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Introduction to operations management
Introduction to operations management

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4.2 When operations are not managed well

There are, of course, many examples of operations that have not been managed well. Here, you will study two examples of organisations that have suffered the consequence of a lapse in good operations management practice.

The following activity looks at the impact of a failure of operations management on a single operation.

Activity 4: Deepwater Horizon – surviving the oil spill

Timing: Allow around 30 minutes for this activity

Look again at Example 1 in the section ‘The importance of operations management’ of Walley (2017) [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] .

Now watch Video 4 and answer the questions below.

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Transcript: Video 4: Deepwater Horizon – surviving the oil spill

NARRATOR:
In these waters on the night of April 20, the drill rig Deepwater Horizon exploded. The blown out well continues to spew oil into these pristine waters.
SUE GALLIANO:
There was this overwhelming sense of something really bad happened here. They were doing this live feed of the oil coming out of the ground and them spraying the Corexit on it, and we all kind of glued to that on TV watching it.
Everybody realised right away it was going to impact us. It was just coming in, little globs, little – floating in right on the water. And as far as you could see, little globs of it. Then the dread really started. But what are you going to do now? What’s going to happen now?

[MUSIC PLAYING]

The oil spill presented a challenge to everybody. The first year that April – when it hit May, June, July, many of the boats were put into service. BP actually paid them to help skim water and to aid in the cleanup. They did miss a whole season. They went back out last year, though.
So LSU’s been studying this propagation of oysters for some time, looking at other ways to grow oysters in a controlled situation. In the long run, it’s what’s going to save oystering in Louisiana.

[BIRDS NOISES]

JULES MELANCON:
The oyster is the substance that I crave for. And it’s like my favourite food. And that’s why I’m here now. The oyster farming has been way in my life since I was a little bitty kid. I remember oystering, oh – from the first time I ever knew what life was about was the oyster business.
Before the spill, I was getting my boat ready to fish. The oysters I had, they were wiped out from Katrina. We had to start from nothing. Then around 2008 and 2009 the oysters started really coming back. And I was in the process of getting my boat ready to fish the 2010 season.
For the oil spill, when they opened up the flood plains, it wiped out the oyster industry. We’ve been struggling. There’s no more oyster farming, so that’s why I started with this cage culture. Because I had time to invest in it and try it out.
This cage culture is kind of new to me. But you see the oysters right there. That’s our way of life, they’re going to be coming back. That will suit for me.
Now I had a little revenue from this this winter, but it wasn’t the revenue I usually make. You’ve got to have a lot, a lot of cages to make a lot of money. But I made enough money to pay back my equipment. I’m still in recovery, and it’s going to be three years from the spill next month.
I’m 55 years old. I’m in it till the end. And I’m just going to keep doing it as long as I can make a living out of it. It’s going to take a little investment, but I’ll be there.
SUE GALLIANO:
Grand Isle is one of the places that was easy to work in the offshore oil industry out there. When the oil industry came in, back in the ’30s and the ’40s, it afforded a new way of making a living for people who quite possibly couldn’t work daddy’s boat.
Most of the people who work in the oil industry here that live on the island, their jobs were maintained. They didn’t lose their jobs.

[MUSIC PLAYING]

Now offshore – there’s a lot of people that work offshore. Those folks don’t work here, but they come through here. You know, they buy gas, they eat lunch. Every little bit of that helps. It may not look like a lot right away, but if you were to take those jobs away, you’d feel it.
CHET CHIASSON:
Our tenants are not the oil and gas companies. It’s the service industry for the oil and gas industry. That’s our base of our local economy here. We had a pretty rough year and a half post-oil spill. And we’ve been on the incline since then.
There was a lot of regulation that came down. And there was an interpretation period of, what do those regulations mean? How does it impact the industry? So no permits were being issued, no plans were being approved for new drilling. So that took a long time.
And that’s why we had such a lull. We’re continuing to grow, our port is continuing to grow, the Port Commission is moving forward on expansion plans.
This is our newest area. We’re kind of like Dubai, but we’re not building palm trees. We’re building land for industrial development. This here was open water six to eight months ago. The flip side of it, though, is that this is actually taking place a year and a half or two years after we thought it would be taking place. There was a time when we didn’t know what we were going to have to do or where the port was going to be.
We know with some of the plans that are in place now, there’s going to be a demand for about another 500 jobs. We have so many jobs available that we can’t fill them all. The deep water side of the industry is doing well and has a huge upside right now. As far as the port itself and our business, we’re doing very well. We’re back at a 100 per cent of what we were prior.
SUE GALLIANO:
Tourism was affected really badly the first summer. I mean, it was terrible. The spill was in April. Well, June, July, and August was not good. Lots of folks have had camps here for years and years. And generations of families have been a part of Grand Isle’s makeup.
People come down on the weekend. And if they all stopped coming because of the oil spill, I mean, the island would just dry up. If you’re a tourist town, you have to have tourists. Subsequently, it’s coming back as the word gets out that we’re OK and viable and the beach is good.

[MUSIC PLAYING]

MARLENE CHAPPELL:
Have you been over to the beach?
I’m no spring chicken, let’s face it, you know. And if I’m going to be doing something, I want to be where I want to be. I had a big family, four girls, and lots of people in the family. So I treat everybody that comes here like just an extension.
During the spill, we had all of BP’s cleaners and workers and everything, so we stayed real full. But then whenever you got your place full, when you have people that keep coming back every year, they find someplace else. They were very scared of the oil.
So it’s taken probably two years for them to even start calling again. And the first words out of their mouth is, how bad is the oil spill? How bad is the tar balls? You know, is it safe for my children?
Unfortunately, there are some people on this island that has said everything is fine. Don’t worry about it. Adults, I feel like, can take care of themselves. They will be able to see for themselves. But children should be protected. And you tell them, you know, what you honestly think.
It’s gradually picking up. I’m getting a few. Generally, by this time I have all of Easter all of Memorial Day. And I have probably half. A lot of them just found other places to go, and it’s taking them a while to get out of that. But I am gradually getting my people back. I’m not going to be destitute. I may not be as busy as I was, but I do have people coming in.
The people that owned houses, a lot of them just said they wasn’t going to fight no more. You know, a storm, you come in here and you get all the mud and the dirt and you go back up. But this stuff right here, it’s got stuff in the soil. You don’t know what it is and you’re scared. The dumb ones like me that just want to be here, they haven’t given up.

[MUSIC PLAYING]

SUE GALLIANO:
So we’re happy that it’s kind of in the past a little bit, but we’re still waiting to see what the final outcome will be. The people have kind of moved on, but the environment, it’s going to take a while to correct itself.

[MUSIC PLAYING]

End transcript: Video 4: Deepwater Horizon – surviving the oil spill
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Video 4: Deepwater Horizon – surviving the oil spill
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  • To what extent was this a failure of operations management practices?
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There is no doubt that this failure was a direct consequence of poor operations management practices. The disaster was not caused by a single mistake, but a whole series of decisions and actions by BP staff and suppliers Halliburton and Transocean. These decisions and actions accumulated and lead to the eventual explosion and oil leak. There were failures in both the design of processes and systems as well as poor monitoring and control:

  • The technical design contained a number of flaws where several rig components could not cope with the combination of events. Two mechanical valves designed to stop the flow of gas and oil to the surface failed, allowing the oil to leak. Another valve on a device, called a blowout preventer, did not work properly. A mud−gas separator also failed but this device should not have been used at the time.
  • A range of safety and control procedures were either absent or failed. One blowout preventer had a flat battery and another a defective switch, indicating poor maintenance or repair. The gas detection system did not trigger an alarm when the gas leak occurred. There were a number of staff failures indicating poor attention to safety and poor training. Staff misinterpreted the results of a pressure test, thinking the process was in control. The increase in pressure and consequential leak took 50 minutes to detect. Staff failed to use venting pipes to take the mud and gas away from the rig.
  • Materials used, such as the sealing cement, proved to have not met the requirements of the job.

You should think about the reasons why managers may have made these mistakes. Sometimes it is not clear who has responsibility for particular decisions especially where tasks are subcontracted. Some decisions will be made under time or cost pressure. Put yourself in the position of a rig operations manager who is measured on the productivity of the assets. To what extent can you consistently make decisions that are based on what you consider to be low risks or ethical decisions?

  • What impact did this failure have on the organisation?
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Feedback

When you look at the impact of these failures the main consequences were the tragic loss of life on the rig during the accident as well as the ecological and social impacts of the oil pollution. The company experienced a number of other effects over the following years:

  • The company had to agree to an $18.7bn legal settlement to cover the costs of the disaster clean-up and compensation for businesses.
  • It lost the opportunity to bid for new contracts with the US government.
  • It threatened access to new and existing oil field opportunities for BP to develop.
  • There was a considerable loss of reputation and this fed through to lower market appeal for its products and services.
  • The company had to redirect its efforts during and after the crisis, potentially losing other market development opportunities.

This list shows the extent of the longer-term impact of the failure of operations management.

The following activity examines what happens if operations are not managed well across an entire supply chain.

A supply chain involves various participants who perform a sequence of activities in moving physical goods or services from a point of origin to a point of consumption.

(Crandall, 2014, p. 6)

Activity 5: Horse meat in the supply chain

Timing: Allow around 30 minutes for this activity

Review the section ‘The importance of operations management’ of Walley (2017) and watch Video 5, which describe the issues around the horse meat scandal, and answer the questions below.

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Transcript: Video 5: Horse meat scandal – the journey food makes from farm to plate

ORE ODUBA
Now then there’s is a food scandal which has spread right across Europe. After horse meat was found in Findus lasagnas last week, France and Sweden have now joined the UK in withdrawing some meat products from their shelves. The government here says it doesn’t believe there’s any threat to human health. It’s due to give more details on developments later this afternoon. But what does this scandal tell us about the food we eat, where it comes from, and how it gets here?
BBC NEWS REPORTER
Horse meat found in burgers sold in British and Irish supermarkets.
ORE ODUBA
It’s the food scandal that’s been going off for a month. And, since traces of horse DNA were found in burgers back in January, things got more serious when some Findus lasagnas sold here were found to contain up to 100% horse meat. From farm to plate, our food often takes a long and complicated journey through many different countries, which explains some reasons behind how the food was contaminated.
This is what’s thought to have happened here. Findus is a Swedish company, but the meals were made for them by a French food supplier – not in France, but at a factory in Luxembourg. The meat in the meals was bought from a Cypriot trader. That trader bought it from the Netherlands, but it’s suspected the meat came from slaughterhouses in Romania. The authorities there are still investigating.
Despite pressure to do so, there are no plans at the moment to ban meat imports from the EU, as the government says there’s currently no risk to human health.
OWEN PATERSON
All the evidence of the products so far is that they are safe, but they’re not as labelled. So this is a case of fraud and mislabeling. There is nothing we’ve seen so far which represents a health threat.
ORE ODUBA
Later today, Owen Paterson will update MPs on the latest developments in the scandal spreading across Europe.
PRESENTER 2
Our main news this morning – a year on from the horse scandal, it’s emerged that many local authorities across the UK are failing to carry out basic food-safety checks.
PRESENTER 3
A study by the consumer organisation Which? has found that, in some areas, councils hadn’t carried out any hygiene tests on food served in places like restaurants, schools, and hospitals. The government says an independent review is underway to improve food safety.
PRESENTER 2
Well, Professor Christopher Elliott, the director of the Institute for Global Food Security at Queen’s University, is leading the review. And he joins us from our Belfast studio now. Professor, thanks very much for joining us. If your job is to undertake a wide-ranging review of the supply train and try and ensure that our food is presumably safer in future, it must be alarming to you to discover that many local authorities aren’t carrying out basic checks on food hygiene in places where the public go to eat.
CHRISTOPHER ELLIOTT
Yeah. I think the first important thing to start off with is to say that the food supply systems in the UK are very safe. Compared with other parts of the world, we’re one of the safest food supply systems in the world. But I think what the Which? report is indicating very clearly that, because of the pressures that are on local authorities in relation to budget cuts, they are finding it very difficult to deliver the quality of service that is required.
PRESENTER 2
A year on since the scandal broke, what’s changed?
CHRISTOPHER ELLIOTT
There’s been a massive effort, both by the UK food industry and the UK government, to put in place measures that will stop these types of food crimes happening again.
PRESENTER 2
For instance?
CHRISTOPHER ELLIOTT
The amount of checking of products, particularly testing by the multiple retailers, is actually performed now at an enormous scale, whereas previously a lot of the supplies of materials was done on paper-based audits and basically trust. That trust is now converted into much more rigour of the materials that they buy.
PRESENTER 2
Every day of the week, though, there are about 25,000 different foodstuffs sold. So, looking for things may be unsafe or wrong is like looking for a needle in a haystack, isn’t it?
CHRISTOPHER ELLIOTT
The point you make is a very good one. 25,000 products, different products, sold each day in the UK retail sector, so it’s an enormous task, making sure that that material is safe and authentic. And what is happening now, both in industry and government, is those types of food materials which are most vulnerable to fraud are getting the highest level of attention. Obviously it started off with red meat, but there are many, many other food commodities now that must be checked regularly to make sure that what we are buying as consumers is actually what it says on the label.
PRESENTER 2
So, can people today who are buying processed-meat products, ready meals, that sort of thing, the sort of things that were in the spotlight a year ago as containing horse DNA – can consumers be confident that what they are buying now is safe to eat?
CHRISTOPHER ELLIOTT
Certainly, I think we can all be much more confident now than a year ago. It was very clear that, a year ago, that there was very little rigour was put into the system to check authenticity of foodstuffs. And what I have called for in my report is a complete change in culture, not only in the food industry but in regulators, to make sure that what we buy as consumers is genuine.
PRESENTER 2
All right, Professor Chris Elliott, thanks very much.
End transcript: Video 5: Horse meat scandal – the journey food makes from farm to plate
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Video 5: Horse meat scandal – the journey food makes from farm to plate
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  • To what extent was the size and complexity of the supply chain a contributing factor in the food contamination?
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Discussion

The case details the levels of complexity within the supply chain. Meat moves across Europe in a relatively unregulated way. The commentators in these videos indicate that the high-quality products tend to be traceable from farm (or even animal) through the entire supply chain to customer. However, at the ‘value’ end of the market, the supply chain is more complex and there is less traceability. Price competition seems to make meat processors look more widely for meat supply: this increases the number of suppliers and therefore sources of meat for their processed product. Given that the market is price sensitive, suppliers are reluctant to spend more money developing traceability mechanisms. The commentator in the video states that local government authorities have had to restrict the levels of checking they can do because of financial pressures. This places more of a burden on the companies within the supply chain to check for themselves.

Ideally, the entire supply chain should be designed so that price, quality and traceability can be achieved. The main challenge is to find one organisation that is part of this supply chain where managers are willing to take responsibility for the design and control of the entire supply chain.

  • To what extent should food retailers manage and control the entire supply chain to prevent problems like this from occurring?
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Feedback

Most large retail chains do have sophisticated merchandising and supply chain functions, such as the one described in the earlier video. Managers within these departments choose which products to stock on the shelves and where to source them from. This sourcing decision would normally include a supplier selection process whereby potential suppliers are assessed for their ability to provide products of the right quality, in the right quantities, to specific delivery schedules. In sophisticated assessments there could also be checks on suppliers further back in the supply chain (the supplier’s supplier etc.).