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Performing an Operations Productivity Audit

Integrated Product Development Guide and Table of Contents

A GUIDE TO PERFORMING AN OPERATIONS PRODUCTIVITY AUDIT

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CONTENTS OF PAGE

INTRODUCTION
ORGANIZATION OF THE GUIDE
BUSINESS PLANNING EXAMPLE
CRITERIA

INTRODUCTION
Concept of an Operations Appraisal

There is a growing recognition of the need for a review and appraisal of various aspects of a manufacturer's business, in addition to the audit of financial records and controls. Because of the importance of this kind of appraisal and the degree to which executives rely on independent findings and recommendations as the basis for important decision making, this guide has been published to provide guidelines for the conduct of such engagements.

The guidelines are not meant to be rigid procedures or approaches to be followed. Obviously, the suggestions and guidelines contained in the guide will not all apply to each company. Business needs are too wide-ranging and diverse to compile a universally applicable guide. Therefore, the appraiser must use his or her own judgment and background to modify the approaches, evaluate the findings, and provide direction to the analysis, dependent upon the special circumstances surrounding each situation. The Operations Appraisal Checklist is constructed to remind the consultant of the points that should be covered in a thorough review of management practices. The consultant's own experience in the area must be used to weigh the significance of these points in a given situation.

In addition, it is intended that the Guide to Operations Appraisal will be utilized as an effective tool for the training of new employees in the content and nature of Operations Appraisal, and to provide guidance to the consultants who will be performing specific phases of the assignments.

Definition of Operations Appraisal
The Operations Appraisal refers to a review and analysis of a company's operations, controls, systems, policies, management methods, and corporate results to determine their effectiveness and to point out areas for improvement. Although an Operations Appraisal may be done in parts, the total coverage would include an appraisal of organization, overall results, policies, objectives, planning techniques, direction and control methods, and the effectiveness of various individual departments such as finance, accounting, personnel, product planning, product engineering, marketing, merchandising, distribution, data processing, production control, inventory control, purchasing, material handling, warehousing, industrial engineering, quality control, maintenance, and tax affairs.

The full resolution of a problem takes a number of steps, the most important are: (1) identification of the symptoms indicating a problem (2) analysis and investigation to determine and define the problem (3) determine an appropriate solution and (4) action to correct the problem.

The Guide to Operations Appraisal is designed to do steps (1), (2) and (3), identify the symptoms, diagnose the problems, and determine the solution. Utilizing the output from step (2), the consultant will develop the appropriate procedures needed to correct the problem. The working-out of specific changes, step (4), would be done either by the executives or by an independent consultant. The diagnosis must consider the relative importance of the various elements of the business and the relationship of the findings to them, in order to pinpoint the main problems which can have a serious effect on current and future results.

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ORGANIZATION OF THE GUIDE
This guide is divided into eighteen operational areas, each represented by a section of the book. I. Business Planning II. Product Planning III. Marketing and Sales IV. Customer Order Servicing V. Manufacturing Engineering VI. Production Planning VII. Inventory Management VIII. Purchasing IX. Shop Floor Control X. Manufacturing XI. Tool Control XII. Quality Control XIII. Facilities Management XIV. Physical Distribution XVI. Personnel Relations XVII. Information Systems, and XVIII. Financial Management

Each operational section is composed of:

Objectives
Symptoms Indicating Problems
Criteria
Procedures for Appraisal, and
The Checklist

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BUSINESS PLANNING EXAMPLE

Business planning involves determining the direction of a company, keeping it on course, and setting the tone for its entire operation. Policies and procedures are the methods and techniques which management uses to attain its goals and objectives.

Objectives

Manage operations to provide a fair return on investors' capital
Plan, organize and direct the company to assure its continued existence

Symptoms Indicating Problems

Management personnel are now working toward common goals, or are working toward conflicting goals
Executives and employees do not know what is expected of them
Management actions and decisions from one period to the next are inconsistent
There is evident duplication of effort
Decisions are slow in coming from management
Management has difficulty measuring the effectiveness of departments and divisions
Volume and profits are decreasing, as compared to the competition

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CRITERIA

The organization has clearly stated objectives, communicated to and understood by all key personnel
Organizational objectives set the tone for organization and provide the framework within which the organization and its programs are planned and executed

Checklist

N/A
Yes
Average
No

A. Corporate Goals and Objectives

1. Are goals and objectives established and supported by top management?
2. Are objectives clearly stated?
3. Is the membership of the Board of Directors sufficiently broad in background experience and knowledge to be most effective?
4. Do the corporate goals and objectives provide specific quantitative results desired?
5. Are long-range profitability objectives included in the corporate goals and objectives?
6. Are long-range capital expenditure included in the corporate goals and objectives?
7. Are the goals communicated to and understood by all executives?
8. Is the cooperation and coordination of other members of management obtained in the corporate planning process?
9. Are there contingency plans?
10. Are employees evaluated based on these corporate goals and objectives?
11. Are goals and objectives reviewed periodically for applicability and compatibility?
12. Is there a single individual with the responsibility for coordinating long-range planning?
13. Is there any present or threatened litigation or administrative proceeding which could adversely affect business?

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