Organisation for an Operations Department

I just passed the 1000 visitors threshold on this blog; motivation enough to write something I feel very strongly about - the organisational structure for any operations department. Once I have done that I can talk about KPIs. When I say operations I mean mainly production and manufacturing. 


The biggest ever "no go" is something I tend to find in most production departments - production planning is reporting to the production manager. What a blunder! 


Generally, there is not a single positive result when having this structure in place. The main reason for this is that production managers usually think in terms of fix cost degression, which means, the more material runs through a machine the cheaper the product becomes since fix costs tend to zero out with rising volume. 


The problems with this way of thinking are: 

1. Batch sizes are bigger than the market need, which means rising stock levels, full warehouses, old stock which might get out of date, hence cannot be sold anymore. The cost implication of this is: rising working capital (stock value), rising warehouse costs, rework and obsolescence.  
2. The factory is more likely to run under capacity constraints, as bigger batches bind capacity. This is a cost factor, as widening capacity is linked to further costs (overtime, more working hours, etc).
3. Bound capacity can result in lack or loss of customer satisfaction, as promised time lines for delivery might not be hit. 
4. A blown up organisation which is not reflected by real customer demand. 

So, what's the way out? In order to get away from this "batch size dictatorship" by the production department, a separate planning department must be established which does not report to the production manager but is independent. 

The planning department fixes the production plan and forces production to produce what's really needed. 

I have implemented loads and loads of organisations like these and will explain more in further blog entries. Obviously, I will talk about KPIs for both departments (planning and production), too. It is just too much for a single blog entry as I just realised, and, on a more practical note, as author of this blog, I need a few more topics to write about anyway.  ;-)