Operations Management

Operations Management Definition

• "The on-going activities of designing, reviewing and using the operating system, to achieve service outputs as determined by the organisation for customers" 

•  The efficient and effective implementation of the policies and tasks necessary to satisfy an organisation’s customers, employees, and management (and stockholders, if a publicly owned company).

• Operations management teams design the method of conversion of inputs (materials, labor, proprietary information, etc.) into outputs (goods, services, value-added products, etc.) that is most beneficial to the organization. Operations management teams attempt to balance costs with revenue to achieve the highest net operating profit possible.

• Operations management refers to the administration of business practices to create the highest level of efficiency possible within an organization. Operations management is concerned with converting materials and labor into goods and services as efficiently as possible to maximize the profit of an organization.

• The management of systems or processes that create goods and/or provide services

• Operations management deals with the design and management of products, processes, services and supply chains. It considers the acquisition, development, and utilisation of resources that firms need to deliver the goods and services their clients want.

What do operations managers do?

Strategic (long term) Level

– Responsible for, and decisions about:

o What to make (product development)

o How to make it (process and layout decisions) – or should we buy it?

o Where to make it (site location)

o How much is needed (high level capacity decisions)

Tactical Level (intermediate term)

– Address material and labour resourcing within strategy constraints, for example:

o How many workers are needed and when (labour planning)

o What level of stock is required and when should it be delivered (inventory and replenishment planning)

o How many shifts to work. Whether overtime or subcontractors are required (detailed capacity planning)

Operational Level

– Detailed lower-level (daily/weekly/monthly) planning, execution and control decisions, for example:

o What to process and when (scheduling)

o The order to process requirements (sequencing)

o How work is put on resources (loading)

o Who does the work (assignments)

Genichi Taguchi Quality Management Philosophy

Genichi Taguchi Quality Management Philosophy

Taguchi is famous for his pioneering methods of modern quality control and low-cost quality engineering. He is the founder of what has come to be known as the Taguchi method, which seeks to improve product quality at the design stage by integrating quality control into product design, using experiment and statistical analysis. His methods have been said to fundamentally change the philosophy and practice of quality control.

Taguchi methods

Taguchi developed methods for both online (process) and offline (design) quality control. This formed the basis of his approach to total quality control and assurance within a product's development life cycle. His approach emphasised improving the quality of product and process prior to manufacture (that is, at the design stage) rather than the more traditional approach of achieving quality through inspection.

Quality loss function

Taguchi's approach differed from the traditional one of manufacturing a product within a specification based on tolerances equally spaced around a target value. He developed a concept of quality loss occurring as soon as there is a deviation away from the target value, and worked in terms of quality loss rather than just quality. He defined quality loss as 'the loss imparted to society from the time the product is shipped', and this related the loss to society as a whole. Thus, it included both company costs such as reworking, scrapping and maintenance, and any loss to the customer through poor product performance and lowered reliability.

Signal to noise ratio

One of Taguchi's most innovative ideas was to utilise a 'quality' measure called the signal to noise ratio, which was then used by communications engineers to find the strength of an electrical signal. Taguchi applied this measure to everyday products, and used it as a measure to choose control levels that could best cope with changes in operating and environmental conditions, or noise.

Robust quality of design

On the basis of the signal to noise measure, Taguchi was able to develop the concept of robustness, which enables a product to be designed to be less affected by noise. Given normal variations in process operations, the product in question would be less likely to fail acceptable quality criteria.

Invest last not first

Taguchi placed much emphasis on initially optimising the product and process to engineer product quality (parameter design) into the system. Using low cost materials and components was a vital feature of this, and money was spent on higher cost items only when necessary (tolerance design).

Philip Crosby Quality Management Philosophy

Philip Crosby Quality Management Philosophy

Mr. Crosby defined quality as a conformity to certain specifications set forth by management and not some vague concept of "goodness." These specifications are not arbitrary either; they must be set according to customer needs and wants.

With this approach comes the 4 absolutes of Quality:

1. Quality is conformance to requirements

Following the same example, suppose I clean my room with great care. Thinking I have done a great job. However, my mother's idea of a clean room might be different. Leaving her dissatisfied. Thus clarity and agreement about the requirements must be established between the supplier and the customer. I must know what my mother means when she says, "Clean the room." Whether: a. the room has to be swept b. the articles have to be dusted c. the bed cover has to be changed Once I know the requirements, then 'Quality' is meeting the exact requirements without any 'defect'.

2. Quality comes from prevention - not detection

Quality can be established only before the task is performed. After a task is finished only analysis can be done. If while dusting, I keep thinking of my birthday party, I might forget to dust half the articles in the room. I do not have all the time in the world to clean the room as guests will be coming in 15 minutes. Hence I must have expertise with the broom, with the duster napkin and the ability to fold the bed neatly. This comes with practice. Hence at the core of Quality is practice. It takes years of practice before a trapeze artist can test the limits of human ability and perform the impossible. (S)he cannot afford a slip. A student must acquire skills of writing, comprehension and alertness to prepare for the exams beforehand to prevent unsatisfactory grades. Thus we must learn to think prevention. Prevention of defects.

3. The standard for Quality is Zero-Defect

Zero-Defect is not perfection. It is meeting the agreed requirements between the customer and the supplier without any gap. That is why the first step in Quality is to clarify the requirements of the customer and agree to meet them to the exact specifications. So, if I have swept the room, dusted the articles and changed the bedcover, in 15 minutes, I have met the exact requirements of my mother and have delivered zero-defect Quality. It is important to understand that a defect in Quality is always with respect to requirements agreed between the customer and the supplier. Our aim should be doing it right the first time, every time.

4. Quality is measured by the price of non-conformance

Whenever the requirements of the customer are not met, there is a price to pay. In the world of business this price is expressed in terms of money. In other spheres of human interaction, the price takes different forms - extra effort, hassles, de-motivation, lack of recognition, frustration, failure, etc. So, if I have not delivered Quality to my mother in terms of cleaning the room, I invite her anger and pay the price of unpleasant moments.

Joseph Juran Quality Management Philosophy

Joseph Juran Quality Management Philosophy

Juran, like Deming, was invited to Japan in 1954 by the Union of Japanese Scientists and Engineers (JUSE). His lectures introduced the management dimensions of planning, organizing, and controlling and focused on the responsibility of management to achieve quality and the need for setting goals.

Juran defines quality as fitness for use in terms of design, conformance, availability, safety, and field use. Thus, his concept more closely incorporates the viewpoint of customer. He is prepared to measure everything and relies on systems and problem-solving techniques. Unlike Deming, he focuses on top-down management and technical methods  rather than worker pride and satisfaction.

Juran’s 10 steps to quality improvement are:

1. Build awareness of opportunity to improve.
2. Set-goals for improvement.
3. Organize to reach goals.
4. Provide training
5. Carryout projects to solve problems.
6. Report progress.
7. Give recognition.
8. Communicate results.
9. Keep score.
10. Maintain momentum by making annual improvement part of the regular systems and processes of the company.

Juran is founder is the founder of Juran Institute in Wilton, Connecticut. He promoted a concept known as Managing Business Process Quality, which is a technique for executive cross-functional quality improvement. Juran contribution may, over the longer term, may be greater than Deming’s because Juran has broader concept, while Deming’s focus on statistical process control is more technical oriented.

Deming's Philosophy of Quality Management

Deming's 14 Point Philosophy of Quality Management

The need for a working understanding of basic quality management system statistical principles is at the heart of Deming's teaching. While accepting the ASQ's Shewhart Medal in 1955, he commented that "Statistical theory has changed practice in almost everything. Statistical techniques, in their ability to aid the discovery of causes, are creating a science of management and a science of administration." His quality process message, directed primarily at management, is stated succinctly in his famous 14 Points for Management:

1) Create constancy of purpose for improvement of product and service. Inspire the workers to stay competitive in the market and remind about the importance of stability in jobs and new opportunities which may come up in later stages, as inducing a sense of purpose in producing quality products will work as the inspiration to work efficiently.

2) Adopt the new philosophy. The customer demands and taste change very fast and the competition in the market grow at a rapid rate today, and we have to accept new philosophies according to the market trends and technology revolutions.

3) Cease dependence on mass inspection. Instead of inspecting the product for quality after production, infuse quality at the beginning itself with production quality control, as this will ensure no raw materials are wasted for the sake of quality.

4) End the practice of awarding business on price tag alone. Instead, minimize total cost - move towards a single supplier for any item, on trust.

5) Constantly and forever improve the system of production and service. Enterprise systems and services must keep growing indefinitely in order to catch up with the competitive market.

6) Institute modern methods of training on the job. A trained worker has more productivity and quality than an untrained one, so giving training sessions will drastically improve the quality of the person and directly it helps in better product quality performance.

7) Institute modern methods of supervision. A company can display stunning growth if potential leaders are identified and encouraged.

8) Drive out fear. Creating a fearful impression in the employees does not give more quality and productivity to work. If a person is not working willingly with satisfaction then he can never do a work perfectly even if he has the intention to be perfect in conscious mind, so driving out fear is essential.

9) Break down barriers between staff areas. The workers in design, sales, and production must work together to face problems and resolve them, which takes the company to better quality assurance management and also other profit with better planning.

10) Eliminate numerical goals for the work force. Slogans or exhortations call for more quantity in production than focusing on  quality control in manufacturing, which will severely damage the quality management process. Employees should have a calm and quiet quality atmosphere in the company.

11) Eliminate work standards and numerical quotas. This focuses on quantity rather than quality of product.

12) Remove barriers that hinder the hourly worker. Supervisor responsibility must be focused on quality, not numbers. Abolish annual or merit rating and MBO completely.

13) Institute a vigorous program of education and training. A person must grow after joining a company, and letting them learn new technology and techniques will increase employee longevity.

14) Create a situation in top management that will push every day on the above points. Just like products and services, every employee in a company must work to accomplish the transformation.

Quality Cost

Cost of Quality (COQ)

• Cost of quality is the amount of money a business loses because its product or service was not done right in the first place. From fixing a warped piece on the assembly line to having to deal with a lawsuit because of a malfunctioning machine or a badly performed service, businesses lose money every day due to poor quality. For most businesses, this can run from 15 to 30 percent of their total costs.

• The "cost of quality" isn't the price of creating a quality product or service. It's the cost of NOT creating a quality product or service.

Every time work is redone, the cost of quality increases. Obvious examples include:

• The reworking of a manufactured item.
• The retesting of an assembly.
• The rebuilding of a tool.
• The correction of a bank statement.
• The reworking of a service, such as the reprocessing of a loan operation or the replacement of a food order in a restaurant.

In short, any cost that would not have been expended if quality were perfect contributes to the cost of quality.

Total Quality Costs

As the figure below shows, quality costs are the total of the cost incurred by:

• Investing in the prevention of nonconformance to requirements.
• Appraising a product or service for conformance to requirements.
• Failing to meet requirements.

Quality Costs—general description

Prevention Costs

The costs of all activities specifically designed to prevent poor quality in products or services.

Examples are the costs of:

• New product review
• Quality planning
• Supplier capability surveys
• Process capability evaluations
• Quality improvement team meetings
• Quality improvement projects
• Quality education and training

Appraisal Costs

The costs associated with measuring, evaluating or auditing products or services to assure conformance to quality standards and performance requirements.

These include the costs of:

• Incoming and source inspection/test of purchased material
• In-process and final inspection/test
• Product, process or service audits
• Calibration of measuring and test equipment
• Associated supplies and materials

Failure Costs

The costs resulting from products or services not conforming to requirements or customer/user needs. Failure costs are divided into internal and external failure categories.

Internal Failure Costs

Failure costs occurring prior to delivery or shipment of the product, or the furnishing of a service, to the customer.

Examples are the costs of:

• Scrap
• Rework
• Re-inspection
• Re-testing
• Material review
• Downgrading

External Failure Costs

Failure costs occurring after delivery or shipment of the product — and during or after furnishing of a service — to the customer.

Examples are the costs of:

• Processing customer complaints
• Customer returns
• Warranty claims
• Product recalls

Total Quality Costs:

The sum of the above costs. This represents the difference between the actual cost of a product or service and what the reduced cost would be if there were no possibility of substandard service, failure of products or defects in their manufacture.

Quality Planning

Quality Planning

1. Systematic process that translates quality policy into measurable objectives and requirements, and lays down a sequence of steps for realizing them within a specified time frame.
2. A quality plan describes how an organisation will achieve its quality objectives. It describes the quality objectives and specifies the quality assurance and control activities to be performed in day-to-day company operations.

Planning for Quality at the Organisation and Project Levels.

Quality and Dimensions of Quality

Quality and Dimensions of Quality

Definition of Quality:-

1. "The totality of features and characteristics of a product or service that bears its ability to satisfy stated or implied needs."
2. "Quality in a product or service is not what the supplier puts in. It is what the customer gets out and is willing to pay for."
3. "Degree to which a set of inherent characteristics fulfills requirements."
4. "Value to some person"

Dimensions of Quality

There are eight such dimensions of quality. These are:

1. Performance:

It involves the various operating characteristics of the product. For a television set, for example, these characteristics will be the quality of the picture, sound and longevity of the picture tube.

2. Features:

These are characteristics that are supplemental to the basic operating characteristics. In an automobile, for example, a stereo CD player would be an additional feature.

3. Reliability:

Reliability of a product is the degree of dependability and trustworthiness of the benefit of the product for a long period of time.

It addresses the probability that the product will work without interruption or breaking down.

4. Conformance:

It is the degree to which the product conforms to pre- established specifications. All quality products are expected to precisely meet the set standards.

5. Durability:

It measures the length of time that a product performs before a replacement becomes necessary. The durability of home appliances such as a washing machine can range from 10 to 15 years.

6. Serviceability:

Serviceability refers to the promptness, courtesy, proficiency and ease in repair when the product breaks down and is sent for repairs.

7. Aesthetics:

Aesthetic aspect of a product is comparatively subjective in nature and refers to its impact on the human senses such as how it looks, feels, sounds, tastes and so on, depending upon the type of product. Automobile companies make sure that in addition to functional quality, the automobiles are also artistically attractive.

8. Perceived quality:

An equally important dimension of quality is the perception of the quality of the product in the mind of the consumer. Honda cars, Sony Walkman and Rolex watches are perceived to be high quality items by the consumers.