Discussing The Process Of Operations Management Information Technology Essay

Operations management is a process of managing resources required for production and deliverance of the products and services. Its basic objective is to improve the amount of value-added activities in each of the processes.

The part of the company that is entrusted with this process is the operations function. As each and every organization produces products they all are bound to have operations function. The people responsible for managing the operation functions resources are known as operations managers. In different type of organizations they may be called by different names like in supermarket they are store manager, etc.

This report demonstrates the three operations management techniques which helped the companies improve their business activities and performance. They were

Supply Chain Management (SCM)

Enterprise Resource Planning (ERP)

Total Quality Management(TQM)

In this report the case studies involving the implementation of the above three techniques are explained. The benefits experienced by the companies and any changes they could have made to maximize them are also mentioned.

Supply Chain Management (SCM):

Supply chain management consists of coordinating the material and information flow, and the finances between the supplier, manufacturer and the consumer. Its main objective is inventory reduction assuming that when products are needed they are available. The supply networks are made up of Supplier-buyer relationship. The flow of Supply chain management flows can be divided into three parts:

The product

The informational flow

The financial flow

The behavior of the supply chain is dynamic and is known as bullwhip effect. This means that if there are small changes happening at the end of the supply chain they start causing changes at the start of the supply chain. The reduction of the bullwhip effect can be achieved by:

Efficiently distributing the information by connecting all the operations to the demand source.

Establishing a similar decision making process along the entire supply chain.

Increasing the efficiency of the operations by eliminating sources of waste.

Supplier quality management

The basic need of any company from their suppliers is the deliverance of good quality products on right time. The best practice of improving the quality of product is by improving the quality of raw materials supplied by suppliers.

SQM can be implemented by following the practices mentioned below:

Estimating and finding the cost incurred due to poor supplier quality:

This is also known as COPQ (Cost of poor quality). The COPQ can be calculated from the following:

The costs incurred due to scrapping and reworking.

The shutdown of our assembly line due to defective products.

The costs of shipping back the defective products to suppliers and the warranty costs.

Developing a system for recovering our costs:

In this, the suppliers are charged back for supplying poor quality products. Here, we must include not only the material costs but also the non-material costs like packaging defective products, their transportation costs, etc.

Auditing and rating of suppliers:

This is the most effective way of checking whether our suppliers are conforming to our mentioned processes, quality systems, transporting, etc. It can be done once every year for all of our suppliers.

The advantages gained by companies by having effective supply chain are:

They have low maintenance and real costs.

They can make delivery of better value and have repeat of business with the customers.

They can easily remove waste from the process.

They get more turnover profits and can make long term plans for the future.

Summary of Case study for Supplying fast fashion:

This case study best demonstrates how the garment retailing business is carried out in this dane age.It shows how the different fashion ideas which would not have been even considered by a retail store can become must-have in a short period. The working of top retail brands like H&M, Zara and Benetton is been explained. It explains the quicker-picker-upper fashion concept which has made Zara, H&M today’s leading retailers.

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Reasons: To achieve this science of fast fashion product development cycles need to compress, which can be done through effective supply chain management. The retail brands believed that the only way they can keep stocks to a minimum while meeting the customers demand quickly and flexibly was through the integration of processes along the supply chain

All the top 3 brands have their supply chain divided in four stages

Designing of garments

Manufacturing

Distribution to retail outlets

Retail operations

Designing:

Designing is of extreme importance in retailing market. The stores are supposed to deliver high and fast fashion at an inexpensive cost not cheap cost.

H &M designing -It is carried out by team of 100 designers in Stockholm who operate with group of 50 pattern designers, about 100 buyers and many budget controllers.

Zara designing: Here, the design idea is derived from three different sources-the designers, market analysts and the buyers who order consignments to suppliers. The design stage for Zara is divided in three sections: Women, men and children chlothes.The prototype designs are created and tried out by placing all the three sources (designers, market analysts and buyers) in small workshops. The market analysts capture the new happenings in the fashion market as they are always in contact with the retail stores. This way Zara’s retail stores are at the start of the supply chain and not at the end.

Distribution:

The investment costs incurred by Zara and Benetton in automating their warehouses is very high as they want them to be near production centre’s which could store, pack and develop independent orders for the network of retail stores around the globe. Currently, Zara only uses half of its warehousing capacity while Benetton is still exploring the possibility of using RFID tags for tracking garments.

The distribution process at H&M is still routine. The stock management is carried out internally and physical distribution is sub-contracted. In H&M, goods are routed to retail site from production site through a transit terminal in Hamburg owned by the H&M itself. These goods are then inspected and stored in a centralized stock room known as call-off warehouse where stores are replenished on each item level depending on what is sold.

Manufacturing:

Manufacturing costs can be significantly reduced if there are reduced labor costs. Therefore, most of the Benetton’s manufacturing operations are carried out in Asia, North Africa and Eastern Europe. The expensive technological operations are carried out in privately owned Benetton’s sites whereas all the labor intensive operations would be carried out by smaller contractors. The central Benetton facility decides upon how much and what is to be produced by non-Italian networks. Similar is the case with H&M, whose 50% production is carried out in Asia. They have 21 offices all over the world which co-ordinate the supplier activities. The healthy relation maintained between suppliers and production offices allows them to buy fabric early. The actual cutting and dyeing of the garments carried out at later stage. This helps in delaying placement of an order, thereby reducing risk of purchasing wrong items.

Zara owns much of its manufacturing capabilities which it can manipulate to meet the customer demands at short response. Almost 50% of Zara’s productions, most of which are expensive operations (cutting, dyeing) are carried out in plants owned by Zara in Spain and similar to Benetton the labor intensive operations are sub-letted to contractors. Volume flexibility is maintained by Zara and their sub-contractors using a single shift system.

Retail:

This working is almost similar between all stores.H&M stores have average size of 1300 sq.m and are owned and managed by themselves. Zara stores are smaller compared to H&M with 800 sq.m size. The Benetton shops on the other hand are 1300-1500 sq.m.Previously the stores used to be run by third parties as small shops. Though there is difference in size they all have similar aim of providing the customer with comfortable atmosphere to make them feel at home and allow them to buy what they want.

Benefits:

The retail brands were able to achieve a high level of integration using supply chain management. This allows them to quickly react to customers demand and be flexible with minimum stocks posssible.They were able to find the correct balance between fashion, price and quality(Each brand has their own sense of fashion, price and quality).The average supply lead time achieved was about3 weeks – 6 months. Of these 3 brands, Zara has achieved shortest lead times called as ‘catwalk to rack time’ which is as small as 15 days. This means that not a single garment in Zara store is older than two weeks. The designs are also not repeated and are produced in small batches. This ultimately forces customers to avoid delaying their purchase and visit the store frequently lead to increased profits. Effective Supply Chain Management has helped each of the company to become a global brand image in their own way while keeping their production costs low.

Suggestions:

In the manufacturing stage where the raw materials are supplied by different suppliers a star rating system can be used. In this procedure a 3 star is given to that supplier which has previous record of success on supply factors set by company itself. On contrary, no stars are given to them with whom company has had certain problems before. We can do this as shown in supplier calculation table below:

Value can be added to the retail industry by personalizing the needs of customer and improving customer service by using RFID technology. To automate the supply chain RFID can be used. This will help in labor reduction which accounts for about 50-80% of distribution costs. The benefits gained by implementation of RFID through supply chain can be clearly explained by figure given below:

(Tajima M 2007)

RFID can prove extremely useful in retail industry to control inventory efficiency and also as a theft protection service. (Michael K, McCathie L)

ERP

The most common and important problem involved in operations management is managing the vast amounts of data while performing it. It is extremely important that the information of each and every function done spread among the entire organization. This is what will enable them to make crucial decisions like when the activity to be done, by whom is and what is the capacity required. ERP-Enterprise Resource Planning is used to perform all the above said activities and overcome the problems arriving from them.

ERP is an intelligent IT system which integrates all parts and functions of an organization to plan and control activities required for operations management. This integration also allows for transparency among all parts of organization. ERP is a complex and difficult system to implement as it is basically designed to solve problems involving fragmentation of information. An ERP system almost forces everyone to forces everyone involved in an organization to change the way they used to do their job.

ERP automates the processes involved in all business operations right from taking of an order from the customer, delivering it and the billing process. In ERP, when an order is been taken by the company representative, he has full information of the customer like his credit rating and also the company’s. As ERP has a single database system the new order can be accessed by all the departments and when one department is finished with the order it is automatically transferred to the next department by ERP.The location of the order can also be easily tracked using a ERP system. The ERP system make the order processing faster and the customer receive them quickly with fewer errors.

The key success factors required for successful ERP implementation are:

Top level management support and commitment

Clear vision and proper planning

Having a Project champion

A set time frame to deliver the implementation strategy

Project and change management

Proper IT infrastructure and selecting the right ERP package

Maintaining healthy relationship with the Consultant

Risk management

The investment required for buying and implementing the software is very high.

This can be proved by the survey conducted by the META group on the Total cost of ownership of ERP involving all costs like software, hardware and all staff cost. The highest Total Cost of Ownership was of about $300 million and lowest was $400,000.the average price for user of ERP for period of two years was a massive $53,320.which proves ERP is expensive.

Some of the risks involved with ERP implementation are:

The chances of under estimating the overall cost are high

The training and the expertise level required from the consultants will be more than expected.

Under estimation of effort and time required.

The project scope can be difficult to control and the need for change management may not be recognized on time

3. A case study conducted at Rolls-Royce investigating the implementation of ERP (SAP):

In this case study, the Introduction and background of company along with the changes observed by them after the implementation of ERP is discussed. The risks involved with implementation of SAP are also presented.

Reasons For implementation:

Rolls-Royce returned back to private sector in 1987 and started acquisition of companies which enabled them to consolidate their position in industrial power .The basic reason for implementing ERP was to sort out centralized database from old legacy MRP2 systems. Before ERP, Rolls-Royce had as many as 1500 systems which were developed internally. The operation of these legacy systems was expensive maintenance was equally difficult. They did not assist for accurate and good decision making as they were unable to provide accurate accessible data. The systems implemented were unable to communicate between individual sites. The tracking of the work in progress between sites was inaccurate and causing inventory problems. The legacy systems were unable to communicate direct with suppliers and customers. (Yahaya Y, Gunasekaran A, Abthorpe M S 2004).

Rolls-Royce then decided to outsource its IT department to EDS.This allowed Rolls-Royce to concentrate on its main area of expertise which was developing and manufacturing aero-engines. A team of specialists from EDS-the outsourcing firm was assigned the task of implementing ERP project which also had SAP consultants in their team. The team was well equipped with managers and staff that had crucial knowledge of old legacy systems understanding of cross functional business relationships. Yahaya Y, Gunasekaran A, Abthorpe M S 2004).

Although the new systems implemented were better than most of the legacy systems they were not fully appreciated as the older ones. The team decided to overcome this problem by conducting seminars for the staff and explaining them the improvements the new systems have made to company. Training was given to about 10000 people through demonstrations, meetings and presentations.

Strategy and direction:

For the project, Rolls-Royce required over 100 personal computers and the total cost incurred was two million pounds. The scope and the outline plan for the project were made. A team was allocated to look over actual implementation process. After this a prototype was created and installed. This prototype model was based on Rolls-Royce Allison model. In this stage following activities were carried out:

Reviewing preliminary design: Here, strategy for designing and implementation was developed along with BPM (Business process model)

Development and customization of the vanilla prototype.

Reviewing of implementation and the technical operations.

Development of the systems and their conversions before they ‘Go-live’.

The main implementation stage was divided into two waves. The first wave got delayed by 6 months because

They wanted to provide more time for line organizations to prepare and clean up data.

To allocate time for pilot testing and system development.

To overcome difficulties faced with SAP usage.

Wave one-The main objective here was to replace all the old systems. In wave one new manufacturing system like SFDM’s were introduced. The pilot project of SAP suggested the end of wave one.

Wave second: In this wave the engine assembly was implemented. This wave lasted for one year in duration. The second wave was ended when new systems began showing positive results.

Enterprise Resource pilot:

This pilot system was a small scale system run for 3 months and number 4 shops was chosen as facility where transmissions and structure operations were centre of attention for company. The reason for this facility selection was its low production capacity of only 280 parts. The pilot system was used to demonstrate processes and procedures for businesses .They were also responsible for defining role for each member and demonstrate how to manage data transfers.

‘Go-live’

The problems encountered on ‘going live’ were:

They had user authorization issues like passwords, etc

The route cards were not there due to which work on shop floor was temporarily halted.

Transaction problems were observed and they were corrected by comparing old and new systems. The actual main pat of go-live system was difficult as the shear amount of data to be transferred from legacy systems was huge. To achieve this data was required to be kept in a state of stability for up to 10 weeks. The initial data like the list of suppliers was to be transferred and if any error occurred on old system they were recorded and passed on to the new system.MRP system was used to complete the go-love process which took 2 weeks time. After the go-live stage the old system were kept in view only mode which allowed comparisons to be done between new and old systems.

Project risks:

This project was involved with all the departments and ha its associated risks. These risks were tried to be overcomed by the ERP implementation team by maintaining a risk register. Some of the risks mentioned on the internet page of Rolls-Royce are:

If due to some reason there was no delivery or unavailability of the IT hardware.

Possibility of failure while loading the data or setting priorities on ERP.

The project would have significant impact on the accounts of the company at the year end.

Benefits:

The effectiveness of such a large scale IT project is often difficult to understand .The benefits achieved from such a huge project requires at least a year to become visisble.The most immediate and important benefits that was achieved was to make a promise to customer and deliver it on time. This led to improved customer satisfaction and boosts their confidence which would result in increased orders for the future. The ERP system improved the relationship within the supply chain where Electronic communications were used to make transactions easier. The ERP system made communications between all the parts of the business absolutely clear. The Rolls-Royce management gained a better sense of control over number of operations which resulted in continuous improvements. It made possible to have accurate and timely information about their customers, business partners and suppliers.

Suggestions:

The company for the future can create a large data warehouse. In this the data can be stored centrally and extracted from all different places like historical and external databases. The data can be stored in user friendly format which can be accessible by non-external users. This data warehouse will help in collecting all the new data and merge it with the old data.. The management of EIS (Enterprise Information system) to check its sustainability can be done to maximize the benefits gained from an ERP system.

TQM:

Quality is the only one of the five ‘operations performance criteria’ to have its own dedicated chapter in this book. There are two reasons for this. First, in some organizations a separate function is devoted exclusively to the management of quality. Second, quality is a key concern of almost all organizations.

High-quality goods and services can give an organization a considerable competitive edge. Good quality reduces the costs of rework, waste, complaints and returns and, most importantly, generates satisfied customers. Some operations managers believe that, in the long run, quality is the most important single factor affecting an organization’s performance relative to its competitors.

Case Study TQM Summary:

Rendall owned Preston graphics plant is located in Vancouver. Before, in March 2000 the plant was bought from Georgetown co-operation. This is a small-scale production plant of precision coated paper required in ink-jet printers. The precise coating was applied by coating machines after which they were cut into coated rods in conversion departments. They were then packed and shipped in small containers.

Scenario before Implementation:

The main customer of the plant was HP(Hewlett-Packard) and they were the one who pointed out the problems they were facing from the paper supplied to them. They were unable to curl the coated paper at low humidity conditions. This problem was noticed by HP personnel as there was no formal complaint made by Hp’s customers. The plant then hired a team which resolved the problem in the next 7-8 months. The process started producing in acceptable limits but this was due to the fact that they were only concerned about shipping the product within the specification limits. They had a culture which did not care about how close they were to the specification limits and eventually not be able to meet them. This resulted in the plant making loss of $2 million in a year even though they had buoyant sales. This was mainly due to lower productivity and high scrap and rework. To overcome them the management team hastily made a number of changes like increasing the speed of operation line to improve productivity. But still the process charts given by HP showed that the plant was not capable enough to satisfy their need for the next 3 generations.

The plant was then bought by Rendall which was not happy with the plants continuing losses and the important customer’s dissatisfaction (HP).The plant continued to have productivity and quality problems. The full extent of the problem was made visible to the Preston quality manager by the HP engineer in a meeting at Chicago. They clearly explained him the process control charts they had which were given to them by Preston themselves. They convinced the Preston manager that people at Preston were not giving importance to the data showed by process control charts otherwise they would have realized their quality problems.

The quality manager then decided to bring the plant under control. He along with his team then reviewed the decisions they made right from the start when the curl problem appeared and they adjusted the process. The team used a set of ‘shut-down rules’ which enabled the operations to halt a line if they thought the product they were making was of inferior quality. This resulted in throwing away almost 64 large size rolls and about $10000 worth of scrapped product.

The guidelines for shut down procedure were that they had to get rid of the defect and when that is done they are allowed to operate. This might cause the managers to tell the workers to improve their productivity but they would harshly criticize the workers if they were violating the quality process procedures. The two more change they implemented were:

Daily reviewing of the control chart data

The control chart data was then debated by the staff that was kept away from production while doing this.

There was uncertainty among quite a few due to no production but it was vital as it got all the 3 shift operators talking about quality issues and control chart data. This caused a positive atmosphere among the workers and boosted the morale of the shop floor team. It led to remarkable improvements on quality front and improved efficiency of plant. The further progressive action taken in quality management by the plant was the implementation of Statistical process control. Then they did zero-based assessment to bring the costs down by reducing labor costs. They began downsizing process. The less number in workforce means that they should produce good quality paper in the first place to avoid inspection process. The plant workforce then decided to develop a portfolio for the ideas of new product which would boost their confidence. The most significant idea was of protowrap in which the new print wrap was able to be repulped.

Benefits:

Preston Company made profits after Christmas of 2000 after a period of 2 years. Moreover, they had made such a progress that they were beginning to get noticed at corporate level. This caused HP (Hewlett-Packard) to ask them to bid for their new product. It had continuous three months of profits and they also received the new contract from HP. The plants new quality procedures and principles allowed them to produce products more economically. The most significant benefit Preston received by implementing TQM was that they were able to reverse the decision made by Rendall-their owners to shut them down. The plant not only survived but flourished due to implementation of Quality based principles.

Suggestions:

Implementing QMS(Quality Management System) having corrective actions:

This will be required when we encounter problems relating non-conformance of our supplier products. After faced with the problem, we must be able to locate the problem and find its root cause with immediate effect. This is done by (CAPA) corrective action items. The system implemented should be such that it should itself assess the cost of quality and try to initiate the recovery cost process with the supplier.

Involving suppliers in quality systems:

Suppliers should be encouraged to implement quality systems within their company so that they can easily reach the quality of products required and also save paying the recovering costs. (Metric Stream, 2010)