MAN 205 OPERATIONS MANAGEMENT

Chapter 2

OPERATIONS PERFORMANCE
IBU
International Burch University

Lecturer: Ensar Mekić

Slides have been prepared based on the book Operations Management

(Slack, N., Chambers, S. & Johnston, R., 2013) to support the implementation of the course.
Slack et al.’s model of operations management
Key questions

In Chapter 2 – Operations performance – Slack et al. identify

the following key questions…

❑ Why is operations performance vital in any organization?

❑ How is operations performance judged at a societal level?
❑ How is operations performance judged at a strategic level?
❑ How is operations performance judged at an operational
level?
❑ How can operations performance be measured?
❑ How do operations performance objectives trade off against
each other?
Three levels of operations performance
Stakeholder groups with typical operations objectives
How operations can impact TBL performance (1 of 3)
• Recyclability of materials, energy consumption and waste material
generation
• Reducing transport-related energy
• Noise pollution, fume and emission pollution
• Obsolescence and wastage
• Environmental impact of process failures
• Recovery to minimize impact of failures

Planet – The environmental account,

measured by environmental impact of
the operation

People – The social Sustainability Profit – The economic

account, measured by account, measured by
the impact of the profitability, return on
operation on the quality assets, etc. of the
of people’s lives operation
How operations can impact TBL performance (2 of 3)

Planet – The environmental account,

measured by environmental impact of
the operation

People – The social Sustainability Profit – The economic

account, measured by account, measured by
the impact of the profitability, return on
operation on the quality assets, etc. of the
of people’s lives operation

• Customer safety from products and services

• Employment impact of an operation’s location
• Employment implications of outsourcing
• Repetitive or alienating work
• Staff safety and workplace stress
• Non-exploitation of developing country suppliers
How operations can impact TBL performance (3 of 3)

Planet – The environmental account,

measured by environmental impact of
the operation

People – The social Sustainability Profit – The economic

account, measured by account, measured by
the impact of the profitability, return on
operation on the quality assets, etc. of the
of people’s lives operation

• Cost of producing products and services

• Revenue from the effects of quality, speed,
dependability, and flexibility
• Effectiveness of investment in operations resources
• Risk and resilience of supply
• Building capabilities for the future
OM’s contribution to the ‘economic bottom line’
Company A has operations managers who…

Employ skilled, enthusiastic people, and encourage them to contribute

ideas for cutting out waste and working more effectively.

Carefully monitor their customers’ perception of the quality of service they

are receiving and learn from any examples of poor service and always
apologise and rectify any failure to give excellent service.

Have invested in simply but appropriate systems of their own that allow
the business to plan and control its activities effectively.

Hold regular meetings where staff share their experiences and think
about how they can build their knowledge of customer needs, new
technologies and how their services will have to change in the future to
add value for their customers and help the business to remain
competitive.
Last year’s financial details for Company A
Company B has operations managers who…

Employ only people who have worked in similar companies before and
supervise them closely to make sure that they ‘earn their salaries’.

Have rigid ‘completions of service’ sheets that customers sign to say that
they have received the service, but they never follow up to check on
customers’ views of the service that they have received.

Have bought an expensive integrative system with extensive functionality,

because ‘you might as well invest in state-of-the art technology’.

At the regular senior managers’ meeting always have an agenda item

entitled ‘Future business’.
Last year’s financial details for Company B
The effects of three options at Kandy Kitchens
Original – Option 1 – Option 2 – Option 3 –
(sales volume = sales campaign operations efficiency ‘speedy service’
50,000 units) Increase sales Reduce operating Increase price
volumes by 30% expenses by 20% by 10%
to 65,000 units
(€,000) (€,000) (€,000) (€,000)

Sales 5,000 6,500 5,000 5,500

revenue

Operating 4,500 5,550 3,800 4,500

expenses

EBIT 500 1,000 1,200 1,000

Investment 100 70
required
Typical stakeholders’ performance objectives (1 of 2)
Stakeholder What stakeholders want from the What the operation wants from
operation stakeholders
Shareholders Return on investment Investment capital
Stability of earnings Long-term commitment
Liquidity of investment
Directors/top Low/acceptable operating costs Coherent, consistent, clear and
management Secure revenue achievable strategies
Well-targeted investment Appropriate investment
Low risk of failure
Future innovation
Staff Fair wages Attendance
Good working conditions Diligence/best efforts
Safe work environment Honesty
Personal and career development Engagement
Staff representative Conformance with national Understanding
bodies (e.g. trade agreements Fairness
unions) Consultation Assistance in problem solving
Suppliers (of Early notice of requirements Integrity of delivery, quality and
materials, services, Long-term orders volume
equipment, etc.) Fair price Innovation
On-time payment Responsiveness
Progressive price reductions
Typical stakeholders’ performance objectives (2 of 2)
Stakeholder What stakeholders want from What the operation wants
the operation from stakeholders
Regulators Conformance to regulations Consistency of regulation
(e.g. financial Feedback on effectiveness of Consistency of application of
regulators) regulations regulations
Responsiveness to industry
concerns
Government Conformance to legal Low/simple taxation
(local, national, requirements Representation of local
regional) Contribution to concerns
(local/national/regional) Appropriate infrastructure
economy
Lobby groups Alignment of the organization’s No unfair targeting
(e.g. activities with whatever the Practical help in achieving aims
environmental group are promoting (if the organization wants to
lobby groups) achieve them)
Society Minimize negative effects from Support for organization’s
the operation (noise, traffic, etc. plans
and maximize positive effects
(jobs, local sponsorship, etc).
The five operations’ performance objectives

Quality Being RIGHT

Speed Being FAST

Dependability Being ON TIME

Flexibility Being ABLE TO CHANGE

Cost Being PRODUCTIVE

The benefits of excelling at the five objectives

Minimum price, highest value

Cost
Quick Dependable
delivery delivery
Minimum cost,
Speed maximum value Dependability
Fast Reliable
Internal
throughput operation
benefits
Error-free Ability to
processes change
Quality Flexibility
On- Frequent new
specification products, maximum
products and choice
services External
benefits
What does Quality mean in… (1 of 4)

… a Hospital?

Patients receive the most appropriate treatment.

Treatment is carried out in the correct manner.

Patients are consulted and kept informed.

Staff are courteous, friendly and helpful.
What does Quality mean in… (2 of 4)

… an automobile plant?

All assembly is to specification.

Product is reliable.
All parts are made to specification.

The product is attractive and blemish-free.

What does Quality mean in… (3 of 4)

… a bus company?

The buses are clean and tidy.

The buses are quiet and fume-free.

The timetable is accurate and user-friendly.

Staff are courteous, friendly and helpful.
What does Quality mean in… (4 of 4)

… a supermarket?

The store is clean and tidy.

Décor is appropriate and attractive.

Goods are in good condition.

Staff are courteous, friendly and helpful.
Two common meanings of ‘Quality’

Quality as the specification of a product or service

e.g. Lower Hurst Farm produces organic meat raised

exclusively on its own farm

Quality as the conformance with which the product or service

is produced
e.g. Quick service restaurants like McDonald’s may buy
less expensive meat, but its conformance must be high
External and internal benefits of conformance quality

Irrespective of a product or service’s specification quality, producing it so it

conforms to its specification consistently brings benefits to any operation.

Externally – it enhances the product or service in the market, or at least

avoids customer complaints.
Internally – it brings other benefits to the operation.

It prevents errors slowing down throughput speed.

It prevents errors causing internal unreliability and low

dependability.

It prevents errors causing wasted time and effort, therefore saving

cost.
What does Speed mean in… (1 of 4)

… a Hospital?

The time between requiring treatment and receiving

treatment is kept to a minimum.

The time for test results, X-rays, etc. to be returned

is kept to a minimum.
What does Speed mean in… (2 of 4)

… an automobile plant?

Time between dealers requesting a vehicle of a

particular specification and receiving it is minimized.

Time to deliver spares to service centres is

minimized.
What does Speed mean in… (3 of 4)

… a bus company?

The time between customer setting out on the

journey and reaching his or her destination is kept
to a minimum.
What does Speed mean in… (4 of 4)

… a supermarket?

The time for the total transaction of going to the

supermarket, making the purchases and returning it
is minimized.
The immediate availability of goods.
External and internal benefits of speed

Speed again has different interpretations externally and internally.

Externally – it means the elapsed time between a customer asking for a

product or service and getting it (in a satisfactory condition).
It often enhances the value of the product or service to customers.

Internally – it brings other benefits to the operation.

It helps to overcome internal problems by maintaining dependability.

It reduces the need to manage transformed resources as they pass

through the operation, therefore saving cost.
What does Dependability mean in… (1 of 4)

… a hospital?

Proportion of appointments that are cancelled kept

to a minimum.
Keeping appointment times.

Test results, X-rays, etc. returned as promised.

What does Dependability mean in… (2 of 4)

… an automobile plant?

On-time delivery of vehicles to dealers.

On-time delivery of spares to service centres.

What does Dependability mean in… (3 of 4)

… a bus company?

Keeping to the published timetable at all points on

the route.

Constant availability of seats for passengers.

What does Dependability mean in… (4 of 4)

… a supermarket?

Predictable opening hours.

Proportion of goods out of stock kept to a minimum.

Keeping to reasonable queuing times.

Constant availability of parking.

External and internal benefits of Dependability

Externally – it enhances the product or service in the market, or at least

avoids customer complaints.

Internally – it brings other benefits to the operation.

It prevents late delivery slowing down throughput speed.

It prevents lateness causing disruption and wasted time and effort,

therefore saving cost.
Flexibility – what does it mean?

Flexibility has several distinct meanings but is always

associated with an operation’s ability it change.
Change what?

➢ The products and services it brings to the market –

Product/service flexibility.
➢ The mix of products and services it produces at any one
time – Mix flexibility.

➢ The volume of products and services it produces – Volume

flexibility.
➢ The delivery time of its products and services – Delivery
flexibility.
What does Flexibility mean in… (1 of 4)

… a Hospital?

Introducing new treatments.

A wide range of treatments.

The ability to adjust the number of patients treated.

The ability to reschedule appointments.

What does Flexibility mean in… (2 of 4)

… an automobile plant?

The introduction of new models.

A wide range of options.
The ability to adjust the number of vehicles
manufactured.
The ability to reschedule manufacturing priorities.
What does Flexibility mean in… (3 of 4)

… a bus company?

The introduction of new routes and excursions.

A large number of locations served.

The ability to adjust the frequency of services.

The ability to reschedule trips.

What does Flexibility mean in… (4 of 4)

… a supermarket?

The introduction of new goods.

A wide range of goods stocked.

The ability to adjust the number of customers served.

The ability to get out-of-stock items.
What does Cost mean in… (1 of 4)

… a hospital ?

Technology
Bought-in and facilities
materials costs
and
services

Staff
costs
What does Cost mean in… (2 of 4)

… an automobile plant?

Bought-in Technology
materials and facilities
and costs
services
Staff
costs
What does Cost mean in… (3 of 4)

… a bus company?

Bought-in Technology
materials and facilities
and costs
services

Staff
costs
What does
What doesCost
Costmean
meanin………
in… (4 of 4)

…. a supermarket?

Technology
Bought-in and facilities
materials costs
and
services
Staff
costs
External and internal benefits of performance
objectives
Polar diagrams

Polar diagrams are used to indicate the relative

importance of each performance objective to an operation
or process.

They can also be used to indicate the difference between

different products and services produced by an operation
or process. Cost

Speed Dependa
bility

Quality Flexibility
Polar diagrams for a taxi service versus a bus
service
Polar diagrams for police performance
The measures used in the balanced scorecard
Trade-offs

‛Do you want it good, or do you want it Tuesday’?

‘No such thing as a free lunch’.

‘ You can’t have an aircraft which flies at the speed of

sound, carries 400 passengers and lands on an aircraft
carrier. Operations are just the same’. (Skinner)

‘Trade-offs in operations are the way we are willing to

sacrifice one performance objective to achieve excellence in
another’.
The ‘efficient frontier’ view of trade-offs
THANK YOU FOR YOUR
ATTENTION

Slides have been prepared based on the book

Operations Management
(Slack, N., Chambers, S. & Johnston, R., 2013)