Chapter 25 - Operations Consulting

Operations Consulting Learning Objectives LO 25–1 Explain operations consulting and how money is made in the industry. LO 25–2 Illustrate the operations analysis tools used in the consulting industry. LO 25–3 Analyze processes using business process reengineering concepts. P I T T I G L I O R A B I N TO D D & M C G R AT H ( P R T M ) —A L E A D I N G O P E R AT I O N S C O N S U LT I N G C O M PA N Y Good business strategy plots changes in where a company is going. A winning operational strategy translates that direction into operational reality, creating strategic competitive advantage in the process. PRTM is a leading company specializing in finding ways to structure business operations to create breakout results in top-line growth, earnings, and valuation. Today’s operational CEOs realize that brilliant business strategies and operational strategies are interconnected. Business strategies drive the need for new operational capabilities, and evolving operational capabilities shape the future business strategies. PRTM Consultants focus on the following six essential ingredients of operational strategy: • Transform market forces into operational advantage. This is the kind of insight that Black & Decker used to turn a regulatory requirement for doubleinsulated power tools into a new modular product platform that redefined cost and performance in category after category. The same type of insight helped Progressive Insurance transform automobile claims from an unproductive part of its cost structure into a far more economical and valued source of competitive advantage. • Do one thing extraordinarily well. Consider the case of Apple iTunes. Its gigantic share of the digital music player market is fueled by Apple’s relentless pursuit of ease of use as a basis of competition. Companies like Walmart are all about cost leadership, attaining the lowest end-to-end operational cost, and the highest productivity. • Think end-to-end, continuous, real time, and horizontally. Every organization has a set of core operational domains that make up its operational model. For most, these comprise some combination of the product development chain, the supply chain, and the customer chain. Operational strategy configures these operational domains to deliver against business strategy, and create advantage in their own right. • Think and execute globally. Due to global markets for products and the global availability of supply, many companies need to consider strategies that best position the firm to compete in this domain. Global opportunities are often the key driver to changes to both business and operational strategies. • Drive innovation in your operations and business model. Peter Drucker defined innovation as change that creates a new dimension of performance. He also stated that a key accountability of the CEO is innovation. Too often, innovation is perceived to be a technical or product-oriented activity. The reality is that operational innovation is creating the commanding leaders today. • Execute relentlessly. A complete operational strategy requires a commitment to execution. Companies with commanding leads in their markets execute relentlessly, informed by their global marketplace insight, and are aligned to a singular competitive focus, emboldened by a clear innovation intent, and guided by a sound operational model aligned with business strategy and business economics. In the twenty-first century, companies that make all aspects of their operations a source of strategic innovation will dominate their markets, delivering unparalleled revenue growth, earnings performance, and shareholder return. Operations consulting has become one of the major areas of employment for business school graduates. The page cited from the PRTM Website nicely summarizes the importance of operations on bottom-line performance. In this chapter, we discuss how one goes about consulting for operations, as well as the nature of the consulting business in general. We also survey the tools and techniques used in operations consulting and provide an overview of business process reengineering because much OSCM consulting entails this activity. W H AT I S O P E R AT I O N S C O N S U LT I N G ? LO 25–1 Explain operations consulting and how money is made in the industry. Operations consulting Assisting clients in developing operations strategies and improving production processes. Operations consulting deals with assisting clients in developing operations strategies and improving production processes. In strategy development, the focus is on analyzing the capabilities of operations in light of the firm’s competitive strategy. It has been suggested that market leadership can be attained in one of three ways: through product leadership, through operational excellence, or through customer intimacy.Each of these strategies may well call for different operations capabilities and focus. The operations consultant must be able to assist management in understanding these differences and be able to define the most effective combination of technology and systems to execute the strategy. In process improvement, the focus is on employing analytical tools and methods to help operating managers enhance performance of their departments. Deloitte & Touche Consulting lists the actions to improve processes as follows: refine/ revise processes, revise activities, reconfigure flows, revise policies/procedures, change outputs, and realign structure. We say more about both strategy issues and tools later. Regardless of where one focuses, an effective job of operations consulting results in an alignment between strategy and process dimensions that enhances the business performance of the client. The Management Consulting Industry The management consulting industry can be categorized in three ways: by size, by specialization, and by in-house and external consultants. Most consulting firms are small, generating less than $1 million in annual revenue. Relative to specialization, although all large firms provide a variety of services, they also may specialize by function, such as operations management, or by industry, such as manufacturing. Most large consulting companies are built on information technology (IT) and accounting work. The third basis for segmentation, in-house versus external, refers to whether a company maintains its own consulting organization or buys consulting services from the outside. Internal consulting arms are common in large companies and are often affiliated with planning departments. Consulting firms are also frequently characterized according to whether their primary skill is in strategic planning or in tactical analysis and implementation. McKinsey & Company and the Boston Consulting Group are standard examples of strategy-type companies, whereas Gemini Consulting and A. T. Kearney focus rather extensively on tactical and implementation projects. The big accounting firms and Accenture are known for providing a wide range of services. The major new players in the consulting business are the large information technology firms such as Infosys Technology, Computer Sciences Corporation (CSC), Electronic Data Systems (EDS), and IBM. Consultancies are faced with problems similar to those of their clients: the need to provide a global presence, the need to computerize to coordinate activities, and the need to continually recruit and train their workers. This has led consultancies to make the hard choice of being very large or being a boutique firm. Being in the middle creates problems of lack of scale economies on the one hand and lack of focus and flexibility on the other. The hierarchy of the typical consulting firm can be viewed as a pyramid. At the top of the pyramid are the partners or seniors, whose primary function is sales and client relations. In the middle are managers, who manage consulting projects or “engagements.” At the bottom are juniors, who carry out the consulting work as part of a consulting team. There are gradations in rank within each of these categories (such as senior partners). The three categories are frequently referred to colloquially as the finders (of new business), the minders (or managers) of the project teams, and the grinders (the consultants who do the work). Consulting firms typically work in project teams, selected according to client needs and the preferences of the project managers and the first-line consultants themselves. Getting oneself assigned to interesting, high-visibility projects with good co-workers is an important career strategy of most junior consultants. Being in demand for team membership and obtaining quality consulting experiences are critical for achieving long-term success with a consulting firm (or being attractive to another firm within or outside consulting). Economics of Consulting Firms The economics of consulting firms have been written about extensively by David H. Maister. In his classic article “Balancing the Professional Service Firm,” he draws the analogy of the consulting firm as a job shop, where the right kinds of “machines” (professional staff) must be correctly allocated to the right kinds of jobs (consulting projects).As in any job shop, the degree of job customization and attendant complexity is critical. The most complex projects, which Maister calls brain surgery projects, require innovation and creativity. Next come gray hair projects, which require a great deal of experience but little in the way of innovation. A third type of project is the procedures project, where the general nature of the problem is well known and the activities necessary to complete it are similar to those performed on other projects. Because consulting firms are typically partnerships, the goal is to maximize profits for the partners. This, in turn, is achieved by leveraging the skills of the partners through the effective use of midlevel and junior consultants. This is often presented as a ratio of partners to midlevel and junior consultants for the average project. (See Exhibit 25.1 for a Finders Partners or senior consultants whose primary function is sales and client relations. Minders Managers of a consulting firm whose primary function is managing consulting projects. Grinders Junior consultants whose primary function is to do the work. e x h i b i t 25 . 1 The Economics of Guru Associates No. Target Utilization 4 75% Middle 8 Junior 20 Level Partner (senior) Target Billable Hours @ 2,000 Hours per Person per Year Billing Rate Fees 6,000 $400 $2,400,000 (see calculations below) 75% 12,000 $200 $2,400,000 $150,000 90% 36,000 $100 $3,600,000 $ 64,000 Totals Salary per Individual $8,400,000 Fees Salaries Total Salaries $1,200,000 $1,280,000 $2,480,000 $8,400,000 (2,480,000) Contributions $5,920,000 Overhead* $2,560,000 Partner profits $3,360,000 Per partner $ 840,000 *Assume overhead costs of $80,000 per professional. numerical example of how profitability is calculated for a hypothetical consulting firm, Guru Associates.) Because most consulting firms are engaged in multiple projects simultaneously, the percentage of billable employee hours assigned to all projects (target utilization) will be less than 100 percent. A practice that specializes in cutting-edge, high-client risk (brain surgery) work must be staffed with a high partner-to-junior ratio because lowerlevel people will not be able to deliver the quality of services required. In contrast, practices that deal with more procedural, low-risk work will be inefficient if they do not have a lower ratio of partners to juniors because high-priced staff should not be doing low-value tasks. The most common method for improving efficiency is the use of uniform approaches to each aspect of a consulting job. Accenture, the company most famous for this approach, sends its new consultants through a boot camp at its St. Charles, Illinois, training facility. At this boot camp, it provides highly refined, standardized methods for such common operations work as systems design, process reengineering, and continuous improvement, and for the project management and reporting procedures by which such work is carried out. Of course, other large consulting firms have their own training methods and step-by-step procedures for selling, designing, and executing consulting projects. When Operations Consulting Is Needed The following are some of the major strategic and tactical areas where companies typically seek operations consulting. Looking first at manufacturing consulting areas (grouped under what could be called the 5 Ps of production), we have ∙ Plant: Adding and locating new plants; expanding, contracting, or refocusing existing facilities. ∙ People: Quality improvement, setting/revising work standards, learning curve analysis. ∙ Parts: Make or buy decisions, vendor selection decisions. ∙ Processes: Technology evaluation, process improvement, reengineering. ∙ Planning and control systems: Supply chain management, ERP, MRP, shop-floor control, warehousing, distribution. Obviously, many of these issues are interrelated, calling for systemwide solutions. Examples of common themes reflecting this are developing manufacturing strategy; designing and implementing JIT systems; implementing MRP or proprietary ERP software such as SAP; and systems integration involving client–server technology. Typical questions addressed are: How can the client cut lead times? How can inventory be reduced? How can better control be maintained over the shop floor? Among the hot areas of manufacturing strategy consulting are sustainability, outsourcing, supply chain management, and global manufacturing networks. At the tactical level, there is a huge market for consulting in e-operations, product development, ISO 9000 quality certification, and design and implementation of decentralized production control systems. Turning to services, while consulting firms in manufacturing may have broad specialties in process industries on the one hand and assembly or discrete product manufacture on the other, service operations consulting typically has a strong industry or sector focus. A common consulting portfolio of specialties in services (and areas of consulting need) would include the following: Financial services (staffing, automation, quality studies) Health care (staffing, billing, office procedures, phone answering, layout) Transportation (route scheduling and shipping logistics for goods haulers, reservation systems, and baggage handling for airlines) Hospitality (reservations, staffing, cost containment, quality programs) For both manufacturing and service industries, the current hot area for consultants, as well as in-house teams, is Lean Six Sigma. The reason is companies have reached their limit on how much can be done by downsizing and are thus focusing on rigorously measuring and perfecting various processes. Pharmaceutical companies, large retailers, and food companies are examples of industries with heavy demand for consultants who specialize in such programs. W h e n A r e O p e r a t i o n s C o n s u l t a n t s N e e d e d ? Companies typically seek out operations consultants when they are faced with major investment decisions or when they believe they are not getting maximum effectiveness from their productive capacity. As an example of the first type of situation, consider the following: A national pie restaurant chain retained consultants to determine if a major addition to its freezer storage capacity was needed at its pie-making plant. Its lease had run out on a nearby freezer warehouse, so the firm had to make a decision rather quickly. The pie plant manager wanted to spend $500,000 for a capacity increase. After analysis of the demand for various types of pies, the distribution system, and the contractual arrangement with the shipper, the consultant concluded that management could avoid all but a $30,000 investment in capacity if they did the following: Run a mixed-model production schedule for pies according to a forecast for each of 10 kinds of pies (for example, 20 percent strawberry, 30 percent cherry, 30 percent apple, and 20 percent other pies each two-day pie production cycle). To do this, more timely information about pie demand at each of the chain restaurants had to be obtained. This in turn required that information links for pie requirements go directly to the factory. Previously the distributor bought the pies and resold them to the restaurants. Finally, the company renegotiated pickup times from the pie plant to enable just-in-time delivery at the restaurants. The company was in a much stronger bargaining situation than it had been five years previously, and the distributor was willing to make reasonable adjustments. The lesson from this is that few investment decisions in operations are all or nothing, and good solutions can be obtained by simply applying standard OSCM concepts of production planning, forecasting, and scheduling. The solution recognized that the problem must be viewed at a systemwide level to see how better planning and distribution could substitute for brick-and-mortar capacity. T H E O P E R AT I O N S C O N S U LT I N G P R O C E S S LO 25–2 Illustrate the operations analysis tools used in the consulting industry The broad steps in the operations consulting process (see Exhibit 25.2) are roughly the same as for any type of management consulting. The major differences exist in the nature of the problem to be analyzed and the kinds of analytical methods to be employed. Like general management consulting, operations consulting may focus on the strategic level or tactical level, and the process itself generally requires extensive interviewing of employees, managers, and, frequently, customers. If there is one large difference, it is that operations consulting leads to changes in physical or information processes whose results are measurable immediately. General management consulting usually calls for changes in attitudes and culture, which take longer to yield measurable results. The roles in which consultants find themselves range from an expert, to a pair of hands, to a collaborative or process consultant. Generally, the collaborative or process consultation role is most effective in operations management consulting projects. Some consulting firms now provide the expert role online. The steps in a typical operations consulting process are summarized in Exhibit 25.2. A book by Ethan M. Rasiel on the McKinsey & Company approach offers some practical guidelines for conducting consulting projects: ∙ Be careful what you promise in structuring an engagement. Underpromise and overdeliver is a good maxim. ∙ Get the team mix right. You can’t just throw four random people at a problem and expect them to solve it. Think about what sorts of skills and personalities work best for the project at hand, and choose your teammates accordingly. ∙ The 80–20 rule is a management truth. Eighty percent of sales come from 20 percent of the sales force; 80 percent of your time is taken up with 20 percent of your job; and so on. ∙ Don’t boil the ocean. Don’t try to analyze everything—be selective in what you investigate. ∙ Use the elevator test. If you know your solution so well that you can explain it clearly and precisely to your client in a 30-second elevator ride, you are doing well enough to sell it to the client. ∙ Pluck the low-hanging fruit. If you can make an immediate improvement even though you are in the middle of a project, do it. It boosts morale and gives credibility to your analysis. ∙ Make a chart every day. Commit your learning to paper; it will help push your thinking and assure that you won’t forget it. ∙ Hit singles. You can’t do everything, so don’t try. It’s better to get to first base consistently than to try to hit a home run and strike out 9 times out of 10. e x h i b i t 2 5 .2 Stages in the Operations Consulting Process 8. Assemble learnings from the study 1. Sales and proposal development 7. Assure client satisfaction 2. Analyze problem Client Success 6. Implement changes (as agreed upon) 5. Present final report 3. Design, develop, and test alternative solutions 4. Develop systematic performance measures ∙ Don’t accept “I have no idea.” Clients and their staff always know something, so probe them for some educated guesses. ∙ Engage the client in the process. If the client doesn’t support you, the project will stall. Keep your clients engaged by keeping them involved. ∙ Get buy-in throughout the organization. If your solution is to have lasting impact on your client, you have to get support for it throughout the organization. ∙ Be rigorous about implementation. Making change happen takes a lot of work. Be rigorous and thorough. Make sure someone takes responsibility for getting the job done. O p e r a t i o n s C o n s u l t i n g To o l K i t 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. P r o b l e m D e f i n i t i o n To o l s I s s u e T r e e s 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 e x h i b i t 25 . 3 Operations Consulting Tool Kit Problem Definition Issue trees Customer surveys Gap analysis Employee surveys Five forces model Data Gathering Plant tours/audits Work sampling Flowcharts Organization charts Data Analysis and Solution Development Problem analysis (SPC tools) Bottleneck analysis Computer simulation Statistical tools Cost Impact and Payoff Analysis Decision trees Balanced scorecard Stakeholder analysis Implementation Responsibility charts Project management techniques e x h i b i t 2 5 .4 Issue Tree for Acme Widgets Sales force organization Change sales strategy Sales force skill base Promotion strategy Product quality Increase widget sales Improve marketing strategy Packaging Consumer advertising strategy Raw materials sourcing Reduce unit cost Production process Distribution system 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. 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. C u s t o m e r S u r v e y s 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. G a p A n a l y s i s 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. e x h i b i t 25 . 5 Issue Tree for Acme Widgets Actual versus Desired Performance Critical Success Factors 1 2 3 4 5 6 7 8 9 10 Service level Quality Gap Customization Availability Response time One-call resolution Actual Desired 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. E m p l o y e e S u r v e y s 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. T h e F i v e F o r c e s M o d e l 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 P l a n t T o u r s / A u d i t s 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 e x h i b i t 2 5 .6 Value Chain Firm infrastructure gin Mar Human resource management Support activities Technology development Inbound logistics Operations Upstream value activities Outbound logistics Marketing and sales Service Mar gin Procurement Downstream value activities Based on Harvard Business School Press. From M. E. Porter, Competition in Global Industries, (Boston,MA, 1986), p. 24. weeks, 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. 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 3. 4. 5. 6. and bolts can be as disruptive to production as lacking 7. Management of complexity and variability. This a major component.) (Questions 3–5 and 20) depends greatly on the type of industry. Obviously, industries with narrow product lines have less diffiVisual management/Scheduling. Production management tools such as work instructions, kanban schedculty handling complexity and variability. Indicators to ules, and quality and productivity charts should be watch for in general are the number of people manually easily visible. Posted workflow diagrams linking each recording data and the number of keyboards available stage of a process are particularly effective visual cues. for data entry. (Questions 8, 17, and 20) In addition, scheduling typically involves some mecha- 8. Supply chain integration. It is generally desirable to nism for pacing of the workflow based on demand. work closely with a relatively small number of dedi(Questions 2, 4, 6–10, 11, and 20) cated and supportive suppliers. A rough estimate of the number of suppliers can be ascertained by looking Use of space, movement efficiency, and product line at container labels to see what supplier names appear flow. Good indicators of efficient space utilization are minimum material movement over short distances, use on containers. Containers that appear to be designed of efficient containers; materials stored at the point of and labeled specifically for customized parts shipped use, not in separate inventory storage areas; tooling to a plant indicate the extent to which a strong supplier kept near the machines; and product flow layout rather partnership exists. A sign of poor supply chain integrathan process layout. (Questions 7, 12, 13, and 20) tion is lots of paperwork on the receiving dock. This indicates lack of a smooth pull system where plants Teamwork. Discussions with workers and visible indicators of teamwork such as names of teams over a work pull the materials from their suppliers as if it was just area and productivity award banners are quick ways of another link in the pull system for each product line. determining how the workforce feels about their jobs, (Questions 18 and 20) the company, and their co-workers. (Questions 9, 14, 15, 9. Quality commitment. Attention to quality is evidenced and 20) in many ways, including posting of quality awards, quality scorecards, and quality goal statements. Quality is Maintenance of equipment. Purchase dates and equipment costs should be stenciled on the side of reflected in many of the other plant activities such as machinery, and maintenance records should be posted product development and startups. (Questions 8, 9, 15, nearby. Asking people on the factory floor how things 17, 19, and 20) are working and whether they are involved in purchasModified from R. Eugene Goodson, “Read a Plant—Fast,” Harvard ing tools and equipment is also indicative of the extent Business Review 80, no. 5 (May 2002), pp. 105–13. to which workers are encouraged to address these issues. (Questions 16 and 20) 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 W o r k S a m p l i n g 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. F l o w c h a r t s 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. O r g a n i z a t i o n C h a r t s 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 P r o b l e m A n a l y s i s ( S P C T o o l s ) 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 causeand-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. B o t t l e n e c k A n a l y s i s 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. C o m p u t e r S i m u l a t i o n 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 e x h i b i t 25 . 7 Causal Loop Analysis Quality goal Effective time required Quality standard B Time pressure R Actual quality R - Reinforcing loop B - Balancing loop 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. S t a t i s t i c a l T o o l s 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 D e c i s i o n T r e e s 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). S t a k e h o l d e r A n a l y s i s 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. e x h i b i t 25 . 8 Dashboard for Suppliers Motion Source E-Link Accessories 30 40 50 60 Motion Source E-Link 70 20 80 Accessories 90 100 10 110 0 Delivery Days [SupplierType] 30 20 Sights 10 40 50 60 70 Motion Source E-Link 80 90 100 110 120 0 150 100 Accessories 200 250 50 Sights 0 Delivered Qty (×100,000) [SupplierType] Sights 300 350 Damaged Qty (×10) [SupplierType] B a l a n c e d S c o r e c a r d 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. P r o c e s s D a s h b o a r d s 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 R e s p o n s i b i l i t y C h a r t s 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. P r o j e c t M a n a g e m e n t T e c h n i q u e s 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. 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. 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. P r i n c i p l e s o f Re e n g i n e e r i n g 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. R u l e 1 . O r g a n i z e a r o u n d O u t c o m e s , N o t T a s k s 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 t h e P r o c e s s 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 W o r k t h a t P r o d u c e s t h e I n f o r m a t i o n 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 T h e y W e r e C e n t r a l i z e d 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. Reengineering The radically resturcturing of business processes to significantly improve customer service, reduce cost, and become competitive. Rule 5. Link Parallel Activities Instead of Integrating Their R e s u l t s 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, a n d B u i l d C o n t r o l i n t o t h e P r o c e s s 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. R u l e 7 . C a p t u r e I n f o r m a t i o n O n c e — a t t h e S o u r c e 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. Organizationwide 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. THE BRITISH RETAILER MARKS & SPENCER HAS GONE THROUGH COMPANY REENGINEERING, PRODUCING PLAN A, A 100-POINT ECO-PLAN. IT IS REDUCING HOW MUCH OF ITS CLOTHING AND PACKAGING ENDS UP AS LANDFILL BY IMPROVING PACKAGING, RECYCLING MORE, AND USING FEWER PLASTIC BAGS. 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. Concept Connections LO 25–1 Explain operations consulting and how money is made in the industry. Summary ∙ Consulting firms specializing in operations and supply chain management focus on improving a firm’s competitiveness by improving processes. ∙ These firms can bring expertise that the client firm does not have. The consultant can do specialized analysis, such as simulation and optimization. ∙ A consulting firm makes money by charging for services, typically based on a set of rates that depend on the relative experience of the consultant. The most experienced consultants run the projects and are billed at the highest rates. Partners share the profits of the consulting practice. Key Terms Operations consulting Assisting clients in develop- ing operations strategies and improving production processes. Finders Partners or senior consultants whose primary function is sales and client relations. Minders Managers of a consulting firm whose primary function is managing consulting projects. Grinders Junior consultants whose primary function is to do the work. LO 25–2 Illustrate the operations analysis tools used in the consulting industry. Summary ∙ The consulting firm uses tools to aid in understanding problems, collecting data, developing solutions, analyzing the payoff from proposed changes, and implementing recommendations. ∙ These tools provide structure to the consulting practice and are matched to the needs of the client. Many of these tools have already been discussed in earlier chapters of this book. LO 25–3 Analyze processes using business process reengineering concepts. Summary ∙ Compared to the approach normally taken to improve a process, reengineering is different. Here the idea is to radically rethink how business processes are done with the goal of achieving a dramatic improvement in performance. Key Terms Reengineering The radically resturcturing of business processes to significantly improve customer service, reduce cost, and become competitive. Discussion Questions LO 25–1 1. Check the Websites of the consulting companies listed in the chapter. Which ones impressed you most as a potential client and as a potential employee? Boston Consulting Group (www.bcg.com) Deloitte Touche Tohmatsu (www.deloitte.com) McKinsey & Co. (www.McKinsey.com) 2. What does it take to be a good consultant? Is this the career for you? LO25–2 LO25–3 3. In discussing characteristics of efficient plants, Goodson, developer of rapid plant assessments (see the OSCM at Work box), suggests that numerous forklifts are a sign of poor space utilization. What do you think is behind this observation? 4. Think about the registration process at your university. Develop a flowchart to understand it. How would you radically redesign this process? 5. Have you driven a car lately? Try not to think of the insurance claim settlement process while you drive! How would you reengineer your insurance company’s claim process? Objective Questions LO25–1 LO25–2 LO25–3 1. In what three ways can market leadership be obtained? 2. The process of running a consulting firm is analogous to what type of manufacturing process structure? 3. What are the 5 Ps of production in which firms typically seek operations consulting? 4. What is the current “hot area” for operations consultants in both manufacturing and services? 5. What methodology is used to assess a client’s performance relative to the expectations of its customers or the performance of its competitors? 6. What type of plant tour is designed to determine the “leanness” of a plant in just 30 minutes? 7. What tool is used to reflect the particular needs of each stakeholder group in a performance measurement system? (Answer in Appendix D) 8. What tool is used to ensure that all tasks in a project have the right mix of project team members assigned? 9. An equipment manufacturer has the following steps in its order entry process: a. Take the order and fax it to order entry. b. Enter the order into the system (10 percent unclear or incorrect). c. Check stock availability (stock not available for 15 percent of orders). d. Check customer credit (10 percent of orders have credit questions). e. Send bill of materials to warehouse. The order receipt to warehouse cycle time is typically 48 hours; 80 percent of the orders are handled without error; and order-handling costs are 6 percent of order revenue. Should you reengineer this process or is continuous improvement the appropriate approach? If you choose to reengineer, how would you go about it? 10. Is the business reengineering process more gradual, more radical, or about the same as the TQM process? 11. What concept provides guidance and direction for consistent, efficient implementation of BPR projects? (Answer in Appendix D) Exercise: Quick Plant Assessment This exercise is designed to support a plant tour event conducted as part of a class. This questionnaire is focused on assessing the “leanness” of a manufacturing plant. It might be useful to review the material on “lean” processes in Chapter 14 where the concepts considered in the questionnaire are described. The questionnaire can be modified for non-manufacturing type processes, for example services or warehouses, depending on the facility that is being visited. We would suggest working with a team of two to four people and taking at least a 45-minute tour of a plant. It would be most useful if your tour guide were knowledgeable about the operation of the plant and willing to answer questions. At the conclusion of the tour, rate what you observed using the Quick Plant Assessment (QPA) questionnaire and Score Sheet. In class, discuss those areas where leanness is generally lacking across the plant(s) visited. Additional analysis for a consulting report: 1. Use the results from filling out the QPA Questionnaire in Exhibit 25.9 and your team’s observations to develop a consensus score for each Assessment Category in the QPA Score Sheet. 2. Prioritize targets of opportunity for management. 3. Develop a two-page action plan that you would present to management to help them make improvements. e x h i b i t 25 . 9 Quick Plant Assessment Questionnaire Yes No 1. Are visitors welcome to the plant and given information about how the plant operates, the workforce, customers, and products? 2. Are ratings for product quality and customer satisfaction displayed for the workforce and customers to view? 3. Is the plant clean, orderly, and well lit? Is the air quality good, and are noise levels low? 4. Is a visual labeling system used to identify inventory locations, storage places for tools, process areas, and movement lanes? 5. Does it appear that everything has a specific place, and everything is stored in its place? 6. Are performance measures and goals for these measures prominently posted and up to date? 7. Are production materials brought to and stored near where they are used rather than in separate remote storage areas? 8. Are specific instructions for how work is to be done and quality specifications visible at all workstations? 9. Are up to date charts that show productivity, quality, and safety visible in all process areas? 10. Is each process area scheduled using some type of pacing mechanism so workers can see real-time status against the schedule? 11. Can the current state of the plant be viewed from a central control room, on a status board, or online computer display? 12. Is material moved only once and as short a distance as possible? Is material moved efficiently in appropriate containers? 13. Is the plant laid out in continuous product line flows rather than in “shops”? 14. Are workers organized in teams and are they trained and empowered to engage in problem solving and ongoing improvements? 15. Do employees seem committed to continuously improving processes? 16. Is there a formal plan for equipment preventive maintenance and improvement of tools and processes? 17. Is there a process for managing projects (especially new product start-ups), with cost and timing goals? 18. Is there a supplier certification process with measures for delivery, cost, and quality performance? Are these measures shared with suppliers frequently? 19. Are fail-safe methods used in the processes to prevent common product quality problems? 20. Would you buy the products this plant produces? e x h i b i t 25 . 1 0 QPA Score Sheet Assessment category Relevant Questions Customer focus 1, 2, 20 Safety, cleanliness, and order 3, 4, 5, 20 Visual management/Scheduling 2, 4, 6, 7, 8, 9, 10, 11, 20 Use of space, movement efficiency, and product line flow 7, 12, 13, 20 Teamwork 9, 14, 15, 20 Maintenance of equipment 16, 20 Management of complexity and variability 8, 17, 20 Supply chain integration 18, 20 Quality commitment 8, 9, 15, 17, 19, 20 Number of Yes’s Ratio of Yes’s to Number of Relevant Questions Practice Exam In each of the following, name the term defined or answer the question. Answers are listed at the bottom. 1. Name the three categories of consultants. 2. This type of project requires a great deal of experience but little innovation. 3. Accenture is well known for this type of approach to training consultants. 4. Target utilization is usually highest for which level of consultant? 5. McKinsey uses these to structure or map the key problems to be investigated. 6. These are the five forces of the five forces model. 7. Gap analysis measures the difference between these two factors. 8. Rapid plant assessment is used to measure this variable. 9. An accounting approach to reflect the needs of each stakeholder is called this. 10. In contrast to TQM, this approach seeks radical change through innovation. Answers to Practice Exam 1. Finders, minders, and grinders 2. Gray hair 3. Uniform approaches 4. Junior level 5. Issue trees 6. Buyer power, potential entrants, suppliers, substitute products, and industry rivals 7. Actual and desired performance 8. Leanness of a plant 9. Balanced scorecard 10. Business process reengineering