Process Improvement – A Strategic Implementation

1. Process Improvement – A Strategic Implementation

2. Focus of the Day • Today we will look at how to address the main sources of stress (‘pressure points’) in organisations and their supply chains.

3. A Key Question for You • What are the main challenges you face in running your business?

4. Session 1

5. Principle Market Requirements are…. Operations Resources are…. Dynamic Ambiguous Difficult to change Heterogeneous Technically constrained Complex The clash between the nature of external markets and the nature of internal resources BT3

6. The strategic role of operations can be defined by its aspirations (after Hayes and Wheelwright) Principle Redefine the industry’s expectations Give an Operations Advantage Externally supportive Be clearly the best in the industry Link Strategy With Operations Internally supportive Increasing contribution of operations Be as good as competitors Adopt best Practice Externally neutral Stop holding the organisation back Correct the Worst Problems Internally neutral STAGE 1 STAGE 2 STAGE 3 STAGE 4 The ability to Drive strategy The ability to Implement The ability to support Strategy

7. The Strategic Role of the Operations Functions The 3 key attributes of operations Operations Contribution Implementing be Dependable Operationalise strategy explain Practicalities Supporting be Appropriate Understand strategy Contribute to decisions Driving be Innovative provide Foundation of strategy Develop long-term Capabilities

8. Principle Operations can kick-start two virtuous cycles Internal and External Understanding of the processes Strong marketing Competitiveness Competencies embedded in the operation World Class Operations High margin Capabilities enhance innovation and improvement Investment Developing the resources which let the operation’s performance stay ahead of the competition Developing customers’ competitors’ and stockholders; perceptions and expectations

9. The operations function can provide a competitive advantage through its performance at the five competitive objectives Quality Being RIGHT Being FAST Speed Dependability Being ON TIME Competitiveness Flexibility Being ABLE TO CHANGE Cost Being PRODUCTIVE

10. How is each performance objective being viewed? The onset of “Total Quality Disillusionment” ISO 9000 sweeps the world (except Japan!) Quality Value added methodology increasingly powerful Major benefit of BPR Return of the JEDI Speed Dependability Being monitored by customers Competitiveness Long term technology flexibility proving difficult to achieve More closely defined - “rigid flexibility” Flexibility Increasing cost pressures Overcoming the volume and variety effects New ways of looking at costs Cost

11. The first task of an Operations Strategy is to clarify the relative priorities of the competitive objectives Quality Speed Competitive Objectives are prioritized by Dependability CUSTOMERS and COMPETITORS Competitiveness Flexibility Cost

12. Operations Strategy Decision Areas Determine Resource Deployment Resource Deployment Capacity Structure Process Technology Supply Network Development and Organisation ISSUES - • VERTICAL INTEGRATION • SUPPLIER DEVELOPMENT • DEVELOPMENT CHAINS • STRATEGIC VALUE FACILITATION ISSUES - • DEVELOPMENT RATE • AUTOMATION • SIZE • INTEGRATION • IN OR OUT-HOUSE DEVELOPMENT ISSUES- ISSUES - • RESPONSIBILITY RELATIONSHIPS • IMPROVEMENT STRATEGIES • PERFORMANCE & CONTROL • CAPACITY • LOCATION • FOCUS & SEGMENTATION • L/T FORECASTS Operations Policies are shaped by COMPETENCIES and CONSTRAINTS

13. Principle Operations strategy is defined by the intersections of performance objectives and substrategies Resource Deployment Quality Speed Operations Strategy Competitive Objectives are prioritized by CUSTOMERS and COMPETITORS Dependability Market Competitiveness Flexibility Cost Development and Organization Process Technology Supply Network Capacity Structure Operations Policies are shaped by COMPETENCIES and CONSTRAINTS

14. key key key key Operations strategy is defined by the intersections of performance objectives and substrategies Resource Deployment Quality Speed Competitive Objectives are prioritized by CUSTOMERS and COMPETITORS Dependability Market Competitiveness Flexibility Cost Development and Organization Capacity Structure Process Technology Supply Network Operations Policies are shaped by COMPETENCIES and CONSTRAINTS

15. Trade-offs “Do you want it good, or do you want it Tuesday?” “No such thing as a free lunch.” “You can’t have an aircraft which flies at the speed of sound, carries 400 passengers and lands on an aircraft carrier. Operations are just the same.” (Skinner) “Trade-offs in operations are the way we are willing to sacrifice one performance objective to achieve excellence in another.”

16. Strategic Performance - Responsiveness of Your Operation Response curve Stress Point Performance Failure Point KEY To ZONES Desired Capability ‘Force’ Operating Capability STRESS

17. Some Current Pressure Points in Supply Chain • Lean is good! • Agile is Better • 6σ • More customisation • More products • Use E-Commerce • CRM • ERP • Collaborative Planning, Forecasting & Replenishment • Direct Deliveries • …………………………………………………………………..

18. The Causes of Supply Chain and Operations Stress • Congruence • Alignment to customer needs, potential degradation of delights • Mismatched relationships with customers and suppliers • Confusion over needs • Capabilities • Processes are not able to meet the performance targets • Service levels are inappropriate • Capability Not Measured • No laid down process maps or procedures • Capacity • Poor utilisation, slow response to demand, too many set ups, high or increasing variety • Low Value Adding content • Low T/E (throughput efficiency) • Control • High Forecasting Errors • ‘Bullwhip’ across the chain (Forrester Effect) • Resource Scheduling and Inventory inaccuracies

19. Gaining Insights into Your Business Operation • The SSRU at Warwick launched a major international benchmarking study. • You can contribute to better understanding of innovation and improvement by participating • The study aims to include over 200 Australian, US, and European participants by August 2003.

20. To AUDIT your Business ACTIVITY • Logon to http://www.supply-chain.org.uk • Click on the SPA Methodology link • Login to the ht2 site using: • Username spa** • Password spa** (Same as your username) • I will allocate your number • Complete the survey • Your results will be emailed to you in early April as a benchmark report

21. Congruence in Your Strategic Priorities

22. The Basics Not all aspects of our performance have the same impact: QUALIFYING LESS IMPORTANT ORDER-WINNING OBJECTIVES OBJECTIVES OBJECTIVES +ve +ve +ve Benefit Benefit Benefit Competitive Competitive Competitive neutral neutral neutral qualifying -ve -ve -ve level Low High Low High Low High Achieved performance Achieved performance Achieved performance

23. Principle Qualifiers are the “givens” of doing business Order Winners gain more business the better you are Adding Delights Delights become Order winners and Order winners become Qualifiers Delights Order Winners Qualifiers Time Positive Competitive Benefit Neutral Negative Low High Achieved Performance

24. Where will you be in the Future? ACTIVITY Today Tomorrow Delights Order Winners Qualifiers

25. Prioritizing Objectives Priorities should be determined by ...... The Your IMPORTANCE PERFORMANCE in each of the of each competitive competitive objectives objective IMPROVEMENT PRIORITIES

26. A method for identifying our ‘strategic’ operations priorities • Identify what is important to customers • Assess how well we perform • Relate our performance to customer’s or market requirements

27. 1 - Provide a crucial advantage with customers ORDER WINNING 2 - Provide an important advantage with most customers OBJECTIVES 3 - Provide a useful advantage with most customers 4 - Need to be up to good industry standard QUALIFYING 5 - Need to be around median industry standard OBJECTIVES 6 - Need to be within close range of the rest of the industry 7 - Not usually important but could become more so in future LESS IMPORTANT 8 - Very rarely rate as being important OBJECTIVES 9 - Never come into consideration 9 Point Importance Scale For this product group does this performance objective ......

28. Example Temperature controlled - Overnight service IMPORTANCE to Customers 1 2 3 4 5 6 7 8 9 X PRICE SERVQUAL (DISN.) X X SERVQUAL (ORDER TAKE) ENQUIRY LEAD-TIME X DROP QUOTE X X WINDOW QUOTE DELIVERY PERFORMANCE X DELIVERY FLEXIBILITY X VOLUME FLEXIBILITY X DOC. SERVICE X 1 2 3 4 5 6 7 8 9

29. 1 - Consistently considerably better than our nearest BETTER competitor THAN 2 - Consistently clearly better than our nearest competitor COMPETITORS 3 - Consistently marginally better than our nearest competitor 4 - Often marginally better than most competitors SAME 5 - About the same as most competitors AS COMPETITORS 6 - Often close to main competitors 7 - Usually marginally worse than main competitors WORSE 8 - Usually worse than most competitors THAN COMPETITORS 9 - Consistently worse than most competitors 9 Point Performance Scale For this product group is achieved performance ........

30. Example Temperature controlled - Overnight service PERFORMANCE against Competitors 1 2 3 4 5 6 7 8 9 * X COST SERVQUAL (DISN.) X X SERVQUAL (ORDER TAKE) ENQUIRY LEAD-TIME X DROP QUOTE X X WINDOW QUOTE DELIVERY PERFORMANCE X DELIVERY FLEXIBILITY X VOLUME FLEXIBILITY X DOC. SERVICE X 1 2 3 4 5 6 7 8 9 Estimated *

31. Example GOOD PERFORMANCE COMPETITORS AGAINST BAD IMPORTANCE LOW FOR HIGH CUSTOMERS 1 X Delivery Volume Flex better 2 X Window Quote than Drop Quote 3 X X 4 X Servqual (DISN) same 5 X Doc Service as 6 X X Delivery Flex Price/Cost 7 X Servqual (Order Take) 8 X worse Enquiry Lead-Time than 9 6 1 9 8 7 5 4 3 2 less order qualifying important winning

32. Brainstorming ACTIVITY • Identify and list 10-15 performance imperatives • Identify what information you have about customer requirements against each of these imperatives • Identify what information you now need to gather about customer requirements against each of these imperatives • Identify what information you have about your performance against each of these imperatives • Identify what information you need to gather about your performance against each of these imperatives

33. 1 GOOD EXCESS ? better 2 than APPROPRIATE 3 4 same 5 as PERFORMANCE COMPETITORS AGAINST IMPROVE 6 7 URGENT 8 worse ACTION than 9 6 1 9 8 7 5 4 3 2 BAD less order qualifying important winning IMPORTANCE LOW FOR HIGH CUSTOMERS

34. Why is the Importance/Performance Analysis Relevant? • Maximises the impact of efforts • Minimises wasted efforts • Directs strategic improvements • Recognises the underlying dynamic nature of process performance…………...

35. Summary: The Importance / Performance Matrix A Valuable, high level tool to help focus your efforts: • The process of constructing the Matrix is a critical element of the approach • Try to keep it specific • Use it to: • To get consensus • or, to identify disputed criteria • Revisit regularly (e.g every year; every time a new process, service or product is introduced)

36. Process ImprovementA Guide to Some Valuable Tools, Techniques and Methods Session 2

37. “In order to control, you must measure” • Lord Kelvin

38. Today’s Message! • No measurement without recording • No recording without analysis • No analysis without action • No action without learning

39. Operations Improvement Today’s Key Questions • Can we do it OK? (Capability) • Are we doing it OK? (Control) • Have we done it OK? (Assurance) • Could we do it better? (Improvement)

40. Measuring Process Performance ACTIVITY • What do you do with your performance data? • Report them? • Graph them? • Post them up? • File them? • Nothing?

41. The Basics Questions Is this OK? - Should I do something? Process control charting Some aspect of the performance of a process is often measured over time Some measure of operations performance Time

42. The Basics Question “How do we know if the variation in process performance is “Natural” in terms of being a result of random causes, or is indicative of some “Assignable” causes in the process?” Process control charting Our tendency is to intervene in the operation of process Some measure of operations performance Time

43. How do you Intervene? ACTIVITY • Add more resource • Change behaviour • Alter some variable • Introduce an incentive • Panic!

44. The Basics Delivery* performance is 87% Is this good, bad, or indifferent ? 100 90 X 80 Percentage of deliveries on-time 70 60 50 Now *Could be any aspect of performance

45. Delivery performance is 87% Is this good, bad, or indifferent ? 100 Customer expectation = 98% 90 X 80 Percentage of deliveries on-time 70 Performance against customer expectations is POOR 60 50 Now

46. Delivery performance is 87% Is this good, bad, or indifferent ? 100 Customer expectation = 98% 90 X X 80 Percentage of deliveries on-time X 70 X Performance against customer expectations is POOR Historical performance is GOOD 60 X X 50 Now

47. Delivery performance is 87% Is this good, bad, or indifferent ? 100 Customer expectation = 98% Target performance = 95% 90 X X 80 Percentage of deliveries on-time X 70 X Performance against customer expectations is POOR Historical performance is GOOD 60 Performance against target is POOR X X 50 Now

48. Delivery performance is 87% Is this good, bad, or indifferent ? 100 Customer expectation = 98% Target performance = 95% 90 X X 80 Competitor performance = 81% Percentage of deliveries on-time X 70 X Performance against customer expectations is POOR Historical performance is GOOD 60 Performance against target is POOR X X Performance against competitors is GOOD 50 Now

49. Some kind of “Guide lines” or “Control limits” would be useful The Basics E.G “The last point plotted on this chart seems to be unusually low.” Is this just random variation - or is it the result of some change in the process which we should investigate? Process control charting Elapsed time of call Time

50. The Basics Frequency Frequency Frequency 200 206 212 200 206 212 200 206 212 Weight of rice in box (grms) Weight of rice in box (grms) Weight of rice in box (grms) Frequency Frequency Frequency 200 206 212 200 206 212 200 206 212 Weight of rice in box (grms) Weight of rice in box (grms) Weight of rice in box (grms) The Normal Distribution - a simple example The natural variation in processes can be described by a normal distribution