Operations and supply summary

Contents
Week 1...................................................................................................................................................2

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Week 1

Operational performance can be assessed at different levels, from the broad, long-term, societal
level. To its more operational-level concerns over how it improves day-to-day efficiency and serves
its individual customers. Good operations performance is fundamental to the sustainale success of
any organization. The decisions that are made within operations affect a variety of stakeholders.
Stakeholders are people who have a legitimate interest in the operation’s activities. All operations
decisions should reflect the interests of stakeholder groups. Taking into account the impact on a
broad mix of stakeholders is called corporate social responsibility (CSR).

The above picture showcases the many stakeholders a operation may have. A operation may have
internal as well as external stakeholders. To judge how a operation is performing. A business can use
the ‘triple bottom line principle’. Which means that a business observes the affect their operation has
on people, planet, and profit.

The idea behind the social bottom line is that businesses should accept that they bear some
responsibility for the impact they have on society and balance the external ‘societal’ consequences of
their actions with the more direct internal consequences. Such as profit.

We also have the environmental bottom line. This means that a business should take responsibility
for the consequences their operation may have on the environment. The benefits from development
actions should more than compensate for any direct or indirect loss or degradation of the
environment. Ways to impact the environmental bottom line may be:

- Recyclability of materials, energy consumption, waste material generation

Operations managers must also use the operation’s resources effectively. This is what we call the
economic bottom line. Some ways that operations can impact the financial bottom line is by:

- Cost of producing products and services

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Operations performance also has a big impact on an organization’s strategic ‘economic’ position.
Operations management can for example affect the cost of an organization. But also the revenue
made by a organization. If, for example, a operation is able to run faster and make products at a
greater quality, it can have a giant impact on the revenue of an organization.

A great way of measuring the underlying levels of customer satisfaction is the net promoter score
(NPS). Customers will be asked to recommend a company, service, or product from 1 to 10. It is made
up like this:

1 – 6 = detractors

7 – 8 = passives

9 – 10 = promoters

By subtracting the number of detractors from the number of promoters, you will get a certain NPS
score. Generally, a positive score (>0) is deemed acceptable. However, this depends on the sector
and the competition.

Operations management also affects the required level of investment. Also, operations management
affects the risk of operation failure. If an operation is well-designed it is less likely to fail. Well-run
operations are less likely to intentionally or unintentionally cause environmental or social damage.
And finally, operations management also affects the ability to build capabilities on which future
innovation is based. By learning from their experience of operating their processes, operations
managers can understand more about those processes. This can build into more knowledge that will
allow the business to improve over time.

The image illustrates the many strategic contributions operations provide to an organization.

Operational performance can also be judged at an operational level. This is done by using
performance objectives. The five performance objectives are:

- Quality
- Speed
- Dependability
- Flexibility
- Cost

Quality is important because it means consistent conformance to customers’ expectations. When an

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them. The main benefit of speed is that the faster the customer has the good or service, the more
likely they are going to buy it. Having a speedy operation also reduces inventories and risks inside of
an operation.

Dependability means doing things in time for customers to receive products or services exactly when
they are needed, or when promised. Dependability can cause an operation to save time and money.
If everything is delivered when it needs to be delivered, it will prevent operational redo which will in
turn save time and money. By preventing disruption caused to operations by a lack of dependability a
lot of stability will be created as well in an operation.

By having flexibility, an operation is able to change in some ways. Customers want an operation to
provide four types of requirements:

- Product/service flexibility
- Mix flexibility
- Volume flexibility
- Delivery flexibility

Agility is a combination of all five performance objectives. Agility means responding to market
requirements by producing new and existing products and services fast and with flexibility.

For a company, it is important to keep costs down. It is an important objective for operations
management. The measure used most often to calculate the cost is by indicating productivity.
Formula:

When you measure in terms of number per year per employee:

When you measure using multiple factors:

A way to decrease costs is by improving the performance of other operations. Since all performance
objectives affect cost.

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The above image shows how all performance objectives affect cost (internally).

A great way of representing the relative importance of performance objectives for a product or
service is shown in the below picture.

This is called polar representation because the scales which represent the importance of each
performance objective have the same origin. A line describes the relative importance of each
performance objective. The closer the line is to the common origin, the less important the
performance objective to the operation. So for example, the performance objective of cost is not
that important for a bus service.

The three levels at which performance is measured.

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The best-known performance measurement approach is called the balanced scorecard. It is a three-
level framework, it lies across strategic and operational levels. As well as including financial measures
of performance. The balanced scorecard approach also attempts to provide the important
information that is required to allow the overall strategy of an organization to be reflected
adequately in specific performance measures.

Measures used in the balanced scorecard.

Externally, it is not always achievable to improve all performance objectives. There may be ‘trade-
offs’ between performance objectives. So improving one performance objective may sacrifice
performance in the other. There are two views of trade-offs. The first emphasizes ‘repositioning’
performance objectives by trading off improvements in some objectives for a reduction in
performance in others. The other emphasizes increasing the ‘effectiveness’ of the operation by
overcoming trade-offs so that improvements in one or more aspects of performance can be achieved
without any reduction in the performance of others.

To see where operations stand performance-wise. One can make an efficiency frontier. This can be
shown in the following graph.

Operations that lie on the ‘efficient frontier’ have performance levels that dominate those which do
not. An operation can also improve the effectiveness of their operations by overcoming the trade-off
that is implicit in the efficient frontier curve. Which will cause the operation to move passed the
curve.

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