The Ten Principles of Operations Management

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The Ten Principles of Operations Management

• Randall Schaefer, CPIM
• With thanks to Steven Melnyk, Ph.D., Professor of
  Operations Management at Michigan State University

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The Ten Principles of Operations Management

• Low cost foreign competition is not the only
  reason manufacturing struggles in the United
  States
• Many companies struggle because they repeatedly
  violate one or more of the principles of
  operations management
• The labels given to these principles are unique
  to this presentation but the principles they
  describe are timeless

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1. Principle of Reality

• Neither Theory of Constraints nor lean principles
  nor Total Quality Management nor any other
  technique will solve all your problems.
• There is no universal solution

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Reality

• Tendency to focus on the tool rather than the
  problem
• Tale of the inventory problem that could not be
  addressed with a
• lean effort

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2. Principle of Organization

• All aspects of production must be organized into
  a coherent whole.
• Anybody can throw parts together and get
  shipments out the door but that does not assure
  profits.
• If profits are to be predictable and consistent
  then all activity leading to profits must be
  predictable and consistent with each other.

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Organization

• Manufacturing is an interconnected set of
  processes
• If one thing is changed, other things will
  change often in
• unexpected ways
• Tale of the company that rebuilt jet engines

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3. Principle of Fundamentals

• Strict adherence to the fundamentals is the
  foundation upon which all effective production is
  based.
• Maintaining accurate inventory records, BOMs,
  general systems disciplines and the like will
  take you 80 of the way to success.
• The proper application of lean efforts, TOC or
  whatever can only take you the final 20.

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Fundamentals

• Adherence to fundamentals provides the best
  chance for
• survival
• Tale of the manufacturer with part and capacity
  shortages but
• accurate BOMs

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4. Principle of Accountability

• People will not put effort into that for which
  they are not held accountable.
• Rewards and consequences, on the other hand, will
  result in great effort.

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Accountability

• You get what you inspect not what you expect,
  Oliver Wight
• Managers determine the goals and
• establish metrics
• standards for evaluating
  metrics
• assigns responsibility
• compare actual outcomes
  against the goals
• take corrective action where
  necessary

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Accountability

• Metrics define a companys values in operations
  terms
• Comparison of accountability forecast vs.
  inventory accuracy

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5. Principle of Variance

• Variances are inherent in every process.
• When the systems goal is to reduce costs,
  variances must be measured and controlled.
• When the systems goal is to increase options or
  enhance variety, variance must be encouraged.

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Variance

• Supply chain literature treats variance as bad
  dimensional
• variance of components is bad
• But variance can also refer to processes and
  procedures
• like ISO standards
• Managed variances (Kaizen events) can lead to
• breakthroughs in processes and procedures
• Variance in thought process is the source of
  creativity

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6. Principle of Causality

• The problems managers face are often symptoms
  urgent shipments, late quotes, expediting, etc.
• Unless the underlying causes are resolved,
  managers will find themselves repeatedly fighting
  the same problems.
• Symptoms are residuals. Get rid of them by
  resolving the root causes.

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Causality

• Symptoms demand attention because they are
  visible and urgent
• Attacking symptoms is self-defeating
• Tale of the fittings manufacturer with too much
  inventory

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7. Principle of Managed Passion

• Nothing drives a company forward like employees
  with a passion for their jobs.
• Nothing drags a company down like employees just
  putting in time.

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Managed Passion

• Tale of John Wolchowski
• Not every employee will be passionate about his
  job but every
• boss can try to instill it
• Manage the passion or it may sub-optimize the
  organization

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8. Principle of Humility

• You were not hired because you knew everything or
  had experienced everything.
• Dont hesitate to admit ignorance -- pride is
  expensive.
• Admit ignorance, get help, learn, move on.

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Humility

• Managers are routinely confronted with
  circumstances with
• which they are not familiar
• A manager should not make the company pay the
  price of him
• learning thru trial and error

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Humility

• Good managers do not view their limitations as
  personal failures
• Good managers do not hesitate to get help,
  learn, and move on
• Ignorance is acceptable stupidity is not. Not
  getting help is
• risky and stupid
• Tale of the frame rails

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9. Principle of Success

• Define what constitutes success.
• Markets change so the definition of success must
  often be revised. This will require rethinking
  the previous principles.
• This principle keeps the other principles
  relevant.

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Success

• The most important definition is always in terms
  of what matters
• to the customer
• Define and understand your customer external
  customers are
• more important than internal customers
• Evaluating systems requires asking whether the
  customer is
• delighted and would even pay more if we did X or
  Y or Z
• Sales do not assure profits. They are only an
  opportunity to profit

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Success

• Profit must be viewed as a residual.
• You cannot directly manage for profits
• You must manage to delight and maintain customers
• Profits will follow

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10. Principle of Change

• Every manufacturing solution is temporary because
  every solution is inadequate in some way.
• Eventually, a new solution will be found that
  excels in the ways in which the old one was
  inadequate

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Change

• The 70s brought us MRP, the 80s brought us
  JIT/lean, the 90s
• brought us theory of constraints
• There will always be something new
• Managers must not get caught up in any one
  theory of manufacturing,
• software package, hardware platform, process or
  procedure
• Tale of Ford and General Motors

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Change

• A manager must manage for stability in the short
  term disciplines,
• processes and procedures
• A manager must understand that everything will
  eventually change and
• manage for change in the long term
• A manager need not predict the nature of future
  changes just embrace
• change and learn how to manage it
• The ability to manage change separates good
  managers from weak
• ones

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The 10 Principles of Operations Management

• Conclusion
• U.S. manufacturing must still struggle with
  wages, benefits and regulations to become
  competitive with foreign manufacturers
• Each principle of operations management violated
  is a burden that adds to the difficulty of the
  task
• Embrace these principles and the task becomes
  easier