also a longitudinal approach, so
what would be in period N+1, making some adjustments. In
the next period, the planned capacity will be adjusted according to the performance level and the finetuned planned capacity of
the previous period. The updated forecasts are the third input for the panned capacity of period N+1. And so on, in a dynamic
way.

CHAPTER 11: LEAN SYNCHRONISATION

Lean synchronization uses ‘lean’ (JIT) principles with the aim to meet demand instantaneously, with perfect quality and no
waste.
11.1 WHAT ARE THE BENEFITS OF LEAN SYNCHRONISATION?
1. Explain the river and rocks analogy
In Lean synchronization, inventories and queues are seen as obscuring the
problems that exist within processes and therefore inhibiting process
improvement. This idea is a illustrated with the river and rocks analogy. The
many problems of the operation are shown as rocks in a riverbed that cannot
be seen because of the depth of the water. The water represents the
inventory in the operation. Reducing the level of inventory or queues (water)
allows operations management, that is the ship, to see the problems in the
operation (the rocks) and work to reduce them. Exposure to problems can
make them more evident. If the level of the water decrease, from the boat
you can see the rocks and eliminate them.

When the inventory is low, problems are exposed and solved. This leads to
fewer stoppages and so the focus is on producing only when needed. At first
with lean the company can get worse financially. This is because if you
produce only when needed, you can incur in lower capacity utilisation. But
finally, it pays off. You do not produce surplus; you keep the level of the water
low so that you can see problems and solve them and eventually you see
results. You have to pass through a decreasing point to see improvement.
“Short term pain for long term gain.”

2. Where ‘lean’ came from?

Lean Synchronisation aims to meet demand instantaneously with perfect quality and no waste. Lean approach came from
Toyota. It was Toyota that developed the set of practises that shaped what we now call ‘Lean’ but which Toyota calls the Toyota
Production System. TPS has two themes: Just in time (rapid and coordinated movement of parts throughout the production
system and supply network to meet customer demand), and jidoka (humanising the interface between operator and machine).
WHY LEAN?
In a western country, after an oil shock they realized that huge cars and Henry Ford method cannot be sustainable anymore. MIT
launched a program and realized that the Japanese approach, TPS, was completely different compared with the US way to
produce cars considering: time to design, inventory, defects, throughput time. They do more with less -> lean.

11.2 WHAT ARE THE BARRIERS TO LEAN SYNCHRONISATION?

The three approaches to overcome the barriers to lean synchronization are (three main pillars):
 Eliminate waste (‘the core of lean synchronization’)
 Involve everyone (from the top to the single operator of the line. Encourage team-based problem solving, job enrichment,
job rotation and multi-skilling. Everyone has to be engaged in this change)
 Continuous improvement = kaizen: you have to keep improving in a scientific way through the involvement of everyone

1. How to eliminate waste?

Waste can be defined as any activity that does not add value. It is clustered into 4 main categories:
1 Waste from irregular flow: waiting time, transport, process inefficiencies, inventory, wasted motions
2 Waste from inexact supply: over or under-production, early or late delivery, and inventory
3 Waste from inflexible response: large batches, delays between activities and more variation in activity mix than in customer
demand (-> heijunka). From the Batch & Queue logic where the aim was to minimize costs, we go to the ‘one-piece-flow’
logic in which we eliminate the set up so that the EOQ becomes 1.
4 Waste from variability (->ch. 5)

Waste can be classified in:

 Muda that describes activities in a process that are wasteful because they do not add value to the operation or to the
customer. It causes irregular flow.
 Mura that is a lack of consistency, so high variability
 Muri that is a over or underloading waste
These three causes of waste are related. When a process is inconsistent (mura) or can lead to overburdening of equipment and
people (muri) that, in turn, will cause all kinds of non-value-adding activities (muda).

11.3 IS FLOW STREAMLINED?

It is necessary to reconfigure the layout of a process to aid lean synchronization involving moving it down the natural diagonal of
process design. Moving towards a layout that brings more systematization and control (functional ->cell layout)
1. Which are the lean techniques that enhanced visibility and small-scale technologies?
Ensuring flow visibility helps to male improvement to flow easier. Visual tools can help everybody to see how work is
progressing. Visibility measures can be:
 Clearly indicated process routes using signage
 Performance measures clearly displayed in the workplace
 Colored light used to indicate stoppages (‘andon light’)
 An area devoted to displaying samples of one’s own and competitors’ process outputs, together with samples of good
and defective output
 Visual control systems (kanbans)

Using small-scale simple process technology

Using several small machines, rather than one large one, allow simultaneous processing, is more robust and is more flexible.
There is more initial investment, but you follow the market upon request, and you eliminate set-up.

2. How can the flow be rationalized? (Examine all elements of throughput time)
The flow can be rationalized through the VMS (value stream map) that is a fundamental instrument to understand the current
situation and to identify waste. Its perspective involves working on the big picture rather than optimizing individual processes (-
>process mapping chapter 6). It is a simple but effective approach to understanding the flow of material. An information as a
product or service has a value added as it progresses through a process operation or supply chain. It is a four-step technique.
First, it involves identifying the value stream to map. Second, it involves physically mapping a process, then above it, mapping
the information flow that enables the process to occur. And this is the current state map. Third, problems are diagnosed, and
changes suggested, making a future state map that represents the improved process operation or supply chain. Finally, changes
are implemented.

11.4 DOES SUPPLY EXACTLY MATCH DEMAND?

1. Describe the pull approach and the Kanban method
The aim of Lean synchronisation is to meet demand exactly, neither too much or too little, and only when it is needed. Pull
control principles are typically used to achieve these goals. The essence of pull control is to let the downstream stage in a
process, operation or supply network pull items through the system rather than have them pushed to them by the supplying
stage.

The most common method of doing this is the use of kanbans, simple signalling devices that prevent the accumulation of excess
inventory. Kanban is the Japanese for card or signal. It is sometimes called the “invisible conveyor” that controls the transfer of
items between the stages of an operation. It is a card used by a customer stage to instruct its supplier stage to send more items.
It can also be a solid plastic marker or even coloured ping pong balls. Kanban is one of the measures of visual control systems
that are used to ensure visibility.

11.5 ARE PROCESSES FLEXIBLE?

Responding exactly to demand only when it is needed often requires a degree of flexibility in processes, both to cope with
unexpected demand and to allow process to change between different activities without excessive delay. This often means
reducing the set-up times.

11.6 IS VARIABILITY MINIMIZED?

1. How variability in mix can be reduced?
Variability in processes disrupts flow and prevents lean synchronisation. The use of levelled scheduling and mix modelling can be
used to reduce flow variability.

Levelled scheduling (heijunka) means keeping the mix and

volume of flow between stages even over time. In this way,
you can match the demand and avoid inventory. It will reduce
the overall level of work in progress in the operation and the
effect is regularity and rhythm of the work. This makes
planning and control easier.

Conventionally, the mix of product is produced calculating the

batch size for each product and producing them in sequence.
Large batches lead to large amount of inventory accumulates,
and the most days are different from one another in terms of
what they are expected to produce.

This concept can also be applied to transportation processes-

if each store receives smaller deliveries more frequently, inventories levels would be lower, and the system could respond to
trends in demand more readily because more deliveries mean more opportunity to change the quantity delivered to a store.

Mix modelling is a repeated mix of product, and it is possible as the batch size approaches to one. This creates a steady stream
flowing continuously from the unit.

TPM (Total productive maintenance) aims to eliminate the variability in operations processes caused by the effect of
breakdowns. Everyone is involved in the search for maintenance improvement.

11.7 IS LEAN SYNCHRONISATION APPLIED THROUGHOUT THE SUPPLY NETWORK?

1. What is the difference between lean and agile?
Lean attempts to eliminate waste and provide value to the customer throughout the entire supply chain. It thrives on
standardization, stability, defined processes and repeatability. It equals synchronized, regular flow and low inventory and it
include waste elimination, the use of pull control and Kanban.
It is the best approach when product/service variety is low and demand predictability high.
≠
Agile equals responsiveness, flexibility, and fast delivery. It implies being responsive, quick moving and constantly ready to
change. It requires effective demand management.
It is the best approach if product/service or complexity is high and demand predictability is low.

CHAPTER 12: IMPROVEMENT

Improvement is the activity of closing the gap between the current and the desired performance of and operation or
process.
12.2 WHAT IS THE GAP BETWEEN CURRENT AND REQUIRED PERFORMANCE?
1. Which factors to include as performance measures?
Performance measurement is a prerequisite for the
assessment of operations performance. The starting point
is considering the five generic performance objectives:
quality, speed, dependability, flexibility, and cost. But
performance measurement can involve different levels of
aggregation. It is represented by a pyramid, the higher
you go in the pyramid the more aggregated the
performance measures are. The 5 objectives can be
aggregated into ‘composite’ measures, such as ‘customer
satisfaction’, ‘overall service level’, or ‘operations agility’
and finally achieve the ‘overall strategic objectives. The
more aggregated performance measures have greater
strategic relevance, in so much as they help to draw a picture of the overall performance of the business.

2. What is the balanced scorecard approach?

BALANCE SCORECARD by Kaplan and Norton

It is a meaningful dashboard of the current situation that
enables the company to know where to improve. It
attempts to provide the important information that is
required to allow the overall strategy of an organisation
to be reflected adequately in specific performance
measures. Financial performance is important, but there
are also other areas: customer performance, internal
process and learning and growth. Managers should
address 4 questions. How do we look to our shareholders
(financial perspective)? What must we excel at internal
(process perspective)? How do our customers see us (customer perspective)? How can we continue to improve and build
capabilities (learning and growth perspective)?
The advantages of the approach are that it represents an overall picture of the organization's performance in a single report, and
by being comprehensive in the measures of performance it uses, encourages companies to take decisions in the interests of the
whole organisation, rather than sub-optimising around narrow measures.
But how to improve different areas at the same time? Sandcone theory

3. What is the benchmarking?

Benchmarking is the process of learning from others and involves comparing one’s own performance or methods against other
compatible operations. Benchmarking is essentially about stimulating creativity in improvement practise. There are many
different types of benchmarking.
 Internal benchmarking is a comparison between operations or parts of operations that are within the same total
organisation.
 External benchmarking is a comparison between operation and other operations that are part of a different organisation.
 Non-competitive benchmarking is benchmarking against external organisations that do not compete directly in the same
markets.
 Competitive benchmarking is a direct comparison between competitors in the same or similar markets.
 Performance benchmarking is a comparison between the levels of achieved performance in different operations.
 Practise benchmarking is a comparison between an organisation’s operations practises. And those adopted by another
operation.
Benchmarking is a continuous process of comparison that provides ideas and information that can lead to solutions, but it does
not provide solutions. It is a process of learning and adapting in a pragmatic manner.

4. Describe the importance-performance matrix

The importance-performance matrix positions each aspect of
performance on a matrix according to its scores or ratings on how
important each aspect of relative performance is and what
performance it is currently achieving (scores from 1 to 9). It is divided
into 4 priority zones delimited by boundaries. The lower bound of
acceptability is the boundary between acceptable and unacceptable
current performance.
Urgent action zone: it is important to launch an immediate
improvement programme because the importance of the factor is
high (1,2,3), but the current performance is low (7,8,9).
Improve zone: it is above the boundary line that the limits the urgent
action zone and below the lower bound of acceptability. Performance
factors in this zone must be candidates for improvement.
Appropriate zone: it is the area above the lower bound of acceptability and performance factors in this area should be
considered satisfactory.
Excess zone: performance factors in this area are high performing but are not particularly important. Probably it was an order
winner that became a qualifier. The resources could be better used elsewhere.

The width between CD-AB decreases because if something is important, you need to be really good at it. If something is not so
important, it doesn't matter so much.
5. Explain the Sandcone theory
The Sandcone model shows the exact sequence and map that
companies should follow to improve. The sand is analogous to
management effort and resources. Building a stable sandcone needs a
stable foundation of quality upon which one can build the layers of
dependability, speed, flexibility, and cost. The first priority should be
quality, since this is a precondition to all lasting improvement. In order
to include dependability in the improvement, process requires further
improvement in quality. Once you have reached good quality and
dependability, you don't have scraps and you can be faster. So, you
can improve this speed while continuing to improve quality and
dependability further. Then you have to improve flexibility and finally
improve costs and gain efficiency. So, cost reduction relies on a cumulative foundation of improvement in the other
performance objectives.

12.3 WHAT IS THE MOST APPROPRIATE IMPROVEMENT PATH?

1. What is the difference between breakthrough improvement and continuous improvement?
Breakthrough improvement (kaikaku= radical change) assumes
that the main vehicle of improvement is major and dramatic
change in the way the operation works. For example, the total
reorganisation of an operations process structure or the
introduction of a fully integrating information system. BPR
approach is described as the fundamental rethinking a radical
redesign of business processes to achieve dramatic improvements
in critical contemporary measures of performance, such as cost,
quality, service, and speed. Breakthrough Improvement places a
high value on creative solutions and encourages freethinking individualism. ‘Starting with a clean sheet of paper.’, ‘Completely
rethinking the system.’.
Continuous improvement (kaizen) means continuing improvement involving everyone at every level of the organisation. An
important element of continuous improvement is the idea that improvement can be represented by a never-ending process of
repeatedly questioning and re-questioning the detailed working of a process. This is summarised by the idea of the improvement
cycle, such as PDCA and DMAIC. Continuous improvement stresses adaptability, teamwork, and attention to detail.

One analogy used to explain this difference is the Sprint versus marathon. Breakthrough improvement is a series of impressive
sprints while continues improvement. Is like a marathon running where the most important thing is to keep on going.

2. Describe the two improvement cycles: PDCA and DMAIC

PDCA cycle model Start with a P for plan stage which involves an
examination of the current method, or the problem area being
studied and the formulation of a plan of action. The next step is D
for do stage where the plan is implemented. Then, C for check
stage where newly implemented solution is evaluated. Finally,
comes the A for act stage where the change is consolidated or
standardised if it has been successful. If the change has not been
successful, the lessons learned from the trials are formalised
before the cycle starts again.

DMAIC cycle starts with defining the problem, the scope and the requirements of the process improvement. The next stage is
the measurement stage that involves validating the problem. Then, the analysis stage can be seen as an opportunity to develop
hypotheses about what the root causes of the problem really are. There is the improving stage where ideas are developed to
remove the root causes of problems. Solutions are tested and those solutions that seem to work are implemented, formalised
and results measured. Finally, there is the check stage. This cycle starts again. In fact, it is a continuous improvement.

12.4 WHAT TECHNIQUES COULD BE USED TO FACILITATE IMPROVEMENT?

Scatter diagrams provide a quick and simple method of identifying whether there is evidence of connexion between two sets of
data. So, they see if there is correlation, and they can also quantify how strong the relationship between the sets of data is.
However, this approach identifies the existence of our relationship, but not necessarily the existence of a cause-effect
relationship. It could be coincidence!

Cause-effect diagrams are a particularly effective method of helping to search for the root causes of problems. They do this by
asking what, when, where, how and why questions. Often the structure involves identifying possible causes under the headings
of machinery, manpower, materials, methods, and money.

Pareto diagram distinguishes between the vital few issues and trivial many. It involves arranging items of information on the
types or causes of problems into their orders of importance, usually measured by frequency of occurrence. This can be used to
highlight areas where further decision-making will be useful.

Why-why Analysis starts by stating the problem and asking why that problem has occurred. Once the major reasons for the
problem occurring have been identified, each of the major reasons is taken in turn and again the question is asked why those
reasons have occurred and so on. This procedure is continued until either a cause seems sufficiently self-contained to be
addressed by itself or no more answers to the question ‘why?’ can be generated.

CHAPTER 13: QUALITY MANAGEMENT

13.1 IS THE IMPORTANCE OF QUALITY MANAGEMENT UNIVERSALLY UNDERSTOOD AND APPLIED?
1. What is the difference between quality, quality of service, and quality of experience? (ex: supermarket)
Quality: the consistent conformance to customers’ expectations. This definition includes both quality as specification (what the
product or service can do) and quality as conformance (there are no errors, it always does what it is supposed to do). It includes
basic characteristics of the product or service (ex: quality of goods, cleanliness) and the focus is on the product or service
offering.
QoS: describes how an operation serves its customers by combining what we call quality with speed, dependability, and
flexibility. It includes how the product or service is delivered or communicated (ex: speed of service, stockouts). The focus is on
the operation that delivers the product or service, so on the provider.

QoE: is the overall acceptability of the service as perceived subjectively by the end user. It includes how the product or service is
used or consumed in the context of the user (ex: “Is the supermarket open when I want to use the service?”). The focus is on the
customer that uses the product or service.

2. Explain the internal customer concept

The internal customer concept establishes the idea that it is important to deliver a high-quality service to internal customers, so
to other processes in the business. In fact, every part of an organisation is both an internal customer and at the same time an
internal supplier for other parts of the organisation. Each process has a responsibility to manage its own internal customer-
supplier relationships by clearly defining its own and its customers’ requirements. Service level agreements (SLA) can be used to
operationally operationalize the internal customer concept, and so the Operating-level agreement (OLA: how the parts of the
operation will go about producing the service in practice).

13.2 IS QUALITY ADEQUATELY DEFINED?

Perceived quality is governed by the magnitude and direction of the gap between customers’ expectations and their perceptions
of a product or service.
When expectations > perceptions -> perceived quality is poor
When expectations = perceptions -> perceived quality is acceptable
When expectations < perceptions -> perceive quality is good

1. Which are the 4 gaps? (gap model of quality)

Gap 1: the customer’s specification-operation’s specification gap
There is a mismatch between the organisations own internal
quality specification and specification that is expected by the
customer. For example, a car may be designed to need servicing
every 10,000 km, but the customer may expect 15000 km service
intervals.

Gap 2: The concept-specification gap

There is a mismatch between the product or service concept and
the way the organisation has specified the quality of the product
or service internally. For example, the concept of a car might have
been for an inexpensive, energy efficient car, but at the end the cost increases and the energy efficient decreases.

Gap 3: The quality specification-actual quality gap

There is a mismatch between the actual quality of the service or product provided by the operation and its internal quality
specification. It can be the result of an inappropriate specification or a poorly trained or inexperienced personnel. For example, if
despite airlines, policy of charging for drinks some flight crews provide free drinks, they add unexpected costs to the airline an
influence customers’ expectations for the next flight.

Gap 4: The actual quality- communicated image gap

There is a gap between the organisation’s external communications or market image and actual quality of the service or product
delivered to the customer. It can be the result of market positioning setting unachievable expectations in the minds of
customers or operations not providing the level of quality expected by the customer. For example, the advertising company of
an airline can offer a service that may not always be available.

2. Which are the characteristics of quality?

Functionalit How well the product or service does its jobs, including its performance and features
y
Appearance The sensory characteristics of the product or service: its aesthetic appeal, look, feel, sound and smell
 Reliability The consistency of the product’s or service’s performance over time, or the average time for which it
performs within its tolerated band of performance
Durability The total useful life of the product or service assuming occasional repair or modification
Recovery The ease with which problems with the product or service can be rectified or resolved
Contact The nature of the person-to-person contact that might take place; could include the courtesy, empathy,
sensitivity and knowledge of contact staff

13.3 IS QUALITY ADEQUATELY MEASURED?

We can categorized the cost of quality as prevention costs (incurred when trying to prevent errors), appraisal costs (associated
with checking for errors), internal failure costs (errors that are connected within the operation), and external failure costs (errors
that are experienced by customers).
1. Describe the traditional cost of quality model and how it has changed with a more modern view.
The traditional ‘cost of quality’ model assumed that failure
costs reduce as the money spent on appraisal and prevention
increases. So, there is an optimum amount of quality effort to
be applied in any situation that minimises the total costs of
quality.

(b)Modern view
 Failure costs are underestimated. They should include also
the loss of concentration and the erosion of confidence
between processes within the operation, and not only the
costs of re-working defective products and re-serving customers
 Prevention cost can become an integral part of everyone’s work, by stressing the importance of quality to every individual.
 The traditional approach accept compromises so does little to find ways of improving quality
If there is an optimum, it is a lot further to the right, in the direction of putting more effort (but not necessarily cost) into quality.

2. What are the costs of quality according to the TQM model?

Total Quality Management became popular in the late 1970s and
1980s
TQM rejected the optimum-quality level concepts. It focused on how
to reduce failure costs emphasising prevention costs rather than
appraisal costs. Effective investment in preventing quality errors can
significantly reduce failure costs, and once confidence has been
established, also appraisal costs. Total quality costs may rise initially as
investment in some aspects of prevention is increased. This shifts the
emphasis from a reactive approach to quality (waiting for errors to
happen), to a more proactive approach (doing something before errors
happen)

So, increasing the effort spent on preventing errors occurring in the first place brings a more-than-equivalent reduction in other
cost categories.

13.4 IS QUALITY ADEQUATELY CONTROLLED?

1. What is the difference between type I and type II errors
Type I errors: occur when a decision was made to do something, and the situation did not warrant it. Ex: crossing a street when
there is not adequate break in the traffic

Type II errors: occur when nothing was done, yet a decision to do something should have been taken, as the situation did indeed
warrant it. Ex: do not cross the street even though there was an adequate gap in the traffic

Road conditions
Safe (action was appropriate) Unsafe (action was not appropriate
Decision Cross (take some Correct decision Type I error
action)
Wait (take no action) Type II error Correct decision
2. What are the control charts?

Control charts are a Statistical process control (SPC) method

used for monitoring the results of many samples over a
period of time. Control charts record some aspect of quality
(or performance) over time to see if the process seems to be
performing as it should (in control), or not (out of control). If
the process does seem to be going out of control, then steps
can be taken before there is a major problem.

Control charts show if there are trends in average performance (a) and/or changes in the variation of performance (b) over time.
High levels of variation reduce the ability to detect changes in process performance. The narrower the variation of a process, the
more obvious are any changes that might occur, and the easier it is to make a decision to intervene.

3. How SPC can enhance process knowledge?

SPC IS method of checking the quality of a sampled product or service so as to make inference about all the output from a
process. It is convenient for keeping process in control, but it is also fundamental to the acquisition of competitive advantage, so
it can contribute to an operation’s capacity capabilities.
1 SPC is based on the idea that process variability indicates whether a process is in control or not
2 Processes are brought into control and improved by eliminating the causes of variation
3 This involves learning about the process
4 This learning means that process knowledge is enhanced, and the operations managers are able to predict how the process
will perform under different circumstances
5 This increased process capability leads to strategic advantage because it comes from time and effort being invested in
controlling operations processes and it is difficult for competitors to copy.

13.5 DOES QUALITY MANAGEMENT ALWAYS LEAD TO IMPROVEMENT?

Quality system is the organisational structure, responsibilities, procedures, processes and resources for implementing quality
management. The best known quality system is ISO 9000.
1. What is the ISO 9000 approach, and which are its principles?
The ISO 9000 series is a set of worldwide standards that establishes requirements for company’s quality management systems.
It provides a framework for quality assurance. It stresses four principles:
1 Quality management should be customer focused and improvement against customer standards should be
documented
2 Quality performance should be measured and analysed, and relate to products and services themselves, the processes
that created them and customer satisfaction
3 Quality management should be improvement driven
4 Top management must demonstrate their commitment to maintaining and continually improving management systems

2. What is the EFQM Excellence model?

The EFQM (European Foundation for Quality Management) is
a quality system used as a self-assessment tool that allows
organisations to assess their own quality systems. It is based
on the idea that it is important to understand the cause-effect
relationship between what an organisation does (the
enablers) and the results it achieves. The five enablers are
leadership, strategy, people, partnership and resources, and
processes products and services.

Results are assigned using four criteria:

 Customer results (meeting or exceeding customers’ needs and expectations)
 People results- meeting or exceeding employees’ needs and expectations
 Society results- achieving and sustaining results that meet or exceed the needs and expectations of the relevant
stakeholders within the society
  Business results- achieving and sustaining results that meet or exceed the needs and expectations of business
stakeholders

STATISTICAL PROCESS CONTROL (SPC)

Its purpose is both to control process performance, keeping it within acceptable limits, and improve process performance by
reducing the variation in performance from its target level. The core instrument in SPC is the control chart. They are an
illustration of the dynamic performance of a process, measuring how some aspect of process performance varies over time.

1. What does the central limit theorem say?

Central limit theorem: The distribution of sample means averages from any distribution will approximate to a normal
distribution. It is a characteristic of normal distributions that 99.7% of the measures will lie within +- 3 standard deviations of the
distribution (standard deviation is a measure of how widely the distribution is spread or dispersed). The standard deviation of
the distribution of the average of the sample is equal to the original rectangular distribution divided by the square of the sample
size.

2. Explain control charts with control limits

It is important to understand whether the results from any particular sample,
when plotted on the control chart, simply represent the variation due to
common causes or due to some specific and correctable assignable cause.
Control limits can be added to the control charts that indicate the expected
extent of common-cause variation. If any points lie outside these control
limits, then the process can be deemed out of control in the sense that
variation is likely to be due to assignable causes. However, there is a 0.3%
chance for any sample falling outside these limits for chance cause.in this case
it would be a type I error because we stop the process even if it is in control. Statistically, it means that the probability that the
mean of a particular sample would differ by more than a set amount from the mean of the population from which it is taken (+-
3). Control limits that are set at 3 standard deviations either side of the population mean are called UCL and LCL.

We can incur in type I and Type II errors. Type I error occurs when
the process is actually in control, but we decided to stop the
process. Type II error occurs when the process is out of control,
but we ignore a result which in reality is due to an assignable
cause.
3. How process capability can be calculated?
Process capability is a measure of the acceptability of the variation of the process. It is given by the ratio of the specification
range (acceptable range of performance that will be tolerated by the customers) to the natural variation of the process (+-3s).
Assuming that the average of the process variation is at the mid-
point of the specification range (a,b,c)
UTL−LTL
C ρ=
6s
Where s= standard deviation
UTL and LTL are upper and lower tolerance limits

If C ρ >1, the process is capable

If C ρ <1, the process is ‘not capable’

If the process average is offset from the specification range

C ρk =min (C ρu , C ρl )

UTL− X X −LTL
C ρu = ; C ρl = ; X= process average
3s 3s

4. How are defined the control charts for variable?

The most used type of control chart employed to control variables is the X -R chart. One chart is used to control the sample
average or mean ( X ). The other is used to control the variation within the sample by measuring the range (R).
Changes in the mean chart would suggest that the process is drifting generally away from its supposed process average although
the variability inherent in the process may not have changed. The range chart gives an indication of whether the viability of the
process is changing even when the process of average remains constant.

We can calculate the control limits to estimate the grand average or population mean and average range using m samples each
of sample size n.
Population mean:

Average range:

5. Describe the following graph

This is the completed control form showing the mean and

range.

The grand average of all samples is 812 g/cm3. And the

average range of the sample is 6 g/cm3. Also, the control
limits are calculated, so this graph tell us which values are
outside the limits. Using the formulas, we find the limits for
both the mean and range graph.

This control chart reveals that only with difficulty could the
process average be kept in control. Occasional operator
interventions were required. Also, the process range was moving towards and once exceeding the upper control limit. The
process also seemed to be becoming more variable.

6. What is the Taguchi’s quality imperative?

The quality loss depends on the square of the standard deviation. The more you are distant from the target on average, the
higher is the loss and follows quadratic patterns. We should know how far sam and john are on average.