Management Engineering - Operations Management

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Complete course

OPERATION S MANAGEMENT “Se trovi utili questi appunti, considera di fare una donazione per supportare il mio lavoro e contribuire a mantenere disponibile questo materiale per tutti gli studenti. Ogni contributo, grande o piccolo, fa la differenza!” “If you find these notes helpful, please consider making a donation to support my work and help keep this material available for all students. Every contribution, big or small, makes a difference! ” Link: https://gofund.me/f92033eb SYLLABUS 1. INTRODUCTI ON ................................ ................................ ................................ ................................ ................ 7 2. OPERATION STRATEGY ................................ ................................ ................................ ................................ ...... 9 2.1. STRATEGIC LEVELS ................................ ................................ ................................ ................................ ...... 9 2.2. RELEVANT FACTORS OUTSIDE T HE COMPANY ................................ ................................ .............................. 9 2.3. FACTORS INFLUENCING COMPANY’S RESOURCES ................................ ................................ ...................... 10 2.4. INNOVATIVE APPROACH ................................ ................................ ................................ ........................... 10 2.5. STRATEGY ................................ ................................ ................................ ................................ ................ 11 2.6. THE VOICE OF THE CU STOMER ................................ ................................ ................................ .................. 12 2.7. OPERATION OBJECTIVES ................................ ................................ ................................ ........................... 13 2.8. STRATEGIC LEVERS (IMPORTANT) ................................ ................................ ................................ .............. 13 2.8.1. ST RUCTURAL DESIGN C HOICES (INVESTMENT) ................................ ................................ ................... 13 2.8.2. INFRA STRUCTURAL DESIGN CHOICES (ORGANI ZATIONAL) ................................ ................................ ... 14 2.8.3. DELIVERY MANA GEMENT CHOICES ................................ ................................ ................................ .... 14 3. HQ CASE ................................ ................................ ................................ ................................ ......................... 15 4. MODEL FOR OPERATIONS STRATEGY ................................ ................................ ................................ ............... 21 4.1. PERFORMANCES ................................ ................................ ................................ ................................ ...... 21 4.1.1. QUALIFIERS ................................ ................................ ................................ ................................ ....... 21 4.1.2. ORDER WINNERS ................................ ................................ ................................ ............................... 22 4.2. HOW TO DEFINE PERFORMANCES ................................ ................................ ................................ ............. 22 4.3. BREAKEVEN CURVE ................................ ................................ ................................ ................................ .. 23 4.4. LIFECYCLE’S CURVE ................................ ................................ ................................ ................................ ... 24 4.5. A TYPOLOGY OF OPERATIONS ................................ ................................ ................................ ................... 24 4.6. OPERATIONS ST RATEGY SHOULD GUIDE T HE TRADE -OFFS BET WEEN PERFORMANCE OBJECTIVES .............. 25 4.7. THE E FFICIENT FRONTIER ................................ ................................ ................................ .......................... 26 4.8. POTENTIAL CURVE ................................ ................................ ................................ ................................ ... 27 5. INTRODUCTI ON TO SERVICE AND SERVICE PROCESSES ................................ ................................ ..................... 28 5.1. WHAT IS THE DIFFERE NCE BETWEEN PRODUCTS AND SERVICES? ................................ ............................... 28 5.2. SERVICE PROCESSES ................................ ................................ ................................ ................................ . 29 5.3. OPERATIONS SYSTEM CHA RACTERISTICS: ................................ ................................ ................................ .. 30 5.3.1. INTERACTION WITH CU STOMERS ................................ ................................ ................................ ....... 30 5.3.2. VOLUME TO HANDLE VS VARIETY OFFERED ................................ ................................ ........................ 31 5.3.3. VARIABILITY (OF DEMAND, OF CAPACITY) AND UNCERTAINTY (third point of operations in service system) ................................ ................................ ................................ ................................ ...................... 36 6. SERVICE CONCEPT ................................ ................................ ................................ ................................ .......... 37 6.1. LAUNCHING A NE W SERVICE ................................ ................................ ................................ .................... 37 6.2. THE SERVICE PROFIT CHAIN ................................ ................................ ................................ ...................... 38 6.2.1. CUSTOMER VALUE EQUATION ................................ ................................ ................................ ............ 39 7. SHOULDICE HOSPITAL CASE ................................ ................................ ................................ ............................ 41 8. ONTARIO PACKAGIN G ................................ ................................ ................................ ................................ ..... 50 9. STRATEGY CAPACITY MANA GEMENT ................................ ................................ ................................ ............... 54 9.1. TIMING OF CHANGE ................................ ................................ ................................ ................................ . 55 9.1.1. LEADING AND LA GGIN G STRATEGIES ................................ ................................ ................................ .. 55 9.1.2. SMOOTHIN G ................................ ................................ ................................ ................................ ..... 56 9.1.3. FILLING PRODUCTS ................................ ................................ ................................ ............................ 56 9.1.4. OUTSOURCIN G ................................ ................................ ................................ ................................ .. 56 9.2. THE LIFE CYCLE EFFECT ON CA PACITY STRATEGIES ................................ ................................ ...................... 57 9.2.1. ERRORS IN DEMAN D FORECAST ................................ ................................ ................................ ......... 57 9.2.2. ERRORS IN PLANNED LEAD -TIME AND CAPACITY INCREMENT ................................ ............................. 57 9.3. SCENARIO ANALYSIS ................................ ................................ ................................ ................................ . 57 10. QUEUE MANA GEMENT ................................ ................................ ................................ ................................ . 59 10.1. WHAT IS A QUEUIN G SYSTEM FORME D OF? ................................ ................................ ............................ 59 10.2. QUEUEIN G SYSTEM M ODELLING ................................ ................................ ................................ ............. 61 10.3. QUEUIN G SYSTEM PARTS ................................ ................................ ................................ ........................ 62 10.3.1. POPULATION: ................................ ................................ ................................ ................................ .. 62 10.3.2. ARRIVAL PROCESS ................................ ................................ ................................ ........................... 62 10.3.3. T HE SERVICE PROCESS: ................................ ................................ ................................ .................... 64 10.3.4. QUEUE CONFI GURATION: ................................ ................................ ................................ ................ 64 10.3.5. QUEUE DISCIPLINE ................................ ................................ ................................ ........................... 65 10.4. QUEUE SYSTEM ANALYSIS TOOLS ................................ ................................ ................................ ............ 65 10.5. KENDALL’S CODI FICATION ................................ ................................ ................................ ....................... 66 10.6. TWO ACHIEVABLE GOALS WHEN SIZING A SYSTEM ................................ ................................ .................. 70 10.7. MANA GERS MODI FY QUEUEING SYSTEM IN ORDER TO GET BETTER PERFORM ANCES .............................. 71 10.7.1. PSYCHOLOGY OF WAITIN G ................................ ................................ ................................ ............... 71 EXERCISE 1: -> M/M/c ................................ ................................ ................................ ................................ ..... 72 EXERCISE 2: -> 2 subsystem M/M/1 and 1 system M/M/1 ................................ ................................ ................ 73 EXERCISE 3: -> NODES BALANCING TO FLOWS CALCULATION (TDE) ................................ ................................ ... 75 EXERCISE 4: ................................ ................................ ................................ ................................ .................... 78 EXERCISE 5: STERILISATION CENTRE ................................ ................................ ................................ ................. 82 EXERCISE 6: MECCANICA SPA ................................ ................................ ................................ .......................... 88 EXERCISE 7: DESPACITO ................................ ................................ ................................ ................................ ... 91 11. COPING WITH VA RIABILITY AN D UNCERTAINTY ................................ ................................ ............................. 93 11.1 MANA GING VA RIABILITY ................................ ................................ ................................ ......................... 93 11.1.1. DECOUPLING DEMAN D AN D CAPACITY (BU FFERIN G): ................................ ................................ ....... 93 11.1.2. MANA GING CAPACITY: ................................ ................................ ................................ ..................... 94 11.1.3. MANA GING DEMAN D: ................................ ................................ ................................ ..................... 95 11.2 MANA GING UNCERTAINTY: ................................ ................................ ................................ ...................... 96 12. SHARIN G ECONOM Y SERVICES (SES) ................................ ................................ ................................ .............. 97 12.1 SES AND DIGI TALISATION: NE W BUSINESS OPPORTUNITIES AND NEW ECON OMIC RULES .......................... 97 12.1.1 SHA RING ECON OMY DEFINITION ................................ ................................ ................................ ...... 98 11.2 SHA RING E CONOM Y CHA RACTERISTICS ................................ ................................ ................................ ... 98 12.3. SES BUSINESS MODEL TRANSACTION (2 SIDE M ARKET - TRAN SACTIONAL ) ................................ .............. 99 12.4. SHARIN G ECONOM Y BUSINESS MODEL TRAN SACTION ................................ ................................ ............ 99 12.5. SES AND OPERATIONS MANA GEMENT ................................ ................................ ................................ .. 100 12.6. CLOU D COMPUTING AND C LOUD MANUFACTURIN G ................................ ................................ ............. 100 13. YIELD M ANAGEMENT ................................ ................................ ................................ ................................ . 102 13.1. CONTEXT ................................ ................................ ................................ ................................ ............. 102 13.2. DE FINITION ................................ ................................ ................................ ................................ .......... 102 13.3. HI STORY ................................ ................................ ................................ ................................ ............... 102 13.4. IDEAL CHA RACTERISTICS FOR YIELD M ANAGEMENT ................................ ................................ .............. 103 13.5. POSSIBLE PROCESSES ................................ ................................ ................................ ........................... 103 13.6. YIELD MANAGEMENT TOOLS ................................ ................................ ................................ ................ 103 13.7. THE YIELD MANA GEMENT GAME ................................ ................................ ................................ .......... 105 13.8. PROTECTION LEVEL DEFINITION ................................ ................................ ................................ ............ 106 13.8.1. MARGINAL ANALYSIS APPROACH ................................ ................................ ................................ ... 106 13.8.2. HEURISTIC EXPECTED MARGINAL SEAT REVENUE (EMSR) ................................ ................................ 108 13.9. OVERBOOKIN G ................................ ................................ ................................ ................................ .... 110 13.9.1. AVERA GE VALUES APPROACH ................................ ................................ ................................ ........ 111 13.9.2. FIXE D SERVICE LEVEL ................................ ................................ ................................ ..................... 111 13.9.3. MARGINAL APPRACH -> BE ST APPROACH ................................ ................................ ....................... 111 EXERCISE 1: FUTURE SPA ................................ ................................ ................................ ............................... 113 EXERCISE 2: ................................ ................................ ................................ ................................ .................. 117 EXERCISE 3: (non fatto) ................................ ................................ ................................ ................................ . 122 EXERCISE 4: MARCUS AUTOMOTIVE (non fatto) ................................ ................................ ............................. 126 EXERCISE 5: Astoria -Hotels OVERBOOKING ................................ ................................ ................................ .... 128 EXERCISE 6: EASY -FLY -> HEURI STIC EMSR ................................ ................................ ................................ ..... 130 14. SYSTEM PHYSICS ................................ ................................ ................................ ................................ ......... 134 14.1. PRODUCTION CAPACITY IN TERMS OF VOLUME AN D MIX ................................ ................................ ...... 134 14.2 AVAILABILITY ................................ ................................ ................................ ................................ ........ 134 14.3 SERIAL SYSTEM ................................ ................................ ................................ ................................ ..... 134 14.4 DE COUPLED VS COUPLED SERIAL SYSTEM ................................ ................................ .............................. 135 14.5 SET -UPS AND SYSTEM FLEXIBILITY ................................ ................................ ................................ .......... 136 14.6 BATCHING ................................ ................................ ................................ ................................ ............. 137 PROBLEMS OF LON G SETUP TIMES ................................ ................................ ................................ ............ 140 EXERCISE 1 – WASHIN G SPA ................................ ................................ ................................ .......................... 141 EXERCISE 2 – MTCF SPA ................................ ................................ ................................ ................................ . 143 15. LEAN MANAGEMENT – OPERATIONAL E XCELLENCE ................................ ................................ ...................... 146 16. LEAN TOOLS ................................ ................................ ................................ ................................ ............... 154 16.1. ROC – RANK ORDE R CLUSTE RING ................................ ................................ ................................ .......... 154 16.2. 5S ................................ ................................ ................................ ................................ ........................ 156 16.3. ELIMINATE WA STES AND RE WORKS ................................ ................................ ................................ ...... 157 PARETO CHART/ANALYSIS ................................ ................................ ................................ .......................... 157 FISHBONE/ISHIKAWA DIAGRAM ................................ ................................ ................................ ................ 157 5 WHY ................................ ................................ ................................ ................................ ...................... 157 16.4. SMED (single minute exchange die) ................................ ................................ ................................ ...... 157 16.5. TPM - total p roductive maintenance ................................ ................................ ................................ ..... 158 16.6. LEVELLING ................................ ................................ ................................ ................................ ............ 158 16.7. KANBAN ................................ ................................ ................................ ................................ .............. 160 17. MANAGE VA RIABILITY ................................ ................................ ................................ ................................ 162 17.1. MUDA MURA MURI ................................ ................................ ................................ ............................. 162 17.2. A SMALL DICE GAME FOR THE KIN GMAN FORMULA: LE T’S PLAY ................................ ............................ 162 17.3. HOW TO SET TARGETS ................................ ................................ ................................ .......................... 164 18. VALUE ST REAM MAPPING ................................ ................................ ................................ ........................... 167 18.1. IDENTI FY A PRODUCT FAMILY ................................ ................................ ................................ ............... 168 18.2. MAPPING ................................ ................................ ................................ ................................ ............. 168 18.2.1 MATERIAL MAPPING ................................ ................................ ................................ ....................... 168 18.3.2 INFORMATION FLOW ................................ ................................ ................................ ...................... 171 18.3.3 TIMELINE ................................ ................................ ................................ ................................ ....... 172 FUTURE STATE: ................................ ................................ ................................ ................................ ............. 172 1. What is th e demand volume we want to satisfy in this flow? Wha t is the takt time? ............................... 172 2. Are we manufacturing a product to be directly shipped to the customer or to supply a finished goods warehouse ? ................................ ................................ ................................ ................................ .............. 173 3. Where can we increase the flowing of the system without stops? Where can we use continuous flow processing? ................................ ................................ ................................ ................................ .............. 173 4. How do we connect stages that we are not able to put in the continuous flow? Where will you need to use supermarket pull systems to control production of upstream processes? where do we need the supermarket buffer? ................................ ................................ ................................ ................................ ..................... 177 5. How do we plan, schedule the production system? At what single point in the production chain (the “pacemaker process”) will you schedule p roduction? → PACEMAKER Process ................................ ............ 179 6. How do we manage the mix of the production? How will you level the production mix at the pacemaker process? ................................ ................................ ................................ ................................ ................... 180 7. What is the increment that we release in the system, the minimum unit we can manage and move inside the system? Single items or trays of item s? ................................ ................................ ................................ 183 8. With the first 7 we are changing the configuration of the system (the goal), but in order to make it feasible, what are the necessary improveme nts, operative changes? ................................ ................................ ....... 184 EXERCISE 1 ................................ ................................ ................................ ................................ ................... 185 EXERCISE 2 ................................ ................................ ................................ ................................ ................... 188 EXERCISE 3 (MTO) ................................ ................................ ................................ ................................ ......... 196 EXERCISE 4 ................................ ................................ ................................ ................................ ................... 200 EXERCISE 5: ................................ ................................ ................................ ................................ .................. 205 18. LEVEL AND PULL ................................ ................................ ................................ ................................ ......... 211 18.1 MATCHING CA PACITY TO DEMAND ................................ ................................ ................................ ........ 214 1. What production strategy? (MTS, ATO, MTO) ................................ ................................ ......................... 214 2. How many invento ries? ................................ ................................ ................................ ......................... 215 3. How will you organize and control the finished goods store? ................................ ................................ .. 215 18.2 CREATING T HE PACEMAKER ................................ ................................ ................................ ................... 216 4. Where will you schedule the value stream? ................................ ................................ ........................... 216 5. How will you leve l production at the pacemake r? ................................ ................................ .................. 216 6. How will you convey demand to the pacemake r to create pull? ................................ .............................. 217 19. CREATING CONTINUOS FLOW ................................ ................................ ................................ ...................... 219 19.1. HOW TO DESIGN A CELL? ................................ ................................ ................................ ...................... 219 PAPER KAIZEN ................................ ................................ ................................ ................................ .......... 223 HOW MUC H AUTOMATION ................................ ................................ ................................ ....................... 225 CELL LAYOUT: Arrange machines, workstations, and material presentation devices as if only one operator makes the product from beginning to end. ................................ ................................ ................................ ........... 228 20. LEAN PRODUCTION IN NON -REPETITIVE COMPANIES ................................ ................................ ................... 232 21. INDU STRY 4.0 & LEAN ................................ ................................ ................................ ................................ . 238 22. LEAN AND SUSTAINABILIT Y ................................ ................................ ................................ ......................... 242 23. LEAN INNOVATION ................................ ................................ ................................ ................................ ...... 244 Lean Innovation as a Process → BML (Build -Measure -Learn) ................................ ................................ ..... 245 AGILE ................................ ................................ ................................ ................................ ........................... 248 SCRUM ................................ ................................ ................................ ................................ ..................... 248 VSM - STARM INDU STRIES EXERCISE ................................ ................................ ................................ ................. 251 Some clarifi cations useful for VSM ................................ ................................ ................................ .................... 260 EXAM SIMULATION – KASHMIRO SPA ................................ ................................ ................................ ............... 261 1. I NTRODUCTI ON Operations and process management is about how organizations produce goods and services. Operations management is about the tasks, issues and decisions that are necessary to manage processes effectively, both within the operations function and in other parts of the business. Every organization has an operations function because every organization produces some mixture of products and services . =t is always concerned with managing the core purpose of the business. Processes are the component parts of operations. Operations are strictly related with the creation of value. (COO=chief operati on officer ). Why this course? • Operations are central to the company's business and mankind ’s sustainability (sostenibilita dell’umanità) . Operations are responsible for Profit, People and Planet. Operations’ relevance in a Company : o Spending on material purchase can be 50 -80 % of turnover/total cost o Spending on personnel can be 30 -50 % of turnover/total cost (50 -80 % in services) o The annual cost of the facilities (plants, information systems, etc.) can be 30 -40 % of turnover/total cost o =nvestments are high and are binding for a long time, so making the right choices is crucial: ▪ a site can cost tens of millions of € and take 2 years to be realized ▪ develop distinctive competences even more Operating Officer strongly affects the way people work, thus affecting their performances, their satisfaction, their realization, their happiness. Operations are key in affecting mood and happiness of employees (and people) . Operation is the key area in realizing a cleaner production and planet. • The skills in the Operations area are critical and strongly impact the competitive advantage. Both in industrial companies and in the service ones. Operations contribute to Companies strategy. Strategy has two aspects: - where to compete - how to get there (usually the most difficult part) • Services are a special world, and a rapidly growing ones. Operations in services are at dawn (agli albori) : companies are struggling to find service -specific skills. A good part of services is due to outsourcing policies. • =mproving/ innovate is winning (Operational Excellence): =f you improve more than your competitors, you will win. =mproving is part of the human nature=>let ’s do it • =ndustry 4.0 • There is a strong innovation taking place in the management of companies and organizations: LEAN. - LEAN: continuous improvement, and Respect for People - Six Sigma: reduce variability and gain control, through a powerful (and sophisticated) set of tools - Agile: be fast, be flexible 2. OPERATI ON STRATEGY The success of a company is determined by the strategy it pursues in the market. With the business strategy, the company tries to gain a competitive advantage over the potential competitors in the market, and the survival of the company is directly related to the competitive advantage that the company has built over time. 2 . 1 . STRATEGI C L EV EL S =f we talk about strategy in general, we can have strategy that works at the corporate level . =magine large multinational companies, for example Procter & Gamble or Nestlé, these are very large companies where the company encompasses (comprende) many environments. Then there is the deployment of this corporate strategy at the lower levels, in the different business units of the company. Within a business unit, there is a business unit manager who manages the corporate strategy. So, he decides where he wants to compete in the market (segmentation, targeting and positioning) and how he wants to manage the different resources and functions within the business unit (4 P’s) . Then there is the deploymen t at the most operation level, where customer contact is established. =t is a completely hierarchical view , where we have a brain in the holding that provides inputs to the lower levels, which then generate outputs with those inputs and the outputs become inputs to the still lower . So it's a top -down hierarchical view and that's the way traditional companies have been run. This is the traditional view , which is perfectly coherent with the top -down view . There is the owner that has an idea. That idea is then passed on to the manager (objective is revenues) . First, the manager tells with the sales people and the marketers , "We have to sell this, we have to get these customers”. So he first creates a plan with the sales - people and marketing, which then becomes a target for the operation function, which has to meet the requirements of sales. This is the traditional view, but this started to change because of many reasons 2 . 2 . REL EVAN T FACTORS OU TSI DE THE COMPAN Y • Offer > Demand : The supply has become much greater than the demand. Today, for 99% of the market, global capacity is much greater than global demand. =t is no longer true that every time you produce, the customer will buy it for sure. The market offers so many options that the customer can now choose which product to buy. • Customization : =f = have many options, then as a customer = start to want a product that is as close as possible to my specific needs. Then = start asking my suppliers to produce something that is suitable for my individual request. This is true for both the B2C customer and the B2B market. • Globalization : is a cause of the first point. =t is the ability to capture the demand surplus worldwide . • The speed of the innovation : the speed at which an organization can improve their existing products and services, but also the speed at which the company is able to introduce new products and services to capture the needs of the constantly evolving markets where it operate s in. All of this makes competition between companies even more intense and underscores the importance of creating a competitive advantage for a company. 2 . 3 . FACTORS I N F L U EN CI N G COMPAN Y ’ S RESOU RCES There are other factors that come from within the companies. • Cultural (educational level): the people who are in the company today are completely different from those we had in the past. The people who go to work today are much more educated, they come with complex ideas that can make a real contribution even at the strategic level of the company. People are the most important resource. This is true, because there is a great potential, because people today are educated, they know a lot. So, they can really contribute to the success of the company. • Another opportunity is =CT technology / =ndustry 4.0. Today, there are a lot of technologies that are available to businesses at a low price (internet, 3D printer) . • Economical (wealth increase) • Social (authority acknowledgment) 2 . 4 . I N N OVATI V E AP P ROACH The world is changing and that leads to different requirements for companies. We cannot use a management model that was good 30 years ago. Therefore, the management model must change to follow the new demands and opportunities of the market. :ow is the managerial approach evolving? =nstead of a rigid view, a more integrated view of the management approach is sought (è cercata) , where the different functions of the business unit complement each other. So now when you set up the business unit, you consider the integration of the different functions. =t is no longer just top -down. The strategy, to be successful, has to be a horizontally integrated strategy where all functions consider opportunities and requirements at the same time. Today, strategy must be a continuous interaction between vision and mission -> board vision and feedback from the field. This innovative approach to create a strategy means that we end up with a strategy that is composed of a part of the strategy that we call the deliberate strategy , that is, the strategy that we develop at the board table (tavolo del consiglio) , and the emerging strategy , i.e. the part of the strategy that comes from practice, from that the different functions create in their daily work. What has been decided by the business unit is not only top -down , but also bottom - up , because we have to influence the decision of the board based on the opportunities that we see. There is a part that is being implemented and a part that is evolving. So operations have to play a proactive role in defining the strategy. 2 . 5 . STRATEGY What is an operation strategy ? • The operation strategy refers to a long -term vision of the company. An example of an investment in an operation strategy is a new plant for the operations manager. • Operation strategies refer to a higher level of analysis and to a greater level of aggregation. So, in the case of Barilla , we are not talking about the Penne Rigate item or the Parma market. But rather we are talking about the gluten -free family • Operations strategy uses higher levels of abstraction. =n this simplified supply chain model, we do not go into the single workstation , but we need to abstract to work at these higher levels. Operation strategy is an integration of deliberate strategy (top down) and bottom -up strategy. Example : A manufacturer of metrology instruments wants to increas e the competitiveness of the company by improving time to market (he wants to be faster than the competition in developing new product s ). This is the point of view that requires a certain type of in vestment: R&D is expensive for this type of industry. What are the opportunities from below? Some experiments, some contacts with customers. Some functions have made experiments with modular design to innovate. Modular design is used to create sample innovations. They have done some experiments and it has worked well. This is an opportunity that influences operation strategy. :ow can we innovat e ? You can reduce time to market by using modular design innovati on instead of direct product innovation. That is integration. This model traces the progression of the operations function from what is the largely negative role of ‘stage 1’ to becoming the central element of competitive strategy in excellent ‘stage 4’ operations. • Internally neutral : the company is not able to follow/sustain that strategy because operations are so bad. The rest of the organization would not look to operations as the source of any competitive drive. • Externally neutral : operations are as good as your competitor level . • Internally supportive : operations are a part of a company that differentiate the company in the market . • Externally supportive: operation s are a leading function of your company. My Operations are able to change the expectation of the entire industry . Operations looks to the long term. Operations are creative and proactive. They are innovative and capable of adaptation as markets change. Essentially, they are trying to be ‘one step ahead’ of competitors (ex Tesla for electric car, Toyota for hybrid car) The more = develop my operation the more is the contribution that they give to my corporate strategy. 2 . 6 . THE V OI CE OF THE CU STOMER Translate the operations in performances. So how do we create an operation strategy? Operation strategy consists of setting a goal and planning the steps to achieve that goal. We start by understanding the needs of the customer in order to satisfy them, because that is our goal. The goal come s from the voice of the customer. :ow do we practically implement the customer's needs? By positioning . What are the goals for operation strategy? - maximization of NPV (revenues is not the main objective of operations) - sustainability - cost - quality - service - quality of specifics (features) - capacity of customize What are the performances - KP=? 1. Time : We can set a target for time performance or compare time performance with competitors. o Response time : is the time that elapses between the customer's request and the delivery to the customer . For example , there is someone who chooses between Glovo and Deliveroo, depending on how long it takes to get to your home. o Punctuality : how well is the delivery date , specified by the customer , met . Delivery reliability – timeliness . This is a typical performance that really affects the supplier. =t is important to keep the delivery exactly on time. Either you deliver on time or you pay a penalty. Punctuality is measured as percentage (ex: 97%) o Time to confirm the order : (Airbnb need the confirmation of the host while on booking the confirmation is instantly. 2. Price/Cost : The price that for the operation perspective is the cost. The cost is usually not just the cost of purchasing, but the total costs (Total cost of ownership). Total costs are: o The cost of purchase o The cost of using the product o The cost of maintaining the product o The cost of update/ upgrade/ expansion o The cost of disposing of the product at the end of its life. 3. Quality : there are two types of quality performance. The quality of design (specifics) and the quality in terms of conformance (capacity of the company on respecting the quality specifics that have been promised) . Example: Panda and a Ferrari. The design quality is undoubtedly higher for the Ferrari. But what happens whe n we look at quality in terms of conformance, that is the promises made to the customer? Ferrari makes 10,000 cars a year, and the top speed is not the same for all cars. We have some cars with 300 kilometres per hour, other cars with 305 kilometres per hour. Maybe the Panda cars all have the same top speed of 170 kilometre s per hour. So the conformance in this case is higher for the Panda than for the Ferrari . 4. Flexibility : how much the company is flexible in following customers’ needs o Flexibility of the product , it means being able to offer a variety of products , Ex : we can provide the hamburger with meat, we can provide the hamburger with chicken. o Customization , how much you are able to customize the product you send to the customer. o Variety of flexibility : it is similar to that of the product. =t is the variety inside the product family. o Flexibility of the plan: how much you are flexible in following the delivering plan of the customer . =t is about flexibility in delivery and the relationship you have with the customer. For instance , if = have to choose between two doctors, one of whom offers an appointment two days a week in the morning , while the other gives you the option to write him a message and make the appointment on weekdays , that is the flexibility of the plan. 5. Service : this is a sphere that includes many additional services that can be offered to the customer to increase the value of what is given to him . For example : you are an industrial manufacturer and you want to buy an industrial machine to produce pape r rolls. You can also have: - Training: the company provide the machine and also the training - Updating: for instance the frequency of the machine’s software update - after sale support 2 . 7 . OP ERATI ON OBJECTI V ES Time, Price (cost), Quality, Flexibility, Service. These are targets difficult to achieve and it is not possible to reach the optimum value in all dimensions. Many performances are in trade -off . =t is too easy to say “ok, = want to be the best in all areas”. You have to decide on the goal you want to achieve or the customers you want to serve. =t is necessary to align Operations and Market . Starting with customer needs, i.e. market positioning, competitors and definition of performance. Then we have to define the second part of the operation strategy that is which levers the operation manager has to activate or invest in the operation system . 2. 8. STRATEGI C L EV ERS (I MP ORTAN T ) What are the levers that we can use to achieve our final goal? Reconciliation model . The levers in the hands of the operations manager can be divided into three main categories: 1. Structural design choices 2. =nfrastructural design choices 3. Delivery management choices =nside of each cluster = have different elements/levers. All of them has a positioning in the company Right part is the side of offer, what = can provide as operations manage r are achievable performances. = arrive to performances through certain choices and decision. Why is this model called reconciliation model ? Because this model helps the operations manage r make decisions on operating levers that are consistent with the goals and objectives set by the business. Reconciliation because you need to align the levers (your decisions, your investments) with the market demand you want to satisfy . 2. 8. 1. ST R U C T U R AL DE SI G N C HOI C E S (I N VE ST M E N T ) • The overall production capacity, its division and localization , i.e. how = set up the overall capacity . Example : = have a demand of 10 cars per month and = am the operations manager. Next year we will sell 11 cars. =t is up to the operations manager to decide how = set my capacity based on demand. = can set it at exactly (11), = can set it at a higher level than demand 15. What does it mean if demand is 11 and capacity is 12 or 15? These decisions 10, 12 or 15 have an impact on your performance. A capacity of 15 and a demand of 11 result s in a saturati on of 65%. What is the impact of low saturation on our performance? :igher costs than the othe r option. But we also have advantages because we have better time performance or better schedule flexibilit y performance. =f = set production at 12, = have bette r cost performance, but = run the risk of losing market opportunities. • Should I maintain a centralised plant or is it better to maintain plants in different countries and produce for the local market ? Or do = specialise the plan for one type of family or in each plant a replicated production of the families. • Make or buy . = have resources, do = manufacture all activities internally or do = outsource some activities ? Which activities do = outsource? Do = push some activities or do = keep one activity in -house but outsource an entire product line? • Technological process and equipment : what level of technology and automation do you want for your operating system? • Supply chain configuration . Do = want to configure a few or single suppliers, or do = prefer to split supply among multiple supplie rs ? Do they want close collaboration? Do = prefer a short or a long channel? • Should = change the plant system configuration in order to increase variety but reduce volume or vice versa ? = can choos e between: job shop, cells, line… (image) 2. 8. 2. I N FR AST R U C T U R AL DE SI G N C HOI C E S (OR G AN I ZAT I ON AL) • Which kind of competences and resources do I need? How do I organise my resources ? • Responsibility allocation , how responsibility is distributed? • I put resources in teams or make them work individually . This has an impact on performance. =f you work in teams, you have better performance in terms of time and quality. But maybe you have higher costs because it is more difficult to saturate a single person when working in teams. Trade -offs! • Managing by objective or process. • :ow do = set up my incentive system ? :ow do = set up these bonuses? For example , if you make an incentive system for production, based on how many items you produce you will have a production manager who will push production as much as possible without caring what you are setting. This could be an opportunity, but also a risk. 2. 8. 3. DE LI VE R Y M AN AG E M E N T C HOI C E S These levers relate to the managerial sphere. • Choice of how to meet demand . :ow do you want to satisfy your customer? Do you want to satisfy them with a make -to-stock approach or with a make -to-order approach? What are the implications on performance? • How do you realize the products you sell ? • How do you coordinate with your supply chain partner? • Maintenance , have you developed the maintenance capability internally and have a team to maintain your machines, or do you outsource the maintenance activity? Do you invest in predictive maintenance? . What are the cost and time implications? • Continuous improvement systems . :ow many resources and how much time of your resources you devote to continuous improvement plans. • What operational planning system do you use ? Do you work for immediate release ? do you adopt workloa d control logics? What are the priority rules you set , which customer do you prioritize? Do you have a priorit y? =t is a F=FO logic . 3. HQ CASE WHAT HAPPENED 7 YEARS AGO? :Q is an injection moulding (stampaggio) plastic company that was doing well until 10 years ago when :Q's biggest customer announced that it would phase out (gradualmente) of the supplying components by :Q. So, it decided to take off all products supplied by :Q in a period of 2 years. =n 2 years, the demand for :Q would decrease by 50%, leaving :Q with 50% of capacity available in the next two years. Against this background , :Q faced the emergence of small new competitors in its market. WHICH OPTIONS: The management had to make a decision: • SAME MARKET, SAME PRODUCT, NEW CUSTOMERS We want to continue to compete with the same produc t by catching new customers or by exploring new markets. =f you are so sure that you can sell the same produc t to more people, why have not you increased the volume in the past years? This means that it i s not that easy. This is because the consolidated market of :Q is a market for standard products (not high quality), so mos t likely a very stable market with consolidated technology. =t is a market where there are ma ny and strong competitors and it is difficult to gain market share so easily. ⟹ Probably these option is not feasible and no sense • DOWNSIZING : Downsizing: if you downsize a company or organization, you make it smaller by reducing the number of people working in it. We have to reconfigure our system for the new situation. Downsizing is very difficult, because this kind of company (industrial com pany) has a lot of fixed costs that are difficult to sell. A lot of old machines very difficult to sell. There are also a lot of people. ⟹ The point is that in our context it is not a good option. • FOLLOW CUSTOMERS Following the customer with an innovation of the technology. =t means changing technology completely, leading to few economies of learning, completely different processes and supply chains. =t is about developing entirely new capabilities. We are switchin g from plastic to metal. ⟹ Maybe it is feasible, but only as an experiment (2 -3%, not 50% of sales). • NEW MARKET, NEW PRODUCT, NEW CUSTOMERS Enter in a premium market, with high quality products. =t was a good choice, it appeared as the best option . • VERTICAL INTEGRATION : Acquire the customer. Why don't we buy our customer? =f we do, we can protect :Q demand and the customer will continue to buy the product. But vertical integration is difficult in this case for two reasons: first, we are in a market where the customers m anufacture household appliances (elettrodomestici ) , so the customer is bigger than the supplier and acquisition is difficult. The second reason is that the custome r operates in an environment that is not comparable to that of :Q. :Q onl y supplies some plastic compone nt s , which means that we are trying to merge with a company that has a completely different know -how. These two factors make vertical integration critical. ⟹ =t is crucial and it is not possible in this sector. • SAME PRODUCT, DIFFERENT MARKET . The current market only serves the UK market, so could look at geographical expansion. To implement this strategy, we need to understand which market deserves an opportunity, for example Asia or America. The product we want to sell is characterised by a highly standardis e d process, low quality and a low price. So if we consider a poorer country, it would be difficult to sell a cheap product in an already cheap market. Even if we consider selling in a richer country, a low -pri ced product would be more profitable, but here other factors have to be considered. Even if one could penetrate this market, transport costs, for example, would be higher. The only reasonable markets could therefore be Germany and the Scandinavian countrie s, which are neighbouring and rich countries. WAS IT A GOOD DECISION? To operate in a new market, they changed something in their operating system, so what they did? Monitoring a period of 7 years. They did a huge amount of investment. • Replaced machines , in particular they: o Sold old machines o Bought new machines The interesting fact is that the characteristics of the new machines were different; they had a higher control, a higher pressure, less maintenance and lower cycle time and so higher capacity of the asset thanks to new moulding (from single impression to multi -impression ones). But pay attention, the total capacity of the company remains the same because if we look at the table below, they used to have 51 machines while the last year they had only 22 machines ; so, they replaced the old machines with new one faster but at the same time the total number of the machines decreased, basically the total capacity remained more or less the same . With the new machines it was introduced especially the multi -impression moulding equipment . With one cycle of machine we can have 4 items now, it needs more accurate set up. Another positiveness is that we can have an accurate colour matching. The design of the moulding is no more in charge to the customers, but is in charge of :Q company, and this situation stressed the company → complain (lamenti ) of the people of production. =n the new market customers want the product as soon as possible . Moreover, we can see through the balance sheet that: ▪ Revenues increased ▪ Profit increased We should be happy, however there is a problem. The balance sheet shows the value from an economic point of view; =f we go in detail, we see that revenues increased but happened also that there is an increase in the inventories . This is normal if you increase the volume of your production your stock will increase in order to make the operati ons working. The problem is that we are operating in a fashion market, this kind of market has some characteristics as: “what is cool this year maybe it won’t be in the next year”. So, in most part of the cases what remains in your inventory after the season is something that does not giv e us gain anymore , we have seen an increase of the inventories but in order to make a company working, usually the level of inventories has not to be so high. We have already said that inventorie s are more or less 10% of the revenues . =f we assume this and we look at the increase of the level of inventories, we can see that the value of the inventories is actually higher than the value of the one that = would expect. =t means that every year we have some inventories that remain from the past season production, that has no value for the customer, and are consi dered for the company costs . =f we make the net between the net profit and the lost given by the cost of hold inventories, we will see a new evaluation of the profit completely different. We will have a decreased new profit due to the cost of obsolescence give n by the old stocks. ▪ Physiological inventory = 10% * sales (Correct to have) ▪ Psychological incremental year x= physiological inventory year x + sum of non -psychological incremental year s before ▪ Non Physiological incremental year x = inventory –Physiological incremental year x (not good if positive) ▪ Net profit corrected by obsolete stock = net profit before tax – non physiological incremental Let us compute this and understand the correcte d net profit as: Non physiological increment , year -5 = 1029 – (421+238+ 7) = 363 We have a completely different picture of the company; with this new picture we cannot say that we are not going well but we can say that there are events that we cannot control. These events make very high fluctuation in the performance, so make difficult to understand whether we are going in the correct direction or not. =n conclusion we are not going well, that is because there is not alignment between what customers are demanding and what we are providing to the customers . This misalignment is due to the production, the think is that instead of having few products with high demand we have many products with low demand. But how can we define whether this changeset in the structural configuration of the operation was a good choice or not? =n order to evaluate this, we have to understand which is the impact on the performances that we provide to the customer, we have the success of an operation strategy when we have the alignment between the performanc e provided by the operation and the performance demanded by the customers. Using the driver that we saw in the past lessons(chapter 2), what are the performances demanded by the customers? First thing to highlight is that it is impossible to compete perfectly on all the performances: you must give priorities to the performances you want to achieve. Secondly, serving different segments of customers we will have also different expectations on the performances that we are providing them. We need to understand the characteristics of the new market. The company replaced the old machines with new one , what are the characteristics: • They are faster • They are more complex • Longer STT, they have a very complex setup time because they have to setup the machine in a proper way in order to make it work for a Ferrari =t means that a big complex machine can give improvement in the cost of the products , it means that we are reducing the costs but the bigger machine means that we have a longer setup, this long setup means that we are losing flexibilit y because once = settled up the machine = want that works for a long time before that = will change the setup . We can have a look at this with a numerical example: =n the old layout, for each machine we have two change of production per shift (8h/(30 min + 3,5 h) =2), if we have a day of two shift, every day a machine can change 4 types of products. =f we repeat for 50 machines, we have 200 change of production per d ay. =n the new layout, machine changes the production every 24h (20+4) so every 3 shifts so every 1,5 days(since two shifts per day); if we repeat this to the all machines, we have that the change of production is 22/1,5= 14 products/day. So as we can see we h ave lost flexibility, at the beginning we could provide 200 different products per day while now with the new machine we can provide to the customers just 14 different products per day . Another involved important factor is the time speed, when we talk about time speed, we talk about the speed to provide a new product