Lecture 1: Process Evaluations and Improvements 1

Every part of any business achieves its objectives by organizing its resources (i.e. people, information systems,
buildings, and equipment) into individual processes. A process is an arrangement of resources and activities that
transform inputs into outputs that satisfy (internal or external) customer demand. Furthermore, no operation does
everything itself, some degree of outsourcing is necessary.

The Input-transformation-output model:

- All processes transform inputs into outputs
- Take a set of input resources, some of which are transformed into outputs of products and/or services, and
some of which do the transforming
- Input resources:
- Transformed resource inputs are the resources that are changed in some way within a process (i.e.
materials, customers, information)
- Transforming resources usually are composed of 2 building blocks: (1) facilities: the buildings,
equipment, plant, and process technology. (2) People: who operate, maintain, and manage the
operation.
- Front-and-back Transformation:
- Front-office: processes that interact with customers
- Back-office: processes that have little or no direct contact with customers, but perform the activities
that support the front office in some way.

The supply network, the operation, and the process: Figure 1.7 on page 13

IHIP: distinguishes between the different types of outputs:

- Intangibility means it is difficult to define the boundary of the less tangible elements of service. It therefore
becomes important to manage customers’ expectations as to what the service comprises
- Heterogeneity means that every service is different and difficult to standardize. Customers could ask for
elements of service that are difficult to predict and may be outside the operations’s capabilities.
- Inseparability means that production and consumption are simultaneous, so to meet all demand, operations
must have sufficient capacity in place to meet demand as it occurs.
- Perishability means that an operation’s output is difficult to store and ceases to have value after a relatively
short time, so matching capacity with demand is important to avoid either underutilized resources or lost
revenue.
Servitization: the distinction between products and services has become increasingly blurred. Servitization is a
concept which addresses operations' focus on considering not what it produces, but what service the product can
enable.
- This can generate extra revenue
- Because companies have a high installed base of capital goods, they see their previous customers as a
market worth exploiting.
- Can improve relations with customers
Line of Sight: managers should consider whether the people who operate a process have a clear ‘line of sight
forward through to the external customers. If so, they will have a better chance of seeing how they contribute to the
final value added for the operation’s customers. Similarly, a clear line-of-sight backwards helps to understand what is
required from internal and external suppliers. A failure to do so will reduce the effectiveness of the whole operation.
End to End business process: this method of redefining requires managers to consider the ‘end-to-end’ set of
activities that satisfy defined customer needs. Think about the various ways in which a business satisfies its
customers. It calls for a radical rethink of process design that will involve taking activities and resources out of
different functions and placing them together to meet customer needs. Remember, though, end-to-end design is only
one way of designing processes/
Operations can be treated both at the operational and strategic level. The strategic level can be assessed at
three different levels: societal, enterprise and process:
 - Societal: operations decisions affect a whole variety of stakeholders who likely hold different views of which
aspect of performance is important. Nevertheless, one must judge the impact it has on its stakeholders.
(refer to the triple bottom line approach on page 23)
- Enterprise: operation’s management can have a significant impact on the business’s cost, revenue, risk,
investment, and capabilities
- Cost: the more productive the operation is at transforming inputs into outputs, the lower will be the
cost of producing a unit of output. Generally, the higher the cost of a product or service when
compared to the price it commands in the market, the more important cost reduction will be as an
operation’s objective.
- Revenue: it can increase revenue with increased customer satisfaction, and thus attraction and
retainment.
- Risk: it can reduce the risk of operational failure, because well-designed and well-run operations
should be less likely to fail. Furthermore, a well-designed process, if it does fail, should be able to
recover faster and with less disruption.
- Effective investment (capital employed): it can ensure effective investment to produce its products
and services. What is sometimes overlooked is the role of operations in reducing the investment
required per output. It does this by increasing the effective capacity of the operation and by being
innovative in how it uses its physical resources.
- Capabilities: it can build capabilities that will form the basis for future innovation by building a solid
base of operations skills and knowledge within the business.
- Process: this is how well the network of processes within an operation serves its internal, and eventually
external customers. This can be assessed with performance objectives.
- Quality: doing things right, providing error-free goods and services that are ‘fit for their purpose’
- Speed: doing things fast, minimizing the time between a customer asking for goods and services
and the customer receiving them in full
- Dependability: doing things on time, keeping the delivery promises that have been made to
customers
- Flexibility: changing what you do or how you do it, the ability to vary or adapt the operation’s
activities to cope with unexpected circumstances or to give customers individual treatment, or to
introduce new products or services
- Cost: doing things cheaply, producing goods or services at a cost that enables them to be priced
appropriately for the market while still allowing a return to the organization.
4Vs: four characteristics have a significant effect on how processes need to be managed. (Refer to figure 1.11 on
page 28 for cost implications of the 4vs)
- Volume: processes with a high volume of output have a high degree of repeatability, and because tasks are
repeated frequently, it often makes sense for staff to specialize in the tasks they perform. It is worthwhile to
develop specialized technology that gives higher processing efficiencies due to high systemization and
repetitiveness. By contrast, low-volume processes with less repetition cannot specialize to the same degree.
High-volume processes have more opportunities to produce products and services at a low cost.
- Variety: processes that prince a high variety of products and services must engage in a wide range of
activities. A high level of variety may also imply a relatively wide range of inputs to the princess and the
additional complexity of matching customer requirements to appropriate products or services. High-variety
processes are invariably more complex and costly than low-variety ones.
- Variation: processes are generally easier to manage when they only have to cope with predictably constant
demand. By contrast when demand is variable and/or unpredictable, resources will have to be designed into
the process to provide a ‘capacity cushion’ that can absorb unexpected demand. Because processes with
lower variation do not need an extra safety capacity and can be planned in advance, they will generally have
lower costs than those with higher variation.
- Visibility: processes that act directly on customers will have more activities visible to their customers than
those that act on material and information. However, even material and information transforming processes
may provide a degree of visibility to the customers (i.e. track and trace for parcel distribution operations).
The time lag that low-visibility processes hold allows the process to be performed when it is convenient to
the operation as opposed to the near-immediate response required from high-visibility processes. Also, staff
in high-visibility processes need customer contact skills that shape the customer’s perception of process
 performance. For all these reasons, high-visibility processes tend to have higher costs than low-visibility
processes. Many organizations have both high and low visibility processes.

The design of processes will affect the performance of the whole operation. Furthermore the process resources
normally reflect the volume and variety requirements placed on them.

Low-volume operations processes often have a high variety of products and services, and high-volume operations
processes often have a narrow variety of products and services. A first step in process design is to understand how
volume and variety shape process characteristics, and to check whether processes have been configured in a
manner that is appropriate to their volume-variety position.
Product-Process matrix: many of the important elements of process design are strongly related to the
volume-variety position of the process. This means that most processes should lie close to the diagonal of the matrix
that represents the ‘fit’ between the process and its volume-variety position (line of fit) (refer to page 166 and 167 for
the diagrams).
Manufacturing Matrix:
- Project processes: high customized products, long timescale for making the product, long intervals between
the completion of each product, each ‘project’ has resources devoted more or less exclusively to it, activities
may be ill-defined and uncertain, sometimes changing during the process itself, each unit of output is usually
large with many activities occurring at the same time
- Jobbing processes: each product has to share the operation’s resources with many others, although all
products will require the same kind of attention, each will differ in its exact needs, many jobs can be
one-offs, usually more unpredictable than project processes
- Batch processes: can look like jobbing processes, but without the high degree of variety, usually produce
more than one product at a time, the batch sizes could be just two or three in which case batch processes
would differ little from jobbing, but if batch sizes are large they can be fairly repetitive (because of this, the
batch type of process can be found over a wider range of volume and variety levels than other process types
-> more susceptible to being a hybrid)
- Mass processes: high volume, narrow effective variety (different variants do not affect the basic process),
activities are essentially repetitive and largely predictable, straightforward sequences of activities
- Continuous processes: operate at even higher volume, even lower variety, sometimes literally continuous
and being produced in an endless flow, relatively inflexible, capital-intensive technologies, highly predictable
flow, smooth flow from one process to another
Services Matrix:
- Professional services: high variety, low volume, customers may spend considerable time in the service
process, high levels of customization, tend to be people-based rather than equipment-based
- Service shops: between the extremes of professional services and mass services, a mix of front and back
office activities, the front office has some technical training and can advise customers during the process of
selling the product. Essentially, the customer is buying a fairly standardized product but will be influenced by
the process of the sale, which is customized to the individual customer’s needs.
- Mass services: many customer transactions, little customization, most value added in the back office.
Moving off the natural diagonal will result in higher operating costs. A process lying on the line of fit will have lower
operating costs than one with the same volume-variety position that lies off the diagonal due to the way that tasks
and flow are organized.
Process layouts: process layouts are determined by their volume-variety characteristics. Resources in low-volume,
high-variety processes should be arranged to cope with irregular flow. Resources in high-volume, low-variety
processes should be arranged to cope with smooth, regular flow. 4 basic process layouts correspond to the different
positions on the volume-variety spectrum (refer to figure 5.6 on page 173)
- Fixed position layout: the transformed resources do not move between the transforming resources. Instead
of transformed resources flowing through an operation, the recipient of the processing is stationary and the
transforming resources which do the processing move as necessary.
- Functional layout: the convenience of the transforming resources dominate the layout decision, Similar
activities or resources are located together. It means that when transformed resources flow through the
operation, they will take a route from activity to activity according to their needs. (ex: in supermarkets, some
areas, such as the holding of frozen vegetables need the common technology of freezer cabinets)
 - Cell layout: transformed resources entering the operation are pre-selected or pre-select themselves to move
to one part of the operation in which all the transforming resources to meet their immediate processing
needs are located. After being processed in the cell, the transformed resources may go on to another cell.
(ex: a maternity unit - customers needing maternity attention are a well-defined group who can be treated
together and are unlikely to need the other facilities of the hospital at the same time that they need the
maternity unit)
- Product layout: locating people and equipment entirely for the convenience of the transformed resources.
Each transformed resource flows along a line.
Getting the process layout right is important. One of the main influences on which the type of layout will be
appropriate is the nature of the process itself, as summarized by the process type (look at the useful diagram on
page 176)
Servicescapes: layouts should consider the look and feel of the operation to customers and/or staff
Process technology: process technology in high-volume, low-variety processes is relatively automated, large-scale
and closely coupled when compared to that in low-volume, high-variety processes.
Job design: how people carry out their tasks within a process. Of most importance, job design helps to develop the
culture of the organization. (look at page 182 for benefits)
- Division of labor: high division of labor is common for higher-volume, low-variety processes
- Job definition: high-variety process jobs are difficult to define. Some degree of job definition is usually
advisable, but it may be stated in terms of the outcome of the task rather than in terms of the activities within
the task. By contrast, a process with less variety and higher volume is likely to be defined more closely with
the exact nature of the activity.
- Job commitment: in high-variety processes, especially those with a high degree of staff discretion, job
commitment is less likely to need action to encourage commitment in comparison to high-volume processes.
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Lecture 2: Process Evaluations and Improvements 2

Suppliers that supply the operation directly are first-tier suppliers, and suppliers that supply them are second-tier
suppliers (although second-tier can also be first-tier). First-tier customers are the main customer group of the
operation, who in turn supply second-tier customers.
What is being exchanged between operations is the flow of the 5 performance objectives through the network. Some
operations contribute more to the performance objectives that are valued by end customers. Hence, an analysis of
networks needs an understanding of the downstream and upstream operations that contribute most to end-customer
service. A long-term supply network view would involve examining technology and market changes constantly to see
how each operation in the supply network might be affected.
The scope of an operation’s supply network relates to the extent that an operation decides to do activities performed
in the network. The structure of the operation’s supply network relates to the shape and form of the network.
Scope: influenced by two decisions (which rely on forecasts of future demand)
1. The extent and nature of the operation’s vertical integration
2. The nature and degree of outsourcing it engages in
Structure: influenced by three decisions (which rely on forecasts of future demand)
1. How the network should be configured
2. The long-term capacity decision (what physical capacity each part of the network should have)
3. The location decision (where each part of the network should be located)
(1) Scope: vertical integration strategy can be defined by:
- Integration direction:
- Backward/upstream vertical integration: buying a supplier allows for gaining cost advantages or
preventing competitors from gaining control of important suppliers
- Forward/downstream vertical integration: buying a customer allows for getting closer to the market
and allowing more freedom for the organization to make contact directly with end customers, and
possibly sell complementary services or products.
- The extent of the process span of integration: some organizations deliberately choose to integrate far from
their original part in the network, while others do not.
 - The balance among the vertically integrated stages: balance refers to the amount of capacity at each stage
in the network that is devoted to supplying the next stage. A totally balanced network relationship is one
where one stage produces only for the next stage in the network and totally satisfies its requirements.
- Advantages vs. disadvantages of vertical integration:
- Advantages: (1) it secures dependable access to supply or markets (2) it may reduce costs (3) it
may help to improve product or service quality (4) it helps in understanding other activities in the
supply network
- Disadvantages: (1) it creates an internal monopoly (2) cannot exploit economies of scale (3) loss of
flexibility (4) cuts you off from innovation (5) distracts you from core activities
(2) Scope: outsourcing: compared to vertical integration, outsourcing applies to smaller sets of activities that have
previously been performed in-hous. Assessing the advisability of outsourcing should include:

Outsourcing vs. Offshoring

Globalization -> Reshoring
Risk -> Reshoring

(1) Structure: organizations can be seen as triads to capture the dyadic relationship with a customer and a
supplier, but also an outsourcer.
- Emphasizes the dependence that organizations place on their suppliers’ performance when they outsource
service delivery
- The control that the buyer of the service has over the service delivery to its custom is diminished in a triadic
relationship.
- It becomes increasingly difficult for the organization to understand what is happening between the supplier
and customer at a day to day level.
- Closeness between supplier and customer leads to losing out on important knowledge if the organization is
left out
Structure: Choosing and dealing with capacity: decisions have to be made about how big operations want to be.
All types of operations exhibit economies of scale where operating costs reduce as capacity increases, but at some
point, an optimum level of capacity is reached, where operating costs increase after a certain level
- On-stream capacity: Besides optimum capacity, the operation also needs to decide when to bring
‘on-stream’ new capacity. Three strategies can be mixed (look at table 4.2 on page 138 for advantages and
disadvantages)
- Capacity-leading: is introduced to generally lead demand in such a way that there is always a
sufficient capacity to meet forecast demand
- Capacity-lagging: is introduced to generally lag demand, so that demand is always equal to or
greater than capacity
- Capacity-smoothing: is introduced to sometimes lead and sometimes lag demand, but inventory
built up during the lead times is used to help meet demand during the lag times (?) <this strategy is
only appropriate for operations that produce products that can be stored>
- Being small:
- Locating near to hot spots that can tap into local knowledge networks
- Responding rapidly to regional customer needs and trends by basing more and smaller units of
capacity closer to local markets
- Taking advantage of the potential for human resource development, by allowing staff a greater
degree of local autonomy
- Exploring radically new technologies by actin in the same way as a smaller more entrepreneurial
rival
Structure: relocation: when operations move, it is usually due to either changes in demand or supply.
- Changes in demand: if customer demand shifts it may prompt a change in location. Changes in volume of
demand can also prompt relocation. To meet higher demand, an operation could expand its existing site, or
choose a larger site in another location, or keep its existing location and find a second location for an
 additional operation. High-visibility operations may not have the choice of expanding the same site to meet
rising demand, so a new location for an additional operation is its only option
- Changes in supply: changes in the cost or availability of the supply of inputs to the operation may prompt
relocation.
- Setting location evaluation criteria is also important (page 142)

Bad process design will quickly show in terms of cost and customer service. Processes should be designed in the
context of the other processes that they are connected with, by:
1. Understanding how and where a process fits into the internal network helps to establish appropriate
objectives for the process
2. Check for a clear ‘line of sight’ through to the end customer
3. Check for a clear ‘line of sight’ backwards through to the supplier
Process performance can be judged in terms of the levels of the 5 performance objectives the process
achieves (refer to table 6.1 to see how to evaluate for a process). In addition to the performance objectives, process
design is being judged on environmental impact.
Process performance also has to be judged on micro, ‘process flow objectives.’
- Throughput time
- Utilization
- Cycle time
- Throughput rate
- Work in process
The design factors that will influence the flow objectives are:
1. Configuration of the resources and activities within the process
2. Variability of the activities within the process
3. Variability of input arrival to the process
4. Capacity of the resources at each point in the process
Design Factors (1): Process visibility: it is sometimes useful to map such processes in a way that makes the
degree of visibility in each part of the process obvious, so that they enhance the customer’s perception of the
process. A way to do so is to simply distinguish between those activities that the customer can see and those they
cannot (often called the ‘line of visibility’ -> look at figure 6.6 on page 205). Processes with a high level of customer
visibility cannot be designed in the same way as processes that deal with inanimate materials or information.
‘Processing people’ is different. When a customer experiences a process, it results in them feeling emotions, not all of
which are necessarily rational. This is why many service organizations perceive the customer journey to be at the
core of their process design. (refer to page 206)

Design Factors (1): Process tasks and capacity should be configured appropriately:
- Task precedence: defines what activities must occur before others, because of the nature of the task. The
following must be considered: the time necessary to perform the total task, the time necessary to perform
each of the individual activities within the task.
- Series and parallel configurations (long-thin vs. short-fat): deciding the extent to which activities are
arranged sequentially and the extent to which they are arranged in parallel. (Long refers to the number of
stages and fat means the amount of work allocated to each stage: the advantages and disadvantages to
each are on page 209).
- Cycle time and process capacity - bottlenecks: the stage of a process that has the longest allocation of work
is known as the bottleneck.. However, the process is designed, it must be able to meet its required cycle
time.
- Process capacity: if the cycle time indicates the output that must be achieved by a process. The next
decision must be how much capacity is needed by the process in order to meet the cycle time. The larger
the work content of the process task and the smaller the required cycle time, the more capacity will be
necessary if the process is to meet the demand placed on it
- Process balancing: balancing a process involves attempting to allocate activities to each stage as equally as
possible. Because the cycle time of the whole process is limited by the longest allocation of activity times to
an individual stage, the more equally work is allocated, the less time will be wasted by the other stages in
 the process. It is the bottleneck stage that will dictate the output of the whole process. Thus, allocating work
equally to each stage in a process (balancing- smooths flow and avoids bottlenecks.
- Throughput, cycle time, and work-in-process: the greater the capacity of the process, the smaller its cycle
time. In fact,the capacity of a process is often measured in terms of its cycle time, or more commonly the
reciprocal of the cycle time, called the throughput rate. However, a high level of capacity (short cycle time
and fast throughput rate) does not necessarily mean that transformed resources can move quickly through
the operation. This will depend on how many other units are contained within this process/ If there is a large
number of units, they may have to wait in ‘work-in-process’ inventories for part of the time they are within the
process.
- The mathematical relationship that relates cycle time to work-in-process and throughput time is
called Little’s Law.
Design Factors (2/3): Sources of Variability: when variability is considered with respect to demand or the time
taken for the process to perform its various activities, things get complex. Sources of variability (can be found on
page 217). Process design involves some choice between utilization, waiting time, and variability reduction:
- Activity time variability: the effects of variability within a process will depend on whether the movements of
units between stages, and hence the inter-arrival times of units at stages, are synchronized or not. The
interval between each synchronized movement would have to be set at an interval that would allow all
stages to have finished their activities irrespective of whether they had experienced variability in activity
time. Variability in a process acts to reduce its efficiency.
- Arrival time variability: the arrival time can be optimized so that the process is fully utilized, but if the arrival
time exceeds the optimal rate, then this can lead to inventory/waiting time building up indefinitely.
- Activity and arrival time variability together: in practice, there is likely to be a combination of activity and
arrival time variation. Generally, as a process moves closer to 100% utilization, the higher the average
waiting time will become. In other words, because of variability, the only way to guarantee very low waiting
times for the units is to suffer low process utilization. In effect, this presents 3 options to process designers
wishing to improve the waiting time or utilization performance of their processes:
1. Accept long average waiting times and achieve high utilization
2. Accept low utilization and achieve short average waiting times
3. Reduce the variability in arrival times, activity times, or both, and achieve higher utilization and
short waiting times

Design Factors (4): Design Factors (Capacity management aims to reduce the mismatches between demand
and supply. This does not imply that capacity should match demand. Many operations make a deliberate decision to
fail to meet demand or fail to fully exploit its ability to supply.
A framework for capacity management: demand and supply side
- Demand side:
1. Determine demand for products and services
2. Consider if and how to change demand patterns using demand or yield management
- Supply side:
1. Determine the ‘ability to supply’ products and services
2. Manage the supply side by determining the appropriate ‘base level’ of capacity and then deciding
whether to keep this constant over time (level capacity plan) or make adjustments in line with
changing demand patterns (chase capacity plan). (look at page 290 for good methods for adjusting
capacity)
Demand side: demand and yield management:
- Demand management: changing demand patterns by either stimulating off-peak demand or constraining
peak demand to bring demand patterns closer to available capacity. This can be done by (look at page 280)
- Yield management: one approach used to maximize revenues by operations that have relatively fixed
capacities. Yield management is especially useful when the market is fairly segmented, the service cannot
be stored in any way, the service is sold in advance and the marginal cost of making a sale is relatively low.
This can be done by overbooking capacity to compensate for lower demand than expected or price
discounting.
Supply side: deciding the capacity or ‘ability to supply’ (refer to pages beginning with page 283)
- Capacity is the output an operation can deliver in a defined unit of time.
 - Capacity depends on the specification of output: some operations can increase their output by changing the
specification of the product or service (common for services).
- Capacity leakage: the theoretical capacity of a process is rarely achieved in practice. Some of the reduction
in capacity can be the result of less predictable events, a reduction in availability, speed losses, and errors.
For processes to operate effectively, they need to achieve high levels of performance against all three
dimensions - availability, performance, and quality.
Supply side: determine the ‘base level’, level capacity plan, and chase capacity plan
- Setting base capacity: 3 factors
1. The base level of capacity should reflect the relative importance of the operation’s performance
objectives

● Negatives of high base level: Setting

the base capacity level high compared to average
demand will result in low levels of utilization and
therefore higher costs. This is especially true when an
operation’s fixed costs are high, and therefore
underutilization has significant detrimental effects.
● Pros of a high base level: a ‘capacity
cushion’ exists for much of the time, so the ability to flex
output to give responsive customer service will be
enhanced.
● Tradeoff b/t fixed capital and working capital: a high level of base capacity can require considerable
investment while a lower base level would reduce the need for capital investment, but may require
inventory to be built up to satisfy future demand. For some operations, building up inventory is
either risky because products have a short shelf life or because the output cannot be stored at all
(i.e. most services).
● The effect of demand or supply variability on the base level: variability, either in demand or
capacity, will reduce the ability of an operation to process its inputs. The greater the variability in
arrival or activity time, the more the process will suffer both high throughput times and reduced
utilization. The implication is that the greater the variability, the more extra capacity will be needed
to compensate for the reduced utilization of available capacity.
- Level capacity plan: once the base capacity is set, the approach is to keep this level fixed throughout the
planning period, regardless of the fluctuations in demand. This means that the same number of staff or
machines operate the same processes and should therefore be capable of producing the same aggregate
output in each period. Where non-perishable goods are not immediately sold, they can be stored in
inventory; while for service operations, demand fluctuations are absorbed by underutilization or failure to
meet demand immediately. The more demand fluctuates, the higher the level of inventory or underutilization
there is. Setting capacity below the forecast peak demand level will reduce the degree of underutilization,
but in periods where demand is expected to exceed capacity, customer service will deteriorate.
- Chase capacity plan: alter capacity to reflect demand fluctuations. Thai requires a different number of staff,
working hours, and amounts of equipment for each period. Pure chase plans are not appealing to
non-perishable products. Furthermore, for manufacturing operations that are capital-intensive, this requires
a high level of physical capacity. A pure chase plan is more likely adopted by operations of perishable
products. The chase plan can also be helpful in minimizing or eliminating finished goods inventory.

Inventory is the accumulation of resources that flow through processes, operations or supply networks. Minimizing
inventory can release large quantities of cash. However, reducing them too far can lead to customers’ orders not
being fulfilled.
If there is a difference between the timing of supply and demand, or the rate of supply and demand, at any point in a
process or network then accumulations will occur.
- Supply > demand: inventory increases
 - Demand > supply: inventory decreases
The task of operations management is to allow inventory to accumulate only when its benefits outweigh its
disadvantages (find these advantages on page 312 onwards, and disadvantages on page 316)
The objective of most operations managers who manage physical inventories is to reduce the overall level (and/or
cost) of inventory while maintaining an acceptable level of customer service (find ways to reduce on page 317).
For any stock replenishment activity, the timing of replenishment should reflect the effects of uncertain lead time and
uncertain demand during that lead time. Usually, safety stock still being in inventory is set to give a predetermined
likelihood that stock-outs will never occur until replenishment arrives.
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Lecture 3: Operations Strategy: Process Improvements in Manufacturing 1
The gap between current and required performance is the key driver of any improvement initiative. An operation’s
ability to do 3 things explains the gap in the current vs. required performance:
1. Assessing current performance: performance measurement
a. Choose the most important performance measures: making sure that there is a clear link between
the operation’s overall strategy, the most important KPIs that reflect strategic objectives, and the
bundle of detailed measures that are used to ‘flesh out’ each KPI. Without strategy clarity, KPIs
cannot be appropriately targeted.
b. The generic performance objectives can be broken down into more detailed measures. If an
organization regards a performance measure as unsatisfactory, it can disaggregate it into
measures to help explain the root cause of the poor performance.
2. Setting target performance
a. A performance measure means relatively little until it is compared against some kind of target.
i. Benchmarking: process of learning from others and involves comparing one’s own
performance or methods against other comparable operations (look at page 424 for more)
ii. There are strategic benefits in seeking external ideas from businesses and applying them
to your own operation. There are 3 strategic imitators:
1. Pioneer imitator: an imitator that is a pioneer in another place
2. The fast second: a rapid mover is arriving quickly after an innovator or pioneer,
but before it has had an opportunity to establish an unassailable lead and before
other potentially rival imitators take a large share of the market
3. The come from behind: a late entrant or adopter that has deliberately delayed
adopting a new idea, maybe because of legal reasons, or because it wants to be
more certain that the idea will be acceptable. When it does adopt the idea. It may
rely on differentiating itself from the original pioneer.
3. Assess the gap between actual and target performance
a. 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. Most operations are prepared to tolerate lower
performance for relatively unimportant performance factors. However, for performance factors that
are rated more important, they will be markedly less optimistic at poor or mediocre levels of current
performance. (Look at page 428 to see the explanation on the four zones in the matrix and the
implication of their very different priorities).
b. The sandcone theory: some authorities believe that there is a generic “best” sequence of
improvement. Building a stable sandcone needs a stable foundation of quality, upon which layers of
dependability, speed, flexibility and cost can be built. The first priority should be quality, since this is
the precondition to all lasting improvement. Only when the operation has reached a minimally
acceptable level of quality should it then tackle dependability, but this will also call for improving
quality simultaneously. Once a critical level of dependability is reached, one can improve speed of
internal throughput (but again, improving the previous layers simultaneously). Soon it will become
evident that the most effective way to improve speed is through improvements in flexibility
(changing things within the operation faster). Only now should cost be tackled.

Once the priority of improvement has been determined, the operation must consider between 2 paths to
reach its improvement goals: breakthrough improvement or continuous improvement.
 a) Breakthrough improvement: assumes that the main vehicle of improvement is major and dramatic change in
the way operations work (it is expensive, disrupting current ways of working, requires change in process
technology)
b) Continuous improvement adapts an approach to improving performance that assumes a never-ending series
of small incremental improvement steps. Incremental improvements (regardless of how small they are) over
time are seen as having a significant advantage over large ones.
c) Organizational ambidexterity: the ability of a firm to both exploit and explore as it seeks to improve; to be
able to compete in mature markets where efficiency is important, by improving existing resources and
processes, while also competing in new technologies and/or markets where novelty, innovation, and
experimentation is required.

Improvement can be made to stick by: (look at page 443 onwards)

a) Not becoming a victim to the popularity of an improvement approach, as popularity is not necessarily an
indicator of effectiveness
b) Managing the improvement process well (look at page 444)

A key task of the operations function must be to ensure that it provides quality goods and services, both to its internal
and external customers. Each process has the responsibility to manage its own internal customer-supplier
relationships by clearly defining its own and its customers’ exact requirements.

Quality is consistent conformance to customers’ expectations. It needs to be understood from a customer’s

point of view because, to the customer, the quality of a particular product or service is whatever he or she perceives it
to be. 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: perceived quality is good
4 gaps could explain a perceived quality gap between customers’ perceptions and expectations:
1. Customer’s specification-operation’s specification gap: mismatch between the organization’s own internal
quality specification and the specification that is expected by the customer
2. Concept-specification gap: mismatch between the product or service concept and the way the organization
has specified the quality of the product or service internally
3. Quality specification-actual quality gap: mismatch between the actual quality of the service or product
provided by the operation and its internal quality specification
4. The actual quality-communicated image gap: gap between the organization’s external communications or
market image and the actual quality of the service or product delivered to the customer.
Quality characteristics: the consequences of the design, called the quality characteristics, are perceived by the
customer. Generic quality characteristics are (listed on page 464).
Cost of quality approach: one approach to measuring aggregated quality is to express all quality-related issues in
cost terms: (1) prevention costs (2) appraisal costs (3) internal failure costs (4) external failure costs: A lot of effort
needs to be put in terms of improving quality:
1. Prevention costs: costs incurred in trying to prevent problems, failures and errors from occuring in the first
place
2. Appraisal costs: costs associated with controlling quality to check to see if problems or errors have occurred
during and after the creation of the product or service
3. Internal failure costs: failure costs that are associated with errors dealt with inside the operation
4. External failure costs: failure costs that are associated with errors being experienced by customers
TQM-influenced quality cost model: effective investment in preventing quality errors can significantly reduce
appraisal and failure costs. By emphasizing prevention, this has a significant positive effect on internal failure costs,
and when confidence has been built, appraisal costs. Eventually, even prevention costs can be stepped down in
absolute terms, though prevention remains a significant cost in relative terms.
After quality has been defined and measured, processes will need to check that their quality conforms to
whatever quality standards are deemed appropriate. One can look at trends to understand what is causing
quality to either deteriorate or improve.
An even more important consideration is variation. High levels of variation reduce the ability to detect changes in
process performance. Thus, the narrower the variation of a process, the more obvious any changes that might
occur, and the easier it is to make a decision to intervene.
Statistical Process control:
(1) Process variability indicates whether a process is in control or not
(2) Processes are brought into control by progressively reducing process variability. This involves eliminating
the assignable causes of variation.
(3) One cannot eliminate assignable causes of variation without gaining a better understanding of how the
process operates. This involves learning about the process, where its nature is revealed at an increasingly
detailed level.
(4) This learning means that process knowledge is enhanced, which in turn means that operations managers
are able to predict how the process will perform under different circumstances.
(5) This increased process capability is particularly difficult for competitors to copy.

Wheelwright Four-stage model: traces the progression of the operations function from what is the largely
negative role of ‘Stage 1’ operations to it becoming the central element of competitive strategy in excellent ‘Stage 4’
operations.
- Stage 1, internal neutrality:
- This is the very poorest level of contribution by the operations function. The other functions regard
it as holding them back from competing effectively. The operations function is inward-looking and at
best reactive, with very few positives to contribute towards competitive success
- Stage 2, external neutrality:
- To break out of stage 1, the operations function must begin comparing itself with similar companies
or organizations in the outside market. Its vision is to become ‘up to speed’ ot ‘externally neutral’
with similar businesses in its industry by adopting ‘best practice’ ideas and norms of performance
from others.
- Stage 3, internally supportive:
- Now we are up to the best, but not better than competitors. But, the vision is to become better. An
operation may try to achieve this by gaining a clear view of the company’s competitive or strategic
goals and developing ‘appropriate’ operations resources to excel in the areas in which the company
needs to compete effectively. The operation is trying to be ‘internally supportive’ by providing a
credible operations strategy.
- Stage 4, externally supportive:
- Operations look to the long-term, forecasting likely changes in the markets and supply, and over
time, it develops the operations-based capabilities that will be required to compete in future market
conditions.
The four perspectives on operations strategy: as an enterprise moves through the four stages, what exactly
should an operations strategy do? Four different perspectives emerge. None of these perspectives gives a full
picture, but they provide some sort of idea of the
pressures that go to form the content of the
operations strategy:
Top-down perspective:
- All functions need to consider how best
they should organize themselves to support the
business’ objectives
- , In order to understand strategy, one has
to place it in the context of what it is trying to do (at
the level above) and how it is trying to do it (the
level below)
- There should be a clear and logical
connection between any functional strategy and the
business strategy. Moreover, there should be a
clear and explicit connection between a functional
strategy and the decisions taken within the function.
 - Coherence: choices made across or within functions should not put it in different directions
Outside-in perspective:
- Operations strategy should reflect the intended market position of the business. Thus, operations must be
able to satisfy customer requirements. The best way to measure this is to analyze the 5 generic
performance objectives.
- Different operations will have different views of what each of the performance objectives actually mean and
how important each objective relatively is for the operation; and this is dependent on how the business
competes in the market.
- There should be a clear logical connection between the competitive stance of a business and its operations
objectives. Many successful companies understand the importance of making the connection between their
message to customers and the operations performance objectives that they emphasize.
- Order winners and qualifiers: a particularly useful way of determining the relative importance of
competitive factors
- Order winners: those things that directly and significantly contribute to winning business
- Order qualifiers: those aspects of competitiveness where the operation’s performance has to be
above a particular level just to be considered by the customer
- If there are several customer groups, order winners and qualifiers need to be determined for each
group !
- Products/services will furthermore require different operations strategies in each stage of their life cycle
(page 58)
Bottom-up perspective:
- Businesses should consult the different functions about their constraints and capabilities. Operations’
strategy is seen to be shaped by the knowledge it gains from its day-to-day activities
- Companies move in a particular strategic direction because the ongoing experience of providing products
and services to customers at an operational level convinces them that it is the right thing to do.
- Trends are often first recognized at the day-to-day level of experience, and for businesses operating in an
unstable environment, this is particularly important
Inside-out perspective:
- The idea of the basis of long-term competitive capabilities deriving from an operation’s resources and
processes
- Processes and resources need to provide capabilities. A capability in this context is the “know-how”. These
capabilities may come from the experiences of the operation, or they may be brought-in or acquired.If they
are refined and integrated, they can form the basis of the business’s ability to offer unique and difficult to
imitate products and services to its customers.
Operations strategy should build operations capabilities:
- intangible and tangible resources and processes shape an operations capabilities.
- The RBV model sees firms being able to protect their competitive advantage through barriers to imitation.
Some of these difficult-to-imitate resources are particularly important, and can be seen as strategic if they
exhibit:
- Scarcity
- Imperfectly mobile: some resources are difficult to move out of a firm.
- Imperfectly imitable and imperfectly substitutable: the more the resources are connected with
process knowledge embedded deep within the firm, the more difficult they are for competitors to
understand and to copy
VRIO framework: (see page 63 onward)
- It may be necessary to see O as a prerequisite
Operations strategy matrix: (example on page 67)
- The operations strategy is one way of reconciling between the inside-out and outside-in perspectives. It
brings together (a) market requirements and (b) operations resources.
- An operations strategy should articulate the relationship between operations objectives and the means of
achieving them through the set of choices made (and the capabilities that have been developed) in each
decision area of a strategy.
The line of fit model: (look at page 68 for good reasoning for where a firm is at)
 - The operations strategy matrix is a good model for testing whether market requirements and the operations
capability perspectives fit together. The disadvantage is that it gives little sense of how the balance between
market requirements and the operations capability changes over time.
- The line of fit model is useful as it reflects that, ideally, there should be a reasonable degree of alignment
between the requirements of the market and the capabilities of the operation.
- Movement along the dimension indicates a broadly enhanced level of market ‘performance’
- ‘Fit’ is to achieve an approximate balance between ‘market requirements’ and ‘operations capability’. So
when fit is achieved, firms’ customers do not need, or do not expect, levels of operations capability that
cannot be supplied, nor does the operation have strengths that are either inappropriate

Operation strategy’s improvement path: 2 approaches

1. Short-term: ‘Repositioning’ performance objectives by trading off improvements in some objectives for a
reduction in performance in others
2. Long-term: Increasing the ‘effectiveness’ of the operation by overcoming trade-offs so that improvements in
one or more aspects of performance can be achieved without any reduction in the performance of others

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Lecture 3: Process Improvements in Manufacturing 2
The objectives for supply chain management are similar to those for individual operations (the 5 generic performance objectives)
Functional vs. Innovative products and services: effect on the supply chain:
- Demand: for functional offerings is relatively stable and predictable, while demand for innovative offerings is far more
uncertain. In addition, the profit margins are typically much higher for innovative as opposed to functional offerings. (look
at page 242).
- Functional products and services: efficient (or lean) supply chain policies are typically most appropriate. This includes
keeping inventories or service capacity low, especially in downstream parts of the network, so as to maintain a fast
throughput and reduce the amount of working capital tied up in inventory and wasted service capacity. There is also a
significant focus on maximizing utilization of resources in the supply network to minimize costs. Information must flow
quickly up and down the chain so that schedules can be given to maximize the amount of time to adjust efficiently. The
chain is then managed to make sure that products or services flow as quickly as possible down the chain.
- Innovative products or services: more suited to responsive (or agile) supply chains. The emphasis is on high service
levels and responsive supply to the end customer. The inventory or service capacity in the network will be deployed as
close as possible to the customer. In this way, the network is still able to supply even when dramatic changes occur in
customer demand. Fast throughput from the upstream, parts of the network will still be needed to replenish downstream
with product or service operations.
Supply chain relationship: Transactional vs. Partnership relational benefits (found on page 244)

4 types of sourcing: (look at page 245 onwards for benefits vs. disadvantages for each)
- Multiple sourcing: obtaining a product or service component from more than one supplier. It is primarily seen in
competitive markets where switching costs are low and performance objectives are primarily focused on price and
dependability.
- Single sourcing: buying all of one product or service component from a single supplier. Often these components
represent a high proportion of total spend and are of strategic importance. In other cases, firms simply prefer the simplicity
and reduced transaction costs of single sourcing. Has a longer-term outlook and focus on a wider range of performance
objectives.
 - Delegated sourcing: a tiered approach. One supplier is responsible for delivering a package of services as opposed to
an individual service.
- Parallel sourcing: involves having single-source relationships for a single component for different service packages or
product models. If a supplier is deemed unsatisfactory, it is possible to switch to the alternative supplier who currently
provides the same component, but for a different service package or product model.
The suitability of a sourcing strategy under different circumstances: Matrix of supply risk and criticality of offerings:
(a) Risk in the supply market: key issue is the # of alternative suppliers, switching costs, exit barriers, and the cost
of bringing operations back-in-house
(b) Criticality of the product/service to the business
4 positions on the matrix
1. Non-critical: product/service component accounts for a relatively low proportion of the total cost. With a large # of
alternative suppliers, the supply risk is low. *Multiple-sourcing strategy is suitable**
2. Bottleneck: component is relatively low cost compared to other components. Limited supply alternatives and high
switching costs increase supply risk. **Single-sourcing strategy is common because of a lack of choice in the supply
market. But, firms sometimes look to reduce the specificity of their requirements and increase the # of supplier options
available to them.
3. Leverage: component makes up a high proportion of the purchasing cost. However, these components are easier to
source as there are a relatively large # of suppliers. Suppliers need to be price competitive as the buyer holds strong
bargaining power due to abundant supply. *Delegated sourcing is suitable*
4. Strategic: component is both complex to acquire and critical to the business, accounting for a significant proportion of
total spending. Relatively few firms are capable of supplying components to the sufficient quality and so the cost of
switching is high. *Single-sourcing remains popular, however due to risks of single-sourcing, some firms move to
delegated or parallel sourcing**
Bullwhip effect: a small disturbance at one end of the chain causes increasingly large disturbances as it works its way ‘upstream.’
Demand fluctuations become progressively amplified as their effects work back up the supply chain. An effective way to improve the
performance of supply networks is to find ways to minimize the bullwhip effect. This usually means coordinating the activities of the
operations in the chains in several ways (look at page 258 for these means of improving)
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Lecture 4: Process and Improvements in Services 2
The traditional approach (a) assumes each stage in the process will place its output in an inventory or queue that ‘buffers’ that stage
from the next one downstream in the process (b) transformed resources are passed directly to the next stage ‘just-in-time’ for them
to be processed further. If a problem occurs at a stage, it can focus on the problem alone, and the stages can utilize the buffer
inventory.
Lean vs. Traditional approach: the traditional approach seeks to encourage efficiency by protecting each part of the process from
disruption. The lean approach takes the opposite view, believing that exposure of the system to problems can both make them more
evident and change the motivation of the whole system towards solving the problems.
Risks of low inventory: reducing inventories risks increasing the vulnerability to large disruptions or changes in supply or demand.
- For shooter variation, for example a short-term decrease in supply, it would be sensible to allow inventories to temporarily
increase. For more drastic variation (i.e. covid) both demand and supply are affected to such an extent that high or low
inventory would have made little or no difference.
- Reducing the level of inventory or queues allows operations managers to see the problems in the operation and work to
reduce them (look at figure 11.1 on page 386 for problems)
Lean: aims to meet demand instantaneously, with perfect quality and no waste!
3 barriers to achieving Lean: (look to page389 and onwards for details regarding the following barriers)
1. Waste elimination barrier: focusing on synchronous flow exposes sources of waste
a. Waste from irregular flow
b. Waste from inexact supply
c. Waste from inflexible response
d. Waste from variability
- The paradox of lean is that focusing on lean synchronization can initially reduce capacity utilization. However, there is no
point in processing products, services, or information for the sake of it. Processing just to keep utilization high is
counterproductive, because the inventories or queues created serve to make improvements less likely.
2. Involvement barrier: organizational culture must place a very significant emphasis on involving everyone in the
organization. This cannot be neglected.
3. Continuous improvement barrier: lean synchronization objectives are often expressed as ideals, ‘to meet demand
instantaneously, with perfect quality and no waste’. While any operation’s current performance may be far from such
ideals, the fundamental lean belief is that it is possible to get closer to them over time.
Focus: (1) waste reduction:
- Ensure visibility: Appropriate layout includes the extent to which movement is transparent to everyone within the
process. High visibility of flow makes it easier to recognize potential improvements to flow. An important technique is the
 use of simple but highly visual signals to indicate that a problem has occurred, together with operational authority to stop
the process.
- Use small-scale, simple process technology rather than one large unit
- Examine all elements of throughput time: throughput time is often taken as a measure for waste in a process. The
longer that items being processed are held in inventory, moved, checked, or subject to anything else that does not add
value, the longer they take to progress through the process.
- Instantaneously delivery: delivering only and exactly when needed, when it is needed, smooths flow and exposes waste
- Pull control: production is being triggered only by real customer demand. This speeds up throughput time and
reduces confusion and inventories. 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.
- Increasing flexibility: ensures responding exactly and instantaneously to customer demand, and thus resources need to
be flexible.
- Reducing setup times: set up time is the time taken to change over the process from one activity to the next.
- Minimizing variability: variability in product/service quality, quantity, or timing, acts against smooth flow and waste
elimination
- Leveled scheduling: keeping the mix and volume of flow between stages even over time. For example, instead
of producing 500 parts in one batch to cover the next 3 months, leveled scheduling would require the process to
make only one piece per hour regularly.
- Mixed modeling: leveled scheduling can be taken further by sequencing the work as smoothly as
possible by processing in a repeated order that allows for relatively smooth flow but relies on
significant process flexibility.
- The consequence of larger batching is (a) the accumulation of large amount of revenue (b) most days are
different from one another in terms of what they are expected to produce
- Total productive maintenance: aims to eliminate variability in operations processes caused by the effect of
breakdowns. This is achieved by involving everyone in the search for maintenance improvements.
Lean synchronization philosophy can be applied to the whole supply chain: the principles are the same
- Fast throughput rate saves costs. Lower levels of inventory make it easier to synchronize. Waste is evident in the supply
chain and reduction is critical to reduce. Streamlined flow, exact matching of supply and demand, enhanced flexibility, and
minimizing variability, and pull control are all practices that will benefit the whole network.