Module II

Operations Strategy
Relevance of Operations Strategy
Introduction
Operations strategy is an organization's planning and decision-making processes needed to
achieve its operational goals. It includes the development and execution of plans, policies, and
procedures that optimize resources, minimize costs, and improve the organization's operations'
efficiency and effectiveness.
Operations strategy is only one part of overall business or corporate strategy, but it’s crucial for
competitiveness and success. Without a strong operations strategy, companies fail to keep up
with changing markets and lose out to more strategic competitors. Many companies, big and
small, have struggled with operations strategy, often lacking in comparison with
technologically savvy competitors. For example, Amazon, while constantly advancing
technology such as drones for delivery, has pushed aside myriad brick-and-mortar retailers.
Operations Strategy Examples
With the rapidly changing marketplace in recent years, some companies have excelled in part
due to their strong operations strategies. Here a few examples:
• Amazon: Once known for books, Amazon is now known as the go-to platform for
online shoppers of any product. Its distribution network is widely touted and even
includes experiments with drone delivery.
• Apple Computers: Apple is long recognized in operations circles for its operational
excellence and supply chain management.
• Walmart: This retailing giant managed to undercut many competitors on the price and
variety of a wide range of products.
• FedEx: FedEx made speed of delivery its calling card, achieving it with excellent
operations.
• IKEA: The world’s largest furniture retailer undercut many home goods competitors
on price and variety with its warehouse concept.
Relevance:
1. Employee Efficiency: An operations strategy can help define the objectives of multiple
departments, allowing employees and their managers to know the business goals they
are working towards. A decent operations strategy ensures that employees can use their
skills and time efficiently. Additionally, leaders can learn which of their departments
are operating more efficiently and which require improvements.
2. Resource Management: All organizations operate with a finite number of resources,
which makes it crucial to use them efficiently. Well-defined operations strategies can
help the operation management understand where resources are needed in departments,
how they are sourced, and the best possible ways to deliver them. Employers can also
learn about the cost of running multiple departments, identify opportunities for cost
reduction and check if they are in line with the overall organizational goals.
 3. Departmental Cooperation: Organizational strategies also define how multiple
departments and business units work together. The hierarchy, relationships, and
procedures to be followed are clearly outlined to foster better cooperation between other
departments and avoid any confusion. It also allows departments to understand how
their goals tie up with the greater organizational objectives. This improves decision-
making and unifies the organization as a whole.
4. Improved Customer Experience: A strong operation strategy should include
discussions around customers, their expectations, and how to meet and exceed these
expectations. By formulating a standard of care, businesses can clearly define ways in
which customers should be treated. As such, it helps standardize the customer
experience so that customers feel valued instead of feeling left out. This assurance also
helps customers understand what they can expect from an organization every time they
interact with it. In essence, an operations strategy helps make customers happy.
Needless to say, happy customers always come back.
5. Promotes Reliability: One of the main building blocks of an operations strategy lies
in formulating a standard and staying true to it. No matter what product or service a
business offers, the business shows confidence in the work. Good reliability relies on
proper testing and an operations strategy. One in which outlines specific instructions on
testing and research conducted at every developmental stage. It should also outline
information about how this information should be used for future developments.
6. Market Penetration: A strong operations strategy should focus on capturing a large
segment of the target customer market. Among how market penetration can be
determined include the rate at which leads are converted to buying customers. In this
sense, the operations strategy may require that company channel more resources in their
marketing campaign to penetrate the market.
Strategic Decisions areas in Operations
In 2008, Ford Motor Company reorganized using what’s known as the 10 strategic operations
areas. It was part of the company’s turnaround and enabled the organization be more flexible
and survive the financial crisis without taking government bailouts. Toyota, Google and Jet
Blue are also known for using the 10-area system in all of their business activities. It is used
across industries as a guide to operations management. The areas are:
1. Goods and Services: This include looking for ways to implement consistency in costs,
quality, and resources across all business divisions.
2. Quality Management: Be clear on the customer’s demands and then meet those
expectations. Use market research to determine customer needs and batch quality
assurance testing on products and services in production.
3. Process and Capacity Design: Design strategies which support all production goals
including technology and resources. A value stream map can help determine what
processes are necessary and how to keep them running efficiently.
4. Location: In developing a location strategy consider supply chain and how the location
will receive supplies, the movement of goods and services internally and to customers,
and the role of marketing and public relations in the location choice.
5. Layout Design and Strategy: Consider the placement of desks, workstations, and how
materials are delivered and used.
 6. Human Resources and Job Design: Implement continuous improvement programs
with regular reviews, provide continuous training for employees, and institute
employee satisfaction programs to achieve success in this area.
7. Supply Chain Management: Determine the best strategies to streamline, be cost
effective, and to develop trusted partners.
8. Inventory: Different markets mean different challenges when it comes to inventory but
all need to strategize and plan their inventory control. Weather, supply shortages, and
labor all influence how an organization maintains its inventory.
9. Scheduling: Consider both production and people. Ask questions such as how much
product is required to be produced for the customer in the required time? How many
people and how many machines are required to do the job effectively and efficiently?
This differs among industries and business departments. For example, emergency
rooms need to maintain different schedules than a hospital’s corporate office.
10. Maintenance: This includes maintaining people and machines, as well as, process.
What do you need to do to maintain quality and keep resources reliable and stable?
Achieving Competitive advantage through Operations – Competing on Differentiation,
Cost, Response
Competitive advantage requires the creation of a system that has a unique advantage over
competitors. The main goal is to create customer value and experience in an efficient and
sustainable way. Implementing operations management strategies that compete
on differentiation, low cost and response are usually the best catalysts in achieving competitive
advantage.
As an operations manager, it is crucial to remember that company/organization can achieve
competitive advantage through three strategies, that are differentiation, low-cost leadership and
response. It is, therefore, very critical for operations managers to implement some combination
of these three strategies as they provide an opportunity for any business to achieve competitive
advantage.
1. Differentiation: Differentiation is more concerned about providing unique and
innovative products, it should be regarded as going beyond products and service
attributes to encompass everything that positively influences the value that customers
derive from it. This idea of differentiation creates customer experience as it serves as a
bridge to engage customers.
2. Low Cost: Low-cost leadership is about achieving maximum value from customers’
viewpoint. This strategy requires an in-depth analysis of the 10 operations management
decisions in an effort to drive down operations cost while at the same time meeting
customers’ expectations. The ten operations managements decisions consist of:
• Product
• Quality
• Process
• Location
• Layout
• Human Resources
• Supply chain
• Inventory
 • Scheduling
• Maintenance
3. Response: Response consists of being reliable, and capable of providing quick and
flexible response. Flexible response could be defined as the ability to quickly adapt to
and keep up with the changes in the market place. The idea of response also means that
businesses need to be able to develop and deliver innovative products in a timely
manner while creating customer value and experience.
Strategy Formulation Process
Introduction:
An operations strategy aims at linking various short-term and long-term operations
decisions to the corporate strategy and develops capabilities in which an organisation needs
to be competitive. The operations strategy is formulated by following a process that defines the
way of designing strategies. It reflects what the operations managers should do and what they
actually do in practice. The following are the steps involved in the operations strategy
formulation process:
1. Understand the Competitive Dynamics at Marketplace: The formulation of an
operations strategy begins with scanning the marketplace and understanding its
dynamics. This helps the organisation in understanding the issues that it must consider
while formulating its operations strategies. It involves detailed analysis of current
market structure, existing competitors and their offerings and the competition intensity
level. The analysis helps an organisation to identify which aspects of its
products/services can provide it a competitive advantage over its competitors.
For instance, Tata Motors analysed the market and identified that there is a scope for
the development of an affordable car that would appeal to many Indians who ride
motorcycles. Market analysis led the company to launch the ‘Tata Nano’ car with a
price of Rs 100,000.
While analysing the marketplace, the organisation must be aware of the dynamic
expectations of customers that keep changing with time. Technological improvement
and infrastructural growth may cause a shift in customer’s expectations about a product/
service. Thus, organisations should prioritise their alternatives in a manner that could
help it to deal with the dynamic nature of the marketplace.
2. Identify Order-qualifying and Order-winning Attributes: Analysis of the
competitive dynamics leads the organisation to identify the order-qualifying and order-
winning attributes for a product/service that it is offering.
Order-qualifying attributes refer to the set of attributes that a customer expects in a
product/ service while considering to purchase it. The absence of any of these attributes
may make the customer not to buy the product/ service. However, the mere presence of
these attributes does not guarantee that the customer will buy the product/service. The
order-qualifying attributes only indicate the qualifying level of a product/service for
purchase consideration.
Let us take the example of a smartphone. Internet and networking features are one of
the basic order-qualifying attributes for a smartphone. The customer would not buy a
smartphone if it does not provide these features. However, mere presence of these
features may not guarantee that customer would purchase the smartphone.
 There should be some other attributes with potential to appeal customers to buy the
product/service and provide a better value for money. Such attributes that motivate the
customers to buy a product/service are called order-winning attributes. The presence of
order-winning attributes helps customers to differentiate a product/service from
competitor’s offerings.
In addition, it also favourably influences the customer’s buying decision in favour of
the product/service. The more the number of such attributes in a product/service, the
greater is the chance of a customer to buy the product/service. For example, speedy
wireless connectivity; ubiquitous and automatic Wi-Fi; fingerprint sensor, optical- or
voice-based security; inductive wireless charging; etc. are some order-winning
attributes that may appeal customer to buy a smartphone.
3. Identify Strategic Options for Sustaining Competitive Advantage: At this stage, the
organisation must identify the order-winning attributes of its products/services and try
to sustain them for a competitive advantage. The order-qualifying and order-winning
attributes give a set of strategic options that may help the organisation in sustaining a
competitive advantage.
Strategic options are action-oriented responses to the external situation that an
organisation face. Organisations require to analyse and weigh each strategic option, and
select the most suitable one to achieve the competitive advantage. With the help of these
strategic options, the organisation may perform better and provide high-quality
products/services to its customers.
4. Devise the Overall Corporate Strategy: Organisations may not use all strategic
options available to them. This could be due to the limited availability of resources and
constraints. Thus, it is required to match available strategic options (for sustaining the
competitive advantage) with available resources and constraints. This leads the
organisation to select the most appropriate strategic option.
Based on the selected strategic option, the organisation should develop a strategic plan
to fulfil organisational objectives by taking into consideration the strengths and
weaknesses of the organisation. This results into the development of the overall
corporate strategy. The corporate strategy specifies the business that the organisation
will pursue; examines new opportunities and threats in the environment and identifies
growth objectives. It provides an overall direction for carrying out all the organisation’s
functions.
5. Arrive at Operations Strategy: Once the corporate strategy is developed, it serves the
basis for the operations strategy. In other words, the operations strategy specifies the
way through which operations implement the corporate strategy. Suppose, the corporate
strategy of an organisation is to provide low-cost goods, the choices made as the
operations strategy must be consistent with the overall corporate strategy.
To reduce cost, operations strategies may focus on producing in large capacities to
exploit scale economies or designing the low-cost procurement and supply chain
activities to get economy suppliers for continuous cost reduction of input materials.
The operations strategy may also focus on continuous cost-improvement, productivity
maximisation and cost control by planning and control activities and thereby reducing
the overall cost. Thus, operations strategy paves the way for achieving the corporate
 strategy. Arriving at an appropriate operations strategy can help an organisation to
develop capabilities that the organisation needs to achieve its corporate strategies.
The process of operations strategy formulation helps in generating a specific course of actions
for running the operations system and thereby, providing operational excellence and
competitive advantage to an organisation. Besides the efficient operations strategy formulation,
an organisation requires a strong support process for the effective implementation of operations
strategies. The support process provides vital resources and input to support the core process
(implementation of operations strategies).
The formulation and implementation of an operations strategy may get support from
accounting, finance, human resource, marketing and Management Information Systems (MIS).
The human resource function provides support processes by recruiting skilled workforce to
properly execute their assigned responsibilities. The accounting function support process keeps
track of the organisation’s financial resources.
The MIS support process helps in the processing and movement of information and data to
make business decisions. The marketing support process performs market research, devices a
marketing plan and involves product development. Thus, all of these support processes help in
implementing the operations strategy to create value for the organisation and its customers.
Strategy Development & Implementation-Operational Excellence, Key success factors, Core
Competencies, Outsourcing.

Operational Excellence

Introduction

Operational excellence (OpEx) is an approach to business management that emphasizes

continuous improvement across all aspects of the business and within all business processes by
creating a culture where management and employees are invested in business outcomes and
empowered to implement change. When implemented well, every member of an organization
sees the flow of value to the customer and, if problems arise, finds a solution before any
disruptions occur.
Operational excellence begins with a culture shift, where all leaders and employees are
dedicated to creating not only a quality product but also providing great customer experiences.
Businesses that use operational excellence methodologies clearly define leadership and
workforce roles and how they work together to improve operations. At all levels, employees
can initiate change and drive toward efficiency, effectiveness and agility.
Core Principles of Operational Excellence

The definition of operational excellence has its roots in the Shingo Model, an approach to
business that emphasizes quality at the source, value to the customers, a zero-inventory supply
chain and an understanding of the workplace at all levels. It was created by Dr. Shigeo Shingo,
a business leader who published 18 books on his philosophy and closely collaborated with
Toyota executives to apply his principles in their manufacturing operations.
Shingo is also the inspiration for the Shingo Prize, awarded annually by the Shingo Institute
for Operational Excellence at Utah State University. This prize defines the 10 Shingo Guiding
Principles, often referred to as the core principles of operational excellence:
1. Respect every individual: When people feel respected and valued by an organization,
they are more likely to give more. Respect seeks to draw the best from individual
contributors.
2. Lead with humility: When decisions are made unilaterally, frontline employees are
less likely to respect the decisions being made. To lead with humility, companies must
implement a management system where leaders seek input and buy-in from
stakeholders at all levels.
3. Seek perfection: This principle is similar to the adage, “You have to believe it to
achieve it.” By seeking ways to continuously improve, you can open the door to new
ways of thinking and innovation.
4. Embrace scientific thinking: This principle is not just about being data-driven.
Creating a culture where employees are able to “experiment” and test new ideas based
on observations and data fosters innovation.
5. Focus on process: If something goes wrong, instead of blaming people (which can be
counterproductive), look for ways the process can be improved.
6. Assure quality at the source: Much like good food is made with good ingredients,
assuring quality in business relies on doing work right the first time, using the right
people and the right components.
7. Improve flow and pull: Providing value to the customer means having the products
they demand when they need them and nothing more, which is exemplified in lean
supply chains.
8. Think systemically: Instead of focusing on individual players or departments for
improvement, think of ways to improve the entire system.
9. Create constancy of purpose: Communication of goals, purpose, commitment to the
customer and the “why” behind the company are key to operational excellence.
10. Create value for the customer: Ultimately, all businesses are all about the customer,
so operations should reflect the value customers hold and should be provided.
Key Success Factors

Introduction

Key success factors are aspects of an organization's processes that are critical to determining
its success in its industry. These factors are a combination of areas organizations improve to
meet client needs and stay ahead of their competition. An organization's key success factors
comprise its essential business processes, including leadership, labour, operations, marketing,
and finances. By understanding key success factors, one can easily determine the success of an
organization in an industry.
There are five major key success factors, and they are:
1. Strategic Focus: This key success factor relates to an organization's leadership and
strategy. It involves how organizations align their actions, corporate brand, and
leadership structure to suit their corporate goals. For an organization to remain
profitable for a long period, it requires leaders to define its long-term goals and create
 actionable plans to achieve them. Strategic focus involves evaluating customer needs,
market situation, and other external factors to set and achieve corporate goals.
2. People: This refers to the human resources in an organization. An organization's
employees are an essential part of the organization and determine its overall success.
People as a key success factor involves how organizations help their employees develop
and the rate of employee satisfaction with the organization. It comprises processes such
as organizing professional development opportunities, effectively monitoring employee
performance, and improving employee morale. It also extends to defining the
responsibilities of employees and providing them with adequate remuneration.
3. Operations: An organization's operations refer to the normal functioning of its business
processes. Naturally, the nature of an organization's processes depends on its industry.
For example, the operations of a manufacturing company involve sourcing raw
materials, product testing, and sales distribution. In contrast, a law firm's operations
involve consulting with clients, brainstorming the right approach to a case, and
providing periodic reports to clients. By monitoring metrics like revenue, customer
satisfaction ratings, and production speed, organizations can improve their operations
and achieve better results.
4. Marketing: Marketing is the process of promoting an organization's brand, products,
and services to improve its profitability. The role of marketing is to build a positive
relationship between an organization and its customers or potential customers. This
makes it one of the most important business processes for an organization. Good
marketing involves market research, corporate branding, customer profiling, and the
exploration of various marketing channels. It also involves receiving feedback from
customers on how the organization can improve its services.
5. Finances: This key success factor relates to all aspects of an organization's financial
wellbeing. In this context, finances include the organization's finances and the pricing
of its products. An organization's finances comprise its inventory, income, accounts
receivable, accounts payable, and debts. Monitoring its financial activities is essential
for organizations to remain profitable. Many organizations hire finance professionals
to develop strategies to reduce costs and finance their activities.
Core Competencies
Introduction
Core competencies are the resources and capabilities that comprise the strategic
advantages of a business. A modern management theory argues that a business must define,
cultivate, and exploit its core competencies in order to succeed against the competition.
A successful business has identified what it can do better than anyone else, and why. Its core
competencies are the "why." Core competencies are also known as core capabilities or
distinctive competencies. Core competencies lead to competitive advantages.
Core competency is a relatively new management theory that originated in a 1990 Harvard
Business Review article, “The Core Competence of the Corporation.” In the article, C.K.
Prahalad and Gary Hamel review three conditions a business activity must meet in order to be
a core competency:
• The activity must provide superior value or benefits to the consumer.
 • It should be difficult for a competitor to replicate or imitate it.
• It should be rare.
The article pointed out the contrast of how businesses operated in the 1980s versus how they
should operate in the 1990s. The article asserted that in the 80s, business managers were
"judged on their ability to restructure, declutter, and delayer their corporations. In the 1990s,
they'll be judged on their ability to identify, cultivate, and exploit the core competencies that
make growth possible."
Core Competencies in Business
A business can choose to be operationally excellent in a number of different ways. Below are
common core competencies found in business:
1. Quality Products: This core competency means the company's products are most
durable, long-lasting, and most reliable. The company will likely have invested in the
strongest quality control measures, technically proficient workers, and high-quality raw
materials.
2. Innovative Technology: This core competency means the company is an industry
leader in its sector. The company will likely have invested heavy amounts of capital
into research & development, holds many patents, and hires experts in respective fields.
3. Customer Service: This core competency means customers have the greatest
experience during (and after) their purchase. The company will likely have invested in
training for staff, large numbers of customer service representatives, and processes to
manage exceptions or issues as they arise.
4. Buying Power: This core competency leverages a company's economy of scale. This
company will likely have invested in mergers or acquisitions and have built up strong
relationships with vendors to gain favorable pricing or service.
5. Company Culture: This core competency promotes the internal atmosphere of the
business. The company aims to attract the best talent by investing heavily in employee
recognition, development, or collaborative, fun events.
6. Efficient Production or Delivery: This core competency means the company is able
to make or ship items the fastest. The company will likely have invested in connected
software systems as well as production processes and distribution relationships.
7. Lowest Cost Provider: This core competency means the company charges the lowest
price among comparable goods. The company will likely have invested in the most
efficient processes the reduce labor or material input.
8. Highest Degree of Flexibility: This core competency allows the company to quickly
pivot in response to business opportunities or challenges. The company will likely have
invested in cross-training across employees or nimble software solutions.
Outsourcing
Introduction
Outsourcing is the business practice of hiring a party outside a company to perform services
or create goods that were traditionally performed in-house by the company's own employees
and staff.
Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such,
it can affect a wide range of jobs, ranging from customer support to manufacturing to the back
office.
Outsourcing's biggest advantages are time and cost savings. A manufacturer of personal
computers might buy internal components for its machines from other companies to save on
production costs. A law firm might store and back up its files using a cloud-computing service
provider, thus giving it access to digital technology without investing large amounts of money
to actually own the technology.
A small company may decide to outsource bookkeeping duties to an accounting firm, as doing
so may be cheaper than retaining an in-house accountant. Other companies find outsourcing
the functions of human resource departments, such as payroll and health insurance, as
beneficial. When used properly, outsourcing is an effective strategy to reduce expenses, and
can even provide a business with a competitive advantage over rivals.
Types of Operational Outsourcing
Companies outsource when they hire outside of their business, like when they hire other
contractors and companies to perform specialized work operations. Companies that use
operational outsourcing can employ a third-party company to help perform standard company
operations like producing inventory or completing services on the company's behalf.
Companies can hire contractors to help with several parts of their business such as logistics,
shipping, warehousing and data processing. Here are several examples of operational
outsourcing:
1. Human resources: A company that uses outsourcing for human resources operations
hires a third-party to handle all tasks related to human resource management. This may
include collecting employee paperwork and handling insurance information.
2. Accounting: Companies can use outsourcing for accounting operations by hiring a
third-party financial organization to complete accounting tasks. These outsourced
employees may complete payroll responsibilities and produce pay stubs.
3. Shipping: Companies often use outsourcing for shipping operations. They may hire a
third-party contractor to package and deliver shipments to customers.
4. Data analysis and processing: A company may entrust a service provider with its data.
It can outsource its data operations for data analysis, data processing and data
collection.
Benefits of Operational Outsourcing
1. Improved Quality: Companies use operational outsourcing when they require skills
and expertise from companies that specialize in creating certain products or providing
specific services. This can boost the overall quality of the company's products and
services. For example, if a company uses a third-party accounting service to perform
their accounting operations, they may notice an improvement in the overall quality of
the company's payroll processes.
2. Saves Money: Companies use operational outsourcing to hire specialized contractors
so they don't have to spend valuable time and money to train their own internal
employees to complete that service. Outsourcing to a third-party allows companies to
save money on materials, technology, equipment and labor. For example, if your
 company requires certain equipment to create a product, it may cost less to have a third-
party manufacturer produce the product rather than buying the equipment.
3. Increases Efficiency: A company that uses operational outsourcing may increase its
efficiency since it can complete operations in a timely manner, especially with more
complex operations. When companies outsource their operations, it alleviates the need
for internal employees to work in that department, meaning employees can spend more
time working on other operations which increases company productivity.
4. Better Operation Management: If a company's operations are challenging to manage,
they may consider outsourcing areas of the company to improve operations
management. When a company uses project outsourcing, they might find third-party
vendors who can provide excellent project management skills to help projects run more
smoothly.
World Class Manufacturing Practices
Just in Time (JIT)
Introduction
The just-in-time (JIT) inventory system is a management strategy that aligns raw-material
orders from suppliers directly with production schedules. Companies employ this inventory
strategy to increase efficiency and decrease waste by receiving goods only as they need them
for the production process, which reduces inventory costs. This method requires producers to
forecast demand accurately.
One example of a JIT inventory system is a car manufacturer that operates with low inventory
levels but heavily relies on its supply chain to deliver the parts it requires to build cars on an
as-needed basis. Consequently, the manufacturer orders the parts required to assemble the
vehicles only after an order is received.
For JIT manufacturing to succeed, companies must have steady production, high-quality
workmanship, glitch-free plant machinery, and reliable suppliers.
Advantages and Disadvantages of JIT
JIT inventory systems have several advantages over traditional models. Production runs are
short, which means that manufacturers can quickly move from one product to another. Also,
this method reduces costs by minimizing warehouse needs. Companies also spend less money
on raw materials because they buy just enough resources to make the ordered products and no
more.
The disadvantages of JIT inventory systems involve potential disruptions in the supply chain.
If a raw-materials supplier has a breakdown and cannot deliver the goods promptly, this could
conceivably stall the entire production line. A sudden unexpected order for goods may delay
the delivery of finished products to end clients.
Example of JIT
Famous for its JIT inventory system, Toyota Motor Corporation orders parts only when it
receives new car orders. Although the company installed this method in the 1970s, it took 20
years to perfect it.
Sadly, Toyota's JIT inventory system nearly caused the company to come to a halt in February
1997, after a fire at Japanese-owned automotive parts supplier Aisin decimated its capacity to
produce P-valves for Toyota's vehicles. Because Aisin is the sole supplier of this part, its weeks-
long shutdown caused Toyota to halt production for several days.
This caused a ripple effect, where other Toyota parts suppliers likewise had to temporarily shut
down because the automaker had no need for their parts during that time period. Consequently,
this fire cost Toyota 160 billion yen in revenue.
At the start of the COVID-19 pandemic and its ripple effect on the economy and supply chain,
things like paper surgical masks, toilet paper, and hand sanitizer experienced disruption. This
was because inputs from overseas factories and warehouses could not be delivered in time to
meet the surge in demand caused by the pandemic.
Kaizen
Introduction
Kaizen is a Japanese term meaning change for the better or continuous improvement. It is a
Japanese business philosophy that concerns the processes that continuously improve
operations and involve all employees. Kaizen sees improvement in productivity as a gradual
and methodical process.
The concept of kaizen encompasses a wide range of ideas. It involves making the work
environment more efficient and effective by creating a team atmosphere, improving everyday
procedures, ensuring employee engagement, and making a job more fulfilling, less tiring, and
safer.
How it works?
Some of the key objectives of the kaizen philosophy include quality control, just-in-time
delivery, standardized work, the use of efficient equipment, and the elimination of waste.
The overall goal of kaizen is to make small changes over a period of time to create
improvements within a company. That doesn't mean alterations happen slowly. The kaizen
process simply recognizes that small changes now can have huge impacts in the future.
Improvements can come from any employee at any time. The idea is that everyone has a stake
in the company's success and everyone should strive, at all times, to help make the business
model better.
Improvements generally follow the PDCA cycle format. PDCA stands for Plan-Do-Check-Act.
The Plan portion includes proposing and mapping out changes so that everyone knows what to
expect when teams try to solve a problem. The Do stage implements the best solution for the
problem. The Check step involves evaluating the solution to the problem to see if it worked.
When a company Acts, it determines whether or not the solution should become a company
standard or if it needs further changes. If managers decide to implement more changes, kaizen
goes back to the Plan step and the process starts over.
Many companies have adopted the kaizen concept. Most notably, Toyota employs the kaizen
meaning and philosophy within its organization. It esteems kaizen as one of its core values. To
improve its production system, Toyota encourages and empowers all employees to identify
areas of potential improvement and create viable solutions.
Kaizen involves five key principles: know your customer, let it flow, go to Gemba (or the real
place), empower people and be transparent. These five principles lead to three major outcomes:
elimination of waste (also referred to as economic efficiency), good housekeeping, and
standardization. Ideally, kaizen becomes so ingrained in a company's culture that it eventually
becomes natural to employees.
The kaizen meaning that there is no perfect end and that everything can be improved upon.
People must strive to evolve and innovate constantly. The basic idea of kaizen is that people
who perform certain tasks and activities know the most about them. Empowering those people
to effect change is the best strategy for improvement.
Kaizen offers companies many valuable benefits. Some of them are:
• Greater staff satisfaction
• Improved customer satisfaction
• Reduction in staff turnover
• Strengthened employee loyalty
• Lower costs
• Greater efficiency and productivity
• Better problem solving
Total Quality Management
Introduction
Total quality management (TQM) is the continual process of detecting and reducing or
eliminating errors in manufacturing, streamlining supply chain management, improving the
customer experience, and ensuring that employees are up to speed with training. Total quality
management aims to hold all parties involved in the production process accountable for the
overall quality of the final product or service.
Understanding TQM
Total quality management is a structured approach to overall organizational management. The
focus of the process is to improve the quality of an organization's outputs, including goods and
services, through the continual improvement of internal practices. The standards set as part of
the TQM approach can reflect both internal priorities and any industry standards currently in
place.
Industry standards can be defined at multiple levels and may include adherence to various laws
and regulations governing the operation of a particular business. Industry standards can also
include the production of items to an understood norm, even if the norm is not backed by
official regulations.
Primary Principles of Total Quality Management
TQM is considered a customer-focused process that focuses on consistently improving
business operations management. It strives to ensure all associated employees work toward the
common goals of improving product or service quality, as well as improving the procedures
that are in place for production. There are a number of guiding principles that define TQM.
1. Focus on Customers: Under TQM, the customers define whether or not your products
are high quality. Customer input is highly valued, as it allows a company to better
understand the needs and requirements in the manufacturing process. For example,
customer surveys may reveal insufficient durability of goods. This input is then fed
back into TQM systems to implement better raw material sourcing, manufacturing
processes, and quality control procedures.
2. Commitment by Employees: For TQM to be successful, employees must buy into the
processes and system. This includes clearly communicating across departments and
leaders what goals, expectations, needs, and constraints are in place. A company
adopting TQM principles must be willing to train employees and give them sufficient
resources to complete tasks successfully and on time. TQM also strives to
reduce attrition and maintain knowledgeable workers.
3. Improve Continuously: As a company learns more about its customers, processes, and
competition, it should gradually evolve and strive for incremental, small improvements.
This concept of continuous improvement helps a company adapt to changing market
expectations and allows for greater adaptability to different products, markets,
customers, or regions. Continuous improvement also drives and widens the competitive
advantage a company has built over related companies.
4. Adherence to Processes: TQM's systematic approach relies heavily on process
flowcharts, TQM diagrams, visual action plans, and documented workflows. Every
member along the process must be aware and educated on their part of the process to
ensure proper steps are taken at the right time of production. These processes are then
continually analyzed to better understand deficiencies in the process.
5. Strategic and Systematic Approach: A company's processes and procedures should
be a direct reflection of the organizations vision, mission, and long-term plan. TQM
calls for a system approach to decision-making that requires a company to dedicate
itself to integrating quality as its core component and making the appropriate financial
investments to making that happen.
6. Data Utilization: The systematic approach of TQM only works if feedback and input
is given to evaluate how the process flow is moving. Management must continually rely
on production, turnover, efficiency, and employee metrics to correlate the anticipated
outcomes to the actual results. TQM relies heavily on documentation and planning, and
only by utilizing and analyzing data can management understand if those plans are
being met.
7. Integrate Systems: One way to utilize data is to integrate systems. TQM strategies
believe systems should talk to each other, convey useful information across
departments, and make smart decisions. When goods or inventory is used in one area,
another department should have immediate access to that ERP information. By linking
data sources and sharing information across systems, TQM strives to allow everyone to
be on the same page at the same time.
8. Communication: Though data may transfer between departments freely, there is a
human element to coordinating processes and making sure an entire production line is
operating efficiently. Whether it is normal day-to-day operations or large organizational
 changes, effective communication plays a large part in TQM to motivate employees,
education members along a process, and avoid process errors.
Pros
• Delivers stronger, higher quality products to customers
• Results in lower company-wide costs
• Minimizes waste throughout the entire production and sale process
• Enables a company to become more adaptable
Cons
• May require substantial financial investment to convert to TQM practices
• Often requires conversion to TQM practices over a long period of time
• May be met with resistance to change
• Requires company-wide buy-in to be successful
Total Productive Maintenance (TPM)
Introduction:
Total Productive Maintenance (TPM) seeks to engage all levels and functions in an
organization to maximize the overall effectiveness of production equipment. This method
further tunes up existing processes and equipment by reducing mistakes and accidents.
Whereas maintenance departments are the traditional center of preventive maintenance
programs, TPM seeks to involve workers in all departments and levels, from the plant-floor to
senior executives, to ensure effective equipment operation.
Autonomous maintenance, a key aspect of TPM, trains and focuses workers to take care of the
equipment and machines with which they work. TPM addresses the entire production system
lifecycle and builds a solid, plant-floor based system to prevent accidents, defects, and
breakdowns. TPM focuses on preventing breakdowns (preventive maintenance), "mistake-
proofing" equipment (or poka-yoke) to eliminate product defects and non-de, or to make
maintenance easier (corrective maintenance), designing and installing equipment that needs
little or no maintenance (maintenance prevention), and quickly repairing equipment after
breakdowns occur (breakdown maintenance).
The goal is the total elimination of all losses, including breakdowns, equipment setup and
adjustment losses, idling and minor stoppages, reduced speed, defects and rework, spills and
process upset conditions, and startup and yield losses. The ultimate goals of TPM are zero
equipment breakdowns and zero product defects, which lead to improved utilization of
production assets and plant capacity.
The Eight Pillars of TPM Manufacturing:
1. Autonomous Maintenance: The operations team monitors and maintains the condition
of their own equipment and work areas by performing minor maintenance tasks like
cleaning, inspecting, and lubricating equipment. This begins by getting the machine to
a “like new” standard and keeping it there.
2. Planned Maintenance: Planned maintenance is the best way to avoid unscheduled
downtime. Regular maintenance keeps assets in optimal condition, improves
 compliance, and reduces customer complaints. Programmed maintenance that requires
machines to shut down should be done after regular work hours.
3. Quality Integration: Implement tight quality management procedures to reduce
defects, rework, and scrap parts. The goal is to achieve zero defective products in
manufacturing.
4. Focused Improvement: Keep reiterating processes and procedures based on the latest
data. Review failure metrics and collect information from machine operators. The team
must be proactive and willing to brainstorm different approaches and try new methods.
5. Early Equipment Management: Choosing high-quality equipment and parts from the
start sets up for success for example, an IoT-enabled machine that can self-diagnose
malfunctions. Use maintenance reports to anticipate and plan for parts and equipment
life cycles. Just-in-time inventory management uses predictive analytics to order and
stock parts ahead of scheduled maintenance.
6. Training and Education: Implementing TPM manufacturing should be a
companywide effort. Educate machine operators on how to keep their work areas clean
and functional. Make sure executive management supports the TPM implementation in
terms of budgets, time allocated for training, and providing guidance on processes and
procedures. TPM manufacturing helps improve employee morale, retention, and
efficiency.
7. Safety, Health, and Environment: TPM safety standards aspire towards zero
accidents, zero pollution, and no employee burnout. Proper maintenance of equipment
and buildings reduces occupational hazards. Additionally, be sure to minimize workers’
exposure to harmful chemicals such as asbestos, radiation, and fumes.
8. TPM in Administration: Administrative workers and executive management play an
instrumental role in TPM. Don’t just leave it to the “worker bees.” Everyone must be
proactive and focused on continuous improvement.
Method and Approach of TPM:
Organizations typically pursue the four techniques below to implement TPM. Kaizen events
can be used to focus organizational attention on implementing these techniques
1. Efficient Equipment: The best way to increase equipment efficiency is to identify the
losses, that are hindering performance. To measure overall equipment effectiveness, a
TPM index, Overall Equipment Effectiveness (OEE) is used. It is estimated that most
companies can realize a 15-25 percent increase in equipment efficiency rates within
three years of adopting TPM.
2. Effective Maintenance: Thorough and routine maintenance is a critical aspect of TPM.
First and foremost, TPM trains equipment operators to play a key role in preventive
maintenance by carrying out "autonomous maintenance" on a daily basis. Typical daily
activities include precision checks, lubrication, parts replacement, simple repairs, and
abnormality detection. Workers are also encouraged to conduct corrective maintenance,
designed to further keep equipment from breaking down, and to facilitate inspection,
repair and use. Corrective maintenance includes recording the results of daily
inspections, and regularly considering and submitting maintenance improvement ideas.
3. Mistake-Proofing: Known as poka-yoke, in lean manufacturing contexts, mistake-
proofing is the application of simple "fail-safing" mechanisms designed to make
 mistakes impossible or at least easy to detect and correct. Poka-yoke devices fall into
two major categories: prevention and detection.
• A prevention device is one that makes it impossible for a machine or machine
operator to make a mistake. For example, many automobiles have "shift locks" that
prevent a driver from shifting into reverse unless their foot is on the brake.
• A detection device signals the user when a mistake has been made, so that the user
can quickly correct the problem. In automobiles, a detection device might be a
warning buzzer indicating that keys have been inadvertently left in the ignition.
4. Safety Management: The fundamental principle behind TMP safety and
environmental management activities is addressing potentially dangerous conditions
and activities before they cause accidents, damage, and unanticipated costs. Like
maintenance, safety activities under TPM are to be carried out continuously and
systematically. Focus areas include
• the development of safety checklists (e.g., to detect leaks, unusual equipment
vibration, or static electricity)
• the standardization of operations (e.g., materials handling and transport, use of
protective clothing, etc.)
• coordinating nonrepetitive maintenance tasks (e.g., especially those involving
electrical hazards, toxic substances, open flames, etc.).
In many cases, equipment can be modified (see mistake-proofing) to minimize the likelihood
of equipment malfunction and upset conditions.
Employee Involvement, Simplicity
Global Strategy Options
Operations managers of international and multinational firms approach global opportunities
with one of four operation strategies:
• International strategy
• Multidomestic strategy
• Global strategy
• Transnational strategy
The four strategies are related to two variables:
• Local Responsiveness: the degree of differentiation among the strategies followed by
a certain company in every country in order to adapt the products to the local market.
• Cost Reduction: the degree of cost advantage that the strategy gives to the company
over the industry rivals.
The relation among these two variables and the four strategies are explained below:
1. International Strategy: An international strategy uses exports and licenses to
penetrate the global arena. It is the least advantageous strategy, with little local
responsiveness, as these companies sell the same product in every country, and little
low-cost advantage because they use their existing production process at some distance
from the new market. Thus, an international strategy implies both low local
responsiveness and cost reduction.
 However, an international strategy is often the easiest one, as exports can require little
change in existing operations, and licensing agreements often leave much of the risk to
the licensee. In international strategy markets are penetrated using exports and licenses.
An example of a company that follows an international strategy is Harley
Davidson which sells “Made in America” products all over the world by exporting them
from the US.
2. Multidomestic Strategy: The multidomestic strategy has decentralised authority with
substantial autonomy at each business by creating subsidiaries, franchises or joint
ventures with substantial independence. The advantage of this strategy is maximising a
competitive response for the local market, however this strategy has little or no cost
advantage. It is a strategy in which operating decisions are decentralised to each country
to enhance local responsiveness.
An example of a company that follows this strategy is McDonald´s that, depending on
the country, uses different strategies. For instance, in France, where people do not like
fast-food restaurants, McDonald´s created a sophisticated line of restaurants; in India,
where people cannot eat meat, they created a sort of veggie restaurants.
3. Global Strategy: A global strategy has a high degree of centralisation, with
headquarters coordinating the organisation to seek out standardisation and learning
between plants, thus generating economies of scale. This strategy is appropriate when
the strategy focus is cost reduction but has little to recommend it when demand for local
responsiveness is high. It is commonly used by companies that produce customer
hidden products. Thus, it is a strategy in which operating decisions are centralised and
headquarters coordinates the standardisation and learning between facilities.
An example of a company that uses this strategy is Microsoft, which centralises its
process in the headquarters and the product is standardised in the whole planet and the
only thing they change is the language of their programs.
4. Transnational Strategy: A transnational strategy exploits the economies of scale and
learning, as well as pressure for responsiveness, by recognising the core competence
that does not reside in just the home country but anywhere else in the organisation.
Key activities in a transnational company are neither centralised in the parent company
nor decentralised so that each subsidiary can carry its own tasks on a local basis.
Instead, resources and activities are dispersed, but specialised, so as to be both efficient
and flexible in an interdependent network. Thus, a transnational strategy combines the
benefits of global-scale efficiencies with the benefits of local responsiveness.
An example of a transnational company is Nestlé, which is actually from Switzerland
but 95% of their assets and 98% of their sales take part abroad, so the country identity
of Nestlé is really low and thus, it is a “world company”.