The Five Performance Objectives of quality, speed, dependability, flexibility, and cost can be grouped together to play a pivotal role in business. Interwoven through every aspect of operations allows management to draw attention to areas within an organisation that is not performing well and provides opportunities to address them. The characteristics of each objective allow management to assess operations both internally and externally to benefit the business by gaining and creating the competitive advantage.
Quality is the most visible part of what an operation does and acts as a consistent indicator of customers’ expectations, in other words, ‘doing things right’, but the things which the operation needs to do right will vary according to the kind of operation. All operations regard quality as a particularly important objective. Quality is something that a customer finds relatively easy to judge about the operation. Is the product or service as it is supposed to be? Is it right or is it wrong? There is something fundamental about quality. Because of this, it is clearly a major influence on customer satisfaction or dissatisfaction. A customer perception of high-quality products and services means customer satisfaction and therefore the likelihood that the customer will return.
When quality means consistently producing services and products to specification it not only leads to external customer satisfaction but makes life easier inside the operation as well.
Quality reduces costs – The fewer mistakes made by each process in the operation, the less time will be needed to correct the mistakes and the less confusion and irritation will be spread.
Quality can give the potential for better services and products and save costs.
Speed means the elapsed time between customers requesting products or services and them receiving them. The main benefit to the operation’s (external) customers of speedy delivery of goods and services is that the faster they can have the product or service, the more likely they are to buy it, or the more they will pay for it, or the greater the benefit they receive.
Fast response to external customers is greatly helped by speedy decision making and speedy movement of materials and information inside the operation.
Speed reduces inventories – The material’s journey time is far longer than the time needed to make and fit the product. It actually spends most of its time waiting as stocks (inventories) of parts and products. The longer items take to move through a process, the more time they will be waiting, and the higher inventory will be.
Operations principle is that speed can give the potential for faster delivery of services and products and save costs.
Dependability means doing things in time for customers to receive their goods or services exactly when they are needed, or at least when they were promised. Customers might only judge the dependability of an operation after the product or service has been delivered. Initially, this may not affect the likelihood that customers will select the service – they have already ‘consumed’ it. Over time, however, dependability can override all other criteria. No matter how cheap or fast a car mechanic garage is, if it always later than promised to finish or the same parts continue to fail, the customer will go elsewhere.
Dependability saves time – Managers and workers spending time firefighting chaos, simply waste time! If they had machinery and services that they could depend on, much valuable time would be saved to concentrate on other aspects of the business.
Dependability saves money – Ineffective use of time will translate into extra costs.
Dependability gives stability – The disruption caused to operations by a lack of dependability goes beyond time and cost. It affects the ‘quality’ of the operation’s time.
Dependability can give the potential for more reliable delivery of services and products and save costs.
Flexibility means being able to change the operation in some way. This may mean changing what the operation does, how it is doing it, or when it is doing it. Specifically, customers will need the operation to change so that it can provide four types of requirement:
product/service flexibility – the operation’s ability to introduce new or modified products and services.
mix flexibility – the operation’s ability to produce a wide range or mix of products and services.
volume flexibility – the operation’s ability to change its level of output or activity to produce different quantities or volumes of products and services over time.
delivery flexibility – the operation’s ability to change the timing of the delivery of its services or products.
Holding the flexibility to change and adapt quickly to market conditions provides the business with a competitive edge, as larger centralised companies that do not have that flexibility will at times take weeks and months to adapt, meanwhile the more flexibility can capitalise.
Flexibility can give the potential to create new services and products, in a wider variety and with different volumes and with different delivery dates, as well as save costs.
To the companies which compete directly on price, the cost will clearly be their major operations objective. The lower the cost of producing their goods and services, the lower can be the price to their customers. Even those companies which do not compete on price will be interested in keeping costs low. Every pound removed from an operation’s cost base is a further pound added to its profits. Therefore, low cost is a universally attractive objective.
All operations have an interest in keeping their costs as low as is compatible with the levels of quality, speed, dependability, and flexibility that their customers require. The measure that is most frequently used to indicate how successful an operation is at doing this is productivity. Productivity is the ratio of what is produced by an operation to what is required to produce it.
Both the reduction of cost through internal effectiveness is as important as the focus on making improvements to all the other operational objectives.
Cost operation principle
Cost is always an important objective for operations management, even if the organisation does not compete directly on price.
Figure 1.0 shows the internal and external effects of which objective influences the other and their nett outcome. Despite the various nett effects that each has on each other, the one common effect is on cost, so it is fair to state that the quickest and most efficient way to improve the cost performance would be to improve all of the other elements.