Introduction to operations management principles

Before the best operations management principles can be identified for Woolworths, the
whole company structure needs to be analyzed.
Woolworths is based on the principle of coordinated contracting which involves a
primary contractor, in this case Woolworths, and sub-contractors, such as farms, textile
factories etc. These sub-contractors are each contracted for a specific job. Woolworths
provides these contractors with instruction and specifications for the production of goods.
In some cases Woolworths can provide the materials and will typically take responsibility
of the control and planning of the sub-contractor. Usually the sub-contractors will
provide their own tools and equipment specific to their profession or trade. The elements
of exchange can be seen in the figure below.

(Pycraft, M. 2008. Operations Management. South Africa: Pearson Education)

According to Woolworths, their main goal is to create excellent value for money by
providing customers with products of exceptional quality, affordable prices and offering
friendly customer service. It is because of this that Woolworths has so many loyal
customers throughout the country. In order to define the best operations management
principles for Woolworths there are two sections that need to be looked at: Firstly that
Woolworths, contrary to the usual trend of sub-contracting all but your core
competencies, has its own meat-factory. It is owned and operated by Woolworths and
forms a crucial part of their logistic and operations. It was built with the main goal to
eliminate waste by reducing the inventory build up and eliminating the inconvenience
that was caused by in-store butcheries. Secondly since Woolworths sub-contracts all of
its suppliers it has no manufacturing plants except for the meat-factory, therefore
operations management principles need to be identified for the whole supply chain and
the meat-factory. Instead of buying its stock from the open market, Woolworths buys its
stock from suppliers who produce their products specifically for Woolworths and
therefore ensures a long-standing relationship between Woolworths and its suppliers.
Woolworth’s main competitive advantage over the other retailers is the quality of the
goods. To ensure that this stays a competitive advantage Woolworths provides its
suppliers with training, staff and its own quality inspectors work within some of the
factories of the suppliers. During unpacking quality checks are done to ensure that only
the best quality is send out to the retail floor. Poor quality merchandise is send back to the
supplier. When it comes to strategic planning Woolworths focuses on waste reduction. In
the next section the most popular management principles will be discussed for a better
understanding of each method, which in turn assists in making the most intelligent
decision.
Operations management principles
Theory of constraints (TOC)
It is based on the theory of managing constraints; it focuses on the system constraints.
The steps or application guidelines to implement this methodology are:
1. Identify constraint
2. Exploit constraint
3. Subordinate processes
4. Elevate constraint
5. Repeat cycle.
TOC concentrates on the weakest link in the system, this process constrains the whole
system and needs to be optimized for better productivity. To identify and optimize the
constraint five steps are followed. Step 1: Identify the constraint, this is the process that
limits the throughput of the system. Step 2: Exploit the constraint. How can you
maximize the rate of throughput at the constraint? There are many different ways this can
be done depending on the type of process. Only minor solutions are considered which
doesn’t need to much capital investment. Some solutions are: add a buffer to regulate
inventory, run process at full capacity, remove wasted activity, support process with
another process, minimize setup time, reduce scrap produced etc. In this step the
throughput of the constraint is maximized. Step 3: Subordinate. The other processes, also
called the subordinate processes, must be adjusted to comply with the constraints’ pace or
capacity. This step is usually applied to the processes in front of the constraint to prevent
the building-up of inventory. These processes will not run at full capacity, thus you have
to sacrifice productivity to benefit the system as a whole. The processes after the
constraint are normally not a major concern because they are waiting for the constraint
and are therefore already producing under their own capacity. In this step the buffer, rope
and drum is determined, refer to the figure below.
Step 4: Elevate. If the throughput rate is still not satisfactory the constraint must be
improved even more or completely eliminated. Major changes that require capital can
now be implemented to further improve the production rate of the constraint. The result is
normally buying new equipment, hiring more staff, outsourcing or working overtime.
Step 5: Repeat cycle. This process is an ongoing development process, new constraints
must be identified and the steps must be repeated for that constraint.

TOC can be used in any industry, but the following industries benefit the most when
using TOC: Batteries, Bicycle components, Circuit boards, Corrugated cardboard, Credit
Union, Custom cabinets, Custom homes, Education, Furniture, Garment manufactures,
Light fixtures, Pharmaceuticals, Power measurement equipment, Power transformers,
Press & Shear manufacturers, Printing, Pulp & paper, Wetsuits, Wire and nails, Wood
Laminate, Wood products and Wooden furniture.

Material requirements planning (MRP)

MRP is based on a dependent demand, example: product A requires 2 of product B and 1
of product C. Product B in turn requires 2 of product C and 1 of product D. The main
goal of MRP is to schedule the whole process in terms of when a product must be ordered
and how much of it must be ordered. Data is used to create a forecast of the process.
Products can be ordered lot-4-lot or using economic order quantity (EOQ). MRP is the
most valuable in assembly operations.
Lean manufacturing
Is it based on the theory of waste removal and it focuses on the system flow. There are
five basic steps when using lean namely:
1. Identify which features create value
2. Identify the value stream
3. Make all activities flow
4. Let customer demand pull product through system
5. Perfect the process
Lean is derived from old Japanese manufacturing techniques. Step 1: Specify value.
Determine the exact customer need, with this in mind “define the value in terms of
specific products with specific capabilities offered at specific prices through a dialogue
with specific customers” (Theory of Constraints and Lean Manufacturing: Friends or
Foes? By Richard Moore, Ph.D. and Lisa Scheinkopf). Therefore eliminate products for
which there is no market and also eliminate features of a product that is unnecessary. Step
2: Determine the sequence of activities for producing the product while eliminating
wasteful processes such as the processes that was used for features of the product that
have been eliminated in step 1. Keep activities that add value to the product, because they
are essential. Determine the impact that non value adding activities have on the whole
process and minimize these activities. Step 3: Improve flow. The flow of the activities
must be optimized and there must be minimum interruptions in the flow of the product
through the system. Lean manufacturing make use of cell manufacturing and is product
specific. Step 4: Customer pull. The company works on the basis of make-to-order,
providing the product only when the customer needs it. Step 5: Perfect process. Continue
to improve the process and to eliminate non value activities, repeat the steps if necessary.
A result of using lean manufacturing is high quality products. This is because the
products’ risk of getting damaged is greatly reduced due to the fact that the product
spends less time in processing. Simplification of the product also reduces the
manufacturing cost

Six sigma
Based on the theory of variation reduction, it focuses on problems. Using statistics the
expected outcome of a process is predicted. By reducing the variation of multiple
elements the whole process can be improved. The five steps include:
1. Define
2. Measure
3. Analyze
4. Improve
5. Control
Step 1: Define. Firstly the process has to be defined taking into consideration the
customer needs which determine the key characteristics and the processes. Step 2:
Measure. The process has to be measured, data needs to be collected, key characteristics
are classified and measurement systems are confirmed. Step 3: Analyze. The data has to
be analyzed to useful information determining where or what the problem is. Step 4:
Improve. Find solutions to the problems identified and implement these solutions.
Determine if it is favorable to the company. Step 5: Control. Monitor and control the
process continuously.
Key differences between operations management principles

Program Six sigma Lean TOC MRP

Theory Reduce variation Remove waste Manage constraints Scheduling
Application 1. Define 1. Identify value 1. Identify 1. Determine
Guidelines 2. Measure 2. Identify value constraint assembly
3. Analyze stream 2. Exploit sequence
4. Improve 3. Flow constraint 2. Inventory
5. Control 4. Pull 3. Subordinate records
5. Perfection processes 3. Forecast
4. Elevate 4. Determine
constraint schedule
5. Repeat cycle 5. Control
Focus Problem focused Flow focused System constraints Production
sequence
Assumptions A problem exists. Waste removal will Emphasis on speed Demand is
Figures and improve business and volume. Uses dependent. Lot
numbers are performance. Many existing systems. sized is
valued. System small improvements Process determinable.
output improves if are better than interdependence. BOM. Computer
variation in all system analysis. software used.
processes reduced.
Primary Uniform process Reduced flow time Fast throughput Ideal ordering
Effect output schedule

Secondary Less waste, Fast Less variation. Less inventory/waste. Minimize

Effects throughput, Less Uniform output. Throughput cost inventory.
inventory. Less inventory. accounting. Ideal lot size
Fluctuation – New accounting Throughput – determined.
performance system. Flow – performance Assembly
measures for performance measurement system. schedule.
managers. measure for Improved Quality.
Improved quality. managers.
Improved quality.
Criticisms System interaction Statistical or system Minimal worker Requires
not considered. analysis not valued. input. Data analysis significant
Processes not valued. computation and
improved thousands of
independently. detailed schedules.
(Nave, D. 2002. How To Compare Six Sigma, Lean and the Theory of Constraints.
[Online] Available from: www.asq.org [Accessed: 2009-05-05])

Best operations management principle identified for Woolworths

To determine the best operations management principle for a company a few thing need
to be taken into consideration: The main goal of the company, the type of system to
which it will be applied to, the strategy and the tactical and operational plans. In the case
for Woolworths their main goal is to produce products of exceptional quality while
keeping the costs as low as possible. Since Woolworth buys most of its products from
dedicated suppliers it is not your typical production system. Operations management
principles can be applied to any system, but the more common system it is applied to is
the manufacturing system for example a factory. In the case of Woolworths it is a
different story since there is no single factory it can be applied to. Woolworths is thus
seen as a distribution system where the main focus is on logistics - the shipping of the
products from the suppliers to the different Woolworths stores, and on inventory –
scheduling, packaging, quality, inspection, etc. The main strategy and operational plan
for Woolworths is to save money where possible without sacrificing to much quality,
since quality products is their main competitive advantage.
Taking all of this into consideration, the decision can be made that the best operations
management principle is Lean Distribution – the same as lean manufacturing, just
adjusted for and applied to a distribution system instead. Six sigma and Just-in-time can
also be incorporated within the Lean Distribution system.

Reasons for choosing Lean Distribution

• It helps with achieving the goal, because through waste reduction (unnecessary
inventory reduction) money can be saved without compromising the quality of the
product.
• It will increase the flow of the distribution network and therefore it will increase
overall productivity.
• By incorporating six sigma into the Lean Distribution system the variation can be
reduced resulting in uniform distribution output.
• The total logistics cost will be considered and not just individual processes.
• Eliminate problematic areas in distribution network.
(Zylstra, K.D. 2005. Lean Distribution. John Wiley & Sons.)

List of References
Aquilano, N.J., Chase, R.B. & Jacobs, F.R. 2008. Operations and Supply Management.
New York: McGraw-Hill/Irwin.

Moore, R. & Scheinkopf, L. 1998. Theory of Constraints and Lean Manufacturing:

Friends or Foes?. Chesapeake Consulting, Inc.

Nave, D. 2002. How To Compare Six Sigma, Lean and the Theory of Constraints.
[Online] Available from: www.asq.org [Accessed: 2009-05-05]

Pycraft, M. 2008. Operations Management. South Africa: Pearson Education

Zylstra, K.D. 2005. Lean Distribution. John Wiley & Sons.

Martichenko, R. Not dated. LEAN LOGISTICS-UNDERSTANDING. [Online] Available

from: http://www.ltdmgmt.com/mag/understanding-lean-logistics.htm [Accessed: 2009-
05-05]

Images:

[Online] Available from: http://www.mtgl.com/images/lean_mfg.gif [Accessed: 2009-05-

05]

[Online] Available from: http://www.kwaliteg.co.za/manufacturing/MRP1.gif [Accessed:

2009-05-05]

[Online] Available from: http://www.avillage.net/sitebuilder/images/Six_Sigma-

611x415.jpg [Accessed: 2009-05-05]