OPERATION

OPERATION OPERATION
OPERATION
STRATEGY
STRATEGY
PERFORMANC
PERFORMANC
E
E

SUBSTITUTE
SUBSTITUTE CAPACITY
CAPACITY
FOR
FOR STRATEGY
STRATEGY
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STRATEGY
STRATEGY
OPERATION STRATEGY
• Operation strategy
is the development of a plan to
execute a company’s business
and customer experience
strategy. A well-defined
operations strategy aligns and
optimizes processes and
resources for achieving desired
business results.

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OPERATION
PERFORMANCE
o It measures results relative to the
assets used to achieve those results.
The focus of determining Operating
Performance is on how well assets
are converted into earnings, and how
efficiently resources are used to
generate revenue

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THE FIVE OPERATIONS
PERFORMANCE OBJECTIVES
1. Quality: You would want to do things right; that is, you
would not want to make mistakes, and would want to
satisfy your customers by providing error-free goods and
services which are fit for their purpose'. This is giving a
quality advantage.

2. Speed: You would want to do things fast, minimizing

the time between a customer asking for goods or services
and the customer receiving them in full, thus increasing
the availability of your goods and services and giving a
speed advantage.

3. Dependability: You would want to do things on time,

so as to keep the delivery promises you have made. If the
operation can do this, it is giving a dependability
advantage.
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4. Flexibility: You would want to be able to
change what you do; that is, being able to vary or
adapt the operation's activities to cope with
unexpected circumstances or to give customers
individual treatment. Being able to change far
enough and fast enough to meet customer
requirements gives a flexibility advantage.

5. Cost: You would want to do things cheaply;

that is, produce goods and services at a cost
which enables them to be priced appropriately for
the market while still allowing for a return to the
organization; or, in a not-for-profit organization,
give good value to the taxpayers or whoever is
funding the operation. When the organization is
managing to do this, it is giving a cost advantage.

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SUBSTITUTE FOR STRATEGY
 New approaches to operations

this chapter concerns how some organisations

use ‘approaches’ to operations improvement as
substitutes for strategy

o TOTAL QUALITY MANAGEMENT;

o LEAN OPERATIONS;
o BUSINESS PROCESS REENGINEERING;
o SIX SIGMA
 • Quality is the customers perception of what quality
1.) TOTAL QUALITY MANAGEMENT is, not what a company thinks it is.
• Quality and cost are the same not different.
o was one of the earliest management ‘fashions’ • Quality is an individual and team commitment.
o A.V. Feigenbaum, generally held to be the originator of the term, • Quality and innovation are interrelated and mutually
defines TQM as ‘an effective system for integrating the quality beneficial.
•
development, quality maintenance and quality improvement efforts ofManaging Quality is managing the business.
•
the various groups in an organisation so as to enable production and Quality is a principal.
• Quality is not a temporary or quick fix but a
service at the most economical levels which allow for full customer
continuous process of improvement.
satisfaction’
o He established the principles of Total Quality Management (“TQM”), the
approach to quality and profitability that has profoundly influenced
management strategy and productivity in the competition for world
markets
• a system of management based on the principle that every staff member
must be committed to maintaining high standards of work in every aspect of
a company's operations.
• is the continual process of detecting and reducing or eliminating errors in
manufacturing, streamlining supply chain management, improving the
customer experience, and ensuring that employees are up to speed with
training.

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THE ELEMENTS OF TQM

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o Meeting the needs and expectations of
customers
o covering all parts of the organization
o Including every person in the
organization
o examining all costs which are related
to quality, especially failure costs
o getting things ‘right first time’
o Developing the systems and
procedures that support improvement
2.) LEAN OPERATIONS
o (also known as just-in-time, lean synchronisation, continuous flow
operations, and so on)
Lean management helps optimise processes by
o aims to meet demand instantaneously, with perfect quality and no reducing non-value-added activities (unnecessary
waste. operations or transport, waiting, overproduction
etc.), poor-quality costs and complications. This
• Lean operations is a business strategy driven by the principle method relies heavily on a management strategy
of doing more with less. It is a minimalist approach to running that allows employees to work in the best possible
conditions.
a business and improving day-to-day operations.
• A lean organization understands customer value and focuses its
key processes to continuously increase it. The ultimate goal is to
provide perfect value to the customer through a perfect value
creation process that has zero waste.”

THE ELEMENTS OF LEAN

o customer-based demand triggers
o Synchronised flow
o Involvement behaviour
o waste elimination

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3.) BUSINESS PROCESS REENGINEERING
the fundamental rethinking and radical redesign of business processes to

“
o
achieve dramatic improvements in critical, contemporary measures of
performance, such as cost, quality, service and speed
o ‘don’t automate, obliterate’
• Business Process Reengineering involves the radical redesign of core
business processes to achieve dramatic improvements in productivity, cycle
times and quality. In Business Process Reengineering, companies start with
a blank sheet of paper and rethink existing processes to deliver more value
to the customer
• is the practice of rethinking and redesigning the way work is done to better
support an organization's mission and reduce costs
• BPR concentrates on core business processes, and uses the specific
techniques

THE ELEMENTS OF BPR

o rethink business processes
o Strive for dramatic improvements
o have those who use the output from a process, perform the process
o put decision points where the work is performed

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4.) SIX SIGMA
o ‘a disciplined methodology of defining, measuring, analysing, improving,
and controlling the quality in every one of the company’s products,
processes, and transactions – with the ultimate goal of virtually
eliminating all defects’
o total customer satisfaction
• Six Sigma at many organizations simply means a measure of quality that
strives for near perfection. It can be called “Six Sigma,” or it may have a
generic or customized name for the organization like “Operational
Excellence,” “Zero Defects,” or “Customer Perfection.”
• Six Sigma is a disciplined, data-driven approach and methodology for
eliminating defects in any process – from manufacturing to transactional
and from product to service.
• Six Sigma is a quality management methodology used to help businesses
improve current processes, products or services by discovering and
eliminating defects. The goal is to streamline quality control in
manufacturing or business processes so there is little to no variance
throughout.

THE ELEMENTS OF SIX SIGMA

o customer-driven objectives
o use of evidence
o Structured improvement cycle
o Structured training and organisation of improvement
o process capability and control
o process design
o process improvement 11
• these approaches are not strategies, but they are strategic decisions
• While TQM, lean, bpr and six sigma have many similarities, especially concerning
origin, methodologies, tools and effects, they differ in some areas, in particular
concerning the main theory, approach and the main criticism. The lean concept is
slightly different from TQM and six sigma. However, there is a lot to gain if
organisations are able to combine these three concepts, as they are
complementary. Six sigma and lean are excellent road‐maps, which could be
used one by one or combined, together with the values in TQM.
• The basic difference between Total Quality Management and Six Sigma is that
TQM delivers superior quality manufactured goods whereas six sigma on the
other hand results in better results. Total Quality management refers to
continuous effort by employees to ensure high quality products.

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CAPACITY STRATEGY
o Is an approach to increasing and decreasing business
capacity to meet demand. Capacity includes things like labor
and equipment that can be scaled to increase business
output.

o Involves the process used to determine the resources

manufacturers need to meet the demand for their products
or services. The level of capacity directly relates to the
amount of output in the form of goods and services
manufacturers can produce to satisfy customer demand.

o Can guide manufacturers on how much raw materials,

equipment, labor and facilities need to be acquired over a
period of time. When there is a lack of capacity planning,
customers are not served promptly and may be lost to
competition.
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TYPES OF CAPACITY PLANNING
STRATEGIES
o Lead strategy - manufacturers plan to increase
their capacity in advance even before the actual
demand increases. Many manufacturers use this
strategy to gain market share against competitors.
This is also used when competitors are prone to
inventory shortages especially when demand
skyrockets. The Lead Strategy has its own risk also,
as manufacturers are left with excess inventory.

o The Lag Strategy - is when manufacturers respond

to an actual increase in demand and boost capacity
after the current operation runs at full steam. Here,
manufacturers avoid the problem of storing excess
inventory but might end up losing customers to
competition.
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o The Match Strategy - manufacturers usually
adopt a mid way between the Lead and Lag
strategies. This strategy uses smaller incremental
changes to the manufacturers' capacity based on
the fluctuating conditions in the marketplace.
This is a safer bet for most manufacturers as it is
much more risk-averse than the other Capacity
Planning Strategies.
o Dynamic Strategy - This strategy involves adding
capacity large or small, before it is required,
based on actual demand and sales forecast
figures. Since this is data-driven, it proves to be
more accurate for manufacturers to plan their
capacity targets. However, this type of strategy
does depend on good capacity planning tools
which can drive accurate forecasts. 15
CAPACITY PLANNING STRATEGY
BENEFITS
o Monitor Operation Costs- can help manufacturers closely
monitor all production costs. It allows them to accurately
budget for upcoming changes, and apply financial
resources where needed.
o Ensure adequate availability - Manufacturers need to
ensure they have the necessary resources to deliver work
even before a contract is signed.
o Maintain Production Cycles - Manufacturers can plan for
seasonal demand fluctuations using historical data and a
good Capacity Planning Strategy. The strategy also
identifies when the business cycle might deteriorate so that
seasonal workers can be employed accordingly, and
unnecessary expenses can be avoided.
o Meet Operations Budget - Manufacturers use capacity
planning tools to help them meet demand and reduce
waste. It also helps them meet their budgetary
requirements based on their projected sales or demand 16
forecast and reduce additional expenses .
INDUSTRIES THAT UTILIZE CAPACITY
PLANNING
o Manufacturing Industries- Many medium and large scale
manufacturing industries deploy capacity planning
concepts to decide the total production capacity. This is
used in several automotive companies, appliances
manufacturing, process industries, pharmaceuticals and
semiconductor manufacturing industries.
o Service Industries – Service industries have their own
unique challenges as they cannot be stored like products.
Capacity planning can provide the right level of service at
the right time to meet demand and supply needs. Some
examples are; cloud computing services, airline seat
capacity and fast-food restaurants.
o Human Capacity - It can also include financial auditing
companies, legal firms, engineering project companies and
other businesses that use human resources to meet
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specific customer needs.
REPORTED BY:
 FRANCISCO, JOYCE ANN
 RICO, JOHN PATRICK
 RIVERA, RON JAYCEE

BSBA-III
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