Introduction to operations management principles Before the best operations management principles can be identified for Woolworths, the whole company structure needs to be analyzed. Woolworths is based on the principle of coordinated contracting which involves a primary contractor, in this case Woolworths, and sub-contractors, such as farms, textile factories etc. These sub-contractors are each contracted for a specific job. Woolworths provides these contractors with instruction and specifications for the production of goods. In some cases Woolworths can provide the materials and will typically take responsibility of the control and planning of the sub-contractor. Usually the sub-contractors will provide their own tools and equipment specific to their profession or trade. The elements of exchange can be seen in the figure below.
(Pycraft, M. 2008. Operations Management. South Africa: Pearson Education) According to Woolworths, their main goal is to create excellent value for money by providing customers with products of exceptional quality, affordable prices and offering friendly customer service. It is because of this that Woolworths has so many loyal customers throughout the country. In order to define the best operations management principles for Woolworths there are two sections that need to be looked at: Firstly that Woolworths, contrary to the usual trend of sub-contracting all but your core competencies, has its own meat-factory. It is owned and operated by Woolworths and forms a crucial part of their logistic and operations. It was built with the main goal to eliminate waste by reducing the inventory build up and eliminating the inconvenience that was caused by in-store butcheries. Secondly since Woolworths sub-contracts all of its suppliers it has no manufacturing plants except for the meat-factory, therefore operations management principles need to be identified for the whole supply chain and the meat-factory. Instead of buying its stock from the open market, Woolworths buys its stock from suppliers who produce their products specifically for Woolworths and therefore ensures a long-standing relationship between Woolworths and its suppliers. Woolworth’s main competitive advantage over the other retailers is the quality of the goods. To ensure that this stays a competitive advantage Woolworths provides its suppliers with training, staff and its own quality inspectors work within some of the factories of the suppliers. During unpacking quality checks are done to ensure that only the best quality is send out to the retail floor. Poor quality merchandise is send back to the supplier. When it comes to strategic planning Woolworths focuses on waste reduction. In the next section the most popular management principles will be discussed for a better understanding of each method, which in turn assists in making the most intelligent decision.
Operations management principles Theory of constraints (TOC) It is based on the theory of managing constraints; it focuses on the system constraints. The steps or application guidelines to implement this methodology are: 1. Identify constraint 2. Exploit constraint 3. Subordinate processes 4. Elevate constraint 5. Repeat cycle. TOC concentrates on the weakest link in the system, this process constrains the whole system and needs to be optimized for better productivity. To identify and optimize the constraint five steps are followed. Step 1: Identify the constraint, this is the process that limits the throughput of the system. Step 2: Exploit the constraint. How can you maximize the rate of throughput at the constraint? There are many different ways this can be done depending on the type of process. Only minor solutions are considered which doesn’t need to much capital investment. Some solutions are: add a buffer to regulate inventory, run process at full capacity, remove wasted activity, support process with another process, minimize setup time, reduce scrap produced etc. In this step the throughput of the constraint is maximized. Step 3: Subordinate. The other processes, also called the subordinate processes, must be adjusted to comply with the constraints’ pace or capacity. This step is usually applied to the processes in front of the constraint to prevent the building-up of inventory. These processes will not run at full capacity, thus you have to sacrifice productivity to benefit the system as a whole. The processes after the constraint are normally not a major concern because they are waiting for the constraint and are therefore already producing under their own capacity. In this step the buffer, rope and drum is determined, refer to the figure below.
Step 4: Elevate. If the throughput rate is still not satisfactory the constraint must be improved even more or completely eliminated. Major changes that require capital can now be implemented to further improve the production rate of the constraint. The result is normally buying new equipment, hiring more staff, outsourcing or working overtime. Step 5: Repeat cycle. This process is an ongoing development process, new constraints must be identified and the steps must be repeated for that constraint.
TOC can be used in any industry, but the following industries benefit the most when using TOC: Batteries, Bicycle components, Circuit boards, Corrugated cardboard, Credit Union, Custom cabinets, Custom homes, Education, Furniture, Garment manufactures, Light fixtures, Pharmaceuticals, Power measurement equipment, Power transformers, Press & Shear manufacturers, Printing, Pulp & paper, Wetsuits, Wire and nails, Wood Laminate, Wood products and Wooden furniture. Material requirements planning (MRP) MRP is based on a dependent demand, example: product A requires 2 of product B and 1 of product C. Product B in turn requires 2 of product C and 1 of product D. The main goal of MRP is to schedule the whole process in terms of when a product must be ordered and how much of it must be ordered. Data is used to create a forecast of the process. Products can be ordered lot-4-lot or using economic order quantity (EOQ). MRP is the most valuable in assembly operations.
Lean manufacturing Is it based on the theory of waste removal and it focuses on the system flow. There are five basic steps when using lean namely: 1. Identify which features create value 2. Identify the value stream 3. Make all activities flow 4. Let customer demand pull product through system 5. Perfect the process Lean is derived from old Japanese manufacturing techniques. Step 1: Specify value. Determine the exact customer need, with this in mind “define the value in terms of specific products with specific capabilities offered at specific prices through a dialogue with specific customers” (Theory of Constraints and Lean Manufacturing: Friends or Foes? By Richard Moore, Ph.D. and Lisa Scheinkopf). Therefore eliminate products for which there is no market and also eliminate features of a product that is unnecessary. Step 2: Determine the sequence of activities for producing the product while eliminating wasteful processes such as the processes that was used for features of the product that have been eliminated in step 1. Keep activities that add value to the product, because they are essential. Determine the impact that non value adding activities have on the whole process and minimize these activities. Step 3: Improve flow. The flow of the activities must be optimized and there must be minimum interruptions in the flow of the product through the system. Lean manufacturing make use of cell manufacturing and is product specific. Step 4: Customer pull. The company works on the basis of make-to-order, providing the product only when the customer needs it. Step 5: Perfect process. Continue to improve the process and to eliminate non value activities, repeat the steps if necessary.
A result of using lean manufacturing is high quality products. This is because the products’ risk of getting damaged is greatly reduced due to the fact that the product spends less time in processing. Simplification of the product also reduces the manufacturing cost Six sigma Based on the theory of variation reduction, it focuses on problems. Using statistics the expected outcome of a process is predicted. By reducing the variation of multiple elements the whole process can be improved. The five steps include: 1. Define 2. Measure 3. Analyze 4. Improve 5. Control Step 1: Define. Firstly the process has to be defined taking into consideration the customer needs which determine the key characteristics and the processes. Step 2: Measure. The process has to be measured, data needs to be collected, key characteristics are classified and measurement systems are confirmed. Step 3: Analyze. The data has to be analyzed to useful information determining where or what the problem is. Step 4: Improve. Find solutions to the problems identified and implement these solutions. Determine if it is favorable to the company. Step 5: Control. Monitor and control the process continuously.
Key differences between operations management principles Program Theory Application Guidelines Six sigma
Reduce variation 1. 2. 3. 4. 5. Define Measure Analyze Improve Control
Remove waste 1. 2. 3. 4. 5. Identify value Identify value stream Flow Pull Perfection
Manage constraints 1. 2. 3. 4. 5. Identify constraint Exploit constraint Subordinate processes Elevate constraint Repeat cycle
Scheduling 1. Determine assembly sequence Inventory records Forecast Determine schedule Control
2. 3. 4. 5.
Problem focused A problem exists. Figures and numbers are valued. System output improves if variation in all processes reduced. Uniform process output Less waste, Fast throughput, Less inventory. Fluctuation – performance measures for managers. Improved quality. System interaction not considered. Processes improved independently.
Flow focused Waste removal will improve business performance. Many small improvements are better than system analysis. Reduced flow time Less variation. Uniform output. Less inventory. New accounting system. Flow – performance measure for managers. Improved quality. Statistical or system analysis not valued.
System constraints Emphasis on speed and volume. Uses existing systems. Process interdependence.
Production sequence Demand is dependent. Lot sized is determinable. BOM. Computer software used. Ideal ordering schedule Minimize inventory. Ideal lot size determined. Assembly schedule.
Primary Effect Secondary Effects
Fast throughput Less inventory/waste. Throughput cost accounting. Throughput – performance measurement system. Improved Quality. Minimal worker input. Data analysis not valued.
Requires significant computation and thousands of detailed schedules.
(Nave, D. 2002. How To Compare Six Sigma, Lean and the Theory of Constraints. [Online] Available from: www.asq.org [Accessed: 2009-05-05]) Best operations management principle identified for Woolworths To determine the best operations management principle for a company a few thing need to be taken into consideration: The main goal of the company, the type of system to which it will be applied to, the strategy and the tactical and operational plans. In the case for Woolworths their main goal is to produce products of exceptional quality while keeping the costs as low as possible. Since Woolworth buys most of its products from dedicated suppliers it is not your typical production system. Operations management
principles can be applied to any system, but the more common system it is applied to is the manufacturing system for example a factory. In the case of Woolworths it is a different story since there is no single factory it can be applied to. Woolworths is thus seen as a distribution system where the main focus is on logistics - the shipping of the products from the suppliers to the different Woolworths stores, and on inventory – scheduling, packaging, quality, inspection, etc. The main strategy and operational plan for Woolworths is to save money where possible without sacrificing to much quality, since quality products is their main competitive advantage. Taking all of this into consideration, the decision can be made that the best operations management principle is Lean Distribution – the same as lean manufacturing, just adjusted for and applied to a distribution system instead. Six sigma and Just-in-time can also be incorporated within the Lean Distribution system. Reasons for choosing Lean Distribution It helps with achieving the goal, because through waste reduction (unnecessary inventory reduction) money can be saved without compromising the quality of the product. It will increase the flow of the distribution network and therefore it will increase overall productivity. By incorporating six sigma into the Lean Distribution system the variation can be reduced resulting in uniform distribution output. The total logistics cost will be considered and not just individual processes. Eliminate problematic areas in distribution network.
(Zylstra, K.D. 2005. Lean Distribution. John Wiley & Sons.)
List of References Aquilano, N.J., Chase, R.B. & Jacobs, F.R. 2008. Operations and Supply Management. New York: McGraw-Hill/Irwin. Moore, R. & Scheinkopf, L. 1998. Theory of Constraints and Lean Manufacturing: Friends or Foes?. Chesapeake Consulting, Inc. Nave, D. 2002. How To Compare Six Sigma, Lean and the Theory of Constraints. [Online] Available from: www.asq.org [Accessed: 2009-05-05] Pycraft, M. 2008. Operations Management. South Africa: Pearson Education Zylstra, K.D. 2005. Lean Distribution. John Wiley & Sons. Martichenko, R. Not dated. LEAN LOGISTICS-UNDERSTANDING. [Online] Available from: http://www.ltdmgmt.com/mag/understanding-lean-logistics.htm [Accessed: 200905-05] Images: [Online] Available from: http://www.mtgl.com/images/lean_mfg.gif [Accessed: 2009-0505] [Online] Available from: http://www.kwaliteg.co.za/manufacturing/MRP1.gif [Accessed: 2009-05-05] [Online] Available from: http://www.avillage.net/sitebuilder/images/Six_Sigma611x415.jpg [Accessed: 2009-05-05]