B7801 - Operations Management

Agenda - 20 March 1998

• Benetton’s marketing and manufacturing strategies

• Types of processes
– Production Line
– Batch Processes
– Job Shop

• Product process matching & technology choice

• Burger King & McDonald’s

1
 Operations Strategy: A Summary
There are many ways to compete, and firms cannot
be all things to all people… there are tradeoffs in
operating decisions about structure (bricks and
mortar, machinery) and infrastructure (people,
systems, procedures)… an operating strategy’s
success is determined by the coherence of the
pattern across decision categories, and by the match
between operations strategy and the other
functional and overall business strategies… over the
long term an operations strategy is deemed
successful if it guides the organization in building
capabilities essential to attaining competitive
advantage.
2
Benetton’s Markets, Marketing &
Manufacturing Strategies

Jennifer Prosek
Luis Felli
3
Benetton’s Marketing and Manufacturing Strategies
Market Target Marketing Manufacturing

Young adults,
18 - 25

Fashion
conscious

Limited
budget

Active

Interested in
casual wear

4
 What are production lines and why are they so
efficient?
Many “flavors” of production line
fabrication line
assembly line
packaging line
etc.
Q: Why are they so efficient?
A: Economies of specialization
1) job design and balance
2) layout
3) tools
4) time & motion

5
 1) Job design and balance
Objective: Eliminate idle time

• Several tasks required to complete a job.

• Example: hand packed fruit.
Brand X
• Tasks:
– put paper divider in box
– fill each section with appropriate fruit
• oranges
• grapefruit
– place top on box
– place label on box

Brand X

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 Divide tasks to create two jobs

Job 1 Job 2
– place paper divider in box. – assemble top on box
– fill appropriate sections – fix label to box
with fruit.

Objectives:
- specialize tools/work to make each job efficient
- achieve desired output rate (cycle time)
- cycle time J1 = cycle time J2

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 2) Specialized layout (“production line”)
Functional Layout
cut
grind

wasted movement and effort

weld

Product-Oriented Layout

minimal movement - operations are arranged

in the sequence required for production. 8
 3) Specialized “tools” and facilities

• There are different ways to specialize tools...

– fix form/shape/configuration (e.g. mold, stamping die, loan
application form)
– pre-position it (hanging air gun, fixed equipment set-up)
– dedicated assignment

• How can specialized tools help improve efficiency?

– eliminates processing steps
– reduce movement of material/people
– regularize process (quality, efficiency)

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An example: Quick Lube
Oil and Filter Change
Oil Reservoir

Filters

Waste Oil

10
 4) Time and motion efficiency
• Use of the human body • Arrangement of work
– Two hands should begin – Fixed stations for all tools.
and complete motion at the – Preposition tools, materials
same instant. and controls near workplace.
– Both hands should not be – Use gravity feed bins for
idle simultaneously. material and finished work.
– Motion of both hands – Provide good illumination.
should be opposite and – Height of worker should be
symmetrical. adjusted for easiest motion.
– Use lowest classification of
• Design of tools
motion possible 1)finger,
2)hand, 3) wrist, 4) arm – Combine tools whenever
possible.
– Continuous, curved motion.
Avoid sudden changes in – Handle should be large and
direction. contact entire hand.
– Locate tools to provide
greatest mechanical
advantage.
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 Example: time standards/operator charts
JOB 2: Putting cover and label on unit.
work area Summary:
layout covers Total Steps: 11
boxes
Std. Time: 0:38

tote labels

Left Hand Right Hand

1. Reach for box 1. Reach for cover
2. Select box 2. Select cover
3. Grasp box 3. Grasp cover
4. Move box to assembly position. 4. Move cover to assembly position.
5. Hold box. 5. Assemble cover to box
6. “ 6. Reach for label
7. “ 7. Grasp label.
8. “ 8. Move label to assembly position
9. “ 9. Assemble label to box
10. Move assembly to tote 10. Idle
11. Release assembly 11. Idle.
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 The old fashioned toaster

Activity Time (min)

Toasting ( 1 side) 0.50

Turning time 0.02

Toasting (other side) 0.50

Removing time 0.05

Insertion time 0.05

13
Who should determine the best work methods?
Staff specialists (Taylorism)
“Now one of the very first requirements for a man who is fit to handle pig iron as a
regular occupation is that he shall be so stupid and so phlegmatic that he more
nearly resembles in his mental make-up the ox than any other type...Therefore the
workman who is best suited to handling pig iron is unable to understand the real
science of doing this class of work. He is so stupid that the word `percentage’ has no
meaning to him, and he must consequently be trained by a man more intelligent than
himself into the habit of working in accordance with the laws of this science before
he can become successful .” Frederick Winslow Taylor
The Prin. of Sci. Mgmt., 1911
Workers themselves (Kaizen)
“...You firmly believe that good management means executives on one side, and
workers on the other; on one side, men who think, and on the other side, men who
can only work. For you, management is the art of smoothly transferring the
executives’ ideas to the workers’ hands.
For us, management is the entire workforce’s intellectual commitment to the service
of the company without self-imposed functional or class barriers... Only the intellect
of all employees can permit a company to live with the ups and downs and meet the
requirements of its new environment.” Kononsuke Matsushita
1988 Speech to U.S. executives
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 Such continuous improvement of the process is the
reason for the learning curve effect
$ unit production cost

0
cumulative
0
production output
15
 Specialization affects cost structure
Shift from variable to fixed costs revenue
fixed costs
- specialized staff $ revenue/cost
- engineering/maintenance

variable costs
- direct labor
- materials F1
- scrap

Breakeven volume

Increase in assets
plant F2
equipment/tools

BE2 BE1 volume

Specialization tends to increase breakeven and operating
leverage. 1) specialized
NOTE: Average unit cost varies tremendously with 2) not specialized
volume!
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Specialization results in tremendous efficiency

“Whenever one can line up machinery for the making of

exactly one thing and study everything to the end of making
only that thing, then the savings which come about are
startling.”
Henry Ford
Today and Tomorrow (1926)
Some examples ...

• Ford’s assembly lines reduced the labor required to

assemble an automobile chassis from 12.5 hrs. to 93 min.

• The most efficient car plants today (Japanese) have

reduced the total labor content (direct, indirect and
management) to under 20 hours per vehicle produced.

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 A BIG “problem”: product variety
• Variety reduces effectiveness of specialization
– harder to effectively specialize tools
– work methods more varied/complex
– flow/sequence of tasks may fluctuate
– balance along line may get disrupted (bottlenecks)
• Tremendous investment required to retool and redesign process
• RESULT: Production lines lack volume & mix flexibility

“We believe that no factory is large enough to make two kinds of

products. Our organization is not large enough to make two kinds of
motor cars under the same roof.”
Henry Ford
Today and Tomorrow (1926)

But variety provides value !!!

What are we to do?
18
 An aside: What is flexibility?

Definition:
A process is flexible if its operating performance
(quality, service standards, etc.) and unit cost are
insensitive to “changes” in output.

• Volume Flexibility
Process has same operating performance and unit cost
regardless of the volume of the output (production rate).
• Product Mix Flexibility
Process has same operating performance and unit cost
regardless of the relative mix of outputs.

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 Solution 1: Batch production
• Produce products/service of similar type at the same time.
• Reconfigure facility periodically to achieve variety in output.
Temporarily specialized production process.
• Allows some flexibility in volume and mix of outputs
• Fundamental trade-off
– Switch-over/set-ups are expensive and time consuming
– BUT … long production runs cause large cycle stocks
inventory
model #3X-45

producing idle producing idle time

– Less efficient than truly dedicated process

Moderate efficiency with some volume & mix flexibility

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 Solution 2: Job shop production
One-of-kind products (low volume/high variety)
Set-up costs of batch production become prohibitive.
Solution:
• Use only general purpose equipment
– increase flexibility
– increase utilization
– eliminate set-up/change-over costs
• Combine jobs to eliminate idleness
• Reduce standardization of jobs to add flexibility (cross training)
• Rely on workers rather than work method and tools (e.g.
craftsmanship) for productivity/quality.
• Workers reallocated or added/subtracted to adjust the volume
and mix of output. (“SCALEABLE”)

Least efficient, but high volume & mix flexibility

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 Process choice is a strategic decision
• What do our customer’s value?
– low prices
– quality (What “type” of quality?)
– variety, convenience and service
• How do we intend to differentiate ourselves in the
market?
• What are the dominate characteristics of our market
and product?
– niche/mass
– mature market/new market
– stable/seasonal
– mature prod. technology/rapidly evolving prod. technology

Given the answers to these questions, what process is

best for each product or market?
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 The product-process matrix
H variety Job Shop
L volume
The Terrace,
Commercial printer

Batch Process
Product Tom’s Restaurant
Variety/ Heavy Equipment

Volume
Production Line
Burger King
Automobile assembly

Continuous Flow
L variety Paper mill
H volume

L effec / H flex Process Efficiency/Flexibility H effec / L flex

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 Stages can be different (e.g. Benetton)
Standardized material & fabrication Standardized logistics & store operations

Procurement Assembly &

Distribution
Knitting Garment Dying

prod. line batch/job-shop prod. line

Color variety added here!

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 The product-process life cycle
(Hayes and Wheelwright)
• Early in a products life cycle .... job-shop
– volumes are low
– product design changes rapidly batch
– process technology evolves rapidly
– speed to market critical (first mover adv.)
• During maturity prod. line

– volumes stabilize
– product design/features stabilize
– process technology stabilizes
– first-mover advantage subsides
• In decline ... batch

– volumes decrease
– no new model variations
– service parts/repairs dominate
25
 Matching process to local economics

• Factors of production differ

– labor (skills and cost)
– equipment
– materials (availability and cost)
– energy cost
– transportation (infrastructure and cost)

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 Product/process mismatches

• Conscious strategic choice

• Incremental drift of markets/process
• Applying same operations strategy to two different
markets
• Progression through life cycle without
corresponding process change
• Rapid advances in technology
• Rapid product maturity

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Linking Strategies to Missions
Mission Investment Marketing Sales
Requirements Strategy Strategy
Low Unit Cost Automation Narrow line and Price
conservative design competition

High service Inventory Image of dependability Rapid

level delivery

The Classic Facility Missions

Mission Facilities Infrastructure Labor
Low Unit Cost Specialized Materials Repetitive
machines linked planning & control work
by the time cycle

High service Reserve machine Inventory management Overtime and

level capacity idle time

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Burger King & McDonald’s

Kate Gleason
Elena Katz
Dan Brown

29
 McDonald’s & Burger King

1. Draw a process flow diagram of hamburger

production in each restaurant.
2. What are the objectives of each operation? What
standards (implicit or explicit) are used?
3. What major design choices has each firm made in
terms of both their product and process? How do
these choices reflect the differences in competitive
strategy? In what ways do these design choices
impact each restaurant's operating performance
4. What problems, limitations or competitive threats
does each restaurant face as a result of their process
choice?

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 Two basic types of automation
• Fixed automation
– special purpose (custom engineered for one operation)
– fixed tooling
– fixed orientation
– fixed sequence/motion
Another form of specialized tools
• Flexible automation
– general purpose (capable of performing multiple operations)
– multiple tools (tool magazine)
– flexible orientation (multiple axis - XYZ)
– programmable
Offers new possibilities
- tremendous product variety
- flexibility (enter/exit markets, absorb variability in demand)
- economies of scope (investment/capacity shared across several products)
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 Examples of fixed automation
– bread line
– paper mill
– steel mill production line/continuous flow processes
– printing press
– engine block transfer line

32
 Examples of flexible automation
• Fabrication and assembly
– robots
• paint spraying
• spot welding
• assembly
– flexible machining center

– programmable punch press

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 Flexible automation in services
• Internet
• Voice response unit (VRU) - Teleservicing
• Optical bar codes

1 01658 348 3987

• Transactions and communications

– electronic data interchange (EDI)
– electronic funds transfer (EFT)
purchase order

invoice
firm supplier
ANSI X12

funds transfer deposit

request bank
confirmation

34
 Justifying investments in flexible automation is a bit
tricky
• Investment scope is larger
– several product lines
– multiple product life cycles
• Requires specialized skills
– software development
– systems integration
• Intangible benefits are hard to quantify
– reduced lead time, increased variety
– shorter product life cycles, strategic capability
• New risks are introduced
– obsolescence
– system complexity

35
Some mass customization success stories
– Motorola Pagers (Boynton Beach, Florida)
• `Bravo’ model pager
• varieties: color/frequency/vibration
• mixed production/prototyping on same line
– ABB Stotz-Kontakt GmbH (Heidelberg)
• electric overload switches
• 80-85% stock, 15-20% custom
• One day delivery on custom switches
– Levi Strauss Personal Pair Jeans
• make-to-order custom sizes
• computer order entry
• 3-4 week lead time
– National Bicycles Ind. Co. (Osaka, Division of Panasonic)
• market share in Japan: 9% (2nd largest)
• customized, made-to-order bicycles
• varieties: frame size/color/equipment
• 3-4% of total annual volume of 700,000 (70,000 customized bikes ‘87-93)

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 Levi’s Personal Pair Jeans
Traditional Sizing

8 sizes
(size 1-15, odd x 3 lengths = 24
only)
total sizes

Personal Pair Sizing

12 waist 8 hip
sizes x sizes x 4 rises x 11 lengths = 4,224
total sizes
And each size is available in 5 colors!

Price: $65 vs. $49 for standard Levi’s

Lead time: 3-4 weeks

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 National Bicycle

18 models 6 handlebar 3 handlebar

(road, off-road, x 15 frame sizes x stems x widths
track)

199 color 2 pedal 3 toe clip 2 tire

x patterns x styles x styles x widths

2 name
x positions x 6 calligraphies = 11,231,860
total variations

Price: 150,000 Yen ($1300) - about twice price of mass produced bike

Lead time: 10 days manf., approx. 2-3 weeks total.

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 But flexible automation can be misapplied
A Comparison of US and Japanese FMS
US Japan
#mach/system 7 6
#types of parts 10 93
ann. vol./part 1,727 258
daily tot. vol. 88 120
#new parts/yr. 1 22
#sys unattended 0% 78%
utilization 52% 84%

Based on study of 95 flexible manufacturing systems in the U.S. and Japan - more than
half the installed FMSs at the time. (Jaikumar, HBR ‘86)

General Motors (Hamtramck plant, Detroit, 80’s)

- “Technology leadership is what will keep us ahead.” Roger Smith, ‘81
- $80 billion investment in technology (EDS, Hughes)
- Failed to improve productivity or quality.
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 Looking ahead
• Concept: The 3D Printer
• Stereolithography (SLA)
– 3D Systems, Valencia, CA (1986)
– Process
• 3D object represented in data base
• Laser scans cross-sections of object in liquid polymer
• Laser fuses polymer to form plastic object

• Selective Laser Sintering (SLS).

– Sandia National Laboratory (Rapid Prototyping Lab, 1993)
– Process
• Uses powdered wax fused by laser to produce wax model
• Wax model coated in ceramic
• Wax is melted to form ceramic mold for liquid metal
• Metal casting made from mold
• Takes 5 days versus several months to produce prototype part
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 Other strategies for mass customization

• Postponement (a la Benetton)
– delay differentiation as much as possible
– modularize design then assemble to order
• Design user configurable products/services
– switchable power supply
– IKEA modular furniture
– customizable internet interface

Companies and industries are constantly redefining

the technological frontier of the variety/cost trade-off.

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 Summary
• There’s more than one way to make a product or
provide a service!
• A firm’s technology choice (prod. line, batch, job
shop) has profound business impact
– value created (variety, quality, lead time, cost)
– cost structure
– flexibility
• Maintaining the right strategic match between a
firm’s products/markets and processes is a dynamic
process.
• Technology is constantly changing the efficient
frontier.

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