Building Sustainable Enterprises through a Process Centric View of Managing
Operations
Manoj Malhotra Moore School of Business
University of South Carolina
ABEPRO Conference
October 18, 2012
The Role of Operations in the Organization
Coordination among different business functions is necessary and key to developing a common strategy.
A Process View Process
Any activity or group of activities that takes one or more inputs, transforms them, and provides one or more outputs for its customers.
The Supply Chain View Each activity in a process should add value
to the preceding activities; waste and unnecessary cost should be eliminated.
The Supply Chain View Supplier relationship process – A process to select the suppliers of services, materials, and information
and facilitate the flow of these into the firm.
The Supply Chain View New service/product development – A process to
design and develop new services or products from customer or market inputs.
The Supply Chain View Order fulfillment process – A process to
produce and deliver services or products to the external customer.
The Supply Chain View Customer relationship process – A process that
identifies, attracts and builds relationships with external customers and facilitates the placement of orders.
The Supply Chain View Support Processes - Processes like Accounting, Human Resources, Engineering, and Information Systems that
provides vital resources and inputs to the core processes
Operations Strategy • Specifies the means by which operations
implements corporate strategy and helps build a customer-driven firm
• Corporate strategy provides an overall
direction that serves as the framework for carrying out all the organization's functions
Operations Strategy Corporate Strategy • Environmental
scanning • Core competencies • Core processes • Global strategies
Market Analysis • Market segmentation • Needs assessment
Competitive Priorities • Cost • Quality • Time • Flexibility
New Service/ Product Development • Design • Analysis • Development • Full launch
Operations Strategy
Decisions • Managing processes • Managing supply chains
Competitive Capabilities • Current • Needed • Planned
Performance Gap?
No
Yes
Competitive Priorities and Capabilities Competitive Priorities The critical dimensions that a process or supply chain must possess to satisfy its internal or external customers, both now and in the future.
Competitive capabilities The cost, quality, time, and flexibility dimensions that a process or supply chain actually possesses and is able to deliver.
Order Winners and Qualifiers Order Winners The criterion customers use to differentiate the services or products of one firm from those of another.
Order Qualifiers The minimum level required from a set of criteria for a firm to do business in a particular market segment.
What is Process Strategy? Process Strategy The pattern of decisions made in managing processes, so that the processes will achieve their competitive priorities.
Production and Inventory Strategies • Make-to-Order
• Assemble-to-Order
– Postponement – Mass
Customization
• Make-to-Stock – Mass Production
What is Process Analysis? Process Analysis The set of tools used to identify opportunities for improvement, document current processes, evaluate processes to find performance gaps, redesign processes, and implement desired changes.
Documenting the Process Flowchart – A tool to trace the flow of information, customers, equipment and materials through the various steps of a process. Swim Lane Flowchart – A visual representation that groups functional areas responsible for different sub-processes into lanes.
Flow Chart of Consulting
4 - 25
Data Analysis Tools
• Checklists • Histograms and bar charts • Pareto charts • Scatter diagrams • Cause-and-effect diagrams (Fishbone) • Graphs
Redesigning the Process
• Generating Ideas: Questioning and Brainstorming • Ideas can be uncovered by asking six questions
1. What is being done? 2. When is it being done? 3. Who is doing it? 4. Where is it being done? 5. How is it being done? 6. How well does it do on the various metrics of
importance?
Managing and Implementing Processes • Seven common mistakes
1. Not connecting with strategic issues 2. Not involving the right people in the right way 3. Not giving the design teams and process analysts a
clear charter and then holding them accountable 4. Not being satisfied unless fundamental
“reengineering” changes are made 5. Not considering the impact on people 6. Not giving attention to implementation 7. Not creating an infrastructure for continuous process
improvement
What is Six Sigma?
Six Sigma A comprehensive and flexible system for achieving, sustaining, and maximizing business success by minimizing defects and variability in processes.
Six Sigma Approach
X X X X
X X X X X
X X X X X X X X
Process average OK; too much variation
Process variability OK; process off target
Process on target with low variability
Reduce spread
Center process
X
X
X
X X
X X
X
X
Six Sigma Improvement Model Six Sigma Certification • Master Black
Belts
• Black Belts
• Green Belts
Acceptance Sampling Across the Supply Chain
• Acceptance Sampling – The application of statistical techniques to
determine if a quantity of material from a supplier should be accepted or rejected based on the inspection or test of one or more samples.
• Acceptable Quality Level – A statement of the proportion of defective
items that the buyer will accept in a shipment.
Acceptance Sampling Interface Firm A uses TQM or Six
Sigma to achieve internal process performance
Supplier uses TQM or Six Sigma to achieve internal
process performance
Yes No
Yes No
Accept blades?
Supplier Manufactures
fan blades TARGET: Firm A’s specs
Accept motors?
Motor inspection
Blade inspection
Firm A Manufacturers
furnace fan motors TARGET: Buyer’s specs
Buyer Manufactures
furnaces
What is Supply Chain Integration? Supply Chain Integration
The effective coordination of supply chain processes though the seamless flow of information up and down the supply chain.
Integrated Supply Chains • External Supply Chain Linkages
First-Tier Supplier Service/Product Provider Support Processes
Exte
rnal
Sup
plie
rs
Support Processes
Supplier relationship
process
New service/ product
development process
Order fulfillment process
Business-to-business
(B2B) customer
relationship process
External Consum
ers
Supplier relationship
process
New service/ product
development process
Order fulfillment process
Business-to-
business (B2B)
customer relationship process
Business-to-business
(B2B) customer
relationship process
Business-to-business
(B2B) customer
relationship process
Service/Product
Processes Supply Chain
Link Services/Products with Internal Processes
Link Services/Products with External Supply Chain
Link Services/Products with Customers, Suppliers, and Supply Chain Processes
Creating an Effective Supply Chain
Supply Chain Efficiency Curve To
tal c
osts
Supply chain performance
New supply chain efficiency curve with changes in design and execution
Inefficient supply chain operations Area of
improved operations
Improve perform-ance
Reduce costs
Supply Chain Design Pressures
• Dynamic sales volumes
• Customer service levels
• Service/product proliferation
Manufacturing Supply Chain
East Coast West Coast East Europe West Europe Retail
USA Ireland Distribution centers
Manufacturer USA Assembly
Poland USA Canada Australia Malaysia Tier 3 Raw materials
Germany Brazil USA China Tier 2 Components
Germany Mexico USA Tier 1 Major
subassemblies
• Financial measures – Total revenue – Cost of goods sold – Operating expenses – Cash flow – Working capital – Return on assets (ROA)
Measures of Supply Chain Financial Performance
Strategic Implications • Efficient supply chains
– Build-to-stock
• Responsive supply chains – Assemble-to-order – Make-to-order – Design-to-order
Environments Factor Efficient Supply
Chains Responsive Supply
Chains Demand Predictable, low
forecast errors Unpredictable, high
forecast errors
Competitive priorities
Low cost, consistent quality, on-time
delivery
Development speed, fast delivery times,
customization, volume flexibility, variety, top
quality New-
service/product introduction
Infrequent Frequent
Contribution margins
Low High
Product variety Low High
Design Features Factor Efficient Supply
Chains Responsive Supply
Chains Operation strategy
Make-to-stock or standardized services
or products; emphasize high volumes
Assemble-to-order, make-to-order, or
customized service or products; emphasize
variety Capacity cushion
Low High
Inventory investment
Low; enable high inventory turns
As needed to enable fast delivery time
Lead time Shorten, but do not increase costs
Shorten aggressively
Supplier selection
Emphasize low prices, consistent quality, on-
time delivery
Emphasize fast delivery time, customization,
variety, volume flexibility, top quality
Job Small Batch Large Batch Line Continuous Flow
Process
Serv
ice/
Prod
uct C
hara
cter
istic
s St
anda
rdiz
ed
Cus
tom
ized
Supply Chain Design Link to Processes
SCM Decisions Affecting ROA
Return on assets (ROA)
Increase ROA with higher net income
and fewer total assets
Total assets Achieve the same
or better performance with
fewer assets
Working capital Reduce working
capital by reducing inventory investment,
lead times, and backlogs
Fixed assets Reduce the number
of warehouses through improved
supply chain design
Net income Improve profits
with greater revenue and lower
costs
Total revenue Increase sales through
better customer service
Cost of goods sold Reduce costs of
transportation and purchased materials
Operating expenses Reduce fixed expenses by
reducing overhead associated with supply
chain operations
Net cash flows
Improve positive cash flows by reducing lead times and
backlogs
Inventory Increase inventory turnover
Trends in Operations Management • Global Competition
– Advantages: • Increased market penetration • Comparative cost advantages
– Disadvantages: • Political risks • Lower skilled workers • Vulnerability to supply chain disruptions
–Japanese Earthquake in March 2011
Trends in Operations Management
• Ethical, Workforce Diversity and Environmental Issues
– Ethical decision-making in different countries
– Environmental concerns
– Sustainability initiatives
What is Sustainability? Sustainability A characteristic of processes that are meeting humanity’s needs without harming future generations.
Supply Chains and Sustainability
Environmental Responsibility
Financial Responsibility
Social Responsibility
Supply Chains and
Sustainability
Sup ply Chain Sustainability Efforts Financial Responsibility Environmental Responsibility --- Reverse Logistics --- Efficiency Social Responsibility --- Disaster Relief Supply Chains --- Ethics
Sustainability across the Organization
• Environmental protection
• Productivity improvement
• Risk minimization
• Innovation
What is Reverse Logistics? Reverse Logistics The process of planning, implementing and controlling the efficient, cost-effective flow of products, materials, and information from the point of consumption back to the point of origin for returns, repair, remanufacture, or recycling.
Flows in a Closed-Loop Supply Chain Production
process Distribution/
Retailers
Product information
New service/product
development process Recycle
parts and materials
Remanufacture
Repair
Returns processor
Customers
Direct reuse
Waste disposal
Forward flow Reverse flow
Reverse Logistics • Financial Implications
– Fee
– Deposit fee
– Take back
– Trade-in
– Community programs
Energy Efficiency
• Carbon footprint
– The total amount of greenhouse gasses produced to support operations, usually expressed in equivalent tons of carbon dioxide (CO2)
Supply Chain Ethics
• Buyer-Supplier Relationships – Identifying ethical and unethical work practices
• Facility Location • Inventory Management
Supply Chain Ethics • Buyer-Supplier Relationships
– SA8000:2008 • Child Labor • Forced Labor • Health and Safety • Freedom of Association and Right to
Collective Bargaining • Discrimination • Discipline • Working hours • Compensation • Management Systems
Managing Sustainable Supply Chains • Develop a sustainable supply chain framework. • Gather data on current supplier performance
and use that information to screen new suppliers.
• Require compliance across all business units. • Engage in active supplier management utilizing
ethical means. • Provide periodic reports on the impact of supply
chains on sustainability.