OPS FINAL FRAMEWORK

TIPS
● Make a running list of issues going through the case to refer back to when doing recs
● It’s ok to repeat ourselves
○ Decision is writing an essay, analysis before is the citations/sources
● DRAW IMPLICATIONS (assume prof has zero critical thinking skills)
○ Growing at 30% → why do we care???

STRUCTURE

1) Context
● Role: Who are we and how much power do we have? (will most likely be a VP of ops)
○ Keep in mind the corporate structure:

● What are the symptoms of the issues? Do we know the root cause?
● What is the decision / what options do we have? (see above)
● Timing? Is the decision urgent?

2) Size-up

a) External (pick and choose relevant points)

● PEST
● Industry performance overall
○ Competitors
○ Fragmented?
○ Growth → Is this somewhere we want to compete?
● What do consumers want? (Cost,Quality, Delivery, Flexibility)
b) Internal
● What business are we in?
● Competitive priorities (COP) / How do we compete?:
○ Cost
○ Quality → in today’s age, no longer a source of comp adv, but required
○ Delivery → efficiency is also ^
○ Flexibility
■ SKUs (what products do we offer - customization)
■ Manufacturing (do we have capability to ramp up production - flexibility to
meet demand)
● COP from midterm:
○ Order qualifier (KSF): keeps you in the market
○ Competitive priority (competitive advantage): what makes you better
○ COP falls under either of those
■ Cost/Price: cost for customers, always mention
● ex. McDonald’s
■ Quality:
● performance (how high your standards are)
● conformance (consistency to a standard)
■ Reliability:
● How well a product works properly/service being performed during
a period of time
● Critical when costs of failure or downtime is high (ex. telecoms)
■ Flexibility: how well processes can adapt to differing volumes
● ex. Onnie’s Jewelry - event management had to be flexible to
accommodate various groups of people
● ex. Zara adapts quickly to fast fashion trends
■ Time: delivery speed, on time delivery
● Lead time (time between order placement and order delivery)
● threshold to meet for each industry
● ex. Amazon (prime delivery!)
■ Customer Experience: customer participation, customer connection
● ex. Benihana, luxury hotels
■ Innovation: product innovation
● Breadth of products, ability to customize customer orders
● Ex. Apple (new iPhone every year)
■ Sustainability: recyclable materials, durable products, sourced
responsibly, etc.

● What is the Corporate strategy?

○ Does it align with Operational strategy?
○ Is it long-term or short-term? (think Morrison → short-term)
● Culture? (Benevento)
● Supply chain strategy
○ Made to Stock / Made to Order
■ Made to stock / PUSH (little customization)
● Make inventory before demand
● Want: keep more finished goods on hand
■ Made to order / PULL (more customization, more variability, longer
throughput time)
● Demand before inventory made
● Want: keep more raw material on hand (faster turnaround time)
○ Product Demand Uncertainty Framework (Scientific Glass)

High Risk-hedging/ Agile

Supply (Evolving Resistant (high tech,
Uncertainty Process) (renewable telecom,
energy, some semiconductors)
food products)

Low Efficient Responsive/

(Stable (grocery, basic Flexible
Process) apparel, oil & gas, (fashion, pop
commodities) music,
computers)

Low (functional High

products) (innovative
product)

Demand Uncertainty

○ Peco:
Efficiency
Supply
Chain Responsive

Functional Innovative

Product
● Efficient: focus on producing the highest cost efficiencies in supply chain → eliminate
non value added activities and leverage information technology to maximize capacity
utilization in production and distribution
○ Achieved through productivity improvements and effective logistics and
distribution
○ Using lean operations, automation, facility layout, workflow streamlining
● Risk-hedging/Resistant: focus on sharing resources (ex. Pooled inventory to prevent
fulfilment disruptions or multiple supply bases)
● Responsive/Flexible: focus on maintaining enough flexibility to respond to shifts in
demand (suitable when demand is highly unpredictable with short selling season which
could result in excess inventory)
○ Postponement and build to order strategies
○ Zara→ changed from dying yarn and then knitting to dying whole garments
● Agile: focus on maintaining responsiveness to customer’s needs but also pool
inventories and other capacity resources

○ [Supply Chain Management reading]:

■ Is there coordination and collaboration along the supply chain?Are parties

working together in the interest of the whole supply chain? Or are there
inefficiencies?
■ Is there information sharing? (this is valuable)
● Need to align parties’ incentives for this to happen

3) Diagnosis

a) Qualitative
● Fishbone analysis/6Ps
○ What is causing the issue?
■ Plant/Equipment
■ Process
■ People
■ Parts/Materials
■ Partners/Environment
■ Policies/Management
● Production Issue?
○ Demand vs. Capacity (Defect) (Variability) (Growth Projection)
○ Quality Management
● Supply Chain Issue?
○ Inventory Management
● Firm Issue?
○ Production Policy
● 5 Whys
● Is there tension in the strategies of different departments/
○ Marketing: makes promises
○ Finance: controls and distributes cash to execute promises
○ Operations: executes on promises
● Continuous review model: inventory is continuously updated and monitored and if it
reaches below a specific level, inventory is replenished
○ PROS:
■ Review frequency of each item may be individualized – reduce total
ordering and holding costs
■ Lower safety stock = cost savings
■ Real-time visibility: Provides real-time information on inventory levels,
allowing businesses to quickly identify shortages or excess stock.
■ Reduced stockouts: With constant monitoring, there's a lower risk of
stockouts, as reorder points are constantly adjusted based on demand.
■ Better inventory control: Helps in maintaining optimal inventory levels,
reducing holding costs without compromising on customer service.
■ Enhanced accuracy: Continuous monitoring minimizes the chances of
errors in inventory counts and improves accuracy in demand forecasting.
■ Supports just-in-time (JIT) inventory: Facilitates JIT inventory
management, allowing businesses to minimize inventory holding costs
and streamline operations.
○ CONS:
■ Higher administrative costs: Requires more resources and investment
in technology to maintain real-time monitoring systems.
■ Increased complexity: Continuous monitoring systems can be complex
to set up and manage, requiring sophisticated software and trained
personnel.
■ Risk of overstocking: Constant monitoring may lead to overordering if
demand patterns are not accurately predicted, increasing the risk of
inventory obsolescence.
■ Dependency on technology: Relies heavily on technology for accurate
and timely inventory tracking, making businesses vulnerable to technical
failures or system errors.
■ Potential for inventory shrinkage: Continuous monitoring may reveal
discrepancies in inventory counts, highlighting instances of theft or
shrinkage that may otherwise go unnoticed.
● Periodic review model: inventory is checked periodically after a predetermined period of
time and is only replenished if inventory is below specific level
○ order quantity = expected demand during order interval + expected demand
during LT + safety stock - current inventory on hand
○ PROS:
■ Administration of the system is convenient – fixed interval replenishment
■ Orders can be combined into a single purchase order – reduced ordering
and transportation costs
■ Inventory position only needs to be known when a review is made
 ■ Simplicity: Periodic reviews are simpler to implement and require fewer
resources compared to continuous monitoring systems.
■ Lower administrative costs: Typically involves less administrative
overhead and technology investment compared to continuous inventory
systems.
■ Flexibility: Allows businesses to adjust inventory levels periodically
based on seasonal fluctuations or changing market conditions.
■ Reduced risk of technology dependency: Relies less on technology for
inventory management, reducing vulnerability to technical failures or
system errors.
■ Ease of implementation: Easier to implement for small businesses or
those with limited resources and technical capabilities.
○ CONS:
■ Limited visibility: Provides less real-time visibility into inventory levels,
making it more challenging to respond quickly to changes in demand or
supply.
■ Higher risk of stockouts: Increased risk of stockouts due to less
frequent monitoring and adjustment of reorder points.
■ Inventory discrepancies: Less frequent inventory counts may result in
discrepancies between recorded and actual inventory levels, leading to
inaccuracies in financial reporting.
■ Higher holding costs: May result in higher inventory holding costs due
to less precise inventory control, leading to excess stock or shortages.
■ Difficulty in identifying inefficiencies: Lack of real-time data makes it
harder to identify inefficiencies in inventory management processes and
optimize inventory turnover.
● Optimal Stock Levels
○ Overstocking: Amount available exceeds demand
■ Liquidation, obsolescence, holding
○ Understocking: Demand exceed amount available
■ Lost margin and future sales

b) Quantitative
● Ratios
● Product level (Morrison)
● COGS Analysis
𝑎𝑛𝑛𝑢𝑎𝑙 𝐶𝑂𝐺𝑆
○ Annual inventory turns = 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑙𝑒𝑣𝑒𝑙
■ higher the number = higher inventory turns (efficiently managing
inventory, but higher risk of stockouts and higher ordering costs)
■ Amount of inventory used that costs how much % of COGS to generate
sales
365 𝑑𝑎𝑦𝑠 𝑥 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑙𝑒𝑣𝑒𝑙 365 𝑑𝑎𝑦𝑠
○ days of inventory = 𝑎𝑛𝑛𝑢𝑎𝑙 𝐶𝑂𝐺𝑆
= 𝑎𝑛𝑛𝑢𝑎𝑙 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑡𝑢𝑟𝑛𝑠
● Capacity Utilization → when do we run out of capacity, what does it take to invest in
capacity, do we have capacity for change?, where is the bottleneck?
○ Capacity utilization = demand/capacity
● Economic Order Quantity (EOQ) → determines HOW MUCH TO ORDER
○ Assumptions:
■ Holding Cost/Year/Item (H),
■ There is no demand uncertainty (knows future demand)
■ Demand is constant (D)
■ Inventory is replenished immediately (order fulfilment lead time is 0)
■ Fixed order cost independent of number of units ordered (S)
■ Production is instantaneous - no capacity constraints and entire lot
produced simultaneously
■ Delivery is immediate - no lag between production and availability to meet
demand
■ Production run incurs a constant set-up - regardless of size of lot or state
of the factory
■ Products can be analyzed singularly - single product or conditions ensure
separability of products

○ Total costs = annual inventory carrying costs + annual holding costs

■ Optimal order quantity: Q = square root (2DS/H)

■ D = Annual Demand (units/year)

■ N = Number of orders placed per year (orders/year)
■ Q = order quantity (in units/order)
■ H = annual inventory carrying cost/unit, the annual cost to store one unit
in inventory for one year (in $/unit-year)
● H = ((COGS/Demand) * Holding Cost)
 ○ H = purchase cost * annual holding cost
○ One unit of inventory for a year
○ Remember to add cost of obsolescence (20%)
■ S = ordering/setup cost, the cost to place and receive an order, assumed
to be independent of the number of items ordered (in $/order)
● S = ((cost/unit/setup) + (cost/hour/setup))
■ C(Q) = annual cost associated with order size Q (in $/year)
■ For order quantity Q:
● Average inventory level is Q/2 units
● Annual inventory carrying cost = Q/2 * H = X $/year
● Number of orders place per year = D/Q
● Annual order cost = D/Q * S
○ Reorder point = demand during lead time = annual demand rate * lead time in
years
■ Determines WHEN TO PLACE ORDER
● ABC Analysis → method of dividing items into three classes according to their dollar
usage so focus can be placed on important items
○ Athletic knit example: demand vs. number of SKUs
○ Customer angle
■ Which customers are the least profitable? Do they add a lot of variability?
Can we choose not to serve them?
○ Product angle
■ Which products have the least margin and volume sold is low? Do they
use a lot of resources? Can we get rid of them to cut down on variability?
● Cost of Quality → quality issue?
○ Costs $ to ensure quality
■ Appraisal: auditing, reviewing areas where quality is good/bad
■ Prevention: redesigning the process to remove causes of poor quality,
redesigning product to make it simpler to manufacture, ongoing
maintenance, employee training, quality testing,
■ Internal failure: rework + scrap costs, lost time and resources
■ External failure: litigation + warranty service costs, reputation
■ → appraisal and prevention are in your control - higher investment in
these means lower overall cost of quality
● Newsvendor (service levels) → probably not applicable
○ Products can be bought for C and sold for P, but unsold products are scraped for
V
○ Cost of underage
■ Loss of profit from each product if there isn’t enough supply
■ CU = P – C
○ Cost of overage
■ Actual loss for each product if there are too many
■ CO = C – V
○ Critical Ratio/Service Level
 ■ Best quantity chosen so you have the probability of having enough
products
■ CU / (CU + CO)
● Quality (Statistical Process Control) → probably not applicable

4) Analysis of Alternatives
● Pros and cons of given alternatives + provide new alternatives after running diagnosis
● Will the alternative actually address the root cause / core issue?

Types of Recommendations/Options:

a) Structural Decisions
● Facilities
○ Open a new plant / moving to a larger area
○ Location
● Process tech and equipment
○ Implement an ERP/CRM system?
● Degree of vertical integration
○ In house vs outsourcing
■ (Pros) of in house
● Control over the process
● Quality
● Speed (short lead time)
● Highest gross margin (rev - COGS)
● Incurs less cost of inventory
● Adaptive to changing consumer demand
■ (Cons) of in house
● High Capex
● Requires manufacturing capability
○ Third way
■ (Pros)
● Increased trust with suppliers
● Middle ground between shorter lead times without high capex
■ (Cons)
● Sharing expertise (secrets revealed, extra costs)
● Lack of ownership of materials
● Hard to convince existing suppliers to adapt
● Capacity
Type Solution
Short-Term Capacity Add or share equipment
Adjustment
Sell / Buy unused capacity
Change labor capacity and
schedules
Change labor skill mix
Long-Term Capacity Reduce setup time
Adjustment
Minimize non-value-add
activities
Expand/reduce current facilities
Adjusting demand Vary price of goods
(ie. seasonality)
Advertise and promote
Add peripheral goods / services
Example
Lease equipment as needed,
partnership arrangement with capacity
sharing
Sell idle capacity to outside buyers
and even competition
Outsource?
Short-term changes in work force
levels (overtime, undertime,
temporary)
Hiring the right people
Avoid switching operations frequently
on the same machine
Transport, rework, wait times, testing /
inspecting
Build an extension, buy a new facility
Price is powerful in influencing
demand
Promotions strategically distributed to
increase demand during periods of
low sales or excess capacity
Change demand during slack periods

● Buffer Inventory
Solution Purpose Example
Safety Stock Protect against uncertainties and random Improve demand
variation in demand / lead time / processing forecasts, get customers
time / quality / supply to order before they
- Place an order for delivery earlier need, more flexible
than when item is needed equipment / workers,
- Reduction Tactics shorten lead times
● Reduce random variation
● Reduce demand, supply,
delivery, operations
uncertainty
Decoupling Inventory Adapt to different rates / patterns of Slow down really fast
(to defend against production between two departments; items
supply uncertainty) smoothens flow of items; predictable
variation
- Reduction Tactics
● Reduce predictable variation
● Better coordination and
adjustment of output rate of
individual operations
Anticipation Absorb uneven, predictable rates of Off-season promotional
(long-term and more demand/supply; e.g. seasonality campaigns, seasonal
predictable) - Reduction Tactics pricing, add new
● Better match demand and products with different
production rates seasonal demand cycles,
● Level customer demand build in capacity to
handle peak demand
Cycle Inventory Vary size of batch and vary the inventory Reduce batch size,
decrease set up time
Pipeline Inventory Inventory moving from point to point in the Shorten distance
materials flow system between you and
- Based on the average demand suppliers
during an items lead time Ex. Amazon
- Reduction Tactics
● Reduce lead time
● More responsive suppliers,
speed ordering and shipment
process, improve materials
handling

b) Infrastructural Decisions
● Production planning and control
○ Forecast better (review and adjust based on historical data and feedback, use an
inventory tracking system, use a scheduling software)
■ (Cons) getting accurate data is difficult, high costs, limited flexibility
(underage costs), unable to control external parties
● QA
○ Increase appraisal and preventative costs
■ (Pros) decrease internal failure and external failure costs
■ (Cons) takes time and money
● Performance measurement (KPIs) and rewards/incentives
○ Change incentive systems
■ (Pros) more productive employees, culture aligns with operational
strategy
■ (Cons) hard to create effective incentive systems (Scientific Glass)
■ → Goals have to be achievable
● HR policies
○ Hire more or less / targeted skills
○ Cross training
○ Better training programs

c) Integration Decisions
● Supplier relationships
○ Improving relationship with one supplier | CPER (collaborative, planning,
forecasting, and replenishment) → share strategic plans, performance data and
market insights with distributor/supplier
 ■ (Pro) supplier has better inventory management because they can more
accurately predict our demand → their lead time is shorter → turnaround
is faster for us, can also decrease costs for both players
■ (Pros) increase products’ shelf-fill rate (in retail store) to earn more sales
■ (Con) takes time to build trust and become heavily reliant on one player
○ Increasing the number of suppliers
■ (Pro) defend against uncertainty with few suppliers
■ (Con) we are not a priority customer for any supplier due to having
smaller and less predictable shipments → longer lead times, higher costs,
etc.

d) Congruence with other departments? (Marketing, Finance)

● Move marketing into the same facility as ops?
○ (Pro): better communication, faster decision making, can promise what we can
deliver
○ (Con): do they want to move? probs not. Is there enough space?

e) Triple Bottom Line

● Revenue Expansion
○ New products, expanded markets, customer loyalty
○ “Greenwashing”, advertising, philanthropy, halo effect
● Cost Reduction
○ Pollution prevention, resource efficiency, tracking and handling
● Risk Reduction
○ Stakeholder engagement, hazardous materials and operations, questionable
supply chains
● Buy Green, certified fair trade
● Buy direct, work with farmers in China
● Backward integration (merge with raw material suppliers)

Quantitative
● Capital investment
○ Differential analysis
○ Payback
○ ROI
○ DCF

5) Recommendations

a) Which decision and why?

○ Qual reasoning:
■ Link analysis and goals
■ Link back to operational strategy → rec enables supply chain to fit with
what customers want (competitive priorities)
 ■Link corporate strat and ops strat
● Make sure marketing aligns with operational capabilities
■ Pros of decision and cons of alternatives
■ Need focus → can’t be all things to all people (Morrison)
○ Quant Reasoning
○ Pros of decision and cons of alternatives
■ Are there qualitative risks that quant models don’t consider? And that
outweigh quant pros?
● CCS: Moving to mexico had a 4.1% ROI, but many risks that
made it not worth
b) Action plan
○ Timeline (Quantify days, months, years, etc)
■ Immediate
■ Short term
■ Mid term
■ Long term
○ What, WHEN, who, how, where, why
○ Risk and mitigation
CASE TAKEAWAYS:
Benevento:
● Problem: Quality
● Root Cause: culture (no communication, or preventative measures), processes for
quality control in place, but not adhered to
● Solutions:
○ Culture & People:
■ feedback loop and continuously improving - not “no news is good news”
■ reward speaking out about issues
■ increase hiring of maintenance workers + training
■ management problem - set vision, attitude and standards
○ Process:
■ fix machines to be more automated and eliminate human
redundancy/error
■ add WIP to system
■ preventative maintenance
■ decrease expediting orders
● Learnings:
○ Make sure we trust the data
○ Fishbone analysis to uncover root cause
○ 5 Whys

Athletic Knit:
● Problem: Inventory Management → high carrying costs
● Analysis: EOQ to calculate actual amount of inventory needed on hand vs. current days
and ABC analysis
● Root Cause: Carrying more inventory than necessary
● Solutions:
○ short term: increased inventory to reduce backorders
■ backorders more expensive than extra inventory
■ consider peak and low seasonality trends
○ long-term: implemented Kanban system
■ build smaller batch sizes - JIT inventory
■ restructured shelving system in warehouse
■ bin location for each style: more accurate inventory tracking and recovery
■ ID reorder point for each style
■ based on seasonality, maximum inventory allowed, and last date material
was used
■ pick and choose reasonable customers - one that show flexibility and
understand expedited cost and impact to your P/L

● Learnings:
○ ABC analysis
○ EOQ
Scientific Glass
● Problems: excess inventory,
● Root Cause: tensions within marketing, finance, and operating strategies
● Solutions:
○ 1 warehouse
○ change 99% service level to optimal
○ No outsourcing
● Learnings:
○ Continuous review system
■ Re-order point when demand is certain 🡪 demand during lead time
■ Re-order point when demand is uncertain 🡪 average demand during lead
time + safety stock
○ Service level
○ Finding the safety stock
○ Annual cycle inventory holding cost + annual ordering cost + annual safety stock
holding cost

Nestle
● Triple Bottom Line: doing well by doing “good”
○ Service the varied interests of the firms direct stakeholders, communities, public
and environment
○ Sustainability: doing “good” and “right to do” business without negatively
impacting the environment, community or society
○ Social Responsibility: obligations of firms to its stakeholders, fulfillment is
intended to minimize any harm to and maximize long term benefit of the firm on
societal issues
○ Sustainable Development: approach to economic development without
compromising the quality of the environment
○ Shared Value: firm policies and operating practices that enhance competitiveness
while also advancing the economic, environment and social conditions in the
communities in which it operates
● Sustainability can be a source of competitive advantage IF DONE WELL
○ Ex. patagonia
● But for nestle, all about risk management
● Not all about supply chain, but can be stuff outside of that
● Buyer-supplier relationship used to be cost, quality, and delivery
● As consumer, want to bring transparency into supply chain → hard to make it happen

JAPAN:
● Heijunka (Production Leveling): This involves smoothing the production schedule to
reduce fluctuations, avoid overproduction, and respond more efficiently to changes in
customer demand.
○ Fluctuating Customer Demand: Heijunka is ideal for managing variability in
customer demand by leveling production to match the demand pattern. Instead of
 producing in large batches based on forecasted demand, Heijunka spreads
production evenly over time, allowing companies to respond more effectively to
fluctuations in customer orders without overburdening their resources or creating
excess inventory.
○ High Variability in Production Processes: Production processes with high
variability can lead to inefficiencies, delays, and waste. Heijunka helps stabilize
production by smoothing out variations in workflow, reducing the impact of
sudden changes or disruptions, and maintaining a more predictable and
consistent pace of work.
○ Inventory Management Challenges: Heijunka addresses inventory management
challenges by reducing the need for excess inventory buffers. By leveling
production and synchronizing it with customer demand, companies can minimize
inventory carrying costs, free up valuable storage space, and avoid the risks
associated with excess or obsolete inventory.
○ Uneven Workload Distribution: Uneven workload distribution among production
resources can lead to inefficiencies and bottlenecks. Heijunka helps balance
workloads by distributing production activities evenly across workstations or
production lines, optimizing resource utilization, and minimizing idle time or
overburdening of specific resources.
○ Frequent Changeovers and Setups: Heijunka encourages companies to minimize
changeovers and setups by grouping similar production tasks together and
sequencing them in a way that minimizes disruptions and maximizes efficiency.
By reducing changeover times and optimizing production sequences, companies
can improve throughput, reduce downtime, and increase overall productivity.
○ Quality Control and Process Stability: Heijunka promotes a more stable and
controlled production environment, which is essential for maintaining consistent
quality standards. By stabilizing production processes and reducing variability,
Heijunka helps identify and address quality issues more effectively, leading to
fewer defects, rework, and customer complaints.
● Jidoka (Autonomation): This principle involves building quality into the production
process by stopping the production line when a defect is detected, addressing the issue,
and then resuming production.
● Kaizen (Continuous Improvement): TPS encourages a culture of continuous
improvement, where employees at all levels are empowered to identify and implement
improvements in their work processes.
● Just-in-Time (JIT) Production: The aim is to produce items at the exact time they are
needed in the production process, minimizing waste and reducing inventory costs.
○ Excess Inventory: JIT helps companies reduce excess inventory by
synchronizing production with customer demand. By producing only what is
needed, when it is needed, JIT minimizes the need for storing large quantities of
finished goods, raw materials, or work-in-progress inventory. This reduces
carrying costs, frees up valuable storage space, and minimizes the risk of
inventory obsolescence.
 ○ Inventory Holding Costs: JIT reduces inventory holding costs associated with
storing and managing excess inventory. By maintaining lean inventory levels and
implementing just-in-time delivery systems, companies can minimize holding
costs related to storage facilities, handling, insurance, and depreciation. This
allows companies to allocate resources more efficiently and improve overall
profitability.
○ Waste Reduction: JIT helps minimize waste throughout the production process
by eliminating excess inventory, overproduction, and unnecessary handling or
movement of materials. By focusing on producing only what is needed, JIT
reduces the likelihood of overproducing defective or obsolete inventory, thereby
minimizing waste and improving overall process efficiency.
○ Inventory Obsolescence: JIT minimizes the risk of inventory obsolescence by
producing goods in response to actual customer demand. By reducing the
reliance on forecasting and speculative production, companies can avoid building
up excess inventory that may become obsolete or outdated before it can be sold.
This helps mitigate the financial risks associated with inventory write-offs and
disposal costs.
○ Supply Chain Flexibility: JIT promotes greater flexibility and responsiveness in
supply chains by streamlining inventory management and reducing lead times.
By establishing close relationships with suppliers and implementing just-in-time
delivery systems, companies can quickly adjust production levels and respond to
changes in customer demand, market conditions, or production disruptions.
○ Quality Improvement: JIT emphasizes maintaining high quality standards
throughout the production process. By reducing inventory levels and minimizing
the amount of defective or reworked inventory, companies can improve quality
control, identify and address root causes of defects more effectively, and
enhance overall product quality and customer satisfaction.
● Kanban System: The use of visual signals (kanban cards) to manage and control the
flow of materials and information in the production process.
○ Workflow Bottlenecks: Kanban helps identify and alleviate bottlenecks in the
workflow by visualizing the flow of work and highlighting areas where tasks tend
to accumulate. Teams can use Kanban boards to monitor the movement of tasks
and prioritize efforts to address bottlenecks, thereby improving overall efficiency
and throughput.
○ Overburdened Resources: In environments where resources are overburdened
or multitasking is prevalent, Kanban's WIP limits can help ensure a more
balanced distribution of work and prevent individuals or teams from becoming
overwhelmed. By limiting work in progress, Kanban promotes focus, reduces
context switching, and enhances productivity.
○ Uncertainty and Variability: Kanban is well-suited for managing work in
environments characterized by uncertainty, variability, and changing priorities. Its
adaptive nature allows teams to respond quickly to fluctuations in demand, adapt
to shifting requirements, and reprioritize work as needed to meet customer needs
effectively.
 ○ Complex and Interdependent Workflows: Kanban is beneficial for managing
complex workflows with multiple stages or dependencies. By visualizing the
entire workflow and breaking it down into manageable stages, teams can
coordinate tasks more effectively, streamline handoffs between different teams or
departments, and minimize delays and communication gaps.
○ Continuous Improvement: Kanban fosters a culture of continuous improvement
by encouraging teams to regularly review and refine their processes. Through
practices such as daily stand-up meetings, retrospectives, and collaborative
problem-solving, teams can identify inefficiencies, experiment with process
changes, and implement iterative improvements to enhance workflow efficiency
and effectiveness.
○ Customer Demand Variability: Kanban helps organizations respond to
fluctuations in customer demand by enabling them to adjust production or service
delivery based on real-time demand signals. By maintaining optimal inventory
levels, minimizing lead times, and aligning production with customer needs,
organizations can enhance customer satisfaction and reduce the risk of
overproduction or stockouts.
● Andon System: An alert system that allows workers to notify supervisors of problems or
abnormalities in the production process.
○ Quality Issues: The Andon system is highly effective for quickly identifying and
addressing quality issues in the production process. Operators can use the
Andon system to alert supervisors or quality control personnel to any defects,
deviations, or abnormalities detected during production, enabling prompt
investigation and corrective action to maintain product quality standards.
○ Equipment Failures or Downtime: Andon is valuable for promptly addressing
equipment failures, breakdowns, or other issues that result in production
downtime. Operators can use the Andon system to signal maintenance personnel
or support staff for immediate assistance, facilitating rapid diagnosis and repair of
equipment to minimize downtime and maintain production schedules.
○ Material Shortages or Stockouts: Andon helps mitigate the impact of material
shortages or stockouts by providing visibility into inventory levels and supply
chain disruptions. Operators can use the Andon system to alert procurement or
logistics teams to any shortages or delays in receiving materials, enabling timely
replenishment and ensuring uninterrupted production.
○ Process Bottlenecks: Andon is effective for identifying and addressing process
bottlenecks that impede workflow efficiency and throughput. Operators can use
the Andon system to signal supervisors or process engineers to any issues or
constraints that are causing delays or hindering the smooth flow of production,
facilitating rapid resolution and optimization of processes.
○ Safety Concerns: Andon plays a crucial role in promoting workplace safety by
enabling operators to quickly report any safety hazards, incidents, or near
misses. Operators can use the Andon system to alert safety personnel or
management to any safety concerns, prompting immediate action to mitigate
 risks, implement corrective measures, and ensure a safe working environment for
all employees.
○ Training Needs and Skill Gaps: Andon can help identify training needs and skill
gaps among operators by capturing data on the frequency and nature of Andon
alerts. Patterns of recurring issues or errors may indicate areas where additional
training or support is needed to enhance operator competency and performance,
enabling targeted training interventions to improve overall proficiency and reduce
errors.
● Poka-Yoke (Error Proofing): Implementing mechanisms to prevent errors or defects from
occurring during production.
○ Physical constraints: Designing equipment or fixtures with built-in features that
prevent incorrect assembly or operation, such as using keying mechanisms or
guide pins to ensure proper alignment of components.
○ Color-coding and labeling: Using color-coded parts or labels to differentiate
between similar components and prevent mix-ups during assembly or inventory
management.
○ Checklists and visual aids: Providing operators with checklists, job aids, or visual
instructions to guide them through complex tasks and ensure all steps are
completed correctly.
○ Error-proofing software: Implementing software applications or algorithms that
validate data inputs, flag potential errors, and prevent users from entering
incorrect information.
○ Warning alarms or signals: Installing warning alarms or visual signals that alert
operators to equipment malfunctions, safety hazards, or deviations from standard
operating conditions.
○ Automation and robotics: Using automated systems or robotics to perform tasks
that are repetitive, error-prone, or hazardous for human operators, reducing the
risk of errors and improving efficiency.
THE GOAL

- Operational Goals
● Increase throughput – sales
● Decrease inventory – anything you can sell
● Decrease operational expenses – anything you spend to create products
- An hour lost at the bottleneck is an hour lost for the entire system
- Principles of the bottleneck
● Identify the bottleneck (system constraints)
● Exploit the bottleneck (run @ 100%)
● Subordinate all other activities – run everything at the same speed as the bottleneck
● Alleviate the bottleneck
● Re-evaluate the bottleneck
READING NOTES

Toyota – 252-274
- Lean systems
● Operations systems that maximize the value added by each of a firms activities by paring
unnecessary activities and delays
● Implications
▪ Shorter lead times, higher productivity, high capacity utilization, low inventory,
greater quality
- Continuous Improvement
● Eliminating all forms of waste
▪ Just-in-time (JIT)
▪ Forms of waste
● Overproduction, inappropriate processing, waiting, transportation,
motion, inventory, defects, underutilization of employees
- Supply chain considerations
● Close supplier ties
● Small batches
- Process characteristics of lean systems
● Pull method of work flow – customer demand activates production of the item
● Quality at the source – employees act as their own quality inspectors
▪ Poka-yoke – mistake-proofing methods aimed at designing fail-safe systems that
minimize human and equipment error
● Uniform workstation loads
▪ Heijunka – the levelling of production load by both volume and product mix
● Standardized components and work methods
● Flexible workforce – cross-training
● Five S – sort – set in order – shine – standardize – sustain
● Total preventative maintenance
- Kanban system
● Cards used to control the flow of production through a factory
Supply Chain Management
- Management involves asking the following questions
● Where are the materials sourced? Where are they built?
● What channels of distribution are used?
● How are strong relationships built with customers and suppliers?
● How is customer information gathered and accessed?
● How are logistics structured?
● How is information coordinated globally?
● How might incentives optimize the chain’s overall performance?
- Product uncertainties
● Demand
● Supply
- Supply chain strategies
● Efficient supply chains
▪ Highest cost efficiencies is a focus
 ▪ Lean operations
● Risk-hedging supply chain
▪ Focus on sharing resources
● Responsive supply chain
▪ Flexibility to respond to shifts in demand
● Agile supply chain
▪ Pool inventory and other capacity resources
Supply Chain Management – 28-37, 39-56
- Forms of inventory
● Raw materials – inputs
● WIP – partway through the process
● Finished goods – completed manufacturing process
- Inventory placement
● Inventory pooling – reduction in inventory and safety stock because of the merging of
variable demands from customers
● Forward placement – locating stock closer to customers
- Logistics
● Ownership
● Facility location
● Shipment mode
● Capacity
● Cross-docking
- Supply chain dynamics
● Bullwhip effect 🡪
the phenomenon in
supply chains
whereby ordering
patterns show
increasing variance
as you move upstream in the chain

Timbuk 2 – Newsvendor Model

- Firm’s facing uncertain demand in only one selling season
- Determining optimal inventory level
● Cost of overstocking – loss for the firm for each unit left over
▪ Cost to make the product minus the margin for scrapped products
● Cost of understocking – loss margin for the firm for each unit of lost sales
▪ Selling price minus the cost to make the product
● F(x) = Probability that demand is less than x
▪ F(Q) = CU / (CU + CO)
● Understocking cost is lower than overstocking cost (F(Q) < 0.5) the firm
will choose to order less than the demand
- Expected profit = expected revenues + expected salvage revenues – total cost
● Expected profit = price (expected revenues) + salvage (expected overstock) – cost * Q
Value Brands – Operations Strategy
- Important trends in operations strategy
● Focus on knowledge based assets
 ● Data as an asset
● Globalization
● Distributed operations and outsourcing
- Alignment of operations and business strategies
- Categories of an operations system
● Physical resources – tangible property and equipment of the operations function
● Human resources – employees that make up the operations workforce
● Intellectual property, software, and methods – knowledge-based resources
● Ecosystem resources – relationship with suppliers and distributors and customers
● Financial resources – funding available, cash on hand
- Decision areas
● Structural decisions
▪ Capacity – amount of output the system can deliver
▪ Facilities – location, size, and specializations
▪ Scope – level of vertical integration, supply chain position, supplier relations
▪ Information and process technology – technology used in the operating system
● Infrastructural decisions
▪ Workforce – skill level of the employees, training, performance measurement
▪ Organization – degree of centralization
▪ Quality – systems to ensure outputs meet desired quality, quality measure control
systems
▪ Production planning and distribution – scheduling, inventory measurement,
delivery
▪ Product and process development – innovation, responsiveness to requests
EXHIBITS
Process Improvement Uncertainty Framework
Low Demand High Demand
Uncertainty Uncertainty
(Functional (Innovative
Product) Product)
Low Supply Efficient Supply Responsive
Uncertainty (Stable Chain Supply Chain
Process) i.e. grocery i.e. fashion
High Supply Risk-Hedging Agile Supply
Uncertainty Supply Chain Chain
(Evolving Process) i.e. Renewable i.e. Telecom
energy

EOQ Cost as a Function of Q

Saw-Tooth Inventory Pattern

Continuous Review System Re-order point

Periodic Review System Quality Control Chart

Lean Operations Process Map Headings for Capacity Utilization

Step # Time/Unit Cycle Time Capacity/ Demand/ CU

Employees (min/unit) (unit/ Time Time
#employees)

Service Industry
Resource # Cycle Capacity/ Demand CU
Employees Time Hour (Demand/
(min/table) (60/cycle Capacity)
time) * #
workers