Running Head: OPERATIONS

Operations Management
John Hughes
BUS 307 Operations Management & Quantitative Techniques
Venkatrao Edara
21 December 2015

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Operations Management
Businesses have to develop plans in order to operate. Without planning there would be
no structure to direct the various operations that make up an organization. Quantifying the needs
of a business allow for analyzing and calculating data to create forecasts and schedules. The
following two case studies showcase the use of these techniques to assess and improve practices
within an organization. Operations management has several tools that can keep businesses
running smoothly and overcoming disruptions.
Realco Breadmaster
In the first case study, Johnny Changs company, Realco, manufactures and sells a
popular breadmaker named the Breadmaster (Bozarth & Handfield, 2012). The Breadmaster has
been on the market for two years, but Realco has never conducted formal planning for its
production (Bozarth & Handfield, 2012). Johnny has finally decided to talk with his managers
regarding the companys ability to meet current and future demand (Bozarth & Handfield, 2012).
Based off of expected demand of roughly 20,000 per week Realco has scheduled production of
40,000 units every other week (Bozarth & Handfield, 2012).
First, it is necessary to define some aspects of production planning. A master schedule
record shows a companys scheduled production and demand for future weeks based off a variety
of factors which can include forecast demand, worker information, costs, and inventory data
(Beasley, n.d.). Forecasted demand, the organizations best estimation for a given period, helps
drive a master production schedule (Bozarth & Handfield, 2012). A master production schedule
is a process that establishes strategies for producing finished products so that manufacturing
resources are used efficiently (Omar & Bennell, 2009, p. 5857). Using this information to build

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the master schedule record helps managers answer questions such as how many workers are
needed and how many hours to operate production (Beasley, n.d.).
Table 1
Master Schedule Record 40,000 units every other week

As seen in the master scheduling record in Table 1, Realco has not created a very
effective master production schedule. With a master production schedule of 40,000 Breadmaster
units every other week they will be able to meet promised shipments. However, if the 20,000 per
week demand estimate is correct the production schedule will not cover the needed units past
Week 3. The every other week master production schedule also creates large swings in projected
ending inventory. The 7,000 on-hand unit inventory going into Week 1 jumps as high as 23,500
in Week 1 and then down to only 500 in Week 2. After that it alternates between 19,000 and
-1,000. Available to Promise units jump from 500 in Week 1 to 3,450 in Week 3, 14,900 in Week
5, and 32,800 in Week 7.
Obviously, this master production schedule is not perfect. For some insight into why this
is look at marketing manager Jack Jones explanation. Jack states that he promises orders in
three weeks when he knows they can be filled within two weeks in most cases (Bozarth &
Handfield, 2012). This gives Realco some cushion, just in case (Bozarth & Handfield, 2012,
p. 392). Jack says between the 7,000 on-hand inventory units and the master production

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schedule that this will be sufficient to meet the shipments he has promised (Bozarth & Handfield,
2012). Of course, as already shown on the master scheduling record this production schedule
does not meet the estimated demand of 20,000 per week. Given that the first three weeks
promised shipments are already exceeding the 20,000 per week estimate, Realco will need to
create a more accurate forecast and change their master production schedule.
Before developing a new master production schedule there is an alternative offered in the
case study. Table 2 examines a master production schedule of 20,000 units every week. This is
largely the same as the original production schedule in that there will still be 40,000 in every two
week period. This production schedule does not meet the promised shipments, though. Having
nearly exhausted the 7,000 on-hand inventory, leaving only 500 by Week 3, the 20,000 units
produced that week will not cover the promised 21,500 shipments. Furthermore, projected
ending inventory is entirely wiped out starting in Week 3 while Week 2 and Week 3 have no
Available to Promise units.
Table 2

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Master Schedule Record 20,000 units per week

Recommendation
The first thing to look at is the forecasted demand for the Breadmaster. Weeks 1-3
booked orders all already exceed the current forecast of 20,000 units. A better forecasted
demand would be the Week 1 booked orders quantity of 23,500. With the goal of meeting not
only booked orders, but of meeting the forecasted demand Realco should focus on creating
23,500 Breadmaster units each week. Table 3 shows this schedule allows for meeting demand as
well as maintaining the 7,000 on-hand inventory which will maintain the buffer that Jack Jones
spoke of.
Table 3

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Master Schedule Record 23,500 units per week

Toyotas Supply Chain

The second case study examines the supply chains of Japanese automakers and how they
were affected by the 2011 earthquake and tsunami (Bozarth & Handfield, 2012). Prior to the
disasters automakers like Toyota, Honda, and Subaru were renowned for their streamlined supply
chains which allowed for keeping parts inventories as low as possible (Bozarth & Handfield,
2012). With their supply chains disrupted by flooding and power outages, the automakers found
themselves running out of the components needed to continue production (Bozarth & Handfield,
2012). As their manufacturing operations slowed, dealer stocks and sales dwindled (Bozarth &
Handfield, 2012).
After 2011 ended with production falling as far short of sales estimates as an estimated 5
million cars, Toyota began to rethink their supply chain management (Bozarth & Handfield,
2012). Their three part plan to a foolproof supply chain starts with increased standardization
across all Japanese automakers (Bozarth & Handfield, 2012). Next they asked their suppliers to
hold larger safety stocks as well as adding more sources to reduce dependency on single sources
(Bozarth & Handfield, 2012). Lastly, Toyota aims to compartmentalize their global supply chain
in such a way that each region can function independently to prevent disruptions from impacting
other areas (Bozarth & Handfield, 2012).

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Lean
Toyotas supply chain used the principles of lean. Lean, like its name implies, is a system
that seek to streamline processes through the elimination of waste (Connaughton, 2015). While
the origins of lean are credited as coming from 18th century French gunmaker, Honore Blanc,
Toyota is considered to have started the modern lean movement through implementing a just-intime inventory system (Connaughton, 2015). Just-in-time inventory systems are another aptly
named production planning tool that refer to getting just what you need only when you need it
(Connaughton, 2015). This eliminates waste through reducing inventory costs (Connaughton,
2015).
To create a just-in-time inventory system takes careful planning. A company has to know
what they need and when they will need it in order to plan out such an intricate system. Firstly,
there are two costs to consider when planning inventory ordering the holding costs and the
ordering costs (Bozarth & Handfield, 2012). Holding costs are the costs of holding inventory as
is factored on a per-unit basis (Bozarth & Handfield, 2012). Ordering costs are the costs of
purchasing inventory and is examined based off the number of orders in a year (Bozarth &
Handfield, 2012).
This means that holding cost is based on how much inventory an organization keeps in
stock while ordering costs are based on how often they place orders. Finding a balance between
many small orders or fewer large orders is where the economic order quantity comes into play.
The economic order quantity is the number where both holding and ordering costs are minimized
(Bozarth & Handfield, 2012). To find this number managers must set the two equations equal to

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one another (Bozarth & Handfield, 2012). This does not give the lowest cost for either cost
individually, but rather the quantity at which both are equal.
While Toyota was lauded as having a very lean production system in place, the natural
disasters in 2011 highlighted several downfalls in their supply chain. The stop in the steady
production and supply of component parts coupled with Toyotas low on-hand inventories left
them at a reduced capacity. Since they could not build cars on pace with their master production
schedule their dealerships began to run out of cars and lost sales as a result. In the end their
working to maintain only what inventory was needed at that specific point in time cost them
money. Had Toyota maintained a larger safety stock and not placed as much of their orders
through the same suppliers the impact would not have been so great.
One thing that former Toyota Executive, Deryl Sturdevant (2014), wrote he learned from
his time working for the company is that continuous improvement is necessary for lean to work.
This makes their drive to create a fool proof supply chain less surprising. Within that
framework, Darius Mehri (2006), noted being given corporate literature stating goals such as
Create a flexible and robust corporate structure, which is able to respond to the changing
corporate environment (p. 24). So, then did the natural disasters of 2011 and the subsequent
production woes dissuade Toyota from following lean production principles? No.
Fool Proof Supply Chain
Toyotas new blue print for their supply chain is still a lean one. It is still seeking to
eliminate waste through smart and savvy planning. The expansion of suppliers to allow for
greater independence from one region to another allows Toyota to become more cellular.
Cellular manufacturing is the arranging of processes that supports a smooth flow from start to

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finish (Connaughton, 2015). That way disruptions in one region will not have effects on other
regions unnecessarily. Each region can also then focus on their own inventory individually. This
allows Toyota to only have the needed inventory for that region at any time which, when
partnered with more localized suppliers that can provide shorter lead times, may prove to be even
leaner than the old system.
This fool proofing process has a name all its own within lean manufacturing, pokayoke (Connaughton, 2015). At its most basic, poka-yoke is mistake proofing a process through a
design that does not allow for mistakes in the first place (Poka-yoke, n.d.). In the case of their
supply chain, Toyota is seeking to eliminate going through the same mistake again by
fundamentally rethinking how it purchased, held, and distributed its parts inventories.
Much like Toyotas proposed plan their ideal supply chain has to be flexible and cellular.
With economic and environmental uncertainties ever present with in their global operations it is
necessary to have poka-yokes in place to prevent mistakes. While the traditional lean
manufacturing principles may seem to disagree with expansion with their supply chain the
negative effects experienced in 2011 demonstrate the need for diversity. For each region that
Toyota manufactures automobiles in their needs to be an independent supply chain that in and of
itself can survive disruptions.
This means that not only must Toyota expand their current network of suppliers, but also
each supplier and Toyota themselves must expand their safety stocks. Merely having suppliers
increase their safety stocks would not protect against disruptions that interfere with shipping. If
a supplier on the West coast of America had parts in reserve, but due to the same event that halts
their and others production cannot ship them out, then what good is it to Toyota?

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In order to make up for this growth, Toyota would need to increase their efforts elsewhere
starting with planning. Planning and scheduling will become even more crucial. The ability to
see farther into the future with a degree of certainty can help ease the risks and costs of carrying
greater inventories. By using a continuous process to evaluate and reevaluate the supply chain
these forecasts and schedules can be tweaked and changed in as close to real time as possible.
Supplier Relationship Management
Supplier relationship management are the processes and practices for interacting with
suppliers (Cavinato, n.d., para 1). This is a tool organizations use to define what their wants
and needs are from their suppliers (Cavinato, n.d.). Their needs fall into several categories
including quality, delivery, cost, efficiency, scale, and assurance of supply (Cavinato, n.d.).
Suppliers of high volume or critical components as well as those who deal with multiple
departments within a company are the most likely targets of supplier relationship management
(Cavinato, n.d.).
As Toyota expands its supplier network and changes its needs this is a prime opportunity
for supplier relationship management. Through ordering more Toyota may be able to leverage
their new demand to get lower prices, but by going to more suppliers they will also engender less
loyalty. Their plan to standardize their parts with other Japanese automakers can help to alleviate
this. By bringing other suppliers into business with their peers, the automakers can change their
relationships with the suppliers.
Toyota and the other automakers will be looking to change the roles of their suppliers.
These roles define what they need to accomplish, what types of relationships are needed, and
how this will be measured (Cavinato, n.d.). The fool proof supply chain that Toyota has laid

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out asks suppliers to change these roles in significant ways by increasing inventories and
dividing up regions while making parts that are used by more than one company. This is a large
departure from the previous system and will require strong relationships and effective
management. Measures will have to be developed to monitor the new requirements and ensure
that the supply chain is more resistant to disruptions.
Conclusion
Planning is the cornerstone to management. To fail to plan is to plan to fail. Without the
use of proper planning tools and practices a business will find itself unable to provide their goods
or services. Through the case studies it is clear that production planning and inventory systems
can hurt a business. Operations management provides tools that can prevent disruptions within a
business and keep them operating efficiently.
References
Beasley, J. (n.d.). OR-Notes. Retrieved December 18, 2015, from
http://people.brunel.ac.uk/~mastjjb/jeb/or/masprod.html
Bozarth, C.C., & Handfield, R.B. (2012). Introduction to operations and supply chain
management (3rd ed.). Upper Saddle River, New Jersey: Pearson Prentice Hall. ISBN:
9780132747325
Cavinato, J. (n.d.). Supplier Relationship Management Insights. Retrieved December 21, 2015,
from https://www.instituteforsupplymanagement.org/content.cfm?ItemNumber=20233
Connaughton, S. A. (2015). Lean Manufacturing. Research Starters: Business (Online Edition).

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Mehri, D. (2006). The Darker Side of Lean: An Insider's Perspective on the Realities of the
Toyota Production System. Academy Of Management Perspectives,20(2), 21-42.
doi:10.5465/AMP.2006.20591003
Omar, M. K., & Bennell, J. A. (2009). Revising the master production schedule in a HPP
framework context. International Journal of Production Research, 47(20), 5857-5878.
doi:10.1080/00207540802130803
Poka-yoke. (n.d.). Retrieved December 21, 2015, from
http://www.isixsigma.com/dictionary/poka-yoke/
Sturdevant, D. (2014). (Still) learning from Toyota. Mckinsey Quarterly, (2), 106-111.

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