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June 15, 2017

References for The take–up and variation of advice for new firm founders in different local contexts

Follow-up to The take–up and variation of advice for new firm founders in different local contexts from Kevin's blog

References

1. Vivas, C. and A. Barge-Gil, Impact on firms of the use of knowledge external sources: a systematic review of the literature. Journal of Economic Surveys, 2015. 29(5): p. 943–964.

2. Barge-Gil, A., Cooperation-based innovators and peripheral cooperators: An empirical analysis of their characteristics and behavior. Technovation, 2010. 30(3): p. 195-206.

3. Vittoria, M.P. and G. Lubrano Lavadera, Knowledge networks and dynamic capabilities as the new regional policy milieu. A social network analysis of the Campania biotechnology community in southern Italy. Entrepreneurship & Regional Development, 2014. 26(7-8): p. 594-618.

4. Minniti, M., Entrepreneurship and network externalities. Journal of Economic Behavior and Organization, 2005. 57(1): p. 1-27.

5. Greene, F., K. Mole, and D. Storey, Three Decades of Enterprise Culture: Entrepreneurship, Economic Regeneration and Public Policy. 2008, Basingstoke: Palgrave. 1-283.

6. Chrisman, J.J., E. McMullan, and J. Hall, The Influence of Guided Preparation on the Long-Term Performance of New Ventures. Journal of Business Venturing, 2005. 20(6): p. 769-791.

7. Cumming, D.J. and E. Fischer, Publicly funded business advisory services and entrepreneurial outcomes. Research Policy, 2012. 41(2): p. 467-481.

8. Mole, K.F., et al., Assessing the Effectiveness of Business Support Services in England Evidence from a Theory-Based Evaluation. International Small Business Journal, 2009. 27(5): p. 557-582.

9. Lambrecht, J. and F. Pirnay, An evaluation of public support measures for private external consultancies to SMEs in the Walloon Region of Belgium. Entrepreneurship and Regional Development, 2005. 17(2): p. 89-108.

10. North, D., et al., Research to Understand the Barriers to Take up and Use of Business Support. 2011, For the Department for Business Innovation and Skills: London.

11. Tan, L.M., V. Braithwaite, and M. Reinhart, Why do small business taxpayers stay with their practitioners? Trust, competence and aggressive advice. International Small Business Journal, 2016. 34(3): p. 329-344.

12. Kautonen, T., et al., Ties that blind? How strong ties affect small business owner-managers' perceived trustworthiness of their advisors. Entrepreneurship and Regional Development, 2010. 22(2): p. 189-209.

13. Graebner, M.E., K.M. Eisenhardt, and P.T. Roundy, Success and Failure in Technology Acquisitions: Lessons for Buyers and Sellers. Academy of Management Perspectives, 2010. 24(3): p. 73-92.

14. Bennett, R.J., SME Policy Support in Britain Since the 1990s: What Have we Learnt? Environment and Planning C-Government and Policy, 2008. 26(2): p. 375-397.

15. Mole, K.F. and G. Bramley, Making Policy Choices in Nonfinancial Business Support: An International Comparison. Environment and Planning C-Government and Policy, 2006. 24(6): p. 885-908.

16. Bennett, R.J., Small Business and Public Policy: Evolution and Revolution. 2014, Abingdon: Routledge.

17. Arshed, N., S. Carter, and C. Mason, The ineffectiveness of entrepreneurship policy: is policy formulation to blame? Small Business Economics, 2014. 43(3): p. 639-659.

18. Beresford, R., New Labour and enterprise policy: Continuity or change? Evidence from general election manifestos. British Politics, 2015. 10(3): p. 335-355.

19. Arshed, N., C. Mason, and S. Carter, Exploring the disconnect in policy implementation: A case of enterprise policy in England. Environment and Planning C: Government and Policy, 2016. 34 (8): p. 1582–1611.

20. Mole, K., et al., Differential Gains from Business Link Support and Advice: A Treatment Effects Approach. Environment and Planning C-Government and Policy, 2008. 26(2): p. 315-334.

21. Pergelova, A. and F. Angulo-Ruiz, The impact of government financial support on the performance of new firms: the role of competitive advantage as an intermediate outcome. Entrepreneurship & Regional Development, 2014. 26(9-10): p. 663-705.

22. Scott, J.M. and D. Irwin, Discouraged advisees? The influence of gender, ethnicity, and education in the use of advice and finance by UK SMEs. Environment and Planning C-Government and Policy, 2009. 27(2): p. 230-245.

23. Robson, P.J.A., S.L. Jack, and M.S. Freel, Gender and the use of business advice: evidence from firms in the Scottish service sector. Environment and Planning C-Government and Policy, 2008. 26(2): p. 292-314.

24. Bennett, R.J. and P. Robson, Changing use of External Business Advice and Government Supports by SMEs in the 1990s. Regional Studies, 2003. 37(8): p. 795-811.

25. Capelleras, J.-L., I. Contín-Pilart, and M. Larraza-Kintana, Publicly Funded Prestart Support for New Firms: Who Demands it and How it Affects their Employment Growth. Environment and Planning C: Government and Policy, 2011. 29(5): p. 821 - 847.

26. Bennett, R.J. and C. Smith, The Influence of Location and Distance on the Supply of Business Advice. Environment and Planning A, 2002. 34(2): p. 251-270.

27. Alvarez, R.M. and J. Brehm, Are Americans Ambivalent towards Racial Policies? American Journal of Political Science, 1997. 41: p. 345-374.


The take–up and variation of advice for new firm founders in different local contexts

Writing about web page http://journals.sagepub.com/doi/full/10.1177/2399654417691514

In places with persistently high start-up rates more new entrepreneurs take business advice.


This blog reports research in England and Catalonia using an econometric model to show how start-up rates affect the receipt of advice by new entrepreneurs. It also tells us whether and when the state might interfere in business advice. The model enables us to demonstrate that the justification for state support (partial market failure in advice) is place specific but that the remedy of state support has less impact on demand for advice than starting in a place with a persistently high start-up rates. It’s a postcode lottery.

The local environment provides information and knowledge that impact the processes surrounding new firm foundation [1-4]. One of these elements is advice to potential entrepreneurs, which has been linked to greater rates of start-up activity [5] and improvements in entrepreneurial outcomes, such as firm survival [6] and growth [7-9].

Many owners and small firms managers state they find it difficult to navigate the market for advice [10]. Moreover, entrepreneurs may take advice from those with whom they have existing strong relationships, [11] even when those giving advice lack the most appropriate expertise [12]. These market failures reduce advice-taking and justify government interventions [13-16], yet it has been difficult to see the benefits of enterprise policy [17-19]. However, advice is a cost effective way to improve both firm outcomes and economic prosperity, especially in comparison with financial incentives for small firms [20, 21],

In the entrepreneurship literature, differences in the take-up of advice are explained through differences in the individual entrepreneur: either to suggest that potential entrepreneurs perceived themselves to have a knowledge deficit [6], or their characteristics, such as age and education played, encouraged some entrepreneurs to take advice [22, 23]. In addition the size of the firm and the length of time that it has been in existence, is also associated with advice [8, 9, 24, 25]. Whilst these individual and firm effects are important place is important too since we know that most advice is sought locally [5, 26]. More specifically, our research question asks whether demand for advice is proportionally higher in places with high rates of start-up thereby reducing the need for market intervention. It is our contention that the greater volumes of advice lead to greater proportions of advice as market participants leak ‘know-who’ or ‘know-how’ information which may be shared amongst groups of firms that face similar problems, like those that were recently founded, to reduce transaction costs for business advice and therefore market failure.

We suggest that specific local contexts can encourage the transfer of a rich flow of relevant information for entrepreneurs concerning from whom to take advice before starting a business, thus enabling the potential entrepreneur to navigate the market for business advice and, ultimately, enabling the market for advice to work effectively. We argue that not only the likelihood of taking advice will be higher in places with higher start-up rates but also that such high rates dampen the variation around advice, showing its impact on the demand for advice. Our empirical approach allows us to examine both the probability of taking advice and the variance in that probability. Following previous research, we argue that heteroskedasticity in a probit model reflects greater variation or uncertainty [27]. When entrepreneurs lack information about business advice, that uncertainty will be reflected in the variance function of the heteroskedastic probit model.

We investigate whether the variation in taking advice is influenced by the place where the new firm is founded by using data collected from two surveys of entrepreneurs in a number of purposely-selected contrasting areas in England (UK) and Catalonia (Spain). This research design enables us to analyse whether this relationship holds across diverse contexts in terms of start-up rates in two countries. Importantly, we also distinguish between public and private sector advice and show that the likelihood of taking private sector advice increases in places with high start-up rates while its variation tends to decrease in such places. In contrast, the taking and variation of public sector advice does not necessarily differ by locality, which suggests that the predominantly universal orientation of public business support does not reduce the uncertainty concerning advice.

The table below shows the output from a heteroskedastic probit model of the probability of new firm founders to take advice. In this table the co-efficients listed are either significant or reflect place. The first column shows those factors that affected whether the entrepreneur took advice from either the private or public sector starting with the founder’s age, entrepreneurial experience, whether the entrepreneur had a formal written business plan and/or finance from the bank, from family/friends or from public organizations. There was a construction sector effect and firm size mattered. Under the heading denominator are the three places that demonstrate the place effect: Buckinghamshire and Shropshire in England (compared to Tees Valley) and Anoia in Catalonia (compared to urban Barcelona). Finally, the number of observations is reported. .

The next two columns (1) shows where the significant effects are for the public sector in England where experience reduces the likelihood of taking advice but advice is more likely when accompanied by finance from public organizations. The effect of place in the denominator was not significant. In the next two column (2)s, for the private sector the age was negative, formal plan positive and so was finance from family and friends. Here crucially the effect of place was significant in the red outlined box, showing the variation was lower in Buckinghamshire and Shropshire

The next four columns (3) and (4) show the effects in Catalonia. The significant effects are for the public sector in Catalonia where founder’s age and being in construction reduces the likelihood of taking advice from public organizations. Again advice is taken with finance from public organizations. The effect of place in the denominator was not significant for taking the public sector. For the private sector in Catalonia, column (4), bank finance and firm size were significant and again the effect of place was significant in the red outlined box, showing the variation was lower in Anoia.

Heteroskedastic probit model results on the variation in the take-up of public sector or private sector business advice

  (1) (2) (3) (4)
  England   Catalonia  
  Public Private Public Private
Founder's age   -.0065* -.0231*  
Entrepreneurial experience -.3475*      
Formal written business plan   .4334*  
Bank finance       .3992**
Finance from family and friends   .6079**    
Finance from public organizations 1.002**   1.1315**  
Construction sector     -.8575  
Firm size       .1244*
Denominator        
Place: Buckinghamshire -.0752 -1.7260**    
Place: Shropshire 3.1122 -1.7223**    
Place: Anoia     .1361 -.8020**
Observations 594 596 381 381

** P<.01, *P<.05

In both England and Catalonia the variation in the take-up of private sector advice was strongly influenced by locality. This was not the case for the public sector advice. The effect of place was reflected in the variation in advice. In places with greater start-up rates meant that the variation win advice was lower. This lower variation we suggested is which we linked to uncertainty suggesting lower uncertainty surrounding advice in places with higher start-up rates. In addition because this finding concerned variation and uncertainty we can link this to the demand for advice. Consequently places with higher start-up rates have a and because this was a variation it was not because of more resources it indicates higher demand for advice.

The findings have important implications for policy. The place specific context of market failure showed the public sector role of increasing supply of advisory services to disadvantaged localities was insufficient to reduce the uncertainty or ambivalence concerning advice; moreover, its effect was similar in the high start up areas, illustrating the tension between targeting and the more universalist views of public business support that continues in England in the form of the LEPs. One implication is that the resources devoted to business support initiatives are not targeted sharply enough at reducing specific transaction costs. A second point is the importance for public providers to deal with institutional trust or legitimacy. One solution to this problem is a division of labour between public sector design of the programme but delivery through reputable private sector partners.

Linking place and the provision of advice shows lower variation around taking advice in high start-up areas. Individuals are embedded in geographic settings with locally available support, which is unequally known (uncertain). Greater local start-up rates generate an information spillover effect that reduces uncertainty and ameliorates market failure.

The longer version on which this is based is

Mole, K and CapallerasCapelleras, J-L (2017) Take-up and variation of advice for new firm founders in different local contexts

Environment and Planning C early online http://journals.sagepub.com/doi/full/10.1177/2399654417691514





June 09, 2016

We need SME advisers on the ground to boost SME productivity

Writing about web page http://dx.doi.org/10.1080/01442872.2013.875145

We need SME advisers on the ground to boost SME productivity. Being referred boosts the likelihood of taking advice that builds SME capacity by 29 per cent so Moving Information Online can Diminish Change: Advisory Services to SMEs

How to support SMEs effectively has occupied policymakers for decades. Previous work suggests weak competition as a cause of ‘the problem’. Therefore, the means of delivering support matters little. Accordingly, the government moved support online rather than be delivered in face-to-face exchanges between advisers and clients. However, we suggest that firms considering to adopt internal management practices to build capabilities does require face-to-face contact, so practices diffuse in a pattern like an ‘epidemic’. In support a multinomial logit model of 1334 cases of advice found those SMEs that took advice to enhance internal management practices were more likely to be referred by other firms.

This research compared how firms seek advice that builds capability such as IS and best practice interventions (BPI), and how they seek capability-using advice such as marketing advice. The paper argues that advice to small businesses that builds internal capability is risky for the adopting firm, placing greater requirements on the reliability of information surrounding these practices. To ensure that their information is reliable, we found firms to seek word-of-mouth referrals before taking internal, capability-enhancing advice. While governments shifted advice onto the web, this was linked with less intensive advice that failed to build capabilities. In this case, communicating via the web reduced the changes envisaged by the firm.

The models are reported in the table (Table 3 in the full paper). There are two columns for each model representing the estimate for those taking advice that builds capability only (field=1) and those taking advice that both builds capabilities and advice that uses extant capabilities (field=2). Models 1 and 2 use the sample of 1,337 firms, -more models are available where the ongoing advice is taken in the full paper (Mole, Hart and Roper 2014). All the models are significant.

Being referred boosted the likelihood of taking both sets of advice by 29 per cent.
As expected the role of referrals was significant to explain the taking of internal advice that built capability; however, it was actually more significant and influential when linked to both sorts of advice (field=2). There are three significant variables in the baseline equation (field=1): firm size, legal status, and business plans. These are consistently significant throughout the four models. The first is firm size, with smaller firms more likely to take advice. Next was the absence of limited liability which was linked to taking advice. Finally, the absence of a business plan was connected to the advice. This suggests that less capable firms are taking capabilities building advice. For those taking both types of advice (field=2) being in manufacturing had a positive effect. There are significant age effects with a u-shaped relationship, and a similar but weaker relationship with limited liability status. These patterns are repeated across the sub-sample and are robust to including the independent variables.

Multinomial Logit Estimation
VARIABLES (2)
Builds capacity Builds and Uses capacities
BLreferred 0.533** 0.877***
(0.249) (0.174)
BLmailshot -0.193 0.139
(0.326) (0.261)
BLwebsite -0.432** -0.0369
(0.193) (0.143)
Firm size -0.299*** -0.0309
(0.115) (0.0759)
Plan -0.607*** 0.0814
(0.182) (0.134)
Limited liability -0.829** -0.300*
(0.193) (0.146)
Three-four yrs old 0.0798 0.663***
(0.328) (0.226)
Ten-twenty yrs old -0.298 0.380**
(0.291) (0.187)
Twenty yrs plus old 0.293 0.516***
(0.231) (0.166)
Manunfacturing -0.0180 0.465***
(0.263) (0.169)
Constant 0.417 -0.846**
(0.404) (0.337)
Observations 1,337 1,337
Log likelihood -1219
Chi-squared 140.4
Degrees of freedom 32
Pseudo r2 0.0544
Standard errors in parentheses * p<0.01, ** p<0.05, * p<0.1

Some of the other control variables were intriguing. The relationship between internal advice, firm size, planning and limited liability status suggested that Business Link was building capacity in less well-organised firms that had fewer management practices: the ‘long tail’ of underperforming small companies (Bloom and Van Reenen 2010). This long-tail of underperforming companies is not new; indeed, it was part of the Commission on Public Policy and British Business in 1997 (Voss et al. 1995, Commission et al. 1997). The commission recommended that SME networks be strengthened; thus, they pinned their hopes on peer-to-peer learning as opposed to what they saw as standardised practices (Commission et al. 1997). However, most networks, and founding teams, are characterised by homophily (McPherson, Smith-Lovin and Cook 2001). Thus, poorly performing firms identified by researchers (Bloom and Van Reenen 2010, Voss et al. 1995, Commission et al. 1997) network with other poorly performing firms; so, networks reinforce differences rather than ameliorate them (McPherson et al. 2001). In other words, poorly performing businesses may be overembedded (Uzzi 1997). To break out of overembeddedness requires an intervention, either from the market through increased competition or through an agency such as the Business Link studied here.

Policy Implications

Several policy implications flow from this study. First, agencies need to focus on word-of-mouth marketing (Reichheld 2003). How customers react to business support services is critical in the business of capability enhancing and transforming businesses but perhaps less so in capability using advice (Branzei and Vertinsky 2006). Since policymakers value building capacity then the reputation of sources of advice is paramount; consequently, it might be wise to take steps that protect the repute of advice and advisers (Mole and Bramley 2006).

The policy implications from the study also relate to the different groups of firms that are receiving different types of advice – market segmentation. Direct mail campaigns are likely to be more effective for advice that uses extant capabilities, such as marketing or sales. In addition, firm characteristics are linked to different sort of advice within this category. Although a model of advice over time it is perhaps going too far, firms receiving training advice, for example, are much older than those who receive marketing advice.

The original paper (Mole et al. 2014) can be found here

Mole, K. F., M. Hart & S. Roper (2014) When moving information online diminishes change: advisory services to SMEs. Policy Studies, 35, 172-191.

References

Bloom, N. & J. Van Reenen (2010) Why Do Management Practices Differ across Firms and Countries? Journal of Economic Perspectives, 24, 203-224.
Branzei, O. & I. Vertinsky (2006) Strategic Pathways to Product Innovation Capabilities in SMEs. Journal of Business Venturing, 21, 75-105.
Commission, on, Public, Policy, and, British & Business. 1997. Promoting Prosperity: A Business Agenda for Britain. London: Vintage.
McPherson, M., L. Smith-Lovin & J. M. Cook (2001) Birds of a Feather: Homophily in Social Networks. Annual Review of Sociology, 27, 415-444.
Mole, K. F. & G. Bramley (2006) Making Policy Choices in Nonfinancial Business Support: An International Comparison. Environment and Planning C-Government and Policy, 24, 885-908.
Mole, K. F., M. Hart & S. Roper (2014) When moving information online diminishes change: advisory services to SMEs. Policy Studies, 35, 172-191.
Reichheld, F. F. (2003) The One Number You Need to Grow. Harvard Business Review, 81, 46-54.
Uzzi, B. (1997) Social Structure and Competition in Interfirm Networks: The Paradox of Embeddedness. Administrative Science Quarterly, 42, 35-67.
Voss, C., K. Blackmon, P. Hanson & B. Oak (1995) The Competitiveness of European Manufacturing – A Four Country Study Business Strategy Review, 6, 1-25.


March 09, 2016

Brexit: any effect on business support?

Recently, I have been conducting research interviews concerning the value of business support. One interview was with a group in the West Midlands who provided business support to a large number of clients with advice and financial support available to growing small firms in their region. They were re-bidding to develop the project further. The money was coming from the EU programmes.

I've been asked to comment on the implications of 'Brexit' for business support. In truth i don't believe that the implications for business support is the most central to the decision to stay or leave the EU. Nonetheless I think there are three points that might be made:

  1. The EU policies are strongly in support of supporting small businesses. The The Competitiveness of SMEs (COSME) is the EU programme specifically dedicated to improving competitiveness and SMEs, with a total budget of € 2.3 billion over 2014-2020 - a lot of resources albeit over a wider area (source: Directorate- General for Enterprise and Industry Annual Activity Report 2014).
  2. There is a drive towards better evaluation of these programmes too, although programme deliverers always argue that the cost of the evaluation takes away from the ‘good work’ that they are accomplishing
  3. On the other hand, some talk that the US SBIR programme that top-slices money from the federal innovation budget for SMEs could be difficult to implement in the UK it because of its anti-competitiveness. But if we still want to access the EU market after brevet - and everyone agrees with that then we will still have to abide by the rules.

In summary the reasons why brexit might be harmful to business support is that the EU finances a great deal of business support; and the reasons why it might be beneficial is the familiar argument surrounding what would and would not be possible.


October 20, 2007

Operations Management Lesson 9 Exercise

INTRODUCTION

I will appraise the quality control systems of milk production in the UK farming industry for this excercise. I’m familiar with this process from my childhood, where I grew up on our family farm before I left home for university.

cowscowscows Figure 9.1

The dairy industry in the UK is a mature market, where consumer requirements are stable in the short to medium term. The customers to a dairy farmer are companies such as Dairy Crest (previously the Milk Marketing Board before privatisation) who are milk distributors as well as dairy food producers. Other key stakeholders in the vertical value chain are the UK’s leading supermarkets e.g. Tesco.

QUALITY MANAGEMENT

Prevention costs

  • Industry prevention starts with farms needing to be licensed to produce milk and demonstrating compliance with the milk quota regulations. In addition the farm has to ensure it complies with the Food Standard Agency and National Dairy Farm Assured scheme, in addition to any requirements placed on it by its milk distributor.
  • On farm systems are then in place to manage and record breeding to ensure the herd is going to provide sufficient quality yields, in addition to understanding the genetic history (including animal passports) of the cow and its medical history in the event of genetic issues being identified.
  • Each cow’s diet is then controlled and recorded to manage the quantity and quality of their milk yields.

Appraisal costs

  • Farms monitor the output of their herds using a form of statistical process control (SPC), to ensure the milk meets the quality requirements (with lower and upper control limits) of the milk distributors before being collected for treatment and bottling.

Internal costs of defects

  • Any milk produced from medicated cows is destroyed and if this milk contaminates production (usually through human error) then total production needs to be destroyed, which can significantly impact a farms income and its reputation with the distributor if it occurs regularly.
  • In the event that medically contaminated milk is handed to the distributor, then the farm is fined as this can contaminate a whole tankers milk at best.
  • Farms are randonmly inspected by DEFRA Dairy Hygiene Inspectors so any recommendations to maintain farm assured status, are alsoi internal defect costs.

External costs of defects

  • There is a very low proportion of external quality issues occurring compared to the volume of industry sales, because of the level of investment made in preventing quality problems.
  • The impact of some forms of defect could have a catastrophic impact upon the milk industry. A good example of this is the BSE, foot and mouth and blue tong cases which has significantly damaging the sales of beef and also indirectly milk sales in the UK.
  • Consumers either stop purchasing the dairy goods or find alternative sources e.g. goods produced from outside of the UK .

CONCLUSION

The potential cost of milk quality defects and pervasive farming industry issues, can have a significant damaging effect on consumer confidence. This results in the revenues and profitability of the farming industry and also its vertical and horizontal supply chains being at risk of bankruptcy. There have been many examples of this since the BSE crisis of the 1990's.

Therefore significant investment is in place by the government, industry and farming community (self regulation, to ensure the industry does not suffer at the hands of a few farms bad practice) to prevent issues occurring. This has benefits dairy farming significantly, because only a small number of iosolated cases have occured. I therefore believe that the quality control systems in place, within a significant focus on provention is working well.

BIBLIOGRAPHY & REFERENCES


Operations Management Lesson 7 Exercise

INTRODUCTION

The example I will use for this exercise is to compare the approaches that my fiancé and I used for our stocking our kitchen, before we moved in together.

stressedshopper

FIANCE APPROACH

Method

  • Periodic shopping – weekly shop
  • Forecasts demand – identify meals for the period & create an ingredients list
  • No inventory management - kitchen inventory is not checked
  • Store Choice – utilise online shopping from major food retailer and convenience stores if there are shifts in forecast demand within the week

Advantages

  • Scheduling – a weekly meal schedule is produced, so that certain ingredients can defrosted and more perishable items brought forward within the schedule
  • Just In Time – online shopping can be delivered on specific date and time, when it may not have been possible to visit shops during this period

Disadvantages

  • Redundant stock – shifts in meal requirements, can result in wastage and over stocking of perishable goods, as inventories not checked
  • Space Mgmt – run out of space due to over stocking as inventories not checked
  • Working Capital Intensive – capital cost of overstocking high value items as inventories not checked
  • Responsiveness – where there are shifts in meal requirements and there is no safety stock, stock out costs occur as other food sources are found. These are often at a higher overall cost because of additional travel and time invested
  • Safety Stock – A lack of inventory management also effects non food items as a schedule is not created for these porducts and are often missed e.g. loo role
  • Discounts – as only the ingredients needed for the weeks meals are purchased, the potential for bulk purchase discounts is low

Summary

  • Methodology - It’s clear that this approach uses a form of Material Requirements Planning (MRP) and is effective for ensuring that low value standard materials are restocked and medium & high value items are purchased if required that week. However, the usage of stock management information within this planning is very low causing stocking issues in supporting demand.
  • Recommendation - monitor inventory levels to improve the accuracy of the MRP process

MY APPROACH

Method

  • Inventory Management – inventory regularly monitored, with a list maintained of those items at or below the mental safety stock level
  • Independent Demand – visit the shops and purchase goods to return the kitchen inventory to target inventory levels
  • Store Choice – Utilise large hypermarkets for inventory restocking and convenience stores when only a few low value or perishable purchases are required
  • Enjoy the Experience - Spontaneously buy additional ingredients that take my interest for creating future meals, plus the essential shopping cake treat!

Advantages

  • Controlled Inventory Costs – inventory is maintained at desired levels, minimising stock out costs and ordering costs
  • Flexibility – variety of stock enables flexibility in supporting changing demands (within constraints of the wide inventory built up)
  • Discounts – as bulk purchases are made to restock the kitchen, the potential for bulk purchase discounts is high
  • Space Management – effective use of kitchen storage space

Disadvantages

  • Wastage – wastage occurs from stocking perishable items not required, although these are typically lower value items
  • Purchasing Flexibility – the point at which shopping needs to occur varies and is not predictable, as the demand for ingredients shifts daily depending on the meals that I dedcided to make that day. It is not always a convenient/possible to go shopping when lower limit safety stock levels are breached.
  • Capital Employed – capital employed in maintaining high value items, these may not be needed for quite sometime but typically have a long life span.

Summary

  • Methodology - It’s clear that this approach uses a form of Reorder Point (ROP) stock control system, which results in a stable kitchen inventory and is able to support shifts in demand. Its largest disadvantage is that the re-stocking of perishable goods often means that this becomes a cyclical ROP approach.
  • Recommendation – Plan some meals for each week, which help to utilise any over stocking of the higher value inventory items or perishable goods, to reduce wastage and capital employed.

CONCLUSION

  • It can be seen that the approaches adopted by my finance and myself are quite different, with both having their advantages and disadvantages. The key driver causing these approach difference sare the objectives we apply to food shopping. My primary objective is to always have choice and be able to decide what meals to have each day. My fiancés primary objective, is to make plans so that there are less unknowns in the day to think about, as the meals are planned and the risk that she will need to go food shopping at an inconvenient time is lower
  • Since living together my finance does most of the food shopping, as there are short to medium term shifts in the inventory needed dependant on the latest diet trend, which I’m just unable to keep up with.

BIBLIOGRAPHY & REFERENCES

  • Slack, N., Chambers, S., Johnston, R., Betts, A. (2006) Operations and Process Management, London: FT Prentice Hall
  • Walley, P. (2007) The Warwick MBA: Operations Management, Coventry: University of Warwick


Operations Management Lesson 6 Exercise

LEVEL CAPACITY MGMT

A common example of level capacity management is seating capacity at sports stadiums. My local stadium is Twickenham rugby stadium and has a seat capacity of 82,000 (a 7,000 seat increase in 2007).

twickenham pic Figure 6.1

The stadium is used mainly at weekends and holds events every few weeks, with its most frequent usage being international rugby events, in addition to the annual national rugby cup finals and various music concerts. For music concerts, the stadium capacity changes per music concert as only a portion of the stadium is used but the pitch is also used for revel goers.

twickenham genesis layout Figure 6.2

The stadium has a very low utilisation (I would estimate this to be less than 1%) but a high efficiency rate (I would estimate this to above 80%) as most events are sold out, with only a few events such as the varsity rugby march that do not sell out.

Level capacity management in this case is extremely costly, with the stadiums capacity being severely under utilised for such a significant investment (the new Wembley stadium which is less than 10 miles from Twickenham, which is of a comparable size cost approx £750m to replace the existing stadium and local infrastructure).

CHASE DEMAND MGMT

A concept which is growing quite rapidly within the UK because of the high volume of cars compared to the size of our country is traffic management. The best example of this is the chase demand management applied to the M25 motorway, during rush hour on a Monday morning.

Motorway capacity is relatively fixed if you assume that all cars are travelling at the maximum speed and all lines are being utilised, however demand varies significantly. The investment and time needed to cope with increasing demand during the peak periods to enable this to continue is immense. Therefore a form of chase capacity management has been applied, by controlling some of the motorway capacity constraints.

Motorway speed limits are 70 miles an hour for most vehicles, and a vehicle travelling at this speed need to be spaced a certain distance apart in order for motorists to be driving safely, which creates a lot of redundant space between vehicles. Therefore the Automatic Traffic Management (ATM) system has been developed, were motorway efficiency is measured. When efficiency reaches a tolerance level the speed limit is reduced in increments of ten miles per hour to slow traffic down. This enables vehicles to travel closer together as less breaking distance is needed, which causes an increase in the motorways capacity. If used correctly, this can also be used to limit the demand coming into a motorway stretch where bottlenecks are occurring, by slowing the demand of cars travelling into the bottleneck by forcing a lower throughput in previous stretches of junctions.

motorway traffic mgmtFigure 6.3

In addition the latest concept is also to increase the capacity of motorways, during rush hour by directing vehicles to use the hard shoulder of the motorway. In a three lane motorway, this could have the effect of increasing motorway capacity by 33% [reference].

YIELD MGMT

An example of a company who uses yield management is the Odeon cinema. The Odeon offer lower prices in the week, when demand is much lower in order to entice customers to come into the cinema. Utilisation is at its highest on Friday, Saturday and Sunday nights where maximum occupancy is often achieved (typically more the main attraction films) so the Cinema increases its prices and also charges a premium for the best viewing positions as demand exceeds capacity and the pricing strategy brings in more revenue whilst maintaining high capacity utilisation.

orage wedFigure 6.4

The Odeon has also teamed up with the mobile phone company Orange, in developing a But One Get One Free (BOGOF) promotion called ‘Orange Wednesday’. This promotion is to entice clients to come to the cinema in the week (or more specifically a Wednesday), when demand yield’s are at their lowest.

QUEUE DESIGN

The outbound airport security at Heathrow airport has two single queue/multi server designs, which enables a constant flow of air travellers through the security check areas. There are two queues as the demand is such that the queue length during peak times is unmanageable. During off-peak hours, the second queue is closed.

heathrow security pic Figure 6.5

This model maximises the capacity and resource utilisation of the security process. However, airport security has attracted considerable attention since the terrorist attacks in America 9/11 with increased security measures (new regulations on what you can take through and more thorough checks e.g. shoe removal) used to reduce the risk of terrorism. This has resulted in a longer and more anxious experience for people, with scenes during the summer holiday season of people queuing outside the airport. This could be improved by virtual queuing, such as those used in Walt Disney theme parks.


BIBLIOGRAPHY & REFERENCES

  • AllBusiness, “Virtual queuing: could it be a reality for airports?”. AllBusiness Company Website, http://www.allbusiness.com/specialty-businesses/264987-1.html, accessed October 2007.

  • Fred Van Bennekom, “Airport Security Line Queues”. Personal Pages of Fred Van Bennekom, http://www.greatbrook.com/Personal/airport_security_line_queues.htm, accessed October 2007

  • Highways Agency, “Newsroom > Kelly announces new ways to beat motorway jams”. Highways Agency Government Website, http://www.highways.gov.uk/news/newsroom.aspx?pressreleaseid=153273, accessed October 2007.

  • IBM Services A-Z, 2007. “IT Services > Outsourcing/Hosting > Infrastructure Outsourcing and Hosting” IBM Company Website, http://www-935.ibm.com/services/us/index.wss/itservice/so/a1000414, accessed July 2007.

  • Orange Wednesday, "Orange & Film > Orange Wednesdays". Orange Corporate Website, http://orangewednesdays.orange.co.uk, accessed October 2007.

  • Slack, N., Chambers, S., Johnston, R., Betts, A. (2006) Operations and Process Management, London: FT Prentice Hall

  • Twickenham Stadium, "Twickenham Stadium, The Home of English Rugby". Rugby Football Union Official Website, http://www.rfu.com/microsites/twickenham/index.cfm, accessed October 2007.
  • Walley, P. (2007) The Warwick MBA: Operations Management, Coventry: University of Warwick


Operations Management Lesson 5 Exercise

INTRODUCTION

IBM’s Strategic Outsourcing (SO) business unit provides clients with the management of application and information technology (IT) systems, by strategically partnering to manage and operate their client’s applications and IT systems, generally under a mutually beneficial agreement. The outsourcing agreement may include the transfer of IT employees and IT assets to IBM. IBM provides service level assurances to ensure quality of service is attained and measured (IBM Services A-Z, 2007).

Within the SO business unit, IBM then decides which delivery capabilities it should invest in developing, managing and operating internally and those areas it will de-integrate and seek a strategic partner (these are strategic partners as SO agreements and investments are typically five to ten years in length). This is reflected in a recent quote from IBM’s world-wide General Manager for ITDelivery (the service delivery organisation who provides the core services to SO clients) :-

“We make strategic judgments about which operations we want to excel at and which ones are best suited to our partners. We base those decisions on client needs, economics and expertise.” (Bob Zapfel, General Manager, ITDelivery, October 2007)

Once such example of IBM partnering to deliver SO services, is IBM’s decision to enter into contract discussions with AT&T (global network services provider) in October 2007 and below are some of the advantages and disadvantages that may have been considered in this strategic decision:-

ADVANTAGES

  • Leverage Partner Capital Investment - The capital investment required to develop a global network services business is very high ($bn), so this service delivery asset needs to be at the very core of a company’s client value proposition to consider this investment. A few global organisations such as AT&T have made this investment as part of their strategic capability. IBM is able to achieve its strategic advantage by offering clients the full end to end IT proposition, by partnering with organisations where it does not to have an in-house capability. Partnering enables IBM to leverage AT&T’s investment and avoid the significant risk associated with such an investment.
  • Maximise Opportunity Cost - The investment capital that could have been spent on developing a global network can now be channelled into ventures with potentially higher investment returns, lower risk and more aligned to the company’s strategic direction and creating competitive advantage in these areas.
  • Increase Speed to Market (see figure 5.1) – By utilising the core competencies of AT&T as a leading network services provider, IBM can remain at the forefront of technology as they strive to maintain competitive advantage over its competitors. This enables IBM to bring its partner capabilities to its clients quicker than IBM would have been able to achieve on its own.

AT&T Magic Quad

Figure 5.1

  • Leverage Intellectual Property (see figure 5.2) – IBM can leverage the intellectual property, knowledge, best practices, experience and tools of AT&T to compliment its own capabilities and offer a full IT service capability. This consolidation of capabilities under one umbrella provides IBM with a strategic advantage for clients to have a one stop shop for all their IT service needs.
AT&T Innovation

Figure 5.2

  • Increase Business FlexibilityIBM is able to reduce its straight line revenue growth constraints, which would be present if it delivered its own network capabilities (where revenue growth would be more tied to the physical infrastructure and number of resources in-house). By partnering, IBM is able to become a provider of value rather than assets. With a lower fixed cost base for these services and higher variable costs, shifting IBM’s cost basis to a ‘pay for what you use model’, this enables more financial and therefore business flexibility to channel its capital to evolving growth areas.

DISADVANTAGES

  • Increased Dependency on Corporate Relationships The most significant cause of business partnership failure is a breakdown in the relationship of the companies involved, usually because of poor communication. IBM will now be dependent upon the delivery of the AT&T service to its customers. The organisations relationship can be an enabler for higher growth, but also introduces new risks. The organisations trust, culture and approaches to commercial negotiations are all important factors in the management of the corporate relationship than they are a in-house model. In an all in-house model a single individual e.g. the Managing Director resides over both internal service providers to make decisions where conflicts occur.
  • Lower Control and InfluenceBy partnering with AT&T, IBM’s natural control and influence is reduced, with large exit implications for both organisations. In the event that AT&T have conflicting needs between IBM and other partners, IBM may receive lower priority as although it’s one of the worlds largest organisations it does not mean that IBM will be one of its largest client in the medium to long-term. IBM also has fewer alternatives in reducing its costs in the event that this business area becomes inefficient.
  • New Risk ExposuresRisk exposures of the AT&T organisation, could now result in IBM also becoming exposed to these risks. A malicious attack on AT&T’s network security for example could impact the services IBM provides to its clients. In addition an IBM competitor acquiring AT&T would create much uncertainty and discomfort for the partnerships future.
  • Reduction in In-House KnowledgeBy relying on your partner to deliver services into your organisation, then you reduce the need for subject matter experts in your own organisation. This can be very dangerous, as you need to demonstrate to clients that you are adding value and if you are relying at the hands of your partners then it is difficult for your own resources to consider alternative considerations when the in-depth knowledge is not within your own company.
  • Risk of Conflicting ObjectivesIt is difficult to incentivize a partner to reduce their costs when their corporate responsibilities will be to grow revenue and profit for their shareholders.

This agreement is an example of the continued strategic actions being taken by IBM as we strengthen our globally integrated enterprise business model. We create and capture value for our clients through an open and collaborative working model, underpinned by a competitive cost structure. In this model, delivery excellence and innovation is fostered through diversity and alliances are a function of complementary expertise.

BIBLIOGRAPHY & REFERENCES

  • Bob Zapfel, October 2007. Understanding our Newest Agreement with AT&T (PE and DPE call final.ppt). IBM Global Services Presentation, IBM Confidential, Document Owner Bob Zapfel.

  • IBM Services A-Z, 2007. “IT Services > Outsourcing/Hosting > Infrastructure Outsourcing and Hosting” IBM Company Website, http://www-935.ibm.com/services/us/index.wss/itservice/so/a1000414, accessed July 2007.
  • Slack, N., Chambers, S., Johnston, R., Betts, A. (2006) Operations and Process Management, London: FT Prentice Hall
  • Walley, P. (2007) The Warwick MBA: Operations Management, Coventry: University of Warwick


Operations Management Lesson 4 Exercise

INTRODUCTION

The product selected to analyse using the Quality Function Deployment (QFD) tool is the ‘electronic key fob (EKF)’ used to securely lock and alarm vehicle doors. The QFD chart will ensure that the features most valued by customers are highlighted and prioritised for inclusion in the preliminary design of the product.

QULAITY FUNCTION DEPLOYMENT

QFD of EKF

In the consideration of ‘what’ are the customers key needs, the first priorities are to factor in what the product is designed to actually do:

  1. Security – The EKF was invented to improve the security of your vehicle and also increase the ease in which it’s done. Therefore this is also the most important design feature.
  2. Reliability – The EKF needs to be reliable, otherwise the vehicle is left unsecured or inoperable as it cannot be accessed or driven. This is the second most important feature, as if you can’t rely on the product to do what its designed to do it provides little to no value.
  3. Repair & Replacement – Although a key requirement is the product should be reliable, in the event that the EKF does become inoperable or is lost it needs to be easily repaired or replaced to enable the vehicle to be returned to its operable state rather it being as useful as a heap of metal.
  4. Size – The EKF is taken with you when you leave the vehicle so needs to be easily carried in a pocket or bag.
  5. Durability – The EKF is used by many people on a daily basis and is often left in pockets and bags, where it’s liable to being squashed or bashed around.
  6. Transmission Distance – The EKF may need to be operated from a distance, in which case the transmission distance needs to enable the vehicle security to be turned on and off from a range of distances.
  7. Design – The EKF should be aesthetically pleasing.

In the consideration of ‘how’ the customer’s key needs are provided, the following areas are utilised:

  • Technology – To deliver the wireless electronic security coding, provide consistency and reliability, minimise space and enable transmission distance.
  • Foldaway key – To minimise the use of space and provide design innovation.
  • Fob material – To provide a tough casing to protect the technology, deliver a reliable and durable product and give a good product appearance.
  • Battery – To minimise space and provide long term reliability and repair, when drained.

There are few interdependencies between the ‘Hows’ of this product, with the only relationships being between the battery driving the technology and the fob material needing to support the foldaway key mechanism.

There is a wide range of relationships between the ‘Whats’ and ‘Hows’, with Technology being the most significant factor in delivering the majority and also most important product features, which include product security, reliability, size and durability. The second most important feature is the battery, which powers the Technology. The next most important is the fob material, which enables the durability and the product design and the least important is the foldaway key, which reduces the key size and provides a neat and innovative design.

The EKF replaced the traditional turn key, with the new product significantly improving vehicle security. However, with this improvement in the most important ‘what’ has come a decline in the competitive score of the next three most important features (reliability, size and durability) as the new technology requires extra space and adds additional components which increase the risk of the product becoming unreliable or damaged from use.

The largest movements in the competitive score are the transmission distance being significantly increased from effectively 0 cms to many meters with the EKF. However, the ease of repair of replacement has significant fallen with the EKF because of its additional complexity requiring greater expertise to fi, which are not as widely available (this assumes that people have a spare key that can be copied, rather than replacing the car locks). Although these features (transmission distance and repair & replacement) have significant competitiveness implications, they are two of the three least important features to customers.

BIBLIOGRAPHY & REFERENCES

  • Slack, N., Chambers, S., Johnston, R., Betts, A. (2006) Operations and Process Management, London: FT Prentice Hall
  • Walley, P. (2007) The Warwick MBA: Operations Management, Coventry: University of Warwick


Operations Management Lesson 3 Exercise

INTRODUCTION

The selected process to map is the IBM Request For Service (RFS) process. The RFS process exists on all outsourcing contracts to deliver any client work that doesn’t exist within the base service contract. This process step is an important stage within the end project lifecycle of a company and is often the first visibility IBM has of the customers’ project portfolio.

HIGH LEVEL PROCESS MAP & OBSERVATIONS

Below is a high level process diagram (figure 3.1) of typical companies’ project lifecycle from identifying an idea or need all the way through to realising the benefits of that idea or need.

typical_project_lifecycle.jpg Figure 3.1

Highlighted in yellow is the IBM RFS process, which is a critical stage where many projects do not progress far beyond. At this stage the solution developed identifies the estimated costs, time and risks of the project, which are evaluated against the intended project benefits and enables a company to evaluate whether the project provides sufficient return on investment to progress into implementation.

DETAILED PROCESS MAP & OBSERVATIONS

The process is a best practice process applied to all IBM Outsourcing contracts and deals with a wide variety of requests in terms of volume and size, some clients submit only a few requests per month where as others submit more than one hundred per month. The requests vary from requesting some desktops to be moved (as little as one man days work) to developing a proposal to outsource the support of all our companies’ business applications (millions of dollars, to implement and provide an on-going service requiring labour, hardware and software services). Because of the variety, the time taken to pass through the process varies significantly from anywhere between two days to two months.

Below is a line of visibility process diagram (figure 3.2) of the RFS process from receiving a new RFS from the customer through to rejecting or releasing a proposal in response to the customers RFS.

RFS Process L3 Figure 3.2

Mapping the process onto a service blueprint (figure 3.2), shows that IBM have designed this process to be a predominantly back office function, where the customer does not have any visibility of the tasks being undertaken except where an interaction is required. This level of visibility for simple requests which can be processed quickly is probably sufficient, however as requests become more complex/large then this level of visibility could be quite disconcerting to the client as they are unable to observe the level of activity and direction of the solution.

Many of the outsourcing contracts have service levels in responding to simple & medium complexity requests, within a given period. As the process is long and thin, with no activities being completed in parallel, there is a high risk of delay within the process caused by growth in RFS volume or complexity or resource absences. Any delay will have a direct impact in delaying the release of the proposal response and poses a real risk to RFSs missing their service level target.

Therefore variable resourcing is needed to support the variety fluctuations in RFS volume and size, as well as dissolving bottlenecks as they occur. This is fundamental if the process is achieve some of its key objectives of delivering:

  1. Incremental Revenue
  2. Maintaining process overhead in-line/below revenue growth/decline
  3. Service levels
  4. Customer satisfaction

BIBLIOGRAPHY & REFERENCES

  • Slack, N., Chambers, S., Johnston, R., Betts, A. (2006) Operations and Process Management, London: FT Prentice Hall
  • Walley, P. (2007) The Warwick MBA: Operations Management, Coventry: University of Warwick


Operations Management Lesson 2 Exercise

INTRODUCTION

The processes to be compared are the manufacturing of suits between Marks & Spencers (FTSE100 retailer) and Raja Fashions (Hong Kong based bespoke tailor).

Marks & Spencers is a respected clothes & food retailer with over 500 stores in the UK alone, who are well known for the quality of their products and service.

Raja Fashions is a bespoke tailor, who has a team of 10 tailors who travel the world, covering all of the major UK cities, the USA, France, Germany and Japan. They boast providing services to the House of Lords and Downing Street as a demonstration of their quality.

PROFILE

suit4vsFigure  2.1

Raja Fashions

  • Raja's stock about 20,000 fabrics ranging from affordable to exclusive, for clients to select the material they want for their suit. Prices can be as low as £150 up-to many thousands of pounds.
  • The client can then specify any style suit they wish (including Tuxedos, waist coats and neckties to match) and whether they have any specific requirements to modify this. Examples include, the location and number/style of pockets, number of vents and pleats, the material/colour of the suit lining, any personal signatures or logos etc
  • They operate in twenty four city locations across England, and five city locations in the remainder of the UK, producing 1,000 suits to the British market every week [BBC reference].
  • The manufacturing process visibility is low to medium as the product design and measurement, which starts the operations process is conducted between the tailor and the client.

Marks & Spencers

  • M&S develop a new suit range every season, which is targeted as a high quality but low cost product (price range of £99 to £349 based on website prices available October 2007).
  • They provide a relatively small range (variety) of products, which are sold in a wide range of predefined measurements based on their market research and sales experience in what sells well.
  • Their geographical presence across the UK creates a large target audience, coupled with their brand and value strategy provides a relatively stable but high sales volume. Because of the mass scale and relatively low operating costs M&S are operating in a commodity pricing strategy which is also vulnerable to variation in demand, as the purchase can be delayed.
  • The manufacturing process visibility is very low as the products is purchased ready made by clients.

PROCESS CHOICE

Raja Fashions has adopted two process approaches for their suit manufacturing with jobbing being the choice for meeting with their clients, in city hotels to take the tailor measurements. Once the measurements and design are then sent to their manufacturing operations, a batch process is adopted where by common activities are grouped together and passed through the manufacturing process.

Marks & Spencers also utilise two processes, but for different reasons. The majority of the suit manufacturing is done by mass processes to cut the suit material and undertake some elements of suit stitching. These elements are then passed onto a batch process, where skilled labour provides a hand finish to the suits.

LAYOUT DECISION

Raja Fashions had adopted two layouts to deliver their service, with a fixed position layout being used where the tailors visit their clients by setting up measuring and design teams in city hotels for their customers to visit them. Once the measurements and design are selected the information is sent to their Hong Kong and China manufacturing teams to develop where a cellular layout is used to produce the suit before shipping.

Marks & Spencers has adopted a product layout, as their suits are manufactured to their standard size configuration and suit style for that season.

REVIEW

Raja Fashions have chosen two process and layout decisions. These decisions clearly reflect their business strategy of providing a quality and personal service, whilst minimising costs to provide value for money. This approach provides a client focused approach at the tailoring stage, with the Raja Fashions team travelling vast distances and incurring high overheads in order for them to service client demand. Then there is an efficient but flexible process in the manufacturing process to enable the client bespoke requirements to be effectively delivered within a standard process.

Mark & Spencers has adopted two process choices but only one layout. This approach supports their strategy as once the operation is setup; little flexibility is needed in changing the manufacturing process so this layout is the most efficient design for this operation. Whilst they utilise high quality material and a hand made finish to ensure a quality product for sales in their store.

I would conclude that both companies are utilising the appropriate models to deliver their business strategy.

BIBLIOGRAPHY & REFERENCES

  • Marks & Spencers, "About Marks & Spencers > The Company > Our Stores". Marks & Spencers Company Website, http://www.marksandspencer.com, accessed October 2007.
  • Raja Fashions, "About Raja Fashions". Raja Fashions Company Website, http://www.raja-fashions.com/001.html, accessed October 2007.
  • BBC News, 2002, "BBC > News > Business > Hong Kong's travelling tailor". BBC Corporate Website, http://news.bbc.co.uk/1/hi/business/2018123.stm, accessed October 2007.
  • Slack, N., Chambers, S., Johnston, R., Betts, A. (2006) Operations and Process Management, London: FT Prentice Hall
  • Walley, P. (2007) The Warwick MBA: Operations Management, Coventry: University of Warwick


September 02, 2007

Welcome

Welcome everyone to my (first) Blog. Within this Blog it is my intention to discuss various topics within the Operations Management domain. A domain I'm personally really passionately about.
This blog will be updated frequently, minimally once per week. I would like to invite other students and, actually anyone with a interest in Operations Management to read and comment this Blog.

August 27, 2007

Operations Management Lesson 1 Exercise

INTRODUCTION

The IBM Project Resource Forecasting Process at Royal & SunAlliance will be discussed. R&SA is one of the largest Outsourcing clients that IBM has within the UK, with project resources provided in the UK, India & South Africa.

STRATEGIC ROLE OF THE PROCESS

The strategic role of the process is to enable IBM to maximise revenue by supplyling the right level and quantity of IT skills at the right time to deliver the IT project requirements of R&SA. This enables R&SA IT to deliver projects that enable revenue enhancement, cost reduction, competitive advantage and compliance with the Financial Services Authority.

PERFORMANCE OBJECTIVES

Quality

This is a key objective as the process needs to provide a level of detail and accuracy to enable the forecast to be of value, otherwise the output may not offer any additional value than an experienced individual applying their judgement. The forecast should estimate the required:

-> skills (type and level), man days timing, any other specific requirements e.g. location

Speed

The speed of the process is not significantly important. The forecast should provide an estimate of the resources required in three months time. The further R&SA are required to forecast into the future, the lower confidence they have in this information as there is a high risk that the information is subject to change. IBM is more likely to fulfil changes in R&SAs demands the more notice is provided.

Dependability

The process is used once per month and should be approached in the same manor each time to avoid the process output being affected.

Flexibility

The purpose of the process is to enable IBM flexibility in supporting the changing requirements of R&SAs project needs, so that the type, level and volume of resources can be adjusted in-line with demand. There is not total flexibility in this process, as:-

-> The forecast must be provided three months before the resources are required for IBM to commit to providing the forecasted demand

-> IBM require a minimum demand commitment so that the overheads of the service to be recovered and the standard charge rates to be sustainable

Cost

The IT industry is a commoditised market, causing significant pressure on IBM to maintain its cost levels in line or better than the market place. In addition the agreements exist between IBM and R&SA which benchmark the rates IBM charge for project services. This means that the cost of supporting the Project Resource Forecasting Process must be kept to a minimum also, in order for there to be a cost/benefit of using the process.

STRATEGIC DECISIONS 

Design: What role should the people who staff the operation play in its management?

The IBM employees who deliver the process need to be part of the IBM Project Delivery management, as the information needs to be regularly reviewed e.g. weekly, to ensure that the actual demand being experienced is in line with the forecast. Where the actual demand differs, this needs to be quickly discussed between IBM and R&SA to agree the approach for fulfilling this change in demand.

Delivery: How much inventory should the operation have and where should it be located?

The operation should not have more resources that those which can be funded under the minimum forecast commitment. The resources that are most frequently demanded in terms of skills and location should be retained as inventory. The management of the process may decide also to retain any scarce skills that may be difficult to replace if released.

Development: How should the operations performance be measured and reported?

Performance should be measured in terms of:-

  • The accuracy ratio of forecast versus actual demand experienced for each quality measure
  • Any process deviations/exceptions from the agreed approach
  • The satisfaction of R&SA and IBM that the process is achieving its objectives

The performance should be reported monthly, to review the months actual’s versus forecast. This information should be distributed to the R&SA and IBM management teams and be discussed as part of the management governance, with the key stakeholders.

BIBLIOGRAPHY & REFERENCES

  • Slack, N., Chambers, S., Johnston, R., Betts, A. (2006) Operations and Process Management, London: FT Prentice Hall
  • Walley, P. (2007) The Warwick MBA: Operations Management, Coventry: University of Warwick


July 18, 2007

Skyttegaard's Warwickblog – Public Intro

Welcome to my blog. I work for IBM in Denmark and is a part time distant learning student at Warwick Business School on "The Warwick MBA for IBM program" - http://www.wbs.ac.uk/students/mba/ibm/

Thisblog will primarily be used for the reflective learning modules in the MBA programme with blog entries being available for my study team only.

My private web site can be found at www.skyttegaard.com

Peter Skyttegaard


July 12, 2007

Chris's First Blog Entry

Great video from Pixar, watch it if you haven't

For The Birds

This is just a picture!