(solution) PRINTED BY: Bukola Fasalojo

(solution) PRINTED BY: Bukola Fasalojo

Operation Risk Management

Preview and background information that will guide your answer

Before this assignment, I explored production planning, control and scheduling methods, including MRP alternatives. As we compared these various methods, you likely noticed that some methods have inherent risks for certain types of organizations and/or operational sectors. Moreover, these risks can lead to operations management failures, but such is only the case if said risks are not effectively managed, and part of this effectiveness is knowing the reasons for potential failure.

At first glance, many might say it is better to avoid these risks altogether, and sometimes this is true, but there are some risks worth taking. The question is how does one decide which risks are worth taking and which are not? In operations management, managers must continually assess risks in order to answer this question and look for ways to reduce the negative effects of potential failures.

Question:  In 400 to 500 wards, examine how to avoid and alleviate failure in operations management under the following heading

  • The most common reasons for operations management failure as necessary.
  • Methods for successfully decreasing the chances of failure.
  • Use a practical example from your experience or find appropriate case from external sources e.g Mark Zuckerberg.

Note: All reference should be Harvard referencing and cited in the body of the write up.

PRINTED BY: Bukola Fasalojo <[email protected]>. Printing is for personal, private use only. No part of this book may be reproduced or transmitted
without publisher's prior permission. Violators will be prosecuted. 578 18 Operations improvement
Key questions
Why is improvement so important in operations Management? What are the key elements of operations improvement? What are the broad approaches to managing improvement? What techniques can be used for improvement? INTRODUCTION
Even when an operation?s strategy is set, its design finalized and its deliveries planned and controlled,
the operations manager?s task is not finished. All operations, no matter how well managed, are capable
of being improved. In fact, in recent years the emphasis amongst operations professionals has shifted
markedly towards making improvement one of their main responsibilities. In this part of the book we
treat improvement activities in three stages. First, this chapter looks at the elements commonly found
in various improvement approaches, examines four of the more widely used approaches, shows how
these approaches fit together, then illustrates some of the techniques which can be adopted to improve
the operation. Second, Chapter 19 looks at improvement from another perspective, that is, how
operations can improve by managing the risks of getting worse. Finally, Chapter 20 looks at how
improvement activities can be organized, supported and implemented. These three stages are
interrelated as shown in Figure 18.1. Figure 18.1 Operations improvement Operations Management, 7th Edition Page 1 of 33 PRINTED BY: Bukola Fasalojo <[email protected]>. Printing is for personal, private use only. No part of this book may be reproduced or transmitted
without publisher's prior permission. Violators will be prosecuted. Check and improve your understanding of this chapter using self-assessment questions and a
personalized study plan, a video case study, and an eText ? all at www.myomlab.com.
578
579 OPERATIONS IN PRACTICE Delivering global optimization at TNT1
When you are in the business of express parcel delivery, operations improvement is not an option; it?s
a necessity if you are going to survive. Customers tend to be less than understanding if their package is
late, or, worse, doesn?t arrive at all. Costs, especially fuel, are on a rising curve. Competitors are
getting better all the time. Setting up a global network of hubs and routes takes immense amounts of
capital, and because global networks are expensive to maintain, demand has to be kept high just to
break even. In addition, increasingly society expects such companies to reduce their carbon emissions.
So it?s a ?no brainer?: delivery operations must continually be reducing costs, improving levels of
service to delight customers, and deploying its resources in a manner as close to optimum as possible.
This is why TNT express started the Global Optimization Programme (known as the GO Programme)
to optimize its complete logistic chain. Within this programme TNT Express aims to improve how it
makes vehicle routing, hub operations, scheduling and customer service decisions all over the world by
sharing best practices of the different businesses and by developing its improvement methods.
TNT Express is a package delivery service with 80,000 employees, headquartered in the Netherlands,
which operates air and road networks in Europe, China, south America, the Asia-Pacific region and the
middle east. Although the company had been achieving broadly acceptable cost and service levels of
performance for a number of years, by 2005 the company realized that it was not making full use of the
type of analytical quantitative modelling tools that its competitors, such as Federal express and Ups,
had been using for years. It became clear that TNT Express was very late in adopting such techniques
by the standards of competitor companies. Yet some parts of the company had been engaged in using
analytical improvement tools. In Italy, TNT Express had launched its drive to optimize how it used the
domestic road network to improve operational performance. Using the success in Italy as a foundation,
TNT Express decided to formalize the company?s improvement efforts by establishing its Global
Optimization (GO) project. Just as important was the company?s decision that improvement through
the use of analytics must not be relegated to the sidelines as the preserve of a few specialists, but that it
should be at the core of the business. However, specialist help would clearly be needed, so the
company partnered with ORTEC, providers of advanced planning and optimization software solutions.
With experience in providing solutions that set out to optimize the kind of activities at the heart of
TNT Express?s operations, such as fleet routing and dispatch, vehicle and pallet loading, workforce
scheduling, delivery forecasting, and network planning, ORTEC helped provide the ?analytical muscle?
needed for such complex operations. Operations Management, 7th Edition Page 2 of 33 PRINTED BY: Bukola Fasalojo <[email protected]>. Printing is for personal, private use only. No part of this book may be reproduced or transmitted
without publisher's prior permission. Violators will be prosecuted. But operations improvement is not just a matter of solving analytical puzzles; it must also engage with
people in the organization. To accomplish this, the company established two people-focused initiatives
called ?the GO Communities of Practice? and ?the GO-Academy?. The GO Communities of Practice
was a network of individuals who had similar responsibilities, but in different parts of the world. The
Community of Practice groups meet around three times a year to learn from each other?s experience in
applying improvement analytics in various parts of the world, with sometimes different conditions.
The GO-Academy was developed to overcome some degree of resistance to the improvement initiative
(not unusual with such initiatives). The objective of the academy was ?to train employees in
optimization principles and, at a high level, to acquaint them with the available optimization tools,
without trying to turn them into mathematicians?. Over a two-year period participants from throughout
the company have been encouraged to promote and explain the improvement initiative throughout the
organization. The academy?s courses are run jointly with Tilburg University in the southern part of the
Netherlands.
And has all this improvement effort been worthwhile? Very much so, says TNT Express. It carried out
200 network optimization projects in one year. In the seven years after the introduction of the GO
initiative, operations? decision-making quality has significantly improved and resulted in ?207 million
in cost savings and saved 60 million kilometres of mileage and 54 million kg of CO2 emissions.
579
580 WHY IS IMPROVEMENT SO IMPORTANT IN OPERATIONS
MANAGEMENT?
Why is operations improvement so important? Well, who doesn?t want to get better? And businesses are
(or should be) just the same as people ? they generally want to get better. Not just for the sake of their
own excellence, although that may be one factor, but mainly because improving operations performance
has such an impact on what any organization is there to do. Emergency services want to reach distressed
people faster and treat them better because by doing so they are fulfilling their role more effectively.
Package delivery businesses like TNT Express want to deliver more reliably, at lower cost and reducing
emissions because it means happier customers, higher profits and less pollution. Development charities
want to target their aid and campaign for improvement in human conditions as wisely and efficiently as
possible because more money will find its way to beneficiaries rather than be wasted or consumed in
administration. Not surprising then that the whole emphasis of operations Management has shifted
towards emphasizing improvement. Operations managers are judged not only on how they meet their
ongoing responsibilities of producing products and services to acceptable levels of quality, speed,
dependability, flexibility, and cost, but also on how they improve the performance of the operations
function overall. Operations principle
Performance improvement is the ultimate objective of operations and process Management. Why the focus on improvement?
Various reasons have been suggested to explain the shift towards a focus on improvement in
professional operations managers? activities:
? There is a perceived increase in the intensity of competitive pressures (or ?value for money? in
not-for-profit or public sector operations). In fact, economists argue about whether markets are
really getting more competitive. As far as improvement is concerned it doesn?t matter; there is a
perception of increased competitive pressure, and certainly the owners of operations
(shareholders or governments) are less likely to tolerate poor returns or value for money. ? The nature of world trade is changing. Economies such as China, India and Brazil are emerging
as both producers and consumers of products and services. This has had a number of effects that Operations Management, 7th Edition Page 3 of 33 PRINTED BY: Bukola Fasalojo <[email protected]>. Printing is for personal, private use only. No part of this book may be reproduced or transmitted
without publisher's prior permission. Violators will be prosecuted. have impacted more developed economies. It has introduced cost pressures in countries with
relatively expensive labour and infrastructure costs; it has introduced new challenges for global
companies, such as managing complex supply chains; and it has accelerated demand for
resources (materials, food, energy) pushing up (or destabilizing) prices for these commodities.
? New technology has both introduced opportunities to improve operations practice and disrupt
existing markets. Look at how operations in the music business have had to adapt their working
practices to downloading and music streaming. ? The interest in operations improvement has resulted in the development of many new ideas and
approaches to improving operations which have, in turn, focused attention on improvement. The
more ways there are to improve operations, the more operations will be improved. ? The scope of operations Management has widened from a subject associated largely with
manufacturing to one that embraces all types of enterprise and processes in all functions of the
enterprise. Because of this extended scope, operations managers have seen how they can learn
from each other, even if their operations and processes seem, at first glance, different. The Red Queen effect
In 1973 the scientist Leigh Van Valen was looking to describe a discovery that he had made while
studying marine fossils. He had established that, no matter how long a family of animals had already
existed, the probability that the family will become extinct is unaffected. In other words, the struggle
for survival never gets easier. However well a species fits with its environment, it can never relax. The
analogy that Van Valen drew came from Alice?s Adventures through the Looking Glass by Lewis
Carroll. In the book, Alice encounters living chess pieces and, in particular, the ?Red Queen?.
?Well, in our country,? said Alice, still panting a little, ?you?d generally get to somewhere else ? if
you ran very fast for a long time, as we?ve been doing?. ?A slow sort of country!? said the Queen.
?Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to
get somewhere else, you must run at least twice as fast as that!?2
In many respects this is like business. Improvements and innovations may be imitated or countered by
competitors. For example, in the automotive sector, the quality of most firms? products is very
significantly better than it was two decades ago. This reflects the improvement in those firm?s
operations processes. Yet their relative competitive position has in many cases not changed. Those
firms that have improved their competitive position have improved their operations performance more
than competitors. Where improvement has simply matched that of competitors, survival has been the
main benefit. The implications for operations improvement are clear. It is even more important,
especially when competitors are actively improving their operations.
An important distinction in the approach taken by individual operations is that between radical or
?breakthrough? improvement, on one hand, and continuous or ?incremental? improvement on the other. Radical or breakthrough change
Radical breakthrough improvement (or ?innovation?-based improvement, as it is sometimes called) is a
philosophy that assumes that the main vehicle of improvement is major and dramatic change in the
way the operation works. The introduction of a new, more efficient machine in a factory, the total
redesign of a computer-based hotel reservation system, and the introduction of an improved degree
programme at a university are all examples of breakthrough improvement. The impact of these
improvements is relatively sudden, abrupt and represents a step change in practice (and hopefully
performance). Such improvements are rarely inexpensive, usually calling for high investment of
capital, often disrupting the ongoing workings of the operation, and frequently involving changes in
the product/service or process technology. The bold line in Figure 18.2(a) illustrates the pattern of
performance with several breakthrough improvements. The improvement pattern illustrated by the
dotted line in Figure 18.2(a) is regarded by some as being more representative of what really occurs PRINTED BY: Bukola Fasalojo <[email protected]>. Printing is for personal, private use only. No part of this book may be reproduced or transmitted
without publisher's prior permission. Violators will be prosecuted. when operations rely on pure breakthrough improvement. Breakthrough improvement places a high
value on creative solutions. It encourages free thinking and individualism. It is a radical philosophy
insomuch as it fosters an approach to improvement which does not accept many constraints on what is
possible. ?Starting with a clean sheet of paper?, ?going back to first principles? and ?completely
rethinking the system? are all typical breakthrough improvement principles. Operations principle
Performance improvement sometimes requires radical change. Continuous or incremental improvement
Continuous improvement, as the name implies, adopts an approach to improving performance which
assumes many small incremental improvement steps. For example, modifying the way a product is
fixed to a machine to reduce changeover time, simplifying the question sequence when taking a hotel
reservation, and rescheduling the assignment completion dates on a university course so as to smooth
the students? workload are all examples of incremental improvements. While there is no guarantee that
such small steps towards better performance will be followed by other steps, the whole philosophy of
continuous improvement attempts to ensure that they will be. Continuous improvement is not
concerned with promoting small improvements per se. It does view small improvements, however, as
having one significant advantage over large ones ? they can be followed relatively painlessly by other
small improvements (see Fig. 18.2(b)). Continuous improvement is also known as kaizen. Kaizen is a
Japanese word, the definition of which is given by Masaaki Imai3 (who has been one of the main
proponents of continuous improvement) as follows: ?Kaizen means improvement. Moreover, it means
improvement in personal life, home life, social life and work life. When applied to the workplace,
kaizen means continuing improvement involving everyone ? managers and workers alike.? 581
582 Figure 18.2 (a) ?Breakthrough? improvement, (b) ?continuous?
improvement and (c) combined improvement patterns Operations Management, 7th Edition Page 5 of 33 PRINTED BY: Bukola Fasalojo <[email protected]>. Printing is for personal, private use only. No part of this book may be reproduced or transmitted
without publisher's prior permission. Violators will be prosecuted. In continuous improvement it is not the rate of improvement which is important; it is the momentum of
improvement. It does not matter if successive improvements are small; what does matter is that every
month (or week, or quarter, or whatever period is appropriate) some kind of improvement has actually
taken place. Operations principle
Performance improvement almost always benefits from continuous improvement. The structure of improvement ideas
There have been hundreds of ideas relating to operations improvement that have been proposed over
the last few decades. To understand how these ideas relate to each other it is important to distinguish
between:
? The broad approaches to improvement ? some improvement approaches have been used for over
a century (for example, some work study approaches, see Chapter 9), while others are relatively
recent (for example, Six Sigma, explained later). ? The elements contained within improvement approaches ? do not think that approaches to
improvement are different in all respects. There are many elements that are common to several
approaches. ? The improvement techniques ? there are many ?step-by-step? techniques and tools that can be
used to find improved ways of doing things; some of these use quantitative modelling and others
are more qualitative. 582
583 SHORT CASE The Checklist Manifesto4
Improvement methodologies are often associated with repetitive operations. Performing the same
task repeatedly means that there are plenty of opportunities to ?get it right?. The whole idea behind
continuous improvement derives from this simple idea. By contrast operations that have to
perform more difficult activities, especially those that call for expert judgement and diagnostic
ability, must call for equally complex improvement approaches, right? Well, no, according to Atul
Gawande, a physician at the prestigious Johns Hopkins Hospital. Mr Gawande thinks that the very
opposite is true. Although medicine is advancing at an astounding rate and medical journals
produce learned papers adding the results of advanced research to an ever-expanding pool of
knowledge, the medical profession overall does not always have a reliable method for learning
from its mistakes. Atul Gawande?s idea is that his, and similar ?knowledge-based? professions, are
in danger of sinking under the weight of facts. Scientists are accumulating more and more
information and professions are fragmenting into ever narrower specialisms.
Mr Gawande tells the story of Peter Pronovost, a specialist in critical care at Johns Hopkins
Hospital, who in 2001 tried to reduce the number of patients who were becoming infected on
account of the use of intravenous central lines. There are five steps that medical teams can take to
reduce the chances of contracting such infections. Initially Pronovost simply asked nurses to
observe whether doctors took the five steps. What they found was that, at least a third of the time,
they missed one or more of the steps. So nurses were authorized to stop doctors who had missed
out any of the steps, and, as a matter of course, ask whether existing intravenous central lines
should be reviewed. As a result of applying these simple checklist-style rules, the ten-day
line-infection rates went down from 11 per cent to zero. In one hospital, it was calculated that, over
a year, this simple method had prevented 43 infections, 8 deaths and saved about $2 million. Using
the same checklist approach the hospital identified and applied the method to other activities. For
example, a check in which nurses asked patients about their pain levels led to untreated pain
reducing from 41 per cent to 3 per cent. Similarly, the simple checklists method helped the average
Operations Management, 7th Edition Page 6 of 33 PRINTED BY: Bukola Fasalojo <[email protected]>. Printing is for personal, private use only. No part of this book may be reproduced or transmitted
without publisher's prior permission. Violators will be prosecuted. length of patient stay in intensive care to fall by half. When Pronovost?s approach was adopted by
other hospitals, within 18 months, 1,500 lives and $175 million had been saved. Mr Gawande describes checklists used in this way as a ?cognitive net? ? a mechanism that can help
prevent experienced people from making errors due to flawed memory and attention, and ensure
that teams work together. Simple checklists are common in other professions. Civil engineers use
them to make certain that complicated structures are assembled on schedule. Chefs use them to
make sure that food is prepared exactly to the customers? taste. Airlines use them to make sure that
pilots take off safely and also to learn from, now relatively rare, crashes. Indeed, Mr Gawande is
happy to acknowledge that checklists are not a new idea. He tells the story of the prototype of the
Boeing B17 Flying Fortress that crashed after take-off on its trial flight in 1935. Most experts said
that the bomber was ?too complex to fly?. Facing bankruptcy, Boeing investigated and discovered
that, confronted with four engines rather than two, the pilot forgot to release a vital locking
mechanism. But Boeing created a pilot?s checklist, in which the fundamental actions for the stages
of flying were made a mandated part of the pilot?s job. In the following years, B17s flew almost 2
million miles without a single accident. Even for pilots, many of whom are rugged individualists,
says Mr Gawande, it is usually the application of routine procedures that saves planes when things
go wrong, rather than ?hero-pilotry? so fêted by the media. It is discipline rather than brilliance that
preserves life. In fact, it is discipline that leaves room for brilliance to flourish.
The best way to understand improvement is to deal with the elements contained within improvement
approaches first, see how they come together to form broad approaches to improvement, and then
examine some typical improvement techniques.
The section following that (see pages 588?598) will then show how these elements are combined to
form different improvement approaches. Operations Management, 7th Edition 583 Page 7 of 33 PRINTED BY: Bukola Fasalojo <[email protected]>. Printing is for personal, private use only. No part of this book may be reproduced or transmitted
without publisher's prior permission. Violators will be prosecuted. 583
584 THE KEY ELEMENTS OF OPERATIONS IMPROVEMENT
The elements of improvement are the individual basic fundamental ideas of improvement. Think of these
elements of improvement as the building blocks of the various improvement approaches that we shall
look at later. Here we explain some, but not all (there are lots), of the more common elements in use
today. Operations principle
The various approaches to improvement draw from a common group of elements. Improvement cycles
An important element within some improvement approaches is the use of a literally never-ending
process of repeatedly questioning and re-questioning the detailed working of a process or activity. This
repeated and cyclical questioning is usually summarized by the idea of the improvement cycle, of
which there are many, but two are widely used models ? the PDCA cycle (sometimes called the
Deming Cycle, named after the famous quality ?guru?, W.E. Deming) and the DMAIC (pronounced
De-Make) cycle, made popular by the Six Sigma approach (see later). The PDCA cycle model is
shown in Figure 18.3(a). It starts with the P (for plan) stage, which involves an examination of the
current method or the problem area being studied. This involves collecting and analysing data so as to
formulate a plan of action which is intended to improve performance. Once a plan for improvement
has been agreed, the next step is the D (for do) stage. This is the implementation stage during which
the plan is tried out in the operation. This stage may itself involve a mini-PDCA cycle as the problems
of implementation are resolved. Next comes the C (for check) stage where the new implemented
solution is evaluated to see whether it has resulted in the expected performance improvement. Finally,
at least for this cycle, comes the A (for act) stage. During this stage the change is consolidated or
standardized if it has been successful. Alternatively, if the change has not been successful, the lessons
learned from the ?trial? are formalized before the cycle starts again. Figure 18.3 (a) The plan?do?check?act, or ?Deming? improvement
cycle, and (b) the define?measu…