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OPERATIONS CONTROL

Other Teaching Tools 12.2

Video Notes 12.3

Brief Chapter Outline and Learning Goals 12.4

Lecture Outline and Lecture Notes 12.6

Notes for End-of-Chapter Materials 12.21

REVIEW QUESTIONS 12.21

DISCUSSION EXERCISE 12.1 Production Problems 12.21

DISCUSSION EXERCISE 12.2 The Purchasing Department 12.22

Career Management Notes 12.24

Study Skills Notes 12.26

Lecture Links 12.27

LECTURE LINK 12-1 Redefining Production Standards 12.27

LECTURE LINK 12-2 The Military Learns from NASCAR 12.27

LECTURE LINK 12-3 When the Supply Chain Breaks 12.28

LECTURE LINK 12-4 The New Barcodes 12.29

Bonus Internet Exercises 12.31

BONUS INTERNET EXERCISE 12-1 Touring Hershey 12.31

BONUS INTERNET EXERCISE 12-2 More on the Baldrige Awards 12.32

Critical Thinking Exercises 12.33

CRITICAL THINKING EXERCISE 12-1 Total Quality Management 12.33in Service Organizations

CRITICAL THINKING EXERCISE 12-2 Controlling Quality 12.34

Bonus Cases 12.35

BONUS CASE 12-1 Quality: America Is Back 12.35

BONUS CASE 12-2 Kaizen: Redesigning the Manufacturing Process 12.37

12.1

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APT

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OTHER TEACHING TOOLS

For a description of each of these valuable teaching tools, please see the Preface in this manual.

Student Learning ToolsStudent Online Learning Center (OLC) (www.mhhe.com/ghillyermanagement) Student Study GuideSpanish Translation Glossary (OLC)Spanish Translation Quizzes (OLC)

Instructor Teaching ToolsInstructor Online Learning Center (www.mhhe.com/ghillyermanagement)Annotated Instructor’s Resource ManualIRCD (Instructor’s Resource Manual, Test Bank, PowerPoints, EZtest)Asset Map PageOutPowerPoint Presentations (on IRCD and OLC)Test Bank Management at the Movies (DVD)Management Videos on DVD Enhanced Cartridge optionSpanish Translation Glossary (OLC)

12.2 MANAGEMENT: A REAL WORLD APPROACH: Instructor’s Resource Manual

VIDEO NOTES

Two video series are available for use with MANAGEMENT: A REAL-WORLD APPROACH.

Management at the Movies This innovative video collection includes video clips from twenty of the best Hollywood films.

The Video Notes section of this Instructor’s Resource Manual (beginning on page V.1) provides In-structor’s Teaching Notes for each of the video segments, along with Student Materials keyed to chapter concepts.

MOVIE 10. “Gung Ho” (“Not a Good Beginning”) (1:31) This clip is a good example of resistance to change by employees. The new employees of

Assan Motors are faced with radical change and clashing cultures.

MOVIE 17. “Agent Cody Banks” (“Gadgetology”) (2:37) In this scene, a nontraditional intelligence agent receives the gadgets necessary to perform

his mission.

Management Videos on DVDAlso included are twenty videos geared to individual chapter topics. The teaching notes for these

videos are also included in the Video Notes section of this Instructor’s Resource Manual, beginning on page V.50.

VIDEO 12: “Dominos Pizza in Mexico” (10:24)Dominos executives discuss the management controls required in selling a consistent prod-

uct beyond US markets.

CHAPTER 12: Operations Control 12.3

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BRIEF CHAPTER OUTLINE AND LEARNING GOALS

CHAPTER 12

Operations Control

I. OPERATION CONTROLLEARNING OBJECTIVE 1Understand the basic requirements for controlling operating costs.

II. CONTROLLING OPERATIONS COSTS

III. QUALITY MANAGEMENTLEARNING OBJECTIVE 2Define quality from the perspective of an opera-tions manager.

A. Quality AssuranceB. Total Quality Management

LEARNING OBJECTIVE 3Explain the concept of Total Quality Management (TQM).

C. Implementing TQMLEARNING OBJECTIVE 4Define the following terms: continuous improve-ment, kaizen, six sigma, lean manufacturing, and quality at the source.

D. Specific Approaches for Improving QualityE. Reengineering F. Other Quality StandardsG. The Malcolm Baldrige National Quality Award

LEARNING OBJECTIVE 5Explain the purpose of the Malcolm Baldrige Award.

H. Types of Quality Control

IV. INVENTORY CONTROLLEARNING OBJECTIVE 6Explain the concept of just-in-time (JIT) inventory.


A. Just-in-Time Inventory Control


LECTURE OUTLINE AND LECTURE NOTES

THE WORLD OF WORKTaco Barn Goes Japanese (Text pages 336-337)

Tony likes the idea of having all his employees make suggestions about improving the restau-rant’s operation and discusses this with his former boss, Jerry. During their discussion Jerry describes his recent visit to Japan for a leadership conference. He tells Tony about a presentation on the Japanese philosophy called kaizen, which commits continuously to reinventing ways to improve a given operation. (Toyota was an example.) Tony thought about the concept and how he could use this as an exercise with his staff in the near future.

1. How did Kevin’s performance on the MBO project inspire Tony to consider kaizen?

Tony thought that if one of his employees wanted to help improve the work environment, then other employees would likely want to make suggestions as to how the operation could be improved.

2. If the employee suggestion box only collects gum wrappers, why should this exercise be any dif-ferent?

By giving employees a real voice, they are more likely to invest in solutions and suggestions for making the operation run more effectively. Chapter 12 has several examples of these concepts from TQM, continuous improvement, Kaizen, quality at the source, six sigma, and lean manufacturing in which companies and their employees come together to provide the best product and service they can de-liver to their customers.

3. What kind of ideas do you think Tony’s team will come up with?

Each employee has their own views and opinions about what they see as the strengths and weak-nesses of the operation. They will develop ideas based on their own perspectives and points of view. Based on this, Tony will find a wide range of ideas and suggestions from this exercise.

4. Would this exercise work at your company? Why or why not?

Great opportunity to ask students about specific jobs students they have had and make sugges-tions about new or better ways the company or department could have been run.

LECTURE OUTLINE LECTURE NOTES

I. OPERATIONS CONTROLA. An effective operating system involves

both design and control.B. Good operating control can cut costs.C. The basic control concepts can be applied

to three areas: costs, quality, or inventory.

POWERPOINT 12-1Chapter Title (Refers to text page 336)

POWERPOINT 12-2Learning Objectives (Refers to text page 337)


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II. CONTROLLING OPERATIONS COSTSLEARNING OBJECTIVE 1Understand the basic requirements for control-ling operating costs. (Text pages 338-339)

A. Operations managers are concerned with three types of costs: labor, materials, and overhead.

1. VARIABLE OVERHEAD EXPENSES are those that change in proportion to the level of production or service.

2. FIXED OVERHEAD EXPENSES are those that do not change with fluctua-tions in the level of production or ser-vice.

B. Monthly budgets help monitor the major cost areas.

1. The operations manager monitors and compares actual costs to budgeted costs.

2. Methods used include direct observa-tion, written reports, etc.

C. A cost control system can identify what costs are out of control.

1. Managers must investigate to deter-mine the reasons why.

2. Once the cause is determined, correc-tive action can be taken.

POWERPOINT 12-3Operations Control(Refers to text page 338 )

BONUS INTERNETEXERCISE 12-1Touring HersheyStudents can take an online tour of the Hershey chocolate factory. See complete exer-cise on page 12.31 of this manual.

TEXT FIGURE 12.1Budget Costs: the Basis for Cost Control (Text page 338)

POWERPOINT 12-4Controlling Operations Costs (Refers to text pages 338-339)


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III. QUALITY MANAGEMENTLEARNING OBJECTIVE 2Define quality from the perspective of an oper-ations manager. (Text page 339-341)

A. For the operations manager, QUALITY is determined in relation to the specifications or standards set in the design stages.

1. Quality can mean different things to the customer and to the operation manager.

a. The operations manager judges quality in relation to the specifica-tions set in the design stages.

b. The customer makes a judgment based on service, reliability, per-formance, etc.

c. The design quality refers to the in-herent value of the product in the marketplace.

2. The quality of the organization’s prod-uct affects several areas.

a. lost of business because of dam-ages to its reputation

b. liability for quality problems c. costs for scrap, rework, repair, re-

placement, etc. d. productivity related to quality 3. Customers are willing to pay for quality

only up to a point. 4. To create a total customer response

program, the organization must:a. develop a new attitude toward

customers b. reduce management layers c. link quality and information sys-

POWERPOINT 12-5Quality Management(Refers to text pages 339-341)

TEXT FIGURE 12.2The Dimensions of Design Quality (Text page 339)

TEXT REFERENCE Study Skills Box: Make Good Study Habits a Life Skill!The key to long-term success is the ability to consistently produce. (Box in text on page 340.) An additional exercise and discussion is available in this chapter on page 12.26.

CRITICAL THINKING EXERCISE 12-1Total Quality Management in Service OrganizationsWhat experiences have stu-dents had with unsatisfactory service? See complete exer-cise on page 12.33 of this manual.

LECTURE LINK 12-1Redefining Production StandardsEmployee suggestions help GraniteRock identify oppor-tunities to improve produc-tion. See complete lecture


LECTURE OUTLINE LECTURE NOTESCASE INCIDENT 12.1Production Problems (Text page 344)

Braddock Company, a sheet fabrication company, is experiencing post-production problems with its wheelbarrow trays. Further investigation leads to some ideas about where the problem lies. One of the machine operators, Shorty McCune, has recently been accused of drinking on the job and fired. McCune may have been involved with the selection of a new raw metal supplier because of an attractive price break. The operations manager, Hal McCarthy, has to sort out all the problems that have led to this production incident and find some solutions to correct the problems.

1. What do you think is causing Braddock’s problem?

The control systems are inadequate. and problems have resulted because of this. Companies that produce products need to establish an effective operating system: design and control. Once a system is designed and implemented, the day-to-day operations must be controlled. For the operation to be effi-cient, the system must be monitored, quality must be assured, inventories must be managed, and all these functions must be accomplished within cost constraints.

2. Why is the problem more pronounced on the construction model than on the homeowner model?

The construction model requires more prefabrication work compared to the homeowner model. The construction model is deeper, so the corners are sharper and more prone to creasing. Faulty con-struction materials will be more pronounced with the construction model.

3. How can Braddock eliminate its problem?

Braddock can take the quality assurance approach that emphasizes the prevention of defects and mistakes rather than finding and correcting them. The idea of “building in” quality as opposed to “in-specting it in” is the basic philosophy of quality assurance. This approach views quality as the responsi-bility of all employees rather than the exclusive domain of a quality control department. Furthermore, suppliers are treated as partners.

4. What systems or processes should Braddock put in place to make sure this doesn’t happen again?

To implement the operations control system, which is one of design first and control second, the operations controls generally relate to the areas of costs, quality, and inventories. Cost control looks at the organizations accounting and budgeting system and then monitors costs relating to labor, materials, and overhead. Quality control can be implemented by a variety of systems from quality assurance, TQM, ISO 9000. or ISO 1400. Finally inventory control can be monitored by implementing such pro-grams as just-in-time (JIT), to establishing inventory tracking systems.

F. REENGINEERING, also called business process engineering, is searching for and implementing radical change in business processes to achieve breakthroughs in costs, speed, productivity, and service.


LECTURE OUTLINE LECTURE NOTES 1. It involves a one-time concerted effort

to make major improvements in basic processes.

2. The organization basically starts with a clean slate and redesigns itself.

G. Other Quality Standards 1. ISO 9000 is a set of quality standards

created in 1987 by the International Organization for Standardization (ISO) for international business.

a. The U.S. representative is the American National Standards In-stitute (ANSI).

b. The ISO originally published five international standards.

c. ISO 9000:1994 was a revision that focuses on the design and opera-tions processes.

d. ISO 9000:2000 focuses more on continuous improvement and cus-tomer satisfaction.

e. Organizations in 154 countries have been certified in ISO 9000:2000.

2. ISO 14000 is as addition to the ISO 9000 to control the impact of an orga-nization’s activities and outputs on the environment.

a. The goal is to provide international environmental standards that are compatible.

b. ISO 14000 provides an interna-tional standard for environmental management systems and will ulti-mately include 20 separate stan-

POWERPOINT 12-8Other Quality Standards(Refers to text page 346-348)


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LECTURE OUTLINE LECTURE NOTESdards.

3. A ZERO-DEFECTS PROGRAM at-tempts to increase quality by increas-ing everyone’s impact on quality.

a. Cutting defects to zero would be cost ineffective.

b. The objective is rather to make ev-eryone aware of his or her poten-tial impact.

PROGRESS CHECK QUESTIONS (Text page 348)

5. Who are the quality gurus?6. Explain the term kaizen.7. What is ISO 14000?8. Explain the term zero defects.

H. The Malcolm Baldrige National Quality AwardLEARNING OBJECTIVE 5Explain the purpose of the Malcolm Baldrige Award. (Text page 349)

1. The MALCOLM BALDRIGE AWARD was established by Congress in 1987 to recognize U.S. companies’ achieve-ments in quality.

2. The award: a. promotes performance excellence b. publicizes successful performance

strategies c. recognizes the quality and perfor-

mance achievement of U.S. orga-nizations.

3. In 2005 NIST was authorized to ex-pand the Baldrige Award program to include nonprofit organizations.

4. The Criteria for Performance Excel-lence provides a general performance

BONUS INTERNETEXERCISE 12-2More on the Baldrige AwardsThis Internet exercise lets students further research the Malcolm Baldrige National Quality Awards. See com-plete exercise on page 12.32 of this manual.

POWERPOINT 12-9The Malcolm Baldrige National Quality Award(Refers to text page 349


LECTURE OUTLINE LECTURE NOTESexcellence model.

I. Types of Quality Control 1. PRODUCT QUALITY CONTROL (ac-

ceptance control) relates to inputs or outputs of the system.

a. Quality is evaluated based on an existing batch of products.

b. Using acceptance sampling proce-dures, some portion of a batch is inspected to ensure that the batch meets specifications.

c. An entire batch can be accepted or rejected based on the sample.

2. PROCESS QUALITY CONTROL con-cerns monitoring quality while the product or service is being produced.

a. Samples are taken from a process and compared to a standard.

b. The process continues if the sam-ple results are acceptable.

c. If the results are not acceptable, the process is halted.

3. ACCEPTANCE SAMPLING is a sta-tistical method of predicting the quality of a batch or a large group of products by inspecting a sample or group of samples.

a. A random sample is drawn, tested, and analyzed.

b. If a statistically significant number are defective, the entire batch is rejected.

c. Acceptance sampling involves risk.

POWERPOINT 12-10Types of Quality Control (Refers to text pages 349-351)


LECTURE OUTLINE LECTURE NOTESi. The producer’s risk is the risk

the producer takes of reject-ing a good batch.

ii. The consumer’s risk is the risk of accepting a bad batch.

d. The maximum acceptable risk is determined and a sampling plan is designed.

4. A PROCESS CONTROL CHART is a time-based graphic display that shows whether a machine or process is pro-ducing items that meet pre-established specifications.

a. A machine is “out of control” if a significant change is detected.

b. Mean charts (x-charts) monitor the mean or average value of some characteristic.

c. Range charts (R-charts) monitor the range of variability.

d. First the desired level is identified. e. Then the upper and lower control

limits are calculated.f. A small sample is taken from the

machineg. The results are plotted on the con-

trol chart.h. Using mean and range charts si-

multaneously improves control.PROGRESS CHECK QUESTIONS (Text page 351)

9. What was the purpose of the Malcolm Baldrige Na-tional Quality Improvement Act?

10. Explain the difference between product quality con-trol and process quality control.

11. What is acceptance sampling?

TEXT FIGURE 12.5Mean Chart (Text page 351)


LECTURE OUTLINE LECTURE NOTES12. What is the purpose of a process control chart?

CASE INCIDENT 12.2The Purchasing Department (Text page 352)

A large airline company is experiencing problems with proper inspection of incoming orders. They learned some expensive radar components were defective, but this was not discovered until after the warranty expired. A meeting conducted to discuss the current inspection procedures covered many issues, especially who would determine when it is proper to do immediate inspections and when it would require departmental inspections. A follow up meeting was planned to further discuss the situation.

1. Why is the inspection of received parts such a concern for the airline?

By the nature of their industry, the safe construction and operations of the airline companies are under the guidelines of the FAA. Therefore, it is vitally important to monitor the inventory supplies as required by all the airlines, no matter how big or small.

2. What do you think of the current system of inspection?

The problems are a result of a disorganized system. The resources are not in place for the neces-sary inspection process. Beyond this, how inventories should be properly inspected is unclear. This is costing the company additional expenses when warranties come into play and the incorrect items have been shipped but not detected as they should be.

3. Do you think the inspector is at fault? Explain.

The inspector is a byproduct of the disorganization and has become ineffective based on the dis-organized system. Clear lines of communication and responsibilities have not been established. The cur-rent system will remain ineffective until a plan is developed and instituted with all the departments that are affected by the inventory process.

4. What would you suggest should happen at the meeting next Friday?

The next meeting should focus on developing an inventory system, perhaps one like the ABC classification system. The ABC classification system manages inventories based on the total value of us-age per unit of time. For example, a small number of products or materials, group A, account for the greatest dollar value of inventory; group B accounts for a moderate amount of inventory; and group C accounts for a small amount of inventory. In this system, items in group A are monitored very closely; items in group B are monitored with some care; items in group C are checked occasionally.

IV. INVENTORY CONTROLA. INVENTORIES serve as a buffer between

different rates of flow associated with the operating system.

1. Classifications: a. Raw material inventories serve as

POWERPOINT 12-11Inventory Control(Refers to text page 353)


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LECTURE OUTLINE LECTURE NOTESa buffer between purchasing and production.

b. In-process inventories buffer the rates of flow among production processes.

c. Finished-goods inventories act as a buffer between the final stage of production and shipping.

2. Large inventories make purchasing, scheduling, and distribution easier.

3. But, carrying inventory involves other costs.

a. Examples: insurance, property taxes, storage costs, and spoilage.

b. There is also an opportunity cost of the money invested in the in-ventory.

4. Management must balance the holding costs against the costs of inadequate inventory.

B. JUST-IN-TIME (JIT) INVENTORY CONTROL is an inventory control system that schedules materials to arrive and leave as they are needed.LEARNING OBJECTIVE 6Explain the concept of just-in-time (JIT) in-ventory. (Text pages 353-358)

1. JIT, also known as zero inventory sys-tems, stockless systems, or kanban systems, was pioneered in Japan.

a. It is a philosophy for production that ensures the right items arrive and leave as they are needed.

b. Organizations make smaller and

TEXT REFERENCE Career Management Box: Create a Career Plan Improved habits and skill de-velopment provide the foun-dation for creating a career plan. (Box in text on page 353.) An additional exercise and discussion is available in this chapter on page 12.24.

POWERPOINT 12-12Just-in-Time Inventory Control (Refers to text pages 353-355)

TEXT FIGURE 12.6Benefits of JIT System(Text page 354)


LECTURE OUTLINE LECTURE NOTESmore frequent orders of raw mate-rials.

c. The basic goal is to eliminate waste.

2. JIT applies to inventories of incoming raw materials, subassemblies, and fi-nal products.

3. JIT is called a demand pull system be-cause items are produced or ordered only when they are needed.

4. It can take years to establish a JIT system.

5. Tom Peters feels that a company can push JIT forward in the distribution channel to include customers.

ETHICAL MANAGEMENT (Text page 355)

You have learned from your account manager that his company will raise prices on your pur-chase item because the competitor is experiencing production problems and would not be able to handle new orders. Your account manager suggests you place a large order to beat the expected 25% increase.

1. Would you place a large order? Why?

Placing an order indicates your acceptance of the rumored decision making of the company you purchase from. It would not be a good decision to show that you agree with this potentially unethical style of working with a supplier.

2. If XYZ’s competitor then announced a new version of its product that was much better than XYZ’s component, what would you do?

Making changes is not always recommended unless you have adequate reason to look at other options. Have you had good service from your current supplier? Is the new version of the product actu-ally a significant improvement? What are the costs and benefits? Not an easy decision.

3. Would you suspect that the area account manager had set you up? Why or why not?

The motivation of the account manager appears to be selfish and motivated by a short term gain he perceives he can make. The account manager has much to risk in communicating this information, es-pecially if the information turns out to be inaccurate.

4. What if the 25% price increase never came? What would you do then?

If the rumored 25% increase does not happen, this might be just another reason to suspect the


LECTURE OUTLINE LECTURE NOTESaccount manager’s information. This may be a red flag, and it might be a good time to look at other op-tions for suppliers or to look at how you can find a different account manager that could be more honest and trustworthy.

C. Tracking Inventory 1. Without computers, keeping accurate

inventory records was difficult. 2. Bar-Code Technology a. Today, most items are marked

with bar codes, patterns of bars and spaces that an electronic scanner recognizes.

b. Errors in inventory tracking are re-duced and inventory is automati-cally adjusted.

3. A physical inventory is still needed. a. A PHYSICAL INVENTORY in-

volves counting the number of units of inventory a company holds in stock.

b. Actual inventory often differs from inventory recorded, which can lead to shortages.

D. Independent versus Dependent Demand Items

1. INDEPENDENT DEMAND ITEMS are finished goods ready to be shipped out or sold.

2. DEPENDENT DEMAND ITEMS are subassembly or component parts used to make a finished product.

a. Their demand is based on the number of finished products being produced.

b. Forecasting demand becomes

POWERPOINT 12-13Tracking Inventory (Refers to text pages 355-356)

LECTURE LINK 12-4The New BarcodesThe UPC code found on all consumer products is getting an additional digit. See com-plete lecture link on page 12.29 of this manual.

LECTURE LINK 12-3When the Supply Chain BreaksWhen the major supplier of rough surfboard blocks went out of business, surfboard makers scrambled to find an-other supplier. See complete lecture link on page 12.27 of this manual.

POWERPOINT 12-14Independent versus Depen-dent Demand Items(Refers to text pages 356-


LECTURE OUTLINE LECTURE NOTEScritical.

E. ABC Classification Systems 1. The ABC CLASSIFICATION SYSTEM

manages inventories based on their total value.

a. Group A account for the greatest dollar value of inventory.

b. Group B account for a moderate amount.

c. Group C accounts for a small amount.

2. Appropriate control is based on the classification.

a. Group A items are monitored very closely; group B less closely.

b. Group C items are checked only occasionally.

3. However, a Group B may be critical to the operation.

4. The ABC system can be computerized and linked to ordering and stock con-trol.

F. Safety Stocks 1. SAFETY STOCKS are inventory main-

tained to accommodate unexpected changes in demand and supply and al-low for variations in delivery time.

2. The optimal size is based on the rela-tive costs of an out-of-stock item ver-sus the costs of carrying additional in-ventory.

G. The Order Quantity 1. Costs are reduced by purchasing ma-

terials in large batches.

357)

TEXT FIGURE 12.7ABC Inventory Classification (Text page 357)

POWERPOINT 12-15Safety Stocks (Refers to text pages 357-358)


LECTURE OUTLINE LECTURE NOTES 2. However, ordering costs must be bal-

anced against the inventory carrying cost.

a. Ordering costs are the cost of pre-paring the order, including ship-ping and set-up costs.

b. Carrying costs include storage costs, insurance, and opportunity costs.

3. The ECONOMIC ORDER QUANTITY (EOQ), the optimal number of units to order at one time, is the point at which ordering costs equal carrying costs.

4. It is difficult to accurately determine the carrying and ordering costs.

PROGRESS CHECK QUESTIONS (Text page 358)

13. What are the three categories of inventory classifica-tion?

14. Explain the difference between dependent and inde-pendent demand items.

15. Explain the ABC classification system for inventory management.

16. How do you calculate the economic order quantity (EOQ) when placing purchase orders for materials or products?

THE WORLD OF WORKKaizen Power – Handle with Care! (Text page 359)

Tony gathers his staff to conduct an “ideas” session on to how to improve the Taco Barn opera-tion. At the conclusion, nearly two thousand ideas are given. Now Tony has to decide how to begin an im-plementation process. The employees have developed a wide range of ideas for improving the operations, from serious to outrageous. Tony is a bit overwhelmed as to where to begin.

1. Is a list of “close to two thousand ideas” a successful outcome for Tony? Or has he created a monster here?

Tony has found out the power of Kaizen, a system of taking small steps to improve the work-place. It is based on the belief that the system should be customer driven and involve all employees


through systematic and open communication. This outcome shows him just how much his employees can become more involved in delivering their products and services, if asked.

2. What do you think the reaction of the employees would be if none of the ideas were implemented?

Employees will be very disappointed if none of the ideas are implemented. If Tony doesn’t fol-low through, they will begin to doubt his sincerity. It would have been better not to have asked for ideas than to have asked and not done anything. The shift in management style from boss directives to em-ployee sharing in the decision-making process is a dramatic difference. It is powerful and dangerous if the process is not managed correctly. Tony now has the responsibility to follow through on this new way of managing his restaurant.

3. If Tony encouraged his team to go as far out into left field as they wanted, how many of these new ideas are going to be practical? Why?

As the concept of Kaizen states, it is a system of taking small steps to improve the workplace. With this idea emphasized, Tony can corral all the creative thinking and put it in the right context for tak-ing the next steps with all the suggestions his employees have given him. Kaizen does not focus on ob-taining new and faster machines but rather improving the methods and procedures used in the existing op-eration.

4. Where do you think Tony should start first? Why?

Tony needs to have a follow up meeting, take the ideas that are valid and practical, and allow groups of employees to look at each idea. The ideas can then be ranked in priority. This will give the staff a sense of how the process will evolve and the next steps taken to improve the operation.


NOTES FOR END-OF-CHAPTER MATERIAL

REVIEW QUESTIONS

1. Name the three major categories of costs that usually concern operations managers from a con-trol standpoint. Give an example from each category.

The basic control concepts can be applied to three areas: costs, quality, or inventory.

2. What is the difference between fixed and variable overhead expenses?

Variable overhead expenses are those that change in proportion to the level of production or ser-vice. Fixed overhead expenses are those that do not change with fluctuations in the level of production or service.

3. What are the six common dimensions of design quality? Provide an example of each dimension.

The quality management approach emphasizes prevention of defects rather than finding them later. This approach tries to “build in” quality as opposed to “inspecting it in.”

Total quality management (TQM) is a management philosophy that emphasizes “managing the entire organization so that it excels in all dimensions of products and services that are important to the customer.” TQM is an organization-wide emphasis on quality as defined by the customer.

Continuous improvement refers to an ongoing effort to make improvement in every part of the or-ganization relative to all of its products and services.

Kaizen is a philosophy for improvement that originated in Japan. Kaizen literally means “good change.” It is not based on large technical leaps, but incremental refining of processes.

Quality at the source refers to the philosophy of making each employee responsible for the qual-ity of his or her own work. It encourages employees to take pride in their work.

Six sigma is both a precise set of statistical tools and a rallying cry for continuous improvement. Six sigma was pioneered by Motorola and means, in statistical terms, six standard deviations from the mean. To achieve this high level of quality, the entire production or service system must be improved.

Lean manufacturing is a systematic approach to identifying and eliminating waste and non-value-added activities.

4. Define six sigma and lean manufacturing. How are they related?

Six sigma is both a precise set of statistical tools and a rallying cry for continuous improvement. Six sigma was pioneered by Motorola and means, in statistical terms, six standard deviations from the mean. To achieve this high level of quality, the entire production or service system must be improved. Six sigma can be applied to any business process.

Lean manufacturing is a systematic approach to identifying and eliminating waste and non-value-added activities. These approaches are complementary.

DISCUSSION EXERCISE 12.1Staying Paranoid at Toyota


Toyota has emerged at the world’s leading car manufacturer and is concerned with having a complacent “big company disease.” The company has launched EM2:“Everything Matters Exponen-tially.” This new program examines product planning, customer service, sales, marketing and the car dealer experience with customers even though company does not have ownership of this element.

1. Explain the purpose of Toyota’s EM2 program.

EM2 is a very intense refocus on all phases of the operation to ensure the highest level of output occurs. By this, the company reexamines product planning, customer service, sales, marketing and the dealer experience by the customer. This is consistent with the Kaizen management philosophy of continu-ous improvement.

2. What are Toyota’s “reasons for concern”?

Climbing to top status is a challenging and exhilarating experience because of the motivation to become the best. However, once this type of goal is reached, it can allow for a feeling of contentment. Other challengers can overtake you if you are not striving to be the best in your industry. Furthermore, the company has found their quality rating slipping. Customer service surveys show problems with the over-all consumer experience. Both these areas highlight the necessity to make improvements to change the company’s overall performance.

3. Do you think the EM2 program will succeed? Why or why not?

It appears the company has taken a serious “everybody participates” approach, shown by the back-to-school training to relearn quality standards and by hiring engineers at plant locations to be on hand to fix assembly problems. The company has also begun observing dealerships to find out where cus-tomer satisfaction levels have dropped during their visits to the dealers. In all, the company has looked more closely at all phases of their operation to keep their high level of standards.

4. Would a program like EM2 work in your organization? Why or why not?

Probably so, because most organizations are not operating as efficiently and effectively as they probably could. They could therefore could use an intense tune up that would renew and energize em-ployees, who are the conduit to providing the excellent delivery of the products and services for the com-pany.

DISCUSSION EXERCISE 12.2A Dynamo Called Danaher

Danaher Corp. enjoys a high level of business success as seen by their 25% annual shareholder return over the past twenty years. Revenues today are nearly $10 billion with net profits margins of 16%. This excellently-run conglomerate is the brainchild of Stephen and Mitchell Rales, who adapted the Toy-ota lean manufacturing operating style in 1987 into the culture of their business model today.

1. How is Danaher able to generate such large profits on “such Old Economy businesses as heavy-truck braking systems and hand tools”?

Their business model success that is the culture of every employee of the company. By adopting the lean manufacturing concept in the beginning of its inception, the company has built a company of em-ployees who understand this. It has become their normal business operating style.

2. What is lean manufacturing?


Lean manufacturing is a systematic approach to identifying and eliminating waste and non-value-added activities. The essence of lean manufacturing is to look at the entire production or service process and eliminate waste or unnecessary activities wherever possible.

3. Do you think that Danaher’s use of the Kaizen philosophy has greater effect when it is selecting the companies to purchase or when it owns the companies? Explain your answer.

The formula for Danaher is to find good companies and then turn them into great companies through the Kaizen operating style. Once they control the operation, they implement the continuous im-provement system philosophy, not focusing on new and faster machines but rather on improving the methods and procedures used in the existing situation. This is the real strength to the success of the com-pany.

4. Consider the organization you currently work for or one you have worked for in the past. How easy would it be to introduce the Kaizen philosophy in that organization? Explain your answer.

Some organizations might be more receptive than others. Companies that have a system already in place, much like a franchise operation, would not be in favor of the Kaizen operating method.


CAREER MANAGEMENT NOTES

Create a Career Plan

Instructor’s Notes for Text Box Twelve: Objectives to consider and implement to increase stu-dents knowledge, usage and understanding of the concepts.

At some point, all successful students will think though the career process and learn to establish some sort of plan. Without much help, this plan might be very low in expectations and not very helpful to the student’s career. To help in this process, showing students how to do career planning and helping them write career goals is an important function!

STUDENT EXERCISE:

Review the following outline regarding career planning. Have students spend time developing their answers and discuss their career plans in class. Make note of the various answers and thoughts that each students formulates about their own career ideas.

Career Planning & Forecasting Short-Medium-Long Range Goals

One of the most important elements to writing your career plan is the ability to have a sense of the goals you have set for yourself and for your career. How you arrive at these goals is discussed throughout this text. How you move successfully towards these goals are the methods of short-term, medium range, and long-term goals.

The question that is most asked is how do I begin to set career and personal goals? From this question the real work begins. If this was not a familiar personal process, starting with basic goals would be the beginning process point. Questions, such as the following, must first be asked:

(1) What type of job would you like to have in the next year, five years, ten years? (job descrip-tion, pay, title, etc.)

(2) What industry would this job/career be in?

(3) What is the state of affairs of this industry (new, high growth, slow growth but stable, stag-nant, losing sales and companies that compete)?

(4) What are the types of job(s) would be available for using your skills as they are today?

(5) What new or better skills would you need to enhance your chance to get the type of job you would like?

(6) Name five companies you would like to work for in the industry that you are interested in.

(7) Name two other jobs/industries that would be your second and third choices if you do not get work in the job/industry of your preference.

(8) Find someone working in the position you would like to have over the next year and find out what they do (job duties) and how their position functions in the company. Find a person doing the job/work you would like to be doing in the next five years & ten years and inter-view them with the same set of questions.


(9) Note your success in jobs you currently hold or have held in the past.

(10) How can you use these success/skills in your current or future job?

(11) What areas could you improve upon to accentuate your career?

(12) What personal goals do you have for the next year, five years, ten years?

(13) How do these personal goals accentuate your job/career?

(14) How do these personal goals change what job opportunities that you might consider?

(15) How do you feel about your career to date?

(16) If you change what you are currently doing, what would that be? Explain.

(17) What help/assistance would benefit you in your career?

(18) How willing are you to change current skills/attitudes to better your career?

(19) What feedback have you gotten so far from immediate bosses on your job performances?

(20) What are the positives? What are the negatives? Where can you improve?

Long-term goals are met with high success when a person can (1) identify what they are in some detail, (2) use a format to express long-term, mid-term and short-term goal setting, (3) understand that mid-term goals are a measure of how successful you have done in your pursuit of your long-term goals, and (4) understand that short-term goals are the yearly objectives to reaching mid-term and long-term goals. Based on this, use the following to express your long-term, mid-term and short-term goals:


STUDY SKILLS NOTES

Make Good Career Planning Habits a Life Skill

Instructor’s Notes for Text Box Twelve: Objectives to consider and implement to increase stu-dents knowledge, usage and understanding of the concepts.

A successful interview, a well-written resume, and good etiquette habits are a real positive for any and all students. There is an ultimate reward for hard work and sacrifice, and all students are asked to assess and define how this skill ultimately works for them. To refresh your career assessment and imple-mentation, use the BORD method as a reminder of the basics needed to stay on course regarding estab-lishing good career skills: balance, organization, routine and discipline. These skills will keep the process the same no matter how your job, school, personal life or professional life might be flowing (sometimes some areas are going well, sometimes not).

When you BALANCE all your responsibilities in a series of priorities, you have a healthy ap-proach to accomplishing your goals and objectives with achieving a high level of success. However, be-ing able to correctly balance all your responsibilities requires that you become extremely ORGANIZED to assure that you stay on course and that when you do this on a regular basis, this becomes a ROUTINE.

STUDENT EXERCISES:

Help students with the basic prioritizing skills. Have them discuss their own prioritizing practices and discuss what are good habits and ones that might need to be improved.


LECTURE LINKS

LECTURE LINK 12-1

Redefining Production Standards

The nominations for Fortune magazine’s “Best Bosses of 2003” contained one unusual nomina-tion. Instead of nominating its president or CEO, Graniterock nominated “Graniterock Team Members” – all 700 employees. At the Watsonville, California Company, the employees really do call the shots. Any-one on the staff can suggest changes, fix problems, or talk to whomever they want – even CEO Bruce Woolpert – about anything they feel can be improved.

The company, which supplies construction materials such as rock, gravel, and sand, has collected a long list of awards, including being named to Fortune’s “Best Companies to Work For” list every year from 1998 to 2002 (when Fortune changed one of its criteria to a 1,000-employee minimum). In 1992, Graniterock won the prestigious Malcolm Baldrige award, an annual recognition of quality awarded by the U.S. President.

Graniterock has an open-door policy that has grown over the years to mean the absence of lines of authority. Graniterock people with ideas talk to whoever they feel can be helpful or may have an inter-est. There is no expectation that management either directs or authorizes such changes. Each person is re-sponsible for whatever improvements he or she wants to make, without having to get approval.

The company made more than 4,000 improvements to the company in 2002 alone based on em-ployee suggestions. Some were as small as the lights on delivery trucks. The backup lights on concrete delivery trucks were a problem; they were no brighter than those on an ordinary car. When drivers get to a job site, they have to back into it. The drivers couldn’t see well enough, so they had to get out of the truck to see where they were, get back in the truck, and go another few feet. They had to go very slowly. One driver came up with a solution. He and a mechanic reviewed various lights in parts catalogs, ordered sample sets, and put them on a truck. The driver assessed their effectiveness for a couple of weeks. When they settled on lights that worked well, they were added to all the company trucks, reducing delivery times.

In the construction industry, delivery times are critical. For decades Graniterock assumed that the quality of their concrete was the most important consideration for its customers. But when they surveyed customers they found that being on time was just as important. Builders measure their productivity by yards of concrete placed per hour, so delivery delays cost them money.

After that survey in 1988, Woolpert and the Graniterock employees began trying to get faster. They set what they thought was an easy target: 85% of all deliveries within a half-hour of the scheduled time. But when they measured, only 68% were within that window. “Since then, we’ve taken steps to im-prove each year, mostly through a lot of little details,” says Woolpert. “Whenever new houses go up in an area, for example, the local fire department always gets the new maps first, so we made sure we were sec-ond (an employee idea.) Over the years our delivery times have gotten better and better, and this year our goal is 96% deliveries made within 15 minutes of the scheduled time. So far we’re ahead of that.” i

LECTURE LINK 12-2

The Military Learns From NASCAR

Sometimes production innovations come from unexpected sources. Recently the Pentagon has been consulting with NASCAR professionals on how to improve techniques and equipment. Carlson


Technology, which advises NASCAR teams on how to shave seconds off pit stops, has advised the Army National Guard on how to significantly reduce the time it takes to change out a Humvee engine.

The Army is considering using transponders similar to the ones NASCAR installs on cars to mon-itor their positions in a race. These would allow military commanders to monitor all their vehicles on the battlefield.

One NASCAR innovation has already been put to use on military helicopters. NASCAR racers are equipped with layers of clear plastic sheets on the front of racecar windshields, which crews can quickly tear off when oil or grit blocks the driver’s view. These Mylar sheets are now used on Black Hawk helicopters, whose windshields are vulnerable to pitting in desert conditions. A set of layered sheets cost about $1,100, a lot less expensive than the cost of replacing a $15,000 windshield. ii

LECTURE LINK 12-3

When the Supply Chain Breaks

As manufacturers try to balance inventory costs with production speed, one vendor’s demise can completely wreck the company’s production process.

The unexpected closure of Clark Foam clearly illustrates this. Clark, a Laguna Niguel, California, company, mass-produced foam blocks used to create customized surfboards. Gordon Clark pioneered the technology in 1961. The foam blanks, which cost between $50 and $90, are first smoothed and shaved with sandpaper and shavers. Painters then add color and design before the board is covered in fiberglass.

Clark enjoyed a virtual monopoly on the blocks (called “blanks”). It supplied unshaped blanks for about 90% of all custom-made boards purchased worldwide. Before the Clark closure, custom-made boards sold for between $300 and $800. Suddenly manufacturers were scrambling to purchase the last supplies of the polyurethane blanks. The price for a classic longboard rose from $100 to $1,000 shortly after Clark closed.

Clark Foam had closed because California’s Orange County Fire Authority had repeatedly re-ported Clark Foam to other government agencies, including the EPA, which cited the company for its continued use of the toxic chemical toluene diisocyanate, which can cause severe and chronic lung prob-lems.

Clark finally shut down the facility of his own volition, rather than face the legal fallout, accord-ing to a memo circulated by Clark at the time he closed. The media attention on Clark’s closure focused light on this and other environmental problems associated with the production of surfboards, such as the use of polyester-based resins, which are harmful to the worker and emit noxious fumes. Most of the in-dustry, long silent on the fact that manufacturing a surfboard is a dirty process, was poised for change.

A handful of small U.S. companies also produced foam, but not in great enough quantities to fill the gap. Australian manufacturers of foam blanks turned out just enough to meet Australian demand and had little to sell overseas.

In the weeks following Clark’s closure, board builders scrambled to find the remaining Clark blanks. They were even available on eBay. Bidding for blanks went as high as $50,000. Scraps of Clark Foam were even being sold as pieces of history, starting at $1.

Before the closure, Clark had churned out about 1,000 blanks a day. Gradually smaller producers like JustFoam in San Clemente began to ramp up production. JustFoam was able to increase daily produc-tion from 24 to 350.

A handful of small companies had already been working, some for up to twenty years, on cleaner surfboard-making technologies that would cost the same as the dirtier ones. But they couldn’t find a hole in Clark’s monopoly to successfully introduce a product. Among the contenders was Homeblown U.S., an


independently-owned six-employee foam producer that had developed a foam production system that was similar to Clark’s but was safer to workers because it didn’t emit volatile fumes.

Homeblown had started in Britain in the late 1980s and held a 50% share of the market for blanks there. But Clark had such a dominant position in the market that it wasn’t practical for Homeblown to open in the U.S. until the Clark factory closed.

Today, Homeblown has gained a toehold in the U.S. market, though it still produces only 75 to 100 foam blanks a day, compared to Clark’s 1,000 a day production. It is ramping up its efforts to bring more sustainable surfboards into the market. The end of Clark’s monopoly in surfboard blanks has paved the way for cleaner ways of making surfboards, with independent businesses taking the lead. iii

LECTURE LINK 12-4

The New Barcodes

The Universal Product Code (UPC) found on all consumer products has undergone a makeover in the U.S. market. While the rest of the world has long used a 13-digit bar code, U.S. companies resisted changing from their 12-digit system. Not any more. The Uniform Code Council, the nonprofit industry group that oversees bar-code standards in North America, adopted the global standard in 2004 and gave retail stores just months to update their systems to accept the new codes.

For retailers, the changeover did not affect cash-register scanning. These machines could already read the longer codes. Retailer conversion problems involved the back-end software systems that retailers use for inventory control and automated reordering.

The new codes have four groups of numbers, each encoded with a specific type of information. In a code such as 12 34567 89012 8, the individual digit groups reveal the following:

12 34567 89012 8

The first group (12) is the country code. Numbers 00 through 13 indicate companies based in the U.S. or Canada. Codes 54 and 76 would signify Belgium and Switzerland respectively.

The five-digit group that follows (34567) is the company code, identifying each manufacturer in the world.

The second group of five digits (89012) is the article code, assigned to individual products by manufacturers and registered in centralized databases through regional authorities like the Uniform Code Council.

The final digit (8) is a check digit. The 12 previous digits are run through a mathematical al-gorithm that produces a single digit. This number is used to verify that a bar code is scanned correctly.


Contrary to popular opinion, the UPC code does not include the product’s price. When the bar code is scanned, the digits in the UPC code are fed into the retailer’s central computer where the code is matched with current price listing.iv

i Sources: Ellyn Spragins, “The Rock Stars,” Fortune Small Business, October 2003, pp. 49-51; and Jessica Seid, “Best Small Companies to Work For,” CNNMoney.Com, June 26, 2006.

ii Sources: Douglas Waller, “NASCAR: The Army’s Unlikely Adviser,” Time, July 54, 2005; and Stefanie A Gardin, “Army News Service: Army Adopts NASCAR Technology For Helicopters,” Defense AT & L, May 1, 2005.

iii Sources: The Associated Press, The Clarion-Ledger, December 10, 2005; Robert Whitfield, “Clark Foam Surf-board Blanks on eBay,” The Orange County Register, December 15, 2005; Nancy Luna, “Former Clark Foam Em-ployees Say They’ve Formed a New Foam-Making Factory,” The Orange County Register, March 4, 2005; and Nancy Luna, “Buyers Flood Clark Foam Auction,” The Orange County Register, March 9, 2006.

iv Source: Kevin Kelleher, “Bar Codes Get One Better,” Business 2.0, October 2004.


BONUS INTERNET EXERCISES

BONUS INTERNET EXERCISE 12-1V

Touring Hershey

Take a virtual tour of the Hershey Foods Corporation’s chocolate factory by going to www.her-sheys.com/tour/index.shtml. If you have a high-speed Internet connection, you can choose the video tour. If not, the picture tour is a faster choice. (Sometimes the web address for a location changes. You might need to search to find the exact location mentioned.)

1. Can you identify any control points in the production process?

2. What types of inventory does Hershey have?

3. How could just-in-time inventory be used in a production system like Hershey’s?

v The Internet is a dynamic, changing information source. Web links noted in this manual were checked at the time of publication, but content may change over time. Please review the website before recommending it to your stu-dents.


BONUS INTERNET EXERCISE 12-2

More on the Baldrige Awards

Go to the Baldrige Web page at www.quality.NIST.gov, and then click on “Why Apply?” (Some-times the web address for a location changes. You might need to search to find the exact location men-tioned.)

1. List the Baldrige Quality Award winners for the latest year.

2. What government agency is responsible for administering this award?

3. What criteria are used to choose award recipients?

4. Review the winners for the previous years. Which companies have won more than one Baldrige award?

5. Follow the link for one of this year’s winners to the company profile. Write a brief summary of why you think the company won the award.


CRITICAL THINKING EXERCISES

CRITICAL THINKING EXERCISE 12-1

Total Quality Management in Service Organizations

Think about some of the experiences you have had with service organizations recently (e.g., the admissions office at your school), and select one incident in which you had to wait for an unreasonable length of time to get what you wanted.

1. What factors caused the delay?

2. How could management make the operations more efficient and customer-oriented?

3. Outline a control system that could be used to identify and correct problems such as this.


CRITICAL THINKING EXERCISE 12-2

Controlling Quality

The definition of “quality” and its relative importance depends on the type of operation being per-formed. This exercise asks students to think like an operations manager and decide how to handle an un-expected report from the quality assurance department.

You are an operations manager at a medium-sized corporation. You have just hung up the phone after a conversation with the quality assurance department. They have analyzed the daily output sample and reported the results to you. The report shows that 5% of the output sample has minor defects. An ad-ditional 1% show major defects, making the item unusable. For each of the products below, briefly ex-plain how you should handle the report. What actions should you take? Are corrective measures needed? Why or why not?

1. Clay flower pots (12 inches wide)

2. Wooden toothpicks

3. Blank CDs

4. Roofing shingles

5. Automobile radial tires

6. Flat-screen computer monitors (15 inch)

7 10-penny construction nails

7. “My Little Monkey” plush toy

8. Monofilament fishing line

9. Cotton t-shirts


BONUS CASES

BONUS CASE 12-1

Quality: America Is Back

Ask any production manager in Japan what person has had the greatest influence on their tremen-dous increase in quality products, and they are sure to answer, “W. Edwards Deming.” He taught them the concepts of statistical control of quality, and they applied the principles. Today we call this system total quality management (TQM). Japanese businesses do not need as many quality control people at the end of assembly lines because they test for quality all along the production line. Consequently, many Japanese products are not only priced well, they are higher in quality as well.

Another American named Philip Crosby wrote a book called Quality Is Free that has had a big impact on the thinking of managers at IBM and other leading firms. He followed that successful book with two others: Quality without Tears and The Art of Getting Your Own Sweet Way. What are all these books saying? “Why not do things right the first time?” or, “Set high standards and meet them every time.”

Quality will remain a major focus in the 21st century because America is starting to listen to its experts – as Japan did. American industry, whether it is a manufacturing or service business, recognizes it has to change the way it does business to compete in global markets. For example, some 35% of U.S. fac-tories, offices, and stores now have some quality and productivity initiatives in place. It is no accident that Ford used the theme “Quality Is Job One” for an ad campaign. Not only has Ford adopted a TQM pro-gram; it is effectively encouraging its suppliers to focus on quality as well. Ford bestows Total Quality Excellence (TQE) awards to its suppliers that meet its stringent requirements. So far, only 8 have earned the honors, but a few more are in the final phase of qualifying and another 40 are reviewing the guidelines to see if they can make the grade.

Ford’s TQE measures product quality, engineering, delivery, overall business relations, the sup-plier’s commitment to Ford, how the company reacts to problems, and the viability of its communication network. Why should suppliers try to pass all these tests? Because Ford plans to decrease its supplier base from 1,400 to 1,000 in the near future. Winning a TQE may mean continued business.

TQE winners say that, aside from the brownie points from Ford, their efforts resulted in improved efficiency, employee satisfaction, reduced waste, and better overall reputation and credibility. The first TQE winner, Rohm and Haas Co., claims that the required documentation and record keeping helped the company structure its own business and opened communications with Ford’s advanced engineering staff. Ford itself has also turned to flexible manufacturing to make its plant more efficient. It has also adopted total quality management throughout its plants.

DISCUSSION QUESTIONS FOR BONUS CASE 12-1

1. How did it happen that American businesses let the quality of their products slip below that of foreign producers?

2. How can computers and robots add to product quality? What effect does that have on labor?


3. Have you seen quality improvements in American cars in the last few years? What other products need more attention to quality?

4. What services need a quality boost? How would you go about implementing that boost?

ANSWERS TO DISCUSSION QUESTIONS FOR BONUS CASE 12-1

1. How did it happen that American businesses let the quality of their products slip below that of foreign producers? Emphasis in the United States was on productivity, not quality control. Meanwhile the Japanese

were learning statistical quality control from American consultants. Now companies such as Ford are making quality a number one priority, and quality may soon come back to American goods. It is not hard to implement statistical quality control, especially in computer-controlled manufacturing.

2. How can computers and robots add to product quality? What effect does that have on labor? Computers and robots can be programmed to check on quality at various stages of the production

process to assure almost perfect parts. Humans tend to be more prone to errors, and computers and robots have another reason for replacing labor on the production line.

3. Have you seen quality improvements in American cars in the last few years? What other products need more attention to quality? There has been a noticeable improvement in auto quality, but foreign producers are getting better

too. The United States is in a real economic war, and quality is a major weapon. Quality is needed in products such as clothing, shoes, electronics, cameras, and just about every consumer product from toys to homes.

4. What services need a quality boost? How would you go about implementing that boost?I’m sure your students have their own opinions about this one. Surely, some government organi-

zations would be included. Some banks and retail stores would also. This is often a fun discussion as peo-ple air their complaints.


BONUS CASE 12-2

Kaizen: Redesigning the Manufacturing Process

Anand Sharma, 55, a personable manufacturing consultant who runs TBM Consulting Group in Durham, N.C., has a reputation for finding out what a factory is doing wrong by simply walking through it with the plant manager. Sharma usually asks the manager about the factory’s “rhythm.” More often than not, the manager expresses puzzlement. But Sharma, like a seasoned orchestra conductor, may al-ready have noted off-tempo components on the plant floor: a machine with a hardly perceptible squeak here, workers laboring at an uneven pace there, or too much inventory piled up.

Sharma trusts his senses to point to evidence of bad processes. In addition to looking for obvious signs (Is the plant well lit and clean?), he checks to see if operators at one part of the line are working at a very fast pace while others elsewhere are working slowly or stopping. He observes whether the progress of a part being made can be tracked from beginning to end by line of sight. Says Sharma: “Where other people see complexity, I look at how simple things can be.”

The assessment and the walkabout help Sharma and the 72 manufacturing experts who work with him select the best site for their first improvement project in a plant. The TBM experts then come in to eliminate the root causes of problems on the production lines. In the process, they may restructure the whole plant operation. But they don’t just tear up things and leave. Unlike consulting firms whose em-ployees depart after a quick fix, TBM often has its experts stay at a plant for years, because it believes that improvement of operations never stops.

Sharma earned an MBA at Boston University. He kept up with manufacturing trends and attended quality-control seminars offered by the founders of the quality movement, W. Edwards Deming and Joseph Juran. By the early 1970s, Sharma was designing better and faster production lines at American Standard. “I was always trying to reach for the next level,” he says.

He still had a lot to learn. The revelation of how much better manufacturing can be came in 1979 when Sharma met Toyota manufacturing guru Shigeo Shingo and was invited to see some plants in Japan. What stunned Sharma was the ability of Toyota’s workers and others to replace dies on presses in minutes instead of the hours, or even days, that it took in American plants. The Japanese did this, moreover, with a very simple technology that employed compressed air to lift the thousand-pound dies as if they were feathers.

When his division of American Standard was put up for sale, Sharma, and three colleagues started TBM Consulting in 1991, operating out of Sharma’s home.

Today Sharma applies what he learned from the famous Toyota Production System (TPS) and adds a large dollop of Americanization. TPS is based on a Japanese update of Henry Ford’s vision of inte-grated production. Ford was practicing just-in-time supply of raw materials and parts at the legendary River Rouge plant long before the Japanese popularized the term. TPS evolved during the transition from mass production to mass customization. Unlike the old “push” systems designed to build to inventory, TPS aims to build to customer demand in the shortest possible time and with minimum resources. Its Westernized version is now widely known as lean manufacturing. Sharma goes beyond TPS by combin-ing both lean production and quality elements from Six Sigma into what he calls LeanSigma.

At one level, TPS is built on the concept of kaizen, Japanese for “continuous improvement.” TBM experts adjust rigid Japanese methods to freer American ways when they establish kaizen method-ology in a plant. In Sharma’s approach, for instance, production line workers have a lot more say than Ja-panese workers about changes on the manufacturing floor. To assure himself of their input, Sharma re-fuses to work with companies that propose to lay off workers after his system is introduced; that destroys morale, he believes. Any superfluous line workers are assigned other jobs, with some becoming trainers. “We unleash the power of the people,” he says.


TPS’s initial kaizen study teams are constituted equally of production line workers, managers and supervisors, and office workers. The teams set up model lines and practice the changes before they are in-troduced on the floor. Sometimes TBM totally reorganizes production, as it did starting in 1998 at the Maytag plant in Cleveland, Tennessee, that makes gas and electric ranges. With no added workers, pro-duction of one product line zoomed by 100%. Workers’ suggestions are readily accepted and incorporated into Cleveland’s new system, which is deemed always open to improvement. That one plant has cut its annual production costs by $7 million and reduced its inventory by $10 million. Says Tom Briatico, vice president and general manager of the Cleveland operation: “Anand Sharma and TBM have skillfully trained us in assembly-line layouts, quick die changes, and, most important, how to manage our opera-tions for daily improvement.” vi

DISCUSSION QUESTIONS FOR BONUS CASE 12-2

1. What concepts from this chapter were implemented by TPS? Do you see the benefits of knowing such concepts now, before you choose a place to work?

2. Notice that introducing change does not necessarily lead to the layoff of workers. They merely become more productive. Who benefits from such changes?

3. What implications does this case have for international trade?

ANSWERS TO DISCUSSION QUESTIONS FOR BONUS CASE 12-2

1. What concepts from this chapter were implemented by TPS? Do you see the benefits of knowing such concepts now, before you choose a place to work?

Concepts from the chapter include just-in-time inventory control, lean manufacturing, quality control, facility layout, and organizational change in general. Knowing such concepts can prepare you to find the best-run plants for which to work or to become a consultant to poorly run plants. Studying some chapters that may or may not seem useful or interesting at first has benefits.

2. Notice that introducing change does not necessarily lead to the layoff of workers. They merely become more productive. Who benefits from such changes?

Almost everyone benefits from having plants that are more productive. The workers make more money, the owners make more money, the public gets cheaper goods, and the U.S. becomes more com-petitive, keeping more jobs.

3. What implications does this case have for international trade?

To stay competitive in global markets, U.S. companies and companies throughout the world need to adopt the latest in technology. Otherwise, they will not be competitive on world

vi Sources: Gene Bylinsky, “A Maestro of the Plant Floor” Fortune, March 19, 2001; “Customer Connectivity Gains Are Evidenced in Lean Manufacturing Deployments,” Manufacturing Business Technology, December 1, 2005; and John Welbes, Reassembling the Assembly Line” Saint Paul Pioneer Press, August 9, 2005.


ENDNOTES


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