MGT 563
OPERATIONS STRATEGIES
Dr. Aneel SALMAN
Department of Management Sciences
COMSATS Institute of Information Technology,
Islamabad
Recap Lecture 08
• ‘Stakeholder’ perspective on operations
performance
• Five generic performance objectives
• Operations Strategy VS Operations Management
• The five P’s of operations strategy implementation
Substitutes for strategy
• Some will not even know what is meant by
‘operations strategy’
• ‘We are trying to make our operations as lean as
possible’
• ‘We are reengineering our operations to avoid
organisational silos’
• Some will have a clearly worked out and thought
through articulation of how they reconcile market
requirements with operations resource capabilities.
• How does total quality management fit into
operations strategy?
• How do lean operations fit into operations
strategy?
• How does business process reengineering fit into
operations strategy?
• How does Six Sigma fit into operations strategy?
• What place do these new approaches have in
operations strategy?
Why such Response?
• These approaches are an easily understood and a
relatively simply way to tackle the complexities of
modern operations
• They seem to have worked in other organisations
• They sound as if they are new and by implication
therefore must be better than what went before
• They have been sold the idea by a consultant (or
read about it in a book), and it’s worth trying
something new because many other things have
failed to bring improvements.
Four of the most commonly
adopted of these solutions
• Total quality management
• Lean operations
• Business process reengineering
• Six Sigma
Importance of Quality
“The first job we have is to turn out quality
merchandise that consumers will buy and keep
on buying. If we produce it efficiently and
economically, we will earn a profit, in which you
will share.”
- William Cooper Procter
Defining Quality
Perfection
Fast delivery
Providing a good, usable product
Eliminating waste
Consistency
Doing it right the first time
Delighting or pleasing customers
Total customer service and satisfaction
Compliance with policies and procedures
Defining Quality (2)
• Transcendent definition: excellence
• Product-based definition: quantities of product
attributes
• User-based definition: fitness for intended use
• Value-based definition: quality vs. price
• Manufacturing-based definition: conformance
to specifications
Quality Definition
• Broadly: Meeting or exceeding customer expectations
now and in the future
• Specifically: Dimensions of Quality
• Design
• Determined before the product is produced
• Conformance
• Producing a product to meet the specifications
• “Abilities”
• Availability, reliability, maintainability
• Field Service
• Promptness, competence, integrity
The Quality Gurus
• W. Edwards Deming (1900-1993)
• Joseph Juran (1904-2008)
• Phillip Crosby (1926- 2001)
• plus many others
W. Edwards Deming
• The 14 Management Principles
• Advocate of statistical process control
• Emphasis on continuous improvement
• PDCA Wheel
• http://www.deming.org/
13
CI Methodology: PDCA Cycle
(Shewart/Deming Wheel)
1. Plan a change
aimed at
improvement.
4. Institutionalize
the change or
abandon or do
it again.
4. Act
1. Plan
3. Check
2. Do
3. Study the results; did
it work?
2. Execute the
change.
14
Root Causes of Quality Problems
• Text: “…most quality problems are caused by poor
systems, not by the workers.”
• Deming: 90 percent of quality problems are caused by
management.
• J.D. Power: at least 2/3 of the long-term quality
problems in autos are engineering and design problems.
15
Joseph Juran
• Quality “Trilogy”—planning,
control and improvement
• Emphasis on management
• “Quality Handbook”
• http://www.juran.com/main.html
16
Juran Trilogy – Managing Quality
Quality Control (During Operations)
Chronic Waste
(Opportunity for
Improvement)
Good
Breakthrough
Sporadic
Spike
Quality Improvement
Performance
Bad
Quality Planning
Original Zone of
Quality Control
New Zone of
Quality Control
Time
Lessons Learned
17
Phillip Crosby
• Zero defects
• 14-step quality implementation
program
• Emphasis on “conformance”
in the definition of quality
• Quality is Free
• http://www.philipcrosby.com/main.htm
18
Failure Cost and Detection Point
Litigation
Field Failure
Field Repair
Ship Point
Failure Cost ($)
Final Inspection
Subsystem/Assembly
Component
Prevention
Detection Time
19
Quality and Operating Costs
Internal Failure Costs
scrap, rework, retest, downtime, yield losses, disposition
External Failure Costs
complaint adjustment, returned material, warranty charges, allowances
Appraisal Costs
incoming material inspection, inspection and test, maintenance of test
equipment, materials and services consumed, evaluation of stock
Prevention Costs
quality planning, new product review, training, process control, quality data
acquisition, quality reporting, improvement projects
(Source: Juran & Gryna, "Quality Planning and Analysis", 1980)
20
Quality and Profitability
improved
quality
of design
improved
quality
of
conformance
higher
perceived
value
higher
prices
increased
market
share
increased
revenues
lower
manufacturing
and service costs
higher
profitability
Ad apted fro m "Manag emen t an d Con trol o f Quality,"
Evans & Lind say, 1993, p. 45
21
ISO 9000 and Baldrige
• ISO 9000 is a system of conformance
• Guidelines for designing, manufacturing, selling, and
servicing products.
• Selecting an ISO 9000 certified supplier provides some
assurance that supplier follows accepted business
practices in areas covered by the standard.
• Baldrige is a system of management
22
Baldrige Criteria
23
ISO 14000
• Series of standards covering environmental
management systems, environmental auditing,
evaluation of environmental performance,
environmental labeling, and life-cycle assessment.
• Intent is to help organizations improve their
environmental performance through
documentation control, operational control,
control of records, training, statistical techniques,
and corrective and preventive actions.
Total Quality Management
• Total quality management (TQM) was one of the
earliest management ‘fashions’.
• It speak of popularity was in the late 1980s and
early 1990s.
• ‘an effective system for integrating the quality
development, quality maintenance and quality
improvement efforts of the various groups in an
organisation so as to enable production and service
at the most economical levels which allow for full
customer satisfaction’
The elements of TQM
• Meeting the needs and expectations of customers
• Covering all parts of the organization
• Including every person in the organization
• Examining all costs which are related to quality,
especially failure costs
• Getting things ‘right first time’, i.e. designing-in
quality rather than inspecting it in
• Developing the systems and procedures that
support improvement
• historically many TQM initiatives fail, or at least are
not entirely successful.
• even if TQM is not the label given to improvement
initiatives, many of the elements of TQM, such as
continuous improvement, have now become
routine.
• excessive ‘quality bureaucracy’ associated with
TQM, in particular the continued use of standards
and procedures, encourages ‘management by
manual’ and over-systematised decision making,
and is expensive and time-consuming.
• it is too formulaic, encouraging operations to
substitute a ‘recipe’ for a more customised and
creative approach to managing operations
improvement.
lessons from TQM
• The core concept of a ‘total, or holistic, view’ of any
issue is both powerful and attractive.
• It provides an outline ‘checklist’ of how to go about
operations improvement.
• European Foundation for Quality Management
(EFQM) Model
• The five ‘enablers’ are concerned with how results
are being achieved, while the four ‘results’ are
concerned with what the company has achieved
and is achieving.
EFQM excellence model
How does TQM fit into operations
strategy?
• If one applied the operations strategy matrix to
such an initiative, we would expect to see a spread
of activities (albeit of differing priority) at the
intersections with each of the decision areas.
• Many of these prescriptions stress that operations
quality programmes should be both strategic and
comprehensive
Deming’s 14 points
1. Plan for a long-term commitment to quality
(development and organisation).
2. Quality must be built into the processes at every
stage (process technology, supply network,
development and organisation).
3. Cease mass inspection (process technology, supply
network, development and organisation).
4. Do not make purchase decisions on price alone
(supply network, development and organisation).
5. Identify problems and work continuously to improve
the system (supply network, development and
organisation).
6. Implement statistical process control and quality
training (process technology, development and
organisation).
7. Institute leadership and a human-centred approach to
supervision (development and organisation).
8. Eliminate fear (supply network, development and
organisation).
9. Break down barriers between departments (supply
network, development and organisation).
10 Stop demanding higher productivity without the
methods to achieve it (capacity strategy, process
technology, supply network, development and
organisation).
11. Eliminate performance standards based solely on
output (capacity strategy, process technology, supply
network, development and organisation).
12. Remove barriers to pride in workmanship
(development and organisation).
13. Institute education and self-improvement
programmes (development and organisation).
14. Create a top management structure that
emphasises the above 13 points every day
(development and organisation).
TQM elements in the four operations strategy
decision categories