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Global and Southern African Perspectives

Operations

Management

3rd Edition

Nigel Slack, Alistair Brandon-Jones, Robert Johnston, Hemmanth Singh, Khomotso Phihlela

Pearson South Africa (Pty) Ltd 4th oor, Auto Atlantic Building, Corner of Hertzog Boulevard and Heerengracht, Cape Town, 8001

Ofces in Johannesburg, Durban, East London, Polokwane, Bloemfontein, Rustenburg and Mbombela.

website: za.pearson

Authorised adaptation from the original UK edition, entitled Operations Management 07 Edition (ISBN: 978-0-273-77620-8) by Slack, Brandon-Jones & Johnston, published by Pearson Education Limited © Nigel Slack, Stuart Chambers, Christine Harland, Alan Harrison and Robert Johnston 1995, 1998; Nigel Slack, Stuart Chambers and Robert Johnston 2001, 2004, 2007; Nigel Slack, Alistair Brandon-Jones and Robert Johnston 2014.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the copyright holder.

Every effort has been made to trace the copyright holders of material produced in this title. We would like to apologise for any infringement of copyright so caused, and copyright holders are requested to contact the publishers in order to rectify the matter.

First published in 1997 Second edition 2010 Third edition 2017

Print ISBN 978-1-775-78934- ePDF ISBN 978-1-775-95660-

Publisher: Lize Terblanche Editor: Alison Paulin Proofreader: Derika van Biljon Indexer: Ellen du Toit Book design: Natalie McCulloch Cover design: Lynn Siljeur Artwork: Damian Gibbs Typesetting: Natalie McCulloch Remediation and ePDF by Deon Schutte (Publishing Collective) Printed by

Acknowledgements Copyright holders of text and diagrams are acknowledged in the Chapter notes at the end of each chapter.

Photo credits page 7: Rainer Plendl/Shutterstock, Darren Baker/Shutterstock, Rob Marmion/Shutterstock, Blend Images/Alamy Stock, wavebreakmedia/Shutterstock; page 20: AfriPics/Alamy Stock Photo; page 80: Devin_Pavel/Shutterstock, mavo/Shutterstock; page 81: Tatyana Vyc/Shutterstock, Hamik/Fotolia, Mariusz Szczygiel/Shutterstock; page 82: Rawpixel/Shutterstock, michaeljung/Shutterstock, Autombluchunyu/Shutterstock

In line with Pearson’s editorial policy, this book has been peer reviewed.

Preface viii Guided tour of the book x How to use this book xii How to use the QR codes in this book xiii About the authors xiv

Part One INTRODUCTION

1 Operations management 2

Key questions 3 Operations in practice: Woolworths – driven by customer needs and wants 3 What is operations management? 5 Operations management is important in all types of organisation 7 The input–transformation–output process 11 The process hierarchy 14 Operations processes have different characteristics 18 What do operations managers do? 22 Summary answers to key questions 24 Case study: Digicape – synergy rules in ICT delivery 25 Problems and applications 26 Chapter notes 27 Selected further reading 27 Useful websites 27

2 Operations performance 28

Key questions 29 Operations in practice: A tale of contrasting efciencies 29 Operations performance is vital for any organisation 31 Why is quality important? 38 Why is speed important? 39 Why is dependability important? 40 Why is exibility important? 41 Why is cost important? 43 Trade-offs between performance objectives 47 Summary answers to key questions 49 Case study: Sun City – improving operations performance to enhance guest experience 50 Problems and applications 52 Chapter notes 53 Selected further reading 53 Useful websites 53

3 Operations strategy 54 Key questions 55 Operations in practice: Sibanye Gold and Shoprite Holdings 55 What is strategy and what is operations strategy? 56 The top-down and bottom-up perspectives 58 The market requirements and operations resources perspectives 60 How can an operations strategy be put together? 67 Summary answers to key questions 69 Case study: Kalahari – expanding the core by breaking down perceptions 70 Problems and applications 71 Chapter notes 72 Selected further reading 72 Useful websites 72

Part Two DESIGN

4 Process design 74

Key questions 75 Operations in practice: Abantwana Bethu: Helping children in distress 75 What is process design? 76 What objectives should process design have? 77 Process types – the volume–variety effect on process design 79 Detailed process design 86 The effects of process variability 92 Summary answers to key questions 94 Case study: Efekto – making seasonal changes 95 Problems and applications 96 Chapter notes 97 Selected further reading 97 Useful websites 97

5 Innovation and design in services and products 98

Key questions 99 Operations in practice: Disruptive products and designs 99 How does innovation impact on design? 100 Why is good design so important? 102 The stages of design – from concept to specication 103 What are the benets of interactive design? 111

Contents

Case study: The RDP – getting the design right,

Part Three DELIVER – PLANNING AND CONTROLLING

Part Four

Part Five CORPORATE SOCIAL RESPONSIBILITY

Summary answers to key questions
- or wrong?
Problems and applications
Chapter notes
Selected further reading
Useful websites
6 Supply network design
Key questions
- more by outsourcing Operations in practice: Pledge Insure – covering
The supply network perspective
Conguring the supply network
Where should an operation be located?
Long-term capacity management
Summary answers to key questions
Case study: Economies of scale in shipping
Problems and applications
Chapter notes
Selected further reading
Useful websites
Supplement to Chapter 6 Forecasting
Forecasting – knowing the options
In essence forecasting is simple
Approaches to forecasting
Chapter notes
Selected further reading
7 Layout and ow
Key questions
- supermarket prots Operations in practice: Layout and ow impact
What is layout?
The basic layout types
What type of layout should an operation choose?
- in detail? How should each basic layout type be designed
Summary answers to key questions
- banking should be easier Case study: Future Progress Bank – because
Problems and applications
Chapter notes
Selected further reading
Useful websites
8 Process technology
Key questions
Operations in practice: I, Robot
- process technology What operations managers need to know about
  - How are process technologies evaluated?
  - How are process technologies implemented?
  - Summary answers to key questions
  - Case study: Prochem Ltd
  - Problems and applications
  - Chapter notes
  - Selected further reading
  - Useful websites
  - 9 People, jobs and organisation
  - Key questions
    - people as much as products Operations in practice: Unilever SA – about
  - People in operations
  - Human resource strategy
  - Organisation design
  - Job design
  - Allocating work times
  - Summary answers to key questions
  - Case study: Service Adhesives try again
  - Problems and applications
  - Chapter notes
  - Selected further reading
  - Useful websites
  - Supplement to Chapter 9 Work study
  - Method study in job design
  - Work measurement in job design
  - Chapter notes
  - 10 The nature of planning and control OPERATIONS
  - Key questions
    - organised to manage a workshop’ Operations in practice: ‘You have to be super-
  - What is planning and control?
  - The difference between planning and control
    - and control The effect of supply and demand on planning
  - Planning and control activities
  - Summary answers to key questions
    - and tracking Case study: CGI – A learning curve in planning
  - Problems and applications
  - Chapter notes
  - Selected further reading
  - Useful websites
17 Quality management
Key questions
- Groot Constantia Operations in practice: Quality saves
What is quality and why is it so important?
How can quality problems be diagnosed?
Conformance to specication
Total quality management (TQM)
Summary answers to key questions
Case study: What a giveaway
Problems and applications
Chapter notes
Selected further reading
Useful websites
- control (SPC) Supplement to Chapter 17 Statistical process
Control charts
Variation in process quality
Control charts for attributes
Control chart for variables
Process control, learning and knowledge
Summary
Selected further reading
Useful websites
18 Operations improvement IMPROVEMENT
Key questions
- envelope Operations in practice: Merpak – pushing the
- management? Why is improvement so important in operations
The key elements of operations improvement
The broad approaches to managing improvement
What techniques can be used for improvement?
Summary answers to key questions
Case study: GCR Insurance
Problems and applications
Chapter notes
Selected further reading
Useful websites
19 Risk management
Key questions
- human error or violation? Operations in practice: Durban mall collapse –
What is risk management? - from failure Assessing the potential causes of and risks arising - Preventing failure - failure? How can operations mitigate the effects of - the effects of failure? How can operations recover from - Summary answers to key questions - Case study: Slagelse Industrial Services (SIS) - Problems and applications - Chapter notes - Selected further reading - Useful websites - 20 Organising for improvement - Key questions - Service takes a single view Operations in practice: South African Revenue - Why the improvement effort needs organising - Linking improvements to strategy - What information is needed for improvement? - What should be improvement priorities? - improvement? How can organisational culture affect - Key implementation issues - Summary answers to key questions - Case study: The Thorn Tree Hotel - Problems and applications - Chapter notes - Selected further reading - Useful websites - responsibility (CSR) 21 Operations and corporate social - Key questions - Operations in practice: Marmite’s energy recycling - What is corporate social responsibility? - The wider view of corporate social responsibility - issues? How can operations managers analyse CSR - Summary answers to key questions - Case study: CSR as it is presented - Problems and applications - Chapter notes - Selected further reading - Useful websites - Index

viii

Preface

Introduction

Operations management is important. It is concerned with creating the products and services upon which we all depend, and creating products and services is the very reason for any organisation’s existence, whether that organisation be large or small, manufacturing or service, for prot or not for prot. Thankfully, most companies have now come to understand the importance of operations. This is because they have realised that effective operations management gives the potential to improve revenues and, at the same time, enables goods and services to be produced more efciently. It is this combination of higher revenues and lower costs that is understandably important to any organisation. In South Africa particularly there is a new view of the crucial need for service delivery. Operations management is also exciting. It is at the centre of so many of the changes affecting the business world: changes in customer preference, changes in supply networks brought about by internet-based technologies, changes in what we want to do at work, how we want to work, where we want to work, and so on. There has rarely been a time when operations management was more topical or more at the heart of business and cultural shifts. Operations management is also challenging. Promoting the creativity that will allow organisations to respond to so many changes is becoming the prime task of operations managers. It is they who must nd the solutions to technological and environmental challenges, the pressures to be socially responsible, the increasing globalisation of markets, and the difcult-to-dene areas of knowledge management.

The aim of this book

This book aims to provide a clear, well structured and interesting treatment of operations management as it applies to a variety of businesses and organisations. The text provides both a logical path through the activities of operations management and an understanding of their strategic context. In this third southern African edition there are more regionally-appropriate case studies and more worked examples.

More specically, this text aims to be:

strategic in its perspective – it is unambiguous in treating the operations function as being central to competitiveness
conceptual – in the way it explains the reasons why and how operations managers need to take decisions
comprehensive – in its coverage of the signicant ideas and issues relevant to most types of operation across all sectors
practical – examines the issues and difculties in making operations management decisions in practice: the operations in practice feature, short cases, case studies and examples all explore the approaches taken by operations managers in practice
international – although this edition incorporates many more local examples to illustrate and emphasise the applicability of operations management concepts in this region, it still deliberately retains global examples from elsewhere in the world
balanced in its treatment – the balance of economic activity between service and manufacturing operations and between the public and the private sectors are reected, although there are far more service industry examples than manufacturing, which is a truer reection of the changing economies in the southern African region.

Guided tour of the book

Not everyone agrees about the best approaches to operations management. To help provoke debate, Critical commentaries have been included to show a diversity of viewpoints. QR codes provide links to online resources, including video clips, readings and illustrative cases.

Operations management involves the use of both qualitative and quantitative techniques. Worked examples are used to demonstrate how these techniques can be used. Additionally, Short cases will help to consolidate your learning of major themes.

Each chapter starts with an introductory explanation followed by a diagram that demonstrates the relevance of the topic to operations management.

Key questions are introduced in tandem with examples of Operations in practice that bring to life the operational issues faced by real businesses.

Chapter 2 OPERATIONS PERFORMANCE

INTRODUCTION Operations are judged by the way they perform. However, there are many ways of judging performance and there are many different individuals and groups doing the judging. So in this chapter we start by describing a very broad approach to measuring operations performance that uses the ‘triple bottom line’ to judge an operation’s social, environmental and economic impact. We also introduce the related ideas of the operation’s ‘stakeholders’, and how they judge performance, and corporate social responsibility (CSR, a topic that is treated in far more detail in Chapter 21). The chapter then looks at the more directly operations-related aspects of performance – quality, speed, dependability, exibility, and cost. Finally we examine how performance objectives trade off against each other. On our general model of operations management the topics covered in this chapter are represented by the area marked on Figure 2.

FIGURE 2 This chapter covers the role and strategic objectives of operations management

Topic coveredin this chapter

competitive roleThe operation’s Operationsstrategy and position

and controlPlanning

ImprovementDesign

The operation’sstrategic objectives Operationsstrategy managementOperations

Chapter 10 The nature of planning and control 233 KEY QUESTIONS ■ What is planning and control? ■ What is the difference between planning and control? ■ How do supply and demand affect planning and control? ■ What are the activities of planning and control?

David Sithole has been a motor vehicle workshop manager for 15 years. He started work as a mechanic on the workshop oor when he was 19, but the workshop manager quickly noticed his gift for managing people. helped me become a senior mechanic, and then promoted David says, ‘ I was lucky. My boss saw that I had talent and me to supervisor. Later, he helped me do some management courses. Without those qualications, I could never do this job. He denitely taught me the importance of mentorship, which I’m now able to put into practice with my staff .’ So, what does David’s job as a workshop manager entail?‘ This is a service business and the customer is king. But, I have to look after my staff as well and of course I have to look after the business too, by running within budget. I’m always looking for ways to work more efciently and save money, without compromising the standard of work we do here. It’s one big balancing act As a workshop manager, David has to deal with both .’ routine servicing and repairs on customers’ vehicles. The routine services are generally not urgent and customers are happy to book these in advance. However, repairs as a result of accidents or breakdowns are unexpected and customers want these done as soon as possible. This makes scheduling of work quite complex and David sometimes feels there are not enough hours in a day. In addition, the company’s pre-owned vehicles have to be checked and sometimes repaired before they can be sold. ‘ Fortunately the pre-owned checks are not quite as deadline- driven. We can generally t these into the day whenever there’s time ,’ says David. ‘ But, there’s always something unexpected to deal with and sick leave or public holidays can play havoc with our schedules! ’ it is booked in advance, but sick and family leave are more Annual leave can be factored into the schedule because difcult to deal with. If one or more mechanics is off on any day, this puts a lot of pressure on the remaining staff; David has to ensure that they work as efciently as possible, while

maintaining a high standard. Public holidays just have to be factored into the overall schedule in advance. Staff training and regular meetings also have to be tted into an already busy schedule. mechanics in the workshop. Some of them have been with us ‘ This falls under workshop capacity planning. We have 12 for years and I can rely on them to work quickly and deal with unexpected issues effectively. But, I also have a few trainee mechanics. Most of them can work independently when it comes to routine maintenance, but they sometimes need help if with more complex or new problems. Their work also needs to be checked, which takes extra time. ‘ Most of the spare parts we use regularly are in stock in the ‘The availability of spares also affects scheduling ,’ says David. Spares Department, but if we need something unusual, we have to order it. Sometimes we have to wait for a day or two before we can complete the repair. Then it’s my job to make sure the customer knows about the delay. Communicating with customers is a major part of my job.‘I also manage the drivers. We have two drivers on standby to pick up and drop off customers. They can get really busy if you think that on an average day we service at least 50 vehicles. It’s especially busy in the morning, when we have a lot of people dropping their cars off and needing to get to work, which could be anywhere in a 30 km radius.‘Another part of my job is reporting. I have to prepare internal workshop reports for management. They want to know exactly what’s happening in the workshop, whether it’s the condition of the equipment we use here, our running expenses, or the number of vehicles we service in a day. I don’t always enjoy all the admin and paperwork, but it certainly helps me understand and do my job well. workshop has to be aware of personal safety at all times. They ‘Safety is also important. Everyone who works in the also need to look after the vehicles in their care, or we’d quickly lose our good reputation. My job isn’t easy, but I really enjoy the daily challenges and variety. ’

Operations in practice ‘You have to be super-organised to manage a workshop’

270 Part Three Deliver – planning and controlling operations

Worked example In a typical 7-day period, the planning department programme a particular machine to work for 150 hours – its loading time. Changeovers and set-ups take an average of 10 hours and breakdown failures average 5 hours every 7 days. The time when the machine cannot work because it is waiting for material to be delivered from other parts of the process is 5 hours on average and during the period when the machine is running, it averages 90 per cent of its rated speed. Three per cent of the parts processed by the machine are subsequently found to be defective in some way. maximum time available == 7 168 hours× 24 hours loading time availability losses == 150 hours 10 hours (set-ups) + 5 hrs (breakdowns) so, total operating time == 15 hours loading time – availability == 150 hours 135 hours– 15 hours speed losses == 5 hours (idling) 18 hours + ((135 – 5) × 0)(10% of remaining time) so, net operating time == total operating time 135 – 18 – speed losses Quality losses == 117 hours 117(net operating time) × 0(error rate) so, valuable operating time == 3 hours net operating time – quality losses == 117 113 hours– 3. therefore, availability rate = a = Total operating timeLoading time = 135150 = 90% and performance rate = p = Total operating timeNet operating time = 117150 = 86% and quality rate = q = Valuable operating timeNet operating time = 113 117 = 97% OEE = a × p × q = 75%

SHORT CASE London Eye continues to draw visitors 2 George Ferris’s original Big Wheel premiered at the World’s Columbian Exposition in Chicago in 1893. Since then, the Ferris wheel, as it became known, has been a popular showground, fair and exhibition attraction. Ferris wheel as an observation wheel was set up in 1999 The London Eye, a millennial reinvention of the traditional and launched in 2000 on the banks of the River Thames. The London Eye is currently Europe’s tallest cantilevered observation wheel at 135 metres, with a carrying capacity of 800. The wheel has a diameter of 120 metres and attracts millions of visitors per year. In August 2013, the London Eye

welcomed its 50 millionth visitor when three generations of the Anderson family from the US and UK were treated to a special Champagne Experience in their own private capsule part-owned by British Airways and now sponsored by Coca-Cola, the London Eye has become part of London’s skyline and a major tourist attraction for the city. There are 32 climate-controlled passenger capsules, each holding up to 25 people. The wheel rotates continuously at ‘twice the speed of a tortoise sprinting’ according to the website. The wheel is, however, stopped to allow disabled passengers longer access. A complete rotation takes ➤

Chapter 2 Operations performance 37 most recent (King III) in 2009. The aim of the committee and its reports has been to promote better corporate governance in South Africa, to assure and demonstrate to domestic and international stakeholders, including international investors, that South Africa is committed to best practice in corporate governance. increasing importance, both from an ethical and a commercial point of view. It is treated again at The issue of how CSR objectives can be included in operations management’s activities is of various points throughout this text (and the nal chapter, Chapter 21, is devoted entirely to the topic).

Critical commentary The dilemma with using this wide range of triple bottom line, stakeholders, or CSR to judge operations performance is that organisations, particularly commercial companies, have to cope with the conflicting pressures of maximising profitability on one hand, with the expectation that they will manage in the interests of (all or part of) society in general with accountability and transparency. Even if a business wanted to reflect aspects of performance beyond its own immediate interests, how is it to do it? According to Michael Jensen of Harvard Business School, ‘ At the economy-wide or social level, the issue is this: If we could dictate the criterion or objective function to be maximised by rms (and thus the performance criterion by which corporate executives choose among alternative policy options), what would it be? Or, to put the issue even more simply: How do we want the rms in our economy to measure their own performance? How do we want them to determine what is better versus worse?’ 5 He also holds that using stakeholder perspectives gives undue weight to narrow special interests who want to use the organisation’s resources for their own ends. The stakeholder perspective gives them a spurious legitimacy which ‘ undermines the foundations of value-seeking behaviour’****. The ve operations performance objectives Triple bottom line, stakeholder and CSR objectives form the backdrop to operations decision making, but running operations at an operational day-to-day level requires a more tightly dened set of objectives. These are the ve basic ‘performance objectives’ and they apply to all types of operation. Imagine that you are an operations manager in any kind of business – a hospital administrator, for example, or a production manager at a car plant. What kind of things are you likely to want to do in order to satisfy customers and contribute to competitiveness? - You would want to do things right would want to satisfy your customers by providing error-free goods and services which are ‘t – that is, you would not want to make mistakes, and - for their purpose’. This is giving a quality advantage. You would want to do things fast – minimising 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 If the operation can do this, it is giving a dependability advantage. – so as to keep the delivery promises you have made. - You would want to be able to change what you do adapt the operation’s activities to cope with unexpected circumstances or to give customers – that is, being able to vary or individual treatment. Being able to change far enough and fast enough to meet customer requirements gives a exibility advantage. - You would want to do things cheaply enables them to be priced appropriately for the mar – that is, produce goods and services at a cost whket while still allowing for a return to the ich organisation; or, in a not-for-prot organisation, is funding the operation. When the organisation is give good value to the taxpayers or whoever managing to do this, it is giving a cost advantage. The at what they mean for four different operations: a general hospital, an automobile factory, a city next part of this chapter examines these ve performance objectives in more detail by looking bus company and a supermarket chain.

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

quickto/PEA-CSR

PEA-CSR SMS to 40939

Guided tour of the book xi

432 Part Three Deliver – planning and controlling operations

Summary answers to key questions

What is project management?

A project is a set of activities with a dened start point and a dened end state, which pursues a dened goal and uses a dened set of resources.
All projects can be characterised by their degree of complexity and the inherent uncertainty in the project.
Project management is the activity of planning and controlling projects.• Project management has ve stages, four of which are relevant to project planning and control: understanding the project environment; dening the project; planning the projcontrol); and project control. ect; technical execution of the project (not part of project planning and How are projects planned and controlled?
It is important to understand the environment in which a project takes place for two reasons. Firstly, the environment inuences the way a project is carried out, often through stakeholder activity. Secondly, the nature of the environment in which a project takes place is the main determinant of the uncertainty surrounding it.
Projects can be dened in terms of their objectives(the exact range of the responsibilities taken on by project management), and strategy (how project ma (the end state which project management is trying nagement is going to achieve), scope
Project planning involves ve stages:to meet the project objectives).
identifying the activities within a project• estimating times and resources for the activities
identifying the relationship and dependencies between the activities• identifying the schedule constraints
xing the schedule. What is network planning?
Network planning and Gantt charts are the most common project management techniques. The former (using either the activity on arrow or activity on node format) is particularly useful for assessing the total duration of a project and the degree of exibility or oat of the individual activities within the project. The most common method of network planning is called the critical path method (CPM).
The logic inherent in a network diagram can be changed by resource constraints.• Network planning models can also be used to assess the total cost of shortening a project where individual activities are
The process of project control involves three sets of decisions: how to monitor the project in order to check its progress; how shortened. to assess the performance of the project by comparing monitored observations to the project plan; and how to intervene in the project in order to make the changes which will bring it back to plan.
Enterprise project management systems can be used to integrate all the information needed to plan and control projects.

174 Part Two Design Case study Future Progress Bank – because banking should be easier An important aspect of the design function of operations management is process design. Process design, as you should be aware, involves the way in which everything happens within an organisation, including communication channels, as well as how products and services are designed and delivered. A critical component of process design therefore is layout and ow because it is layout and ow that – by and large – determine how streamlined and thus how effective and efcient an organisation’s business operations are. Future Progress Bank learned this simple truth when facing the challenge of how to grow its business within constrained market conditions. are two central aims:At the heart of Future Progress Bank’s corporate strategy

Place customers and clients at the core: Deliver superior customer and client service and make customers’ lives much easier through innovation and value-for-money products.
Broaden the product and services platform: Enable simultaneous growth, scale and efciency, underpinned by customer and client demands, and mitigated by risk management. These two aims coincide with the central purpose of Future Progress Bank’s business model: Its customers and clients form the focal point of its goal and centrally drive its purpose. However, in order to deliver on its strategy and thus its aims, Future Progress Bank is cognisant of the risks and opportunities that require management and oversight. Identifying and addressing the risks and opportunities the bank believes is fundamental to its long-term sustainability; and to do so it uses a three-pronged approach. As the bank’s COO puts it, ‘ We rst discover and raise issues, then assess and prioritise these issues and nally, we dene our responses and measure our performance .’ in 2013 was ‘rising customer and client expectations.’ In One of the main issues that Future Progress Bank identied order to engage with customers and clients in terms of their rising expectations, Future Progress Bank put in place a broad-based customer experience programme that included surveys and focus groups; corporate websites and social media that allowed digitised interactions and feedback; complaints management processes; face-to-face interactions; and customer forums and relationship managers. Three key issues emerged from this process. Customers and clients complained rstly about the cumbersome processes it took in obtaining home loans and credit nance for large purchases, such as motor vehicles. Secondly, they took exception to how protracted and time-consuming the process was; and thirdly, they felt disrespected by the lack of transparency and feedback involved in the process. Although home loans and credit nance for large purchases

are heavily regulated by the National Credit Act and the Consumer Protection Act, Future Progress Bank immediately prioritised an investigation into the design of the layout and ow in its mortgage processing and credit application centres. Its intention in this respect was to grow its customer and client base by improving the ease and convenience of banking. It noted that the processes involved in home loan and credit nance applications were divided into four, mainly paper-based functions that lacked articulation and cohesion. These functions were made up of bank staff in separate sub-departments:

Sub-department 1 manually keyed in application data into a computer and then printed out the documents and put them in a cardboard folder, which was physically taken to sub-department 2.
Sub-department 2 carried out initial credit checks by emailing and phoning relevant entities and then printed out all the reports and placed them in the same cardboard folder, which was physically taken to sub-department 3.
Sub-department 3 reviewed all the documents in the cardboard folder and, based on the ‘creditworthiness’ of the applicant, made a decision whether or not to approve the application. In the case of a rejection, the cardboard folder was physically taken back to sub-department 1 where a rejection letter was typed on a computer, printed out, placed in an envelope and posted to the applicant, using the regular postal service. In the case of an approval, sub-department 3 wrote a motivation on a computer, printed it out, and placed it in the cardboard folder, which
Sub-department 4 then completed all the legal work, was physically taken to sub-department 4. such as drawing up the contracts (typing them on a computer), and then printed them out, placed them in the same cardboard folder and physically took the folder back to sub-department 1. Sub-department 1 then typed an approval letter on a computer, printed it out, placed it in an envelope and posted it to the applicant, again using the postal service. Applicants were also telephoned to inform them of the approval and to indicate that once they had received the approval letter, they should phone the bank to make an appointment to see the manager in order to sign the contract. This four-stage, largely paper-based, process took approximately three months to complete. Once the ndings of its investigation were presented at board level, where they were weighed up against the bank’s strategic ambitions and business model, including its long-term sustainability, reputation management and risk factors in terms of the likelihood of potential losses, specic actions were identied and implemented to ensure an appropriate response to ➤

Chapter 14 Enterprise resource planning (ERP) 369

Chapter notes Reproduced with the kind permission of the following:1 African Oxygen Limited, afrox.co/en/about_afrox/corporate_ history/2000_2007/index; afrox.co/internet.global.corp.zaf/en/images/AnnualReport_2008266_27598.pdf; jse.co/ content/JSEAnnualReportsItems/20140429-African%20Oxygen%20LTD%20-%20Integrated%20Report 2 Wight, O. (1984) Manufacturing Resource Planning: MRP II, Oliver Wight Ltd. 3 Koch, C. and Wailgum, T. (2007) ERP denition and solutions, cio

4 Based on a review of the research in this area by Finney, S. and Corbett, M. (2007) ERP implementation: a compilation and analysis of critical success factors, 329–347. Business Process Management Journal 13(3) 5 Turbit, N. (2005) ERP implementation – the traps, The Project Perfect White Paper Collection, projectperfect.com/downloads/Info/ info_erp_imp

Problems and applications 1 Your company has developed a simple, but amazingly effective mango peeler. It is constructed from a blade and a supergrip handle that has a top piece and a bottom piece. The assembled mango peeler is packed in a simple recycled card pack. All the parts simply clip together and are bought in from suppliers, who can deliver the parts within one week of orders being placed. Given enough parts, your company can produce products within a day of rm orders being placed. Initial forecasts indicate that demand will be around 500 items per week.(a) Draw a component structure and bill of materials for the mango peeler. (b) Develop a master production schedule for the product.(c) Develop a schedule indicating when and how many of each component should be ordered (your scheduler tells you that the economic order quantity, EOQ, for all parts is 2,500). 2 The mango peeler described above was a huge success. Demand is now level at 800 items per week. You now have also developed two further products, a melon baller and a passion fruit pulper. Both new products use the same handle, but have their own specially designed end-piece and pack. Demand for the new products is expected to be 400 items each per week. Also your suppliers have indicated that, because of the extra demand, they will need two weeks to deliver orders. Similarly, your own assembly department is now taking a week to assemble the products.(a) Draw new component structures and bills of material for the new products. (b) Develop a master production schedule for all the products.(c) Develop a schedule indicating when and how many of each component should be ordered. 3 Using a cookery book, choose three similar, fairly complex, recipe items such as layered and decorated gateaux (cakes) or desserts. For each, construct the indented bill of materials and identify all the different materials, sub-assemblies and nal products with one set of part numbers (i. no duplication). Using the times given in the recipes (or your own estimates), construct a table of lead times (e. in minutes or hours) for each stage of production and for procurement of the ingredients. Using these examples (and a bit of your own imagination!), show how this information could be used with an MRP system to plan and control the batch production processes within a small cake or dessert factory making thousands of each product every week. Show part of the MRP records and calculations that would be involved. 4 (needed to plan and control the most important day-to-day operations and nances of a large university or college. In Advanced ) Working in a small study group, construct a model of the information systems that you think would be particular, identify and include at least three processes that cross departmental and functional boundaries, and show how ERP might be used to improve the quality, speed, dependability, exibility, and/or costs of such processes. Then discuss: (a) If ERP is not already in use at your chosen organisation, should it be introduced, and if so why? What would the difculties be in doing this, and how could they be overcome? (b) If ERP is already in use, what advantages and disadvantages are already apparent to the staff (e. ask a lecturer, an administrator, and a support services manager, such as someone who runs cleaning or catering services).

Chapter 2 Operations performance 53 Chapter notes Reproduced with the kind permission of the following:1 Eskom, eskom.co/Whatweredoing/NewBuild/ MedupiPowerStation/Pages/Medupi_Power_Station_Project; eskom.co/Whatweredoing/NewBuild/MedupiPowerStation/ Documents/BROCHUREmedupipowerstationproject; http://www.n24/Economy/Eskom/Zuma-ofcially-unveils-Medupi- Unit-6-20150830; Laubscher, J. (2013) Economic growth in South Africa: a 20-year review, Moneyweb , 10 December, moneyweb. co/archive/economic-growth-in-south-africa-a-20year-review/; Education and Training Unit for Democracy and Development, Basic Services, etu.org/toolbox/docs/government/basic.html; bdlive.co/business/energy/2014/02/21/medupi-to- start-producing-power-soon-says-eskom; Jeffreys Bay Wind Farm, jeffreysbaywindfarm.co/about-jeffreys-bay-wind-farm/technical- fact-sheet/; engineeringnews.co/article/afrisams-quick-and-efcient-cement-delivery-helps-jeffreys-bay-windfarm-team-achieve- 2 The phrase ‘the triple bottom line’ was rst used in 1994 by John fast-turnaround-times-2014-02- Elkington, the founder of a British consultancy called SustainAbility. Read Elkington, J. (1997) Cannibals with Forks: The Triple Bottom Line of 21st Century Business, Capstone: Oxford. Also good is Savitz,

A. and Weber, K. (2006) The Triple Bottom Line: How Today’s Best-Run Companies Are Achieving Economic, Social and Environmental 3 World Bank (©2008) The International Bank for Reconstruction and Success and How You Can Too, Jossey-Bass, San Francisco, CA Development/World Bank Independent Evaluation Group, World Bank, Environmental Sustainability: An Evaluation of World Bank 4 European Commission. (2001) Promoting a European framework for Group Support corporate social responsibility (CSR). Brussels: European Commission; European Commission (nd) Corporate Social Responsibility, Brussels: European Commission, ec.europa/growth/industry/corporate-social-responsibility/ 5 Jensen, M. (2001) Value Maximization, Stakeholder Theory, and the Corporate Objective Function, Journal of Applied Corporate Finance , 6 Source consulted: Marlinson, C. (2006) The Golden Hour, 14(3) 7–21 Sunday 7 Sun International, suninternational; places.co/ Times , 21 September accommodation/sun-city-cabanas; sun-city-south-africa; booking/hotel/za/the-cabanas-at-sun-city.html, ; Go2Africa Selected further reading Bourne, M., Kennerley, M. and Franco, M. (2005) through measures: a study of the impact on performance, Managing Journal of Manufacturing Technology Management particularly section on what it says on the tin., 16(4), 373–395. Note Kaplan, R. and Norton, D. (2005) that drive performance, Harvard Business Review The balanced scorecard: measures , Jul/Aug. The latest pronouncements on the Balanced Scorecard approach (which we cover in Chapter 18). Neely, A. (2012) and Integrating Practice, Cambridge University PresBusiness Performance Measurement: Unifying Theory s, Cambridge. A collection of papers on the details of measuring performance objectives.

Pine, B. (1993) Press, Boston, MA. The rst substantial work on the idea of mass Mass Customization, Harvard Business School Savitz, A. and Weber, K. (2006) customisation. Still a classic. The Triple Bottom Line: How Today’s Best-Run Companies Are Achieving Economic, Social and Environmental Success – and How You Can Too, Jossey-Bass, San Waddock, S. (2003) Francisco. Good on the triple bottom line performance implications of corporate responsibility, 5(2–3), 114–124. An introduction to stakeholder analysis. International Journal of Business Performance Management , Useful websites operationsroom.wordpress topical operations stories. Stanford University’s take on iomnet.org of the main professional bodies for the subject Institute of Operations Management site. One poms management. Academic, but some useful material, including a link to A US academic society for production and operations weforum an encyclopedia of operations management terms issues, including some operations strategy material.

https//sites.google/site/tomiportal/home established portals for the subject. Useful for academics and students One of the longest- ft alike. Good for researching topics and companies. economist material on business generally Economist’s site, well written and interesting worldbank strategy research issues. Useful for international operations

Every chapter ends with Chapter notes that provide sources, a list of Selected further reading and Useful websites. The nature of each further reading title and website is explained.

The Problems and applications section questions business decisions and challenges you to resolve potential operational pitfalls. The short exercises, often involving some investigative work, can be tackled in groups or individually.

Each chapter is summarised in the form of answers to the key questions posed at the beginning of the chapter.

Each chapter ends with a Case study that illustrates the subject matter, which can be used as the basis of class discussion.

xiii

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How to use the QR codes in this book

xiv

Nigel Slack is the Professor of Operations Management and Strategy at Warwick University. Previously he has been Professor of Service Engineering at Cambridge University, Professor of Manufacturing Strategy at Brunel University, a University Lecturer in Management Studies at Oxford University, and Fellow in Operations Management at Templeton College, Oxford. He worked initially as an industrial apprentice in the hand-tool industry and then as a production engineer and production manager in light engineering. He holds a Bachelor’s degree in Engineering and Master’s and Doctor’s degrees in Management, and is a Chartered Engineer. He is the author of many books and papers in the operations management area, including The Manufacturing Advantage, published by Mercury Business Books, 1991; Making Management Decisions (with Steve Cooke), 1991, published by Prentice Hall; Service Superiority (with Robert Johnston), published in 1993 by EUROMA; Cases in Operations Management (with Robert Johnston, Alan Harrison, Stuart Chambers and Christine Harland) third edition published by Financial Times Prentice Hall in 2003; The Blackwell Encyclopedic Dictionary of Operations Management (with Michael Lewis) published by Blackwell in 2005; Operations Strategy together with Michael Lewis, the third edition published by Financial Times Prentice Hall in 2011; Perspectives in Operations Management (Volumes I to IV) also with Michael Lewis, published by Routledge in 2003; and Operations and Process Management, with Alistair Brandon-Jones, Robert Johnston and Alan Betts, now in its third edition, 2012. He has authored numerous academic papers and chapters in books. He also acts as a consultant to many international companies around the world in many sectors, especially nancial services, transport, leisure and manufacturing. His research is in the operations and manufacturing exibility and operations strategy areas.

Alistair Brandon-Jones is a Reader in Operations and Supply Management at Manchester Business School, University of Manchester, Visiting Research Fellow at the University of Bath, and Visiting Lecturer at Warwick Medical School. Prior to his move, he was a Senior Lecturer (Associate Professor) and Lecturer (Assistant Professor) at the University of Bath, a Teaching Fellow at Warwick Business School, and worked in a number of operations and logistics roles. He has a PhD and Bachelor’s degree from the University of Warwick and is widely published in leading operations and supply management journals. In addition to Operations Management, Alistair has three other co-authored books: Operations and Process Management, Essentials of Operations Management and Quantitative Analysis in Operations Management, published by Pearson. He has been nominated for the Times Higher Education Most Innovative Teacher of the Year Award, is a University of Bath Mary Tasker Teaching Prize winner, and has received a number of other awards for teaching innovation at both Bath and Warwick. Alistair has consulting and executive development experience with a range of organisations around the world, including Eni S.p Oil and Gas, Italy; Crompton Greaves, India; The Royal Bank of Scotland; Schroders Investment Management; QinetiQ Defense and Security; NHS Purchasing and Supply Agency; The Welsh Assembly; Bahrain Olympic Association; and the Improvement and Development Agency.

Robert Johnston was Professor of Operations Management at Warwick Business School and its Deputy Dean. The late Professor Johnston was the founding editor of the International Journal of Service Industry Management and he also served on the editorial board of the Journal of Operations Management and the International Journal of Tourism and Hospitality Research. He was the author of the market leading text, Service Operations Management (with Graham Clark), now in its fourth edition (2012), published by Financial Times Prentice Hall. Before moving to academia, Dr Johnston held several line management and senior management posts in a number of service organisations in both the public and private sectors. As a specialist in service operations, his research interests included service design, service recovery, performance measurement and service quality. He was the author or co-author of many books, as well as chapters in other texts, numerous papers and case studies.

About the authors

I N T R O D U C T I O N

Part One

Chapters 1 Operations management 2 Operations performance 3 Operations strategy

This part of the book introduces the idea of the operations function in different types of

organisation. It identi es the common set of objectives to which operations managers

aspire in order to serve their customers, and it explains how operations can have an

important strategic role.

Design

Planning and control

The operation’s strategic objectives

The operation’s competitive role and position

Operations management

Improvement

Operations strategy

Transformed resources...

Materials
Information
Customers

Transforming resources...

Facilities
Staff

Input resources

Output products and services

Customers

Operations strategy

Chapter 1 Operations management 3

Key questions

■ What is operations management?

■ Why is operations management important in all types of organisation?

■ What is the input–transformation–output process?

■ What is the process hierarchy?

■ How do operations processes have different characteristics?

■ What do operations managers do?

➤

Operations in practice Woolworths – driven by customer needs

and wants

1

‘Woolies’ – hardly a name that conjures up the image of the retail giant, Woolworths! Yet it trips off the tongue of tens of thousands of consumers like a household word. Starting in South Africa, and extending throughout Africa and into the Middle East, the refrain trills: ‘I’m off to Woolies. Do you need anything?’ What accounts for the success of Woolworths? How, from its humble beginnings when Max Sonneberg, the founder, opened the doors of the rst store to the public in Cape Town in October 1931, it has managed grow into a retail giant with more than 400 stores, and an inuence that stretches across the Indian Ocean to Australia, New Zealand and Singapore through Country Road, a subsidiary of Woolworths Holdings, its parent company? The answer is simple: Woolies puts its customers rst. This focus on its customers is what drives the Woolworths’ brand values: quality, innovation, value for money, integrity, service, energy and sustainability. In turn, and as a result, operationally, from customer service, to store design and product availability, Woolworths is geared towards satisfying its customers and fostering their long-term loyalty. This approach, according to Ian Moir, the chief executive of Woolworths since November 2010, is what has sustained Woolworths during difcult economic times, ensuring that not only has its core customer base remained loyal, but that it has also managed to widen its customer base. As Moir says, ‘ Everybody, no matter what LSM [Living Standards Measure, which divides the population into 10 income groups], wants value. And you want value in the right article. I might want to spend more on a suit with a great cut, but when I buy a t-shirt or essentials I want great value. Everybody expects value these days. ’ In order to deliver this quality, operations management at Woolworths is designed to ensure that business operations are efcient in terms of using as few resources as needed,

and effective in terms of meeting customer requirements. Understanding the importance of these twin imperatives, Moir keeps the entire company on its toes. He does this, in part, by visiting stores around the country on weekends to take their pulse, noting their appearance, how the personnel behave and who the customers – the Woolies heartbeat – are. To deliver an efcient use of resources that satises customers’ needs and wants, Woolworths put in place its Good Business Journey strategy. This strategy is divided into a number of focal areas, such as minimising the environmental impact of all store operations, putting in place sustainable practices in product procurement and development, and paying attention to customers’ concerns about social, fair trade and health issues. In terms of minimising environmental impact, Woolworths’ green initiatives ensure that wherever possible, stores make use of natural light from skylights, energy-efcient lighting that automatically dims the stores’ lights in bright daylight conditions, and heating from recycled heat generated by fridges. In addition, Woolworths’ fridges use a natural gas instead of synthetic gases, which does not cause harm to the ozone layer, and makes a much lower contribution to global warming. As far as sustainable practices in product procurement and development are concerned, some of Woolworths’ focus is on sustainable farming and shing. For example, Woolworths subscribes to the Southern African Sustainable Seafood Initiative (SASSI), to ensure that they procure their seafood from sheries that source seafood responsibly. Also, trained animal welfare specialists from Woolworths and external auditors inspect all its South African abattoirs and processing plants annually to ensure that they, and farms that supply them, are compliant with Woolworths’ product specications and animal welfare Codes of Practice.

4 Part One Introduction

Consideration is given to customers’ concerns about social, fair trade and health issues in a number of ways. For example, Woolworths addresses food security issues mainly through schools. It also contributes to reducing child vulnerability by supporting child safety (e. it opened its rst Childsafe Centre in Africa in May 2014). Furthermore, as far as is possible, Woolworths sources products from Fairtrade (fairtrade.org) initiatives that ensure producers are paid fairly for the products they produce. Woolworths also provides customers with food that is safe and nutritious and has a particular emphasis on organic food. Through clear labelling, Woolworths keeps customers as well informed as possible about the food they are eating and how it impacts on their health. Another innovation in relation to customers’ concerns about social, fair trade and health issues is the MYSCHOOL • MYVILLAGE • MYPLANET programme in which by swiping their cards at the checkouts, a percentage of their bill gets donated to schools, rural development and environmental organisations. In terms of in-store operational management, Woolworths focuses on a number of core areas, which include:

Understanding customer needs: This is primarily driven by Woolworths’ World of Difference loyalty programme that gives Woolworths more information about what people are buying and when, and has increased Woolworths’ understanding of what customers are looking for. Accessing customer needs has also resulted in a number of innovations. For example, Woolworths was the rst South African retailer to introduce ‘sell by’ dates on food packaging. It was also the rst South African retailer to offer pre-washed vegetables and machine-washable wool clothing to consumers.
Product availability: This is achieved through efcient distribution systems and effective supply chain management that aims to ensure that customers always nd the right product, at the right price, where and when they need it.
Process design: The focus here is on arranging store layouts to provide a smooth, effective ow of customers while maximising their shopping experience, as well as what they purchase and how much they purchase. As an example of store layout, Woolworths stores position a range of owers to purchase at their entrance. In a customer’s mind, this enhances the image of the store and builds on the concept of ‘fresh’ – a key word in Woolworths branding. In addition, the layout of most stores places fresh and perishable food around the periphery, with packaged food in the centre. This forces customers to walk the aisles of packaged goods to get to the fresh and perishable items, which increases the likelihood of them purchasing items they had not planned to buy. The placement of food items on shelves also impacts on customer purchases. For example, by and large, top and bottom shelves are stocked with home brands and non-expensive food items. This is because they are not in the eyeline of customers, who

are thus are less likely to purchase them. The expensive, popular and bestseller brands are always stacked on the middle shelves. Customers are automatically attracted to these items because they are placed at eye level. This increases the chance that customers will purchase these items. Magazines, chocolates, snacks and soft drinks are also displayed in the checkout areas. Because these miscellaneous food items surround customers while they are waiting in the checkout queue, they often purchase them even though they had not planned to.

In-store experience: Because customers are the lifeblood of Woolworths’ success, the stores constantly strive to enhance customers’ in-store experience. Ways of achieving this include innovations such as locating dedicated butcheries and sh counters in some stores, operated by trained butchers and shmongers, as well as in-store bakeries that offer artisanal breads and pastries. Other means of enhancing customers’ in-store experience have seen the establishment of areas for beauty treatments, redesigning beauty displays to make testing and sampling easier and more effective, locating coffee and sushi bars, as well as tasting stations in stores, and providing unique destinations and brands, like Trenery, Country Road, Witchery and Mimco, within selected stores.
Selling formats: Woolworths has developed uniquely differentiated selling formats to satisfy customers’ varying needs. These formats include full-line stores that stock the complete Woolworths range (food, clothes, homeware, etc.), those with only clothing and home products, and Woolworths Food stores that sell only grocery items. These formats are complemented by the Engen Food stops. They are open 24/7 and offer customers the convenience of quick-stop shopping for a limited Woolworths food and grocery range, while lling up with petrol. An additional selling format is the Woolworths online channel that offers customers the convenience of online shopping backed up by home deliveries.
Financial services: In order to tie customers into the Woolworths’ brand, Woolworths has several credit and debit cards that offer a variety of benets. Among these are the Woolworths card (allows customers to buy on their Woolworths’ account) and the Woolworths Visa card, which functions as a conventional credit card, but provides customers with rewards when used in Woolworths stores. Financial services has expanded to offer related insurance and other nancial products to its customers.

Adherence to the key aspects of its operations management has enabled Woolworths – in its over-80-year history – to become rmly entrenched in the South African landscape: a rare achievement in the retailing world, which places the spotlight on the importance of an operations management system that always puts the customer rst and that remains true to its own core values.

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