Services just got leaner and meaner

Operations management has not been the most popular topic with students in terms of classroom practice or examination question selection over the years. However, like accounting and finance, it offers excellent opportunities for you to prepare well-structured answers that are less ‘woolly’ and general than marketing and human resources. Indeed, for businesses themselves, it is in this area that the largest competitive advantage and cost savings can be found. As the new Business Management guide says:

Operations management returns to the fundamental rationale of business management: to make goods and services that meet consumers’ needs and wants.

The way that meeting customer needs is achieved is basically twofold:

  1. To keep costs down, increase profits and reduce price
  2. To improve quality

Higher level students have access to more content areas in the Operations Management unit; probably the one that lends itself most to examination questions and practical application, is section 5.3: ‘lean production and managing quality’. What may spring to mind when studying lean production and quality management are examples that date back to the production of Toyota cars in Japan, and their ‘Toyota Way’ programme with its 14 Principles; the origins of which dates back to reconstruction programmes following the Second World War. The Total Quality Management (TQM) approach that developed from the Toyota Way was quickly adopted around the world, particularly in the US, as evidence emerged of its great success.

The Toyota production system, which we now know as lean production, is often better defined by its tools for eliminating waste, for example: kaizen, kanban and andon.  However, in recent years, understanding of lean production techniques have become more associated with the underlying management disciplines:

  • putting customers first by understanding their needs
  • producing and delivering goods efficientl
  • constantly searching for better ways of working
  • enabling workers to contribute to their fullest potential
  • clearly connecting a company’s strategy and goals across the organisation

What perhaps is less considered, and taught, is that lean operating principles can also be applied to service industries, even ones which lack factory-like characteristics. Leading service-based companies such as Amazon.com, are extending the value of lean further still, into areas beyond manufacturing:

Amazon has shown in its growth and commercial success that new technologies, new analytical tools, and new ways of looking at customers are making it possible, with greater precision than ever before, to learn what customers truly value.

McKinsey and Company have identified case studies of service industries, where the principles of lean production could be applied:

Retail banking

Since it involves a physical process not unlike an assembly line, the handling of paper cheques and credit-card receipts lends itself readily to lean-manufacturing techniques. And their impact can be dramatic: the faster a bank moves cheques through its system, the sooner it can collect its funds and the better its returns on invested capital.

Hospitals

Obviously, a hospital isn’t an automobile factory, and people—especially sick ones—are less predictable than car parts. Nevertheless, hospitals, which usually have far fewer discrete stages to worry about than do major manufacturers, can often reduce their variability a good deal.

Airlines

Aircraft worth $100 million or more routinely sit idle at gates. Turnaround times between flights typically vary by upward of 30%. Lean techniques cut hours to minutes with a [new] changeover system.

Restaurants

Lean techniques seek to improve product and service quality while simultaneously reducing waste and labour costs. For food-service operators, the additional trick is to link such improvements to customer loyalty.

IB Style questions

1. Distinguish between goods and services.

2. Explain the roles of Kaizen in quality improvements.

3. Examine the role of Total Quality Management (TQM) in creating competitive advantage.

4. To what extent can lean production techniques be applied to service sector operations? Use examples of service functions where lean production may be applied, and those where it would be more difficult.

Sources:

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