Operations Management

PocketBook - 2
 Contents

TQM (Total Quality Management) 3

Procurement planning 6

TPM (Total Productive Maintenance) 11

Theory of Constraints 15

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Chapter 1
TQM (Total Quality Management)

A core definition of total quality management (TQM) describes a management approach to long–
term success through customer satisfaction. In a TQM effort, all members of an organization
participate in improving processes, products, services, and the culture in which they work. The
methods for implementing this approach come from the teachings of such quality leaders as
Philip B. Crosby, W. Edwards Deming, Armand V. Feigenbaum, Kaoru Ishikawa, and Joseph M.
Juran.
The Primary Elements of TQM

Total quality management can be summarized as a management system for a customer-focused

organization that involves all employees in continual improvement. It uses strategy, data, and
effective communications to integrate the quality discipline into the culture and activities of the
organization.
 Customer-focused. The customer ultimately determines the level of quality. No matter what an
organization does to foster quality improvement—training employees, integrating quality into the
design process, upgrading computers or software, or buying new measuring tools—the customer
determines whether the efforts were worthwhile.

 Total employee involvement. All employees participate in working toward common goals. Total
employee commitment can only be obtained after fear has been driven from the workplace,
when empowerment has occurred, and management has provided the proper environment. High-
performance work systems integrate continuous improvement efforts with normal business
operations. Self-managed work teams are one form of empowerment.

 Process-centered. A fundamental part of TQM is a focus on process thinking. A process is a series

of steps that take inputs from suppliers (internal or external) and transforms them into outputs
that are delivered to customers (again, either internal or external). The steps required to carry
out the process are defined, and performance measures are continuously monitored in order to
detect unexpected variation.

 Integrated system. Although an organization may consist of many different functional specialties
often organized into vertically structured departments, it is the horizontal processes
interconnecting these functions that are the focus of TQM.
o Micro-processes add up to larger processes, and all processes aggregate into the business
processes required for defining and implementing strategy. Everyone must understand the
vision, mission, and guiding principles as well as the quality policies, objectives, and critical
processes of the organization. Business performance must be monitored and communicated
continuously.
o An integrated business system may be modeled after the Baldrige National Quality
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 Program criteria and/or incorporate the ISO 9000 standards. Every organization has a unique
work culture, and it is virtually impossible to achieve excellence in its products and services
unless a good quality culture has been fostered. Thus, an integrated system connects business
improvement elements in an attempt to continually improve and exceed the expectations of
customers, employees, and other stakeholders.

 Strategic and systematic approach. A critical part of the management of quality is the strategic
and systematic approach to achieving an organization’s vision, mission, and goals. This process,
called strategic planning or strategic management, includes the formulation of a strategic plan
that integrates quality as a core component.

 Continual improvement. A major thrust of TQM is continual process improvement. Continual

improvement drives an organization to be both analytical and creative in finding ways to become
more competitive and more effective at meeting stakeholder expectations.

 Fact-based decision making. In order to know how well an organization is performing, data on
performance measures are necessary. TQM requires that an organization continually collect and
analyze data in order to improve decision making accuracy, achieve consensus, and allow
prediction based on past history.

 Communications. During times of organizational change, as well as part of day-to-day operation,

effective communications plays a large part in maintaining morale and in motivating employees
at all levels. Communications involve strategies, method, and timeliness.
These elements are considered so essential to TQM that many organizations define them, in some format,
as a set of core values and principles on which the organization is to operate.
Deming’s 14 Points on Quality Management
A core concept on implementing total quality management, is a set of management practices to help
companies increase their quality and productivity.
1. Create constancy of purpose for improving products and services.
2. Adopt the new philosophy.
3. Cease dependence on inspection to achieve quality.
4. End the practice of awarding business on price alone; instead, minimize total cost by working
with a single supplier.
5. Improve constantly and forever every process for planning, production and service.
6. Institute training on the job.
7. Adopt and institute leadership.
8. Drive out fear.
9. Break down barriers between staff areas.
10. Eliminate slogans, exhortations and targets for the workforce.
11. Eliminate numerical quotas for the workforce and numerical goals for management.
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 12. Remove barriers that rob people of pride of workmanship, and eliminate the annual rating or
merit system.
13. Institute a vigorous program of education and self-improvement for everyone.
14. Put everybody in the company to work accomplishing the transformation.

Generic Model for Implementing TQM

1. Top management learns about and decides to commit to TQM. TQM is identified as one of the
organization’s strategies.
2. The organization accesses current culture, customer satisfaction and quality management
systems.
3. Top management identifies core values and principles to be used and communicates them
4. A TQM master plan is developed
5. The organization identifies and prioritizes customer’s demands and aligns products and services
to meet those demands
6. Management maps critical processes through which the organization meets its customers’
needs
7. Management oversees the formation of teams for process improvement efforts
8. The momentum of the TQM is managed by the steering committee
9. Managers contribute individually to the effort through planning, training, coaching or other
methods
10. Daily process improvement and standardization takes place
11. Progress is evaluated and the plan is revised as needed
12. Constant employee awareness and feedback on status are provided and a reward/ recognition
process is established

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Chapter 2
Procurement planning

After the decision has been made to purchase goods or outsource services, the procurement team
develops a plan that includes the following:
 Selecting the appropriate relationships and contract approaches for each type of purchased goods or
outsourced service
 Preparing RFQs and RFPs and evaluating partnership opportunities
 Evaluating RFQs, RFPs, and partnerships
 Awarding and signing contracts
 Managing quality, timely performance
 Managing contract changes
 Closing contracts
Depending on the complexity level of the project, each of these steps can take either hours or sometimes
weeks of work to complete. Each of these steps is also included in the project master schedule. The time
involved in the procurement cycle can influence the scheduling of critical activities, including the decision
to self-perform the work or contract the work to others. The equipment and materials delivery dates and
completion of contracted work dates are placed on the project schedule and any procurement activities
that create a project delay or fall on the project critical path may require special attention.

Selecting the contract approach

The technical teams typically develop a description of the work that will be outsourced. From this
information, the project management team answers the following questions:
 Is the required work or materials a commodity, customized product or service, or unique skill or
relationship?
 What type of relationship is needed: supplier, vendor, or partnership?
 How the supplier, vendor, or potential partner should be approached: RFQ, RFP, or personal contact?
 How well known is the scope of work?
 What are the risks and which party should assume which types of risk?
 Does the procurement of the service or goods affect activities on the project schedule’s critical path
and how much float is there on those activities?
 How important is it to be sure of the cost in advance?

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The procurement team uses the answers to the first three questions listed above to determine the
approach to obtaining the goods or services and the remaining questions to determine what type of
contract is most appropriate.

A key factor in selecting the contract approach is determining which party will take the most risk. The team
determines the level of risk that will be managed by the project and what risks will be transferred to the
contractor. Typically, the project management team wants to manage the project risk, but in some cases,
contractors have more expertise or control that enable them to better manage the risk associated with
the contracted work.

Soliciting bids
A solicitation is the process of requesting a price and supporting information from bidders. The solicitation
usually takes the form of either an RFQ or an RFP. Partnerships are pursued and established on a case-by-
case basis by senior management.

Qualifying bidders
Potential bidders are people or organizations capable of providing the materials or performing the work
required for the project. On smaller, less complex projects, the parent company typically has a list of
suppliers and vendors that have successfully provided goods and services in the past, and the project has
access to the performance record of companies on that list. On unique projects, where no supplier lists exist,
the project team develops a list of potential suppliers and then qualifies them to become eligible to bid on
project work. Eligible bidders are placed on the bidders list and provided with a schedule of when work on
the project will be bid.

The eligibility of a supplier is determined by the ability to perform the work in a way that meets project
requirements and demonstrates financial stability. Ability to perform the work includes the ability to meet
quality specifications and meet the project schedule. During times when economic activity is high in a
region, many suppliers become busy and stretch their resources. The project team investigates the
potential suppliers to assure they have the capacity and the track record of meeting deadlines before they
are included on the bidder’s list.

Request for quote

An RFQ focuses on price. The type of materials or service is well defined and can be obtained from several
sources. The bidder that can meet the project quality and schedule requirements usually wins the contract
by quoting the lowest price.

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Request for proposal
An RFP accounts for price but focuses on meeting the project quality or schedule requirements. The
process of developing a proposal in response to an RFP can be very expensive for the bidder, and the
project team should not issue an RFP to a company that is not eligible to win the bid.

Evaluating bids
Evaluation of bids in response to RFQs for commodity items and services is heavily graded for price. In
most cases, the lowest total price will win the contract. The total price will include the costs of the
goods or services, any shipping or delivery costs, the value of any warranties, and any additional
service that adds value to the project.
The evaluation of bids based on RFPs is more complex. The evaluation of proposals includes the price
and also an evaluation of the technical approach chosen by the bidder. The project team evaluating
the proposal must include people with the expertise to understand the technical aspects of the various
proposal options and the value of each proposal to the project. On more complex projects, the
administrative part of the proposal is evaluated and scored by one team, and the technical aspect of
the proposal is evaluated by another team. The project team combines the two scores to determine
the best proposal for the project.

Awarding the contract

After the project team has selected the bidder that provides the best value to the project, a project
representative validates all conditions of the bid and the contract with the potential contractor. Less
complex awards, like contracts for printed materials, require a reading and signing of the contract to
assure the printed materials supplier understands the contract terms and requirements of the project
schedule. More complex projects require a detailed discussion of the goals, the potential barriers to
accomplishing those goals, the project schedule and critical dates, and the processes for resolving
conflicts and improving work processes.

Managing the contracts

The contract type determines the level of effort and the skills needed to manage the contract. The
manager of supplier contracts develops detailed specifications and assures compliance to these
specifications. The manager of vendor contracts assures the contractors that bid the work have the
skills and capacity to accomplish the work according to the project schedule and tracks the vendor’s
performance against the project needs, supplying support and direction when needed. The manager
of partnering arrangements develops alignment around common goals and work processes. Each of
these approaches requires different skills and various degrees of effort.

Items that take a long time to acquire—long lead items—receive early attention by the project
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leadership. Examples of long lead items are equipment that is designed and built specifically for the
project, curriculum that is created for training a new workforce, and a customized bioreactor for a
biotech project. These items might require weeks, months, and sometimes years to develop and
complete. The project team identifies long lead items early to begin the procurement activities as
soon as possible because those procured through the normal procurement cycle may cause delays in
the project.
After the contract is awarded, the project team tracks the performance of the contractor against
performance criteria in the contract and his or her contribution to the performance of the project.
Typically, the contractors deliver the product or service that meets the quality expectations and
supports the project schedule. Typically, there are also one or two contractors that do not perform to
project expectations. Some project managers will then pull out the contract and attempt to persuade
the contractor to improve performance or be penalized. Other project managers will explore with the
contractor creative ways to improve performance and meet project requirements. The contract
management allows for both approaches to deal with nonperforming contractors and the project
team must assess what method is most likely to work in each situation.

Managing contractor performance on a project is as important to the overall project outcomes as the
work performed by the project team.

Logistics and expediting

Equipment and materials that are purchased for use on the project must be transported, inventoried,
warehoused, and often secured. This area of expertise is called logistics. The logistics for the project
can be managed by the project team or can be included in the RFP or RFQ. On international projects,
materials may be imported, and the procurement team manages the customs process. On smaller
projects, the logistical function is often provided by the parent company. On larger projects, these
activities are typically contracted to companies that specialize in logistical services. On larger, more
complex projects, that procurement team will include logistical expertise.

The project work often depends on materials procured for the project. The delivery of these materials
influences the scheduling of the project, and often some materials are needed earlier than normal
procurement practices would deliver. On long lead items, the project schedule is included in the
contracting plans and contractors must explain how they will support the project schedule.

On large, complex projects, critical items might be scheduled for delivery after they are needed on
the project. The procurement team then explores ideas with the contractor to expedite the
manufacturing or transportation of the equipment or materials. The contract can often place a
priority on the fabrication of the equipment and delivery of the equipment to meet the project
schedule. The project logistics team can also explore ways of shortening the transportation time. For

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example, a project in Argentina flew some critical equipment from Sweden rather than transport the
equipment by ship to save several weeks in transit. The logistics costs were higher, but the overall
value to the project was greater.

KEY TAKEAWAYS
 The procurement plan includes determining the category of materials or services, choosing the
type of contractual relationship, soliciting bids, selecting bidders, managing the work, and
closing the contracts.
 The decisions made when selecting the type of contract are based on whether the materials can
be provided by suppliers, vendors, or partners; how well defined the work is; how the risk will
be shared; the importance of the task to the schedule; and the need for certainty of the cost.
 Companies that bid on contracts are evaluated on past performance and current financial
status. RFQs and RFPs are sent to those companies. RFQs are evaluated on price and RFPs are
evaluated on price and method.
 Long lead time items are identified and monitored. Items that are critical to the schedule or
delayed are assigned to an expediter. The logistics of handling delivery, storage, and
transportation are determined. Work and materials are inspected for quality.

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Chapter 3
TPM (Total Productive Maintenance)

Total Productive Maintenance (TPM) is a system of maintaining and improving the integrity of
production and quality-systems through the machines, equipment, processes and employees that
add business value to the organisation. It focusses on keeping all equipment in top working
condition to avoid breakdowns and delays in the manufacturing process.

It involves

 Setting a goal to maximise equipment efficiency (overall efficiency).

 Establishing a total system for Productive Maintenance for the entire life of equipment.
 Participation by all departments, including equipment planning, operating and maintenance
departments.
 Involving all personnel, including top personnel to first-line operators.
 Achieving Zero losses through overlapping small groups

Benefits of TPM –

Direct Benefit –

1. Increase productivity and OPE (Overall Plant Efficiency) by 1.5 or 2 times.

2. Rectify customer complaints.
3. Reduce the manufacturing cost by 30%.
4. Satisfy the customers’ needs by 100 % (Delivering the right quantity at the right time, in the
required quality).
5. Reduce accidents.
6. Follow pollution control measures.

Indirect Benefit –

1. Higher confidence level among the employees.

2. Keep the work place clean, neat and attractive.
3. Favourable change in the attitude of the operators.
4. Achieve goals by working as team.
5. Horizontal deployment of a new concept in all areas of the organization.
6. Share knowledge and experience.
7. The workers get a feeling of owning the machine.

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 Eight Pillars of TPM -

Autonomous Maintenance –

Purpose:
• Training of operators proficient in equipment
• Protecting one’s own equipment by one’s staff
Activities:

Implementation of 7 steps

1. Initial clean-up

2. Countermeasures for the source of problems and measures for difficult-to- access locations

3. Creation of tentative autonomous maintenance standards

4. General inspection

5. Autonomous inspection

6. Standardization

7. All-out goals management

Focussed Improvement –
Purpose:
• Realize zero losses of all types, such as failure losses and defect losses
• Demonstrate ultimate production efficiency improvement
Activities:
• Understanding the 16 losses
• Calculating and settling goals for overall equipment efficiency, productivity and
production subsidiary resources
• Implementation of PM analysis
• Thorough pursuit of equipment and production “as it should be”.

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Planned Maintenance –
Purpose:
• Improving efficiency of maintenance departments to prevent 8 major losses
Activities:
• Daily Maintenance
• Time Based Maintenance
• Condition Based Maintenance
• Improvement for increasing the service life expectancy
• Control of replacement parts
• Failure analysis and prevention of recurrence.
• Lubrication control

Quality Maintenance –
Purpose:
Achieve zero defects by supporting and maintaining equipment conditions
Activities:
• Verify quality characteristics standards; understand defect phenomena and performance
• Investigating the conditions for building in quality, unit processes and raw materials,
equipment and methods
• Investigating, analyzing and improving the conditions of malfunctions
• Setting 3M conditions; setting standard values for inspection
• Creation of standards that can be followed; trend management

Education and Training –

Purpose:
• Establishment of technical education for operations and maintenance workers
Activities:
• Basic process of maintenance
• Tightening nuts and bolts
• Aligning keys
• Maintenance of bearings
• Maintenance of conductive parts
• Prevention of leaks
• Maintenance of oil pressure and air pressure equipment
• Maintenance of electrical control equipment

Development Management –
Purpose:
• Reducing product development and prototyping time
• Reducing the development, design and fabrication time of equipment
• Improving 1-shot start-up stability of products and equipment
Activities:

• Setting development and design goals

• Ease of production

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 • Ease of QA Implementation
• Ease of use
• Ease of maintenance
• Reliability
• Investigate LCC
• Design release drawing
• Production: Identify problems in the prototype, trial run and initial-phase mass production
Control stages.

Safety, Health and Environment –

Purpose:
• Achievement and support of zero failures
• Realization of a healthy and invigorating workplace that gives meaning to work
Activities:
• Measures to improve equipment safety
• Measures to improve work safety
• Improvement of work environment (noise, vibration and odours)
• Measures to prevent pollution
• Creation of healthy employees
• Promotion of invigorating activities

Office TPM –

Purpose:
• Achieve zero function losses
• Creation of efficient offices
• Implementation of service support functions for production departments
Activities:
• Autonomous maintenance activities
1. Initial clean-up (personal space)
2. Work inventory
3. Countermeasure for problems
4. Standardization
5. Promotion of autonomous management activities of work
• Individual improvement through project activities
1. Shortening of settlement schedule
2. Improvement of distribution
3. Improvement of purchasing and subcontracting
4. Reform of production control system

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 Chapter 4
Theory of Constraints
The Theory of Constraints states that every
system must have at least one constraint limiting
its output. This was developed by Dr. Eliyahu M.
Goldratt.

A constraint is -
• A process or process step that limits
throughput.
• Anything that limits a system from achieving higher performance versus its goal.
• A constraint is a factor that limits the system from getting more of whatever it
strives.

Consequences of the Theory:

1. The more complex the system, the less independent process paths exist, so the lower the
number of constraints. (Usually, complex systems have only one constraint at a given time.)
2. A system of optimum processes can’t be an optimum system.
3. An optimum system runs the constraint (or bottleneck) at optimum capacity (focused on
the goal of the system), and all other process steps must have excess capacity

TOC postulates that the goal is to make (more) money. It describes three avenues to
this goal:
 Increase Throughput
 Reduce Inventory
 Reduce Operating Expense

In order to achieve the goal, there are also 5 Focusing Steps:

Identify the
constraints

Exploit the
Repeat the process
constraint

Elevate Subordinate and

performance of synchronise to the
the constraint constraint
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Advantages:

 Potential for tremendous increases in productivity with minimal changes to operations.

 Most powerful and cost effective tool for increasing production capacity.
 Very simple to communicate and apply, making it ideal for shop floor teams.
 Great for fostering teamwork as different areas become aware of the constraint and the
need to work together to assist the constraint process.
 Great process for kick starting improvement efforts as it provides immediate and very
tangible benefits.
 Allows growth of turnover/productivity without the need for additional space or staff.
 Provides a means to evaluate the true value of changes, and utilize this to select the best
options, and drive the right behaviour/decisions.

Disadvantages:

 Can be difficult to apply if the constraint process is constantly moving (for example if
the nature of the work sees dramatically different and difficult to predict demands on
various production resources).
 Can be difficult to apply in a jobbing environment (however it is still very applicable)

Example
To better understand the theory of constraints and non-constraints, consider a production
system that runs raw materials through three component processes and then turns them
into a finished product.

Within this system, each process is equivalent to a link in the production chain. Where is the
constraint in this chain?

Process B is the weakest link: Process B produces the least at only six units per day. Process
A and C are the non-constraints. Imagine that the manufacturer improves process B until it
can produce 18 units per day. Now, process C becomes the system constraint while the non-
constraints are everywhere else. If process improvements continue until all processes are
producing 18 units/day or higher, the system constraint becomes the marketplace, which can
accept only 15 units per day. At this point, internal constraints have been replaced by an
external constraint. Overall, the theory of constraints emphasizes fixing the weakest link in

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the chain—the system constraint—and temporarily ignoring the non-constraints. In this
way, the theory has a profound impact on process improvement.

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