CHAPTER 1

Operations management

Short case: Dealing with variety – two examples

The Bombay Tiffin Box Suppliers Association (TBSA) operates a service to transport
home-cooked food from workers’ homes to office locations in downtown Bombay.
Workers from residential districts must ride commuter trains some 30–40 km to work.
Typically, they are conservative diners, and are also constrained by strong cultural taboos
on food handling by caste, which discourage eating out. TBSA arranges for food to be
picked up in the morning in a regulation tin ‘tiffin’ box, deposited at the office at lunch time,
and returned to the home in the afternoon. TBSA takes advantage of public transport to
carry the tins, usually using otherwise under-utilised capacity on commuter trains in the
mid-morning and afternoon. Different colours and markings are used to indicate to the
(sometimes illiterate) TBSA workers the process route for each tin.

For as long as ships have navigated the seas, ports have had to handle an infinite variety
of cargo with widely different contents, sizes and weights, and, whilst in transit or in
storage, protect them from weather and pilferage. Then, the transportation industries, in
conjunction with the International Standards Organization (ISO), developed a standard
shipping container design. Almost overnight, the problems of security and weather
protection were solved. Anyone wanting to ship goods in volume only had to seal them in
a container and they could be signed over to the shipping company. Ports could
standardise handling equipment and dispense with warehouses (containers could be
stacked in the rain if required). Railways and trucking companies could develop trailers to
accommodate the new containers. Such was the success of the new design that very
soon specialist containers were developed which conformed to the ISO standard module
sizes, for example, refrigerated containers that provide temperature-controlled
environments for perishable goods.

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 Slack: Operations Management, 5th edition

Questions

1. What are the common features of these two examples?

2. What other examples of standardisation in transport operations can you think of?

Answer

This example can be used to promote a discussion on the nature of variety and its
implications for operations (and other) processes. It can even be used as an introduction
to the concept of mass customisation. Although it could be used anywhere within a
general introduction to operations and process management, it may best be exploited
during the discussion on how processes differ in terms of the four Vs (volume, variety,
variation, and visibility).

1. What are the common features of these two examples?

As the title of the case study implies, both are methods of dealing with complexity. Both
address an operations problem where there is, theoretically, an infinite variety of
transformed resources to be processed into an infinite variety of products (different
destinations). Anything that can control this complexity must have very significant
operational advantages.

Both also address what was a growing need at the time. The TBSA catered for the
growing number of clerical workers who were needed to staff the huge Indian
government bureaucracies. The ISO container was developed to cope with the growing
volume of world trade.

A third commonality is that both deal with the considerable complexity mentioned
earlier. Quite simply, the services could not operate at anything like an affordable cost if
variety was not controlled.

Another similarity is that the return journey of the containers is simply a mirror image of
the outward journey. The routing information on the containers allows simple routing
and allows containers to be returned to the same place (far more important in the
example of TBSA than in the ISO containers).

Finally, both containers provide ‘protection’ for their cargo. Containers can be left out in
the rain and tiffin boxes keep the food warm and protect it from contamination.

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2. What other examples of standardisation in transport operations can you

think of?

The transport industries of the world often focus on standardisation so as to limit

exposure to variety. For example, some document courier services will limit the size of
the package that they will carry. They may also provide a standardised package free to
their customers to ensure standardisation of size, labelling, etc. Similarly, a passenger
airline will transport multiples of basic units like people and ensure that cabin baggage
conforms to a maximum size and weight. Attempting to take a wheelchair, bicycle or
llama (!) on a scheduled flight causes problems because of their non-standard nature.

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 Slack: Operations Management, 5th edition

Short case: Swatch revolutionises watch manufacture

In the early 1980s, the Swiss watch industry was nearly dead. Competition from cheap,
but often high-quality, products from Far Eastern manufacturers, such as Seiko and
Casio, had almost obliterated the traditional Swiss industry. Trying to protect their
investments, the Swiss banks organised a merger of the two largest companies on the
advice of Nicolas Hayek, now boss of Swatch’s parent company SMH, which was formed
from the merger.

Hayek saw the potential of a new plastic-cased watch which was already being developed
inside one of the companies. One of its major advantages was that it could be made in
high volume at very low cost. The quartz mechanism was built directly into the all-plastic
case using very few components, less than half the number in most other watches. Fewer
components also meant that the manufacture of the watch could be fully automated. This
made Swatches cheap to produce, even in Switzerland, which has one of the highest
labour costs in the world.

The innovative design, some creative marketing, but above all else the operation’s
success at producing the watch cheaper than anyone else brought the company
significant rewards. In the early 1980s, the total market share for all Swiss watches was
around 25 per cent; 10 years later it had more than doubled. The ability to offer a good
watch at a low price had released the potential of the watch to become a fashion
accessory.

Swatch’s operations reaped the benefits of high volume, but had to cope with an ever-
increasing variety of product designs. Through automation and rigid standardisation of the
internal mechanism of the watch, the company managed this increase in variety without
crippling its costs. It is the success of the company’s operations managers in keeping
their costs low (direct labour cost is less than seven per cent of the total cost of
production) that has allowed Swatch to succeed.

Not that everything the company has done has been successful. Some designs never
caught the public imagination and some distribution and marketing mistakes were made,
especially in the United States. However, continuing innovation, high quality and low cost
make it much easier to overcome such problems.

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 Slack: Operations Management, 5th edition

Questions

1. What do you think has been the contribution of the marketing function, the product
design function and the operations function to the success of Swatch?

2. How do you think Swatch compares with most watch manufacturers?

Answer

1. What do you think has been the contribution of the marketing function,
the product design function and the operations function to the success of
Swatch?

Swatch is a good example of the way three sets of competitive abilities in a company
relate to each other. The three key contributions to Swatch’s success (the three
important micro operations) are the way Swatch has:

1. developed its products and services;

2. positioned itself in the market; and

3. created its products and services.

The original stimulus for Swatch’s success lay in its product design. The Swatch design
was particularly innovative, incorporating a plastic case, and designed with relatively
few parts. This resulted in a watch that was robust, capable of adapting to changes in
fashion, and that required relatively inexpensive parts and materials. This allowed the
product to be positioned in the market place as an item of ‘mass fashion’. It was easily
recognisable and stylish, yet sufficiently affordable to sell in large numbers. The design
was also eminently manufacturable. Parts were standardised and the design was
intrinsically easy to make. This manufacturability combined with higher volumes further
reduced the cost of manufacturing the product.

2. How do you think Swatch compares with most watch manufacturers?

Swatch has a range of products that are essentially very similar, but customised ‘at the
last minute’. This allows it to operate at relatively high volume and low variety for
much of its manufacturing process. It therefore has a relatively simple and relatively
cheap manufacturing operation, while at the same time allowing ‘mass fashion’
orientation of its marketing. Given this, Swatch will have a higher degree of automated
machinery (because of the high volume and the standardised parts) and rely less on
skilled labour. It will almost certainly put more effort into its design activities than most
other watch manufacturers.
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 Slack: Operations Management, 5th edition

Short case: The Henry Ford of ophthalmology

High-volume operations can be found in some surprising places – even surgery. Not all
surgery conforms to our preconception of the individual ‘super-craftsperson’, aided by his
or her back-up team, performing the whole operation from first incision to final stitch.
Many surgical procedures are, in fact, fairly routine. However, there can be few examples
of surgery being made quite as routine as in the Russian clinics of eye surgeon
Svyatoslav Fyodorov.

He has been called the ‘Henry Ford of ophthalmology’, and his methods are indeed closer
to the automobile assembly plant than the conventional operating theatre. The surgical
procedure in which he specialises is a revolutionary treatment for myopia (short-
sightedness) called radial keratotomy. In the treatment the curvature of the cornea is
corrected surgically – still a controversial procedure among some in the profession, but
very successful for Fyodorov. From his Moscow headquarters, he controls nine clinics
throughout Russia.

The source of his fame is not the treatment as such – other eye surgeons around the
world perform similar procedures – but the way he organises the business of the surgery
itself. Eight patients lie on moving tables arranged like the spokes of a wheel around its
central axis, with only their eyes uncovered. Six surgeons, each with his or her ‘station’,
are positioned around the rim of the wheel so that they can access the patients’ eyes.
After the surgeons have completed their own particular portion of the whole procedure,
the wheel rotates round to take patients to the next stage of their treatment. The surgeons
check to make sure that the previous stage of the operation was performed correctly and
then go on to perform their own task. Each surgeon’s activity is monitored on TV screens
overhead and the surgeons talk to each other through miniature microphones and
headsets.

The result of this mass production approach to surgery according to Fyodorov is not only
far cheaper unit costs (he and his staff are paid for each patient treated, so they are all
exceptionally wealthy as a result), but also a better success rate than that obtained in
conventional surgery.

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 Slack: Operations Management, 5th edition

Questions

1. Compare this approach to eye surgery with a more conventional approach.

2. What do you think are the advantages and disadvantages of this approach to eye
surgery?

Answer

1. Compare this approach to eye surgery with a more conventional

approach.

One way of comparing these two processes is to use the four Vs, volume, variety,
variation and visibility. The figure below positions each process on the four dimensions.

Conventional eye
surgery Fyodorov method
Low Volume High

Variety
High Low

Variation
High Low

High Visibility Low

Volume – the Fyodorov method is devoted to a single type of eye surgical procedure
carried out at high volume. Conventional eye surgery is likely to have far lower volume
for each type of eye surgery, partly because it has a higher variety of surgical
procedures.

Variety – as implied above, conventional eye surgery could deal with any sort of eye
complaint; Fyodorov specialises in one type.

Variation – some types of eye surgery will be performed as emergencies, e.g. trauma
injuries to the eye. These cannot be predicted in advance and are likely to cause
turbulence in planning and some variation in demand level. Fyodorov’s method, on the
other hand, is used on non-urgent cases that can be queued (stored) as inputs to the
process, which will level demand on the process.

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Visibility – both processes are relatively high visibility because the patient has to be
there to be ‘processed’. However, the extra diagnostics and possibly multi-stage surgery
required in conventional eye surgery could be seen as having higher visibility.

2. What do you think are the advantages and disadvantages of this

approach to eye surgery?

The advantages are largely concerned with the low cost of processing patients under the
Fyodorov method, which will result in lower prices for the surgery. The repetition
involved may also allow industrial process control methods to improve the process
technically and ensure a high level of conformance in the operation (that is, fewer
mistakes). The limitations are that the process is extremely inflexible; it cannot cope
with high variety. It could also be boring for surgeons, a class of labour who usually
prefer the excitement of variety.

The advantages of conventional surgery are the mirror image of the disadvantages
above. Namely that conventional eye surgery can cope with a wide variety of possible
eye complaints. The diagnosis procedure may also be more sophisticated and therefore
more likely to detect non-obvious symptoms. The disadvantage is its low volume, high
variety, high variation and high visibility make it expensive.

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