12 -improving_operations

Improving operationsAlex Hill and Terry Hill

Learning objectives

• Explain WHY companies need to improve operations

• Understand HOW operations can be improved to:

- Release CASH- Improve MARKET SUPPORT- Reduce COSTS

• Identify improvement OPPORTUNITIES

• Understand the alternative APPROACHES to making improvements

• Propose and substantiate IMPROVEMENTS within a given operational context

Lecture outline

• INTRODUCTION

• WHY improve operations?

• The PROCESS of improving operations:

- APPROACHES

- TOOLS and TECHNIQUES

- MAKING improvements• Critical REFLECTIONS• SUMMARY

Why improve operations?

•Release CASH•Improve MARKET

SUPPORT•Reduce COSTS

> KEY IDEA

Operations can be IMPROVED to:• Release CASH• Improve MARKET SUPPORT (and, with it, SALES revenue)• Reduce COSTS

Why improve operations?

•Reduce INVENTORY•Change supplier PAYMENT

terms•Sell or leases EQUIPMENT•OUTSOURCE

Releasing cash

Why improve operations?

1.Identify the key ORDER-WINNERS and QUALIFIERS to be supported

2.Translate these into STRATEGIC TASKS

•Review current PERFORMANCE•Identify and implement CHANGES

Improving market support

> KEY IDEA

Improving market support leads to greater SALES REVENUE by:• Increasing market SHARE• Establishing NEW markets• Enabling PRICES to be raised

Why improve operations?Improving market support

Why improve operations?Improving market support

Why improve operations?Improving market support

Why improve operations?Improving market support

CASE 12.1 IMPROVING PROCESSES

Question Answer

Standardised

Flexible

IMPROVING PROCESSES

• Develop service or product DESIGN

- DESIGN is a key order-winner- FRONT office processes- CORE processes

• Reduce COSTS- PRICE is a key order-winner- BACK office processes- NON-CORE processes

CASE 12.1

Why improve operations?

1.Review where COSTS can be reduced:- Material, direct and overhead2.Map activities to identify and eliminate areas

of WASTE•Review and reduce mix of VOLUMES•Review and increase PRICE of services or

products- Where appropriate•Review and STOP selling services or products- Where appropriate

Reducing costs

> KEY IDEA

Reducing COSTS leads to increased PROFITS

The process of improving operations

> KEY IDEA

IMPROVING operations should be a increased CONTINUOUS, ON-GOING process

The process of improving operations

•INCREMENTAL- Passive or

proactive•BREAKTHROUGH- Passive or

proactive

Approaches to improving operations

The process of improving operationsApproaches to improving operations

The process of improving operationsApproaches to improving operations

> KEY IDEA

A PROACTIVE approach is better than a passive approach forDRIVING improvement

The process of improving operationsApproaches to improving operations

The process of improving operationsApproaches to improving operations

> KEY IDEA

Organisations should improve their operations through a COMBINATION of:•INCREMENTAL and•BREAKTHROUGH changes

CASE 12.2 BREAKTHROUGH VS INCREMENTAL

Question Gold mining Metro

Breakthrough or incremental

• BREAKTHROUGH- RADICALLY different

mining approach- Much HIGHER

equipment cost dramatically reduces direct labour costs

• INCREMENTAL- PROCESS of buying and

paying for food hasn’t dramatically changed

CASE 12.2 BREAKTHROUGH VS INCREMENTAL

> KEY IDEA

Establishing an improvement CULTURE helps:• DRIVE and• MAINTAIN improvement

> KEY IDEAProactive improvement requires EMPLOYEE:•PARTICIPATION and•INVOLVEMENT throughout the busienss

> KEY IDEAKaizen blitz events are completed in COMPRESSED timescales by:•Taking employees OUT of their day jobs; and•DEDICATING them to improvement activities for between 2 and 5 days

CASE 12.3

PORSCHE: CONTINUOUSLY IMPROVING OPERATIONS

1.How does Porsche CONTINUOUSLY drive change?

2.What RECENT improvements has it made?

CASE 12.3

Question Answer

Continuously drives change

Recent improvement

• CHECK www.porsche.com

• Mix of BREAKTHROUGH and INCREMENTAL

• EXAMPLES include:- New methods reduced LABOUR costs- Less SUPPLIERS- MODULAR design

PORSCHE: CONTINUOUSLY IMPROVING OPERATIONS

CASE 12.4 CONTINUOUSLY DRIVING IMPROVEMENT

Question

Volvo Group Ricoh

Process reviews

Success comes from people

Constant need for change

• Review of the DRYING process

CASE 12.4 CONTINUOUSLY DRIVING IMPROVEMENT

• Employees REWARDED for making improvements

-

• Review of COPIER PLANT process

• SUGGESTION scheme- 3,500 staff- 4,500 suggestions per

year

• CONSTANT improvement- Implementation of ideas- Increased motivation- Showed importance of

contribution

The process of improving operations

•BENCHMARKING•Mapping the CUSTOMER JOURNEY•Mapping PROCESSES•Identifying CAUSES of problems•Generating improvement IDEAS•RE-ENGINEERING business

processes

Improvement tools and techniques

> KEY IDEA

BENCHMARKING helps:• START and• MAINTAIN improvements

The process of improving operationsMapping the customer journey

The process of improving operationsMapping the customer journey

The process of improving operationsMapping the customer journey

The process of improving operationsMapping the customer journey

> KEY IDEAMapping the CUSTOMER JOURNEY helps:• Identify WHICH services and products to deliver; and• HOW best to deliver them

The process of improving operationsMapping the process

The process of improving operationsMapping the process

> KEY IDEA

Mapping PROCESSES helps understand how a business currently OPERATES

The process of improving operationsIdentifying causes of problems

The process of improving operationsIdentifying causes of problems

The process of improving operationsIdentifying causes of problems

> KEY IDEACAUSE and EFFECT diagrams andWHY-WHY reviews help understandwhat has CAUSED the problems identified

> KEY IDEAImprovement IDEAS can be generated by:• BRAINSTORMING• REVERSE brainstorming• Listing ATTRIBUTES and/or• Forging RELATIONSHIPS

The process of improving operationsRe-engineering business processes

> KEY IDEA

Business processes can be RE-ENGINEERED by:• MAP the process• Identify VALUE-ADDING activities• Eliminate WASTE• Make the value-adding steps FLOW• REPEAT the cycle

CASE 12.5FORD:

BENCHMARKING AGAINST MAZDA

1.How does Porsche CONTINUOUSLY drive change?

2.What RECENT improvements has it made?

Question Answer

Help improve business

• Realised it was only making an INCREMENTAL improvement

• Led to a BREAKTHROUGH improvement:

- Reduced STAFF from 500 to 5- Rather than from 500 to 400

CASE 12.5

FORD: BENCHMARKING AGAINST MAZDA

CASE 12.6

IDEO: RULES FOR BRAINSTORMING IMPROVEMENT IDEAS

1.Why is IDEO’s APPROACH different to other design consultancies?

2.Why are the brainstorming RULES important?

CASE 11.2

Question

Answer

Different approach

Rules important

• Increases NUMBER of ideas- DEFER judgment- ENCOURAGE old ideas- BUILD on the idea of others- Go for QUANTITY

• OPEN source innovation• DISCLOSES secrets to all clients• Gives client RESPONSIBILITY for

creativity• EDUCATE clients to innovate themselves

CREATING A POSITIVE RETAIL EXPERIENCE

CASE 12.7 RE-ENGINEERING BUSINESS PROCESSES

Question

Mutual benefits Jet Blue

Changes

Benefits

• BREAKTHROUGH approach

• Changed management RESPONSIBILITY

- Case managers responsible for whole process

- Previously functional silos

• Reduced LEAD-TIME- From 5-25 days to 2-5

days• Reduced labour COSTS- Less staff

CASE 12.7 RE-ENGINEERING BUSINESS PROCESSES

• INCREMENTAL approach• Introduced new

TECHNOLOGY- Laptops now calculate

thrust to apply on take-off

• Reduced COSTS- Less wear and tear- Less maintenance- Overall 5% saving

during life of aircraft

The process of improving operations

•Identifying STAKEHOLDERS

•Involving EMPLOYEES•Involving SUPPLIERS•Involving CUSTOMERS

Making improvements

The process of improving operationsIdentifying stakeholders

> KEY IDEA

Improvements can be made by anyone INTERESTED in the business, as long as they are given the POWER to do this

CASE 12.8 CLOSED VS OPEN INNOVATION

Question

Apple Google

Approach

Advantages

Dis-advantages

• CLOSED- Small INTERNAL group- Responsibility of

ENGINEERS and DESIGNERS

• FOCUSED on narrow range of services and products

• Grow IN-HOUSE capability

• BREAKTHROUGH changes

• Wider SOURCE of ideas• No BOUNDARIES• INCREMENTAL changes

CASE 12.8 CLOSED VS OPEN INNOVATION

• OPEN- Involve EMPLOYEES,

CUSTOMERS and SUPPLIERS

- Responsibility of EVERYONE

• MISS OUT on other sources of ideas

- Employees, customers and suppliers

• Less FOCUSED• Difficult to MEASURE

results against resource allocated

The process of improving operationsInvolving employees

•Creating SELF-MANAGED teams

•Sharing INFORMATION•Creating TIME for

improvement

The process of improving operationsInvolving employees

CASE 12.9

UNIPART GROUP

1.How does its APPROACH illustrate continuous improvement

2.How is EMPLOYEE involvement central to this initiative?

Question

Answer

Approach

Role of employee

• Improvement TEAMS- IDENTIFY improvements- IMPLEMENT improvements- Involves EVERYONE in the company

• TRAIN employees- CENTRE within each site• SHARE knowledge and experiences- WITHIN each site- BETWEEN sites• Use improvement FACILITATORS- To TRAIN and COACH staff- Share IDEAS between improvement groups

UNIPART GROUPCASE 12.9

> KEY IDEA

Using EMPLOYEES to make improvements requires giving themmore POWER than they usually have

CASE 12.10

APPLE’S iPOD:USING SUPPLIERS TO REDUCE LEAD-TIMES

1.How did Apple REDUCE the lead-time for supplying a tailor-made iPod?

2.What can others LEARN from this?

Question

Answer

Reduce lead-time

Learning

• Identify main LEAD-TIME components- Material, process and distribution• Reduce LONG lead-time activities- E.g. inventory holding, JIT agreements,

process improvements

• SUPPLIER agreement- JIT manufacturing• DISTRIBUTER agreement- Deliver DIRECTLY to customer from

supplier

CASE 12.10

APPLE’S iPOD: USING SUPPLIERS TO REDUCE LEAD-TIMES

CASE 12.11 DEVELOPING NEW SERVICES/PRODUCTS

Question

TED Apple’s App Store

Approach

Advantages

• MARKET PLACE for supplier ideas

- LINK suppliers with customers

- FILTER out poor products- PROMOTE to wide

market• High number of VIEWS- 300M by 2010- SPREAD ideas- PROMOTE suppliers• World-wide MARKET- TRANSLATED into 77

languages

CASE 12.11 USING SUPPLIERS TO DEVELOP NEW

SERVICES AND PRODUCTS

• MARKET PLACE for supplier ideas

- LINK suppliers with customers

- FILTER out poor products- PROMOTE to wide

market

• High SALES- 58M downloads Jul 08

to Apr 10- SPREAD ideas- PROMOTE suppliers• World-wide MARKET

> KEY IDEA

Using SUPPLIERS to make improvements requires giving themmore POWER than they usually have

CASE 12.12 IMPROVING OPERATIONS

Question

WIKI Threadless

Develop services and products

Advantages

•CUSTOMERS design products

- ANYONE can develop- ANYONE can edit- ANYONE can access- IN-HOUSE staff just manage

website•ACCESS to ideas- Not LIMITED to in-house- 15M articles in 2010• UP-TO-DATE ideas- Large RESOURCE to keep

up-to-date- Not tied to publishing

cycles

CASE 12.11 USING CUSTOMERS TO

IMPROVE OPERATIONS

•CUSTOMERS- DESIGN products- Decide which are

PRODUCED- Get royalties from SALES

•ACCESS to ideas- Not LIMITED to in-house- 500,000 people

> KEY IDEA

Using CUSTOMERS to make improvements requires giving themmore POWER than they usually have

Involving employees

Improving operations

Hoosiers(1986)

Basketball team

•Team CHARACTERISTICS?•Required MANAGEMENT

STYLE?

AfterBefore Vs

Involving employees

Improving operations

Film clip Before changes

FilmTitleDirector (year)

HoosiersAnspaugh (1986)

ClipStartFinish

00:11:5000:19:00

What clip showsA new basketball coach arriving at a school and meeting the team that he has to manage

Key learning objective

How you start an improvement process The issues associated with a dysfunctional team

Involving employees

Improving operations

Film clip After changes

FilmTitleDirector (year)

HoosiersAnspaugh (1986)

ClipStartFinish

01:44:2801:48:20

What clip shows The basketball team winning the state final

Key learning objective

How a manage has to become more supportive and less directive as his team starts to develop and begins to manage itself

Involving employees

Improving operations

Aspect Before After

Team

Management style

• Unmanaged• Unorganised• Unclear

objectives• Unclear roles• Hierarchy• Not a team• Lack of skill

• Directive- Organise people- Set objectives- Allocate roles- Set and enforce

rules

Involving employees

Improving operations

• Self managing• Self organising• Self directing• Clear roles• No hierarchy• Work as team• Highly skilled

• Supportive- Empower people- Develop management

skills

Critical reflections• A company is actually MOVING BACKWARDS- If it is NOT moving forwards

• Businesses IMPROVE operations to- Release CASH- Improve MARKET SUPPORT- Reduce COSTS

• Need to take a PROACTIVE improvement approach

- NOT a passive one

• Businesses need to rethink their BOUNDARIES

- Give more POWER to interested stakeholders to help them improve their business

- This requires a radically DIFFERENT approach

Summary

• STEPS for improving operations- Plan, do, check, review- Then REPEAT

• Improvement APPROACH- PROACTIVE or PASSIVE- BREAKTHROUGH or INCREMENTAL

• Improvement TOOLS- E.g. benchmarking, mapping, causal

analysis, ideas generation, re-engineering

• MAKING improvements- Use HIGH INTEREST stakeholders- E.g. employees, suppliers, customers

Revision questions

1 Companies improve their operations to

a) Improve market support

b) Release cash and reduce costs

c) Both a) and b)

Revision questions

1 Companies improve their operations to

a) Improve market support

b) Release cash and reduce costs

c) Both a) and b)

Revision questions

2 To reduce costs, you would

a) Map activities and identify areas of waste

b) Review the mix of volumes

c) Both a) and b)

Revision questions

2 To reduce costs, you would

a) Map activities and identify areas of waste

b) Review the mix of volumes

c) Both a) and b)

Revision questions

3 Improving operations should be:

a) A one-off activity

b) In response to increased market competition

c) A continuous, on-going process

Revision questions

3 Improving operations should be:

a) A one-off activity

b) In response to increased market competition

c) A continuous, on-going process

Revision questions

4 Which of the following is NOT a characteristic of an incremental improvement approach:a) Low level of employee time investment

b) High level of asset investment

c) Ongoing activity

Revision questions

4 Which of the following is NOT a characteristic of an incremental improvement approach:a) Low level of employee time investment

b) High level of asset investment

c) Ongoing activity

Revision questions

5 Kaizen blitz events are an example:

a) Breakthrough proactive approach

b) Incremental proactive approach

c) Breakthrough passive approach

Revision questions

5 Kaizen blitz events are an example:

a) Breakthrough proactive approach

b) Incremental proactive approach

c) Breakthrough passive approach

Revision questions

6 Which of the following is NOT an example of an improvement tool or technique:

a) Benchmarking

b) Network analysis

c) Mapping the customer journey

Revision questions

6 Which of the following is NOT an example of an improvement tool or technique:

a) Benchmarking

b) Network analysis

c) Mapping the customer journey

Revision questions

7 When generating improvement ideas, it is important to:

a) Dismiss ideas that are not very good

b) Generate as many ideas as possible

c) Both a) and b)

Revision questions

7 When generating improvement ideas, it is important to:

a) Dismiss ideas that are not very good

b) Generate as many ideas as possible

c) Both a) and b)

Revision questions

8 Making improvements requires giving power to:a) Stakeholders who are interested in the

businessb) Stakeholders who are not interested in

the businessc) Both a) and b)

Revision questions

8 Making improvements requires giving power to:a) Stakeholders who are interested in the

businessb) Stakeholders who are not interested in

the businessc) Both a) and b)

CASE FOR TUTORIAL

HARLEY-DAVIDSON