operations management The three
There are several reasons for economies of scale.
1. Allocation of fixed costs, which include things like depreciation of equipment, rent, taxes, insurance, utilities, and managers' salaries. Because fixed costs do not vary over a wide range of volumes, for accounting purposes they can be spread over more units as output grows, reducing the cost per unit. 2. Equipment and construction costs do not increase proportionally with size. For example, when the size of a storage tank in an oil refinery doubles, its cost only increases by about 1.5 times. 3. Lower costs for purchases because of higher volumes. When buying more, firms have more power to ask suppliers for lower prices. When volumes increase for suppliers, they gain their own economies of scale, and can pass some of the savings on to customers by lowering prices. 4. As volume increases, learning occurs; this is a phenomenon called the learning curve. With practice, employees become more efficient at their jobs and find ways to improve processes. Learning is higher in assembly processes and for new products. Learning is lower in automated processes, and the rate of learning diminishes as employees gain experience making the product.
Activities of a Process A process usually consists of many different activities. Activities usually fall into five distinct categories: 5 types operations transportation inspection delay storage
1. An operation is any activity that transforms or change an input. For example, operations occur when a part or person is physically transformed, when information is organized, when a transaction is made, or when planning and calculations take place. For the most part, operations are the major source of value creation in processes. 2. Transportation is any activity that moves an input from one place to another without transforming its other characteristics. 3. An inspection checks or verifies the results of another activity. For example, an inspector might examine a part to compare it against a standard. A planner might check the progress of a part to see if it is on track. 4. A delay occurs when the flow of an input is unintentionally stopped as a result of interference. You experience a delay when you wait in line to check into a hotel. Delays usually take place because of insufficient operating capacity, or because other needed inputs (information or materials) or resources are not available. For example, transportation delays occur when passengers are missing or when equipment breaks down. In practice, delays are unplanned, often difficult to predict, and sources of variance in process performance. Delays can also be a source of great frustration to customers (as described in the Get Real box on the next page). 5. Storage is an activity where items are inventoried under formal control. Access to stored items requires authorization. For example, when you put money in a bank, you put money into storage. In manufacturing, inventory storage occurs in many places including stockrooms, warehouses, and holding/receiving areas.
Since processes are spread across the many organizations that make up a supply chain, it is important for all managers (even in marketing and finance) to understand the basic operating principles of processes. One way of expressing these principles is through a management system known as the Theory of Constraints (TOC).2 The principles offered by the Theory of Constraints apply universally, whether the processes are located in a manufacturing plant, a service facility, a sales office, or in a financial planning office. The principles serve to simplify process management by focusing managers' attentions to the important constraints that limit the performance of a process. There are five basic principles of TOC
1. Every process has a constraint. 2. Every process contains variance that consumes capacity. 3. Every process must be managed as a system. 4. Performance measures are crucial to the process's success. 5. Every process must continually improve.
metric
A measure, a standard, and a consequence that work together to close the gap between what is valued by the customer and what is intended by the organization.
what is a process?
A process is a system of structured activities that use resources to transform inputs (such as energy, materials, and information) into valuable outputs. Every process has structural and resource constraints that limit the range of outputs it can produce. Each process has a structure that defines, orders, and links the activities included in the operation. Usually, it also has procedures, monitoring and control structures, and feedback mechanisms.
Kaizen Events.
A short-term (i.e., lasting one week or less) approach to enhancing efficiency that focuses on improving an existing process or an activity within a process
Processes involve structured activities and resources that are guided by performance metrics. A particular process can be defined by its:
Activities Inputs/outputs/flows Process structure Management policies
Juran's Law.
At the heart of process thinking is Juran's Law. Joseph M. Juran was one of the leading quality gurus of the 20th century. He once observed that 15 percent of operational problems are the result of human errors; the other 85 percent are due to systemic process errors. Accordingly, to improve operations we should focus our attention on processes first.
Principle 1: Every Process Has a Constraintcontinued
Awareness of bottlenecks is critical. To improve the overall output of a process, operations managers must identify the bottleneck and ensure that it is always busy. An hour of lost output at the bottleneck equates to an hour of lost output for the entire process. For this reason, operations managers often keep an inventory of work waiting in front of the bottleneck activity so that it will never be "starved" for work. Managers also closely monitor and maintain the operation of the bottleneck to ensure that it is working correctly. Finally, awareness of bottlenecks is important because it affects investment strategies. Investing money or effort to improve the capacity of a nonbottleneck activity is actually a waste of time and money, since it has no effect on overall output.
Principle 4: Performance Measures Are Crucial to the Process's Success
Because almost all processes involve human beings, performance measures are important drivers of process success. Process performance measures, or metrics, need to address the aspects that are important to the customer as well as to the organization. Simply stated, a metric consists of three important elements: 1. the measure, the standard against which the measure is compared, 2. and the consequence associated with the measure's meeting or not meeting the standard. A metric should be designed to close the gap between what is valued by the customer and what is intended by the organization. Metrics should be verifiable and quantitative and they should be computed using a clearly specified method that uses objectively gathered data. Equally important are the standards and rewards associated with metrics. The standard defines what an acceptable level of process performance is. The reward, which can be either positive or negative, serves to motivate behaviors. Metrics (measures, standards, and consequences) communicate a firm's strategy and priorities related to the process. These aspects of management provide a language for communicating process performance to workers, customers, and top managers. They also provide the basis by which managers can monitor, control, and improve process performance by directing everyone's efforts and all decisions toward the same set of corporate objectives.
maximum capacity and effective capacity continued....
Capacity limits are often expressed in two different ways: maximum capacity and effective capacity. Maximum capacity is the highest output rate that an activity or a process can achieve under ideal conditions in the short term. • This assumes that all equipment and workers are fully operational for the maximum amount of available time. For equipment this is also known as rated or design capacity; it is an engineering assessment of maximum output, assuming continuous operation except for normal maintenance and repair time. Usually, producing at a rate of maximum capacity can only be sustained for a relatively short time, because things do not always operate perfectly. When operations managers take into account the potential for disruptions in process flows, worker fatigue, machine breakdowns, preventive maintenance, and so forth, they can estimate the effective capacity that the process can sustain. The sustainable effective capacity of a process may only be 70-80 percent of the maximum designed capacity, for instance. It is the effective capacity estimate that operations managers use when they make plans for how they will satisfy customer demand, though they may plan output that exceeds effective capacity levels for short periods of time (such as during periods of peak demand)..
flow time and cycle time
Flow time is the total time it takes one unit to get through a process; that is, the time that a unit spends being processed plus the time that unit spends waiting to be processed. The time that a unit spends being processed at a given operation in the overall process is called the cycle time. (the time it takes one unit to get through a process) The throughput rate, or capacity, of a process is simply the reciprocal of the cycle time at the bottleneck operation. For example, if it takes 10 minutes for an operation to process a unit (the cycle time), then the throughput rate is one unit every 10 minutes, or six units per hour. Little's Law indicates that the flow time for a given unit is dependent on the inventory that is in front of the unit, and the rate at which that inventory is processed (throughput rate or capacity). Recall from the preceding examples that the throughput rate for a given process is determined by the throughput rate of the bottleneck operation in that process. Because in most processes the time a unit spends waiting far exceeds the time it spends being processed, identifying the causes of waiting and reducing or eliminating them can create fundamental improvement in the process. In most processes, a bottleneck is ultimately the cause of waiting time and the attendant costs and quality problems. Example 3-4 shows how Little's Law can be used to set process times for a theme park ride Inventory due to bottlenecks creates requirements for longer total operating time, and for more space to store inventoried items. Labor is needed to track and control this inventory. All of these factors increase costs. Quality also suffers. As inventory grows, more units are susceptible to damage, and problems in production are not as easily detected. In addition, insufficient capacity tends to encourage process workers to hurry, which in turn leads to mistakes. As one manager said, "quality is the first victim of insufficient capacity."
message 2
In addition to consuming capacity, variance increases process congestion and increases flow times because jobs must sit in queues and wait. This phenomenon is specified by equation (3.2). For a single operation, this equation quantifies the effects on a unit's wait time that result from both the level of variance and the level of utilization. This formula, developed from queuing theory, can be used to examine the interaction of utilization and variance. (3.2) Page 72 ca = coefficient of variation (standard deviation divided by the average) of job arrival times cp = coefficient of variation of job processing times u = utilization of the work center tp = average processing time (cycle time) for jobs In equation (3.2), the terms ca and cp represent variability in the arrivals and in the processing of jobs in the work center. Figure 3-4 illustrates the relationships specified in equation (3.2). As one can see, the effect of variance on wait time is nonlinear; it increases at an increasing rate. In addition, the impact of variability on wait time is worsened as utilization levels are increased. The use of the wait time calculation is illustrated in Example 3-6. Because variability can create severe problems for a process, managers spend a great deal of time and effort in managing and responding to variability. There are three basic ways to deal with variability in a process. The first is to reduce it. This means finding sources of variability in process activities and eliminating or controlling them. For example, experimentation with the settings of a production machine might uncover ways to reduce its inherent variability. The second way to deal with variation is to buffer it. By placing safety stock (buffer inventories) before and after highly variable activities, one can reduce some of the bad effects on resource utilization. Finally, managers deal with variation by designing processes that flexibly respond to it. By investing in flexible technologies and cross-training of labor, managers can create processes that quickly react to unplanned situations so that, once again, the detrimental effects of variation are minimized.
Little's law
Little's law An empirically proven relationship that exists between flow time, inventory, and throughput. bottleneck affects more than capacity in a process. It also impacts the timeliness of outputs produced, as well as cost and quality. The bottleneck determines the time that an input unit spends in a process because the bottleneck ultimately determines the rate at which units are processed. Little's Law helps us to understand this relationship. Little's Law shows how flow time (F) is related to the inventory (I) and throughput rate (TH) of a process. (3.1) F=I/TH
management policies
Management Policies Any effective process has to be designed and managed so as to satisfy some customer requirement (e.g., to produce a product of a certain quality within a certain amount of time). How these requirements are specified, measured, and evaluated by managers can have great effects on the overall performance of the process. In addition, the policies that managers use to control resources, especially human resources, are very important. For example, worker compensation policies can have a huge effect on process outcomes. Paying a worker for a rate of output (pay by the piece) tends to motivate the worker to produce higher quantities. However, other aspects of performance may suffer, for example, quality, safety, and so on. Paying workers by the hour or paying them a straight salary has other advantages and disadvantages. It is important to design the management aspects of a process, including metrics, rewards, and controls, so that they are consistent with the overall mission.
diseconomies of scale
Occur when the cost per unit increases as an operation's size increases. If the size of an operation increases beyond some point, costs per unit can increase and diseconomies of scale can occur, as shown on the right side of Figure 3-1. For example, hospital costs per patient decrease with the number of beds, up to a point; then costs begin to increase as more beds are added. A study in the U.K. suggested that the optimal size of a hospital was 400-600 beds, and beyond 600 beds, costs increased.1 Several factors can cause diseconomies of scale. Overtime may be used more frequently and routine maintenance may be delayed, thereby increasing breakdowns. Use of overtime may not be sustainable in the long run. Too much overtime puts stress on employees and can cause safety problems.
Principle 3: Every Process Must Be Managed as a System
Operations management is by its very nature a system management activity. As discussed earlier, the elements of the "system" include process activities, input and output flows, structure, and management policies. All of these elements need to be aligned to the needs of the customers that the process serves. Activities within a process are connected, so that what happens in one area of a process can affect what happens elsewhere. This is very much the case when dealing with variance and bottlenecks. Because of interdependencies in the system, variances tend to be amplified throughout the system. If activity B is dependent on activity A, then B cannot work faster than A works. In addition, delays due to variability in activity A are passed on to activity B. Changing one element of a process in isolation can lead to unpredictable results. Every change made to a given activity needs to be evaluated in light of how it relates to other activities in the process. The application of this principle has contributed to the success of entertainment companies such as Pixar (see the Get Real box about Pixar—"Storyboarding: The Key to Success at Pixar" on the preceding page). As we noted earlier, adding capacity to an activity will have different effects on the overall process performance depending on that activity's role in the overall process (i.e., whether or not it is a bottleneck). Similarly, changes to one management element of a process will have effects on many other elements. For example, changing the way that employees are evaluated and rewarded will affect behaviors and process outcomes
Principle 5: Every Process Must Continuously Improve
Operations managers do not work in a static world. Technology is always changing, the competition is changing, and customers (and their expectations) are changing. Consequently, processes (especially the critical processes identified in Table 3-7) should also be changing. They must be evaluated and changed when the level of value that they provide is no longer acceptable to customers. There are a number of specific tools that can be used to aid process improvement efforts, including process flow analysis (covered in detail in the supplement to this chapter) and Kaizen Events.
Estimating Capacity Requirements
Operations managers use their understanding of bottlenecks in capacity planning. They estimate capacity requirements for a process by using a forecast of each product's demand, its processing requirements, and any setup time that is needed when switching between products. The capacity requirements are determined by dividing the sum of the total time needed to make the products and the total setup by the operating time that is available. Example 3-5 gives us an example of how a manager might go about the task of estimating capacity requirements.
Operations managers usually express amounts of capacity in terms of what?
Operations managers usually express amounts of capacity in terms of either • resource availability (e.g., available machine hours, labor hours, number of tools, or storage space) or • potential output rate (e.g., number of parts that the process can produce in a day, dollars worth of products it can produce in an hour). Different types of business operations use different units of capacity measurement. Restaurants measure capacity in terms of the number of diners or meals that can be served during a day or specific mealtime. An amusement park assesses the number of patrons that can safely visit the park per day. A delivery company measures the number of packages that can be delivered per day. A manufacturing company may count the number of units (TVs, bicycles, tables, etc.) that it can make per day, or it might measure the amount of dollars of sales that it can support in a day. Capacity can also be measured in terms of inputs used. For example, a neighborhood bakery might measure the number of oven baking hours it has available, or simply measure the pounds of flour it can consume
Inputs, Outputs, and Flows information flows and material flows
Process activities create outputs from inputs through a series of flows. Most processes involve two basic types of flows: • information flows and material flows. Information flows can include • data communicated in many forms (e.g., speech, binary code, written words or pictures, currency). Material flows involve • physical products, including people. Inputs are items that come from outside the process and are acted upon or consumed by the process. Even simple processes usually involve a wide range of inputs including materials, energy, information, capital, and even people (in the case of a service process). Resources such as facilities, equipment, and labor are also inputs to a process. For example, an inspection activity requires floor space for storing the items to be inspected, and it consumes either a machine or a person's time to actually do the inspection. Outputs include both intended and unintended products of the process, including physical goods, services, and information. Intended outputs usually have value for customers. Unintended outputs are often undesirable by-products. For example, an important part of process management is to minimize pollution and environmental waste.
process thinking
Process thinking is a way of viewing activities in an organization as a collection of processes (as opposed to departments or functional areas). This way of thinking focuses one's attention not only on an operation's outputs, but also on the processes responsible for these outputs. Outputs become viewed as the result of the process; if you don't like the outputs, then change the process. Using process thinking, operations managers design, document, manage, and change business processes located throughout the supply chain, with the goal of ensuring that these processes make the desired results inevitable. Process thinking causes managers to address critical process elements, including activities, inputs, outputs, flows, structure, resources, and metrics.
process message
Revolutionary process changes in the dry cleaning industry offer an example of the importance of processes in operations management. Processes determine the specific types of products that an organization can offer to its customers, as well as the timeliness and quality of those products. When customers' requirements change or when a company wants to offer its customers something very different, then it must change its processes. In a supply chain, operations managers must recognize that they are fundamentally process managers. Consequently, they must understand the principles that govern processes and process thinking.
structure
Structure deals with how inputs, activities, and outputs of a process are organized. Process managers define a process's structure by sequencing activities, by physically positioning them, and by linking them. Ideally, the sequencing, positioning, and linking of process activities should be closely tied to the priorities that process managers place on various performance outcomes
Principle 2: Every Process Contains Variance
That Consumes arizes the effects that different types of variability have on process capacity. Essentially, variability of different sorts introduces complexity and uncertainty into processes, which in turn increase the difficulty of efficiently and fully utilizing resources. In addition, resources must be dedicated to managing complexity and uncertainty. For example, more support personnel are needed to plan and control activities that often do not contribute directly to producing outputs (inspection and storage, for example). These activities take away from the total productive capacity of the process.
example of bottleneck
The notion of bottlenecks is simple to understand. In practice, however, bad decisions are often made simply because operations managers do not have a clear view of how bottlenecks constrain their operating processes. The same situation applies in a supply chain context. Take another look atFigure 3-2, but this time imagine suppliers and customers in place of the four serial activities shown in the process. Ultimately, if Supplier B adds to its capacity, it does not help the overall supply chain, as it will always be limited by the capacity of Supplier C. Because various suppliers and partners in a supply chain are often unaware of capacity differences and have little control over them, isolated investments in capacity can be ineffective as far as the overall supply chain is concerned.
theory of constraints
The overall management system that strives to improve system performance by identifying, focusing on, and managing constraints.
Principle 1: Every Process Has a Constraint bottleneck Serial/sequential structure Parallel structure
The overall operating capacity of a process is limited by one or more constraints. As indicated in Table 3-2, a constraint is a physical limitation applied by a person, by equipment, or by facilities. bottleneck is the The constraining activity in the process that limits the overall output Over time the output of a process can be no greater than the output of its bottleneck activity. Let's use the bottleneck principle to calculate the maximum capacity in a process. How we calculate capacity is strongly influenced by the structure of the process. A process can be serial/sequential or parallel. In a serial/sequential structure, the activities in the process occur one after the other; in a parallel structure, an activity is done by two or more resources simultaneously (e.g., two or more bank tellers serving customers). Example 3-2 describes a serial process while Example 3-3 describes a parallel process.
utilization page 64. Table 3-1
The percent of process capacity that is actually used. Both design capacity and effective capacity are planning concepts (different types of planning are described in greater detail later on in this book). As a measure of performance, operations managers often compare planned capacities with what was actually produced. Utilization is defined as the percentage of process capacity that is actually used. Utilization can be calculated as the ratio of the actual output rate to the capacity. Alternatively, utilization is sometimes calculated as the percentage of available resource time that is actually used. Very low utilization rates suggest that equipment or employees are being underused, while extremely high utilization rates suggest overuse and a corresponding danger that problems may occur if demand continues to exceed available capacity. Example 3-1 shows how the various types of capacity are calculated.
capacity planning Capacity decisions are important because demand, products, technology, and the competitive environment shift over time. Managers must consider these shifts to determine when and how much to change capacity. Typically, cross-functional teams make decisions about how much capacity is needed and when it should be added or removed. problems with too much capacity and too little capacity what is lead strategy? what is Add or remove strategy? what is lag strategy? Tactical capacity
Too much capacity in a supply chain means that resources are underutilized, so costs increase. For example, after years of rapid expansion, Starbucks increased its capacity too much. In 2008, because of sagging sales, Starbucks announced it was closing 600 stores. Too little capacity in a supply chain can be a problem, too. When Nintendo first introduced its Wii© gaming console system, capacity problems at one of its suppliers led to empty store shelves, upset customers, and lost sales. There are three general strategies for determining when to change capacity relative to demand. Some companies use a capacity lead strategy by adding capacity assuming that demand will grow. • Apple used this strategy very effectively for its iPad© tablet computer as described in the Get Real: "Capacity Planning Contributes to iPad's© Success."A lead strategy ensures sales will not be lost and helps companies gain market share during the early stages of a product's life cycle. However, this strategy can result in costly underutilization if sales do not grow as expected. • Other companies add or remove capacity to correspond to average demand. This approach balances the risks of having too much capacity and missing out on sales. A third approach, a capacity lag strategy, is to wait to add capacity until after demand is actually known. This strategy, often used as products mature, lowers the risk of overexpansion, but results in lost sales. Capacity changes involve increasing or decreasing key resources such as facilities and space, equipment, and labor within the supply chain. Capacity changes can be strategic, tactical or operational as summarized in Table 3-3. Strategic capacity changes take a long time to implement and often include large increases or decreases in capacity, such as building a new retail mall or manufacturing plant or outsourcing customer service operations to a supplier. Tactical capacity decisions occur in the medium term (6 to 24 months) and may be medium-sized capacity changes, such as buying equipment and leasing space. Finding and qualifying an additional supplier or distributor is a tactical decision. Some tactical capacity decisions may be smaller changes, such as hiring specialized labor such as physicians or engineers. Operational capacity decisions occur in the short term (zero to six months) and typically require small changes to low-skilled labor, equipment, and space. The use of temporary employees at retail stores and distribution centers for the
PROCESS CAPACITY AND UTILIZATION capacity page 62table 3 - two
capacity The limit on the amount of output per period of time that a process can generate or store given a level of inputs and resources available. Process capacity refers to the limit on the amount of output that a process can produce given an amount of inputs and resources made available to the process (i.e., machine hours, labor hours, tools, or square feet of floor space available). Process capacity is usually specified with respect to some unit of time, such as "this process can produce 100 units per hour." The term capacity is also used to denote size or storage limits. For example, a warehouse has a certain storage capacity limited by its square footage. Operations, transportation, and inspection activities are usually defined by output capacity, where delays and storage activities are defined by storage capacity. The capacity of a process is determined by the limits of its resources. For example, the capacity of a circuit board assembly operation is limited by the types of tools, machines, and labor it employs; the capacity of a transportation activity is limited by the size of its equipment; and so on.Table 3-2 gives examples of the capacity-limiting resources associated with the five types of process activities.
Economies and Diseconomies of Scale
economies of scale production volumes increase with additions of capacity, the unit cost to produce a product decreases to an optimal level. With the addition of capacity, some types of processes offer economies of scale. As production volumes increase with additions of capacity, the unit cost to produce a product decreases until some optimal level is reached. The left side of Figure 3-1 on the next page illustrates economies of scale. In some industries such as consumer electronics, operations managers install enough production capacity in a single manufacturing plant to meet global demand so that they can achieve economies of scale.
maximum capacity Effective capacity
maximum capacity the highest level of output that a process can achieve under ideal conditions in the short term; also known as design capacity effective capacity The level of capacity or output that the process can be expected to produce under normal conditions; what management plans for under normal conditions.
Operations managers are also concerned when actual production exceeds effective capacity for a long period of time. Most processes can exceed their effective capacities in the short run by working faster than normal, or by working longer than normal (overtime). Such overproduction is usually not sustainable, however. Typically, when workers are pushed beyond normal limits, errors and accidents become more frequent. People become fatigued and safety issues emerge. Similarly, machines that are utilized for too long will break down if they are not properly maintained. It is the job of operations managers to maintain the balance between making sure that capacity is fully utilized and avoiding unsustainable overutilization.
message
Viewing supply chain operations as a collection of processes, rather than a collection of departments, functions, or companies is important because this perspective helps managers to break down organizational barriers that can impede operational performance. By focusing on managing processes, operations managers can better ensure that the operational capabilities and outcomes they create are more fully consistent with the firm's strategy. In addition, process thinking causes managers and workers to view operational activities from a customer's perspective. Processes are the means by which customers' needs are satisfied. Note that the notion of a process is much more general than just manufacturing processes. As can be seen in Table 3-1, process thinking can be applied to any operation that involves transformations of materials, information, currencies, or even people. These high-level processes consist of smaller and more focused subprocesses. Between every pair of subprocesses, an interface must be maintained. Often these interfaces cross departmental boundaries. For example, a customer service process might involve personnel from sales, manufacturing, logistics, and other departments. In the same way, processes often span the organizational boundaries of different firms in a supply chain.
message Process are the means by which customer needs are satisfied see page 59. Table 3.1
process capabilities
process capabilities specific types of outputs and levels of performance that a process can generate. The structure limits the process capabilities—that is, the types of outputs that the process is able to produce, the specific types of problems that the process can best address, and the levels of performance the process is able to attain. For example, a process designed to minimize product delivery speed might be structured quite differently from a process that minimizes operating costs. Processes that have many parallel activities are typically faster and more flexible than more serial processes. On the other hand, because resources are often duplicated in parallel processes, they tend to be less completely utilized, thus making the process more costly How activities are positioned and linked is also important for process performance. Locating two activities closer to one another reduces the time needed to move materials and tools between them. Dedicated physical links such as conveyor belts can be used to reduce transfer time and variability, resulting in lower material handling costs. However, building physical links requires capital investment and fixed operating costs, and they can make it more costly to change the flows within a process. Specialized information links are subject to the same trade-offs. Over the years, a number of typical process structures have evolved. Each of these structures (project, job shop, batch shop, assembly line, continuous flow) represents a scheme of supportive choices regarding the sequencing, positioning, and linking of activities in a process.
Operations managers are usually concerned when effective capacity is greater than actual production (i.e., what we planned to make is greater than what we actually made, or the number of customers we planned to serve is less than the number we actually served). For either external or internal reasons processes are often not able to achieve desired levels of capacity utilization. External reasons include insufficient demand or supplied inputs. Internal reasons include lack of resource availability (machines break down or workers are absent), efficiency problems (workers are slowed by product changeovers, training, or unforeseen difficulties), and quality problems (some portion of the products do not meet requirements). In some contexts, there may be an insufficient yield rate what is yield rate?
yield rate The percentage of units successfully produced as a percentage of input Yield rate is the percentage of good units produced as a percentage of total units begun. For example, a yield rate of 80 percent means that out of 100 units begun, only 80 were successfully completed; the remaining 20 units must be scrapped (thrown away) or reworked. It is the job of operations managers to minimize these sorts of difficulties in order to make the process as productive as possible.
Kaizen Events: Small Process Changes Made Quickly One approach for continually improving processes makes use of Kaizen Events. A Kaizen Event is a short-term project aimed at improving an existing process, or an activity within a process. It is characterized by the following traits:
• Team-oriented: The responsibility for an event is placed in the hands of a cross-functional team consisting of employees from the process being studied, employees outside of the process, management, and in some cases, supplier representatives. The entire team is responsible for all the Kaizen steps. As a result, the team members develop greater ownership of the changes. • Short-term and focused: Kaizen Events usually take between one and four days from start to finish, and focus on a tightly bounded process or activity. During this period, team members are introduced to the process analysis tools that they will use. They then study the process, identify opportunities for improvement, implement them, assess the impact, redo the cycle, and present their results to management. • Action-oriented: An interesting feature of Kaizen Events is the immediacy of action. Any change that is identified and approved by the team is immediately implemented. The only major constraint is that the changes not require any major funding or capital requests. After the changes have been implemented, the new system is run and the resulting performance is documented and compared with the old system. As one American manager put it, the motto of a Kaizen Event is "Ready, Fire, Aim." • Repetitive: Once begun, Kaizen Events are regularly repeated. Each event generates an action list or a list of opportunities for improvement identified by the team in areas that they could address within their event. These items, in turn, become the focal point for future Kaizen Events. example To understand both the attraction of Kaizen Events and their impact on operations performance, consider the experiences of Delta Faucets. Their personnel applied the Kaizen Event approach to resolve a quality/scrap problem (as described in the Get Real box above). Along with Kaizen Events, operations managers may occasionally use more radical approaches for improving processes. Managers typically decide what types of approaches to use depending on the size of the gaps between the current process capabilities, competitors' capabilities, and customers' requirements. Substantial gaps justify major process renovations, whereas small gaps encourage incremental improvements through Kaizen Events.
Several steps can be taken to insure that metrics motivate process behaviors in ways that increase customer value. what are they?
• The first is to identify and prioritize the customers served by the process. Processes typically serve many potential customers, some of whom may be internal to the operation. For example, a school serves its students as "customers" who consume education. At the same time, the school serves many other customers including the students' parents, recruiters who hire the students, and even the community as a whole. Different customer groups rarely have identical wishes, and it is rarely possible to completely satisfy all customers. Consequently, managers must identify the critical (most important) customers. • Second, they have to prioritize the requirements of these critical customers, while not losing sight of less critical groups. Third, they must pick a limited number of critical requirements and provide meaningful operational definitions (metrics) for them. These metrics should be consistent with the specific types of value that the firm provides within the marketplace and with the ways that the firm differentiates itself from its competitors. Having established metrics, managers can then assess the adequacy of the current process, and establish objectives for a redesigned process as needed.
