New Paradigm for Managing Operations Hum Sin Hoon NUS Business School

Prof Hum SinHoon

WHAT IS OPERATIONS?

Prof Hum SinHoon

WHAT IS OPERATIONS MANAGEMENT?

Prof Hum SinHoon

Operations Management: The New Paradigm 

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Mindset : On the Management of Operations Equipment (Hardware) What do we have? What do we need? What is available? Operations Know-how (Software) How do we provide the service exactly? Do we know? Do we document? Do we follow standards? “One new from each person a day!”

Prof Hum SinHoon

Operations Management: The Knowledge-Based Process 

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Creation of Knowledge What does the customer want; Market Research What service to design and deliver Communication of Knowledge Documentation of knowledge; Procedures Imparting of knowledge; Training Implementation of Knowledge Service Creation; Service Delivery Enhancement of Knowledge New version of knowledge Prof Hum SinHoon

THE ISO 9000 SYSTEM 

Foundation for Quality Excellence  

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Documentation of Procedures Consistency of Service Quality

Framework for Service Benchmarking Basis for Knowledge Enhancement 

Continuous Improvement

Prof Hum SinHoon

The Strategic Importance of Knowledge Enhancement 

The Experience of the Japanese JIT/Lean Production System Ongoing Improvements: Fine-tuning the production system Problem Identification, Solution, Implementation Accumulation of Precise Production Knowledge Stability and Standardisation of Processes Stepping-stone towards Automation

Yields Strategic Competitive Advantages Prof Hum SinHoon

The Strategic Element of Knowledge Enhancement 

Management of Intellectual Assets Workers to be Empowered: Training; Motivation; Recognition Evolution of QCCs in Japan Multi-skilled Workers Inventory Reduced; Problems Surface Workers help each other; QCCs formed The Service Guarantee (Explicit/Tacit) Analysis of Service Recoveries; Associated Costs Allows for Problem Identification/Solution by Workers Prof Hum SinHoon

Operations Management: The New Knowledge-Based Process Managing Knowledge Pertaining to Opns Creation; Communication; Implementation; Enhancement; ISO 9000 as Platform Strategic Importance of Enhancement/CI Strategic Element for Enhancement/CI Management of Intellectual Assets

Prof Hum SinHoon

Operations Progress: The New Wisdom & Blueprint 

The International Quality Study (IQS) American Quality Foundation & Ernst & Young Definitive Study of Quality Management Practices Examined 945 Practices in 580 Organisations

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Two Key Results

Prevailing Wisdom: Same Practices for All New Wisdom: Different Practices for Different Performers Only Few Universally Beneficial Practices

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Serves as Blueprint for Operations Progress

Prof Hum SinHoon

Blueprint: The Low Performer 

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Guidelines Focus on Building the Basics Operations Processes Customer Service Processes Infrastructure Elements Examples Training Systems for Interfaces with Customers Problem Solving Capabilities Development Design Lean Processes Marketing Message: Value at Attractive Prices Prof Hum SinHoon

Blueprint: The Mid Performer 

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Guidelines Make Improvements; Measure Results Keep Up Cycle of Improvements & Measurements Examples Simplification of Processes Cycle Time Analysis Design of Mid-Management Assessment/Reward Systems Focus on Supplier Linkage Processes Focus on Strategic Plans Prof Hum SinHoon

Blueprint: The High Performer 

Guidelines Focus on Marketplace and Future Competitors and Customers

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Examples Benchmarking Processes; Market Research Processes Supplier Linkage Processes; Customer Input Processes Technology Decision and Utilisation Employee Empowerment Marketing Message: Mass Customisation Prof Hum SinHoon

Blueprint for Operations Progress 

Universally Beneficial Practices Process Improvement Methods Cycle Analysis; Process Simplification; Value Analysis Strategic Plan Development and Understanding Senior/Mid/Non- Management; Suppliers & Customers Supplier Certification Programs Formal and Informal Supplier Linkages

Prof Hum SinHoon

Reengineering Operations: Managing Innovative and Deep Changes Hum Sin Hoon NUS Business School

Prof Hum SinHoon

Process Reengineering: Strategic Operations Capability The Japanese  Process Improvement  Continuous Improvement (Kaizen)  Total Quality Management (TQM) The American  Process Innovation  Quantum Improvement (Breakthrough)  Business Process Reengineering (BRP) Prof Hum SinHoon

Reengineering: Classic Definition “Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed.” Prof Hum SinHoon

Prof Hum SinHoon

Reengineering: The Classic Example – IBM Credit The Old Process Salesperson called in with request; logged on paper; credit check by credit dept; special terms attached by business practices dept; interest rate set by pricer; administration prep quote letter; delivered to salesperson by FedEx. Required days; Status tracking not possible.

Improved Process Installed control desk; track status after each step; incurred more delay (Actual work took only minutes; delays because of ; problem is with structure and specialists)

Reengineered Process A Deal Structurer processes the entire application; support from new computer software; specialists for exception. Turnaround in 4 hours; Processed deals increased 100-fold.

Prof Hum SinHoon

Reengineering: The Classic Example – IBM Credit Net Result “IBM Credit achieved a dramatic performance breakthrough by making a radical change to the process as a whole.” Not: How do we improve the calculation of a financing quote? How do we enhance credit checking? But: How do we improve the credit issuance process? Not Fine-Tuning But Reengineering By Coordination Through Integrating Processes And Use of Information Technology Prof Hum SinHoon

Problems with Reengineering      

Classic Reengineering Breaks Departmental Structure Early Implementation Associated with Restructuring and Downsizing Led to Low Morale Classic Reengineering: Process-Focused Enterprises (Hammer & Stanton Dec ’99) Reengineering itself being Reengineered Now: Operational Innovation or Deep Change Prof Hum SinHoon

Operational Innovation (Deep Change) 

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Creating New Ways; Not Just Better Ways (of Doing Work) Classic Examples: Wal-Mart’s Cross-Docking; Dell’s Build-To-Order; Toyota’s Production System Less than 10% of Large Companies Doing OI Reasons: Culture Undervalues Operations; Operations Out of Sight; Nobody Owns OI To Do OI:    

Benchmark other Industries Focus and Break Constraints/Assumptions Turn Exception into Norm Rethink Critical Choices: What, Who, Where, When, Whether, What Information, How Thoroughly Prof Hum SinHoon

Reengineering Or OI: Other Examples Reengineering The University Curriculum: Fixed Courses Vs Flexible Electives; Year Vs Semester Registration: Yearly Vs Semester; Decentralised And Online; Add/Drop Examination: Manual Centralised Vs Online Decentralised; Repeat Failures Evaluation: Manual Forms Vs Online Capture; Quick Data Analysis/Reports Calendar: Fit With Schools; Special/Summer Term Reengineering The Hotel: Special Comm For Prototype In S’PORE Check In: Remote Hand-Held Wireless Technology Room: Network And Internet Based; Multi-Media Property Tour; Multi-Media Menu With Automated Room Service Delivery F&B Outlet: Sub-contracted Kitchen; Warming Oven; Networked Computer With M/M Menu, Video On Demand, Automated Delivery Reservation: Remote Access To Centralised D-B; Rooms Options/Future

Prof Hum SinHoon

Reengineering or OI: Putting Into Action TQM Versus BRP/OI • TQM Fine -Tunes Business Processes Between Periodic BRP/OI • TQM Ongoing/Bottom-Up; BRP/OI Periodic/Top-Driven

Start With One Process? Two Processes? Everything? • Real Question: Start With Which? • Processes That Yield The Biggest Payoffs

After Reengineering/OI: Then What? • Management Of Reengineered Processes • New Focus On Work; TQM; Till Next Round Of OI

A Methodology For BRP/OI Prof Hum SinHoon

Reengineering or OI: Putting Into Action A Structured Methodology For BPR/OI A Six-Step Guide To Process Reengineering Step #1 Identify the Process’s Customer-driven Objectives Step #2 Map and Measure the Existing Process

Step #3 Analyze & Modify the Existing Process Internal Step #5 Reengineer the Process Step #6

• Reduce cost. • Minimise cycle time. • Eliminate Defects. • What is the process? (Or the Critical Dimensions) • How much does it cost? • How long does it take? • What type of results are we experiencing? Step #4 Benchmark for Innovative, Proven Alternatives External

• Train employees. • Pilot the process. • Implement full scale. • Monitor the results.

Roll Out the New Process Prof Hum SinHoon

Multi-Dimensional Effects of Reengineering (Deep Change) Determine Jobs, People, and Structure

Processes or Operational Innovation Information Technology

Require

Enable Values and Beliefs

Induce Management and Measurement Systems Prof Hum SinHoon

Operations Management: KM Strategies 

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Operational Level TQM: Incremental Knowledge Change BPR: Quantum Knowledge Change Strategic Level Codification (People-to-Documents) Personalisation (People-to-People) What is the KM Strategy in your Organisation? Prof Hum SinHoon

Strategic Management of Operations Hum Sin Hoon NUS Business School

Prof Hum SinHoon

Managing Operations Strategically 

Operations Management In Perspective

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Strategic Operations Effectiveness  

Strategic Role of Operations Hayes-Wheelwright Framework

Prof Hum SinHoon

What is the Role of the Operations Function vis-à-vis Other Functions?

Prof Hum SinHoon

Progression of Strategic Thinking & Practices in Operations Broad Sketch Of Literature On Strategic Role Skinner [1969] Operations: Missing Link In Corporate Strategy Skinner [1978] [1985]; Wheelwright [1978]; Buffa [1984] Operations: In Support Of Corporate Strategy Wheelwright and Hayes [1984]; Hayes, Wheelwright and Clarke [1988]; Stalk, Evans and Shulman [1992]; Hayes and Upton [1998]; Hammer [2004] Operations: Basis For Corporate Strategy

Prof Hum SinHoon

Progression of Strategic Thinking & Practices in Operations Hayes-Wheelwright Framework Four-Stage Framework Of Strategic Operations Effectiveness As An Audit Instrument Providing Directions For Strategic Improvements

Prof Hum SinHoon

STRATEGIC MANAGEMENT OF OPERATIONS CAPABILITIES   

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Broad Areas Of Capabilities C : Low C or Lowest Possible C Q : High or Excellent Level  Significant cf Competitors; Sufficient to Support Image F : Responsive to Customer Reqts  Variations of Services (Delivery Flex)  New Types of Services (Product Flex/Innovation) D : Reliability/Consistency  In Terms Of Speed; and Availability Wants to have Capabilities in all Four Areas? Need to Prioritize; How? Prof Hum SinHoon

STRATEGIC MANAGEMENT OF OPERATIONS CAPABILITIES Capabilities Tradeoff Theory (Skinner 1969) Improvement In One Requires Tradeoff In Others Except When Inefficiencies/Slack Exist

Wheelwright (1981)

Quality Improvement With Cost Reduction

Skinner (1986)

With Cost Focus, Quality Is Lost; With Quality As Priority, Cost Improvement Can Follow

More Current Developments: Ferdows & De Meyer (1990s-) Cumulative Sand Cone Model For Long Lasting Operations Capabilities Improvement And Avoidance Of Tradeoffs: Sequence Important Sequence: Quality, Delivery/Dependability, Flexibility, Cost Correct Principles Of Operations Built Into System

Prof Hum SinHoon

Hayes-Wheelwright Framework Stage 1: Minimize Operations’ Negative Potential (Internally Neutral) Outside experts called in to make decisions about strategic operations issues Internal mgt control systems used for monitoring operations performance Operations not locked-in to particular system or technology; kept reactive

Stage 2: Achieve Parity With Competitors (Externally Neutral) “Industry Practice” is followed Planning horizon for operations investment decision extended: single business cycle Capital investment primary means for catching up/achieving competitive edge Prof Hum SinHoon

Hayes-Wheelwright Framework Stage 3: Provide Support To Business Strategy (Internally Supportive) Operations investments screened for consistency with business strategy An operations strategy is formulated and pursued Longer-term operations developments and trends are addressed systematically

Stage 4: Pursue Opns-Based Competitive Adv (Externally Supportive) Efforts made to anticipate potential of new operations practices and technologies Operations involved up front in major marketing/strategy decisions and vice versa Long-term programs pursued to acquire capabilities in advance of needs Prof Hum SinHoon

Litmus Tests for Assessing Stage 4 Operations Effectiveness The Attention Paid To Operations Infrastructure Stage 4 operations integrates measurement systems, planning and control procedures, and workforce policies with its structural decisions on capacity, location, vertical integration etc; it considers both structural and infrastructural elements as important and complementary sources of competitive strength The Link Between Product And Process Design Stage 4 operations emphasizes parallel and interactive development of both products and processes Prof Hum SinHoon

Litmus Tests for Assessing Stage 4 Operations Effectiveness The Amount Of Ongoing In-House Innovation And Improvement Stage 4 organisations continually invest in product and process improvements; they acknowledge the cumulative value of continual enhancements in process procedures and technologies

The Extent It Develops Its Own Operations System And Technology The typical stage 3 operations relies on outside vendors for process equipment and IT systems development. Stage 4 organization wants to know more than its vendors about everything that is critical to its business. It will continue to consult and buy from external vendors, but it will seek to understand and adapt internally in order to master these systems and technologies Prof Hum SinHoon

Strategic Importance: Management of Intellectual Assets Managing Knowledge: Key To Innovation And Continual Improvement Intellectual Assets Developed And Kept Inhouse Yields Sustainable Competitive Advantage

Manager’s Task Providing Environment That Empowers Workers Training (Impart Knowledge) Correcting (Implement/Perfect Knowledge) Improving (Creating Knowledge) Documenting (Keeping Knowledge)

Worker’s Task

Respond To Manager’s Efforts Implement Knowledge; Improve/Create Knowledge Help Build Capabilities; Experiment and Innovate Prof Hum SinHoon

A Secret is Shared We will win and you will lose. You cannot do anything about it because your failure is an internal disease. Your companies are based on Taylor’s principles. Worse, your heads are too. You firmly believe that sound management means executives on one side and workers on the other; on one side men who think and on the other, men who can only carry out the work. We have passed that stage. We are aware that business has become terribly complex. Therefore a company must have the constant commitment of its employees to survive. For us, management is the entire workforce’s intellectual commitment at the service of the company - without self-imposed functional or class barriers. (Source: Konosuke Matsushita) Prof Hum SinHoon

MANAGEMENT OF INTELLECTUAL ASSETS Knowledge: A Renewable Resource The More We Use It, The More We Have The More We Focus On It, The More We Create The sources of competitive advantage True strategic focus means that a company can concentrate more power in its chosen markets than anyone else can. Once, this meant owning the largest resource base, manufacturing plants, research labs, or distribution channels to support product lines. Now, physical facilities – including a seemingly superior product – seldom provide a sustainable competitive edge. They are too easily by-passed, reverse engineered, cloned, or slightly surpassed. Instead, a maintainable advantage usually derives from outstanding depth in selected human skills, logistics capabilities, knowledge bases, or other service strengths that competitors cannot reproduce and that lead to greater demonstrable value for the customer Source: Quinn, Dorley and Paquette (HBR 1990)

Prof Hum SinHoon

Building Capabilities in Operations Hum Sin Hoon NUS Business School

Prof Hum SinHoon

Building Capabilities In Operations 

Consider Two Models/Examples  The Wal-Mart Example  The Li & Fung Model

Prof Hum SinHoon

The Wal-Mart Example 

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Building Operations Capability to Support Strategic Intent See Description of the Wal-Mart Supply Chain Operations in Next Two Slides Consider these Questions:  Describe the Key Elements of the Wal-Mart SC; How Effective Is This SC?  Who Built this SC? Could Someone Else Build It?  To What Extent Have You Built Such A SC for Your Organisation? Prof Hum SinHoon

The Wal-Mart Example

(Source: Stalk et al, HBR)

Prof Hum SinHoon

The Wal-Mart Example

(Source: Stalk et al, HBR)

Prof Hum SinHoon

The Wal-Mart Example 

Kmart vs Wal-Mart Special Item Sale vs EDLPP Key Strategy: Replenishment Process Capability Cross Docking 85% of Goods through Own Warehouse Own Fleet of Trucks EPOS Direct to Vendors through Own Satellite Communication Replenishment: Twice per Week; Once per Fortnight (Industry)

Prof Hum SinHoon

The Wal-Mart Example 

Wal-Mart’s Strategic Intent  

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The Replenishment Process is Key! Built Capability into this Process

3PLs  

No Such Capability Then Serve as Logistics Service Transactions Providers Rather than as Strategic Logistics Service Providers (Internal Logistics Arms of Customers) Prof Hum SinHoon

The Wal-Mart Example

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Understanding the Customer’s Strategic Intent: Appreciating the Paradigms of Competition Progression of Competitive Paradigms Cost-Based Paradigm Quality-Based Paradigm Variety-Based Paradigm Time-Based Paradigm Capabilities-Based Paradigm

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Wal-Mart: Engaged in CBC with Competencies Working Together to Deliver a Strategic Logistics Capability Could Wal-Mart Outsource This? Prof Hum SinHoon

Building Operations Capabilities: The Li & Fung Model  

Consider Li & Fung Case Consider these Questions:  Describe the Li & Fung Model in its Working with their Clients; What is the Role that Li & Fung Performs on Behalf of their Clients?  What Capabilities Does Li & Fung Possess? Prof Hum SinHoon

The Li & Fung Model 

Three Elements in Logistics Operations Inbound Logistics; Production Logistics; Outbound Logistics

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In Which of these Elements Do You See the Most 3PLs Operating In? Why? Where is Li & Fung Operating? What Capabilities are Needed for this Model? Prof Hum SinHoon

The Li & Fung Model 

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“Li & Fung works with an ever expanding network of thousands of suppliers around the globe, sourcing clothing and other consumer goods ranging from toys to fashion accessories to luggage” “Managing dispersed production forced us to get smart not only about logistics and transportation but also about dissecting the value chain” “What we do is close to creating a customised value chain for every customer order” Prof Hum SinHoon

The Li & Fung Model

(Source: Magretta, HBR) Prof Hum SinHoon

Building Capabilities In Operations: The Li & Fung Model

As Architects of Entire Supply Chains  The Ultimate Task in Building Operations Capabilities? 

(Doing it yourself, or Doing it for others)

Prof Hum SinHoon

Building Capabilities in Operations: 3PLs as Architects of Supply Chains 

The Wal-Mart Example Understanding Customers’ Strategic Requirements; A Target Supply Chain For 3PLs to Build for their Customers

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The Li & Fung Model 3PLs as Architects of Entire Global Supply Chains; the Ultimate Task for 3PLs? Prof Hum SinHoon