Operations Management Essay

This essay has a total of 4345 words and 27 pages.

Operations Management


This report will show how Sainsburys have used performance management to increase their
ability to provide a quality service and gain a competitive advantage, it will also show
how systems have been implemented to achieve this and what Sainsburys have changed in
recent years to achieve the competitive advantage it was looking for, The main area
Sainsburys have changed is there Supply chain which had a cost gap of around £60 million.
It will also look at how the operations functions carried out by Sainsburys can be linked
in with other areas of the business like Finance, Human Resource Management and Marketing.
The main contents of this report will be based on the theory about performance management;
it will start with a section explaining what the theory is and how it is generally applied
in business. It will also contain my own experiences and insight into how operations have
had an effect from my own viewpoint. It will have a conclusion on how I believe my
experiences of operations management has helped me and or hindered Sainsburys. There will
also be a report conclusion showing how I think Sainsburys operations strategies have
evolved over time.


This section will be looking at the theory which will be applied to Sainsburys and how it
can be applied in this way. The main theories I will be looking at will be Capacity
management, Open Systems, Quality Management, Performance Management and how
Socio-technical Systems can be implemented into Sainsburys business.

Capacity Management

The meaning of capacity itself is being the ability to produce work in a given time, must
be measured in the unit of work. There are three main types of Capacity management when
looked at through operations. These are

• Potential Capacity
The capacity that can be made available to influence the planning of senior management
(e.g. in helping them to make decisions about overall business growth, investment etc).
This is essentially a long-term decision that does not influence day-to-day production

• Immediate Capacity
The amount of production capacity that can be made available in the short-term. This is
the maximum potential capacity - assuming that it is used productively

• Effective Capacity
An important concept. Not all productive capacity is actually used or usable. It is
important for production managers to understand what capacity is actually achievable.

There are constraints on capacity management and these are normally Time and Capacity.
Time may be a constraint where a customer has a particular required delivery date. In this
situation, capacity managers often "plan backwards". In other words, they allocate the
final stage (operation) of the production tasks to the period where delivery is required;
the penultimate task one period earlier and so on. This process helps identify whether
there is sufficient time to meet the production demands and whether capacity needs to be
increased, albeit temporarily.

Capacity is a factories ability to produce items explained as follows, consider a factory
that has a capacity of 10,000 " machine hours" in each 40 hour week. This factory should
be capable of producing 10,000 "standard hours of work" during a 40-hour week. The actual
volume of product that the factory can produce will depend on:

- the amount of work involved in production (e.g. does a product require 1, 5, 10 standard hours?
- any additional time required in production (e.g. machine set-up, maintenance)
- the productivity or effectiveness of the factory.

Open Systems Approach
Below is a definition of how open systems can be explained in a business by Ludwig von Bertalanfty.

‘Organisations are open systems (like organisms) and must have an appropriate
relationship with the environment if they are to survive'.

The open systems approach is based on the concept that the organisation is an Open system
with the primary work group as a sub-system of the total organisation. The reason why
Ludwig von Bertalanfty said that open system organisations are like organisms is because
they are engaged in active transactions with the environment.

The Diagram on the next page is a visual example of the explanation below,

Raw materials or customers form the input to the organisational system and finished goods
or services form the output. The environment through competition will influence the
feedback that the organisation receives which will then be processed to either improve the
goods or service before it is reproduced to allow the cycle to begin again. The changing
economic situation, changing values in society, new alternative products or services and
many other factors demand adaptation within the organization if it to survive.

Quality Management
The totality of features and characteristics of a product/service that bear on its ability
to satisfy stated or implied needs. BS 4778 (1987)

Working definition: "FITNESS FOR PURPOSE"

Many people have come up with methods and statements which are available to businesses to
look at and use to keep on top of quality management, the people who will be mentioned
will be Deming, Crosby and Ishikawa.

Deming emphasises the statistical control of Quality in all stages of production, maintenance and service.

 ‘The analysis of errors, for either type or cause, will help control errors.'

 ‘You cannot inspect quality into a product; you must build in quality right from the outset.'

Below is the Deming/Shewhart Cycle.

Crosby had four absolutes which he believed you needed to fulfil to achieve quality they are as follows,
 definition of quality is conformance to requirements
 quality system is concerned with prevention and ensuring ‘right first time' production
 measure of quality is cost
 standard of performance is zero defects.
Ishikawa however believes that to maintain quality you must follow these rules,
 Company wide quality control (QC)
 Top Management QC Audit
 Industrial Education and Training
 Quality Circles
 Application of Statistical Methods
 Nationwide QC promotion
and are all necessary aspects of Quality Implementation, Below is the diagram Ishikawa
came up with to implement these measures.

Ishikawa/Fishbone Diagram

Performance Management

Below are some of the things most people use as performance measures,
• competitive advantage
• flexibility
• financial performance
• resource utilisation
• quality of service
• innovation
The evolution of the concept of performance management as a new Human Resource Management
model reflects a change of emphasis in organizations away from command-and-control toward
a facilitation model of leadership. This change has been accompanied by recognition of the
importance to the employee and the institution of relating work performance to the
strategic or long-term and overarching mission of the organization as a whole. Employees'
goals and objectives are derived from their departments, which in turn support the mission
and goals of the organisation.

Socio-Technical Systems
Socio-technical system is a mixture of people and technology. It is, in fact, a much more
complex mixture. Below, we outline many of the items that may be found in a
Socio-technical system. It can be noticed that many of the individual items of a
socio-technical system are difficult to distinguish from each other because of their close

Socio-technical systems include:
• Hardware Mainframes, workstations, peripheral, connecting networks. This is the classic meaning of technology.
• Software Operating systems, utilities, application programs, specialized code. It
is getting increasingly hard to tell the difference between software and hardware, but we
expect that software is likely to be an integral part of any socio-technical system.

• Physical surroundings. Buildings also influence and embody social rules, and their
design can affect the ways that a technology is used.

• People Individuals, groups, roles (support, training, management, line personnel, engineer, etc.), agencies.
• Procedures both official and actual, management models, reporting relationships,
documentation requirements, data flow, rules & norms. Procedures describe the way things
are done in an organization (or at least the official line regarding how they ought to be
done). Both the official rules and their actual implementation are important in
understanding a socio-technical system.

• Laws and regulations. They might be laws regarding the protection of privacy, or
regulations about testing use. These societal laws and regulations might be in conflict
with internal procedures and rules. For instance, some companies have implicit
expectations that employees will share (and probably copy) commercial software. Obviously
these illegal expectations cannot be made explicit, but they can be made known.

• Data and data structures. What data are collected, how they are archived, to whom
they are made available, and the formats in which they are stored are all decisions that
go into the design of a socio-technical system.

Background into Sainsburys
Sainsburys was first opened in London in 1869 by John James and Mary Ann Sainsbury. In
1928 Sainsburys had sales of £6 million from 182 stores, making it the market leader by
almost doubling sales of any other store. In October 1972 Sainsburys floated 15% of its
equity on the London Stock exchange, it was the largest offering ever made at the time
and, because of the firm's reputation, it was oversubscribed 45 times.

In1987 Sainsburys bought the American firm Shaw's supermarkets. Below I have an industry
comparison to show how Sainsburys compares to other stores in the UK in 2002.

Industry Comparisons
Sainsbury's Tesco ASDA Safeway
2002 Sales Including VAT (£M) 18,200 25,700 9,500 9,400
Number of Stores 648 979 245 480
Number of Employees 173,800 260,000 109,000 90,000
Average store size (Sq. ft.) 32,000 35,000 42,000 31,000
Customers/Week in UK only (M) 11 14 8 8

The Problems Facing Sainsburys
In 2000, a benchmarking study revealed a significant age difference in systems and
warehousing infrastructure between Sainsbury's and its best-in-class competitors, as well
as a supply chain cost gap of £60 million. As a result, the company was under intense
pressure to both increase growth and improve the efficiency of the supply chain. Sir Peter
Davis, Chief Executive of the Sainsbury's Group, publicly committed to reducing
Sainsbury's overall cost base (including stores, systems, other assets and administration)
by £700 million within three years. In late 2000, Sainsbury's top management decided to
launch the "7-in-3" supply chain management program, which involved a major overhaul of
the firm's physical infrastructure, systems, processes, and skill sets. Realizing the
urgency, Sainsbury's management opted for a radical approach to rejuvenating their supply
chain and vowed to have what was originally intended to be a seven year plan implemented
in three years starting in 2001. Martin White, Supply Chain Director at Sainsbury's,
highlighted the far-reaching implications of this decision:

"We committed to completing our Supply Chain renewal program in three years — when it
was initially devised to take seven. It was the biggest and most important business
transformation ever seen at Sainsbury's and perhaps in Europe."

White summarized the four key principles of the "7-in-3" Supply Chain Strategy:

• To replace the current depots with automated fulfilment factories and Primary Consolidation Centres.

• To manage transportation in an integrated fashion from the factory gate through to the store backdoor.

• To replace core supply chain systems which were old and inflexible.

• To ensure that there were clear ways to measure performance by reorganizing the
supply chain structure and processes.

Sainsbury's Solutions

Fulfilment Factories and Primary Consolidation Centres

Key to the new supply chain strategy was replacing the existing network of 25 regional
distribution centres with automated distribution facilities called "fulfilment factories"
which were strategically located throughout the U.K. The new network consisted of nine
fulfilment factories, three of which were manual (located in Haydock, Rotherham and
Emerald Park) and six of which were fully automated. The six automated ones would be
located in Langlands Park, Hams Hall, Waltham Point, Greenham Common, north London and
south-east London. In addition, two slow-moving goods depots were developed in
Stoke-on-Trent and Rye Park, and two frozen food centres at Elstree and Stone (see below
for supply chain structure).

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