operations-consulting-8

What is operations consulting and how can it help firms to become more efficient?
What are some of the tools used by operations consultants?
How can one execute the tools of operations consulting to improve business processes?

500 word response. 150 words at least per question.
Explain operations consulting and how money is made in the industry.
Operations consulting deals with assisting clients in developing operations strategies and improving production processes. In strategy development, the focus is on analyzing the capabilities of operations in light of the firmâ€s competitive strategy. By way of example, Treacy and Wiersema suggest that market leadership can be attained in one of three ways: through product leadership, through operational excellence, or through customer intimacy.1 Each of these strategies may well call for different operations capabilities and focus. The operations consultant must be able to assist management in understanding these differences and be able to define the most effective combination of technology and systems to execute the strategy. In process improvement, the focus is on employing analytical tools and methods to help operating managers enhance performance of their departments. Deloitte & Touche Consulting lists the actions to improve processes as follows: refine/revise processes, revise activities, reconfigure flows, revise policies/procedures, change outputs, and realign structure. We say more about both strategy issues and tools later. Regardless of where one focuses, an effective job of operations consulting results in an alignment between strategy and process dimensions that enhances the business performance of the client.
Operations consulting
Assisting clients in developing operations strategies and improving production processes.

The Management Consulting Industry
The management consulting industry can be categorized in three ways: by size, by specialization, and by in-house and external consultants. Most consulting firms are small, generating less than $1 million in annual revenue.2 Relative to specialization, although all large firms
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provide a variety of services, they also may specialize by function, such as operations management, or by industry, such as manufacturing. Most large consulting companies are built on information technology (IT) and accounting work. The third basis for segmentation, in-house versus external, refers to whether a company maintains its own consulting organization or buys consulting services from the outside. Collis observes that internal consulting arms are common in large companies and are often affiliated with planning departments.3
Consulting firms are also frequently characterized according to whether their primary skill is in strategic planning or in tactical analysis and implementation. McKinsey & Company and the Boston Consulting Group are standard examples of strategy-type companies, whereas Gemini Consulting and A. T. Kearney focus rather extensively on tactical and implementation projects. The big accounting firms and Accenture are known for providing a wide range of services. The major new players in the consulting business are the large information technology firms such as Infosys Technology, Computer Sciences Corporation (CSC), Electronic Data Systems (EDS), and IBM. Consultancies are faced with problems similar to those of their clients: the need to provide a global presence, the need to computerize to coordinate activities, and the need to continually recruit and train their workers. This has led consultancies to make the hard choice of being very large or being a boutique firm. Being in the middle creates problems of lack of scale economies on the one hand and lack of focus and flexibility on the other.
The hierarchy of the typical consulting firm can be viewed as a pyramid. At the top of the pyramid are the partners or seniors, whose primary function is sales and client relations. In the middle are managers, who manage consulting projects or “engagements.” At the bottom are juniors, who carry out the consulting work as part of a consulting team. There are gradations in rank within each of these categories (such as senior partners). The three categories are frequently referred to colloquially as the finders (of new business), the minders (or managers) of the project teams, and the grinders (the consultants who do the work). Consulting firms typically work in project teams, selected according to client needs and the preferences of the project managers and the first-line consultants themselves. Getting oneself assigned to interesting, high-visibility projects with good co-workers is an important career strategy of most junior consultants. Being in demand for team membership and obtaining quality consulting experiences are critical for achieving long-term success with a consulting firm (or being attractive to another firm within or outside consulting).
Finders
Partners or senior consultants whose primary function is sales and client relations.
Minders
Managers of a consulting firm whose primary function is managing consulting projects.
Grinders
Junior consultants whose primary function is to do the work.

Economics of Consulting Firms
The economics of consulting firms have been written about extensively by David H. Maister. In his classic article “Balancing the Professional Service Firm,” he draws the analogy of the consulting firm as a job shop, where the right kinds of “machines” (professional staff) must be correctly allocated to the right kinds of jobs (consulting projects).4 As in any job shop, the degree of job customization and attendant complexity is critical. The most complex projects, which Maister calls brain surgery projects, require innovation and creativity. Next come gray hair projects, which require a great deal of experience but little in the way of innovation. A third type of project is the procedures project, where the general nature of the problem is well known and the activities necessary to complete it are similar to those performed on other projects.
Because consulting firms are typically partnerships, the goal is to maximize profits for the partners. This, in turn, is achieved by leveraging the skills of the partners through the effective use of midlevel and junior consultants. This is often presented as a ratio of partners to midlevel to junior consultants for the average project. (See Exhibit 25.1 for a numerical example of how profitability is calculated for a hypothetical consulting firm, Guru Associates.) Because most consulting firms are engaged in multiple projects simultaneously, the percentage of billable employee hours assigned to all projects (target utilization) will be less than 100 percent. A practice that specializes in cutting-edge, high-client risk (brain surgery) work must be staffed with a high partner-to-junior ratio because lower-level people will not be able to deliver the quality of services required. In contrast, practices that deal with more procedural, low-risk work will be inefficient if they do not have a lower ratio of partners to juniors because high-priced staff should not be doing low-value tasks.
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exhibit 25.1
The Economics of Guru Associates

*Assume overhead costs of $80,000 per professional.
The most common method for improving efficiency is the use of uniform approaches to each aspect of a consulting job. Accenture, the company most famous for this approach, sends its new consultants through a boot camp at its St. Charles, Illinois, training facility. At this boot camp, it provides highly refined, standardized methods for such common operations work as systems design, process reengineering, and continuous improvement, and for the project management and reporting procedures by which such work is carried out. Of course, other large consulting firms have their own training methods and step-by-step procedures for selling, designing, and executing consulting projects.

When Operations Consulting is Needed
The following are some of the major strategic and tactical areas where companies typically seek operations consulting. Looking first at manufacturing consulting areas (grouped under what could be called the 5 Ps of production), we have
•Plant: Adding and locating new plants; expanding, contracting, or refocusing existing facilities.
•People: Quality improvement, setting/revising work standards, learning curve analysis.
•Parts: Make or buy decisions, vendor selection decisions.
•Processes: Technology evaluation, process improvement, reengineering.
•Planning and control systems: Supply chain management, ERP, MRP, shop-floor control, warehousing, distribution.
Obviously, many of these issues are interrelated, calling for systemwide solutions. Examples of common themes reflecting this are developing manufacturing strategy; designing and implementing JIT systems; implementing MRP or proprietary ERP software such as SAP; and systems integration involving client–server technology. Typical questions addressed are “How can the client cut lead times? How can inventory be reduced? How can better control be maintained over the shop floor?” Among the hot areas of manufacturing strategy consulting are sustainability, outsourcing, supply chain management, and global manufacturing networks. At the tactical level, there is a huge market for consulting in e-operations, product development, ISO 9000 quality certification, and design and implementation of decentralized production control systems.
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CHAINALYTICS IS A LEADING PROVIDER OF SUPPLY CHAIN INTELLIGENCE, ANALYTICS, AND ADVISORY SERVICES.
Turning to services, while consulting firms in manufacturing may have broad specialties in process industries on the one hand and assembly or discrete product manufacture on the other, service operations consulting typically has a strong industry or sector focus. A common consulting portfolio of specialties in services (and areas of consulting need) would include the following:
Financial services (staffing, automation, quality studies).
Health care (staffing, billing, office procedures, phone answering, layout).
Transportation (route scheduling and shipping logistics for goods haulers, reservation systems, and baggage handling for airlines).
Hospitality (reservations, staffing, cost containment, quality programs).
For both manufacturing and service industries, the current hot area for consultants as well as in-house teams is Lean Six Sigma. The reason is companies have reached their limit on how much can be done by downsizing and are thus focusing on rigorously measuring and perfecting various processes. Pharmaceutical companies, large retailers, and food companies are examples of industries with heavy demand for consultants who specialize in such programs.5
When are Operations Consultants Needed? Companies typically seek out operations consultants when they are faced with major investment decisions or when they believe that they are not getting maximum effectiveness from their productive capacity. As an example of the first type of situation, consider the following:
A national pie restaurant chain retained consultants to determine if a major addition to its freezer storage capacity was needed at its pie-making plant. Its lease had run out on a nearby freezer warehouse, so the firm had to make a decision rather quickly. The pie plant manager wanted to spend $500,000 for a capacity increase. After analysis of the demand for various types of pies, the distribution system, and the contractual arrangement with the shipper, the consultant concluded that management could avoid all but a $30,000 investment in capacity if they did the following: Run a mixed-model production schedule for pies according to a forecast for each of 10 kinds of pies (for example, 20 percent strawberry, 30 percent cherry, 30 percent apple, and 20 percent other pies each two-day pie production cycle). To do this, more timely information about pie demand at each of the chain restaurants had to be obtained. This in turn required that information links for pie requirements go directly to the factory. Previously the distributor bought the pies and resold them to the restaurants. Finally, the company renegotiated pick-up times from the pie plant to enable just-in-time delivery at the restaurants. The company was in a much stronger bargaining situation than it had been five years previously, and the distributor was willing to make reasonable adjustments.
The lesson from this is that few investment decisions in operations are all or nothing, and good solutions can be obtained by simply applying standard OSCM concepts of production planning, forecasting, and scheduling. The solution recognized that the problem must be viewed at a systemwide level to see how better planning and distribution could substitute for brick-and-mortar capacity.
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THE OPERATIONS CONSULTING PROCESS
LO25–2
Illustrate the operations analysis tools that are used in the consulting industry.
The broad steps in the operations consulting process (see Exhibit 25.2) are roughly the same as for any type of management consulting. The major differences exist in the nature of the problem to be analyzed and the kinds of analytical methods to be employed. Like general management consulting, operations consulting may focus on the strategic level or tactical level, and the process itself generally requires extensive interviewing of employees, managers, and, frequently, customers. If there is one large difference, it is that operations consulting leads to changes in physical or information processes whose results are measurable immediately. General management consulting usually calls for changes in attitudes and culture, which take longer to yield measurable results. The roles in which consultants find themselves range from an expert, to a pair of hands, to a collaborative or process consultant. Generally, the collaborative or process consultation role is most effective in operations management consulting projects. Some consulting firms now provide the expert role online.
The steps in a typical operations consulting process are summarized in Exhibit 25.2. A book by Ethan M. Rasiel on the McKinsey & Company approach offers some practical guidelines for conducting consulting projects:6
•Be careful what you promise in structuring an engagement. Underpromise and overde-liver is a good maxim.
•Get the team mix right. You canâ€t just throw four random people at a problem and expect them to solve it. Think about what sorts of skills and personalities work best for the project at hand, and choose your teammates accordingly.
•The 80–20 rule is a management truth. Eighty percent of sales come from 20 percent of the sales force; 80 percent of your time is taken up with 20 percent of your job; and so on.
•Donâ€t boil the ocean. Donâ€t try to analyze everything—be selective in what you investigate.
•Use the elevator test. If you know your solution so well that you can explain it clearly and precisely to your client in a 30-second elevator ride, you are doing well enough to sell it to the client.

exhibit 25.2
Stages in the Operations Consulting Process

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•Pluck the low-hanging fruit. If you can make an immediate improvement even though you are in the middle of a project, do it. It boosts morale and gives credibility to your analysis.
•Make a chart every day. Commit your learning to paper; it will help push your thinking and assure that you wonâ€t forget it.
•Hit singles. You canâ€t do everything, so donâ€t try. Itâ€s better to get to first base consistently than to try to hit a home run and strike out 9 times out of 10.
•Donâ€t accept “I have no idea.” Clients and their staff always know something, so probe them for some educated guesses.
•Engage the client in the process. If the client doesnâ€t support you, the project will stall. Keep your clients engaged by keeping them involved.
•Get buy-in throughout the organization. If your solution is to have lasting impact on your client, you have to get support for it throughout the organization.
•Be rigorous about implementation. Making change happen takes a lot of work. Be rigorous and thorough. Make sure someone takes responsibility for getting the job done.

Operations Consulting Tool Kit
Operations consulting tools can be categorized as tools for problem definition, data gathering, data analysis and solution development, cost impact and payoff analysis, and implementation. These—along with some tools from strategic management, marketing, and information systems that are commonly used in OSCM consulting—are noted in Exhibit 25.3 and are described next. Note that several of these tools are used in more than one stage of a project.

exhibit 25.3
Operations Consulting Tool Kit

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exhibit 25.4
Issue Tree for Acme Widgets

Source: E. M. Rasiel, The McKinsey Way: Using the Techniques of the Worldâ€s Top Strategic Consultants to Help You and Your Business, (New York, McGraw-Hill, 1998), p. 12. Used with permission.

Problem Definition Tools
Issue Trees Issue trees are used by McKinsey to structure or map the key problems to be investigated and provide a working initial hypothesis as to the likely solution to these problems. As can be seen in Exhibit 25.4, a tree starts with the general problem (increase widget sales) and then goes level by level until potential sources of the problem are identified. Once the tree is laid out, the relationships it proposes and possible solutions are debated, and the project plan is then specified.
Customer Surveys Frequently, OSCM consultants are called in to address problems identified by customer surveys performed by marketing consultants or marketing staff. Often, however, these are out of date or are in a form that does not separate process issues from advertising or other marketing concerns. Even if the surveys are in good form, calling customers and soliciting their experience with the company is a good way to get a feel for process performance. A key use of customer surveys is customer loyalty analysis, although in reality customers are not so much “loyal” (your dog, Spot, is loyal) as “earned” through effective performance. Nevertheless, the term loyalty captures the flavor of how well an organization is performing according to three critical market measures: customer retention, share of wallet, and price sensitivity relative to competitors. Having such information available helps the OSCM consultant drill down into the organization to find what operational factors are directly linked to customer retention. Although loyalty studies are usually performed by marketing groups, OSCM consultants should be aware of their importance.
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exhibit 25.5
Gap Analysis

Source: Deloitte & Touche Consulting Group.
Gap Analysis Gap analysis is used to assess the clientâ€s performance relative to the expectations of its customers, or relative to the performance of its competitors. An example is shown in Exhibit 25.5.
Another form of gap analysis is benchmarking particular client company processes against exemplars in the process and measuring the differences. For example, if one is interested in billing process accuracy and problem resolution, American Express would be the benchmark; for timeliness and efficiency in railway transportation, Japanese Railways; for order entry in catalog sales, it would be L. L. Bean.
Employee Surveys Such surveys range from employee satisfaction surveys to suggestion surveys. A key point to remember is if the consultant requests employee suggestions, such information must be carefully evaluated and acted upon by management. A few years ago, Singapore Airlines distributed a questionnaire to its flight personnel, but made the mistake of not following through to address their concerns. As a result, the employees were more critical of the company than if the survey had not been taken, and to this day the company does not use this form of evaluation.
Five Forces Model This is one of the better-known approaches to evaluating a companyâ€s competitive position in light of the structure of its industry. The five forces are buyer power, potential entrants, raw material suppliers, substitute products, and industry rivals. The consultant applies the model by developing a list of factors that fit under each of these headings. Some examples of where a clientâ€s competitive position might be strong are when buyers have limited information, there are major barriers to potential entrants, there are many alternative suppliers, there are few substitute products (or services), or there are few industry rivals.
Often used with the five forces model is the value chain, such as shown in Exhibit 25.6. The value chain provides a structure to capture the linkage of organizational activities that create value for the customer and profit for the firm. It is particularly useful to get across the notion that operations and the other activities must work cross-functionally for optimal organizational performance (and avoid the dreaded “functional silo” syndrome).
A tool similar to the five forces model is SWOT analysis. This is a somewhat more general method of evaluating an organization and has the advantage of being easy to remember: Strengths of the client, Weaknesses of the client, Opportunities for the client in the industry, and Threats from competitors or the economic and market environment.
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exhibit 25.6
Value Chain

Source: Reprinted by permission of Harvard Business School Press. From M. E. Porter, Competition in Global Industries, (Boston, MA, 1986), p. 24. Copyright © 1986) by the President and Fellows of Harvard College. All rights reserved.

Data Gathering
Plant Tours/Audits These can be classified as manufacturing tours/audits and service facility tours/audits. Full manufacturing audits are a major undertaking, entailing measurement of all aspects of the production facility and processes, as well as support activities such as maintenance and inventory stockkeeping. Frequently these require several weeks, utilizing checklists developed explicitly for the clientâ€s industry. Plant tours, on the other hand, are usually much less detailed and can be done in a half day. The purpose of the tour is to get a general understanding of the manufacturing process before focusing on a particular problem area. Tours use generic checklists or general questions such as are given in the rapid plant assessment method.7
The rapid plant assessment (RPA) tour is designed to enable a study team to determine the “leanness” of a plant in just 30 minutes. The approach uses a 20-item questionnaire and an 11-category item rating sheet (see Exhibits 25.9 and 25.10 at the end of the chapter). During the tour, team members talk with workers and managers and look for evidence of best practices. RPAâ€s developer, R. Eugene Goodson, suggests that each member of the team focus on a few categories and not take notes since this interferes with conversations with the workers and picking up visual cues. At the end of the tour, members discuss their impressions and fill out the work sheets. The categories are key to the tour. Their features are summarized in the nearby OSCM at Work box, “Rapid Plant Assessment.”
Goodson reports that, based upon tours of 150 companies, the typical scores for the sum of the ratings of the 11 categories, 11 points possible for each category, range between 30 and 90, with an average of 55. Categories 4, 5, and 6 (scheduling, space and materials flow, and inventory) in the rating sheet consistently receive the lowest ratings. The reason for this, according to Goodson, is that few plants have an obvious strategy for how they move materials, resulting in inefficient use of space and equipment. One of the major strengths of the RPA method is that it tends to give very consistent results among raters, since it is very hard to “fake leanness.” As Goodson says, “if an operation looks good to a trained eye, it usually is.”
Complete service facility audits are also a major undertaking, but they differ from manufacturing audits in that, when properly done, they focus on the customerâ€s experience as much
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OSCM AT WORK
Rapid Plant Assessment
1Customer satisfaction. A customer-oriented workforce will take pride in satisfying both external and internal customers. The extent of this orientation should be apparent even in a brief plant tour. For example, when asked about the next step in the process, customer-aware employees will respond by giving a personâ€s name or product, rather than saying that they just put it on the pallet and itâ€s moved later. Cordiality to the touring group and posted quality and customer satisfaction ratings are other signs of a customer-oriented workforce. (Questions 1, 2, and 20 on the RPA questionnaire relate to this measure. This questionnaire is included at the end of this chapter.)
2Safety, environment, cleanliness, and order. The physical environment of a plant is important to operating effectiveness. Cleanliness, low noise levels, good lighting, and air quality are obvious things to look for Labeling and tracking of all inventory items, not just expensive ones, should be in evidence. (Not having the required nuts and bolts can be as disruptive to production as lacking a major component.) (Questions 3–5 and 20.)
3Visual management system. Production management tools such as work instructions, kanban schedules, and quality and productivity charts should be easily visible. Posted workflow diagrams linking each stage of a process (such as found in chemical plants) are particularly effective visual cues. (Questions 2, 4, 6–10, and 20.)
The next three categories are intertwined. Rating a plant quickly on these three is straightforward from obvious visual clues.
4Scheduling system. Scheduling involves pacing of the workflow. Goodson suggests that there should be a single “pacing process” for each product line and its suppliers. This process, usually at the end of the line, controls speed and production for all the upstream activities, much as a pace car sets the speed at a racetrack. Demand for product at each work center is triggered by demand at the next. This keeps inventory from building up, improves quality, and reduces downtime because production lines arenâ€t kept waiting for parts. This is usually not the case in plants that use a central scheduling system; in these plants, production orders come from a central computer, not from the production area or line that uses the part. Other things to look for: visual and verbal communication among operators on the same line; inventory buildup at one work center indicating lack of coordination. (Questions 11 and 20.)
5Use of space, movement of materials, and product line flow. Good indicators of efficient space utilization are minimum material movement over short distances, use of efficient containers; materials stored at the point of use, not in separate inventory storage areas; tooling kept near the machines; and product flow layout rather than process layout. (Questions 7, 12, 13, and 20.)
6Levels of inventory and work in process. Counting the number of items coming off a line provides a quick gauge of how much inventory is required. If a line produces 60 units an hour, then an inventory of two or three times that amount sitting by the machine is a sign of scheduling problems. (Questions 7, 11, and 20.)
7Teamwork and motivation. Discussions with workers and visible indicators of teamwork such as names of teams over a work area and productivity award banners are quick ways of determining how the workforce feels about their jobs, the company and their co-workers. (Questions 6, 9, 14, 15, and 20.)
8Condition and maintenance of equipment and tools. Purchase dates and equipment costs should be stenciled on the side of machinery, and maintenance records should be posted nearby. Asking people on the factory floor how things are working and whether they are involved in purchasing tools and equipment is also indicative of the extent to which workers are encouraged to address these issues. (Questions 16 and 20.)
9Management of complexity and variability. This depends greatly on the type of industry. Obviously, industries with narrow product lines have less difficulty handling complexity and variability Indicators to watch for in general are the number of people manually recording data and the number of keyboards available for data entry. (Questions 8, 17, and 20.)
10Supply chain integration. It is generally desirable to work closely with a relatively small number of dedicated and supportive suppliers. A rough estimate of the number of suppliers can be ascertained by looking at container labels to see what supplier names appear on containers. Containers that appear to be designed and labeled specifically for customized parts shipped to a plant indicate the extent to which a strong supplier partnership exists. A sign of poor supply chain integration is lots of paperwork on the receiving dock. This indicates lack of a smooth pull system where plants pull the materials from their suppliers as if it was just another link
 
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