Lecturer: MervynSookun 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


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 industrialization²mass-regimentation that could not adapt due to its own inertia²its 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 ³norm´, and some have used the idea of normlessness to reflect a similar situation to the idea of anarchy. But, as used by Émile 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.

Managing Operation (MBA)

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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 properly manage capacity can be a barrier to the 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.



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
Short Term H Low Capacity in future given Growth in numbers. Long Term (years)

Daily schedule the class Long term capacity decision is difficult. Capacity emand If the capacity is more and demand is less, then revenue does not cover the cost DemandCapacity Type A
Managing Operati n (MBA)

When demand is more, increases production, reduces quality, pressure of employees increases.

Type B
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si i


Short-term capacity planning
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

Chase demand

Maximize 3 Es 1. Economy of . Efficiency 3. Effectiveness

Number Calls

Example: AM AM y Linear programs y QueuingDemand and capacity graph of a Call Centre theory y Monte Carlo

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).

Managing Operation (MBA)





Flexi-Time shift

12 10
8 Demand Capacity

4 2

8:00 10:00 12:00 2:00 PM PM 4:00 PM 6:00 PM 8:00 PM

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com © 0 1 3 4 5 New Procedure Save costs Page 4 . Forecast demand Quantitative Sales Example: y Time series y Reference & co-relation y Actuarial curves ? Actuarial Curve Future Year About forecasting: Fallacy of predetermination SaidMintzberg. Managing Operation (MBA) si ichan. Might as well look at a Cristal Ball Said Morgan B. Technological Forecasting Technological Forecasting New Product More revenue New York Hospital developed Clinical Decision Architecture (codification of medical knowledge) Expands capacity rapidly (more capacity flexible).commerce. Forecasting is what we think happen.E.Long Term Planning is what we want to happen. Amazon.mungamakal@googlemail.

Sony company build capacity ahead in advance during 1980s by building newproduction plant of CD Roam. Pay back NPV / DCF Decision Trees  Managing Operation (MBA) sibichan. Irreversible strategy . Example: Burning ships to show that we not came for battle.mungamakal@googlemail.Esti t an opti al siz / apacit Di inishin Retu n Econo ies     AverageEconomies ofDiseconomies Unit cost scale / scope of scale Positive Retu ns Econo ics Example: Software companies and film industry   0 25 Capacit Plannin Techniques Capacity break even.As per Porter First mover advantage .  50 75 100 125 Size of Hotel (in room capacity 150  Page 5 .

mungamakal@googlemail.NPV DCF Managing Operation (MBA) Page 6 .

000 profit 20% / 80% Small plant Strong growth Weak growth Strong growth Quick decision 500.51 0.61 Project C Cash flow Disc.75 29.000 profit 50% / 50% Large plant in town B £500.00 0.00 14.683 16 10.00 16.000 x 20% = 100.00 -100.46 Project B Cash flow Disc.00 24.Year 0 1991 1992 1993 1994 1995 Project A D/F 10% Cash flow Disc.mungamakal@googlemail.64 17.09 15. C/F -100.01 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.000 profit £50.00 12.909 3 2.00 15.000 ======== Page 7 .00 70.751 14 10.53 42. C/F 1 -75 -75.00 24.000 ------------175.00 10.00 35.20 57.39 30.826 6 4.000 ======== Large plant weak growth Managing Operation (MBA) si ichan.96 0.000 50.59 39. 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 ------------156.000 x 80% = 56.42 NPV of each projects -33. C/F -90.00 13.00 -90.93 0.000 x 50% = 150.000 profit £70.621 20 12.00 9.22 3.52 36.40 8.000 300.04 22.73 0.000 x 50% = 25.

In Europe amount of retail space was restricted by government. GNP per head : Lowest = $250 and Highest = $ 89.Plant in small town A is better than large plant in town B. 3. etc. Aim to match Demand and Supply. gambling Banking. 5. access to ship. Identify a suitable geographical location for an operations system to maximise revenue or minimise cost. Conclusion of Capacit Plannin y y y y Demand # Capacity. 1 ton steel required 10 ton raw materials. Cultural factures: Example: Internationalisation of business. Capacity in some E-commerce business appears to quite flexible. air transport. Country Physically close to ho e location Spanish firm Latin America British firm British Colonies Sweden Nordic countries Indian / Pakistan firms Middle East 2. Example: Steel mining. Infrastructure: Road. toys. Financial services Research and development parks .K and France B 5 Germany C 2 Spane D 0. What factors influence choice of location Make five suggestions with examples.75 Switzerland Managing Operation (MBA) Page 8   LOCATION PLANNING Market location advantage Retail Leisure and pleasure.etc. Conclusion of firm P hysically close to home. Category Area in million square meters Country A 15 U. Giving below the approximate details.000 (Qatar . Proxi ity to raw material: Critical Substance Factor (CSF). Technique which we used to minimise the risk. Have to consider underground economy. Government regulations: Example. Proximity to market location advantage: Street Oxford street Lexus Square City of London Cambridge      6.mungamakal@googlemail. 7. Inco e of potential custo ers. Standard pattern of international frame of firms. 1. Comparative wage rates: Cheap labour is intensive for business like clothing. 4.

000 (Location B is best). A-B 100X + 40. Assign weight 5.000 110. Note: Assume production unit is X.000 140.000 = 40X + 140000 100 X . Identify location option 2.8 Taxation: 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.S.mungamakal@googlemail.000 100.000 135. Factor rating 1.000 = 20X + 180000 20X = 40000 X= 2000 Factor Rating method A chain of supermarket aims to open a new store. Score each CSF 4.000 160. Decision C.40X = 140000 40000 60X = 40000 X= 40000/60 = 1666 B-C 40X + 14. Convert into weighted score 6.000 60.000 1000 units Page 9 . Which is the best location of planned production of 1000 units and 2000 units Location A B C Variable cost 100 40 20 Fixed cost 40.000 ! 2000 units 180.000 180.F y y y y y Population Income People to Car ration Rates Managing Operation (MBA) sibichan. Identify CSF (Critical Success Factor) 3.000 140.000 Under what level of production in each location optimal (best).

000 Conclusion: 1. Location = CSF in many business Some organizations less sensitive to physical location. Page 10 . 2.000/16000 = 56. 4.mungamakal@googlemail. Face book. Centre of Gravity Mathematical method for identifying opti mal location for a distribution centre scoring multiple outlets. Distinguishing Factors: y Resources : Few or Many y y Dead line : Tight or Flexible (elastic) Impact : Strategic or Local # " " Y 20 30 80 Containers 2. What is project A specialised task with a life cycle. X = X coordinate of each store Y = Y coordinate of each store Find weighted average of X and Y.000 9.000 5.g.88 16. Challenges: Time. Managing Operation (MBA) sibichan.000/16000 = 41. Applicable to many operations management decision. y Q = Quality y y y S = Speed C = Cost D= Dependability PROJECT MANAGEMENT 1. Good location should ultimately meet all or some operational objectives.25 16.000 4. 3.Com. E. 2.Factor rating is more Systematic then Scientific.000 Y =(20 x 2000) + (30 x 5000) + (80 x 9000) = 910. X =(90 x 2000) + (60 x 5000) + (20 x 9000) = 660. 3. X 90 60 20 X = Q1X1 = Q1 1 Q1 Q1 Q = Quantity shifted to each store. Location planning aims to minimise cost and maximise revenue. Natural resources and people.

Terminal elements and summary elements comprise the work breakdown structure of the project. software development. Gantt charts can be used to show current schedule status using percent complete shadings and a vertical "TODAY" line as shown Page 11 . precedence network) relationships between activities. research projects. product Managing Operation (MBA) si ichan. Some Gantt charts also show the dependency (i. 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 an important tool for effective project management. it is commonly used with all forms of projects.PROJECT MANAGEMENT TECHNIQUES Net work / Critical PathMethod / PERT (American Agency) A Gantt chart is a type of bar chart that illustrates a project schedule. This chart is used also in Information Technology to represent data that has been collected.mungamakal@googlemail. Although now regarded as a common charting technique. Gantt charts illustrate the start and finish dates of the terminal elements and summary elements of a project. Gantt charts were considered revolutionary when they were introduced. the Henry Laurence Gantt Medal is awarded for distinguished achievement in management and in community service. including construction. is a mathematically based algorithm for scheduling a set of project activities. The critical path method (CPM) or critical path analysis. In recognition of Henry Gantt's contributions.

These results allow managers to prioritize activities for the effective management of project completion. it has been expanded to allow for the inclusion of resources related to each activity. thus creating a new critical path and delaying project completion.. In addition.e. This determines the shortest time possible to complete the project. However.e. unavailability of a resource at the required time). and alerts the project manager to the possibility that non-critical activities may be delayed beyond their total float. a cri ical ath is the sequence of project network activities which add up to the longest overall duration. the results of the analysis may change.e. engineering. Expansi n Originally. The time (duration) that each activity will take to completion. Any delay of an activity on the critical path directly impacts the planned project completion date (i. 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. The dependencies between the activities Using these values. an important element of project postmortem analysis is the As Built Critical Path (ABCP). on the longest path) and which have "total float" (i. A related concept is called the critical chain. parallel.. This process determines which activities are "critical" (i. by "fast tracki " (i. among others. and its impact either ameliorated or adjusted for. there are several software solutions available in industry that use the CPM method of scheduling. and if changes are not a ddressed promptly. and the earliest and latest that each activity can start and finish without making the project longer. and 3. near critical paths. the method was developed and used without the aid of computers. and/or by "crashi the critical path" (i. C M calculates the longest path of planned activities to the end of the project. performing more activities in parallel). as estimations are used to calculate times: if one mistake is made. A project can have several. which attempts to protect activity and project durations from unforeseen delays due to resource constraints.e. Basic technique The essential technique for using C M is to construct a model of the project that includes the following: 1. shortening the durations of critical path activities by adding resources).com Page 12 ..e. which analyzes the Managing Operation (MBA) sibichan. This could cause an upset in the implementation of a project if the estimates are blindly believed. through processes called activity-based resource assignments and resource leveling. allows the project manager to track the critical activities. the structure of critical path analysis is such that the variance from the original schedule caused by any change can be measured. using the Program Evaluation and Review Technique (PERT) and event chain methodology. can be delayed without making the project longer). C M allows continuous monitoring of the schedule. see list of project management software.development. and may cause a previously shorter path to become the longest or most "resource critical" path.. and to shorten the planned critical path of a project by pruning critical path activities. Since then. A resource-leveled schedule may include delays due to resource bottlenecks (i.. Currently. $ Since project schedules change on a regular basis.e. In project management. 2. A list of all activities required to complete the project (typically categorized within a work breakdown structure).mungamakal@googlemail. there is no float on the critical path). the critical path method considered only logical dependencies between terminal elements. the method can easily incorporate the concepts of stochastic predictions. Any project with interdependent activities can apply this method of scheduling. However. and plant maintenance. Indeed. Flexibility A schedule generated using critical path techniques often is not realised precisely.

specific causes and impacts of changes between the planned schedule and eventual schedule as actually Page 13 . Managing Operation (MBA) sibichan.

mungamakal@googlemail.2 weeks A C 2 weeks F 2 weeks Start 3 weeks 4 weeks H 2 weeks End 2 weeks E B D G 5 weeks 3 weeks 4 weeks Note: Critical Path was marked in red line with arrows. A ES S (Earliest Start) (Activity) EF (Earliest Finish) LS S (Latest start) (Activity Duration LF (Latest Finish) % 5 EF = ES + Activity Duration Under Forward Pass ES is the highest EF of predecessors if there are 2 or more EF. LS = LF Activity Duration Under Backward Pass LF is the lowest LS of predecessors if there are 2 or more LS Managing Operation (MBA) Page 14 . The total duration of critical path is the project completion date.

Consider the lowest value. Which required 1 minute and Activity C is Mixing the tea which required 1 minute. glass. That means we can start that activity on the 4th minutes.mungamakal@googlemail. take the highest value of ES. EF. sugar. Activity A is boiling which required 5 minutes. Draw a network diagram and calculate the valuesof ES. y Use formula to find out the value o f LS (LS = LF Activity Duration) sibichan.Assume that for making a cup of tea there are 3 activities. Boiling Water ES EF A 05 (0 + 5) 0 Start LS ES (5-5) 5 5 LF ES Mixing EF 0S0 (0 + 0) EF 5C 6 (5+1) 0 LS (0-0) 0 0 LF ES Find Everything LS (6-1) 5 EF 1 6 LF 0B 1 Why LS is 0? There are 2 predecessors. LS and LF by using Forward pass and backward pass. etc. ES value of an activity is the EF value of the immediate predecessor. (5-1) LS 4 1 5 LF Explanations for above network diagram: Least Start value of Find Everything activity is Page 15 Managing Operation (MBA) . If there are more than one predecessors. Boiling activity (0) and find everything activity (4). That is we have a spare time of 4 minutes and can be used that time for another jobs. Do not add the values of ES. Backward pass begins from end activity / last activity andmoves backward to start activity to find out the value of Latest Start (LS). Forward Pass begins from start activity / first activity and moves forward to end activity to find out the value of Earliest Finish (EF). Activity B Find tea bag. y The value of Latest Finish (LF) of the last activity is always the EF value of that activity. y y Use formula to find out the value of EF ( EF = ES + Activity Duration). y The value of Earliest Start (ES) of start activity is always 0.

mungamakal@googlemail. . If the LS value of start activity / first activity is 0. LS and LF from the above diagram. If there are more than one predecessors.y y LF value of an activity is the LS value of immediate predecessor. then your calculation is c orrect. Find out the spare time (slack) of each activity and check there is any spare time on critical path. A 0 0 2 2 2 C 2 2 2 4 4 F 4 10 3 7 13 S 0 0 0 0 0 E 4 4 4 H 13 8 8 13 2 15 15 S 0 1 3 3 4 D 3 4 4 7 8 G 8 8 5 13 13 Note: If you total the duration of critical path will be equal to the value of Earliest Finish (EF). take the lowest value of LS. Activity A B C D E ES 0 0 2 3 4 EF 2 3 4 7 8 LS 0 1 2 4 4 LF 2 4 4 8 8 LS-ES 0 1 0 1 0 CP Activity Yes No Yes No Yes Page 16 Managing Operation (MBA) sibichan. 2 weeks A C 2 weeks F 2 weeks Start 3 weeks 4 weeks G H 2 weeks End 2 weeks E B D 5 weeks 3 weeks 4 weeks Use the backward pass and forward pass to identify ES.

Activity A B C D E F G H B 12 34 27 42 57 53 62 53 The normal and crash data for this software project are as follows: 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 (£) 22000 30000 21000 45000 20000 30000 35000 30000 Crash (£) 24000 32000 25000 56000 22000 34000 38000 38000 Required: 1. 2. ( 5 marks). B = Pessimistic and C = Most likely.G 22 40 Where A = Optimistic. Page 17 . Time / Days Immediate predecessor A M --8 10 A 18 22 A 14 21 A 17 30 B 31 42 C. EF. ( 5 marks) Managing Operation (MBA) sibichan.F G H 4 8 13 7 13 15 10 8 13 13 13 15 6 0 0 No Yes Yes Question 3 The following represents a software project that should be scheduled using CPM. (15 marks).E 33 40 F. Explain the significance of your result. LS and LF. Use the backward pass and forward pass to identify ES.D 33 40 D. Draw a network diagram and identify the critical path using the most likely (M) data.mungamakal@googlemail. Determine the least cost of reducing the project completion date. Using the Beta Probability Distribution identify the variance for each activity.

mungamakal@googlemail. 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 Page 18 Managing Operation (MBA) sibichan.a) B 10 10 22 E 32 32 42 32 32 74 74 A 0 0 10 10 10 D 10 44 30 10 74 G 74 74 40 114 114 C 10 53 21 F 31 74 40 74 40 80 114 H 114 114 40 154 154 EF = ES + Activity Duration Under Forward Pass ES is the highest ES of predecessors if there are 2 or more .

com Page 19 . Many activities have crash time.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. Managing Operation (MBA) sibichan.mungamakal@googlemail. c) Crash cost per day = Normal days 10 22 21 30 42 40 40 40 Crash days 8 20 20 28 40 38 38 38 Normalcrash day 2 2 1 2 2 2 2 2 10 days Crash cost Normal cost Normal time Crash time Normal (£) 22000 30000 21000 45000 20000 30000 35000 30000 Crash (£) 24000 32000 25000 56000 22000 34000 38000 38000 CrashNormal 2000 2000 4000 11000 2000 4000 3000 8000 Per day crash exp. y y y Many activities have abnormal completion time. Many activities have normal cost. 1000 1000 4000 5500 1000 2000 1500 4000 Least crash cost 2000 2000 Activity A B C D E F G H 2000 3000 8000 17000 We can finish the project in 144 days by crashing 10 days with the additional cost of 17000. They have also crash cost.

All above challenged the respective industries recipe for Page 20 . 3. Ebay. Earlier theories (Porter) suggest that firms should create barriers to entry. Critical path analysis with crashing (34 marks) And Stock control (6 marks) RESTRUCTURE OPERATION TO DELIVER MORE VALUE 1. Section A has 3 essay questions out of that 2 attempt. RBV (Resource Based View) barriers to imitation. However these firms face a major danger imitation .I. Supply chain / Questions There is two sections A and B.T 3. Managing Operation (MBA) sibichan. commerce PCs Coffee bar Cosmetics Bicycle Hotel Amazon. Section B has 1 question only. Recent years several start up have created vast wealth. Topic associated with Resource Based View of the organization. Section A questions:( 60 marks ) 1. Restructuring operations (strategy operation). (A paradigm is a model for something which explains it or shows how it can be produced). 5. TQM (Total Quality Management).mungamakal@googlemail. 2. etc. Imitation: things are not genuine but are made to look as if they are. Developed a unit paradigm. 2. Dell Starbuks Body shop National Panasonic Nowate 4. Example: Large scale operation. Example: E. Section B questions: (40 marks) 1.

Restructure the cinema. Unique resources.mungamakal@googlemail. Use of rival goods. DESCRIPTION Capacity Location Technology Layout Marketing cost MEGA PLEX 25 studios with 700 seats Out of Town (free car parking) 70mm projector. Cinema : Case study y y y Demand for cinema declined since II world war because it was replaced by CD. 10m x 7m screen Cramped (not big enough) Higher Managing Operation (MBA) sibichan.But one firm can not protect: y y y y Business concept. Cinema operators attempted to liberate assets. Restructure operation challenge paradigm and deliver more value. 29m x 10m screen Specious Low (mouth to mouth advt. legal right. Protection: Imitation can be protected by copy right. DVD. IPR s and patent.) MULTI PLEX 10 studios with 100 seats Town 35mm Page 21 . Cable Connection and Internet.6.

cost and durability. Quality is multi-dimensional. y y y y Quality is not luxury. proximity to school and shopping centre. punctuality. But thing have changed. Good appointment. Traditional western approach to Quality Management (QM) Shop Floor Raw materials (R. transport facility. in the increasing competitive world the quality is no longer an optional extra. engine s power. Quality is what customer expects. comfort. Hygiene. According to Feigenbanum. Without quality. The evolution of the concepts and practices of TQM has taken several years of trials and tribulations in many organizations all over the world. The creation of quality products and services demands total commitment from the entire organization and hence it requires TQM. Managing Operation (MBA) sibichan.I.M) Work in progress (W. The consumers are giving more importance to the quality of the products or services rather than their price. Efficiency of Page 22 . regularly and fully. quality of clinical care. Quality is contextual. it is essentially a business strategy . Their only concern was the price of the product. cleanliness. speed and catering. an organization cannot survive. Customers needs must be met in time.P) Finished Goods (Quality checkers & sampling) Principles of TQM 1. design. DESCRIPTION Trane Hospital House Motor car QUALITY EXPECTED Frequency of service. comfort.TOTAL QUALITY MANAGEMENT What is quality? In earlier days people consumed or purchased what the manufacturers had produced.mungamakal@googlemail. Model. people are beware of the quality of the products or services which they are going to consume. Definition The British Quality Association d efined TQM as management philosophy and company practices that aim to harness the human and material resources of an organization in the most effective way to achieve the objectives of the organization. Location.

At all levels. Management should aim at preventing the occurrence of errors and not at correcting them after they occur. 4. Cost of quality must be measured appropriately and relatively. 7.2.mungamakal@googlemail. 3. 6. Reactive approach versus Proactive. Best judge is customer. 2. Volume makes lower Page 23 . Crosby. Managing Operation (MBA) sibichan. 5. Total = quality everything. Juran) 2. The management should establish standards in products. 3. Better quality products Productivity improvement Reduced quality costs Increased market Higher profitability Reduced employee grievances Better returns to shareholders Limitations of managing Quality 1. 5. managers need to be made conscious that they are role models for total quality. Premium price. 3. Associated with Japanees management (Ishikawa. Market power. Cigarette) Cost reduction. TOTAL QUALITY MANAGEMENT (TQM) 1. The management should ensure the involvement of everyone in the organization from the Chief Executive to the labourer. Why? Protection of the company. 4. 6. Customer Preference or Loyalty. Suppliers Workers Customers Users y y y y y y Quality is recognize an important reserves by senior executives. processes and people. There shall be a system of recognition and reward in the organizaiton. 3. (eg. 8. 4. 2. The tangible benefits are: 1. 5. Conflict between quality checkers and rest of the staff. Cost of production goes up due to reject/rework. Benefits of TQM TQM offers a wide range of advantages or benefits to both consumers and the manufacturers. image and brand. 7. Responsibility for quality is narrow. Taguchi) but originated from USA (Deming. These can be classified into tangible benefits and intangible benefits. Employees must strive to do error-free work.

Culture: Managing Operation (MBA) sibichan. organization can no longer afford to pay them.O)). ( Purchasing Mix) y Quality ISO . ISI y Price y Timing of delivery y Delivery reliability y Quantity y Service 8.mungamakal@googlemail. Different level of quality. use dismissals. selection. Dell) Accuracy (eg. 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 y y y y Online service SWEEDEN 6 hours JAPAN 12 minutes Scope variety of products (eg. (BRIT BUSINESS. Perfect Quality Design quality Production quality 6. training and development of personality of staff. 7. layoffs)Faults (When there are redundancies. 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) Page 24 . Built on principles of redundancy. Raw material / Technology / Process / Skills / Culture (may be wrong). Raw material / Suppliers (Garbage in Garbage out (G. Motorolla) Skills: careful recruitment.4. (Honda takes 6 interviews before taking an employee in production department and gives training). an organization tells some of its employees to leave because their jobs are no longer necessary or because the arise without putting unfair committee. 5.I. BS. Careful appraisal and selection of suppliers. Quality is built in to the product at the design stage.CharlsHany (1990) conducted a study about ma nagement development in 5 countries. in AM. y Management development.G.

Theory Z management tends to promote stable employment.W. both on and off the job.mungamakal@googlemail. Edwards Deming's famous "14 points". Toyoda Quality Circle Six-Sigma :Six Sigma is a business management strategy originally developed by Motorola. Ouchi studied American and Japanese management to develop theory Z. QUALITY CIRCLE (QC) Managing Operation (MBA) sibichan. "Japanese Management" and Theory Z itself were based on Dr. was presented by William Ouchi. although its application is not without controversy. and a board member of several large US organisations. and Theory Y. William Ouchi is professor of management at UC A. an American scholar whose management and motivation theories were rejected in the United States. Theory Z : William Ouchi Maslow's Theory Z should not be confused with the book by William Ouchi bearing the same name. which stated that workers inherently dislike and avoid work and must be driven to it. 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). For Ouchi. which stated that work is natural and can be a source of satisfaction when aimed at higher order human psychological needs. Theory Z.Japan: KAJZEN = Continuous improvement MUDA =Eliminate waste / wastage. and high employee morale and satisfaction. Deming. Maslow's Theory Z' In contrast to Theory X. high productivity. One was developed by Abraham H.[1] As of Page 25 . 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. Los Angeles. According to Ouchi. went on to help lay the foundation of Japanese organizational development during their expansion in the world economy in the 1980s. Ironically. William Ouchi's so-called "Japanese Management" style popularized during the Asian economic boom of the 1980s. it enjoys widespread application in many sectors of industry. in his 1981 book 'Theory Z: How American management can Meet the Japanese Challenge'. Theory Z is a name applied to two distinctly different psychological theories. Maslow in his paper Theory Z and the other is Dr. USA in 1981.

but when used in group form (as is the case with quality circles). as it (was not properly understood and) turned out to be a fault finding exercise although some circles do still Page 26 Managing Operation (MBA) . and solution generation. true quality circles become self-managing.A quality circle is a volunteer group composed of workers (or even students). However this was not successful in the United States.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. as there are other channels through which these issues are usually considered) Quality circles were first established in Japan in 1962. The movement in Japan was coordinated by the Japanese Union of Scientists and Engineers (JUSE). 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. usually under the leadership of their supervisor (but they can elect a team leader). They are formal groups. 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. analyse and solve work related problems and present their solutions to management in order to improve the performance of the organization. They bring back the concept of craftsmanship. Do. it was recently claimed that there were more than 20 million Quality Circles in China. 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. and QCFI (Quality Circle Forum of India) is promoting such activities. The term quality circles derives from the concept of PDCA (Plan. and motivate and enrich the work of employees. who are trained to identify. QC y y y y y y y Voluntary team advising firm on quality problem. check. 8 12 people Own agenda Access to senior management Training in quality control Cause and effects Originated from USA but popular in Japan 1.mungamakal@googlemail. Line managers are suspicious QCs. Act) circles developed by Dr. where workers or individuals are treated like robots. Kaoru Ishikawa has been credited with their creation. improving product design. Typical topics are improving occupational safety and health.[citation needed] There are now Quality Circles in most East Asian countries. sibichan. having gained the confidence of management. When matured. basic statistics. and improvement in the workplace and manufacturing processes.[5] By 1978 it was claimed that there were more than one million Quality Circles involving some 10 million Japanese workers.[1] Quality circles are generally free to select any topic they wish (other than those related to salary and terms and conditions of work. Edward Deming.000. information gathering and analysis. Quality circles are an alternative to the dehumanising concept of the division of labour. which when operated on an individual basis is uneconomic.[ Quality circles have been implemented even in educational sectors in India.

Volkswagen manufacturing nothing and all the assemble works are done by sub-contractors. Management of activities that purchase material and service. is a set of organizations directly linked by one or more of the upstream and downstream flows of products. and monitoring of supply chain activities with the objective of creating net value. and improve efficiency. [1] Supply Chain Management spans all movement and storage of raw materials. Another definition is provided by the APICS Dictionary when it defines SCM as the "design. 3.mungamakal@googlemail. and finished goods from point of origin to point of consumption (supply chain). 1996). planning. work-in-process inventory. labour costs. Supply chain becoming more global. 1. Why? Managing Operation (MBA) sibichan. Why is supply chain management important? Make 5 suggestions. Managing a supply chain is 'supply chain management' (Mentzeret) 1. 2. marketing. services. Q = Quality F = Flexibility D = Dependability C = Cost S = Speed 4.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. Sub-contractors do the entire assembling jobs including materials. as opposed to supply chain management. 2. VW is buying not only the materials but also labour and related services." A supply chain. Basic operations objective. Page 27 . research and design. transforming them into intermediate and final goods and delivering the final product into a distribution system. 4. execution. and measuring performance globally. 5. synchronizing supply with demand. 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. Volkwagen s Radical experiment in supply-chain Management. control. 3. building a competitive infrastructure. leveraging worldwide logistics. The VW employees are responsible for overall quality. In its new Brazilian truck factory introduced new supply chain management to reduce defective parts. and information from a source to a customer .

South Korea followed liberal economy and GNP increase a great extent whereas Ghana followed closed economyand present GNP is too low if we compare with South Korea.esign ( anada) Marketing ( .Korea) ( ost . Managing Operation (MBA) sibichan. the government harmonise traffic of goods and services and it cause longer and broader supply chain.S. By signing WTO agreement.A) Photo copier Assembling (Malaysia) 5.mungamakal@googlemail. Example: 40 years ago GNP of South Korea and Ghana were at par (same).com Page 28 0 ) Market rivers ' & Parts (S. Global Drivers Government Technological Government Driver Liberalization of trade helps the Supply chain s span across many territories.

life style. For example. must pay a commission to their broker. that commission is a transaction cost of doing the stock deal.mungamakal@googlemail. to purchase the banana. values. Music. expectation = Cultural homogenisation argument. most people. Flowers must be delivered within 8 hours in 90C 130C to keep the freshness. General Electronics) Some products to be sold worldwide Example: IT. Electronics. Even perishable products sources overseas. when buying or se lling a stock. Or consider buying a banana from a store. your costs will be not only the price of the banana itself. Example: In US markets flowers arrives from Page 29 2 2 1 . In middle class economy there is a large homogenous market and supply chain will be deeper and broader. 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. a transaction cost is a cost incurred in making an economic exchange (restated: the cost of participating in a market). Film Many pre-qualified vendrs by electronic bidding Cost Cost is powerful competitive weapon (Porter). but also the energy and effort it requires to find out which of the various banana products you Managing Operation (MBA) si ichan. SUPPLY CHAIN ECONOMICS y Transaction cost Theory (Williamson / Coase) y Agency Theory y NASH Equilibrium Transaction cost Theory In economics and related disciplines.Technological Technological New Product New Procedure ICTS (Eg.

Firm grows in size. These relationships are not necessarily harmonious. indeed.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. Historically firms made many things in house. the time waiting in line.A Canteen Profit Margin 30% KFC Profit margin 3% . called principals. An agency relationship arises whenever one or more individuals. Hierarchy is expensive because the use of market. Williamson). called agents. When they grow the size concentrated on supply chain. or conflicts of interest between agents and principals. Example: L. Transaction cost Cost saving TC 1 TC 2 0 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. hire one or more other individuals. Make is cheaper and buy is expensive. where to get them and at what price. (Ronald Coase and Oliver E. to perform some service and then delegate decision-making authority to the agents. agency theory is concerned with so-called agency conflicts. Managing Operation (MBA) sibichan.prefer. and the effort of the paying itself. the costs above and beyond the cost of the banana are the transaction costs.mungamakal@googlemail. the cost of traveling from your house to the store and 3 3 Page 30 . Make Vs Buy.

In other words. Higher management costs. it is a way of predicting what will happen if several people or several institutions are making decisions at the same time. Instead. Example: In 1990s British Telecome had 12 level hierarchy by today it is only 5 levels. then the current set of strategy choices and the corresponding payoffs constitute a Nash equilibrium. A1 Agency cost A2 Cost saving 0 25 50 Size 75 100 125 150 Outsourced problems y Validity of transactions y Agency theory y Many more but efficient suppliers.mungamakal@googlemail. who proposed it) is a solution concept of a game involving two or more players. y Organization less hierarchical. 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. y y Hierarchical business More problems. we must ask what each player would do. Example: Volkswagen use of market will less expensive.Various mechanisms may be used to try to align the interests of the agent in solidarity with those of the principal. taking into account the decision-making of the others. 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. efficiency wages. performance measurement (including financial statements). NASH Equilibrium In game theory. the agent posting a bond. and if the decision of each one depends on the decisions of the others. The Nash equilibrium concept is used to analyze the outcome of the strategic interaction of several decision makers. Managing Operation (MBA) sibichan. in which each player is assumed to know the equilibrium strategies of the other players. Todays agency norm is outsourcing . profit sharing. such as piece rates/commissions. Nash equilibrium (named after John Forbes Page 31 . and no player has anything to gain by changing only his or her own strategy unila terally. or fear of firing. Supply chain more effective now.

Managing Operation (MBA) Page 32 .

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