Operations Planning & Control

Caselets

Caselet –1- Chopra Creative Concepts

Chopra’s Creative Concepts designs and manufactures wooden furniture. Founded
by Vijaya Chopra, the company began by producing custom-made wooden
furniture for vacation cabins. Creative concepts developed a solid reputation for its
creative designs and high-quality workmanship. Sales eventually encompassed the
entire northern region. Along with this growth came additional opportunities.
Traditionally, the company had focused entirely on custom-made pieces of
furniture, with the customer specifying the king of wood from which the piece
would be made. As the company’s reputation grew and sales increased, the sales
force began selling some of the more popular types of furniture pieces to retail
furniture outlets. This move into retail outlets led Creative Concepts into the
production of a more standard line of furniture. Byers of this line were much more
price sensitive and imposed more stringent delivery requirements than did clients
for the custom line. The custom designed furniture continued to dominate the
company’s sales, accounting for 60 percent of the volume and 75 percent of the
rupees sales. Currently, the company operates a single manufacturing facility
where both custom and standard furniture pieces are manufactured. The equipment
is mainly general purpose in nature in order to provide the flexibility needed for
producing custom pieces of furniture. The layout groups saws together in one
section of the facility, lathes in one another, and so on. The quality of the finished
product reflects the quality of the wood chosen and the craftsmanship of the
individual workers. Both the custom and the standard furniture pieces compete for
processing time on the same equipment by the same craftspeople.
During the past few months, sales of the standard line readily increased, leading to
more regular scheduling of this line. However, when scheduling trade-offs had to
be made, the custom furniture, was always given priority because of its higher
sales and profits margins. Thus scheduled lots of standard furniture pieces were left
sitting around the plant in various stages of completion.
As he reviews the progress of Creative Concepts, Vijay is pleased to note that the
company has grown: Sales of custom furniture remain strong, and sales of standard
pieces are steadily increasing. However, finance and accounting have indicated
that profits aren’t what they should be. Costs associated with the standard furniture
line are rising. Rupees are being tied up in inventory, both of raw materials and
work in process. Expensive public warehouse space has to be rented to
accommodate the inventory volume. Vijay also is concerned with increased lead
times for both custom and standard orders, which are causing longer promised
delivery times. Capacity is being pushed, and no space is left in the plant for
expansion. Vijay decides that the times has come to take a careful look at the
overall impact this new standard furniture line is having on his operations.
Questions for discussion:
What might Vijay have done differently to avoid some of the problems he now
faces?

Caselet-2- Fun Toys

Fun toys in Hyderabad, has been making traditional wooden hunting decoys since
1957. Manohar Naidu began the business by carving a couple of ducks a day by
hand. Demand and competition have long since driven the company to use modern
machinery and assembly-line techniques, and they how turn out two hundred ducks
daily even on the slowest days.

When Suresh, Manohar Naidu’s grandson, took over the business, he knew things
needed to change. Output hadn’t fallen, and the company was surviving financially
despite competition from what he called “plastic ducks” from the Far East. But
Suresh noticed that productivity per worker had stayed the same for ten years, even
during the period since the company had bought the latest equipment. While
touring the plant, he noticed many employees yawning, and he found himself
doing the same. No one quit. No one complained. They all gave him a smile when
he walked by. But no one seemed excited with the work.

Suresh decided to take a survey. He appointed a respected worker at each step in

the production process to ask each of his or her production process to ask each of
his or her coworkers questions and to fill in the response sheets. One conclusion
emerged from the survey: The “fine-tuners,” as Suresh thought of them, were the
most content. That is, those who used fine tools and brushes to get the ducks’
heads, expressions, and feathers just right seemed to enjoy their work most. In
contrast people who planed and cut the wood into blocks, rough-cut the body
shapes, spray-painted the body color, and applied the varnish were all pretty bored.

Suresh had heard about a technique called “job rotation” and decided to try it out.
He gave all workers a taste of the “fun” jobs. He asked for volunteers to exchange
jobs for one morning a week. The fine-tuners were skeptical, and the other workers
were only slightly more enthusiastic. The whole program turned out to be a
disaster. Even with guidance, the planers and spray-painters could not master the
higher-precision techniques, and the fine-tuners seemed willing to give them only
limited assistance. After one trial week, Suresh gave up.
During a lunch break that Friday; Suresh was wandering around outside the plant
bemoaning his failure. Then he noticed one of the rough-cutters, Rangarao,
whittling at something with an ordinary pocket knife. It turned out to be a block of
wood that he had cut incorrectly and normally would have thrown in the scrap
heap. But as price said, “It kind of looked like a duck, in a odd way,” and he had
started whittling on it in spare moments.

Suresh like what he saw and asked Price if he would be willing to sell him the duck
when he got through with it. Price looked surprised, but he agreed. The following
week, Suresh noticed that price had furnished the whittlign and was shading it in a
way that made it look even odder. When it was finished, Suresh offered it to one of
his regular customers, who took a look at it and said, “You’ve got hand made?”
and asked if he could order a gross.

By the middle of the next month, Suresh’s “Odd Ducks” program was in full
swing. Workers were still responsible for producing the usual number of
conventional ducks, but they were allowed to use company tools and materials any
time they wanted to work on their own projects. There were no quotas or
expectations for the Odd Ducks. Some employees worked on one for weeks; others
collaborated and produced one or more a day. Some wouldn’t sell their ducks but
crafted them to practice their skills and brought them home to display on their
mantels. Those who would sell them kept half the selling price. That price usually
did not amount to more than their regular hourly wage, but no one seemed to care
about the precise amount of income.

The response to the Odd Duct program was so great that Suresh put up a bulletin
board he called “Odd Letter” as a place to post appreciative notes from customers.
Mot of these customers, it seemed, had no interest in hunting but just liked to have
the ducks around. And when Suresh leaned that some of his customers were in turn
selling the ducks as “Manohar naidu’s old Time odd Ducks,” he did not complain.

Questions for discussion:

1. How did the “Odd Ducks” program enrich the jobs at Standard Decoy?
2. What motivated workers to participate in making the Odd Ducks?
Caselet – 3- Abaya Life
Today, many companies are experimenting with
Reengineering, the wide-spread redesign of jobs and critical processes in an
organization to increase efficiency, cut costs, increase customer satisfaction, and
gain a competitive advantage. Often, reengineering focuses on improving critical
organizational processes such as the way insurance claims are handled or how
customer orders and complaints are processed. Reengineering and the jobs
redesign that the accompanies if frequently result in higher levels of core job
dimensions such as autonomy and task identity.

Filling a claim with an insurance company, for example, can be an exercise in

frustration. After making an initial call to notify the company of an accident,
customers must to notify the company of an accident, customers must wait for
days, weeks, and sometimes even months for their claim to be settled. Because
many different employees are involved in processing the claim, there are many
opportunities for delay, and no one person is ever sure of exactly where in the
pipeline the claim is. As delays continue and questions go unanswered, customer
annoyance increases. Reengineering the handling of insurance claims can be
accomplished by reducing the number of steps and employees more autonomy to
make decisions. Levels of task identity also increase because the same employee is
more likely to handle a claim from start to finish.

Abaya Life & Casualty has made major changes in the ways it processes insurance
claims and in the design of jobs within its claim-processing units. Under its new
system, a customer whose car has been stolen calls an 2424 number. In a single
phone call, the customer is told where to pick up a rental car and who will be
handling the claim at Abaya, and the customer is given an appointment with a
claims adjuster. Under abaya’s old system, this procedure would have taken from
two to five days.

Levels of autonomy and task identity are likely to be higher under the new system
because workers have more discretion to make decisions and can handle most
claims from start to finish. According to the job characteristic model, these
increases in autonomy and task identity should have positive effects on the
intrinsic motivation of claims processors. The CEO of Abaya, Rohan Chopra,
expects such changes tohelp the company dramatically cut its costs and gain a
competitive advantage. In any case, customers appear to be delighted with the new
system. Abaya has been receiving fan mail from satisfied customers!

Questions for discussion:

 1. Do you think redesigning of jobs at Abaya contributes to enhance its
competitiveness?
2. Comment on the role of reengineering of processes in increasing the
motivation levels of the employees.

Caselet – 4- Crusher Section of Cement Plant

The operations that take place in the crusher section of cement plant are as below:

1) Unload the lime stone (at the warehouse)

2) Move materials to the crusher.
3) Load the crusher chute with material.
4) Wait till the crusher stops
5) Inspect the size of chips.
6) Load the chips into a trucker.
7) Transport the chips to the warehouse.
8) Unload the chips.
9) Store the chips until they are needed.

Questions for discussion:

Design a process chart for the operations.

Caselet – 5- Chabria Corporation

In the year 2000, Chabria Corporation produced and sold Rs.4 crore worth of high
performance ball bearings to the aerospace, industrial, and automative sectors.
Chabria’s employment totaled about 750 people. Nearly 600 worked in its largest
facility, in Lucknow with the rest in plants and offices in Delhi and Kolkata. About
half of the Lucknow contingent were shop-floor people, while the rest worked in
front-office support functions. The company had invested significant sums to
expand and modernize the Lucknow plant and strengthen the MIS system but had
not tampered with its organization or processes.

For a standard product, total through put time, from order receipt to shiptime,
totaled 10 to 15 weeks, provided that all went according to plan. Of that time, sales
took 3 to 5 weeks for order entry and processing, while operations took 7 to 10
weeks for manufacturing. In operations, there were six organizational levels from
the shop-floor employee to the head of the department. A typical purchase order
might require seven or eight signatures. Departmental loyalties were strong, and
interdepartmental coordination required numerous formal meetings. Sail one busy
manager, “we have morning meetings, afternoon meetings, quality review
meetings, engineering review meetings, purchasing meetings, make-buy meetings,
and meetings to schedule meetings”.

The production process for an average bearing began in the plant engineering
department, which developed the manufacturing drawings – except when supplied
by the customer. All parts passed through a handful of very expensive machines in
the two departments.

All production employees and equipments were organized by type of activity

rather than type of bearing or type of customer. For example, the same machine for
operator might be used in the fabrication of Rs.10 lakh bearing for a jet engine and
a Rupee 4000 bearing for a car engine. Most machine operators were paid on a
piecework basis. Material handlers, accounting for nearly 20 percent of the shop-
floor workforce, moved material from machine to machine and shop to shop in
carts specially designed to minimize damage.

Shipments were frequently held up for want of outside parts or because or internal
production bottlenecks. In some cases delays extended for several weeks,
infuriating customers. To cope, Chabria built up inventories of parts and work-in-
process at all stages. By 2000 inventories had risen to four months of sales. A
computerized material requirements planning (MRP) system introduced in the mid-
1990s at a cost of nearly Rs.10 lakh generated detailed reports on schedules,
inventories, and manufacturing costs (by order, by department, etc.). In addition,
production planning and control (PPC) held periodic meetings to review the status
of various jobs. When all else failed, the “sales action” group in the PPC
department shepherded high-priority orders through the production maze to placate
angry customers. Despite this, in 2000 only a fourth of all industrial orders and a
tenth of all aerospace orders were delivered on time.

To maintain in reputation for high-quality products, a big quality control

department inspected parts and subassemblies at every stage of the production
process. Inspectors used to send anything that fell short of meeting specifications
of network. Rework typically accounted for 25 percent of the output. A competent
15- person (recently downsized) new-products engineering department focused
heavily on product development for the automotive industry.

Questions for discussion:

Which principles of operations management, do you think, should be followed by

Chabria Corporation?
Caselet – 6- Former Soviet Union
Dramatic changes in the former Soviet Union have turned business conditions
there into a roller-coaster ride. The unstable situation has created a great deal of
uncertainty for firms that look at this part of the world as a market for goods and
services. Yet the size of the market and the potential for international expansions
remain tempting. Russia, with all its uncertainties, remains the most popular
destination among the common wealth of independent States (CIS).
“Only put in what you can afford to lost. Decide up front what you want – profits,
market share, and the like,” advises Erich Zarnfaller, senior international treasury
analyst at EG&G, Inc., a Wellesley, Massachusetts-based provider of
environmental management services and manufacturer of radiation and security
devices. Adds Kathy Creculius, a vice president at Bay Bank in Boston, “The
former USSR presents .….great risks. However, for those with ethnic and
linguistic ties to the CIS countries, with solid business experience and capital to
invest – and risk – there are now opportunities.” A recent survey of CFOs of
leading companies also echoes such sentiment of risk.
Also, most firms view most governments as being neutral toward U.S. Firms.
Some firms even found them to be a barrier to dong business. The following
incidents are reported by Intertech International Corporation, a Boston-based form
whose Austrian subsidiary was involved in a joint venture to install air-
conditioning systems in new buildings in the Republic of Georgia. The Soviet
embassy in Washington, DC, said a letter from the Soviet partner was not
sufficient to provide work and travel visas. But the soviet embassy in Vienna,
home of Intertech’s joint venture partner, did agree to provide visas based on the
same letter. Furthermore, in an attempt to send cargo by six precious weeks
waiting for bureaucrats in Moscow to “find” the shipment. In that time, the goods
could have been delivered by ocean fright to Vienna and trucked to the site. Such
are the remnants of an incredibly complex web of bureaucracy left in the aftermath
of decentralized control in the Soviet Union!

Questions for discussion:

1. Discuss advantages and disadvantages of facility location analysis in the old

Soviet Union with reference to the typical location selection criteria.
2. Discuss the issues involved in locating a specific company in Russia.
Caselet – 7- Auburn Machine Company

Auburn Machine Co. produces parts that are shipped nationwide. It has an
opportunity to produce plastic packaging cases, which are currently purchased at
Rs.70 each. Annual demand depends largely on economic conditions, but long-run
estimates are as shown in table.

If the company produces the cases itself, it must renovate an existing work are and
purchase a molding machine, which will result in annual fixed costs of Rs.8,000.
variable costs for labor, materials, and overhead are estimated at Rs.50 per case.

Questions for discussion:

1. Should Auburn Machine make or buy the cases?

2. At what volume of production is it more profitable to produce in-house
rather than purchase from an outside supplier?

Table: Estimated Demand

Demand Chance, %
20,000 10
30,000 30
40,000 40
50,000 15
60,000 5

Caselet – 8 Location of R&D Facility

-
The decision to locate a biotechnology research and developmental facility is based
on a number of factors ranging from the preferences of founding senior
management and proximity to educational/research institutions to the ability to
attract and retain employees.

The following table is based on a comprehensive survey of the biotechnology

industry in Bangalore State, concluded in 1999 that is still relevant today. Survey
respondents were asked to rate the importance of each location factor in their
decision to site a biotechnology R & D facility: 1 = Very Important, 2 = Important,
3 = Less Important, 4 = Not Important. Mean category represents the mean
importance score, while percent importance is the percentage of respondents who
answered either Very Important or Important.

Location Factor (n =
Mean (%)
50)
Founder/CRO wanted
1.33 93
to live in area
Proximity to
1.72 84
educational institution
Availability of
2.10 70
scientists
Ability of attract
2.12 74
employees
Availability of
2.12 70
technicians
Attractive physical
2.16 70
environment
Ample space for facility
2.49 61
expansion
Availability of existing
2.58 61
facility
Access to major airport 2.58 54
Productivity of
2.58 54
qualified labour

Questions for discussion:

1. Following the results of the survey which factors do you think will most
influence the location of the new firm? Why?
2. Explain the importance of “Proximity to educational institute in location
decision of this biotechnology firm?
Caselet – 9- Fun School
Fun School (FS), a toy manufacturer, has a policy to introduce one or two new toys
a year. In August 1999, the manufacturing manager, Mathew, has been informed
by his toy inventors that they have designed a talking Barbie doll. This doll will
stand two feet high and is capable of telling jokes via an electronic voice
synthesizer. One of the company’s three manufacturing staff departments, design
engineering, states that the product can be made primarily from molded plastic
using the firm’s new all-purpose molders (now used for making small attachments
to the firm’s wooden toys). FS in its previous initial production of new toys, has
relied heavily on its skilled workforce to “debug” the product design as they make
the product and to perform quality inspections on the finished product. Production
runs have been short runs to fill customer orders.

If the talking Barbie doll is to go into production, however, the production run size
will have to be large and assembly and testing procedures will have to be more
refined. Currently, each toy maker performs almost all of the processing steps at
his or her workbench. The production engineering department believes that the
assembly of the new toy is well within the skill levels of the current workforce but
that the voice synthesizer and battery-operated movement mechanism will have to
be subcontracted. FS has always had good relations with subcontractors, primarily
because the firm has placed its orders with sufficient lead time so that its vendors
could optimally sequence. FS orders with those of some larger toy producers.
Mathew has always favored long-range production planning so that he can keep his
30 toymakers busy all year.

The marketing department has forecast a demand of 50,000 talking Barbie dolls for
the coming month. The dolls should sell at retail for Rs.980. a preliminary cost
analysis from the process engineering department is that they will cost no more
than Rs.410 each to manufacture. The company is currently operating at 60
percent capacity. Financing is available and there is no problem with cash flow.
Mathew is wondering if he should go into production of talking Barbie dolls.

Questions for discussion:

How consistent is the talking Barbie doll order with the current capabilities and
focus of FS?