Operations Performance and Strategy

Dr. Kostas Chaldoupis

The University of Salford

Salford Business School
k.chaldoupis@salford.ac.uk
 Learning Objectives
• The Five Performance objectives.
 Quality inside the operation.
 Speed inside the operation.
 Dependability inside the operation.
 Flexibility inside the operation.
 Cost inside the operation.
 The Five Performance objectives

• Operations seek to satisfy customers through developing their five

performance objectives:
 Quality
 Speed
 Dependability
 Flexibility
 Cost

Examples
 If customers particularly value low-priced products or services, the
operation will place emphasis on its cost performance.
 Alternatively, a customer emphasis on fast delivery will make speed
important to the operation.

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 The five competitive objectives

Quality Being RIGHT

Being FAST

Competitiveness
Speed

Dependability Being ON TIME

Flexibility Being ABLE TO CHANGE

Cost Being PRODUCTIVE

 Quality inside the operation

• How quality reduces costs?

• How quality increases dependability?

Justify your answer with an example from a supermarket.

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 Quality inside the operation
Quality reduces costs.
 The fewer mistakes made by each process in the operation, the less
time will be needed to correct the mistakes and the less confusion and
irritation will be spread.
 For example, if a supermarket’s regional warehouse sends the wrong
goods to the supermarket, it will mean staff time, and therefore cost,
being used to sort out the problem.

Quality increases dependability.

 Increased costs are not the only consequence of poor quality.
 If goods run out on the supermarket shelves it will cause irritation to the
external customers, the other parts of the supermarket operation and
this in turn could result in further mistakes being made.
 External and internal benefits of conformance quality

Cost

Speed Dependability
Internal
benefits

Quality Flexibility

On-specification
products and External
services benefits
 Speed inside the operation

• How speed reduces inventories?

• How speed reduces risks - forecasting error?

Justify your answer with an example from an automobile plant.

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 Speed inside the operation - inventories

Speed reduces inventories.

• The longer items take to move through a process, the more time they will be
waiting and the higher inventory will be.
Automobile plant
• This is a simple three-stage process, but in practice material does not flow
smoothly from one stage to the next.
 First, the steel is delivered as part of a far larger batch containing enough
steel to make possibly several hundred products.
 Eventually it is taken to the press area, pressed into shape, and again waits
to be transported to the paint area.
 It then waits to be painted, only to wait once more until it is transported to
the assembly line. Yet again, it waits by the trackside until it is eventually
fitted to the automobile.
• It actually spends most of its time waiting as stocks (inventories) of parts
and products.
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 Speed inside the operation –risks and forecasting error

Speed reduces risks –forecasting error

• The further ahead companies forecast, the more likely they are to get it wrong.
The faster the throughput time of a process the later forecasting can be
left.
Automobile plant
• If the total throughput time for the door panel is six weeks, the quantity of
door panels being processed will be determined by the forecasts for demand
six weeks ahead.
• If instead of six weeks, they take only one week to move through the plant, the
door panels being processed through their first stage are intended to meet
demand only one week ahead.
• Under these circumstances it is far more likely that the number and type of
door panels being processed are the number and type which eventually will
be needed.

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 External and internal benefits of speed

Cost
Quick
delivery
Speed Dependability

Internal
benefits

Quality Flexibility

External
benefits
 Dependability inside the operation

• How dependability saves time?

• How dependability saves money?

Justify your answer with an example from a maintenance and repair centre
for a city bus company.

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 Dependability inside the operation

Dependability saves time.

• If the centre runs out of some crucial spare parts, the manager of the centre will
need to spend time trying to arrange a special delivery of the required parts
and the resources allocated to service.
• The buses will not be used as productively as they would have been without this
disruption.
Dependability saves money.
• The spare parts might cost more to be delivered at short notice and
maintenance staff will expect to be paid even when there is not a bus to work on.
• The rescheduling of buses will probably mean that some routes have
inappropriately sized buses and some services could have to be cancelled.
• This will result in empty bus seats (if too large a bus has to be used) or a loss
of revenue (if potential passengers are not transported).

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 External and internal benefits of dependability

Cost
Dependable
delivery
Speed Dependability

Internal
benefits

Quality Flexibility

External
benefits
 The flexibility objective

• Flexibility means being able to change the operation in some way.

Specifically, customers will need the operation to change so that it can
provide four types of requirement:
• Product/service flexibility – the operation’s ability to introduce new or
modified products and services.
• Mix flexibility – the operation’s ability to produce a wide range or mix of
products and services.
• Volume flexibility – the operation’s ability to change its level of output or
activity to produce different quantities or volumes of products and
services over time.
• Delivery flexibility – the operation’s ability to change the timing of the
delivery of its services or products.
• Apply the above for a hospital

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 What does Flexibility mean in……

… a Hospital?

Product/service flexibility : Introducing new treatments.

Mix flexibility: A wide range of treatments.

Volume flexibility: The ability to adjust the number of

patients treated.
Delivery flexibility: The ability to reschedule
appointments.
 Flexibility and other performance
objectives in Hospital

• Flexibility speeds up response.

 Fast service often depends on the operation being flexible.
 If the hospital has to cope with a sudden influx of patients from a road
accident, it clearly needs to deal with injuries quickly.
• Flexibility saves time.
 In many parts of the hospital, staff have to treat a wide variety of complaints.
 Fractures, cuts or drug overdoses do not come in batches. Each patient is an
individual with individual needs.
• Flexibility maintains dependability.
 Internal flexibility can also help to keep the operation on schedule when
unexpected events disrupt the operation’s plans.
 If the sudden influx of patients to the hospital requires emergency surgical
procedures, routine operations will be disrupted.

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 External and internal benefits of flexibility

Cost

Speed Dependability

Internal
benefits
Quality Flexibility
Frequent new
products/services
Wide range
External Volume and delivery
benefits changes
 The cost objective
Everyday low prices at Aldi
• Aldi is an international ‘limited assortment’ supermarket specializing in
‘private label’, mainly food products. It has carefully focused its service concept
and delivery system to attract customers in a highly competitive market. The
company believes that its unique approach to operations management make it
‘virtually impossible for competitors to match our combination of price
and quality’. Aldi operations challenge the norms of retailing. They are
deliberately simple, using basic facilities to keep down overheads. Most
stores stock only a limited range of goods (typically around 700 compared
with 25,000 to 30,000 stocked by conventional supermarket chains). The
private label approach means that the products have been produced
according to Aldi quality specifications and are only sold in Aldi stores.
Without the high costs of brand marketing and advertising and with Aldi’s
formidable purchasing power, prices can be 30 per cent below their
branded equivalents. Other cost-saving practices include open carton
displays which eliminate the need for special shelving, no grocery bags to
encourage reuse as well as saving costs, and using a ‘cart rental’ system
which requires customers to return the cart to the store to get their coin
deposit back. 19
 Cost and other performance objectives

• Quick Revision: How the other performance objectives affect cost?

• One important way to improve cost performance is to improve the
performance of the other operations objectives.

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 Cost reduction through internal
effectiveness

• High-quality operations do not waste time or effort having to re-do things,

nor are their internal customers inconvenienced by flawed service.
• Fast operations reduce the level of in-process inventory between and
within processes, as well as reducing administrative overheads.
• Dependable operations do not spring any unwelcome surprises on their
internal customers.
• They can be relied on to deliver exactly as planned. This eliminates wasteful
disruption and allows the other micro-operations to operate efficiently.
• Flexible operations adapt to changing circumstances quickly and without
disrupting the rest of the operation. Flexible micro-operations can also
change over between tasks quickly and without wasting time and capacity.

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 External and internal benefits of performance
objectives
Performance objectives have both external and internal effects. Internally, cost is influenced
by the other performance objectives.
Apply the five performance objectives
for an organization of your choice

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 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

• The closer the line is to the common origin, the less important is
the performance objective to the operation.
• Each essentially provides the same basic service, but with different
objectives.
 Trade-offs between performance
objectives

Internally
• Improving the performance of one objective inside the operation could also
improve other performance objectives.
• Better quality, speed, dependability and flexibility can improve cost
performance.
Externally
• Externally this is not always the case.
• Improving the performance of one performance objective might only be
achieved by sacrificing the performance of another.
• An operation might wish to improve its cost efficiencies by reducing the
variety of products or services that it offers to its customers.

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 Order winning and qualifying
objectives
• Order winners
– Directly and significantly contribute to winning the
business
• Order qualifiers
– Qualifying levels of performance below which, orders will
be lost
• Less important factors
– neither order-winning nor qualifying. Do not affect
customers in any significant way
 Order winners and qualifiers

Positive order winners

Competitive benefit

less important
Neutral
qualifiers

Negative

Low High
Achieved performance
 PLC and performance objectives

• Identify the performance objectives for the different stages of the PLC
• What are the likely order winners and qualifiers for the different
stages?
Choose from the following: Product/ service characteristics, Low price,
Availability, Quality, Dependable supply, Range, Price

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 PLC and performance objectives

Introduction stage.
• It is likely to be offering something new in terms of its design or performance.
• The needs of customers are unlikely to be well understood, so the operations
management needs to develop the flexibility to cope with any changes and be able to
give the quality to maintain product/service performance.
Growth stage.
• As volume grows, keeping up with demand could prove to be the main operations
preoccupation.
• Rapid and dependable response to demand will help to keep demand buoyant, while
quality levels must ensure that the company keeps its share of the market as competition
starts to increase.
Maturity stage.
• Demand starts to level off. So operations will be expected to get the costs down in order
to maintain profits or to allow price cutting, or both.
• Cost and productivity issues, together with dependable supply, are likely to be the
operation’s main concerns.
Decline stage.
• Unless a shortage of capacity develops the market will continue to be dominated by
price competition. Operations objectives continue to be dominated by cost.
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 The effects of the product / service life cycle

volume
Sales

Time
Introduction Growth Maturity Decline

Likely order Product/ service Availability Low price Low price

winners characteristics Quality Dependable
supply

Likely Quality Price Range Quality Dependable

qualifiers Range Range supply

Dominant Flexibility Speed Cost Cost

performance Quality Dependability Dependability
objectives Quality