Operations Management - Assignment Example

? Operations management at Toyota and Accenture: Practical approaches and strategic implications on business Table of contents Introduction 4 1.1 Operations management 4 2. Strategic management of operations in production and service units 5 2.1 Integration of operations strategy with corporate strategy 6 2.2 Competitive priorities and corporate strategy: 7 3. Essentials in operations management: 8 3.1 Capacity planning 9 3.2 Quality 10 3.3 Inventory management 12 3.4 Supply chain management (SCM): 13 3.5 Performance management and HRM 14 4. Strategic implications for the business 15 4.1 Implications for competitiveness 16 4.2 Impact on sustainability of each organisation 17 4.3 Impact on Innovation of each organisation 17 5. Summary and conclusions 18 References & Appendices Abstract The present report explores operations management at a production and service organisations with an aim to understand its main constituents and approaches; in addition, an understanding of the differences between strategic approaches of production and service operations management has been obtained. To achieve this, firstly, the report explores corporate and operations strategies as well as competitive priorities of Toyota and Accenture. Practical implications along with critical perspectives of core operational processes like capacity planning inventory management, quality, supply chain management and performance management at both organisations have been explored. Lastly, implications of these processes at operations and strategic levels have been illustrated based on competitiveness, sustainability and innovation perspectives. 1. Introduction Operations management is concerned with managing the process of creating products and services through systematic and defined procedures. On a broader level, different functions involved in operations management of production and service industry are almost same; but the way these functions are carried are very different. In order to understand the difference, the current discourse evaluates operations management processes in two distinct organisations, i.e. the automotive manufacturer Toyota and the management and technology service provider, Accenture. Their immense success and global presence have been possible because of sustainable operations besides other activities. This report attempts to highlight the core operational activities carried out at both the organisations and how these activities have added value to their successes. In this process, competitive priorities and critical operational strategies such as capacity planning, inventory management, supply chain management, performance management, and quality approaches have been assessed. These aspects will clarify how these organisations attained competitive position in their respective markets; and what factors have lead to their immense success despite the external and internal challenges. 1.1 Operations management: Brown (2000) describes that Operations Management involves the most critical activities of production, beginning from and including, planning and design, production processes of goods and services, and also effective integration of marketing, finance, human resources management and strategy in order to enable a business to enter and compete with both new and existing markets. In other words, a business’s success and sustainability largely depend on the operational capabilities, including efficiency and quality. These factors have been mastered by both the organisations to a large extent. Theoretically, operations management in manufacturing and service industries constitute a combination of three distinct functions, strategic functions, tactical functions and operational planning and control functions (Chase, 2006). Main operational processes include planning, production, purchasing or inventory management, supply chain management, distribution and marketing. Toyota and Accenture perform these processes distinctly as aligned with different competitive priorities. Strategic decisions define the conditions in which operations will be carried out in short and long terms, and are considered as operations strategies. Organisations decide on competitive priorities based on their corporate strategies. Secondly, tactical planning includes planning for production such as capital, human resources, technology, facilities etc to carry out specific operations; scheduling and staffing methodologies to accomplish the targeted products/services; sales and services; scheduling delivery and defining quality of supplies, types of inventories, etc. Thirdly, operational planning includes short-term planning of work and capacity along with responsibilities and priorities assigned to different levels or groups of workforce. . 2. Strategic management of operations in production and service units The value chain of an organisation comprises of five vital layers, namely, end customers, operations, innovation layer, operations support layer and the supplier layer (see appendix 1). Operations function is further constituted of many sub-functions that are linked to internal and external functions (Mahadevan, 2007). For example, at Toyota, various sub functions include manufacturing, assembling, quality checking, capacity planning and inventory management, supply chain management etc. At Accenture, sub-functions linked to operations include corporate IT, investment, quality management, customer query resolution, IT consulting services, human resource management etc. Operations management is governed by corporate and operations strategies. 2.1 Integration of operations strategy with corporate strategy: Collis and Montgomery (2005) define corporate strategy as the way a company creates value through the configuration and coordination of its multimarket activities,’ (cited in Furrer, 2010; p.2). An operations strategy is one of the core functions that govern the strategic position of the firm; hence, operations strategy should incorporate corporate strategy. This inclusion will aid in formulating policies and plans for using the resources that will enable optimum production of goods and services for longer time. Toyota’s operations strategy is to design, assemble and market the products and buy the rest from external suppliers (Feist et al, 1999). In general, operations strategy involves decisions related to design of the process of production or service providing as well as facilities and/or infrastructure needed to support the process. Toyota’s corporate strategy involves wider and long-term objective such as defect-free products, cycle-time reduction, occupying the largest market share, etc. Toyota achieves these by formulating operations strategy in line with its corporate strategy. In service oriented organisations, like Accenture, corporate strategies include maximum customer satisfaction, maximum variety of services, highest quality service at lowest cost, innovative products etc. Accenture’s corporate strategy is to help clients develop practical strategies focused on tangible business outcomes that create enduring value and consistently deliver high performance (Strategy, n.d). 2.2 Competitive priorities and corporate strategy: Competitive priorities are decided based on operations strategy and are linked with all crucial aspects of business strategy (see appendix 2). Competitive priorities are the critical operational dimensions a process or value chain must possess to satisfy internal or external customers, both now and in the future (Krajewski et al, 2007; 53). At Toyota, their competitive priorities are quality and reliability, which Toyota strives to achieve through its unique corporate philosophy known as the Toyota Production System (TPS) (Liker, 2004). Toyota strives to maintain low cost manufacturing or avoiding wasteful work through TPS that incorporates Lean methodology and Total Quality Management (Wisner, Tan & Leong, 2008); time-related factors such as lowest production time, on-time delivery, coping with changes in demand for goods; flexibility that provides customization of products, variety, as well as volume flexibility; and new product introduction. Besides these, others include product characteristics and range, product range, volume flexibility, after-sales service, geographical coverage, different logistical solutions, etc (Krajewski et al, 2003; Chase, 2006). In service organisations, competitive priorities around cost, quality, time, reliability and flexibility assume different dimensions. They aim at providing service at lowest possible cost in order to attract more customers. Secondly, quality of service determines customer retention. Service organisations approach this dimension in two ways: design of the service and price and process quality. Accenture’s priority lies in design of the process as evident from Thomlinson’s statement, ‘Accenture's priority is to drive growth in its core business: management consulting, technology and business process outsourcing’ (Goodwin, 2010). Accenture provides consulting services in the areas of business process management, growth, finance and performance management, operational excellence, risk management, sustainability etc; interestingly, Accenture has capitalized on various competitive priorities of other organisations, which are essential for their sustainability (Accenture,n.d) . Design and price are linked with each other in most of the cases; for example, the more complex the service, higher will be the price. Process quality directly impacts service quality. For example, well-trained employees produce greater customer satisfaction. Accenture provides a variety of consulting, technology and processing services to a myriad of clients. Moreover, some organisations keep changing their services in order to meet customer demand and satisfaction; and to match competitors’ performance. All competitive priorities may not be equally efficient or implementable, and few may be traded off to meet others. Toyota’s TPS provides sufficient ground to tackle all trade-off obstacles (Mahadevan, 2007), but with an investment in systems and procedures. Moreover, Toyota cannot compromise on its price because of its focus on high-quality production and products; besides this, Toyota has not ventured into production of automobiles other than four-wheelers. Therefore, organisations should carefully choose their competitive priorities that match their corporate strategies. 3 Essentials in operations management: Operations management involves capacity planning, inventory management, supply chain management, performance management and quality improvement. Human resources management cannot be excluded from operations management; yet, human resource function is regarded as a support function instead of an integral part of operations management. 3.1 Capacity planning: Capacity planning is the process of calculating the capacity of raw materials, personnel and/or other resources needed to manufacture the targeted goods or provide the desired services to end customers. The process of capacity planning involves determining the capacity available at each workplace or production unit at each time; determining the amount of work load based on number of products to be produced, assembled, checked or processed; and making arrangements to provide the required capacity of raw materials or resources for achievement of the desired tasks (Arnold, Chapman & Clive, 2008). At Toyota, capacity planning involves internal plant capacity review and the supplier capacity review. Internal capacity review is done annually and/or during major model change. Capacity planning differs for facilities, assembly lines, and unit plants; therefore, Toyota plans its capacity based on annual forecast of its production requirement. However, demand and supply cannot be constant. To address this, Toyota employs temporary staff during demand. Employment of temporary staff means increase in training costs and more time. Capacity planning would be incomplete if it does not include the probable capacity during peak times. Facility and equipment are also assessed based on workload. Toyota evaluates its supplier capacity and also internal capabilities by linking purchasing and production control; moreover, Toyota manages its supplier capacity also in order to avoid any gaps in production because of issues with supplies. In addition, Toyota’s capacity planning considers monthly planning based on forecast and demand information and global and regional forecast (Iyer, Sheshadri & Vasher, 2009). Capacity planning in service organisation is based on same principles; however, the components of capacity planning include workload and human resources required. In a typical IT service firm like Accenture, capacity planning is done based on previous work volume and pattern forecast, benchmarked targets and service level agreement with clients with respect to efficiency, accuracy and turn-around-time. However, this does not include possible peaks and troughs in volume. Regular upgradation of benchmarked standards would be necessary in order to stay competitive. From systems and facilities perspective, capacity planning would include applications and data migration, technology systems, number of work stations and infrastructure. From this perspective, capacity planning should include risk factors such as potential data loss, changes in applications and technology. Capacity required would fluctuate depending upon stages of a project, employee skills and experience levels, which necessitate regular revision. Ineffective capacity planning and management can result in production chaos and affects customer satisfaction; therefore, effective outcomes from capacity also require appropriate management and effective leadership. 3.2 Quality: Quality is essential for business and can directly lead to competitive advantage by achieving customer satisfaction, reduced rework costs, and increased sales. Quality of products and services directly impacts the end customer. To achieve this, most of the organisations are opting for Total Quality Management (TQM) approach that focuses on maintaining quality in every aspect of the business by adopting different tools and techniques. Toyota, a pioneer in TQM, adopts various tools and techniques in every aspect of its business including operations, supply chain, inventory, and human resource functions. The definition of quality differs in every organisation and every process; hence, the approach to achieve TQM also differs. For instance, Toyota adopts Lean methods to minimize waste and reduce costs in most of its operations besides other quality standards like Kanban when assessing quality of supplies and inventory; kanban uses cards system to achieve inventory control, minimal overproduction and smooth workflow. Poka-Yoke and jidoka are two tools of error detection used at Toyota, where the former is an automatic defect control system that works by mistake proofing to ensure zero defects in products and the latter detects, stops and corrects defects in the process. Eliminating wasteful work or avoiding waste are an important aspect of the TPS. For this, the TPS ensures all non-value add work, resources, and effort is eliminated; secondly, overburdening staff or equipment is avoided; thirdly, unevenness of work is eliminated by production smoothening or Heijunka. Standardization of tasks by assigning cycle time or takt time, sequence of doing things, and required amount of inventory helps in manufacturing in optimum time (Liker, 2004). Quality of services in service organisations is highly crucial because it impacts the end customers. Accenture provides a variety of services in different business lines; hence it adopts different quality management models by combining Six Sigma and Lean methods to ensure high quality services are produced as well as high-quality standards are maintained in operations (Hall, 2007). Apart from these, Accenture employs Capability Maturity Models including people CMM and esourcing CMM. Basically, these models are used for benchmarking processes and services in spheres like HR, IT, and consulting. Accenture has achieved the highest level in this category, which means optimum service quality. Accenture has also employed ISO (international standardization for organisations) standards like ISO 14001 for environment standards, ISO 27001 series for information security measures. Accenture incorporates Lean methods for problem solving within Six Sigma to reduce waste, improve speed and quality. In addition, Accenture encourages internal Quality Assurance processes through continuous improvements (Global delivery network certifications, services, n.d). 3.3 Inventory management: Inventory constitutes the supplies acquired from external vendors and the procedures that govern the levels of inventory and their requirement is referred to as the inventory management. Inventory can also cause huge costs incurred by their storage and handling; can cause locking of money, which can otherwise be invested elsewhere; can cause higher tax and insurance premiums; lose their requirement due to change in customer demands and can even get spoilt or damaged (Boyer & Verma, 2009). Toyota uses the Just in Time (JIT) system in which Toyota acquires its inventory only when required and suppliers supply the inventory on demand; this is the pull system. By doing this Toyota also ensures quality products are acquired from suppliers whenever required (Baker & Powell, 2005). Toyota is known to avoid stocking of any inventory for long-term use. However, Toyota does maintain inventory for use during unpredictable downtime or yields; during time-consuming setups or processes; and to meet high customer demands (Spear & Bowen, 2009). Even Heijunka or leveling is followed in ordering inventory. Inventory management in service industry assumes totally different dimension because service cannot be cost-effectively stocked for supply during demand; instead it has to be supplied immediately on demand. Here capacity planning becomes vital in order to accommodate the fluctuating demands from customers/clients. For example, Accenture’s business involves management consulting, technology and outsourcing, all of which have varied and fluctuating demand. Therefore, Accenture should be prepared with sufficient capacity to meet these demands. In the management consulting business, Accenture is required to maintain an inventory of available skills in excess capacity to meet the demand and use the push and/or pull as per the situation. HRM and knowledge sharing become important criteria for inventory management (Bossett, 1992). The challenges to these inventory are HR motivation and commitment; knowledge sharing practices followed by the organisation. Other inventories in service industry include hardware supplies and logistical facilities, which can be maintained in required numbers with little impact on cost; however, space constraint would become an issue if the inventory is in large numbers. 3.4 Supply chain management (SCM): SCM has an impact on and also dependent upon operations. SCM refers to the process of acquiring raw materials from external sources in order to be processed and transformed into finished products and the process of supplying finished products to the end customers through distribution channels, and can involve multiple suppliers and distributors (Arnold, et al., 2008). SCM aims at achieving low cost and high levels of quality and responsiveness by adopting specific strategies. Toyota’s JIT is highly popular for its decreased supply chain costs and increased responsiveness. Moreover, Toyota’s TQM principles facilitate in acquiring high quality supplies. Toyota maintains high level of collaboration and strong relationship with all its suppliers. Toyota provides consistent orders to its suppliers and ensures all its suppliers are following stable processes in producing and delivering the supplies. Moreover, Toyota’s choice of suppliers is complex; suppliers with high levels of standards in production and innovation are selected (Iyer, Sheshadri & Vasher, 2009). Service firms provide service through resources that are supplied from external vendors. Accenture provides technology, consulting and outsourcing services to various clients; for this, it acquires skilled personnel from external HR consultants/vendors. Post hiring, these personnel are trained according to Accenture’s standards and its customers’ expectations. This forms the supply chain. Secondly, Accenture’s own HR department forms its supplier of personnel, HR practices and policies that are meant to motivate the workforce to deliver good performance. 3.5 Performance management and HRM: Performance management involves management of teams and individuals with the aim of achieving organisational goals by establishing a common understanding about the organisational objectives through a systematic approach and with the use of systems, management practices and leadership. Performance management includes performance measurement, performance appraisal, training and development and recognition. Toyota follows standardized performance management principles at global level. Toyota’s International Advisory Board helps managers from all over the world to participate and contribute their views, which can be shared and adopted at other places (Hino, 2006). Toyota’s standardized performance management includes team-based recognition, evaluation against benchmarked targets, daily evaluation and feedback. Toyota also has slow promotion process based on experience and seniority. Toyota’s attendance monitoring system not only levels out performance but also aids in effective workforce capacity planning (Liker & Hoseus, 2008). At Accenture, performance management incorporates different goals for different levels, but a standardized evaluation framework. Another critical component includes opportunity for all employees to develop both long-term professional skills and short-term job skills (Kirkpatrick, 2006). Accenture constantly strives to improve the value of human capital, which will directly improve organisational performance through HR practices. In spite of comprehensive and effective performance management systems, both Toyota and Accenture face challenges in their application at international level. Research and evidence indicate that HR practices of one country may not be equally effective in other locations, due to the impact of national culture, societal beliefs and communication differences. For instance, performance feedback processes implemented in the East may not be encouraging in the West because people from Eastern cultures, such as Japan, are not comfortable with face-to-face feedback unlike people from the West. Although Toyota claims of optimum integration of HR practices all over the world, it has been achieved only with specific local adjustments. 4. Strategic implications for the business: Organisational goals can be achieved when operations strategies are aligned to corporate strategies. Competitive priorities facilitate product/service development in line with corporate strategy; operations strategy aligned with corporate strategy can successfully meet the competitive priorities. For this, operational processes like capacity planning, inventory management, quality, supply chain management, performance management and human resource management are significant. However, the success is also impacted by the approach followed in each of these processes. Organisations aim to achieve competitive advantage and sustain their businesses through the chosen approaches. The TPS is a comprehensive approach to achieving competitive advantage for Toyota. Accenture’s multidimensional business model adopts a variety of procedures in each of the processes that suits the work, process and customer demand. While Toyota focuses on standardized approach, Accenture adopts a diversified model that suits its business. Through these differential approaches, both are able to meet their competitive priorities. 4.1 Implications for competitiveness: The procedures, tools and techniques employed by Toyota and Accenture have contributed substantially in achieving a competitive edge in the market as evidenced by the expansiveness of their businesses. Toyota’s strategies such as TQM incorporating various Lean methods facilitate achievement of minimum operations cost, high quality, geographical coverage and effective supply chain management. Moreover, capacity planning and just-in-time inventory systems also facilitate cost and effort saving and minimal wastage. Accenture has achieved a sustainable position in each of its business ventures by adopting suitable processes. For instance, Accenture uses Six Sigma methodology for ensuring quality and continuous improvement. In addition, it uses lean techniques as process improvement and/or problem-solving methods. In combination, both these approaches are highly effective. In fact, most of the problem-solving methods employed at Toyota are lean methods with a broader framework of TQM. Toyota greatly benefits from its JIT inventory and supply chain mechanisms by avoiding wastage, time and efforts. Accenture’s knowledge-based inventory systems are created by hiring the best talent from industry; their effective employee engagement and performance management systems provide the advantage of employee motivation and retention. 4.2 Impact on sustainability of each organisation Toyota’s competitive position has taught a new way of production of automobiles, which has been adopted by many other businesses in different fields. Accenture’s approaches have enabled expansion of business into multiple spheres. Learning from these organisations, many other business have adopted similar practices to improve their businesses; this certainly poses threat to the competitive position of these giants. However, competitors will be able to achieve similar success only if they are able to adopt similar culture that is based on innovation, employee satisfaction, team work and effective leadership. For instance, Toyota views standardization as an opportunity for continuous improvement and employee empowerment, which the Western organisations view as hindrance to innovation. Toyota and Accenture’s supplier relationship is a factor of their business sustenance. Moreover, corporate strategies and competitive priorities need to be congruent with the approaches followed here. Performance management and HR practices have a significant impact on organisation’s sustenance because they impact employee motivation, commitment and retention. 4.3 Impact on Innovation of each organisation The Toyota Way encourages long-term thinking even if it impacts short-term finance, which is the cause for successful innovative approaches. Though Toyota’s culture may be viewed as more conservative in terms of openness, opportunity and flexibility, its principles encourage innovation that suits its competitive priorities. Hence, innovation at Toyota finds a different meaning and approach towards which employees are motivated to add value to the organisation and not by incentivisation. Accenture drives innovation through its culture and leadership. Accenture’s innovative approach is evident from its variety of businesses that incorporate its theme of continuous innovation and rapid transformation. Accenture consciously strives to develop abilities to implement innovative approaches in all sectors and at all levels. Six Sigma integrated with Lean methods breeds innovation in terms of identification and elimination of issues, improving processes and customer satisfaction, and enhanced organisational performance. Apart from product and process innovation, Accenture drives innovation as a business discipline incorporated in all aspects of operations and supporting processes. 5. Summary and conclusions: In conclusion, operations management in product and service organisations is a comprehensive phenomenon including distinct and complex activities that need to be performed in order to achieve their goals. Strategic implementation of operations management forms the base for organisations’ success. The approach to operations management depends upon the firm’s business and corporate-level strategies; operational strategies aligned to the broader business strategies will aid in achieving the organisational goals. The core elements of operations management include capacity planning, quality, inventory management, supply chain management, performance management and human resources management. Different functions of the organisation such as the operations teams, finance, human resources department and external suppliers are involved in production of goods and/or services. For operations management to be effective and produce value to the organisation, suitable approaches to these strategies need to be adopted. The crucial aspects associated with organisations’ competitiveness in the market and operational performance include alignment of operations strategies with their corporate strategies, adoption of appropriate techniques in operations management that suit operations and business strategies and effective human resources management. Organisations have to adopt practices leading to competitiveness and sustainability on an ongoing basis. References Arnold. J.R.T, Chapman, S.N and Clive, L.M. 2008. Introduction to materials management. 6th Ed. U.S.A: Pearson Education Inc. (pp:125-152). 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Available from, http://www.accenture.com/us-en/pages/insight-lean-six-sigma.aspx. (Accessed 16 March 2011) Hino, S. 2006. Inside the mind of Toyota: management principles for enduring growth. New York: Productivity Press. Iyer, A, Sheshadri, S and Vasher, R. 2009. Toyota supply chain management: a strategic approach to the principles of Toyota's renowned system. USA: McGraw-Hill Professional. Available from, http://books.google.co.in/books?id=JY5wqdelrg8C&pg=PA41&dq=capacity+planning+at+toyota&hl=en&ei=kW17TYmWNcj4rQfs2tTHBQ&sa=X&oi=book_result&ct=result&resnum=1&ved=0CC0Q6AEwAA#v=onepage&q=capacity%20planning%20at%20toyota&f=false (Accessed 12 March 2011) Kirkpatrick, D.L. 2006. Improving employee performance through appraisal and coaching. 2nd ed. New York: AMACOM Div American Mgmt Assn. (pp:163-164). Available from, http://books.google.co.in/books?id=B5wXK02d9d4C&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false (Accessed 12 March, 2011). Krajewski, L, Ritzman, L.P and Malhotra, M. 2007. Operations Management: Processes and Value Chains. 8th ed. New Delhi: Dorling Kindersley India Pvt Ltd. Available from, http://books.google.co.in/books?id=oMjLPc6LwbwC&pg=PA53&dq=Competitive+priorities+operations+management&hl=en&ei=0Rd7TYzLO83hrAeX6qTBBQ&sa=X&oi=book_result&ct=result&resnum=1&ved=0CC0Q6AEwAA#v=onepage&q=Competitive%20priorities%20operations%20management&f=false (Accessed 10 March 2011) Liker, J.K. 2004. The Toyota Way. New York: Tata McGraw-Hill Production. Liker, J.K and Hoseus, M. 2008. Toyota Culture: The heart and soul of the Toyota way. New York: TataMcGraw-Hill Production. Management consulting. n.d. Accenture. Available from http://www.accenture.com/usen/consulting/Pages/index.aspx (Accessed 17 March 2011). Mahadevan, B. 2007. Operations management: Theory and practice. New Delhi: Dorling Kindersley India Pvt Ltd. Available form, http://books.google.co.in/books?id=dVDfKz48MlEC&printsec=frontcover&dq=theory+operations+management&hl=en&ei=1wB7TZWILcjKrAfFu4y9BQ&sa=X&oi=book_result&ct=result&resnum=1&ved=0CDgQ6AEwAA#v=onepage&q&f=false (Accessed 11 March 2011) Spear, S.J and Bowen, H.K. 2009. Decoding the DNA of the Toyota Production System. In Harvard Business Review on manufacturing excellence at Toyota. USA: Harvard Business Press. (pp:29-58). Strategy. N.d. Accenture. Available from, http://www.accenture.com/us-en/consulting/strategy/Pages/index.aspx (Accessed 17 March 2011). Wisner, J.D, Tan, K-C and Leong, K. 2008. Principles of supply chain management. 2nd Ed. Ohio: Cengage Learning. Available from, http://books.google.co.in/books?id=8JM6wU_sBc0C&pg=PA259&dq=Toyota+Lean+Total+quality+management&hl=en&ei=zlV7TZPzBJDLrQfd2sHNBQ&sa=X&oi=book_result&ct=result&resnum=5&ved=0CFIQ6AEwBA#v=onepage&q=Toyota%20Lean%20Total%20quality%20management&f=false (Accessed 11 March 2011). Appendices Appendix 1 Adopted from Mahadevan, , p.14. Appendix 2 Competitive priorities: Link between corporate strategy and operations strategy Adopted from Krajewski, 2007. p.50. Read More