Operation Management

Representative Slides of Presentation made for

Goldman Sach ISB AIMS 10k WE

Development Program, 1Mar2012, Bangalore

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Business Excellence

• Every business has an Objective

• With time, a business must reach closer to its Objective

• Every business sets its Goals on an ongoing basis to measure its progress towards Objective.

For Entrepreneurs: What is the Objective of your business? How do you Measure progress (Goal)?

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Business Strategy

• While there would be several opportunities and options to pursue, resources of the organization would be limited.

• For a sustainable business, the company must have a unique value proposition, (other things remaining the same).

• Business strategy – provides intent and exercises topmost decision for the organization – it foresees the business over a longer horizon. – uses internal and external factors and makes a choice on available options.

• Offerings, Technology, Product,/ Service customer segment, geography, resources • Low cost, High Variety, High Quality, Fast Response, High Availability, Innovativeness

For Entrepreneurs: What do you offer ? Name Product or Service. What is the Unique Value Proposition of your business? Who are your customers ? How do you create Value ? 3

Definition

• Operations

– Management of Value Creation Process

– A systematic approach to transform input into useful revenue generating output

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Building Blocks of Operations

Core Process

Innovation

Suppliers and Partners

Customer End

Operation Support

5 Reference: Operation Management, Mahadevan

Operation Strategy

• What situation we want to be – To deliver as per overall strategy

• What is it ? The Choice made from the available Options for Operations

• Input – Product or Service – Type, variety, geography, customer segment

• Options Exercised – Process Design – Supply Chain – Technology – Capacity

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Operation Management

• An Objective

– To deliver product or service

– Under certain Design Constraints

• Products, technology, supply chain, geography, Capacity

– Under certain boundary conditions

• Quality, Safety, Health, Environment, Cost, Regulations, Value system

For Entrepreneurs:

What are the Boundary Conditions of your Operations

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Operation Management Functions

Design Issue Operational Control Issue

Product / Service Design Forecasting

Process Design Production Planning and Control

Quality Management Supply Chain Management

Location and Layout of facilities Maintenance Management

Capacity Planning Continuous Improvement of Operations

Reference: Operation Management, Mahadevan 8

Elements of Operations

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Conversion Process

• Factors Affecting Process Design – Volume, Variety

– Flow: • Continuous

• Intermittent

• Mixed Flow

– Layout

• Group of activities organized in a way – Flow Chart

For Entrepreneurs: Draw the Value Creation Process Is your process Volume driven or Variety driven

Conversion Process

Blending Compression Coating Packing Raw Material

Warehouse

FG

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Design Analysis Coding Testing Requirements

Deployment

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Manufacturing of Tablets

Software development

Product/ Service

• Development Process

– Concept

– Design

– Development

– Operation

For Entrepreneurs: Write 3 proposed improvements in your product or services.

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Capacity

• The rate of throughput, #s per unit time

• Measurement

– Capacity: Throughput

– Process Time

– Cycle Time

– Lead Time

For Entrepreneurs:

What is design capacity of your process ? What is the rough utilization ?

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Supply Chain Management

• Chain of Activities in creating and delivering value

• Flow of Raw Material, Components, Service

– Inbound, In house , Outbound

For Entrepreneurs: Who are your key partners?. Draw your supply Chain.

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Supply Chain Management

For Entrepreneurs: Who are your key partners?. Draw your supply Chain.

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RM Warehouse

Regional Warehouse

Retailers Plant 1:n 1:n Warehouse 1:n n:1 Distributors

Consumer Goods

Retail Outlet

Suppliers Consumer Inspec

tion Warehouse 1:n n:1 1:n

Pizza Delivery

Supply Chain: Performance

• Availability

• Reliability

• Responsiveness

• Flexibility

• Cost

• Asset

For Entrepreneurs: What is your supply chain designed for ?

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Location

• Factor Advantage

• Distance

• Regulatory & Policy Issues

• Infrastructure

• Cost Structure

For Entrepreneurs: Why are you located where you are located?

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Inventory Planning and Control

• Work Waiting anywhere is Inventory.

• Why Inventory is needed – Customer tolerance time is more than supply / service

time

– Uncertainty

• Types of Inventory • Pipeline Inventory

• Safety Inventory

• Decoupling Inventory

• Cyclic Inventory

• Seasonal Inventory

For Entrepreneurs: Where are your material or work waiting ? What is the size of your inventory ?

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Planning and Control

• Demand Forecasting

• Aggregate Planning

• Resource Planning

• Scheduling and Control

• Operation Improvements

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Planning Premise -Response time

• Type of Orders

– Made to Stock

– Made to orders

– Assemble to Order

– Made to Availability

– Time n Material

– Project

– SAS

For Entrepreneurs: What are the type of Orders you fulfill? What promise do you make to customers on delivery? What is your peak order season or time. How do you deal with peak or large orders.

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Quality management

• Definitions – Conformance to Specification

– Fulfilling Customer Needs

– Fitness to Use

– Service Levels

• Total Quality Management – Organization wide effort

– Everyone, everywhere and every time

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Maintenance

• Infrastructure – Machines – People – Information System

• Maintenance Options – Inspection – Preventive Maintenance – Predictive Maintenance – Breakdown Maintenance – Planned Shutdown / overhauls – Equipment replacement

Measure: OEE: Overall Resource Efficiency Availability x Efficiency x Quality

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Project Management

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When do you Need

• Capacity Addition

• Capacity Improvement

• Business Plan

• And :Market expansion, Funds Infusion, Sales Expansion, Building Distribution Channels, New Product Development.

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Interdependent Set of Activities Conducted to Deliver an Objective within a Time and Cost

For Entrepreneurs: What’s your next project. An improvement work can also be a project.

Figure Missing

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Project

• Scope

• Schedule

• Resources

Project

Scope

Time Resource

For Entrepreneurs: Which of the three elements is the most critical?

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Why 80% projects fail

• Estimations are estimations

– People are measured on Estimates

• Bad Multitasking

– Switching Between Tasks

• Project Review

– Review each activity

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Better Project Management

• Separate and Aggregate Uncertainty

• Limit Number of Projects and Tasks

• Monitor and Control Uncertainty

A B C Buffer

A B C

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Integrating the Operating System

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Linking Operation Strategy and

Operation Management

• Business Model

– The Logic of Creating, Delivering, Capturing Value of a Business

For Entrepreneurs: Identify One Customer Segment Identify significant need Identify the Offer Identify process of value creation Identify key infrastructure Who are your key partners supplier + sales + distribution

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Building the Business Model

Value Proposition Customer Segment Infrastructure Deliver Value

Create Value

For Entrepreneurs: Do you already have your business model visualized?

Value Proposition

Sales and Distribution Channels

Customer Relationship

Key Partners

Key Resources

Key Activities

Building the Business Model

Customer Segment

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2

3

4

5 6

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Capitalizing Operations

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Capitalize

• Assumption : There are enough sales and we need to manage operations better, i.e. constraint is inside the company.

• Otherwise: • The capability built and the excess capacity revealed must

be capitalized • At appropriate time, signal must be given to sales to

increase orders flow • Sales must use the new found capability and capacity as its

key sales pitch and must make effort to increase margins • The sales practice need to change due to new capability of

the plant.

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Completing the Business Model

Reference: The Business Model Generation, Alex Osterwalder

Value Proposition Customer Segment Infrastructure Deliver Value

Create Value

Finance

Capture Value

Invest Value

Value Proposition

Sales and Distribution Channels

Revenue

Customer Relationship

Key Partners

Key Resources

Key Activities

Key Costs

The Complete Business Model Customer Segment

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2

3

4

5

6 7

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For Entrepreneurs: Fill in Key attributes in each block of the Business Model Canvas

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Operating the System

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Revisit: Fundamentals of business

• Objective: To offer and grow the offering with time (Sustainable growth)

– The quantum of offering is always with time. • The value must be captured and reinvested

– Only then a business is sustainable i.e. the business must make profit, more profit and faster profit.

For Entrepreneurs:

What is your order to cash time? What is your process lead time?

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Revisit: Fundamentals of business

• Prime Goal: Faster # Units/time

• Speed / efficiency/ productivity is essence

• But efficiency without Effectiveness is unsustainable

• Effectiveness is doing what is needed NOW.

For Entrepreneurs: What does effectiveness mean in your business. How do you know which work order to process. How do you prioritize work orders. 39

Limitations to Flow

• There are too many things…

• Material Not available, people not availability, absenteeism, no capacity, defective parts, insufficient skills, break downs, holidays, quality problems, no orders, too much of orders, shut down, strike, long testing time, rework, pending for decision, management bandwidth, traffic jam, fllood

• hence we need a methodology, that gives us ever flourishing company, without confusion, easily, without exhausting costly resources, without taking risk, without creating imbalance in work-life.

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Laws of Operations Standing On the Shoulders of Giant: Eli Goldratt

• Law-1: – Objective of Operations is to ever improve flow

• Law-2 – Do not over produce or over create before time

• Law-3 – Have single priority system

• Law-4 – Have a focused mechanism to deal with

disruptions.

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For Entrepreneurs

• How do you prevent doing of work that is not needed.

• How do you set priority

• How do you identify where to improve ?

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Dealing with Limitations to Flow

• Flow Blockers and Disruptions – Systemic

• Cause and Effect Analysis

• Identification of Root Cause

• Building of Solution

• Implementation of Solution

• Transformation

– Assignable • Segregation of Causes

• Pareto

• Actions

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Practices in World Class Organizations

• Principles – TQM : Quality – TPM: Maintenance – Just in Time (JIT) – Extreme Programming – Agile Operations – Employee involvement – Simplicity

• Methodology – Lean : Waste Reduction – Six Sigma : Variation – TOC : System Improvement – Extreme / Agile Programming

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Your way to Operation Excellence

• Commit to Change • Lead Change • Follow a Focusing Mechanism (Theory of

Constraints) • Identify the weakest link • Synchronize your organization around the

weakest link • Acquire skills needed to strengthen the weakest

link. • Move to the next weakest link

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Summary

• Checklist – Defined Business Objective and Goal – Decided Products, Service and Value Proposition – Designed Process, Capacity, Supply Chain – Decided Operational Performance Parameters – Decided Infrastructure – Decided the type of Orders – Designed Planning and Control Process – Decided when to not work – Got a priority system to handle orders – Got a method to identify big problems – Built a process of ongoing improvement

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Summary

• Operations Management – Creating and Delivering Value – Designing and Operating System – Improving Performance with time

• Sustainability is about sustaining a decisive competitive edge in an ever changing and unpredictable business environment.

• Sustainability means Excellence

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Background transcript of presentation

• How do you Conduct One Day Session on Operation Management for Entrepreneurs- without wasting their time

• at

• http://www.cvmark.com/blog/?p=457

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Shridhar Lolla

lolla@cvmark.com

http://www.cvmark.com

+91 94480 70081 49