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Operationsthe application of resources to the production of goods and services.

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Premise: Operations matters strategically

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Secret of Toyota’s Success?

What is the secret of Toyota’s success? The incredible consistency of Toyota’s performance is a direct result of operational excellence. Toyota has turned operational excellence into a strategic weapon. This operational excellence is based in part on tools and quality improvement methods made famous by Toyota in the manufacturing world, such as just-in-time, kaizen, one-piece flow, jidoka, and heijunka. These techniques helped spawn the “lean manufacturing” revolution. But tools and techniques are no secret weapon for transforming a business. Toyota’s continued success at implementing these tools stems from a deeper business philosophy based on its understanding of people and human motivation. Its success is ultimately based on its ability to cultivate leadership, teams, and culture, to devise strategy, to build supplier relationships, and to maintain a learning organization.

(Liker, The Toyota Way, p. 6)

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Operational Innovation

Operational innovation has been central to some of the greatest success stories in recent business history, including Wal-Mart, Toyota, and Dell. Wal-Mart is now the largest organization in the world, and it owns one of the world’s strongest brands. Between 1972 and 1992, Wal-Mart went from $44 million in sales to $44 billion, powering past Sears and Kmart with faster growth, higher profits and lower prices. How did it score that hat trick? Wal-Mart pioneered a great many innovations in how it purchased and distributed goods. One of the best known of these is cross-docking, in which goods trucked to a distribution center from suppliers are immediately transferred to trucks bound for stores – without ever being placed into storage. Cross-docking and companion innovations led to lower inventory levels and lower operating costs, which Wal-Mart translated into lower prices. The rest is history. … Similar observations can be made about Dell and Toyota, organizations whose operational innovations have become proper nouns: the Dell Business Model and the Toyota Production System. Each of these three companies fundamentally rethought how to do work in its industry. Their operational innovations dislodged some of the mightiest corporations in the history of capitalism, including Sears, General Motors and IBM.

Hammer, “Deep Change”, HBR, April 2004, pp. 86

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Execution is Critical and not Trivial

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Everything is a process

PROCESS view is key to understanding and improving operations

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Process Classification -- First Level: Operating vs. Support

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Based on Managing Business Process Flows by Anupindi, et alFigure 1.2

Inputs OutputsGoods

Services

Labor & Capital

Informationstructure

Network ofActivities and Buffers

Flow units(customers, data, material, cash, etc.)

Resources

ProcessManagement

The process view considers any organization to be a process that transforms inputs into outputs.

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Little’s Law

In a stable process these three measures are related to one another by Little’s Law:

Average Inventory (I) = Throughput ( R ) x Average Flow Time (T)

I = R x T

A stable process is one in which, in the long run, the average inflow rate is the same as the average outflow rate.

• Flow rate (R) = the number of flow units that flow through a specific point in the process per unit of time.

• Inventory (I) = the total number of flow units present within process boundaries.

• Flow time (T) = the total time spent by a flow unit within process boundaries.

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• Inputs and Outputs

• Flow Unit

• Process flow chart (activities and buffers)

• Resources

Processes: how to describe them?

Your Job

Flow unit?

Throughput?

Flow time?

Inventory?

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Toyota Principles

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Toyota Principles

Long –Term Philosophy. Toyota is serious about long-term thinking. The focus from the very top of the company is to add value to customers and society. This drives a long-term approach to building a learning organization, one that can adapt to changes in the environment and survive as a productive organization. Without this foundation, none of the investments Toyota makes in continuous improvement and learning would be possible.

The Right Process Will Produce the Right Results. Toyota is a process-oriented company. They have learned through experience what processes work, beginning with the ideal of one-piece flow. Flow is the key to achieving best quality at the lowest cost with high safety and morale. At Toyota this process focus is built into the company’s DNA, and managers believe in their hearts that using the right process will lead to the results they desire.

Add Value to the Organization by Developing Your People and Partners. The Toyota Way includes a set of tools that are designed to support people continuously improving and continuously developing. For example, one-piece flow is a very demanding process that quickly surfaces problems that demand fast solutions – or production will stop. This suits Toyota’s employee development goals perfectly because it gives people the sense of urgency needed to confront business problems. The view of management at Toyota is that they build people, not just cars.

Continuously Solving Root Problems Drives Organizational Learning. The highest level of the Toyota Way is organizational learning. Identifying root causes of problems and preventing them from occurring is the focus of Toyota’s continuous learning system. Tough analysis, reflection, and communication of lessons learned are central to improvement as is the discipline to standardize the best-known practices.

(Liker, The Toyota Way, p. xvi)

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Priority: Process Intent DRIVES Process Design

James Swartz, Hunter and Hunted.

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Balanced Scorecard Perspective

Chase, et al, Operations Management, p. 29.

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Mobil BSC: Financial & Customer

The Strategy Focused Organization by Kaplan & Norton.

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Mobil BSC: Internal & Growth and Learning

The Strategy Focused Organization by Kaplan & Norton.

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Wall Street Journal

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The Theory of Swift and Even Flow

The Theory of Swift, Even Flow holds that the more swift and even the flow

of materials (or information) through a process, the more productive is that process

(Schmenner & Swink, 1998; Schmenner, 2001). Thus, productivity for any

process—be it labor productivity, machine productivity, materials productivity, or

total factor productivity—rises with the speed by which materials (or information)

flow through the process, and it falls with increases in the variability associated

with the flow, be that variability associated with quality, quantities, or timing.

“Service Business and Productivity” by Schmenner, Decision Sciences, Summer 2004, pp. 333-347.

Principle

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Innovative Processes Happen Through People

"The central issue is never strategy, structure, culture, or systems. The core of the matter is always about changing the behavior of people." Those people may be called upon to respond to profound upheavals in marketplace dynamics -- the rise of a new global competitor, say, or a shift from a regulated to a deregulated environment -- or to a corporate reorganization, merger, or entry into a new business. And as individuals, we may want to change our own styles of work -- how we mentor subordinates, for example, or how we react to criticism. Yet more often than not, we can't.

-- John Kotter, a Harvard Business School professor

So instead of trying to motivate them with the "fear of dying," Ornish reframes the issue. He inspires a new vision of the "joy of living" -- convincing them they can feel better, not just live longer. That means enjoying the things that make daily life pleasurable, … . "Joy is a more powerful motivator than fear," he says.

-- Dr. Dean Ornish, a professor of medicine at the University of California at San Francisco

http://www.fastcompany.com/magazine/94/open_change-or-die.html