managing operations _ module notes

8/3/2019 Managing Operations _ Module Notes

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Managing Operation (MBA) [email protected] Page 1

MBA UNIVERSITY OF WALES

MODULE: MANAGING OPERATIONSLecturer: Mervyn Sookun

Japanese enjoyed measure of success in Western markets because they are superior in Operation management and

culture.

Operation management is seen to be a Strategic Activity in modern organizations. Comprising some key decision.

E.g. TQM

Customer care

DURKHEIMS ANOMIE THEORY

In 1893 Durkheim introduced the concept ofanomie to describe the mismatch of collective guild labour toevolving societal needs when the guild was homogeneous in its constituency. Durkheim's use of the termanomie was about a phenomenon of industrializationmass-regimentation that could not adapt due to itsown inertiaits resistance to change, which causes disruptive cycles of collective behaviour (e.g.economics) due to the necessity of a prolonged build-up of sufficient force or momentum to overcome theinertia.

The contemporary English understanding of the word anomie can accept greater flexibility in the word

norm, and some have used the idea of normlessness to reflect a similar situation to the idea ofanarchy.But, as used by mile Durkheim and later theorists, anomie is a reaction against or a retreat from theregulatory social controls ofsociety, and is a completely separate concept from anarchy which is an absence ofeffective rulers or leaders.

What

product

service

How many

capacity

planning

Minimize cost

Method of

technology

Where

location

planning

Layout how

should resource

organized

Daily

activity

Maximize revenue

Production

budget

Supply chain

management


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Managing Operati n (MBA) si i [email protected] Page 2

P LANN I NG

1.CAPACITY PLANNING

Capacity planning is the process of determining the production c pacity needed by an organization to meet

changing demands for its products Insufficient capacity can quic y lead to deteriorating delivery performance,

unnecessarily increase work-in-process, and frustratesales personnel and those in manufacturing. However,e cess

capacity can be costly and unnecessary. The inability to properly manage capacity can be a barrier to theachievement of maximum firm performance.

Capacit i calculat : umber of machi es or workers) (number of shifts) (utili ation) (efficiency).The broad classes of capacity planning are lead strategy, lag strategy, and match strategy.

y Lead strategy is adding capacity in anticipation of an increase in demand. Lead strategy is anaggressi e strategy with the goal of luring customers away from the company's competitors. The

possible disadvantage to this strategy is thatit often results in excess inventory, which is costly andoften wasteful.

y Lag strategy refers to adding capacity only after the organi ation is running at full capacity or beyond due to increase in demand (North Carolina State University, 2006). This is a more

conservative strategy. It decreases the risk of waste, but it may result in the loss of possiblecustomers.

y Match strategyis adding capacity in small amounts in response to changing demand in the market.This is a more moderate strategy.

Capacity planning is relevant in both the long term and theshort term.

The throughput (Thethroughput of an organization or system is the amount of things it can do or deal with

in a particular period of time) or number of products that an operation system canManufacture,Store,

Hold or Process over a given period.

Management

Long term capacity decision is difficult.

Capacity Demand

Demand Capacity

Type A Type B

Two ways of looking at capacity

Short Term Long Term (years)H

Low

Dailyschedule theclassCapacity in future given

Growth in numbers.

If thecapacity is more and

demand is less, then

revenue does not cover

the cost

When demand is more,

increases production,

reduces quality, pressure

ofem lo ees increases.


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Managing Operation (MBA) si [email protected] Page 3

0

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1416

18

20

8:00

AM

10:00

AM

12:00

PM

2:00

PM

4:00

PM

6:00

PM

8:00

PM

Demand

Capacity

FACTORS INFL NCING CAPACITY DECISION

Short-term capacity planning

In the short term, capacity planning concerns issues of scheduling, labour shifts, and balancing resourcecapacities. The goal of short term capacity planning is to handle unexpected shifts in demand in an efficient

economic manner. The time frame for short term planning is frequently only a few days but may run as longas six months.

Theeasiest and most commonly-used method to increasecapacity in theshort term is working overtime. This is a

flexible and inexpensive alternative. While the firm has to pay one and one half times the normal labor rate, it

foregoes theexpense of hiring, training, and paying additional benefits.

Number

of

Calls

Demand and capacity graph of a Call Centre

Long-term capacity planning

Over the long term, capacity planning relates primarily to strategic issues involving the firm's major production

facilities. In addition, long-term capacity issues are interrelated with location decisions. Technology and

transferability of the process to other products is also intertwined with long-term capacity planning. Long-term

capacity planning may evolve when short-term changes in capacity are insufficient. For example, if the firm's

addition of a third shift to its current two-shift plan still does not produce enough output, and subcontracting

arrangementscannot be made, one feasible alternative is to add capital equipment and modify the layout of the

plant (long-term actions). It mayeven be desirable to add additional plant space or to construct a new facility (long-

term alternatives).

Short Term

Example:

y Linear programs

y Queuing theory

y MonteCarlo

Chase demand

Maximize 3 Es

1. Economy

. Efficiency

3. Effectiveness

Flexi-Timeshift


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Sales ?

Future

0 1 3 4 5

Y e a r

About forecasting:

Fallacy of predetermination Said Mintzberg.

Might as well look at a Cristal Ball Said Morgan

B. Technological Forecasting

Technological Forecasting

New Product

More revenue

New York Hospital developedClinical Decision Architecture

(codification of medicalknowledge)

New Procedure

Savecosts

Expandscapacity rapidly (morecapacity flexible).

eg.E.commerce,Amazon.com

Long Term

Example:

y Timeseries

y Reference &

co-relation

y Actuarial curves

Forecast demand

Quantitative

Actuarial Curve

Planning is what we

want to happen.

Forecasting is what

we think happen.


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Sony company build capacity ahead in advance during 1980s by building new production plant of CD Roam.As per

Porter First mover advantage.

Irreversible strategy. Example: Burning ships to show that we not came for battle.

3.Esti t anopti alsiz / apacit

Average Economies of Diseconomies

Unit cost scale / scope of scale

0 25 50 75 100 125 150

Size of Hotel (in room capacity

Capacit Plannin Techniques

Capacity break even.

Pay back

NPV / DCF

Decision Trees

Di inishin

Retu n Econo ies

Positive Retu ns Econo ics

Example: Software companies

and film industry


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NPV DCF


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Quickdecisi n

Small plant

Str nggr wth

Weak

gr wth

Large plant

Str nggr wth

weak

gr wth

Pr ject A Pr ject B Pr ject C

Year D/F 10% Cash flow Disc. C/F Cash flow Disc. C/F Cash flow Disc. C/F

0 1 -75 -75.00 -100.00 -100.00 -90.00 -90.00

1991 0.909 3 2.73 10.00 9.09 15.00 13.64

1992 0.826 6 4.96 15.00 12.39 17.00 14.04

1993 0.751 14 10.51 30.00 22.53 22.00 16.52

1994 0.683 16 10.93 42.75 29.20 36.00 24.59

1995 0.621 20 12.42 57.00 35.40 39.00 24.22

NPV of each projects -33.46 8.61 3.01

Decision Trees

A mathematical method being up a complex decisionin to measurable out comes and further decision

point using a tree with nodes and branches.

Capacity Decision

Remarks Small plant in town A Large plant in town BStrong growth 300,000 profit 500,000 profit

Weak growth 50,000 profit 70,000 profit

Probability ofstrong to weak 50% / 50% 20% / 80%

300,000 x 50% = 150,000

50,000 x 50% = 25,000

-------------

175,000

========

500,000 x 20% = 100,000

70,000 x 80% = 56,000

-------------

156,000

========

Plant in small town A is better than large plant in town B.

MBA

Pass

Progress

Give up

FailRe-sit

Give up


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ConclusionofCapacit Plannin

y Demand # Capacity.

y Aim to match Demand and Supply.

y Technique which we used to minimise the risk.

y Capacity in some E-commerce business appears to quite flexible.

LOCATION PLANNINGIdentify a suitable geographicallocation for an operations system to maximise revenue or minimise cost.

What factors influence choice of location? Make five suggestions with examples.

1. Culturalfactures: Example: Internationalisation of business.

Standard pattern of international frame of firms.

Conclusion of firm Physically close to home.

Country Physically close toho e location

Spanish firm Latin America

British firm British ColoniesSweden Nordic countries

Indian / Pakistan firms Middle East

2. Inco e ofpotential custo ers.

GNP per head : Lowest = $250 and Highest = $ 89,000 (Qatar . Have to consider underground economy.

3. Proxi ity to raw material: Critical Substance Factor (CSF). Example:

Steel mining. 1 ton steel required 10 ton raw materials.

4. Infrastructure: Road, access to ship, air transport, etc.

5. Proximity to marketlocation advantage:

Street Marketlocation advantage

Oxford street Retail

Lexus Square Leisure and pleasure, gambling

City of London Banking,Financial services

Cambridge Research and development parks

6. Comparative wage rates: Cheap labour is intensive for business like clothing, toys, etc.

7. Government regulations: Example, In Europe amount of retail space was restricted by government.

Giving below the approximate details.

Category Area in millionsquare meters Country

A 15 U.K and France

B 5 Germany

C 2 Spane

D 0.75 Switzerland

8 Taxation:


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Locationplanning techniquey Breakeven

y Factor rating

y Centre of gravity

Locationbreakeven

Location Variable cost Fixed cost 1000units 2000units

A 75 30,000 105,000 180,000

B 40 60,000 100,000 140,000

C 25 110,000 135,000 160,000

Which is the best location of planned production of1000 units and 2000 units? (Location B is best).

Location Variable cost Fixed cost

A 100 40,000 B 40 140,000

C 20 180,000

Under what level of production in each location optimal (best).

Note: Assume production unit is X.

A-B

100X + 40,000 = 40X + 140000

100 X -40X = 140000 40000

60X = 40000

X = 40000/60 = 1666B-C

40X + 14,000 = 20X + 1 80000

20X = 40000

X = 2000

Factor Rating method

A chain of supermarket aims to open a new store.

Factor rating

1. Identify location option

2. Identify CSF (Critical Success Factor)3. Score each CSF

4. Assign weight

5. Convert into weighted score

6. Decision

Factor rating is more Systematic then Scientific.

C.S.F

y Population

y Income

y People to

y Car ration

y Rates


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Centre ofGravity

Mathematical method for identifying optimal location for a distribution centre scoring multiple outlets.

X Y Containers

90 20 2,000

60 30 5,000

20 80 9,000

X = Q1X1 Y = Q1Y1

Q1 Q1

Q= Quantity shifted to each store. X = X coordinate of each store Y = Y coordinate of each store

Find weighted average of X and Y.

X = (90 x 2000) + (60 x 5000) + (20 x 9000) = 660,000/16000 = 41.25

16,000

Y = (20 x 2000) + (30 x 5000) + (80 x 9000) = 910,000/16000 = 56.88

16,000

Conclusion:

1. Location planning aims to minimise cost and maximise revenue.

2. Location = CSF in many business

3. Some organizations less sensitive to physical location. E.g. E.Com,Face book.

4. Good location should ultimately meet all or some operational objectives.

y Q= Quality

y S = Speed

y C = Cost

y D= Dependability

PROJECT MANAGEMENT

1. Applicable to many operations management decision.

2. What is project? A specialised task with a life cycle.3. Distinguishing Factors:

y Resources : Few or Many

y Dead line : Tight or Flexible (elastic)

y Impact : Strategic or Local

4. Challenges: Time, Natural resources and people.


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PROJECT MANAGEMENT TECHNIQUES

Net work / Critical Path Method / PERT (American Agency)

AGantt chartis a type ofbar chartthatillustrates aproject schedule. Gantt charts illustrate the startand finish dates ofthe terminal elements and summary elements of aproject. Terminal elements andsummary elements comprise the work breakdown structure ofthe project. Some Gantt charts also show thedependency (i.e, precedence network) relationships between activities. Gantt charts can be used to showcurrent schedule status using percent complete shadings and a vertical "TODAY" line as shown here.

Although now regarded as a common charting technique, Gantt charts were considered revolutionary whenthey were introduced. In recognition ofHenry Gantt's contributions, the Henry Laurence Gantt Medalisawarded for distinguished achievementin management and in community service. This chartis used also inInformation Technology to represent data that has been collected.

The critical path method (CPM) orcritical path analysis, is a mathematically based algorithm

for scheduling a set of project activities. Itis an importanttool for effectiveproject management.

History

It was developed in 1950s by the DuPont Corporation at aboutthe same time thatBooz Allen Hamilton andthe US Navy were developing the Program Evaluation and Review Technique [1] Today, it is commonlyused with all forms of projects, including construction, software development, research projects, productdevelopment, engineering, and plant maintenance, among others. Any project with interdependent activitiescan apply this method of scheduling.


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Basic technique

The essential technique for using C M is to construct a model of the project that includes the following:

1. A list of all activities required to complete the project (typically categorized within a work breakdown

structure),

2. The time (duration) that each activity will take to completion, and

3. The dependencies between the activities

U

sing these values, C M calculates the longest path of planned activities to the end of the project, and theearliest and latest that each activity can start and finish without making the project longer. This processdetermines which activities are "critical" (i.e., on the longest path) and which have "total float" (i.e., can bedelayed without making the project longer). In project management, a cri ical ath is the sequence of

project networkactivities which add up to the longest overall duration. This determines the shortest timepossible to complete the project. Any delay of an activity on the critical path directly impacts the plannedproject completion date (i.e. there is no float on the critical path). A project can have several, parallel, nearcritical paths. An additional parallel path through the network with the total durations shorter than thecritical path is called a sub-critical or non-critical path.

These results allow managers to prioritize activities for the effective management of project completion, andto shorten the planned critical path of a project by pruning critical path activities, by "fast tracki " (i.e.,

performing more activities in parallel), and/or by "crashi the critical path" (i.e., shortening the durationsof critical path activities by adding resources).

Expansi n

Originally, the critical path method considered only logical dependencies between terminal elements. Sincethen, it has been expanded to allow for the inclusion of resources related to each activity, through processescalled activity-based resource assignments and resource leveling. A resource-leveled schedule may includedelays due to resource bottlenecks (i.e., unavailability of a resource at the required time), and may cause a

previously shorter path to become the longest or most "resource critical" path. A related concept is called thecritical chain, which attempts to protect activity and project durations from unforeseen delays due toresource constraints.

Since project schedules change on a regular basis, C M allows continuous monitoring of the schedule,allows the project manager to track the critical activities, and alerts the project manager to the possibilitythat non-critical activities may be delayed beyond their total float, thus creating a new critical path anddelaying project completion. In addition, the method can easily incorporate the concepts of stochastic

predictions, using the Program Evaluation and Review Technique (PERT) and event chain methodology.

Currently, there are several software solutions available in industry that use the CPM method of scheduling,see list of project management software. However, the method was developed and used without the aid ofcomputers.

Flexibility

A schedule generated using critical path techniques often is not realised precisely, as estimations are used tocalculate times: if one mistake is made, the results of the analysis may change. This could cause an upset inthe implementation of a project if the estimates are blindly believed, and if changes are not addressed

promptly. However, the structure of critical path analysis is such that the variance from the original schedulecaused by any change can be measured, and its impact either ameliorated or adjusted for. Indeed, animportant element of project postmortem analysis is the As Built Critical Path (ABCP), which analyzes thespecific causes and impacts of changes between the planned schedule and eventual schedule as actuallyimplemented.


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ES EF

(Earliest (Earliest

Start) Finish)

LS LF(Latest (Latest

start) Finish)

2 weeks 2 weeks

2 weeks 3 weeks

2 weeks

4 weeks 2 weeks

5 weeks3 weeks 4 weeks

Note: Critical Path was marked in red line with arrows. The total duration of critical path is the project

completion date.

A

(Activity)

(Activity

Duration 5

Start

A

B

C F

E

D G

HEnd

EF = ES + Activity Duration Under Forward Pass ES is the highest EF

of predecessors if there are 2 or more EF.

LS = LF Activity DurationUnder Backward Pass LF is the lowest LS

of predecessors if there are 2 or more LS


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Assume that for making a cup of tea there are 3 activities. Activity A is boiling which required 5 minutes,

Activity BFind tea bag, sugar, glass, etc. Which required 1 minute and Activity C is Mixing the tea which

required 1 minute. Draw a network diagram and calculate the values of ES, EF, LS and LF by using Forward

pass and backward pass.

Boiling Water

ES EF

Start Mixing

LS LF ES EF

ES EF

LS LF Find Everything

LS LF

ES EF

LS LF

Explanations for above network diagram:

Forward Passbegins from start activity / first activity and movesforward to end activity to find out the

value of Earliest Finish (EF).

y The value of Earliest Start (ES) of start activity is always 0.

y Use formula to find out the value of EF ( EF = ES + Activity Duration).

y ES value of an activity is the EF value of the immediate predecessor. If there are more than one

predecessors, take the highest value of ES. Do not add the values of ES.

Backwardpassbegins from end activity / last activity and movesbackward to start activity to find out

the value of Latest Start (LS).

y The value of Latest Finish (LF) of the last activity is always the EF value of that activity.

y Use formula to find out the value of LS ( LS = LF Activity Duration)

y LF value of an activity is the LS value of immediate predecessor. If there are more than one

predecessors, take the lowest value of LS.

y If the LS value of start activity / first activity is 0, then your calculation is correct.

0 S 0(0 + 0)

0 0 (0-0) 0

A0 5

(0 + 5)

0 5

5-5 5

5 C 6(5+1)

(6-1)5 1 6

0 B 1

(5-1)

4 1 5

Why LS is 0? There are 2

predecessors. Boiling activity

(0) and find everything activity

(4). Consider the lowest value.

Least Start value of Find Everything

activity is 4. That means we can start

that activity on the 4th minutes. That

is we have a spare time of 4 minutes

and can be used that time for

another obs.


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2 weeks 2 weeks

2 weeks 3 weeks

2 weeks

4 weeks 2 weeks

5 weeks

3 weeks 4 weeks

Use the backward pass and forward pass to identify ES , EF, LS and LF from the above diagram.

Note: If you total the duration of critical path will be equal to the value of Earliest Finish (EF).

Find out the spare time (slack) of each activity and check there is any spare time on critical path.

Activity ES EF LS LF LS-ES CP Activity

A 0 2 0 2 0 YesB 0 3 1 4 1 No

C 2 4 2 4 0 Yes

D 3 7 4 8 1 No

E 4 8 4 8 0 Yes

F 4 7 10 13 6 No

G 8 13 8 13 0 Yes

H 13 15 13 15 0 Yes

Start

A

B

C F

E

D G

H

End

S

0 0

0 0

0

E

4 8

4 8

4

F

4 7

10 133

C

2 4

2 4

2

A

0 2

0 2

2

D

3 7

4 8

4

S

0 3

1 4

3

H

13 15

13 15

2

G

8 13

8 13

5


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Question3

The following represents a software project that should be scheduled using CPM.

Time / Days

Activity Immediate predecessor A M B

A --- 8 10 12

B A 18 22 34

C A 14 21 27

D A 17 30 42

E B 31 42 57

F C,D 33 40 53

G D,E 33 40 62

H F,G 22 40 53Where A = Optimistic,B= Pessimistic and C = Most likely.

The normal and crash data for this software project are as follows:

Activity Normaldays Crashdays Normal () Crash ()

A 10 8 22000 24000

B 22 20 30000 32000

C 21 20 21000 25000

D 30 28 45000 56000

E 42 40 20000 22000

F 40 38 30000 34000

G 40 38 35000 38000

H 40 38 30000 38000

Required:

1. Draw a network diagram and identify the critical path using the most likely (M) data. Use the

backward pass and forward pass to identify ES, EF, LS and LF. Explain the significance of your result.

(15 marks).

2. Using the Beta Probability Distribution identify the variance for each activity. ( 5 marks).

3. Determine the least cost of reducing the project completion date. ( 5 marks)


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a)

b)

Activity ES EF LS LF LS-ES CP Activity

A 0 10 0 10 0 Yes

B 10 32 10 32 0 Yes

C 10 31 53 74 43 No

D 10 10 44 743

4 NoE 32 74 32 74 0 Yes

F 40 80 74 114 34 No

G 74 114 74 114 0 Yes

H 114 154 114 154 0 Yes

There are several spare days are available on non-critical activities which is not helpful to reduce the

project completion date of154 days because all the critical path shows zero slacks.

A

0 10

0 10

10

C10 31

53 74

21

D

10 10

44 74

30

E

32 74

32 74

42

B

10 32

10 32

22

F40 80

74 114

40

G

74 114

74 114

40

H114 154

114 154

40

EF = ES + Activity Duration Under Forward Pass ES is the highest ES

of predecessors if there are 2 or more ES.

LS = LF Activity DurationUnder Backward Pass LS is the lowest LF

of predecessors if there are 2 or more LF


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c)

Crash cost per day =Crash cost Normal cost

Normal time Crash time

ActivityNormal

days

Crash

days

Normal-

crashdayNormal () Crash ()

Crash-

Normal

Per day

crash exp.

Least

crash cost

A 10 8 2 22000 24000 2000 1000 2000

B 22 20 2 30000 32000 2000 1000 2000

C 21 20 1 21000 25000 4000 4000

D 30 28 2 45000 56000 11000 5500

E 42 40 2 20000 22000 2000 1000 2000

F 40 38 2 30000 34000 4000 2000

G 40 38 2 35000 38000 3000 1500 3000

H 40 38 2 30000 38000 8000 4000 8000

10days 17000

We can finish the project in 144 days by crashing 10 days with the additional cost of17000.

y Many activitieshave abnormal completiontime.

y Many activitieshave crashtime.

y Many activitieshave normal cost. They have also crash cost.


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RESTRUCTURE OPERATION TO DELIVER MORE VALUE

1. Topic associated with Resource Based View of the organization.

2. Earlier theories (Porter) suggest that firms should create barriers to entry. Example: Large scale

operation. RBV (Resource Based View) barriers to imitation.

3. Recent years several start up have created vast wealth.

Example:

E. commerce Amazon.com, Ebay, etc.

PCs Dell

Coffee bar Starbuks

Cosmetics Body shop

Bicycle National Panasonic

Hotel Nowate

4. All above challenged the respective industries recipe for success. Developed a unit paradigm. (A

paradigm is a model for something which explains it or shows how it can be produced).

However these firms face a major danger imitation.

5. Imitation: things are not genuine but are made to look as if they are.

6. Protection: Imitation can be protected by copy right, legal right, IPRs and patent. But one

firm can not protect:

ExaminationQuestions

There is two sections A and B.

Section A has 3 essay questions out of that 2 attempt.

Section B has 1 question only.

Section A questions: ( 60 marks )

1. Restructuring operations (strategy operation).

2. Supply chain / J.I.T

3. TQM (Total Quality Management).

SectionBquestions: (40 marks)

1. Critical path analysis with crashing (34 marks)

And Stock control (6 marks)


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y Business concept.

y Use of rival goods.

y Unique resources.

y Restructure operation challenge paradigm and deliver more value.

Cinema : Case study

y Demand for cinema declined since II world war because it was replaced by CD , DVD, Cable

Connection and Internet.

y Cinema operators attempted to liberate assets.

y Restructure the cinema.

DESCRIPTION MEGA PLEX MULTI PLEX

Capacity 25 studios with 700 seats 10 studios with 100 seats

Location Out of Town (free car parking) Town

Technology 70mm projector, 29m x 10m screen 35mm projector,10m x 7m screen

Layout Specious Cramped (not big enough)Marketing cost Low (mouth to mouth advt.) Higher


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TOTAL QUALITY MANAGEMENT

What is quality?

In earlier days people consumed or purchased what the manufacturers had produced. Their only concern

was the price of the product. But thing have changed, people are beware of the quality of the products or

services which they are going to consume. The consumers are giving more importance to the quality of the

products or services rather than their price.

The evolution of the concepts and practices of TQM has taken several years of trials and tribulations in

many organizations all over the world. According to Feigenbanum, in the increasing competitive world

the quality is no longer an optional extra, it is essentially a business strategy. Without quality, an

organization cannot survive. The creation of quality products and services demands total commitment

from the entire organization and hence it requires TQM.

Definition

The British Quality Association defined TQM as management philosophy and company practices that aim

to harness the human and material resources of an organization in the most effective way to achieve theobjectives of the organization.

DESCRIPTION QUALITY EXPECTED

Trane Frequency of service, punctuality, comfort, cleanliness, speed and catering.

Hospital Hygiene, quality of clinical care, Efficiency of Doctors, Good appointment.

House Location, design, transport facility, proximity to school and shopping centre.

Motor car Model, engines power, comfort, cost and durability.

y Quality is not luxury.

y Quality is multi-dimensional.y Quality is what customer expects.

y Quality is contextual.

Traditional western approachtoQuality Management (QM)

ShopFloor

Raw materials (R.M) Work in progress (W.I.P) Finished Goods

(Quality checkers & sampling)

PrinciplesofTQM

1. Customers needs must be met in time, regularly and fully.

2. Employees must strive to do error-free work.

3. Employees must strive to do error-free work.

4. Management should aim at preventing the occurrence of errors and not at correcting them

after they occur.


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5. Cost of quality must be measured appropriately and relatively.

6. The management should establish standards in products, processes and people.

7. The management should ensure the involvement of everyone in the organization from the

Chief Executive to the labourer.

8. At all levels, managers need to be made conscious that they are role models for total quality.

9. There shall be a system of recognition and reward in the organizaiton.

BenefitsofTQM

TQM offers a wide range of advantages or benefits to both consumers and the manufacturers. These

can be classified into tangible benefits and intangible benefits. The tangible benefits are:

1. Better quality products

2. Productivity improvement

3. Reduced quality costs

4. Increased market

5. Higher profitability

6. Reduced employee grievances

7. Better returns to shareholders

Limitationsofmanaging Quality

1. Cost of production goes up due to reject/rework.

2. Responsibility for quality is narrow.

3. Reactive approach versus Proactive.

4. Best judge is customer.

5. Conflict between quality checkers and rest of the staff.

TOTAL QUALITY MANAGEMENT (TQM)

1. Associated with Japanees management (Ishikawa, Taguchi) but originated from USA (Deming,

Crosby, Juran)

2. Total = quality everything.

3. Suppliers Workers Customers Users

y Quality is recognize an important reserves by senior executives. Why?

y Protection of the company, image and brand.

y Premium price.

y Customer Preference or Loyalty. (eg. Cigarette)

y Cost reduction. Volume makes lower cost.

y Market power.

4. Quality is built in to the product at the design stage. Built on principles of redundancy. (When there areredundancies, an organization tells some of its employees to leave because their jobs are no longer necessary or because the

organization can no longer afford to pay them. (BRIT BUSINESS; in AM, use dismissals, layoffs) Faults arise without

putting unfair committee.


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5. Different level of quality.

Perfect Quality

Design quality

Production quality

6. Raw material / Technology / Process / Skills / Culture (may be wrong ).

7. Raw material / Suppliers (Garbage in Garbage out (G.I.G.O)).

Careful appraisal and selection of suppliers. ( Purchasing Mix)

y Quality ISO ,BS, ISI

y Price

y Timing of delivery

y Delivery reliability

y Quantity

y Service

8. Technology: How could technology based application improve quality?

Cost reduction = Internal process more efficiency

Example: In 1970s machine set up time of a car manufacturing unit in:

USA SWEEDEN JAPAN

20 hours 6 hours 12 minutes

y Online service

y Scope variety of products (eg. Dell)

y Accuracy (eg. Motorolla)

y Skills: careful recruitment, selection, training and development of personality of staff.

(Honda takes 6 interviews before taking an employee in production department and gives

training).

y Management development. Charls Hany (1990) conducted a study about management

development in 5 countries.

USA FRANCE JAPAN GERMANY UK

MBA/MPA

(Master of PublicAdministration)

Grands

Ecoles

Life time

employment

Higher UN degree

Doktor

No clear rout into

management

9. Culture:

Japan: KAJZEN = Continuous improvement

MUDA = Eliminate waste / wastage.


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Toyoda

Quality Circle

Six-Sigma : Six Sigma is a business management strategy originally developed by Motorola, USA in 1981.[1]

As of 2010, it enjoys widespread application in many sectors of industry, although its application is not

without controversy.

Theory Z : William Ouchi

Maslow's Theory Z should not be confused with the book by William Ouchi bearing the same name.

Theory Z, was presented by William Ouchi, in his 1981 book 'Theory Z: How American management canMeet the Japanese Challenge'. William Ouchi is professor of management at UC A, Los Angeles, and a

board member of several large US organisations.

Theory Z is a name applied to two distinctly different psychological theories. One was developed byAbraham H. Maslow in his paper Theory Z and the other is Dr. William Ouchi's so-called "JapaneseManagement" style popularized during the Asian economic boom of the 1980s.

Maslow's Theory Z' In contrast to Theory X, which stated that workers inherently dislike and avoid work

and must be driven to it, andTheory Y, which stated that work is natural and can be a source of satisfactionwhen aimed athigher orderhuman psychological needs.

ForOuchi, Theory Z focused on increasing employee loyalty to the company by providing ajob for life witha strong focus on the well-being of the employee, both on and off the job. According to Ouchi, Theory Zmanagement tends to promote stable employment, high productivity, and high employee morale andsatisfaction.

Ironically, "Japanese Management" and Theory Z itself were based on Dr. W. Edwards Deming's famous"14 points". Deming, an American scholar whose management and motivation theories were rejected in theU

nited States, went on to help lay the foundation of Japanese organizational development during theirexpansion in the world economy in the 1980s.

Ouchi studied American and Japanese management to develop theory Z.

Study conducted on Japan (Theory J) USA (Theory A) Ideal (Theory Z)

Employment Life time Short LongCareer path Generalized Specialized Less specialized than APromotion Slow Rapid SlowAppraisal Loyalty Performance LoyaltyDecision making Consulted by many Individual Consulted by manyResponsibility for decision Collective Individual Individual

Theory Z is conducive to the concept of Quality Circle (QC).

QUALITY CIRCLE (QC)

A quality circle is a volunteergroup composed ofworkers (or even students), usually under the leadershipof their supervisor (but they can elect a team leader), who are trained to identify, analyse and solve work-related problems and present their solutions to management in order to improve the performance of the


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organization, and motivate and enrich the work of employees. When matured, true quality circles becomeself-managing, having gained the confidence of management.

Quality circles are an alternative to the dehumanising concept of the division of labour, where workers orindividuals are treated like robots. They bring back the concept of craftsmanship, which when operated onan individual basis is uneconomic, but when used in group form (as is the case with quality circles), it can bedevastatingly powerful and enables the enrichment of the lives of the workers or students and createsharmony and high performance in the workplace. Typical topics are improving occupational safety andhealth, improvingproduct design, and improvement in the workplace and manufacturing processes.

The term quality circles derives from the concept ofPDCA (Plan, Do, check, Act) circles developed by Dr.W. Edward Deming.

They are formal groups. They meet at least once a week on company time and are trained by competent persons

(usually designated as facilitators) who may be personnel and industrial relations specialists trained in human factors

and the basic skills of problem identification, information gathering and analysis, basic statistics, and solution

generation.[1] Quality circles are generally free to select any topic they wish (other than those related to salary and

terms and conditions of work, as there are other channels through which these issues are usually considered )

Quality circles were first established in Japan in 1962; Kaoru Ishikawa has been credited with their creation. The

movement in Japan was coordinated by the Japanese Union of Scientists and Engineers (JUSE). The first circles wereestablished at the Nippon Wireless and Telegraph Company but then spread to more than 35 other companies in the

first year.[5]By 1978 it was claimed that there were more than one million Quality Circles involving some 10 million

Japanese workers.[citation needed] There are now Quality Circles in most East Asian countries; it was recently claimed that

there were more than 20 million Quality Circles in China.[ Quality circles have been implemented even in educational

sectors in India, and QCFI (Quality Circle Forum of India) is promoting such activities. However this was not

successful in the United States, as it (was not properly understood and) turned out to be a fault-finding exercise

although some circles do still exist.

QC

y Voluntary team advising firm on quality problem.y 8 12 people

y Own agenda

y Access to senior management

y Training in quality control

y Cause and effects

y Originated from USA but popular in Japan

1,000,000QCs

Research by Bradley and Hill in 1990 on effectiveness of Qcs in US and UK firm observations:

y Economic game

y Improve industrial relations

y But Trade Unions are against this concept.

y Line managers are suspicious QCs.


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SUPPLY CHAIN MANAGEMENT (SCM)

Supply chain management (SCM) is the management of a network of interconnectedbusinesses involvedin the ultimate provision ofproduct and service packages required by end customers (Harland, 1996).[1]Supply Chain Management spans all movement and storage ofraw materials, work-in-process inventory,and finished goods from point of origin to point of consumption (supply chain).

Another definition is provided by the APICS Dictionary when it defines SCM as the "design, planning,execution, control, and monitoring of supply chain activities with the objective of creating net value,

building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand,and measuring performance globally."

A supply chain, as opposed to supply chain management, is a set of organizations directly linked by one or more of

the upstream and downstream flows of products, services, finances, and information from a source to a customer.

Managing a supply chain is 'supply chain management' (Mentzer et)

1. Management of activities that purchase material and service, transforming them into intermediate and final

goods and delivering the final product into a distribution system.

2. Volkwagens Radical experiment in supply-chain Management. In its new Brazilian truck factory introduced

new supply chain management to reduce defective parts, labour costs, and improve efficiency. There are

1000 workers in that factory out of that 800 works for sub-contractors and 200 for Volkswagen. These 200

workers are responsible for TQM. The VW employees are responsible for overall quality, marketing,

research and design. Sub-contractors do the entire assembling jobs including materials. VW isbuying not

only the materialsbut alsolabour and relatedservices.Volkswagen manufacturing nothing and all the

assemble works are done by sub-contractors.

3. Why is supply chain management important? Make 5 suggestions.

Basic operations objective.

1. Q= Quality

2. F=Flexibility

3. D= Dependability

4. C= Cost

5. S = Speed

4. Supply chain becoming more global. Why?


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5. Global Drivers

Government DriverLiberalization of trade helps the Supply chains span across many territories. Example: 40 years ago

GNP of South Korea and Ghana were at par (same). South Korea followed liberal economy and GNP

increase a great extent whereas Ghana followed closed economy and present GNP is too low if we

compare with South Korea.

By signing WTO agreement, the government harmonise traffic of goods and services and it cause

longer and broader supply chain.

Photocopier

esign( anada)

Parts(S.Korea)

Assembling(Malaysia)

Marketing( .S.A)

rivers

Govern-ment

ost

Techno-logical

Market


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Technological

Cost

Cost is powerful competitive weapon (Porter). Even perishable products sources overseas.

Example: In US markets flowers arrives from Colombia. Flowers must bedelivered within 8 hours in

90C 13

0C to keep the freshness.

Market

Convergence (The convergence of d fferent ideas groups or societies is the process by which they stop being different and

become more similar) in terms of taste, life style, values, expectation = Cultural homogenisation

argument.

In middleclasseconomy there is a large homogenous market and supplychain will be deeper and

broader.

SUPPLY CHAIN ECONOMICS

y Transaction cost Theory (Williamson /Coase)

y Agency Theory

y NASH Equilibrium

Transaction cost Theory

In economics and related disciplines, a transaction cost is a cost incurred in making an economicexchange

(restated: thecost of participating in a market). For example, most people, when buying or selling astock,

must pay a commission to their broker; that commission is a transaction cost of doing the stock deal. Or

consider buying a banana from a store; to purchase the banana,your costs will be not only the price of the

banana itself, but also theenergy and effort it requires to find out which of thevarious banana productsyou

Technological

New Product

Some products to besold worldwide

Example: IT,Electronics,Music, Film

New Procedure

ICTS (Eg. GeneralElectronics)

Many pre-qualifiedvendrs byelectronicbidding


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prefer, where to get them and at what price, the cost of traveling from your house to the store and back, the

time waiting in line, and the effort of the paying itself; the costs above and beyond thecost of the banana

are the transaction costs. (Ronald Coase and Oliver E. Williamson).

Firm grows in size. Hierarchy is expensive because the use of market. Make Vs Buy. Make is cheaper

and buy is expensive. Historically firms made many things in house. When they grow the size

concentrated on supply chain.

Transaction

cost

TC 1

TC 2

0 25 50 75 100 125 150

Size

TC1 TC2

Sales 100 100

Cost of sales 70 65

Grossprofit 30 35

Cost saving =5/70 x 100 = 7% Profit =5/30 x 100=16%7 costsaving leadsto16 profit.

Example:

L.A Canteen KFC

Profit Margin 30% Profit margin 3% -5%

Hierarchical

Complex Management

Problems eats margin

Agency Theory

Agency theory suggests that the firm can be viewed as a nexus of contracts (loosely defined)

between resource holders. An agency relationship arises whenever one or more individuals,

called principals, hire one or more other individuals, called agents, to perform some service and

then delegate decision-making authority to the agents. These relationships are not necessarily

harmonious; indeed, agency theory is concerned with so-called agency conflicts, or conflicts of

interest between agents and principals.

Cost saving


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Various mechanisms may be used to try to align the interests of the agent in solidarity with those of the

principal, such as piece rates/commissions, profit sharing, efficiency wages, performance

measurement (including financial statements), the agent posting a bond, or fear of firing.

y Hierarchical business

y More problems. Higher management costs.

A 1

Agency A 2

cost

0 25 50 75 100 125 150

Size

Outsourced problems

y Validity of transactions

y Agency theory

y Many more but efficient suppliers.

Example: Volkswagen use of market will less expensive.

y Organization less hierarchical.

Example: In 1990s British Telecome had 12 level hierarchy by today it is only 5 levels. Supply

chain more effective now.

Todays agency norm isoutsourcing.

NASH Equilibrium

In game theory, Nash equilibrium (named afterJohn Forbes Nash, who proposed it) is a solution concept of

a game involving two or more players, in which each player is assumed to know the equilibrium strategies of

the other players, and no player has anything to gain by changing only his or her own strategy unilaterally. If

each player has chosen a strategy and no player can benefit by changing his or her strategy while the other

players keep theirs unchanged, then the current set of strategy choices and the corresponding payoffs

constitute a Nash equilibrium.

The Nash equilibrium concept is used to analyze the outcome of the strategic interaction of several decision

makers. In other words, it is a way of predicting what will happen if several people or several institutions are

making decisions at the same time, and if the decision of each one depends on the decisions of the others.

The simple insight underlying John Nash's idea is that we cannot predict the result of the choices of multiple

decision makers if we analyze those decisions in isolation. Instead, we must ask what each player would

do, taking into accountthe decision-making of the others.

Cost saving


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managing operations _ module notes

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