MBA UNIVERSITY OF WALES MODULE: MANAGING OPERATIONS

Lecturer: 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.

What product service

How many capacity planning

Where location planning

Method of technology

Layout how should resource organized

Minimize cost

Maximize revenue

E.g. TQM Supply chain management Production budget Daily activity Customer care

DURKHEIM S ANOMIE THEORY

In 1893 Durkheim introduced the concept of anomie to describe the mismatch of collective guild labour to evolving societal needs when the guild was homogeneous in its constituency. Durkheim's use of the term anomie was about a phenomenon of industrializationmass-regimentation that could not adapt due to its own 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 the inertia. 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 of anarchy. But, as used by mile Durkheim and later theorists, anomie is a reaction against or a retreat from the regulatory social controls of society, and is a completely separate concept from anarchy which is an absence of
effective rulers or leaders.

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PLANNING
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 frustrate sales personnel and those in manufacturing. However, e cess capacity can be costly and unnecessary. The inability to propery manage capacity can be a barrier to the l achievement 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 an aggressi e strategy with the goal of luring customers away from the company's competitors. The possible disadvantage to this strategy is that it often results in excess inventory, which is costly and often wasteful. 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 possible customers. Match strategy is 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 the short term. The throughput (The throughput 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 can Manufacture, Store, Hold or Process over a given period. Two ways of looking at capacity Management
H Short Term Low Capacity in future given Growth in numbers. Long Term (years)

Daily schedule the class Long term capacity decision is difficult. Capacity If the capacity is more and demand is less, then revenue does not cover the cost Demand

When demand is more, increases production, reduces quality, pressure of employees increases. Demand Type A Capacity Type B
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FACTORS INFL Short-term capacity planning

NCING CAPACITY DECISION

In the short term, capacity planning concerns issues of scheduling, labo shifts, and balancing resource ur capacities. 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 long as six months.
The easiest and most commonly-used method to increase capacity in the short 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 the expense of hiring, training, and paying additional benefits.

Short Term
20 18

16

Flexi-Time shift Chase demand

14

12 10
Demand

Maximize 3 Es 1. Economy . Efficiency 3. Effectiveness

Number of Calls

8 Capacity

6
4 2

Example: y Linear programs y Queuing theory y Monte Carlo

8:00 10:00 12:00 2:00 AM AM PM PM

4:00 PM

6:00 PM

8:00 PM

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 arrangements cannot be made, one feasible alternative is to add capital equipment and modify the layout of the plant (long-term actions). It may even be desirable to add additional plant space or to construct a new facility (longterm alternatives).

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Long Term

Planning is what we want to happen.

Forecasting is what we think happen.

Forecast demand

Quantitative Sales

?
Future Actuarial Curve

Example: y Time series y Reference & co-relation y Actuarial curves

1 Year

About forecasting: Fallacy of predetermination Said Mintzberg. Might as well look at a Cristal Ball Said Morgan

B. Technological Forecasting

Technological Forecasting

New Product

New Procedure

More revenue

Save costs

New York Hospital developed Clinical Decision Architecture (codification of medical knowledge)

Expands capacity rapidly (more capacity flexible). eg.E.commerce, Amazon.com

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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 an opti al siz / apacit

Di inishin Retu n Econo ies

Average Unit cost

Economies of scale / scope

Diseconomies of scale Positive Retu ns Econo ics Example: Software companies and film industry

25

50 75 100 125 Size of Hotel (in room capacity

150

Capacit Plannin Techniques Capacity break even. Pay back NPV / DCF Decision Trees

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NPV DCF

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Year 0 1991 1992 1993 1994 1995

Pr ject A D/F 10% Cash flow Disc. C/F 1 -75 -75.00 0.909 3 2.73 0.826 6 4.96 0.751 14 10.51 0.683 16 10.93 0.621 20 12.42 NPV of each projects -33.46

Pr ject B Cash flow Disc. C/F -100.00 -100.00 10.00 9.09 15.00 12.39 30.00 22.53 42.75 29.20 57.00 35.40 8.61

Pr ject C Cash flow Disc. C/F -90.00 -90.00 15.00 13.64 17.00 14.04 22.00 16.52 36.00 24.59 39.00 24.22 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.

Progress Pass Give up MBA Re-sit Fail

Give up
Capacity Decision Remarks Strong growth Weak growth Probability of strong to weak Small plant in town A 300,000 profit 50,000 profit 50% / 50% Large plant in town B 500,000 profit 70,000 profit 20% / 80%

Str ng gr wth Small plant Quick decisi n Large plant weak gr wth
Plant in small town A is better than large plant in town B.
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Weak gr wth Str ng gr wth

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 ========

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Conclusion of Capacit Plannin

y y y y Demand # Capacity. Aim to match Demand and Supply. Technique which we used to minimise the risk. Capacity in some E-commerce business appears to quite flexible.

LOCATION PLANNING
Identify a suitable geographical location for an operations system to maximise revenue or minimise cost. What factors influence choice of location? Make five suggestions with examples. 1. Cultural factures: Example: Internationalisation of business. Standard pattern of international frame of firms. Conclusion of firm P hysically close to home. Country Physically close to ho e location Spanish firm Latin America British firm British Colonies Sweden Nordic countries Indian / Pakistan firms Middle East 2. Inco e of potential 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 market location advantage: Street Oxford street Lexus Square City of London Cambridge

Market location advantage Retail Leisure and pleasure, gambling Banking, Financial services 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 million square meters Country A 15 U.K and France B 5 Germany C 2 Spane D 0.75 Switzerland 8 Taxation:

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Location planning technique

y y y Breakeven Factor rating Centre of gravity

Location breakeven Location A B C Variable cost 75 40 25 Fixed cost 30,000 60,000 110,000 1000 units 105,000 100,000 135,000 2000 units 180,000 140,000 160,000

Which is the best location of planned production of 1000 units and 2000 units? (Location B is best). Fixed cost 40,000 140,000 180,000

Location A B C

Variable cost 100 40 20

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 = 1666 B-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 y y y y

Population Income People to Car ration Rates

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Centre of Gravity Mathematical method for identifying optimal location for a distribution centre scoring multiple outlets. Containers 2,000 5,000 9,000

X 90 60 20 X = Q1X1 Q1 Y = Q1Y1 Q1

Y 20 30 80

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) 16,000 Y = (20 x 2000) + (30 x 5000) + (80 x 9000) 16,000 Conclusion: 1. 2. 3. 4. Location planning aims to minimise cost and maximise revenue. Location = CSF in many business Some organizations less sensitive to physical location. E.g. E.Com, Face book. Good location should ultimately meet all or some operational objectives. y Q = Quality y y y S = Speed C = Cost 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 y Dead line : Tight or Flexible (elastic) Impact : Strategic or Local = 660,000/16000 = 41.25

= 910,000/16000 = 56.88

4. Challenges: Time, Natural resources and people.

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PROJECT MANAGEMENT TECHNIQUES

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

A Gantt chart is a type of bar chart that illustrates a project schedule. Gantt charts illustrate the start and finish dates of the terminal elements and summary elements of a project. Terminal elements and summary elements comprise the work breakdown structure of the project. Some Gantt charts also show the dependency (i.e, precedence network) relationships between activities. Gantt charts can be used to show current 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 when they were introduced. In recognition of Henry Gantt's contributions, the Henry Laurence Gantt Medal is awarded for distinguished achievement in management and in community service. This chart is used also in Information Technology to represent data that has been collected.

The critical path method (CPM) or critical path analysis, is a mathematically based algorithm for scheduling a set of project activities. It is an important tool for effective project management.

History
It was developed in 1950s by the DuPont Corporation at about the same time that Booz Allen Hamilton and the US Navy were developing the Program Evaluation and Review Technique [1] Today, it is commonly used with all forms of projects, including construction, software development, research projects, product development, engineering, and plant maintenance, among others. Any project with interdepend nt activities e can 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

Using these values, C M calculates the longest path of planned activities to the end of the project, and the earliest and latest that each activity can start and finish without making the project longer. This process determines which activities are "critical" (i.e., on the longest path) and which have "total float" (i.e., can be delayed without making the project longer). In project management, a cri ical ath is the sequence of project network activities which add up to the longest overall duration. This determines the shortest time possible to complete the project. Any delay of an activity on the critical path directly impacts the planned project completion date (i.e. there is no float on the critical path). A project can have several, parallel, near critical paths. An additional parallel path through the network with the total durations shorter than the critical path is called a sub-critical or non-critical path. These results allow managers to prioritize activities for the effective management of project completion, and to 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 durations of critical path activities by adding resources).
Expansi n Originally, the critical path method considered only logical dependencies between terminal elements. Since then, it has been expanded to allow for the inclusion of resources related to each activity, through processes called activity-based resource assignments and resource leveling. A resource-leveled schedule may include delays 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 the critical chain, which attempts to protect activity and project durations from unforeseen delays due to resource 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 possibility that non-critical activities may be delayed beyond their total float, thus creating a new critical path and delaying 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 of computers.
Flexibility A schedule generated using critical path techniques often is not realised precisely, as estimations are used to calculate times: if one mistake is made, the results of the analysis may change. This could cause an upset in the 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 schedule caused by any change can be measured, and its impact either ameliorated or adjusted for. Indeed, an important element of project postmortem analysis is the As Built Critical Path (ABCP), which analyzes the specific causes and impacts of changes between the planned schedule and eventual schedule as actually implemented.

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2 weeks
A C

2 weeks
F

2 weeks
Start

3 weeks
End

2 weeks
E

4 weeks

H 2 weeks

5 weeks

3 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)

ES
S (Earliest Start)

EF
(Earliest Finish)

LS
S (Latest start) (Activity Duration

LF
(Latest Finish)

5
Under Forward Pass ES is the highest EF of predecessors if there are 2 or more EF.

EF = ES + Activity Duration

LS = LF Activity Duration

Under 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 B Find 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

A 0 0
Start LS
(5-5)

5
(0 + 5)

5 5
LF ES Mixing EF

0
ES

S 0
EF
(0 + 0)

6
(5+1)

0
(0-0)

0 0
LF ES Find Everything LS EF

(6-1)

6
LF

LS

0
Why LS is 0? There are 2 predecessors. Boiling activity (0) and find everything activity (4). Consider the lowest value.

(5-1)

4
LS

5
LF

Explanations for above network diagram:

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 jobs.

Forward Pass begins from start activity / first activity and moves forward 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 y Use formula to find out the value of EF ( EF = ES + Activity Duration). 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.

Backward pass begins from end activity / last activity and moves backward 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.
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2 weeks
A C

2 weeks
F

2 weeks
Start

3 weeks
End

2 weeks
E

4 weeks

H 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.

F A 0 0 2 2 2 2 2 2 C 4 4 10 4 3 13 7

H S 13 0 0 0 0 4 0 4 4 8 2 E 8 13 15 15

S D 0 1 3 4 3 3 4 4 8 7 8 8

G 13 13 5

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 A B C D E F G H ES 0 0 2 3 4 4 8 13 EF 2 3 4 7 8 7 13 15 LS 0 1 2 4 4 10 8 13 LF 2 4 4 8 8 13 13 15 LS-ES 0 1 0 1 0 6 0 0 CP Activity Yes No Yes No Yes No Yes Yes
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Question 3 The following represents a software project that should be scheduled using CPM.

Activity A B C D E F G H

Time / Days Immediate predecessor A M --8 10 A 18 22 A 14 21 A 17 30 B 31 42 C,D 33 40 D,E 33 40 F,G 22 40 Where A = Optimistic, B = Pessimistic and C = Most likely.

B 12 34 27 42 57 53 62 53

The normal and crash data for this software project are as follows:
Normal days 10 22 21 30 42 40 40 40 Crash days 8 20 20 28 40 38 38 38 Crash () 24000 32000 25000 56000 22000 34000 38000 38000

Activity A B C D E F G H

Normal () 22000 30000 21000 45000 20000 30000 35000 30000

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 10 10 22 32 32 32 32 42 E 74 74

A 0 0 10 10 10 10 44

D 10 74 30 74 74

G 114 114 40

C 10 53 21 31 74 40 74

F 80 114 40 114 114

H 154 154 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 Duration
b) Activity A B C D E F G H ES 0 10 10 10 32 40 74 114 EF 10 32 31 10 74 80 114 154

Under Backward Pass LS is the lowest LF of predecessors if there are 2 or more LF

LS 0 10 53 44 32 74 74 114

LF 10 32 74 74 74 114 114 154

LS-ES 0 0 43 34 0 34 0 0

CP Activity Yes Yes No No Yes No Yes Yes

There are several spare days are available on non-critical activities which is not helpful to reduce the project completion date of 154 days because all the critical path shows zero slacks.
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c) Crash cost Normal cost Normal time Crash time

Crash Normal 2000 2000 4000 11000 2000 4000 3000 8000 Per day crash exp. 1000 1000 4000 5500 1000 2000 1500 4000 Least crash cost 2000 2000

Crash cost per day =

Activity A B C D E F G H

Normal days 10 22 21 30 42 40 40 40

Crash days 8 20 20 28 40 38 38 38

Normal crash day 2 2 1 2 2 2 2 2 10 days

Normal () 22000 30000 21000 45000 20000 30000 35000 30000

Crash () 24000 32000 25000 56000 22000 34000 38000 38000

2000 3000 8000 17000

We can finish the project in 144 days by crashing 10 days with the additional cost of 17000. Many activities have abnormal completion time. Many activities have crash time. Many activities have normal cost. They have also crash cost.

y y y

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Examination Questions 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). Section B questions: (40 marks) 1. Critical path analysis with crashing (34 marks) And Stock control (6 marks)

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 PCs Coffee bar Cosmetics Bicycle Hotel Amazon.com, Ebay, etc. Dell Starbuks Body shop National Panasonic 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, IPR s and patent. But one firm can not protect:

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y y y y

Business concept. Use of rival goods. Unique resources. Restructure operation challenge paradigm and deliver more value.

Cinema : Case study

y y y Demand for cinema declined since II world war because it was replaced by CD, DVD, Cable Connection and Internet. Cinema operators attempted to liberate assets. Restructure the cinema.

DESCRIPTION Capacity Location Technology Layout Marketing cost

MEGA PLEX 25 studios with 700 seats Out of Town (free car parking) 70mm projector, 29m x 10m screen Specious Low (mouth to mouth advt.)

MULTI PLEX 10 studios with 100 seats Town 35mm projector, 10m x 7m screen Cramped (not big enough) 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 philosop hy and company practices that aim to harness the human and material resources of an organization in the most effective way to achieve the objectives of the organization. DESCRIPTION Trane Hospital House Motor car QUALITY EXPECTED Frequency of service, punctuality, comfort, clean liness, speed and catering. Hygiene, quality of clinical care, Efficiency of Doctors, Good appointment. Location, design, transport facility, proximity to school and shopping centre. Model, engine s power, comfort, cost and dur ability.

y y y y

Quality is not luxury. Quality is multi-dimensional. Quality is what customer expects. Quality is contextual.

Traditional western approach to Quality Management (QM)

Shop Floor
Raw materials (R.M) Work in progress (W.I.P) Finished Goods (Quality checkers & sampling)

Principles of TQM
1. 2. 3. 4. Customers needs must be met in time, regularly and fully. Employees must strive to do error-free work. Employees must strive to do error-free work. 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.

Benefits of TQM
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. 2. 3. 4. 5. 6. 7. Better quality products Productivity improvement Reduced quality costs Increased market Higher profitability Reduced employee grievances Better returns to shareholders

Limitations of managing Quality

1. 2. 3. 4. 5. Cost of production goes up due to reject/rework. Responsibility for quality is narrow. Reactive approach versus Proactive. Best judge is customer. 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 y y y y Protection of the company, image and brand. Premium price. Customer Preference or Loyalty. (eg. Cigarette) Cost reduction. Volume makes lower cost. Market power.

4. Quality is built in to the product at the design stage. Built on principles of redundancy.
organization can no longer afford to pay them. (BRIT BUSINESS; in AM, use dismissals, layoffs)

(When there are

redundancies, an organization tells some of its employees to leave because their jobs are no longer necessary or because the

Faults arise without

putting
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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 20 hours SWEEDEN 6 hours JAPAN 12 minutes

y y y y

Online service Scope variety of products (eg. Dell) Accuracy (eg. Motorolla)

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 Grands Life time Higher UN degree No clear rout into (Master of Public Ecoles employment Doktor management Administration) 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 can Meet 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 by Abraham H. Maslow in his paper Theory Z and the other is Dr. William Ouchi's so-called "Japanese Management" 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, and Theory Y, which stated that work is natural and can be a source of satisfaction when aimed at higher order human psychological needs. For Ouchi, Theory Z focused on increasing employee loyalty to the company by providing a job for life with a strong focus on the well-being of the employee, both on and off the job. According to Ouchi, Theory Z management tends to promote stable employment, high productivity, and high employee morale and satisfaction. 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 the United States, went on to help lay the foundation of Japanese organizational development during their expansion in the world economy in the 1980s.
Ouchi studied American and Japanese management to develop theory Z.

Study conducted on Employment Career path Promotion Appraisal Decision making Responsibility for decision

Japan (Theory J) Life time Generalized Slow Loyalty Consulted by many Collective

USA (Theory A) Short Specialized Rapid Performance Individual Individual

Ideal (Theory Z) Long Less specialized than A Slow Loyalty Consulted by many Individual

Theory Z is conducive to the concept of Quality Circle (QC). QUALITY CIRCLE (QC) A quality circle is a volunteer group composed of workers (or even students), usually under the leadership of 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 become self-managing, having gained the confidence of management. Quality circles are an alternative to the dehumanising concept of the division of labour, where workers or individuals are treated like robots. They bring back the concept of craftsmanship, which when operated on an individual basis is uneconomic, but when used in group form (as is the case with quality circles), it can be devastatingly powerful and enables the enrichment of the lives of the workers or students and creates harmony and high performance in the workplace. Typical topics are improving occupational safety and health, improving product design, and improvement in the workplace and manufacturing processes. The term quality circles derives from the concept of PDCA (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 a nalysis, basic statistics, and solution [1] generation. 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 were established 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 y y y y y y Voluntary team advising firm on quality problem. 8 12 people Own agenda Access to senior management Training in quality control Cause and effects Originated from USA but popular in Japan

1,000,000 QCs Research by Bradley and Hill in 1990 on effectiveness of Qc s in US and UK firm observations: y y y y Economic game Improve industrial relations But Trade Unions are against this concept. Line managers are suspicious QCs.

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SUPPLY CHAIN MANAGEMENT (SCM)

Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers (Harland, 1996). [1] Supply Chain Management spans all movement and storage of raw 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. Volkwagen s 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 is buying not only the materials but also labour and related services. 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. 2. 3. 4. 5. Q = Quality F = Flexibility D = Dependability C = Cost S = Speed

4. Supply chain becoming more global. Why?

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esign ( anada)

Marketing ( .S.A)

Photo copier

Parts (S.Korea)

Assembling (Malaysia)

5. Global Drivers Government

Market

rivers

ost

Technological

Government Driver Liberalization of trade helps the Supply chain s 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.
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Technological

Technological

New Product

New Procedure

ICTS (Eg. General Electronics)

Some products to be sold worldwide

Example: IT, Electronics, Music, Film

Many pre-qualified vendrs by electronic bidding

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 130C to keep the freshness. Market Convergence (The
become more similar)

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

in terms of taste, life style, values, expectation = Cultural homogenisation

argument. In middle class economy there is a large homogenous market and supply chain 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 economic exchange (restated: the cost of participating in a market). For example, most people, when buying or selling a stock, 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 the energy and effort it requires to find out which of the various banana products you
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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 the cost 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 Cost saving

TC 1 TC 2

25

50 Size

75

100

125

150

Sales Cost of sales Gross profit

TC 1 100 70 30

TC 2 100 65 35

Cost saving = 5/70 x 100 = 7% Profit = 5/30 x 100 = 16% 7 cost saving leads to 16 profit. Example: L.A Canteen Profit Margin 30% KFC 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.

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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
y

Hierarchical business More problems. Higher management costs.

A1

Agency cost Cost saving

A2

25

50 Size

75

100

125

150

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 is outsourcing . NASH Equilibrium
In game theory, Nash equilibrium (named after John 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 unila terally. 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 account the decision-making of the others.

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