Nigel Slack – Warwick Business School Why is Operations Management important?

Nigel Slack – Warwick Business School

Why is Operations Management important?


Operations Management concerns all types of organisation


Operations management concerns all types of organisation

China Brazil USA Malaysia Romania Germany UK France

30%

16%13%

26%22% 22%

11% 11%

Manufacturing added value as a percentage of GDP

Source: World Bank


Non-operations processes Process

management

Service organizations

Operations management

Manufacturing organizations

Operations processes

Production manage -

ment

From ‘production’ to ‘operations’ to ‘process’ to process management and management?


The consultancy services market - % of world revenues of 40 largest consultancy firms

Marketing/sales2

Operations and process management

31

Corporate management

17

IT management17

Benefits/Actuarial16

Organizational design

11

Financial6

Operations management is fashionable!


Why operations excellence?

Better service

Secure revenue

Lower costs

Process efficiency

Reduced errors, better resilience

Lower ‘operational’ risk

Higher capacity utilisation

Lower capital requirements

Capabilities for future innovation

Process learning

Learning?

Cost

effectiveness? Service?

Capital?

Risk?

What we should expect from operations

Less waste

Lower environmental impact

CSR?


As far as operations excellence is concerned............

Principles are generic

Solutions are not ......

....they depend on circumstances

The task is to build the principles on which operations and processes can be developed

Principles versus solutions


Principles + Tools Solutions=

Overarching concepts

From examples, theory,

research, etc.

Practitioner-based methods

and others

‘Over to you!’

(Used in context)What’s specific

about the circumstances?

Eg. Lean, Supply networks, BPR, Project mgt. etc

Principles versus solutions


How is the idea of Operations Management developing?

Operations management has strategic impact

Operations management can be applied to the resources and processes in any function

Operations management applies to the whole supply network

Operations management has to exploit new technologies

Operations management is the driver of improvement

Operations management has an environmental impact


Top - down

Operations management

should interpret higher level

managementResources

Operations management should manage resources

appropriately

Operations management should learn

from day-to-day experiences

Bottom - up

Customer requirements

Operations management should satisfy its internal and

external customers

The four perspectives on any Operations strategy

Operations strategy


The business model

Operations management as an ‘operating model’

Business management

Functional strategies

Operational Operations

Operational Finance

Marketing strategy

Operations strategy

Finance strategy

Technology strategy

Operational Marketing

Operational Technology

The operating model

….sets the overall purpose and objectives for……

…which defines how the business model will be

achieved


Giordano

Relatively easy to imitate………..

Short-term operations capability


The Flextronics Industrial park Guadalajara Mexico

More difficult to imitate…………..

Medium-term operations capability


South African base… spreads north

Expands through Europe and Asia

How will it cope in developed markets?

Almost impossible to imitate…………..Long-term operations capability

South America’s second biggest Brewery


To what extent do ethical and financial performance trade-off?

Ethical performance

Fin

anci

al p

erfo

rman

ce

Repositioning between ethical and financial performance

The efficient frontier between ethical and financial performance

Changing the balance (trade-off) between ethical and financial performance

Ethical performance

Fin

anci

al

perf

orm

ance

Societal pressure + reputational risk defining minimum ethical standards

Stockholder expectations defining

minimum financial standards

Simultaneously improving both ethical and financial performance , partly because extreme positions on either are becoming less acceptable


The ‘triple bottom line’ – Holcim cement

The triple bottom line.......• Profit• Planet• People

• Holcim one of the world’s leading manufacturers and distributors of cement• Production sites in over 70 countries.• Cement manufacture has a significant impact on almost every aspect of

sustainability and social responsibility. • We place sustainable development at the core of our business strategy

which aims to enhance value, and safeguards our reputation• Holcim’s strategy and their approach to value creation attempts to integrate

economic, environmental and social impacts. • Holcim have established a set of Group-wide CSR performance targets.• But CSR related performance measurement should not be separate from

the more conventional business systems.


Eliminating waste can also save costs

Example –Marmite (a popular spread in the UK)


Technical expertise Leadership expertise

Process expertise

Being the trusted advisor to the business and representing your function’s perspective

Contributing to the leadership team and

aligning business and functional visions

Delivering your expertise through your

service processes

Operations management as functional leadership – The ‘C-suite agenda’


Top - down

Functional management

should interpret higher level

managementResources

Functional management should manage resources

appropriately

Functional management should learn

from day-to-day experiences

Bottom - up

Customer requirements

Functional management should satisfy its internal and

external customers

The four perspectives on any Functional strategy

Functional management


The Zara Supply Chain

ZARA


ZARA Located at La Coruna

An unlikely place for the fastest growing apparel company in the world!


30.6%

16.3%14.6%

12.6%10.2% 9.4%

0%

5%

10%

15%

20%

25%

30%

35%

Vogele Benetton H&M Gap Matalan Inditex

Zara keeps less inventory than its peers

Inventory as % of Annual Sales

Zara is the largest division of Inditex (78% of sales)


ZARA

ZaraLa Caruna, Spain

ZaraLa Caruna, Spain

RetailShops

RetailShopsRetail

Shops

RetailShopsRetail

Shops

RetailShopsRetail

Shops

RetailShops

10,000 New Items/Year(~300,000 SKUs)

10,000 New Items/Year(~300,000 SKUs)

Almost No Advertising, Little Markdowns

Replenishes >1800 Shops in > 54 Countries Twice Per Week

Makes half of its clothes, 40% of its fabrics,

Designs new collections in 4-5 weeks

Produces in one week

“Catwalk to rack in as little as 2 weeks”


A fancy, huge, expensive warehouse! Why expand it when it is currently at 50% capacity utilization?

All shipments from a Central Distribution Centre


Design

Distribute

ProduceRetail

Zara’s “Closed Loop”

Zara closely controls the entire supply cycle much better than its peers


0 20% 40% 60% 80% 100%

Capacity Utilization

Low

X

X

X

High utilization but long throughput times

Low utilization but short throughput times Reduce process

variability

High

Ave

rag

e le

ngth

of q

ue

ue

X X

X

X

Pro

cess

thro

ug

hpu

t tim

e(o

r in

ven

tory

)

The Operations Management triangle


Some of the elements that go to make up improvement approaches

Emphasis on solutions - what to do

Emphasis on methods -

how to do it

Emphasis on gradual change

Emphasis on rapid change

Bring doers and controllers together

Integrate data Visibility

across dataEnd-to-end processes

Radical rethinking

Evidence-based decisions

Systems and procedures

Business-wide

Improvement cycles

Perfection is the goal

Reduce variation

Customer centric

Emphasis on education

Include all people

Customer relationships

Waste identification

Synchronised flow

Process based analysis


Some of the elements that go to make up improvement approaches

Emphasis on solutions - what to do

Emphasis on methods -

how to do it



Bring doers and controllers together

Integrate data Visibility

across dataEnd-to-end processes

Radical rethinking

Evidence-based decisions

Systems and procedures

Business-wide

Improvement cycles

Perfection is the goal

Reduce variation

Customer centric

Emphasis on education

Include all people

Customer relationships

Waste identification

Synchronised flow

Process based analysis

TQMLean

BPR Six Sigma


Six Sigma

Notwithstanding some common elements improvement approaches do differ



BPR

Lean CI

Emphasis on solutions - what

to do

Emphasis on methods - how

to do it


Technology makes everything uncertain…. ..new operations issues emerge almost overnight

Technology– Impacts on OM development

3D Printing


Supply networks are changing faster …… and its changing the context of operations

Technology– Impacts on OM development


Disk/tape manufacturer

Recording studio

Songwriter Physical distribution

Retailer

Engineer

Arranger

Singer

Instrumentalists

Consumer

Producer

The Recorded Music Business Supply Network from the Classic 1940s-1950s Periodeg. Frank Sinatra

Strong vertical integration


Music production now largely in the control of the artists. Music distribution mixed.

Arranger

Instrumentalists

Consumer

ProducerEngineer

Singer

Songwriter

Recording studio

On-line retailers

Conventional CDs

Artist’s download

Nigel Slack – Warwick Business School Why is Operations Management important?

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