Operations Performance

Question 1

Performance at three levels

Answer 1

● The broad, societal level, using the idea of the ‘triple bottom line’.
● The strategic level of how an operation can contribute to the organization’s overall
strategy.
● The operational level, using the five operations ‘performance objectives’.

Question 2

Operations principle

Answer 2

● Customer safety from products and services
● The employment impact of an operation’s location
● Employment implications of outsourcing
● Repetitive or alienating work
● Staff safety and workplace stress
● Non-exploitation of developing country suppliers.

Question 3

The environmental bottom line (Planet) – the environmental

account, measured by environmental impact of the operation

Answer 3

● Recyclability of materials, energy consumption, waste material generation
● Reducing transport-related energy
● Noise pollution, fume and emission pollution
● Obsolescence and wastage
● Environmental impact of process failures
● Recovery to minimize impact of failures.

Question 4

The economic bottom line (Profit) – the economic account, measured
by profitability, return on assets, etc., of the operation

Answer 4

● Cost of producing products and services
● Revenue from the effects of quality, speed, dependability and flexibility
● Effectiveness of investment in operations resources
● Risk and resilience of supply
● Building capabilities for the future.

Question 5

Operations principle

Answer 5

All operations should be expected to contribute to their business at a strategic level by controlling costs, increasing revenue, making investment more effective, reducing their risks, and growing long-term capabilities

Question 6

HOW IS OPERATIONS PERFORMANCE JUDGED

AT AN OPERATIONAL LEVEL?

Answer 6

● You would want to do things right; that is, you would not want to make mistakes, and
would want to satisfy your customers by providing error-free goods and services which are
‘fit for their purpose’. This is giving a quality advantage.
● You would want to do things fast, minimizing the time between a customer asking for
goods or services and the customer receiving them in full, thus increasing the availability
of your goods and services and giving a speed advantage.
● You would want to do things on time, so as to keep the delivery promises you have made. If
the operation can do this, it is giving a dependability advantage.
● You would want to be able to change what you do; that is, being able to vary or adapt the
operation’s activities to cope with unexpected circumstances or to give customers individual treatment. Being able to change far enough and fast enough to meet customer requirements gives a flexibility advantage.
● You would want to do things cheaply; that is, produce goods and
services at a cost which enables them to be priced appropriately for
the market while still allowing for a return to the organization; or,
in a not-for-profit organization, give good value to the taxpayers or
whoever is funding the operation. When the organization is managing to do this, it is giving a cost advantage.

Question 7

Operations principle

Answer 7

Operations performance objectives can be grouped together as quality, speed, dependability, flexibility, and cost.

Question 8

Operations principle

Answer 8

Dependability can give the potential for more reliable delivery of services and products, and save costs.

Question 9

Why is flexibility important?

Answer 9

● product/service flexibility – the operation’s ability to introduce new or modified products
and services;
● mix flexibility – the operation’s ability to produce a wide range or mix of products and
services;
● volume flexibility – the operation’s ability to change its level of output or activity to produce different quantities or volumes of products and services over time;
● delivery flexibility – the operation’s ability to change the timing of the delivery of its services or products.

Question 10

Operations principle

Answer 10

Flexibility can give the potential to create new, wider variety, different volumes and different delivery dates of services and products, and save costs.

Question 11

Operations principle

Answer 11

Costs are always an important objective for operations management, even if the organizations don´t compete directly on price.

Question 12

A health-check clinic has five employees and ‘processes’ 200 patients per week. Each
employee works 35 hours per week. The clinic’s total wage bill is £3,900 and its total overhead
expenses are £2,000 per week. What is the clinic’s single-factor labour productivity and its
multi-factor productivity?

Answer 12

Labour productivity = 200 = 40 patients/employees/week 5
Labour productivity = 200 = 1.143 patients/labour hour 5 * 35
Multi-factor productivity = 200 = 0.0339 patients/£ (3,900 + 2,00

Question 13

Cost reduction through internal effectiveness

Answer 13

● High-quality operations do not waste time or effort having to redo things, nor are their
internal customers inconvenienced by flawed service.
● Fast operations reduce the level of in-process inventory between micro-operations, as well
as reducing administrative overheads.
● Dependable operations do not spring any unwelcome surprises on their internal customers. They can be relied on to deliver exactly as planned. This eliminates wasteful disruption
and allows the other micro operations to operate efficiently.
● Flexible operations adapt to changing circumstances quickly and without disrupting the
rest of the operation. Flexible micro operations can also change over between tasks quickly
and without wasting time and capacity.

Question 14

HOW CAN OPERATIONS PERFORMANCE BE MEASURED?

Answer 14

● What factors to include as performance measures?
● Which are the most important performance measures?
● What detailed measures to use?

Question 15

The balanced scorecard approach

Answer 15

● How do we look to our shareholders (financial perspective)?
● What must we excel at (internal process perspective)?
● How do our customers see us (the customer perspective)?
● How can we continue to improve and build capabilities (the learning and growth
perspective)?

Question 16

Operations principle

Answer 16

Multi-dimensioned performance measurement approaches, such as the balanced scorecard, give a broader indication of overall performance.

Question 17

Operations principle

Answer 17

In short term, operations cannot achieve outstanding performance in all their operations objectives.

Question 18

Operations principle

Answer 18

An operation´s strategy improvement path can be described in terms of repositioning and/or overcoming its performance trade-offs.

Question 19

> Why is operations performance vital in any organization?

Answer 19

● Operations management can either ‘make or break’ any business. In most businesses
it represents the bulk of its assets.
● The positive effects of a well-run operation include a focus on improvement, the building
of ‘difficult to imitate’ capabilities, and an understanding of the processes that are the building blocks of all operations.
● The negative effects of a poorly run operation include failures that are obvious to customers (and expensive for the organization), a complacency that leads to the failure to exploit
opportunities for improvement.

Question 20

> How is operations performance judged at a societal level?

Answer 20

● Operations decisions aff ect a variety of ‘stakeholders’. Stakeholders are the people and
groups who have a legitimate interest in the operation’s activities.
● This idea that operations should take into account the impact on a broad mix of stakeholders is termed ‘corporate social responsibility’ (CSR).
● Performance at the societal level often uses the idea of the triple bottom line (TBL, or 3BL,
also known as ‘People, Planet and Profit’). It includes the social bottom line, the environmental bottom line, and the economic bottom line.
● The social bottom line incorporates the idea 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.
● The environmental bottom line incorporates the idea that operations should accept that
they bear some responsibility for the impact they have on the natural environment.
● The economic bottom line incorporates the conventional financial measures of performance derived from using the operation’s resources effectively

Question 21

❯ How is operations performance judged at a strategic level?

Answer 21

● The type of decisions and activities that operations managers carry out can have a significant strategic impact.
● In particular, operations can affect economic performance in five ways:
● It can reduce costs.
● It can achieve customer satisfaction through service.
● It can reduce the risk of operational failure.
● It can reduce the amount of investment that is necessary.
● It can provide the basis for future innovation.

Question 22

> How is operations performance judged at an operational level?

Answer 22

● The five ‘performance objectives’ that are used to assess the performance of operations at
an operational level is quality, speed, dependability, flexibility, and cost.
● Quality is important because:
● By ‘doing things right’, operations seek to influence the quality of the company’s goods
and services.
● Externally, quality is an important aspect of customer satisfaction or dissatisfaction.
● Internally, quality operations both reduce costs and increase dependability.
● Speed is important because:
● By ‘doing things fast’, operations seek to influence the speed with which goods and services are delivered.
● Externally, speed is an important aspect of customer service.
● Internally, the speed both reduces inventories by decreasing internal throughput time and
reduces risks by delaying the commitment of resources.
● Dependability is important because:
● By ‘doing things on time’, operations seek to influence the dependability of the delivery
of goods and services.
● Externally, dependability is an important aspect of customer service.
● Internally, dependability within operations increases operational reliability, thus saving
the time and money that would otherwise be taken up in solving reliability problems
and also giving stability to the operation.
● Flexibility is important because:
● By ‘changing what they do’, operations seek to influence the flexibility with which the
the company produces goods and services.
● Externally, flexibility can produce new products and services (product/service flexibility).
● Externally, flexibility can produce a wide range or mix of products and services (mix flexibility).
● Externally, flexibility can produce different quantities or volumes of products and services (volume flexibility).
● Externally, flexibility can produce products and services at different times (delivery flexibility).
● Internally, flexibility can help speed up response times, save time wasted in changeovers,
and maintain dependability
● Cost is important because:
● By ‘doing things cheaply’, operations seek to influence the cost of the company’s goods
and services.
● Externally, low costs allow organizations to reduce their price in order to gain higher
volumes or, alternatively, increase their profitability on existing volume levels.
● Internally, cost performance is helped by good performance in the other performance
objectives.

Question 23

> How can operations performance be measured?

Answer 23

● It is unlikely that for any operation a single measure of performance will adequately reflect
the whole of a performance objective. Usually, operations have to collect a whole bundle of
partial measures of performance.
● The balanced scorecard (BSC) is a commonly used approach to performance measurement
and incorporates measures related to:
● How do we look to our shareholders (financial perspective)?
● What must we excel at (internal process perspective)?
● How do our customers see us (the customer perspective)?
● How can we continue to improve and build capabilities (the learning and growth
perspective)?

Question 24

> How do operations performance objectives trade-off against each other?

Answer 24

Trade-off s is the extent to which improvements in one performance objective can be
achieved by sacrificing performance in others. The ‘efficient frontier’ concept is a useful
approach to articulating trade-off s and distinguishes between repositioning performance
on the efficient frontier and improving performance by overcoming trade-off s.