Operations Consulting – TDMaddox
Operations Consulting
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Assignment Content
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Purpose of Assignment
The purpose of this assignment is for students to learn how to develop an operations consulting proposal.
Resources
Operations and Supply Chain Management, Ch. 25; Microsoft®PowerPoint®
Assignment Steps
Choose a business in the media having difficulties with its operating model or one which is struggling in your community.
Evaluate how all or some of the items from the Operations Consulting Tool Kit in Operations and Supply Chain Management could help this business get back on track.
Determine the resources and data you will need to deploy an operations consulting engagement with this business.
Develop a business case including financial benefits on how operations consulting can have a positive impact on the business.
Develop a 10- to 15-slide Microsoft®PowerPoint® presentation of an operations consulting engagement proposal to the Chief Operating Officer (COO) and Chief Executive Officer (CEO) of the target firm.
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Operations Consulting Grading Guide
OPS/571 Version 8
Operations Management
Individual Assignment: Operations Consulting
Purpose of Assignment
The purpose of this assignment is for students to learn how to develop an Operations Consulting proposal.
Resources Required
Microsoft® PowerPoint®, Operations and Supply Chain Management: Ch. 25
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Choose a business in the media which is having difficulties with its operating model or one which is struggling in your community. |
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Evaluated how all or some of the items from the Operations Consulting Tool Kit could help this business get back on track. |
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Determined the resources and data needed to deploy an operations consulting engagement with this business. |
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Developed a business case (including financial benefits) on how operations consulting can have a positive impact on the business. |
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Developed a 10- to 15-slide Microsoft® PowerPoint® presentation of an operations consulting engagement proposal to the Chief Operating Officer and CEO of the target firm. |
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Presentation Guidelines |
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The presentation is laid out with effective use of headings, font styles, font sizes, and white space. |
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Intellectual property is recognized with in-text citations and a reference page. |
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The presentation includes an introduction and conclusion that preview and review major points. |
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Major points are stated clearly; are supported by specific details, examples, or analysis; and are organized logically. |
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Operations Consulting Tool Kit Operations consulting tools can be categorized as tools for problem definition, data gathering, data analysis and solution development, cost impact and payoff analysis, and implementation. These—along with some tools from strategic management, marketing, and information systems that are commonly used in OSCM consulting—are noted in Exhibit 25.3 and are described next. Note that several of these tools are used in more than one stage of a project.
Problem Definition Tools Issue Trees Issue trees are used by McKinsey to structure or map the key problems to be investigated and provide a working initial hypothesis as to the likely solution to these problems. As can be seen in Exhibit 25.4, a tree starts with the general problem (increase widget sales) and then goes level by level until potential sources of the problem are identified. Once the tree is laid out, the relationships it proposes and possible solutions are debated, and the project plan is then specified. exhibit 25.3 Operations Consulting Tool Kit
exhibit 25.3 Operations Consulting Tool Kit
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exhibit 25.4 Issue Tree for Acme Widgets
E. M. Rasiel, The McKinsey Way: Using the Techniques of the World’s Top Strategic Consultants to Help You and Your Business, (New York, McGraw-Hill, 1998), p. 12. Used with permission.
Customer Surveys Frequently, OSCM consultants are called in to address problems identified by customer surveys performed by marketing consultants or marketing staff. Often, however, these are out of date or are in a form that does not separate process issues from advertising or other marketing concerns. Even if the surveys are in good form, calling customers and soliciting their experience with the company is a good way to get a feel for process performance. A key use of customer surveys is customer loyalty analysis, although in reality customers are not so much “loyal” (your dog, Spot, is loyal) as “earned” through effective performance. Nevertheless, the term loyalty captures the flavor of how well an organization is performing according to three critical market measures: customer retention, share of wallet, and price sensitivity relative to competitors. Having such information available helps the OSCM consultant drill down into the organization to find what operational factors are directly linked to customer retention. Although loyalty studies are usually performed by marketing groups, OSCM consultants should be aware of their importance.
Gap Analysis Gap analysis is used to assess the client’s performance relative to the expectations of its customers, or relative to the performance of its competitors. An example is shown in
Exhibit 25.5
.
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exhibit 25.5 Issue Tree for Acme Widgets
Source: Deloitte & Touche Consulting Group
Another form of gap analysis is benchmarking particular client company processes against exemplars in the process and measuring the differences. For example, if one is interested in billing process accuracy and problem resolution, American Express would be the benchmark; for timeliness and efficiency in railway transportation, Japanese Railways; for order entry in catalog sales, it would be L.L.Bean.
Employee Surveys Such surveys range from employee satisfaction surveys to suggestion surveys. A key point to remember is if the consultant requests employee suggestions, such information must be carefully evaluated and acted upon by management. A few years ago, Singapore Airlines distributed a questionnaire to its flight personnel, but made the mistake of not following through to address their concerns. As a result, the employees were more critical of the company than if the survey had not been taken, and to this day the company does not use this form of evaluation.
The Five Forces Model This is one of the better-known approaches to evaluating a company’s competitive position in light of the structure of its industry. The five forces are buyer power, potential entrants, raw material suppliers, substitute products, and industry rivals. The consultant applies the model by developing a list of factors that fit under each of these headings. Some examples of where a client’s competitive position might be strong are when buyers have limited information, there are major barriers to potential entrants, there are many alternative suppliers, there are few substitute products (or services), or there are few industry rivals.
Often used with the five forces model is the value chain, such as shown in
Exhibit 25.6
. The value chain provides a structure to capture the linkage of organizational activities that create value for the customer and profit for the firm. It is particularly useful to get across the notion that operations and the other activities must work cross-functionally for optimal organizational performance (and avoid the dreaded “functional silo” syndrome).
A tool similar to the five forces model is SWOT analysis. This is a somewhat more general method of evaluating an organization and has the advantage of being easy to remember: Strengths of the client, Weaknesses of the client, Opportunities for the client in the industry, and Threats from competitors or the economic and market environment.
Data Gathering
Plant Tours/Audits These can be classified as manufacturing tours/audits and service facility tours/audits. Full manufacturing audits are a major undertaking, entailing measurement of all aspects of the production facility and processes, as well as support activities such as maintenance and inventory stockkeeping. Frequently these require several page 680weeks, utilizing checklists developed explicitly for the client’s industry. Plant tours, on the other hand, are usually much less detailed and can be done in a half day. The purpose of the tour is to get a general understanding of the manufacturing process before focusing on a particular problem area. To collect consistent information, the members of the study team in a tour use the same generic checklist or general questions.
exhibit 25.6 Value Chain
Based on Harvard Business School Press. From M. E. Porter, Competition in Global Industries, (Boston, MA, 1986), p. 24.
The quick plant assessment (QPA) tour is designed to enable a study team to determine the “leanness” of a plant in just 45 minutes. The approach uses a 20-item questionnaire and an 9-category item rating sheet (see “
Quick Plant Assessment
” Exercise at the end of the chapter). During the tour, team members talk with workers and managers and look for evidence of best practices. At the end of the tour, members discuss their impressions and fill out the worksheets. The categories are key to the tour. Their features are summarized in the nearby OSCM at Work box, “Quick Plant Assessment.”
Complete service facility audits are also a major undertaking, but they differ from manufacturing audits in that, when properly done, they focus on the customer’s experience as much as on the utilization of resources. Typical questions in a service audit address time to get service, the cleanliness of the facility, staff sizing, and customer satisfaction. A service facility tour or walk-through can often be done as a mystery shopper, where the consultant actually partakes of the service and records his or her experiences.
OSCM AT WORK
Quick Plant Assessment
1. Customer focus. A customer-oriented workforce will take pride in satisfying both external and internal customers. The extent of this orientation should be apparent even in a brief plant tour. For example, when asked about the next step in the process, customer-aware employees will respond by giving a person’s name or product, rather than saying that they just put it on the pallet and it’s moved later. Cordiality to the touring group and posted quality and customer satisfaction ratings are other signs of a customer-oriented workforce. (Questions 1, 2, and 20 on the QPA questionnaire relate to this measure. This questionnaire is included at the end of this chapter.)
2. Safety, cleanliness, and order. The physical environment of a plant is important to operating effectiveness. Cleanliness, low noise levels, good lighting, and air quality are obvious things to look for. Labeling and tracking of all inventory items, not just expensive ones, should be in evidence. (Not having the required nuts page 681 and bolts can be as disruptive to production as lacking a major component.) (Questions 3–5 and 20)
3. Visual management/Scheduling. Production management tools such as work instructions, kanban schedules, and quality and productivity charts should be easily visible. Posted workflow diagrams linking each stage of a process are particularly effective visual cues. In addition, scheduling typically involves some mechanism for pacing of the workflow based on demand. (Questions 2, 4, 6–10, 11, and 20)
4. Use of space, movement efficiency, and product line flow. Good indicators of efficient space utilization are minimum material movement over short distances, use of efficient containers; materials stored at the point of use, not in separate inventory storage areas; tooling kept near the machines; and product flow layout rather than process layout. (Questions 7, 12, 13, and 20)
5. Teamwork. Discussions with workers and visible indicators of teamwork such as names of teams over a work area and productivity award banners are quick ways of determining how the workforce feels about their jobs, the company, and their co-workers. (Questions 9, 14, 15, and 20)
6. Maintenance of equipment. Purchase dates and equipment costs should be stenciled on the side of machinery, and maintenance records should be posted nearby. Asking people on the factory floor how things are working and whether they are involved in purchasing tools and equipment is also indicative of the extent to which workers are encouraged to address these issues. (Questions 16 and 20)
7. Management of complexity and variability. This depends greatly on the type of industry. Obviously, industries with narrow product lines have less difficulty handling complexity and variability. Indicators to watch for in general are the number of people manually recording data and the number of keyboards available for data entry. (Questions 8, 17, and 20)
8. Supply chain integration. It is generally desirable to work closely with a relatively small number of dedicated and supportive suppliers. A rough estimate of the number of suppliers can be ascertained by looking at container labels to see what supplier names appear on containers. Containers that appear to be designed and labeled specifically for customized parts shipped to a plant indicate the extent to which a strong supplier partnership exists. A sign of poor supply chain integration is lots of paperwork on the receiving dock. This indicates lack of a smooth pull system where plants pull the materials from their suppliers as if it was just another link in the pull system for each product line. (Questions 18 and 20)
9. Quality commitment. Attention to quality is evidenced in many ways, including posting of quality awards, quality scorecards, and quality goal statements. Quality is reflected in many of the other plant activities such as product development and startups. (Questions 8, 9, 15, 17, 19, and 20)
Modified from R. Eugene Goodson, “Read a Plant–Fast,” Harvard Business Review 80, no. 5 (May 2002), pp. 105–13.
MANUFACTURING PROFESSIONALS TAKE A TOUR OF THE LINCOLN ELECTRIC MACHINE DIVISION OF THE CLEVELAND HEADQUARTERS AND FACTORY, WHERE THEY SEE THE LINCOLN MANUFACTURING PLAN IN ACTION ON THE PLANT FLOOR. THE TOURS HIGHLIGHT FIVE DIFFERENT LOCATIONS ON THE MANUFACTURING FLOOR WHERE MORE THAN 300 WELDING MACHINE MODELS AND 1,600 ACCESSORIES ARE MADE EACH DAY.
Courtesy of The Lincoln Electric Company
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Work Sampling Work sampling entails random sampling observations of work activities, designed to give a statistically valid picture of how time is spent by a worker or the utilization of equipment. Diary studies are another way to collect activity data. These are used by consultants to get an understanding of specific tasks being performed by the workforce. In these, the employee simply writes down the activities he or she performs during the week as they occur. This avoids the problem of having analysts look over a worker’s shoulder to gather data. Examples of where these studies are used include library front desks, nursing, and knowledge work.
Flowcharts Flowcharts can be used in both manufacturing and services to track materials, information, and people flows. Workflow software such as Optima! and BPR Capture are widely used for process analysis. In addition to providing capabilities for defining a process, most workflow software provides four other basic functions: work assignment and routing, scheduling, work list management, and automatic status and process metrics. Flowcharts used in services—service blueprints—are basically the same thing, but add the important distinction of the line of visibility to clearly differentiate activities that take place with the customer versus those that are behind the scenes. In our opinion, the service blueprint is not used to its full potential by consulting firms, perhaps because relatively few consultants are exposed to them in their training.
Organization Charts Organization charts are often subject to change, so care must be taken to see who really reports to whom. Some companies are loath to share organization charts externally. Several years ago, a senior manager from a large electronics firm told us that a detailed organization chart gives free information to the competition.
Data Analysis and Solution Development
Problem Analysis (SPC Tools) Pareto analysis, fishbone diagrams, run charts, scatter diagrams, and control charts are fundamental tools in virtually every continuous improvement project. Pareto analysis is applied to inventory management under the heading of ABC analysis. Such ABC analysis is still the standard starting point of production control consultants when examining inventory management problems. Fishbone diagrams (or cause-and-effect diagrams) are a great way to organize one’s first cut at a consulting problem (and they make a great impression when used to analyze, for example, a case study as part of the employment selection process for a consulting firm). Run charts, scatter diagrams, and control charts are tools that one is simply expected to know when doing operations consulting.
Bottleneck Analysis Resource bottlenecks appear in most OSCM consulting projects. In such cases, the consultant has to specify how available capacity is related to required capacity for some product or service in order to identify and eliminate the bottleneck. This isn’t always evident, and abstracting the relationships calls for the same kind of logical analysis used in the classic “word problems” you loved in high school algebra.
Computer Simulation Computer simulation analysis has become a very common tool in OSCM consulting. The most common general-purpose simulation packages are Extend and Crystal Ball. SimFactory and ProModel (for manufacturing systems), MedModel (hospital simulation), and Service Model are examples of specialized packages. For smaller and less complex simulation, consultants often use Excel.
Chapter 10
introduces the topic of simulation in this book.
A growing interest in simulation is in the analysis of “system dynamics.” System dynamics is a language that helps us see the patterns that underlie complex situations. These complex situations are modeled using causal loop diagrams that are useful when factors either enhance or degrade system performance. Causal loops are of two types: reinforcing loops and balancing loops. Reinforcing loops are positive feedback loops driving positive values in criteria important to the system. Balancing loops reflect the mechanisms that counter reinforcing loops, thereby driving the system toward equilibrium. By way of example, with reference to page 683
Exhibit 25.7
, suppose you have a quality goal that is reflected in a quality standard. The reinforcing loop (R) indicates that the standard, if left unmodified, would yield an ever-increasing (or decreasing) level of actual quality. In reality, what happens is that the balancing loop (B) comes into play. Effective time required to meet the standard determines time pressure (on the workers), which, in turn, modifies the actual quality achieved and ultimately achievement of the quality standard itself. An obvious use of the system shown here would be to hypothesize the consequences of raising the quality goal, or raising or lowering the values of the other variables in the system. In addition to its use in problem analysis, causal loop analysis simulations are often used by consultants to help client companies become more effective learning organizations.
exhibit 25.7 Causal Loop Analysis
Statistical Tools Correlation analysis and regression analysis are expected skills for consulting in OSCM. The good news is that these types of analyses are easily performed with spreadsheets. Hypothesis testing is mentioned frequently in the consulting firm methodology manuals, and one should certainly be able to perform Chi-square and t-tests in analyzing data. Two other widely used tools that use statistical analysis are queuing theory and forecasting. Consultants frequently use queuing theory to investigate how many service channels are needed to handle customers in person or on the phone. Forecasting problems likewise arise continually in OSCM consulting (such as forecasting the incoming calls to a call center).
A newly emerging tool (not shown on our exhibit) is data envelopment analysis. DEA is a linear programming technique used to measure the relative performance of branches of multisite service organizations such as banks, franchise outlets, and public agencies. A DEA model compares each branch with all other branches and computes an efficiency rating based on the ratio of resource inputs to product or service outputs. The key feature of the approach is that it permits using multiple inputs such as materials and labor hours, and multiple outputs such as products sold and repeat customers, to get an efficiency ratio. This feature provides a more comprehensive and reliable measure of efficiency than a set of operating ratios or profit measures.
Cost Impact and Payoff Analysis
Decision Trees Decision trees represent a fundamental tool from the broad area of risk analysis. They are widely used in examining plant and equipment investments and R&D projects. Decision trees are built into various software packages such as TreeAge (
www.treeage.com)
.
Stakeholder Analysis Most consulting projects impact in some way each of five types of stakeholders: customers, stockholders, employees, suppliers, and the community. The importance of considering the interest of all stakeholders is reflected in the mission statements of virtually all major corporations and, as such, provides guidance for consultants in formulating their recommendations.
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exhibit 25.8 Dashboard for Suppliers
Balanced Scorecard In an attempt to reflect the particular needs of each stakeholder group in a performance measurement system, accountants have developed what is termed a balanced scorecard. (Balanced refers to the fact that the scorecard looks at more than just the bottom line or one or two other performance measures.) The Bank of Montreal has used the balanced scorecard notion in setting specific goals and measures for customer service, employee relations, return to owners, and community relations. A key feature of the system is that it is tailored to what senior management and branch-level management can control.
Process Dashboards In contrast to the balanced scorecard, which focuses on organizationwide performance data, process dashboards are designed to provide summary performance updates for specific processes. Dashboards consist of a selection of performance metrics presented in graphical form with color-coding of trend lines, alarms in the form of exclamation marks, and so forth, to show when key indicators are nearing a problem level. For example, three different dials on a dashboard for suppliers are shown in
Exhibit 25.8
.
Implementation
Responsibility Charts A responsibility chart is used in planning the task responsibilities for a project. It usually takes the form of a matrix with tasks listed across the top and project team members down the side. The goal is to make sure that a checkmark exists in each cell to assure that a person is assigned to each task.
Project Management Techniques Consulting firms use the project management techniques of CPM/PERT and Gantt charts to plan and monitor the entire portfolio of consulting engagements of the firm, as well as individual consulting projects. Microsoft Project and Primavera Project Planner are examples of commonly used software to automate such tools. Evolve Software has developed a software suite for professional service firms, modeled on ERP for manufacturing, that allows management to integrate opportunity management (the selling process), resource management, and delivery management. It should be emphasized that these planning tools are very much secondary to the people management skills needed to successfully execute a consulting project. This admonition is likewise true for all of the tools we have discussed in this section.
BUSINESS PROCESS REENGINEERING (BPR)
LO 25–3
Analyze processes using business process reengineering concepts.
Business process
reengineering
is the radically restructuring of business processes to significantly improve customer service, reduce cost, and become competitive. It uses many of the tools just discussed to achieve these goals.
Reengineering
The radically resturcturing of business processes to significantly improve customer service, reduce cost, and become competitive.
The concept of reengineering has been around for nearly two decades and was implemented in a piecemeal fashion in organizations. Production organizations have been in the vanguard without knowing it. They have undertaken reengineering by implementing concurrent engineering, lean production, cellular manufacturing, group technology, and pull-type production systems. These represent a fundamental rethinking of the manufacturing process.
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Reengineering is often compared to total quality management (TQM), a topic covered in
Chapter 12
. Some people have said that the two are, in fact, the same, whereas others have even argued that they are incompatible. Both concepts are centered on a customer focus. The concepts of teamwork, worker participation and empowerment, cross-functionality, process analysis and measurement, supplier involvement, and benchmarking are significant contributions from quality management. In addition, the need for a “total” view of the organization has been reemphasized by quality management in an era of extensive functionalization of business. Quality management has also influenced company culture and values by exposing organizations to the need for change. The basic difference between the two is that quality management has emphasized continuous and incremental improvement of processes that are in control, whereas reengineering is about radical, discontinuous change through process innovation. Thus, a given process is enhanced by TQM until its useful lifetime is over, at which point it is reengineered. Then, enhancement is resumed and the entire cycle starts again. As business circumstances change in major ways, so must process designs.
Principles of Reengineering
Reengineering is about achieving a significant improvement in processes so that contemporary customer requirements of quality, speed, innovation, customization, and service are met. The following are seven principles or rules for reengineering and integration that can be used to guide a process reengineering project.
Rule 1. Organize around Outcomes, Not Tasks Several specialized tasks previously performed by different people should be combined into a single job. This could be performed by an individual “case worker” or by a “case team.” The new job created should involve all the steps in a process that creates a well-defined outcome. Organizing around outcomes eliminates the need for handoffs, resulting in greater speed, productivity, and customer responsiveness. It also provides a single knowledgeable point of contact for the customer.
Rule 2. Have Those Who Use the Output of the Process Perform the Process In other words, work should be carried out where it makes the most sense to do it. This results in people closest to the process actually performing the work, which shifts work across traditional intra- and interorganizational boundaries. For instance, employees can make some of their own purchases without going through purchasing, customers can perform simple repairs themselves, and suppliers can be asked to manage parts inventories. Relocating work in this fashion eliminates the need to coordinate the performers and users of a process.
Rule 3. Merge Information-Processing Work into the Real Work that Produces the Information This means that people who collect information should also be responsible for processing it. It minimizes the need for another group to reconcile and process that information, and greatly reduces errors by cutting the number of external contact points for a process. A typical accounts payable department that reconciles purchase orders, receiving notices, and supplier invoices is a case in point. By eliminating the need for invoices by processing orders and receiving information online, much of the work done in the traditional accounts payable function becomes unnecessary.
Rule 4. Treat Geographically Dispersed Resources as Though They Were Centralized Information technology now makes the concept of hybrid centralized/decentralized operations a reality. It facilitates the parallel processing of work by separate organizational units that perform the same job, while improving the company’s overall control. For instance, centralized databases and telecommunication networks now allow companies to link with separate units or individual field personnel, providing them with economies of scale while maintaining their individual flexibility and responsiveness to customers.
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Rule 5. Link Parallel Activities Instead of Integrating Their Results The concept of integrating only the outcomes of parallel activities that must eventually come together is the primary cause for rework, high costs, and delays in the final outcome of the overall process. Such parallel activities should be linked continually and coordinated during the process.
Rule 6. Put the Decision Point Where the Work Is Performed, and Build Control into the Process Decision making should be made part of the work performed. This is possible today with a more educated and knowledgeable workforce plus decision-aiding technology. Controls are now made part of the process. The vertical compression that results produces flatter, more responsive organizations.
Rule 7. Capture Information Once—at the Source Information should be collected and captured in the company’s online information system only once—at the source where it was created. This approach avoids erroneous data entries and costly reentries.
Guidelines for Implementation
The principles of business process reengineering just enumerated are based on a common platform of the innovative use of information technology. But creating a new process and sustaining the improvement requires more than a creative application of information technology. A detailed study of reengineering applications in 765 hospitals yielded the following three managerial guidelines that apply to almost every organization contemplating reengineering:
1. Codification of reengineering. Organization wide change programs such as reengineering are complex processes whose implementation may be separated by space and time. Middle managers are often left to implement significant portions of reengineering proposals. Codifying provides guidance and direction for consistent, efficient implementation.
2. Clear goals and consistent feedback. Goals and expectations must be clearly established, preapplication baseline data gathered, and the results monitored and fed back to employees. Without clear feedback, employees often became dissatisfied and their perceptions of reengineering success can be quite different from actual outcomes. For example, the hospital researchers found that, at 10 hospitals they studied in depth, most employees in 4 of them felt that the reengineering program had done little to change costs, even though their costs had actually dropped 2 to 12 percent relative to their competitors’. On the other hand, 4 hospitals in which most felt that reengineering had lowered costs actually experienced an increase in relative costs and a deterioration of their cost position.
3. High executive involvement in process changes. A high level of involvement by the chief executive officer in major process changes (procedure changes in hospitals, for example) improves reengineering outcomes. Changes that require reductions of managers and employees are certainly less popular and more difficult. It is better that these be done using a more long-term plan.