Operations Management Flashcards
Review definitions or descriptions for Section B in E1 CIMA exams. as CIMA wants from you.
Describe briefly, the primary activities of a value chain.
The concept of the value chain was developed by Michael Porter in the 1970s. The value chain is a dynamic process view of an organisation with both primary and secondary activities. Briefly, the effectiveness of how value chain activities are carried out determines the value that is created by the organisation, its costs and, by implication, its profits.
Primary activities can be grouped into five main areas: inbound logistics, operations, outbound logistics, marketing and sales, and service.
• Inbound logistics: involves the receipt, storing and handling of materials acquired by the organisation in their raw state.
• Operations: involves the processes used to transform these basic inputs into finished products.
• Outbound logistics: involves the warehousing and distribution of finished goods.
• Marketing and sales: involves the identification of customer needs and facilitating the sale of finished goods.
• Service: occurs after sales have been made (e.g. installation, support and repairs, etc.).
According to Johnson, Scholes and Whittington (2008) what are competences?
“the skills and abilities by which resources are deployed effectively through an organisation’s activities and processes”
Strategic competences can be classified as either ‘threshold or ‘core’ competences. Threshold competences represent the level of competence necessary for an organisation to compete and survive in a given industry and market. Core competences by comparison involve something the organisation does that underpins a source of competitive advantage it holds.
Describe the nature of competence. Cox (1996)
Core competency is an organization’s defining strength, providing the foundation from which the business will grow, seize upon new opportunities and deliver value to customers. A company’s core competency is not easily replicated by other organizations, whether existing competitors or new entries into its market.
A company can have more than one core competency. Core competencies, which are sometimes called core capabilities or distinctive competencies, help create a sustained competitive advantage for organizations.
The concept of identifying and nurturing core competencies to drive competitive advantages and future growth applies to companies across industries.
Complementary competences
Following Cox’s categorisation of competences (1996) are the competences that are not core but aims to core competences to succeed. In such cases, a company should consider outsourcing, but only if there are trusted suppliers and management are confident it has the necessary skills to supply the service to an appropriate standard. To ensure continuity of supply the company should also consider developing a strategic relationship with the supplier.
Residual competences
Following Cox’s categorisation of competences (1996) once more, a management should decide which of its activities can be classified as lower level ‘residual’ competencies. In these areas, should consider outsourcing by means of an ‘arm’s length’ relationship as there is less risk involved.
Explain FIVE different ways in which operations management thinking and techniques may benefit a hospital.
Help reduce queuing time. Queues for treatment in hospitals are common, particularly for unplanned admissions and emergencies. Operations management thinking can suggest ways of managing capacity and developing optimal staffing levels to cater for ‘peaks and troughs’ in demand.
Stock control of medicines, etc. There could be serious consequences if a hospital were to run out of necessary supplies such as medicines, surgical equipment and dressings. Operations
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management thinking includes stock management and control systems that would prevent this happening whilst avoiding ‘over stocking’ and waste.
A lean philosophy and associated practices can lead to an elimination of waste and hence unnecessary costs in hospitals. Efficiency and cost reduction is particularly significant for publicly funded healthcare systems (such as the NHS in the UK) where funds are limited but demand is increasing.
For operating theatres, wards and patient waiting rooms to operate to maximum capacity and efficiency there is a need to plan and organise appropriate floor layouts and work flows. Hospitals could benefit in the same way that cellular manufacturing and plant layouts do by utilising operations thinking on layout and work flow.
Enlightened operations management thinking stresses a need to develop relationships with suppliers in order to guarantee quality, timely deliveries and a continuity of supply. Hospitals could develop supplier relationships with pharmaceutical companies, laundering and catering suppliers, etc. in the same way.
(Other valid responses might also include managing bed capacity, capacity planning enabling flexible employment practices to be negotiated, etc. and these will also receive credit.)
Describe FIVE potential risks associated with computer-based operations for an
organisation.
There are several potential risks associated with computer-based operations for an organisation including those given below:
• The risk of unauthorised access from outside the organisation by ‘hackers’ or approved users accessing information not intended for them. Such privacy and security breaches could lead to data theft, fraud, vandalism, loss of confidentiality or industrial espionage, etc.
• The risk of physical damage to systems and equipment due to natural disasters, including fire, flood, heat or dust, etc. which could lead to a break down in operations or impediments in normal day to day trading.
• The risk of data corruption whereby reliability and continued operations are compromised by viruses, the work of hackers, etc.
• The risk of computer hardware and/or software malfunction due to programming and other unintentional errors, leading to operational problems, a loss of power, etc.
• The risk to users of continued operation of equipment such as repetitive strain injuries, eye strain, etc.
(Other valid responses such as inflexibility of operations, etc. are possible and these will also receive credit).
Describe FIVE different systems for managing inventory (stock).
Continuous. Inventory levels are continuously monitored, and when a predetermined level is reached a fixed amount is ordered to top stock up. The re-order size will depend on a number of factors such as the rate of usage and the lead time for delivery. An example of continuous inventory is the EOQ (Economic Order Quantity) system.
The Periodic Review System (fixed re-order intervals). Orders of variable size are placed at fixed, pre-determined intervals. For some operations this may be once a week, possibly (in the case of supermarkets for instance) there may be a daily top up of stock.
ABC. This classification is based on the Pareto rule which suggests that 20% of the items are likely to account for 80% of the total expenditure. The system focuses on the important 20% of items that need careful monitoring (called category A). Items which are much less significant (e.g. nails, screws, tacks, etc.) are referred to as category C and demand little attention. Category B items fall between these two extremes and are treated as such.
Just-in-time (JIT). The aim of this system is to purchase a stock of products or components only when they are required for use. JIT is the exact opposite of ‘just in case’ and represents a pull-based system of planning and control in response to customer demand. The obvious advantage of JIT is the elimination of large stocks of materials to near-zero levels.
Materials Requirement Planning (MRP). MRP is normally a computerised system that plans the requirement for raw materials, work in progress and finished items based on orders and expected future workload. The system starts by determining production planned and from this develops a timetable so that stocks arrive in time for their use. Stock is therefore only held as a response to future known demand.
(Other valid responses are possible and these will also receive credit.)
Describe FIVE possible reasons for the failure of a Total Quality Management (TQM) programme within an organisation
A number of common reasons for failure of Total Quality Management (TQM) programmes exist including those given below:
Poor project management
The introduction of the TQM programme may have been poorly project managed. This may have resulted in key stages being overlooked and/or ineffective communication of aims, etc. so leading to programme failure.
A lack of impetus
The implementation of TQM in an organisation is a long-term process. There may have been some sort of a ‘tail-off’ whereby after an initial burst of enthusiasm, management and workers may have failed to maintain interest.
Lack of genuine buy-in by top management
Successful introduction of TQM requires the commitment and support of top management. Programme failure may result where management is not totally convinced by the value of TQM and/or only pays ‘lip service’ to its principles.
Cultural resistance
If TQM’s principles are not compatible with an organisation’s prevailing culture and ways of ‘doing things around here’, there may be resistance or even rejection of TQM. (For instance, if the cultural emphasis does not change from punishment of mistakes to encouragement and rewards then the programme may fail.)
Deflection
The organisation may be deflected by other initiatives (e.g. business process re-engineering) or problems (e.g. organisational down-sizing) which can take attention away from the programme leading to its failure.
(Other valid responses are possible such as poor project definition, faulty resource planning and allocation, a lack of progress monitoring mechanisms, ineffective communication and coordination, inadequate attention given to education and training, threat to middle management, lack of departmental alignment, etc.)
Explain FIVE reasons why a firm might attempt to actively manage its relationships with its suppliers.
Dependency upon particular suppliers
A firm might attempt to actively manage its relationship with its suppliers due to its dependency on that supplier. The dependency will be greater if there are only a few suppliers in the industry or the raw material involved is crucial to the production of the final product.
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Influence
A firm might attempt to actively manage its relationship with its suppliers in order to positively influence the price paid and negotiate discounts for (for instance) swift payment, loyalty or bulk orders, etc. (A more contemporary view is rather than emphasise price, firms should build relationships with suppliers in order to jointly manage the entire supply chain better so that mutual benefits can accrue).
Competitive advantage
One aim of actively managing its relationship with its suppliers may be to gain a relative competitive advantage over rival firms which do not currently practice relational procurement and operations.
Quality of supply
Relationships might be formed to ensure suppliers are performing well, in particular to ensure the quality of supply. This is especially important where the purchasing firm is attempting to operate TQM or JIT approaches, etc.
To establish long-term relationships and continuity of supply
To help ensure a continuity of supply and goodwill, strong relationships are needed with suppliers. A firm might attempt to actively manage its relationship with its suppliers because it recognises that it may need a supplier’s cooperation when there are ‘rush’ orders or changes in production requirement at short notice.
(Other valid responses are possible such as innovations by learning from suppliers, improved delivery through better communication and these will also receive credit.)
Describe the Supply chain Relational Management (SRM)
๏ A transactional relationship is based on the exchange of services or products within an agreed timescale for an agreed price. Some transactional relationships are sustained over considerable periods of time, and these demonstrate commitment. However, there is little trust between supplier and customer. The relationship is essential adversarial.
๏ A contractual relationship is very similar to a transactional approach but it is a relationship which is built around delivering the terms of the contract. The supplier will deliver no more or less than the contract and the customer will use the contract to manage the supplier. There is still little trust between the two parties. Again, a rather defensive outlook.
๏ A value added relationship is usually adopted by suppliers when they move to a strategy to retain customers and therefore they develop customised solutions to meet the customer’s needs. This helps to lock together supplier and customer
๏ A collaborative relationship can be described as a close working between the supplier and customer, which delivers value and benefit to both organisations. There is also a s t ruc ture of shared respons ibi l i ty, accountability, resources and rewards. They cooperate and collaborate for the good of each party.
๏ Partnership based relationships have many similarities to collaborative SRM styles in that both parties derive mutually beneficial value from the relationship. The intention with a partnership approach is that the association will be over a long period of time with both parties looking to develop a two way rapport. There is a recognition of mutual dependency, even more so than with collaborative ventures. Partnership relationships are seen as strategic alliances, where skills and resources are shared to achieve mutual benefits which cannot be achieved working individually. They could produce joint venture structures where the legal ownership and management of organisations are shared.
Distinguish between ISO9000 accreditation and Total Quality Management (TQM).
ISO9000 accreditation
Aim: Consistent delivery of a product or service to meet customer requirements.
Outcome: A nationally accepted standard of quality.
Basis: Compliance with the European ISO 9000:2000 series quality award (a quality system standard).
Requirement: The submission and approval of documentation, including a quality manual, procedures manuals and work instructions.
Focus: External inspection both before accreditation is awarded and then with regular reappraisal visits.
Total Quality Management
Aim: Continuous improvement of goods, services and processes.
Outcome: Adherence to the kaizen (continuous improvement) concept.
Basis: Prevention of errors and defects before they occur and the importance of total quality in the design of products/services and systems.
Requirement: Multidisciplinary teams (quality circles) to discuss and implement improvements.
Focus: The involvement of all employees at all levels so that TQM represents an organisational philosophy.
Describe FIVE main features of the Six Sigma approach.
Motorola in the US set a goal of ‘Six Sigma’ in the mid 1980s for all of its manufacturing operations, and this goal became a byword for the management and engineering practices used to achieve it. The main features include:
Consistency of output. The use of statistical methods leads to minimising variation in a product offering. It is a methodology that strives for near perfection. These aim to eliminate defects and errors (driving toward six standard deviations between the mean and the nearest specification limit).
A defined methodology. A feature of Six Sigma is a disciplined, data-driven methodology with a defined sequence and approach.
The use of tools. The approach involves the use of particular quality orientated tools for process improvement.
The use of experts within the workforce. Six Sigma involves creating an organisational infrastructure of workers who are experts in often very complex methods (sometimes referred to as ‘Champions’, ‘Black Belts’, ‘Green Belts’, ‘Orange Belts’, etc.).
The use of targets and metrics. Quantified financial targets are a feature of the approach (normally cost reduction and/or profit increase).
Describe the types of waste a lean management approach would try to eliminate.
Lean production and its management involve a consolidation of improvement systems into a single coherent process to provide value for the customer. Womack et al describe waste as any human activity that absorbs resources but creates no value.
The types of waste a lean management approach would try to eliminate include:
Product defects which will lead to scrapping manufactured products or a reworking of those outputs. Both alternatives have unnecessary cost implications.
Over-production of goods that are not currently needed so leading to unnecessary stock levels being held and possibly stock wastage and loss occurring (particularly where goods are perishable).
Excess work in progress and production bottlenecks leading to stocks of goods waiting further processing. (This may possibly involve employees waiting for upstream activity to take place before they can complete their work).
Unnecessary processing of goods such as adding product features which are not valued by the customer.
Unnecessary transport of goods (and/or movement of people) possibly through faulty record keeping and/or poor plant layouts.
Describe FIVE different improvements a manufacturing organisation might experience as a result of introducing Total Productive Maintenance (TPM).
Total Productive Maintenance (TPM) plans and implements the systematic maintenance of all equipment and as such might achieve a number of different improvements within a manufacturing organisation.
• Continuity: TPM should help consistent production so increasing productivity through prevention of unplanned equipment breakdowns.
• Improve quality: TPM should help achieve a ‘right first time’ quality approach, and may reduce scrap and rework of goods (so lowering organisational costs of quality).
• Forecasting: TPM improves accuracy of forecasting requirements by reducing unplanned down-time.
• Motivation: staff morale should improve as quality increases and worker frustrations over unexpected breakdowns are reduced.
• Improve asset life: regular maintenance should improve the effectiveness and life span of equipment.
(Other responses might include: TPM should contribute to lean operations by reducing equipment-related losses such as down-time and speed reduction, TPM could be used as a vehicle to involve all staff and encourage a pride in the work of individuals).
Distinguish quality circles from quality control inspection.
Quality circles
Traditional association: Japanese production and TQM methods
Involvement: Collaborative effort of a team of employees who perform similar duties often in conjunction with management
Emphasis: Allows idea sharing and problem solving to improve production methods or quality
Basis: Any work-related issue
Outcome: Contributes to on-going quality assurance and improvement
Responsibility: The worker involved
Quality cost classification: Prevention
Quality control
Traditional association: Western production methods often when mass production is involved
Involvement: Inspection of work by a third party (Quality Control officer or inspector)
Emphasis: Rejection of defects or deviations from manufacturers’ or industry specifications.
Basis: Possibly all or some sampling of products and materials
Outcome: Contributes to control of quality
Responsibility: Quality Control officer or inspector
Quality cost classification: Appraisal
The ideas and principles established by the well-known theorist F.W. Taylor have implications for both operations and management even today.
Describe briefly FIVE of these ideas and principles.
Frederick Winslow Taylor was an American mechanical engineer who expressed his theories over a hundred years ago. He is often celebrated as the father of the scientific management movement and his suggested practices are now simply called ‘Taylorism’. Taylor believed that the management exercised in industrial settings of his day was amateurish and ineffective. The basis of Taylor’s thinking was a desire to improve industrial efficiency.
Efficiency through partnership: the best results would come from the partnership between trained, qualified managers and a cooperative and innovative workforce.
Taylor’s scientific management methods consisted of four principles to improve industrial efficiency.
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• Scientific job analysis. Work methods should be based on a scientific study of the task and not on rule-of-thumb judgments. In this way productivity increases might be achieved.
• Scientific selection of a worker followed by a progressive development of the worker’s abilities. Managers should scientifically select, train, and develop each employee rather than appointing them and leaving them to decide on their own training.
• Scientific methods should be established by managers who should then provide detailed operating instructions to each worker.
• Clear responsibilities. There should be a clear distinction between the role played by an individual worker and a manager. Managers should apply scientific management principles to planning work and workers should perform the tasks set.
