5. LESSON 5: INTERNAL CUSTOMERS AND INTERNAL SUPPLIERS

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1 TOPIC 2: OPERATIONS PERFORMANCE 5. LESSON 5: INTERNAL CUSTOMERS AND INTERNAL SUPPLIERS Central to operations management is the identification of the various microoperations that function within an organisation. Each of these microoperations is responsible for achieving a specific goal or objective. Together these microoperation s form the whole operations or production process. If we look at the relationship between the various microoperation s we realise that each operation is dependent on the previous operation. This dependency becomes clearly defined when we apply the What if scenario: Material Stores do not provide the correct materials to the Baking Division? Baking Division cannot produce the bread order. What if the Oven Division closes 4 ovens for maintenance, but Baking Division is busy mixing an order for 100 dozen cookies? Then the cookies will arrive at Oven Division and they will not have the capacity to bake the order. Packing Division only has 20x10 boxes, but Decorating Division is sending an order through that requires 20x20 boxes. order will have to be thrown away, since it has a limited shelf life. If the delivery is not done on time the retailoutlet client will not accept the delivery. The reality is that we cannot achieve our own objectives and goals without some form of input and participation from other sections, divisions, colleagues, and microoperations within an organisation. Centre for Business Dynamics, Business School, UFS

2 OPERATIONS AND LOGITICS MANAGEMENT Our objective of an organisation is to sell our goods and services. You want to make sure that your product ends up in the shopping cart! The simple reality is that for your product to make its way into this shopping cart, a number of people from different microoperations have to work together! Within operations management this working together is referred to as internal customers and suppliers. You are somebody s internal customer and you are somebody s internal supplier. To what extent is our communication based on and driven by conflict, aggression, allegations and general distrust and apathy? When you have to work with other microoperations, is your first emotional response No problem! They understand what is needed and gets the job done or is it a question of coming out swinging the axe before you even walk through the door? Organisations are there to make money. They do this by producing goods and services, which is dependent on successful interaction and communication between human beings. How does this internal customer and supplier relationship work? 20 Centre for Business Dynamics, Business School, UFS 2013

3 Meet Jack, he is one of a team of 16 sales representatives responsible for marketing the goods and services produced. His area covers about 123 existing clients with a growth potential of about 16 %. Competition, however, is fierce between the various brands out there. You have to make sure that the clients actively see you, get their orders on time and deal with any problems even before they happen. If you do not keep them 100 % happy 100 % of the time, they order from the competition. This often translates into promises being made that would require a miracle without considering if operations can deliver on it and the impact on them and other orders. Meet Mary. She receives all the orders from the 16 sales representatives on a daily basis. It is her responsibility to receive all the orders and expected delivery dates as negotiated by the sales representatives. The consolidated order listing is then forwarded to scheduling department, who draws up the production schedule for the 54 different products. The new order listing must be completed and submitted by 14:30 pm every day. Jack always runs in at 16:15 pm with half completed forms with promises to clients that can only be achieved through a few miracles. This has become standard practice for all the sales reps, causing Mary too work late most nights to get the order listing to Cindy. Meet Cindy: She is responsible for creating and updating the production schedule on a daily basis, which works on a 7day production cycle. The production schedule contains all the information for materials needed and production turnover time for each phase of the production process. The production schedule is the blue print from which the operations function operates every day. This tells them what to bake, how many to bake and when to bake it. Cindy has given up all hope to receive the order listing on time and to compile a production schedule that is actually going to be used for 7 days. Each day the sales reps dump impossible demands on them, without considering how the orders must be filled. Their standard response is Without us bringing in the orders, we all can go home! Jack is, however, not the only one having a negative impact on the production schedule. The purpose of the production schedule is to create a schedule of what must be produced, when to produce it and what is needed. Jack s orders provide the information on what must be produced, but Cindy is dependent on Ralph for the what is need and the when it should be available/produced. Centre for Business Dynamics, Business School, UFS

4 OPERATIONS AND LOGITICS MANAGEMENT Meet Ralph: He is the production manager and the Head Chef responsible for the production of all products. As production manager, he must ensure that the required raw materials and packaging material are ordered and received on time. Ralph also oversees the production process and is ultimately responsible for ensuring that all orders are ready on time for delivery. Ralph s entire operation is run by crisis management and on who screams the hardest. The production schedule that he receives from Cindy means nothing, since it is not only late but incomplete and provides unrealistic due dates. Every day is a battle to organise and get the necessary materials needed and to push production times beyond its capacity. The production staff s morale is nonexistent it does not matter how hard they work and how many overtime they put in, tomorrow they fight the same battle again. The biggest mistake made when participating in the internal supplier / customer relationship is the assumption that the customer has no responsibility in the relationship. This is a distortion of the relationship, which will only lead to conflict, broken promises, unhappy staff and ultimately unhappy customers. To be an effective internal supplier the internal customer must provide accurate, complete, and timely information! When we look at the entire cycle then it is clear that Jack, Mary, Cindy and Ralph are equally responsible for getting the order to the customer on time. Each of these individuals is equal suppliers and customers of each other. To enable Ralph (supplier) to dispatch Jack s (customer) order on time, in the correct quantity, and according to the right specifications Jack (supplier) has to give Mary (customer) the correct information on time so that she (supplier) can submit the order listing to Cindy (customer) in time so that she can compile the production schedule and give it to Ralph (customer). 22 Centre for Business Dynamics, Business School, UFS 2013

5 Unfortunately, in most organisations this interdependent relationship is seldom understood or considered. Interaction and cooperation is most often driven from an individual consideration of what is needed to achieve the organisation s objectives. The Jack, Mary, Cindy and Ralph story is a reality that many organisations are not willing to admit and affects every facet of an organisation. The reality is that Jack is still losing orders and customers, because Ralph can only create a limited number of miracles a day. Jack most likely feels that his production team does not support him. The fact that he is actually part of the problem will not cross his mind until he is willing to admit and understand the impact that his decisions are having on the production process. Important: The importance of the internal supplier / customer should never be underestimated. The best product, the best price and the best quality will not guarantee a organisation s success. It will always be determined by the relationships between the various functions and people that are responsible for executing its objectives. Failure to participate in the internal suppliers / customer will result in failure of the organisation. Before you start screaming that you are a customer, acknowledge yourself as a supplier. When you do this, you take responsibility for your part in the relationship with your coworkers. When you only interact with your coworkers as a customer, and never acknowledge that you also have an input as a supplier, you will never succeed. Questions: What is a micro operation? What is the relation between micro operations and the concept of internal suppliers and customers? Should the internal supplier and customer be viewed as less important than the external supplier and customer? Provide reasons for your answer. Who is Cindy s internal supplier(s) and what must she receive to enable her to produce her output. Centre for Business Dynamics, Business School, UFS

6 OPERATIONS AND LOGITICS MANAGEMENT 6. LESSON 6: PERFORMANCE OBJECTIVES Central to the ability of businesses to make money is the ability to sell a product or service that a client wants or needs. Through this, the needs and wants of the client become the focal point of reference in everything a business does and the focal point of operations. To determine if the operations is meeting the clients requirements operations can measures itself against a number of key performance indicators, generally referred to as the five performance objectives, namely: The Speed Objective The speed objective is focussed on doing things fast so that the time between the order and the availability of the product / service is minimised. The Cost Objective The cost objective reflects the organisations position on where it fits in terms of price competition. The cost objective is also focussed on reducing cost where possible, regardless of the organisations position in the market. The Quality Objective The quality objective is focused on production products/services that are error free and that satisfy the client. The Flexibility Objective The ability to respond to an every changing environment is the flexibility objective, which allows a business to adapt the way they do business and change their product/service in response to market charges. The Dependability Objective The dependability objective ensures that the client receives their goods/services in time as promised. Although the five performance objectives are present in all enterprises, the importance and prominence of each of the objectives is different from business to business depending on the business s overall business strategy. Each objective s contribution provides a different advantage, therefore, it is important to correctly translate the business strategy when implementing the performance objectives. When dealing with the performance objectives, it is important to understand that all five objectives cannot be number one. A choice must be made in terms of which objective is the most important. When looking at the business strategy of Lamborghini it is clear that they place top priority on the performance objective quality. If we look at the price tag it is obvious that cost is somewhere at the bottom. As a firm, Lamborghini aligned their business strategy of manufacturing a car with the best quality money can buy by placing the performance objective quality at the top. Quality, however, cost money and on this point Lamborghini made a compromise. They accepted that top quality would cost more, so their cars will be exclusive and too expensive for most people. Their entire focus as a company, supported 24 Centre for Business Dynamics, Business School, UFS 2013

7 by their business strategy and their marketing drive, is to provide the best at a premium price. The Chery QQ3 is on the other side of the scale and build for the price sensitive buyers market. Their top priority is affordability, which translates to the performance objective of cost. Chery s business strategy is to provide an affordable car, that falls within a specific price range, therefore quality will be limited to the price range. Every enterprise must develop their business strategy and then translate that strategy into a workable operations strategy. Our Bakery must also make this decision. We must decide if our products are known for their high quality and therefore high price, or are we known for our reasonable prices for a reasonable product. The five operations objectives also have a direct impact on each other, as illustrated through the following examples: Quality reduces Cost and increases Dependability A high quality level will mean that less time is spend on rework or fixing mistakes, directly containing or reducing cost due to poor quality. This per definition also reduces the overall conflict and crisis management experienced by the operation. Dependability is increased since the customer is buying a product with an expected and realised quality. Speed can increase Flexibility Speed can also decrease Flexibility On a strategic level, the faster we are able to respond to environmental factors the higher the organisations ability to be flexible and change in line with these factors. Speed within the production process which is based on standardised process and high volume, however, decreases the flexibility of the operation. Dependability can reduce Cost Dependability within the operation reduces cost, since the expected is provided. Through dependability, the processes can run with no disruptions and reworks required. This assessment is based on the effective use of time making sure that everything happens when it should. Flexibility increased Dependability Once again the assessment of flexibility in this scenario is based on the organisation s ability to adjust it operations in line with environmental changes. This ability will increase dependability since the organisation can adapt and provide the goods and services when the customer needs it. Flexibility impacts on an organisations ability to: 1. change the volume of production. 2. change the time taken to produce. 3. change the mix of different products or services produced. 4. innovate and introduce new products and services. Centre for Business Dynamics, Business School, UFS

8 OPERATIONS AND LOGITICS MANAGEMENT Important: The five performance objectives can never be viewed in isolation from one another. Although a priority must be assigned to each priority in terms of what the organisation want to achieve, said priority must take into consideration the impact it would have on the other objectives. As indicated above, increasing one objective may increase or decrease the effectiveness of another objective. This impact is also not static and limited to a general impact and can differ from process to process. Questions: Name the performance objectives of an operation? Why are the performance objectives important? What is meant by the priority of the performance objectives? PERFORMANCE OBJECTIVES AND THE INTERNAL SUPPLIER / CUSTOMER Through Jack, Mary, Cindy and Ralph we have identified the importance of the internal supplier / customer relationship. We have also identified the conflict that exists between the coworkers that have a farreaching impact on the overall success of the operations. The primary reason for the conflict between these coworkers is that they operate within different activities, and function with a personal set of performance objectives that are prioritised according to the needs and objectives of their specific job requirements. Jack s priority objective is that of speed. The faster he can sign the customer order and get the orders delivered to them, the better. His salary and commission structure is dependent on this. Unfortunately, through Jack s focus on speed he has neglected the importance of quality. His lack of quality is causing orders to be submitted to Mary that is incomplete and contain inaccurate information. The speed that Jack is screaming for is effectively negated due to his inability to place any value on the quality objective. 26 Centre for Business Dynamics, Business School, UFS 2013

9 Strangely Mary also has speed as her first objective. She has to get the order listings to Cindy at 14:30 each day or the production schedules will not be ready first thing the next morning. Regardless of Mary and Jack sharing the same priority on speed, the objective is not achieved by either of them. Cindy on the other hand has placed quality as her first objective. She knows that even if the order listing is received on time, the quality of the information will ultimately determine if the listing can be used or not. Ralph is responsible for turning the production schedule into actual products that can be delivered to the customers. The quality of the information is critical since that gives Ralph the ability to deliver the correct orders at the expected time. The conflict is not caused due to the different priorities assigned to the individual performance objectives. The conflict is based on a failure to understand that my internal supplier may have a different set of requirements that must be met to enable him/her to supply me. The failure is further compounded by each individual s inability to asses and evaluates the quality of their own output. Although Jack is the catalyst in this scenario, he is by no means the only person contributing to the problem. All four participants (as suppliers and customers) have a role to play and an impact on the overall success of the relationship and ultimately the ability to get the order from Jack to the customer on time. If Jack places a greater focus (not changing the priority) on the quality of his output to Mary, then Mary can provide a more accurate order listing to Cindy and Cindy can provide an accurate production schedule with regards to the orders received. Cindy remains dependent on the quality of the input provided by Ralph in terms of the additional information required to finalise the production schedule. Important: Each activity has a priority in terms of the activities performance objectives. Each individual has to work within these priorities, regardless of what your objectives are. Seeming conflicting priorities between internal suppliers and customers can be resolved if greater care is taken with increasing the remaining objectives. Ensure that you are aware of and understand what your internal suppliers and customer s performance objective priorities are. If you can comply with their objectives, they will be in a greater position to comply with yours. A successful synergy between different activities and coworkers is dependent on understanding the requirements and figuring out a way to accommodate each requirement. Questions: Identify the priority of the five performance objectives for each task that you have to complete. Identify the factors that influence your ability to reach these objectives. How do you contribute to your inability to meet these objectives? Centre for Business Dynamics, Business School, UFS