Operations Management PPT RVU 2022.ppt

Operations Management
Yohannes Workeaferahu Elifneh
(BA, MSc, PhD)
Associate Professor of Management
10/5/2023 Operations management 1

Guiding idea of the course: ‘Operations and Supply
Chain are intrinsically linked’

CHAPTERS
Ch 1. Introduction to Operations Management
Ch 2. Competitiveness, Strategy, and Productivity
Ch 3. Innovation in the Context of Operations Management
Ch 4. Managing Quality
Ch 5. Product and Service Design (Design of Goods and services)
Ch 6- JIT and Lean Operations
Assignments
1) Product and Service Design/Design of Goods and services (30
marks) (Task: Read the power points slides and summarize the
main points in 5 pages)
2) JIT and Lean Operations (30 marks) ) (Task: Read the
power points slides and summarize the main points in 5 pages)

Lecture by the instructor
• Introduction to Operations Management
• Competitiveness, Strategy, and
Productivity
• Innovation in the Context of Operations
Management
• Managing Quality

References
• William J Stevenson. Operations Management, 11th
edition
• Chase Richard B. and N. J. Aquilano and Agarwal
(2005): Production and Production/Operations
Management: 11th Ed. USA: Richard D. McGraw Hill.
• Heizer J, Render B.(2005): Principles of
Production/Operations Management,5th ed.,New
Jesery, Pearson Education,Inc.

CHAPTER 1 - INTRODUCTION

Unit 1 - Main Points
• Meaning of operations Management
• Meaning of Supply Chain Management
• What are Operations Managers
responsible for?
• The Transformation Model
• Types of Transformation Processes

Meaning of Operations
Management
• Operations management is the
management of systems or processes that
create goods and/or provide services.
• It is the management of processes that
add value by transforming inputs into
goods and services for customers.
• Value/utility creation… mainly Form utility.

Meaning of Supply Chain
• Supply chain is a sequence of activities
and organizations involved in producing
and delivering a good or service
• Operations and supply chains are
intrinsically/basicaaly/fundamentally
linked and no business organization could
exist without both
• Next slides contain illustration for a supply
chain

Supply Chain - illustration
Sugar cane farmers (f1, f2, f3, …fn)
Sugar factories (C1, C2, C3, …Cn)
Sugar wholesalers (W1, W2, W3,….Wn)
Sugar Retailers (R1, R2, R3, ……Rn)
Consumers  Ch 1 11

Responsibility of Operations
Managers
• They are responsible for all value adding
processes. That is :
They manufacture goods
They provide services

OPERATIONS FINANCE
ORGANIZATION
MARKETING
Other Support
Functions
Three core functional areas are critical to any business
organization that creates goods or provides services:
 HR
 IT
 R&D
 etc…
1 2 3
10/5/2023 14
Operations management

Operations Manager
Manufacturing
Purchasing
Production Control
Inventory Control
Maintenance
Quality Control
Chief Executive Officer
(Manufacturing Organization)
Financial Manager
Debtors
Creditors
Source of Funds
Foreign Exchange
Capital requirements
Marketing Manager
Sales
Advertising
Market Research
Promotions
Typical responsibilities
of these three functional areas
1 2 3
10/5/2023 15

Operations managers are often also
responsible for:
o Reducing costs
o Improving quality of the product (both goods
and services)
o Increasing productivity (efficiency and
effectiveness)
o Reducing the time taken to introduce new
products
o Improving delivery & reducing lead-times
10/5/2023 16

Operations Managers…
They are involved in the efficient and effective
transformation of inputs into outputs by
• Adding value
&
• Creating wealth
10/5/2023 17

VALUE-ADDED
OPERATIONS
CONTROL
Meet
Requirements
& Feedback
Inputs
 Capital
 Intellect
 Management
Staff
 Land
 Raw Materials &
Energy
 Components
 Facilities &
Equipment
 Information
 Time
Transformation
 Processing
 Transporting
 Storing
 Exchanging
 Communicating
 Inspecting
Outputs
 Goods
 Services
Meet
Requirements
& Feedback
Meet
Requirements
& Feedback
10/5/2023 18

TYPES OF TRANSFORMATION PROCESSES
Transformation Examples
Physical & Chemical Mining, harvesting,
manufacturing goods
Exchange Retailing, bartering, trading
products
Locational Transportation, logistics
Storage Warehousing, depots
Informational Communication, internet,
publication
Physiological Health care, physical
fitness
Recreational
(Psychological)
Entertainment, leisure
10/5/2023 19

Characteristics of Goods & Services
Goods Services
Tangible (real, concrete) Intangible (non-material, abstract)
Goods are manufactured Services are provided or delivered
Tend to be capital (equipment)-
intensive
Tend to be labour-intensive
Can be stored (inventoried) Cannot be stored
Low customer contact High customer contact
Minimal participation by the
customer
Customer often participates
Delay between production and
consumption
Production and consumption are
often simultaneous
Productivity easily determined Productivity can be difficult to
determine
Often similar and mass produced Can be unique
Often patented Rarely patented
Quality generally easy to measure Quality more difficult to measure
20

Gold
Mine
100 % 100 %
GOODS SERVICES
50:50
Counselling
Bakery
Motor Vehicle
Manufacturer
Hospital
The Bread
Basket
The Spectrum of Products
10/5/2023 21

Evolution of Operations
Management
• Scientific management
– systematic analysis of work methods
• Mass production
– high-volume production of a standardized product for
a mass market
• Lean production(Lean Six Sigma)
– adaptation of mass production that prizes quality and
efficiency
– Agility- Adaptability
– Sustainability(SDGs)
Operations management 1-22
10/5/2023

Historical Events in Operations
Management
Era Events/Concepts Dates Originator
Industrial
Revolution
Steam engine 1769 James Watt
Division of labor 1776 Adam Smith
Interchangeable
parts
1790 Eli Whitney
Scientific
Manageme
nt
Principles of
scientific
management
1911
Frederick W.
Taylor
Time and motion
studies
1911
Frank and Lillian
Gilbreth
Activity scheduling
chart
1912 Henry Gantt
Moving assembly
line
1913 Henry Ford
1-23
10/5/2023

Historical Events in
Human
Relations
Hawthorne studies 1930 Elton Mayo
Motivation theories
1940s Abraham Maslow
1950s Frederick Herzberg
1960s Douglas McGregor
Operations
Research
Linear programming 1947 George Dantzig
Digital computer 1951 Remington Rand
Simulation, waiting
line theory, decision
theory, PERT/CPM
1950s
Operations
research groups
MRP, EDI, EFT, ERP
1960s,
1970s
Joseph Orlicky,
IBM
and others
10/5/2023

Era Events/Concepts
Dates Originator
Quality
Revolution
JIT (just-in-time) 1970s Taiichi Ohno (Toyota)
TQM (total quality
management)
1980s
W. Edwards Deming,
Joseph Juran
Strategy and
operations
1980s
Wickham Skinner,
Robert Hayes
Reengineering 1990s
Michael Hammer,
James Champy
Six Sigma 1990s GE, Motorola
10/5/2023

Internet
Revolution
Internet, WWW, ERP,
supply chain management
1990s ARPANET, Tim
Berners-Lee SAP,
i2 Technologies,
ORACLE, Dell
E-commerce 2000s Amazon, Yahoo,
eBay, Google, and
others
Globalization WTO, European Union,
Global supply chains,
Outsourcing, Service
Science, Built in
Environment
1990s
2000s
BRICS, emerging
economies
10/5/2023

Green
Revolution
Global warming,
Climate Change, An
Inconvenient Truth,
Kyoto,
Copenhagen, COP ,
Clean Energy vs Fossil
fuel, CRGE-Ethiopia
EMS/GSCM
Today Numerous
scientists,
statesmen and
governments
10/5/2023

The Role of Operations Management in Society
It has an impact on everything we do, everything we
consume…
 Higher Quality Products
 Defending The Cost Structure of The Organization & Containing Inflation
 Improving the Standard of Living
 Concern for the Environment
 Concern for People: Ethics & Social Responsibility
10/5/2023 28

CHAPTER 2 : Operations Strategy
10/5/2023 29

Outlines
1. What is a System?
2. Strategy Hierarchy
3. Levels of Management and types of plans
4. The big six key competencies
1. Quality - SPECIFICATION
2. Delivery - PERFORMANCE/RELIABILITY
3. Flexibility – ADAPTABILITY TO CHANGING CIRCUMSTANCES
4. Time - SPEED
5. Cost -----LOW COST
6. Service (combination of the other five competencies)
5. Production Strategies to Meet Demand
1. Level Strategy
2. Chase Strategy
3. Mixed Strategy
4. Pricing Strategy
6. Scheduling, Loading, Sequencing and Expediting
(details will be covered in your Project Management Course )

Organiza-
tion
Customers
Suppliers
KYOTO
Transport
modes
OIL Price
A set of interconnected elements that function
together in unison within a certain environment
What is a System?
10/5/2023 31

Inputs Transformation Outputs Customers
Suppliers
Competitors
Kyoto
Protocol
Globalization
Shareholders Trade Unions
Competing Supply Chains
Government
Regulations
Banks Taxes
A Transformation System Interacting with its Environment
10/5/2023 32

Corporate / business strategies
are...
…how an organization plans to accomplish its
mission and goals
…needed to survive in a changing world
…implemented through the process of
strategic planning
10/5/2023 33

Operations
Strategy
Financial
Strategy
Marketing
Strategy
Corporate / Business Strategy
Vision/Mission
Tactical
Planning
Operational
Planning
Aim & Values
Organizational Goals
Functional Goals
10/5/2023 34

Strategic planning is the preparation of
long-term plans by top management aimed at achieving
organizational goals and objectives. E.g. Earning an MBA
degree
Tactical planning is the preparation of medium- term
plans by middle management aimed at supporting the strategic
plan by achieving functional goals and tactical objectives. E.g
Completing Exams and Assignments
Operational planning is the preparation of short-term
plans by first-line management aimed at supporting tactical
plans and achieving operational goals and objectives. E.g
Reading and studying everyday
Planning levels:
10/5/2023 35

Top
Manage-
ment
Senior
or Middle
Management
First Line Management
Types of Planning Examples of Decisions
Strategic Planning:
long-range decisions
(typically 1 to 5 years)
Tactical Planning:
medium-term decisions
(Typically one month and
less than 1 year)
Operational Planning
& Control (OPC):
short-term
decisions (daily,
weekly, monthly)
Where do we locate a new factory?
What new products do we introduce?
How do we increase market share?
Should we implement ISO 9001?
Do we need additional capacity? When?
What orders have priority?
When can we schedule
maintenance?
How do we increase
productivity?
What layout do we need for the
new product? When ? What new
quality checks are required?
What equipment do we
replace? Do we need an
extra shifts?
Figure 2.4-1
10/5/2023 36

Developing a winning strategy:
Order Qualifiers vs. Order Winners
Order Qualifiers: the six competencies needed for a
business to be considered as a potential supplier: quality,
delivery, flexibility, time, cost and service.
Order Winners: the criteria that differentiate the goods
and/or services of one business from those of another,
and which result in it being awarded the order.
10/5/2023 37

A broad-based strategic planning system that aligns the various business
activities of an organization with its overall vision and mission using
balanced performance measures in four areas: financial, customers, internal
processes and learning & growth.
What is the Balanced Scorecard ?
10/5/2023 38

Financial Perspective
How do we add value for our
customers but also reduce our
operating and material costs?
Customer Perspective
How do we create value for our
customers?
Learning & Growth Perspective
How do we change to meet our
customers’ present and future
demands? What are our training
needs?
Internal Process Perspective
How do we improve our processes to
meet the present and future demands
of our customers?
From an operations management strategic viewpoint,
these four performance measures could include
the following:
10/5/2023 39

Core Competence of the
Corporation
• Core Competencies are resources and
capabilities that can serve as a source of
Competitive Advantage
• Organization’s core competency solely relies on
heterogeneity of resources and capabilities.
Four barriers may prevent competitors from
imitating a firm’s resources and capabilities:
durability; transparency; transferability; and
replicability (Prahalad and Hamel, 1990).
10/5/2023 40

Nonsubstitutable the firm must be organized appropriately to
obtain the full benefits of the resources in order
to realize a competitive advantage
Valuable allow the firm to exploit opportunities or
neutralize threats in its external environment
Rare possessed by few, if any, current and potential
competitors
Costly to Imitate when other firms either cannot obtain them or
must obtain them at a much higher cost
Resources and capabilities lead to
Competitive Advantage when they
are:
10/5/2023 41

 High and consistent quality is essential to prosper in
a competitive environment
 It is the easiest of the key criteria for a customer to
judge
 Continuously improving quality results in higher
productivity and lower costs
 High quality attracts customers; improving quality
retains customers
The BIG SIX Key Competencies:
QUALITY
1
10/5/2023 42

 Relates to the delivery of the product or the
performance of the service
 Sometimes called the “Reliability / Dependability”
competency
 Late delivery can have serious consequences
DELIVERY
2
10/5/2023 43

 Higher productivity leads to lower costs
 Lower costs allow a business to offer lower prices
 This helps to increase its market share
COST
3
10/5/2023 44

 In recent decades, competition has changed:
 from price…
 …to price & quality
 …to price & quality & delivery
 …to price & quality & delivery & TIME
 Time (& speed) provide a sustainable competitive
advantage
 Reducing time serves to gain an advantage
TIME
4
10/5/2023 45

 It means being able to…
 …adapt rapidly to changing business conditions
 …respond quickly to evolving customer needs
 Three types of flexibility:
 Volume flexibility – responding to changes in
demand
 Variety (or mix) flexibility – providing the range of
products that customers ask for
 Product flexibility – developing new products when
needed
FLEXIBILITY
5
10/5/2023 46

 Service to customers is the fusion of the other five
competencies – a blend of quality, delivery, cost, time
& flexibility
 It also means agility – how quickly a business
responds to both market and customer needs
 Agility is increasingly important with the growing focus
on supply chains
SERVICE
6
10/5/2023 47

Trade-offs
between Key Competencies
Often, one key competency may conflict with another
An organization may thus take a strategic decision to
excel in one or more key competencies at the expense
of others
10/5/2023 48

Operation Manager’s strategy to
respond to DD
• The following diagram illustrates operation
managers’s strategy to respond to
Demand
10/5/2023 49

Flowchart for preparation
of the Aggregate Plan and
the MPS
Aggregate Plan
Broad-based medium-term
plan that aggregates
demand to provide a
schedule to meet demand at
the lowest possible cost
Capacity
plans
Anticipated
growth
Master Production
Schedule (MPS)
Drives the operation by
indicating the timing &
quantity of each item to be
made to meet demand
Production Planning
& Control System
Releases works orders to
the shop floor and includes
feedback to control progress
of work orders
10/5/2023 50

Specific Strategies to be considered by
operations managers
• The following are key strategies need be taken into
account by Operations Manager
 Assemble-to-Order
 Capacity Management
 Capacity planning
 Aggregate planning
 Master production Schedule
 Production Strategies to Meet Demand
 Scheduling, Loading, Sequencing and Expediting
 Inventory Planning and Control
 Productivity a measure of efficiency

Assemble-to-Order
 Allows customization of the standard item to the
customer’s requirements
 A combination of made-to-stock (standard modules)
& made-to-order (module options assembled
according to customer’s preferences)
 Reduces lead-times considerably
 Examples:
Manufacturing – partially assembled lounge chairs awaiting
customer choice of fabric, customer-configured PCs, etc.
Services – training modules tailored to individual requirements
10/5/2023 52

Capacity Management
Capacity is the maximum amount of output that can be manufactured or
provided in a given time period
It is applicable at all levels: to an organization, workstations, equipment, staff,
etc.
Two different types of capacity:
 Design Capacity - the maximum possible output in a given period of
time
e.g ay by design a Mobile battery may be supposed to work for 24 hours
 Effective Capacity – the maximum realistic output in a given period of
time making allowances for maintenance, product mix,
scheduling, etc.
e.g. But in practice, depending upon how long you use it for game, photos,
and videos the capacity may vary, say it may work for 18 hours. 53

Capacity Management
Utilization = Actual Output
Design capacity
Efficiency = Actual Output
Effective capacity
10/5/2023 54

Capacity Planning
 As important as location decisions – reliable forecasts can
help to reduce risks
 Three levels ():
Long-term Capacity Planning (1-5 years or more)
Often an integral part of strategic planning – may involve increasing
design capacity by developing new facilities, plant…
Medium-term Capacity Planning (6-18 months)
An important part of aggregate planning – e.g. purchase of additional
equipment to reduce a bottleneck or the introduction of an additional
shift
Short-term Capacity Planning (daily, weekly, monthly)
Limited to scheduling resources – usually difficult to change capacity in
the short-term
10/5/2023 55

Aggregate Planning (or Aggregate Scheduling)
…is the determination of the capacity and
other resources required to meet demand in
the medium-term
 It is the development of a medium-term schedule (typically 6-18
months) for a single or broad group of products
 “Aggregate” = goods & services are combined to provide broad
view of capacity requirements
 Particularly useful in cases of seasonal demand
 Used to create a Master Production Schedule, the key schedule
for many operations
10/5/2023 56

Master Production Schedule (MPS)
…is a timetable for stating what particular item is to be
made and when it is to be made by breaking the
aggregate plan ino specific item and specific time
 It is at the centre of OPC (Operational Planning and Control ) –
which is generally based on a rolling planning horizon (a planning
period being advanced daily, weekly or monthly)
 It breaks down the Aggregate Plan (the overall number of a
particular product type or grouping) into the quantity & timing of
individual items (e.g. different models of finished products) required
in a specified time period
 It is a dynamic short-term plan (typically 6-12 weeks) derived from
the medium-term Aggregate Plan, moving forward continually (e.g.
rolled over at the end of each month)
10/5/2023 57

Production Strategies to Meet Demand
Level Strategy
Chase Strategy
Mixed Strategy
Pricing Strategy
1
2
3
4
10/5/2023 58

…vs. Chase Strategy…
 May result in additional costs - overtime, hiring or
laying off labour
 Used extensively in the retail (e.g. fast food) &
agricultural sectors where demand is seasonal
…involves matching the output rate by varying the
input levels (labour, etc.) to meet (chase) demand
2
 Building up stock (high holding costs) during periods of
low demand and supplying from this stock during
periods of high demand
 Examples: aluminum, steel & petrochemicals.
Unsuitable for perishable or short shelf-life items
…involves producing at a steady (uniform)
rate and using inventory (stock stored) to
meet demand
Level Strategy…
1
10/5/2023 59

1 2
DEMAND
&
OUTPUT
Time
Demand Production
DEMAND
&
OUTPUT
Time
Demand Production
vs.
Level vs. Chase Strategies
(cont’d)
10/5/2023 60
In level Strategy, despite the fluctuations in demand, the production/output
level is the same

 Pure strategies often cannot be used because:
A pure Level Strategy results in higher
inventory than desired
A pure Chase Strategy is impractical since
often labour cannot be easily hired and fired
 Thus Mixed Strategy focuses on use of overtime as
much as possible to increase production in times of
higher demand
…is a combined strategy that embraces both
Level and Chase strategies
Mixed Strategy…
3
10/5/2023 61

…is a strategy to achieve level demand by
adjusting prices
 Aims to achieve a level demand through price
adjustments & discounts
 Often used to balance demand & supply in service
organizations
Price Strategy…
4
10/5/2023 62

Scheduling, Loading, Sequencing and Expediting
 Details from the MPS are used to determine the
various scheduling activities that take place on the
shop floor to meet customer demand
 In balancing demand and supply, it is necessary to
take into account:
Scheduling
Loading
Sequencing
Expediting
10/5/2023 63

Scheduling
…is the process of determining when the resources
(workstations, labour, materials, equipment etc.) are
required to manufacture goods or provide services
 Creation of timetables for the resources needed to meet the stated
requirements in the Master Production Schedule
 The “what”, “where” and “when” of OPC (Operational Planning and
Control) : what work should be done, when it should be done and where
it should be done
 Examples in Manufacturing: production (and rescheduling when
problems encountered), equipment maintenance, on-time deliveries of
equipment for a project
 Examples in Services: hospitals operations, football league matches in
conjunction with TV networks, airlines’ flights, lectures at universities,
routes for deliveries
10/5/2023 64

 The Master Production Schedule (MPS) shows when
jobs are due for completion/delivery. Schedules must
therefore take account of the due date of the different
jobs
 Two approaches:
Forward Scheduling: Scheduling into the
future from a set point in time or start
date
Backward Scheduling: Scheduling
backwards from a due date (delivery date)
Scheduling (cont’d)
10/5/2023 65

Loading
Loading is the process of allocating work orders to
the transforming resources (workstations, labour,
equipment)
 Infinite Loading (or Infinite Scheduling) is where
work is allocated to a workstation without any
constraint on capacity
 Finite Loading (or Finite Scheduling) is where work
is only allocated to a workstation up to its available
capacity
10/5/2023 66

Infinite vs Finite loading
• An infinite loading approach to planning
and scheduling assumes that the due date
of every order is absolute. ...
• Finite capacity planning creates a more
realistic schedule for the production
processes than the infinite loading
approach, especially in the short run.

Sequencing
Sequencing is the process of allocating priorities to
individual work orders to ensure that they are
processed in a specific sequence
Priority Rules (also known Dispatching Rules) are rules used
to select the sequence in which jobs (works orders) are to be
processed. These include:
 FCFS or FIFO (First come, first served; First in, first out)
 EDD (Earliest Due Date)
 SPT (Shortest Processing Time)
 CR (Critical Ratio)
10/5/2023 68

Critical Ratio (CR) = Due Date - Today’s Date
Time required for the job
= Actual time remaining (=days left)
Scheduled time remaining (=duration)
Critical Ratio
 If CR = 1 then the job is on schedule
 If CR < 1 then the job is behind schedule
 If CR > 1 then the job is ahead of schedule
10/5/2023 69

Expediting
Expediting is the speeding up of works orders (jobs) so
that they are completed in less time than is generally
required
12
3
6
9
10/5/2023 70

Inventory Planning and Control
 Besides the strategy choices already discussed (make-to-stock,
make-to-order & assemble-to-order), other factors influencing
inventory include:
Type of manufactured goods and raw materials
Proximity to customers
Proximity to suppliers
Make-or-Buy (Insourcing or Outsourcing)
Import and export
Lead-times and manufacturing cycle time
Availability of warehousing
Bond store
Consignment stock
Supplier Managed Inventory
10/5/2023 71

Productivity
Agility in servicing customers enables organizations
along a supply chain to obtain a competitive advantage
One way of achieving this is to improve productivity
Productivity is probably the performance measure most
used in operations management
It measures the amount of output (goods and / or services) achieved
per unit of input (labour, materials, capital & energy)
It measures how efficiently resources have been used
Productivity = Output
Input
10/5/2023 72

CHAPTER 3
Innovation in the Context of Operations
Management
10/5/2023 73

Main points
• Creativity vs. innovation
• Core Theories of Innovation
• key innovation challenges
• Technology S-Curve

Meaning of Creativity
Three possible ways to define creativity:
1.Ability - to think and imagine new things
2. Attitude - that something new can be
done or created
3. Process - hard work, effort to
accomplish something new

Types of creativity
1) Exploratory - when you discover something
new !
2) Combinational – combine existing ideas
together.
3) Transformational - it is upgrading/updating

Creativity process
Step 1. Preparation - information gathering
Step 2. Incubation – using your mind to think and
imagine
Step 3. Illumination - the stage where you discover the
idea
Step 4. Verification - refining and polishing the idea

Creativity and innovation - are they the
same?
Basically, they are like the flip sides of a coin
• Creativity: Generate idea
• Innovation: marketing the idea
In Operations management the two terms
can be used interchangeably.

Types of technological innovations
1. Product Technology : any new technology developed by the firm in
a form of goods or services
Examples: smart watch, smart phones, electric cars
2. Process technology : any new technology that relates to the system
or process of performing tasks/producing goods and services
Examples: computer aided design (CAD) and computer-aided
manufacturing (CAM).
3. Information technology : any new technology that relates to
communication, processing/analyzing and storing information
Flash Disk, CD, memory stick, skype, facebook, etc
Worthy to note here that the above three are highly interlocked !
79

Core Theories of Innovation
1. Disruptive Innovation Theory (DIT)
2. Resource, Process, Value Theory (RPV)
3. Value Chain Evolution Theory (VCE)
10/5/2023 80

Disruptive Innovation
• Disruptive innovation is the process in which a smaller
company, usually with fewer resources, is able to challenge
an established business (often called an “incumbent”) by
entering at the bottom of the market and continuing to move
up-market.
• Existing companies have a high probability of beating entrant
attackers when the context is about sustaining innovations
• But established companies almost always lose to attackers
armed with disruptive innovations

The Resource, Processes, and Values (RPV)
• RPV theory explains why existing companies tend to have
such difficulty grapping with disruptive innovations
• Holds that resources (what a firm has), processes (how a firm
does its work), and values (what a firm wants to do)
collectively define an organization’s strengths as well as its
weaknesses and blind spots
Resources are things or assets that organizations can buy or sell, build
or destroy
Processes are the established patterns of work by which companies
transform inputs into outputs-products or services- of greater worth
Values determine the criteria by which organizations allocate their
resources
10/5/2023 82

RPV Theory
•Things or assets
that
organizations
can buy or sell,
build or destroy.
Examples
•People
•Technology
•Products
•Equipment
•Information
•Cash
•Brand
•Distribution
channel
Established
ways companies
turn resources
into products or
services:
Examples
•Hiring and
training
•Product
developmen
t
•Manufacturi
ng
•Planning
and
budgeting
•Market
research
•Resource
allocation
The criteria by
which
prioritization
decisions are
made
Examples
•Cost
structure
•Income
statements
•Customer
demands
•Size of
opportunity
•ethics
Resources Processes values
10/5/2023 83

RPV Theory
The RPV Theory argues that organizations
successfully tackle opportunities
– when they have the resources to succeed
– When their processes facilitate what needs to
get done, and
– When their values allow them to give
adequate priority to that particular opportunity
in the face of all other demands that compete
for the company’s resources
10/5/2023 84

RPV THEORY
• Incumbent firms master sustaining innovations
because their values prioritize them, and their
processes and resources are designed to tackle
precisely those types of innovations.
• Incumbent firms fail in the face of disruptive
innovations because their values will not
prioritize disruptive innovations, and the firm’s
existing processes do not help them get done
what they need to get done
10/5/2023 85

The value Chain Evolution Theory (VCE Theory
Producing a product or delivering a service requires completing
a set of activities. Companies have a choice:
– They can choose to integrate, executing most of the
activities themselves, or
– They can choose to specialize and focus on a narrow
range of activities, relying on suppliers and partners to
provide other elements of value added
VCE theory assesses whether a company has made the right
organizational design decisions to compete successfully.
10/5/2023 86

The value Chain Evolution (VCE) Theory
• VCE theory suggests companies ought to
control any activity or combination of
activities within the value chain that drive
performance along dimensions that matter
most to customers.
10/5/2023 87

Directly controlling, which is technically called integrating,
an activity gives companies the ability to run experiments
and push the frontier of what is possible.
Integration gives firms a full platform to run experiment to
solve problems caused by unpredictable
‘interdependencies’ between activities.
These same interdependencies can frustrate specialist
firms that try to focus on a single piece of a product’s or
service’ value chain. When a specialist’s piece interacts
unpredictably with components that other companies
design and make, it typically results in poorly performing,
unreliable products.
10/5/2023 88

The performance improvements that
integration provides come at a cost,
however.
• Integrated architectures tend to be
relatively inflexible.
• Integrated companies tend to react
relatively slowly.
10/5/2023 89

The value Chain Evolution
(VCE) Theory
Therefore, the theory suggests that
companies ought to outsource activities
that don’t influence the characteristics of a
product or service that customers deem
(or will deem) most critical.
Specialists can better optimize those pieces
of the value chain
10/5/2023 90

What are the key innovation challenges
(BCG Survey 2006)
• Development times too long
• Lack of coordination
• Risk-averse culture
• Limited customer insight
• Selecting the right ideas
• No good way to measure
• Not enough great ideas
• Marketing or communication
• Insufficient Sr. management support
• In-market performance is below expectations
• Competitors are more innovative
10/5/2023 91

Why it is important to assess technology-
driven dynamics & why it is hard?
• When the opportunity is driven by a new
technological innovation, analysis should integrate
technology & market factors.
• Together technical choices & market assumptions lead
to the opportunity –the concept design that drives the
business “model”
• A more robust opportunity assessment is clear about the
dynamics of the proposed technology & that of
competitors & the proposed market & that of
competitors.
10/5/2023 92

Can we forecast the dynamics of
technological change?
• Hard because:
• Predicting the future
• Hard to get data
• Requires expert knowledge (across domains)
• Blind spots when considering others’ technology
• But….
• Wealth of historical data
• Trend extrapolation
• Robust heuristics –S curve
10/5/2023 93

Moore’s Law at Work
• In 1965, Intel co-founder Gordon Moore saw the future. His prediction, now
popularly known as Moore's Law, states that the number of transistors on a
chip doubles about every two years.
• Intel386TM Processor Intel486TM Processor Intel* Intel* Pentium*
Processor Intel* Pentium* II Processor, Intel Pentium* III Processor Intel*
Pentium* 4 Processor Intel* Itanium* Processor Intel* Itanium* 2 Processor
Dual-Core Intel* Itanium* 2 Processor
• 1970---1,000
• 1975---10,000
• 1980---100,000
• 1985---1,000,000
• 1990….10,000,000
• 1995…..100,000,000
• 2000…1,000,000,000
• 2005…10,000,000,000 Transistors (Source: Image by MIT
OpenCourseWare)
10/5/2023 94

Foster’s S Curve –Proposed
model for dynamics of
technological change
• Pattern: Initially increasing then declining R&D
productivity within a given physical “architecture”
• Performance is ultimately constrained by
physical limits .
• E.g. Sailing ships & the power of the wind
Copper wire & transmission capability
Semiconductors & the speed of the electron
10/5/2023 95

The S-Curve
• All it says is: things are going very, very slow
in the beginning, the pace quickens in the
middle, and then decelerates in the end.
That’s all it says. It’s a tool for thinking where
you are strategically, it’s a tool for asking
questions, like ”what performance measure
should I plot?” It is not a magic forecasting tool.
10/5/2023 96

Breaking Down the Technology
S-Curve
• Position: Early-stage, Low R&D productivity“-Need to
Experiment; Lots of Early Failures; Building up
Knowledge about the Area; Bringing Together the “right”
capabilities and knowledge.
• Riding Up” the S-Curve-Focusing on an overall
“architecture”; focusing on narrower and more well-
defined technical challenges; organizational commitment
and incentives; leveraging prior experience.
• Hitting Natural Limits-
• Key physical limits determined by broad technical
choices
• The constraints result from key architectural choices.
10/5/2023 97

Technology S-Curve
Emergence
Growth Maturity
Time or Engineering Effort
Product
Performance
10/5/2023 98

Technology S-Curve
• It has become a way of thinking about technological improvement over a period of time
• Theory
– Early stages improvement in performance is slow
– As the technology is understood and diffused, rate of improvement increases
10/5/2023 99

Technology S _Curves
• S-Curve - used at the industry level
– Incumbent firms are concerned about
refining existing technologies
– They lose their positions of dominance to
new entrants
10/5/2023 100

Typologies of technological
change
• Architectural change
– Rearrangement in the way components are relate to
each other
• Modular change
– Fundamental change in the technological approach
employed in a component where the architecture is
left unchanged
10/5/2023 101

Typologies of technological Change
(Contd)
• Incremental change
– Improvements in component performance
• Better quality RAMs, memory chips
• Radical innovation
– Change in architecture and new approach
in the component level
10/5/2023 102

Using the technology S-Curve at the firm
level
• Why is harder to get performance
improvement as a technology reaches
maturity?
– Scale phenomenon (things get too large or
too small)
– System complexity
10/5/2023 103

Incumbents vs. New Entrants
and S-Curves
• Incumbents are more likely to succeed wrt
changes to component technologies.
• New Entrants seldom succeed with
Component technologies
• The story is different with architectural
technologies
• Component technologies reinforce
existing competencies.
• Architectural technologies look at
competencies with a different lens.
10/5/2023 104

What level of analysis? Component vs. Architecture
• Component-level: No change in overall
system architecture
• Architecture-level:Change in the linkage
of components
10/5/2023 105

What level of analysis
• High impact on architectural knowledge and Low
impact on component knowledge -Architectural
innovation
• Low impact on component knowledge and Low
impact on architectural knowledge-Incremental
innovation
• High impact on component knowledge and Low
impact on architectural knowledge-Modular
Innovation
• High impact on architectural knowledge and High
impact on component knowledge - Radical
innovation
10/5/2023 106

When to switch curves?
Which curve to switch to?
• Balance of incremental vs.
discontinuous
• IBM –strategic leapers focused on new
component technologies as a source of
improvement with little movement up a
give S curve or system optimization.3:4
ratio of incremental vs. radical sources of
improvement
• HP-system masters focus on squeezing
more incremental improvement out of
10/5/2023 107

• Implications
• Use technology S curve to answer the following
questions:
• What are the dimensions of performance in our industry?
• Are there natural limits to performance improvement?
• Where are our competitors on the S-Curve? Which
dimensions of performance are they working on?
• What does the available data tell you about what stage
the industry is at and how much further it can go?
10/5/2023 108

• How reliable are your estimates & what
are the key assumptions that justify your
opportunity definition?
• The S curve is best viewed as a tool for
triggering discussion & revealing
assumptions, not as a “scientific reality”
10/5/2023 109

Chapter 4 – Managing Quality

Outline
• Concept of Quality in terms of dimensions
• Benefits /costs of good/poor quality
• Evolution of Quality: inspection, control/audit, assurance,
TQM, Six sigma,
• Quality Gurus
– Shewart, Ishikawa, Deming, Juran, Crosby, Garvin, Feganbaum,
• TQM Wheel:
• Benchmarking – adapting (not adopting) best practices !
• Quality Control Tools – ABC Analysis (Pareto Analysis)
• Quality management systems(ISO): ISO 9000, ISO 9001
• Quality awards - certificates

The first key performance objective
The most important in providing a
sustainable competitive advantage
The Importance of
QUALITY
10/5/2023 112

There are many ways to define
QUALITY
So a good and practical definition: The degree
to which the desired product characteristics
satisfy or exceed the requirements of customers
For example: The ability to provide goods or
services that consistently meet or exceed
customer expectations
But different customers may have different
expectations… and these may change over time!
10/5/2023 113

relia-
bility
on-time
delivery
meets
specifi-
cation
10/5/2023 114

The Business Benefits of Higher
Quality…
…are extensive and significant:
Achieving top prices for the company’s products
Repeat business – products change from being order
qualifiers to becoming order winners
Increased productivity, leading to lower costs and greater
market share
Enhanced image and reputation of the company and its
brands
10/5/2023 115

The Consequences of Poor Quality…
…can be very serious:
Lower productivity and increased costs
Higher warranty / guarantee costs and product liability
claims
Loss of business, loss of market share
Falling reputation
Danger of not surviving
10/5/2023 116

Right First Time
Every Time
In Everything
Right First Time
Every Time
Getting it Right
Some of the
Time
Right First Time
Most of the Time
Getting it Right
Internally
S
U
P
P
L
I
E
R
C
U
S
T
O
M
E
R
CONTROL CHART
10/5/2023 117

Walter Shewhart (1891–1967)
The “grandfather of TQM”
Invented control charts, one of the 7 key tools of quality control
Developed the Learning and Improvement Cycle – the PDCA wheel:
Plan, Do, Check, Act (later popularized by Deming)
This is the basis of continuous improvement, which later evolved into
TQM, benchmarking and recently as Six Sigma quality
Visionaries and revolutionaries !
The Quality Gurus...
10/5/2023 118

W. Edwards Deming (1900–1993)
(cont’d)
The Quality Guru with the greatest impact
Initially ignored in the West but embraced by Japan, who named
their highest quality award “The Deming Prize”
Stressed reduction in variation as a critical factor in quality
improvement
Advocated collaboration with suppliers to improve quality and
reduce costs using statistical process control (SPC)
Greatest contribution: the 14 Points philosophy of quality
management
The Quality Gurus...
10/5/2023 119

Deming’s 14 Points Application to an organization
1. Create constancy of
purpose
 Develop a vision and commitment to quality for the long term.
2. Adopt the new
philosophy
 Change to a new system of management that recognizes the
crucial importance of quality and the need for ongoing
improvement.
 Create cross-functional teams (Quality Circles) for problem
solving and continuous improvement.
 Train everyone in the new philosophy.
3. Cease dependence
on mass inspection
 Build quality into the product, using quality control tools.
 Improve quality of inputs and processes.
 Staff must be responsible for their work.
4. End the practice of
awarding business
on the basis of price
 Implement supplier evaluation and accreditation systems,
which incorporate quality, delivery, technology as well as price.
 Collaborate with a reduced number of suppliers.
5. Improve constantly
and forever the
system of production
and service
 Improve quality and increase productivity (by increasing output
and reducing costs): cross-functional teams are one of the
main drivers for ongoing improvements.
6. Institute training on
the job for all staff
 Implement ongoing training programmes for all staff with the
emphasis on quality.
7. Institute leadership  Managers must lead and provide the foundation for continuous
improvement and teamwork.
Deming’s 14 points
10/5/2023 120

8. Drive out fear  Do not blame staff for management problems. Most problems are
due to poor management and poor systems.
9. Break down
organizational
barriers
 Encourage the formation of cross-functional teams to break down
barriers within and between organizations (supply chain
management).
10. Eliminate slogans
and posters etc.
 Rather provide staff with the necessary training and equipment to
do the job!
11. Eliminate numerical
quotas
 Eliminate quotas, work standards etc. that conflict and interfere
with quality goals.
12. Give people pride
in their job
 Remove barriers and recognize the contribution of staff: systems
make it possible, but people make it happen.
13. Institute educa-
tion & self-
improvement
programmes
 Emphasize the need for ongoing education and training for ALL
staff.
 Encourage increasing professionalism by motivating staff to
obtain professional qualifications.
14. Put everyone to
work to achieve
the above
 Create the vision, appropriate structures and goals to be a
successful and respected organization.
Adapted from: Deming, W. Edwards. Quality, Productivity and Competitive Position MIT 1979
Deming’s 14 points (cont’d)
10/5/2023 121

INTERNAL FAILURE COSTS
Incurred when products fail to meet specified quality
requirements, and failures are detected before delivery to the
customer, e.g. scrap, waste, etc.
EXTERNAL FAILURE COSTS
Incurred when products fail to meet specified quality
requirements, but failures are only detected after delivery to
the customer, e.g. warranty claims, liability, etc.
(cont’d)
The Costs of Quality
10/5/2023 122

APPRAISAL COSTS
Costs of ensuring that the product meets the specified quality
requirements and that any non-conforming product is detected
before delivery to the customer, e.g. inspection, audits, etc.
PREVENTION COSTS
Incurred to prevent defects from occurring by developing
quality systems and quality programmes, e.g. quality planning,
training, etc.
Appraisal and prevention costs are the costs of
controlling quality, whereas internal and external
failure costs are the costs of failing to control quality.
(cont’d)
The Costs of Quality
10/5/2023 123

A comprehensive, structured and organization-wide
approach to management that uses continuous
feedback to achieve excellence of quality in
producing and delivering goods & services, and in so
doing providing full value to customers.
Three key elements underpin TQM:
 Continuous Improvement
 Customer Satisfaction
 Total Involvement in TQM by all staff
Total Quality Management (TQM)
10/5/2023 124

The TQM Wheel
10/5/2023 125

The nucleus and foundation of TQM
Developed from the Shewhart Cycle and the
Deming Wheel, it is a continually evolving
cycle of incremental improvements over time
Continuous Improvement
(kaizen)
10/5/2023 126

REVISED
WORK
PRACTICE
1. PLAN
Examine existing
operations, select the
process for
improvement, collect
information, consider
alternatives and plan
improvement/s
2. DO
Implement the plan
and collect relevant
performance data
3. CHECK
Analyze the
performance data to
establish if the
predicted improvement
was achieved
4. ACT
If the desired level of
improvement is
reached, implement
and monitor the
improved process,
etc.
(cont’d)
10/5/2023 127

One of its most important benefits is its positive impact
on the Return on Investment (ROI)
Continuous Improvement can result in:
 Higher Productivity
 Less Waste
 Enhanced Image
 Increased Sales due to lower costs, higher quality
In turn, these improve both asset turnover and market
share, which leads to a higher ROI
(cont’d)
10/5/2023 128

QUALITY IMPROVEMENT PROGRAMME
Higher
Productivity
Higher quality
+ Lower costs
= Increased Sales
Less
Waste
Enhanced
Image
IMPROVED
ASSET TURNOVER
IMPROVED
MARKET SHARE
IMPROVED
RETURN ON
INVESTMENT
10/5/2023 129

Small groups of workers from specific areas who meet
regularly to discuss and solve quality and other
process related problems in order to achieve
sustainable and ongoing improvements
Represent one of the three key elements of continuous
improvement - employee empowerment where
everyone is involved in quality
Have evolved into cross-functional
teams, value teams and
self-managed teams
Quality Circles
10/5/2023 130

Developed by Xerox Corporation to retain and
improve its share in a very competitive market
Looks for best practices that will bring about
superior performance by learning from others
A systematic procedure that compares an
organization’s processes or products against those
of competitors & industry leaders to identify gaps
and areas for improvement
Benchmarking
The identification, adaptation and implementation of processes and
procedures (or practices) in all aspects of business that are used by
world leading organizations, in order to improve overall performance and
maintain the drive for continuous improvement
10/5/2023 131

Identify the
process
requiring
improvement
Establish the
performance
measures
Implement
improvement
and monitor
progress
Collect the
data for
comparison
Determine
and analyze
the gap
Plan improve-
ments and set
objectives
GAP
ANALYSIS
10/5/2023 132

Business Process Re-engineering
When continuous improvement (kaizen) is not enough – as small
incremental improvements can reach their limit
Then a major change is required to enhance performance, e.g.
new capital equipment to improve quality and output.
…is the fundamental rethinking
& radical redesign of business
processes to achieve dramatic
improvements in critical,
contemporary measures of
performance such as cost,
quality, service & speed.
10/5/2023 133

The Tools of QC/
Statistical Process Control (SPC)
The seven original quality control tools used in
quality improvement programmes are:
 Flowcharts
 Check Sheets
 Histograms
 Pareto Diagrams
 Run / Control Charts
 Scatter Diagrams
 Cause-and-Effect Diagrams.
10/5/2023 134

…& Process Mapping
Flowcharts…
 A visual and sometimes detailed representation of the sequence of
operations that make up a process & their relationships
 Often the first tool in continuous improvement as it enables
understanding the process and identifying where problems occur
Produce
sample
Evaluate
sample
Submit to
Customer
Evaluate
request
Referred back to
customer
Feasible
Does not Conform
Conforms
Start End
 A more advanced development of flowcharts
 Often includes a time dimension along the horizontal axis - also
known as time-function mapping
 Particularly useful in identifying wasteful delays as well as
unnecessary steps in the process
10/5/2023 135

Check Sheets
 A straightforward quality control tool often used to collect
data for fact-finding and solving quality problems, e.g.to
count the number of defects against known causes
Month: May 20xx Steel Stationery Cabinet: Customer Returns
Region Defect Category TOTAL
Scratches Dents Paint Finish Colour Other
A IIII III II 10
B IIII IIII IIII I III II 19
C IIII IIII I III I 15
D IIII I IIII IIII
II
III 21
E IIII II II I 10
TOTAL 36 21 4 11 3 75
 The data is often used to construct histograms (bar charts) & Pareto
diagrams
10/5/2023 136

Histograms (or Bar Charts)
 Simple statistical tools that show in graphical form the
frequency or number of observations.
 Very useful to see the spread, variations and
distribution of data and to identify unusual values.
 Example: histogram of the previous Check Sheet
showing the number of defects per category
Number
of
defects
10/5/2023 137

 One of management-focusing techniques most
used to identify & isolate key issues, e.g. in:
…quality
…inventory allocation (ABC)
…variety control (e.g. products)
…stratification of customers
Pareto Diagrams (80:20 or ABC classification)
 A histogram distributing data
from most significant to least
significant, often as a
cumulative curve
 Example: Pareto diagram for
previous Check Sheet:
10/5/2023 138

 Simple line charts where performance data (vertical axis) is
plotted over time (horizontal axis). e.g. the number of patients
visiting a clinic every day for a particular month
 Easy to construct & interpret - trends, unusual patterns, etc. are
easy to spot
 A special form of a run chart that uses statistics to show the
mean and the variation in a process
 They incorporate an upper control limit (UCL) and a lower
control limit (LCL)
 Discussed later under Statistical Process Control
Run Charts…
…& Control Charts
10/5/2023 139

 Used to establish if there is a correlation between two
variables, i.e. the direction & degree of relationship
between these two variables
 A correlation may assist in pinpointing the source of a
quality problem
Scatter Diagrams
V
A
R
I
A
B
L
E
Y
VARIABLE X
Positive Correlation
V
A
R
I
A
B
L
E
Y
VARIABLE X
Negative Correlation
V
A
R
I
A
B
L
E
Y
VARIABLE X
No Correlation
10/5/2023 140

 Developed by Ishikawa – as a structured way in improvement
programmes of finding the source causes of problems
Cause-and-Effect (Fishbone) Diagrams
 OM can use the 4 Ms (Machinery, Manpower, Materials & Methods)
as the cause categories or ‘primary bones’. Then, by brainstorming,
individual contributors (‘secondary bones’) are assigned to these
categories...
absenteeism
supplier stock-outs
poor training
outdated
no spares
breakdowns
poor quality - rejects
CAUSE
Manpower
Methods
Machinery
Materials
CAUSE
CAUSE
CAUSE
poor
inventory
system
EFFECT
Late Deliveries
10/5/2023 141

Additional QC tools
 Why or “Why-Why” analysis
Ask “Why?” five times to get to the root of the problem
The 5W1H method asks: What? Where? When?
Why? Who? and How?
 Customer Complaints
Complaints from external & internal customers are a very
valuable way to pinpoint improvements
 “Go to Gemba”
I.e. go to the workplace to collect the data and find out
what the problem is…
10/5/2023 142

Statistical Process Control
A detailed discussion of SPC is beyond our scope, but it
is important to be aware of some of the different
techniques that are used, e.g.:
 Control Charts
 Process Capability
 Sampling
10/5/2023 143

Control Charts
 Show when a particular process may have changed enough to
affect the quality of output, i.e. the variation is no longer random
and it is time to take corrective action
 Can provide a clearly visible record of either attributes (“yes/no”,
“go/no-go”, etc.) or variables (weight, length, diameter, etc.)
Time
UPPER CONTROL LIMIT
LOWER CONTROL LIMIT
UPPER WARNING LINE
LOWER WARNING LINE
Mean X
X X
X
X
X
X
corrective action
required above this line
corrective action
required below this line
range of
normal
variation
Sample no.
10/5/2023 144

Process Capability
 Determines the extent to which a process can produce items
consistently within the limits of the specification
 Asks “what is the capability of a process to meet or exceed the
specification?”
Process capability ratio (Cp) = Specification width
Process width
 Over time, random variations (due to changes in voltage,
temperature, tool wear, etc.) affect output, distributed about a
mean - the familiar bell-shaped distribution curve
This graph shows that Supplier X does
not have the process capability, whereas
Supplier Y meets the required
specification
mean
Variation
specification
supplier X
supplier Y
Process Capability
10/5/2023 145

Sampling
Used because a 100% inspection system is generally impractical or
impossible due to cost, time delays or destructive testing. Two options:
1. Sampling for quality control (qc) during production of the good
or service
2. Acceptance Sampling: a technique to determine whether to
accept or reject an entire batch after inspecting / testing a
sample
 Single sampling plan: acceptance or not of batch based
on the results of one single sample drawn
 Double sampling plan: a second sample is taken if the
first sample is unsatisfactory or inconclusive
 Sequential or multiple sampling plan: an extension of
double sampling
10/5/2023 146

Quality Management Systems: ISO 9000
 Developed by the International Organization for Standardization,
Geneva, in 1987 - the best known symbol of quality in the world
 Initially a quality accreditation process, but evolved into a system for
quality management, ISO 9000:2000, reviewed regularly
 Based on eight quality management principles:
1. Systems approach to management
2. Leadership
3. People involvement
4. Continuous improvement
5. Customer focus
6. Sound supplier relationships
7. Process approach
8. Decisions based on facts
 Replaced in Nov 2008 by ISO 9001:2008 – no new requirements but
clarifies the requirements of ISO 9001:2000 and improves
consistency with the environmental management system standard
IS14001:2004.
10/5/2023 147

Environment Management Systems: ISO 14000
 An Environment Management System (EMS) comprising a set of
international standards for assessing an organization’s
environmental performance
 Considers what an organization does to minimize the harmful
effects of its activities on the environment and to continuously
improve on its overall environmental performance
 Requirements for certification include having both an environmental
policy as well as specific improvement targets in place
ISO 9000 & ISO 14000
 An increasing number of organizations becoming both ISO 9000 &
ISO 14000 accredited, to demonstrate world class management
systems in both quality and environment
 Particularly important for those in developing & emerging economies,
as a powerful marketing tool
10/5/2023 148

Quality Awards
 Many nations have established national quality awards
in order to recognize organizations that have excelled in
quality
 Three of the best known awards are:
The Deming Prize
The Malcolm Baldridge National Quality Award
The European Quality Award
10/5/2023 149

Six Sigma Quality
 Developed by Motorola in the late 1980’s - later adopted and
popularized by General Electric (GE) in the USA
 The Greek letter sigma () is used in statistics to symbolize
standard deviation - a measure of variation
 Six sigma translates as 3.42 defects per million:
99.9997
3.42
Six sigma
99.98
223
Five sigma
99.4
6,210
Four sigma
93.3
66,807
Three sigma
69
308,537
Two sigma
Yield
%
Defects per
million
Standard
deviation
10/5/2023 150

…based on Shewhart’s PDCA cycle
Select suitable
performance measures
and collect data;
establish performance
of existing process as
a baseline
Identify root causes of current defect
levels using SQC tools and consider
alternatives
Monitor the process
improvement over
time to ensure that
high performance
levels are
maintained
Evaluate solutions
and ascertain the
improvement
Identify and specify the
problem, the scope of the
project and the goals for
improvement
1
2
3
4
5
P
C D
A
Analyze
10/5/2023 151

• The end

Chapter 5: Design of Goods
and Services

Outline
 Robust Design
 Modular Design
 Computer-Aided Design (CAD)
 Computer-Aided Manufacturing (CAM)
 Virtual Reality Technology
 Value Analysis
 Ethics and Environmentally Friendly Design
 Group Technology
 Concurrent engineering
 Design for Disassembly
 Service Design
 Moments of Truth 154

Robust Design
• Robust product design, which is the
process of trying to reduce variations in
finished products. In other words, it's the
process of making sure that finished
products maintain their consistency even
when factors interfere with the production
process. Those factors or variations in
production are often called noise.

MODULAR DESIGN
• Modular design, or modularity in
design, is a design principle that
subdivides a system into smaller parts
called modules (such as modular process
skids), which can be independently
created, modified, replaced, or exchanged
with other modules or between different
systems.

Computer Aided Design/CAD
• Computer Aided Design/CAD stands
for computer-aided design and is a
way to digitally create 2D drawings
and 3D models of real-world products
before they're ever manufactured. It
replaces manual drafting

Computer Aided Manufacturing
(CAM)
• Computer Aided Manufacturing
(CAM) is the use of software and
computer-controlled machinery to
automate a manufacturing process.

Benefits of CAD and CAM
• 1. Product quality
• 2. Shorter design time
• 3. Production cost reductions
• 4. Database availability

Virtual Reality (VR)
• Virtual Reality (VR) is the use of
computer technology to create a simulated
environment.
• Allows people to ‘see’ the finished design
before a physical model is built
• Unlike traditional user interfaces, VR
places the user inside an experience.
Instead of viewing a screen in front of
them, users are immersed and able to
interact with 3D worlds.

VALUE ANALYSIS
• Value analysis implies analyzing existing
products and evaluating them to improve
their functioning or reduce cost.
• Lists products in descending order of their
individual dollar contribution to the firm
• Lists the total annual dollar contribution of
the product
• Helps management evaluate alternative
strategies

Ethics and Environmentally
Friendly Design:
• Ethics and Environmentally Friendly
Design: or Eco-friendly design is
sustainable; the creation, production,
and eventual disposal of that product
does not harm the environment.

GROUP TECHNOLOGY
• Group technology is a
manufacturing technique in which
parts having similarities in geometry,
manufacturing process and/or
functions are manufactured in one
location using a small number of
machines or processes.

CONCURRENT ENGINEERING
• Concurrent engineering, also known as
simultaneous engineering, is a method of
designing and developing products, in
which the different stages run
simultaneously, rather than
consecutively.
• It decreases product development time and
also the time to market, leading to improved
productivity and reduced costs.

Design for Disassembly
• Design for Disassembly is the
design of buildings to facilitate future
changes and dismantlement (in part
or whole) for recovery of systems,
components and materials, thus
ensuring the building can be recycled
as efficiently as possible at the end of
its lifespan

SERVICE DESIGN
• Service design is the activity of
planning and organizing a business's
resources (people, props, and
processes) in order to (1) directly
improve the employee's experience,
and (2) indirectly, the customer's
experience.

A MOMENT OF TRUTH
• A moment of truth is a Concept
created by Jan Carlzon of
Scandinavian Airways.
• It is simply any interaction during
which a customer may form an
impression of your brand or product.
This impression may be either positive
or negative

Concurrent Engineering
• A design approach that uses
multifunctional teams to simultaneously
design the product & process
• Replaces a traditional ‘over-the-wall’
approach where one group does their part
& then hands off the design to the next
group

Concurrent Engineering Benefits
• Representatives from the different groups can
better consider trade-offs in cost & design
choices as each decision is being made
• Development time is reduced due to less rework
(traditionally, groups would argue with earlier
decisions & try to get them changed)
• Emphasis is on problem-solving (not placing
blame on the ‘other group’ for mistakes)

Ethics and Environmentally
Friendly Designs
It is possible to enhance productivity,
drive down costs, and preserve
resources
Effective at any stage of the product life cycle
 Design
 Production
 Destruction

The Ethical Approach
View product design from a
systems perspective
 Inputs, processes, outputs
 Costs to the firm/costs to society
Consider the entire life cycle of
the product

Goals for Ethical and
Environmentally Friendly Designs
1. Develop safe and more environmentally sound
products
2. Minimize waste of raw materials and energy
3. Reduce environmental liabilities
4. Increase cost-effectiveness of complying with
environmental regulations
5. Be recognized as a good corporate citizen

Guidelines for Environmentally
Friendly Designs
1. Make products recyclable
2. Use recycled materials
3. Use less harmful ingredients
4. Use lighter components
5. Use less energy
6. Use less material

Service Design
 Service typically includes direct interaction
with the customer
 Increased opportunity for customization
 Reduced productivity
 Cost and quality are still determined at the
design stage
 Delay customization
 Modularization
 Reduce customer interaction, often through
automation

Outlines
• Lean Systems vs JIT
• Meaning of Lean System
• Meaning of Just-in-Time (JIT)
• The Foundations of JIT
• JIT Philosophy
• Maintenance
• Benefits of JIT

Lean Systems vs JIT
• Lean System is a complete system that can be used across
business departments including manufacturing, production,
marketing, distribution, etc.
• You can use Lean to create a JIT process but JIT is the piece of
the Lean method that eliminates the waste of excessive
inventory.
• Just-in-time is focused on efficiency, while lean system is
focused on using efficiency to add value for your customer.
• The core difference between lean and JIT is that lean
focuses on the customer while JIT focuses on the
business side of the manufacturing process.
• So, to make it simple and memorable: Lean system is a
customer-centric philosophy. JIT manufacturing is a business-
centric philosophy.
177

What is a lean system
• Lean operation is an alternative to traditional
operation that an increasing number of
organizations are adopting.
• The ultimate goal of a lean system is to achieve
a balanced, smooth flow of operations by
eliminating disruptions to the system, making the
system flexible, and eliminating waste: CREATE
BETTER VALUE !
• The overall goal of a lean system is to achieve
the ability to process a mix of products or
services in a smooth flow

Important Features of lean
system
o Lean systems require the elimination of sources
of potential disruption to the even flow of work.
o High quality is essential because problems with
quality can disrupt the process.
o Quick, low-cost setups,
o special layouts,
o Allowing work to be pulled through the system
rather than pushed through, and
o A spirit of cooperation are important features of
lean systems.

Key benefits of Lean System
• reduced inventory levels,
• high quality,
• flexibility,
• reduced lead times,
• increased productivity and equipment
utilization,
• reduced amounts of scrap and rework, and
• reduced space requirements

JIT: Meaning
• Just-in-time (JIT) is a system of lean production used
mainly in repetitive operations, in which goods move
through the system and tasks are completed just in time
to maintain the schedule.
• JIT systems require very little inventory because
successive operations are closely coordinated.
• Careful planning and much effort are needed to achieve
a smoothly functioning system in which all resources
needed for production come together at precisely the
right time throughout the process.
• Raw materials and purchased parts must arrive when
needed, fabricated parts and subassemblies must be
ready when needed for final assembly, and finished
goods must be delivered to customers 181

Just-in-Time: a better way to explain it
…is an operations philosophy based on the elimination of waste that
enables an organization to consistently produce & deliver products
according to customer demand
 Goods & services are produced / provided just when
needed - neither early nor late - at the right place, in
the right quantity and of the right quality
 SCM has led a shift from JIT within an organization to
JIT along the supply chain
 Today terms such as “lean operations” and “lean
supply chains” are preferred
So JIT has become…
…an operations philosophy of continuous improvement aimed at the
elimination of waste along the entire supply chain
10/5/2023 182
- -, -

The Foundations of JIT
The Elimination of waste
The heart of JIT is eliminating waste, which is the best way to
reduce costs and improve ROI: “Inventory is Evil”; and as
“Inventory is Waste, thus all Waste is Evil”
Continuous improvement
JIT is a system of enforced problem-solving to eliminate waste
using continuous improvement (kaizen) to achieve its objectives
Respect for people
It requires a supportive & progressive work environment,
demanding respect for all staff, suppliers & customers
Long-term strategic vision/JIT Philosophy
Organizations adopting JIT must make it the basis for their mission
and for all their goals
1
2
3
4
10/5/2023 183
- -, -

Elimination of Waste
Waste is any activity that does not add value
(the Japanese term for waste is “muda”)
 The elimination of waste is at the heart of the Toyota
Production System created by their Chief Engineer,
Taiichi Ohno
 He established seven categories of waste: “The
Seven Wastes”
 More “wastes” have since been added, so they are
now ten !
1
10/5/2023 184
- -, -

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1
10/5/2023 185
- -, -

2
1. Minimization of inventory
2. Reducing set-up times
3. Quality at source
…is a fundamental principle of JIT as well as one of the 3
key elements of TQM, and is crucial to the elimination of
waste
Examples of Continuous improvement techniques:
10/5/2023 186
- -, -

Respect for People
 Respect for people is central to JIT because
continuous improvement requires staff participation
 Trust and teamwork are prerequisites for JIT and
Lean systems to work
 Originally this referred only to employees, but today
it has been extended to suppliers and customers – in
fact to all participants along the supply chain
3
10/5/2023 187
- -, -

Two forms of JIT:
 JIT Philosophy (sometimes called “Big JIT”)
 JIT as an operations technique that typically includes the
use of kanbans (the Japanese word for “signal”) to control
the movements of goods (also known as “Little JIT”)
JIT Philosophy
4
10/5/2023 188
- -, -

Remedial
Planned
Maintenance
Independent forecasts
Not communicated to
customers or suppliers
Forecasts communicated to
all supply chain participants
Forecasting
Necessity
Human Assets
Employees
Fewer, larger deliveries.
Deliver to stores
Many, frequent small deliveries
Deliver directly to shop floor
Deliveries
Many; competitive
Short-term relationships
Few or single; collaborative
Long-term relationships
Suppliers
Relatively inflexible
Long production runs
Flexible
Short production runs.
Flexibility
Large
Small
Lot sizes
Few, long set-up times
Many, short set-up times
Set-ups
Large space requirement
JIT, cellular: Workstations
close together, small space
required
Layout
High capacity utilization
Produce only what is required
Capacity
High WIP. High inventory
conceals hidden problems
Low WIP – can be controlled
by kanbans. Inventory is
waste and must be reduced
to expose problems
Inventory
Traditional Systems
JIT/Lean Systems
Parameter
JIT Philosophy
4 (cont’d)
189
WIP: Work in Progress
Cellular: production equipments put together

 Maintenance is the science of caring for things
 It is vital not only to JIT operations but to all lean
operations along a supply chain, where
an unforeseen failure can have a
catastrophic and knock-on effect
throughout the supply chain
 It is equally important in the
service sector – e.g. the
maintenance of information
systems, transport fleets, etc.
…encompasses the various measures undertaken on
equipment and systems to ensure that they function
according to specification and meet quality, output and
safety requirements at the lowest possible cost
Maintenance
10/5/2023 190
- -, -

 Failure Mode and Effect Analysis (FMEA): considers for
each failure the type, the mechanism, the risk, and its
effects
 The outcome of failure analysis is maintenance
planning
 Failure analysis often incorporates the well-known
Bathtub Curve
Maintenance (cont’d)
Maintenance planning:
10/5/2023 191
- -, -

Typical Bath-tub Curve
showing levels of reliability over time
FAILURE
RATE
FAILURE
RATE
TIME
TIME
Wear-out
Phase
(aged)
Burn-in
Phase
(infant)
Normal
Phase
(adult)
10/5/2023 - -, -

1. Breakdown or Repair (Remedial) Maintenance
This is performed after the equipment or system fails –
most undesirable situation!
2. Planned Maintenance
A generic term encompassing scheduled maintenance,
preventive maintenance and predictive maintenance, in
order to prevent equipment and systems failure
Preventive Maintenance
Carried out to ensure that production is not interrupted
by equipment failing or malfunctioning; it is performed
before the equipment or systems break down
Predictive Maintenance
Used to predict when equipment is likely to fail by
constantly monitoring it to ascertain when maintenance
should be undertaken
Maintenance : Categories
(cont’d)
193
- -, -

3. Total Productive Maintenance (TPM)
The application of JIT and TQM principles to
maintenance:
 “Zero defects, zero breakdowns, zero accidents”
 Includes planned, preventive & predictive
maintenance
 All staff can participate (as in TQM)
 An essential part of lean operations & lean supply
chains
Maintenance (cont’d)
Categories:
10/5/2023 194
- -, -

Benefits of JIT
 A substantial reduction in all categories of inventory. As
a result, inventory turnover increases markedly and far
less space is required for inventory.
 Improved quality from suppliers and
rapid resolution of any quality problems.
 Improved relationships with suppliers
and lower purchasing costs.
 More frequent on-time deliveries
with reduced lead-times.
 Due to all of the above, decreased costs, enhanced
supply chain competitiveness, increased sales and
improved ROI.
10/5/2023 195
- -, -

JIT & Lean Systems…
 JIT is costly and time-consuming, requiring considerable resources, total
commitment by management & staff, and the full support of key suppliers
 Like TQM, everyone in the organization is involved, requiring extensive
training programmes
 Yet the philosophy of JIT & lean operations can be embraced by
organizations of all sizes & sectors
 Lean systems are essential to SCM: elimination of inventory & waste
across the supply chain
 As the SCM philosophy develops, so too the importance of JIT & Lean
Systems continues to increase
…& Supply Chain Management
10/5/2023 196
- -, -

• End

Operations Management PPT RVU 2022.ppt

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