Production & Operations Management

MBA Program

Final Exam08-16-2010

Herguan University (HU)Instructor: Dr. Fred Dalili

E-Mail: fd2005@aol.com

Production & Operations Management Final Exam

First Name: Sundharapandiayan Last Name: Kandhaswamy

Course Number: BUS 558 Student ID#: 101102

Your E-mail: sundarcoffier@gmail.comTelephone: (469 ) 685_2421

1. Share the major points of Production & Operations Management course from chapter 9 to 17th. Use various examples to demonstrate your understanding of the subject areas.

Chapter 9 – Layout Strategy

Layouts make a big difference in operating efficiency. The six classic layout situations are fixed position, process-oriented, office, retail, warehouse and product-oriented. A lot of techniques developed in attempts to solve this layout problem.

Example: McDonald’s looks for competitive advantage with its New High-Tech Kitchen Layout

Under the new design, no food id prepared in advance except the meat patty which is kept hot in a cabinet. For instance, the company developed a toaster that browns buns in 11 seconds instead of a half a minute. Bread suppliers had to change the texture of the buns so they could withstand the additional heat.

Chapter 10 – Human resource and Job design

Human Resource StrategyThe objective of a human resource strategy is to manage

labor and design jobs so people are effectively and efficiently utilized.

Constraints on Human Resource Strategy1) The product mix may determine seasonality and stability

of employment.2) The technology equipment and processes may have

implications for safety and job content.3) The location decision such as assembly line versus work

cell, influence job content.

A large percentage of employees and a large part of labor costs are under the direction of operation management. The Operation managers has large role to play to achieve human resources objectives.Example: Southwest airlines Human resources are treating their employees like their customers and does what is right for the customer indeed before “empowerment” become a management fad. Southwest gives to the employee’s freedom from centralized policies and teaches them to care. They believe is that they will do the right thing to the customer.

Chapter 11- Supply-chain Management

DefinitionManagement of activities that procure materials and services,

transforming them into intermediate goods and final products and delivering the products through a distribution system.

The strategic importance of the supply chain:

Supply-chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and final products, and deliver them to customers. These activities include purchasing and outsourcing activities, plus many other functions that are important to the relationship with suppliers and distributors.

Supply chain management includes determining1) Transportation vendors2) Credit and cash transfers3) Suppliers4) Distributors and banks5) Accounts payable and receivable6) Warehousing and inventory levels7) Order fulfillment8) Sharing customer, forecasting, and production

information.Objective:

The objective is to build a chain of suppliers that focuses on maximizing, marketing, and the operations discipline.

Example:

Volkswagen’s major suppliers are assigned space in the VW plant, but supply their own components, suppliers and workers. Workers from various suppliers build the truck as it moves down the assembly line. VM spends over 50% of their sales dollars on purchases such a high percentage of organization costs are determined by purchasing, relationships with suppliers or increasingly integrated long term. This changing focus added emphasis on procurement and supplier relationships which must be

managed. The discipline that manages these relationships is known as supply-chain management.

Chapter 12- Inventory Management

Inventory represents a major investment for many firms. This investment is often larger than it should be because firm fined it easier to have ‘just-in-case’ inventory rather than ‘just-in-time’ inventory. Inventories are four types.

1) Raw material and purchased components.2) Work-in-progress3) Maintenance, repair and operating (MRO)4) Finished goods

ABC analysis, record accuracy, cycle counting and inventory models used to control independence demands.

Example: Inventory management provides competitive advantage at amazon.com

Chapter 13- Aggregate PlanningAggregate planning provides companies with a necessary weapon to help capture marker shares in the global economy. The aggregate plan provides both manufacturing and service firms the ability to respond to changing customer demands while still producing at low-cost and high quality levels.The aggregate schedule sets level of inventory, production, subcontracting and employment over an intermediate time range. Aggregate plans for manufacturing firms and service systems are similarExample-

Hospitals face aggregate planning problems in allocating money, staff,and supplies to meet the demands of patients. Michigan Henry ford hospital, for examples, plans for bed capacity and personnel needs in life of a patients load forecast developed by

moving averages. The Necessary labor focus of its aggregate plan has led the creation of a new floating staff pool serving each nursing pod.

Chapter 14- Material Requirements Planning (MRP)

Material requirement planning is the preferred way to schedule production and inventory when demand is dependent. For MRP to work, management must have a master schedule, precise requirements for all components, accurate inventory and purchasing records and accurate leading times. Distribution resources planning is the time –phased stock replacement technique for supply chains based on MRP procedure and logic.Both MRP and DRP when properly implemented can contribute in a major way to reduction in inventory while improving customer-service levels. These techniques allow the operations manager to schedule and replenish stock on a ‘need-to-order’ basis rather than simply a ‘time-to-order’ basis.

Example: MRP provides a competitive advantage for Collins industries

Chapter 15 – Short term Scheduling

Scheduling involves the timing of operations to achieve the efficient movement of units through a system. Scheduling addressed the issues of short term scheduling in process-focused, repetitive, and service environments. Service systems generally differ from manufacturing systems. This leads to the use of appointment systems, first-come, first-served systems, and reservation systems, as well as to heuristics and linear programming approaches for servicing customers

Example: Scheduling is helping in Airlines when the weather is very bad.

Chapter 16- Just-in-Time and Lean Production Systems.

JIT and lean production are philosophies of continues improvement. Lean production began with the focus on customer desires. The both concepts focus on driving all waste out of production process. JIT and lean production attack wasted space because of a less than optimal layout, the attack wasted time because of poor scheduling, they attack waste in idle inventory and poorly maintained machinery and equipment.Example: Green Grear has carefully integrated Jut-in-time manufacturing and continuous improvements into its culture and processes. Inventory resides in individual container and their points of use.

Chapter 17- Maintenance and reliability

Operation Managers are focus on design improvements and back up components to improve reliability. Reliability improvements also can be obtained through the use of preventive maintenance and excellent repair facilities. Finally many firms give employees a sense of ownership and their equipment.

Example: Maintenance and reliability are the critical success factors for NASA’s space shuttle

2. Please share the main points of a new article that you have read for the second part of this course and write down your own conclusion about the article.

Achieving Competitive Advantage through Collaboration with Key Customers and Suppliers

The article explains the competitive advantage that companies can

achieve by collaborating with their key customers and suppliers. In

supply chain management it is important to find the advantages

and save resources in every way possible.

The article is giving historical examples. For example during the

1960s, Japanese manufactures started to find competitive

advantage by optimizing operational efficiency and with that they

achieved lower prices, flexible production capabilities and a

reduction in lead times. In the 1990s Dell Computers developed

those advantages further. They began managing operations by

synchronizing functional activities which lead to reduce lead times,

inventory requirements, and operating costs along with flexibility.

That brought Dell a big market gain.

The management in production companies has changed in the last

years and especially in SCM. The article is pointing out that in

order for companies to raise their profitability and have an

advantage to their competitors they need to collaborate. The

recommendation for companies to work successful in the future is

to collaborate more with their suppliers and competitors because it

could lower costs in production and inventory. It could also lead to

better forecasting of demand as well as more lucrative capital

investment. It can save money along the supply chain, from order

to delivery, storage, and also research and development. It can save

money as well as time.

But the article also mentions that mangers have to set their mind on

it and work hard on that collaboration in order to make it work as it

is not easy to work together smoothly.

One example in the article is Dell Computers:

During the 1990s Dell began managing operations by

synchronizing functional activity into a single corporate heartbeat.

An order instantly drove procurement, which drove production and

then distribution. The result was a further drop in lead times,

inventory requirements, and operating costs along with flexibility.

Operational efficiency was Dell's sole source of competitive

advantage and it reaped enormous market share gains.

Conclusion:

As with preceding operational evolutions, collaboration will

doubtless be pioneered by some companies and shunned by others.

Far from the micro/technical operational thinking of the past,

collaboration offers a strategic perspective, divergent options and

colossal profit, and capital efficiency benefits. Until it becomes

universally adopted, collaboration is the most promising source of

competitive advantage from operations available today.

3. Describe the value of Layout Strategy in complex corporations and explain types of layouts with real examples.

Layout strategy is one of the key decisions that determine the long-run efficiency of operations. An effective layout can help an organization achieve a strategy that supports differentiation, low cost, or response. Example Wal-Mart store layouts support a strategy of low cost as do its warehouse techniques and layouts. Hallmark’s office layouts, where many professionals operate in wok cells, support rapid development of greeting cards.

ObjectiveThe objective of layout strategy is to develop an economic layout that will meet firm’s competitive requirements.Layout design must consider how to achieve the followings:

1) Higher utilization of space, equipment and people.2) Improved flow of information, materials or people.3) Improved employee morale and safer working conditions.4) Improved customer/Client interaction.5) Flexibility.

Types of Layout1) Fixed-position layout2) Process-Oriented layout

3) Office Layout4) Retail Layout5) Warehouse Layout6) Product-Oriented Layout

Fixed-position LayoutThe project remains In one place and workers and equipment

come to that location. Examples are a ship ,a bridge, a house and oil well.Example: A house

A house built via traditional fixed position layout would be constructed on-site, with equipment, materials and workers brought to the site. However imaginative OM solutions allow building a house at a lower cost. Process-Oriented LayoutA layout that deals with low-volume, high-variety production, like machines and equipments are grouped together. The big advantage of process-oriented layout is its flexibility in equipment and labor assignments.

Example:

Walters company management wants to arrange the six departments of its factory in a way that will minimize interdepartmental material handling costs. They make an initial assumption that each department is 20*20 feet and that the building is 60 feet long and 40 feet wide. The process layout procedure that they follow involves 6 steps:

Step 1: Construct a “from to matrix” showing the flow of parts or materials from department to department.Step 2: Determine the space requirements for each department.Step 3: Develop and initial schematic diagram showing the sequence of departments through which parts must move.

Step 4: Determine the cost of the layout by using the material handling cost equation.Step 5: By trial and error, try to improve the layout to establish a reasonable good arrangements of departments.Step 6: Prepare a detailed plan arranging the departments to fit the shape of the building and its non movable areas.

Office LayoutThe grouping of workers, their equipment, and spaces/ or offices to provide for comfort, safety and movement of information.Example:Hallmark suggests that maintaining layout flexibility extends to offices as well as factories and remains and important principle of layout design. The technological change sweeping manufacturing is also altering a way offices function, making office flexibility a necessity. Consequently, many varieties of modular office equipment that support changing layouts are now available

Retail LayoutRetail layout is an approach that address flow,allocates space and response to customer behavior. Example the shopping mall layout meets the internet studies to show that the greater the rate of exposure, the greater the sales and higher the return on investments. The operation Manager can alter both with overall arrangements of the store and allocation of the space to various products within the arrangements. The main objective the retail layout is to maximize the profitability per square foot of floor space.And retail layout is called slotting; Slotting fees are paid by manufactures to get shelf space for their products.

Example:A critical element contributing to the bottom line and hard rock café is the layout of the café and its accompanying retail shop

space. Hard rock treats retail layout like a science and the payoff is huge.

Warehousing and storage Layouts The warehouse layout is a design that attempts to minimize total cost by addressing trade-offs between space and material handling.Automated storage and retrieval systems are reported to improve productivity by an estimated 500% over manual methods.

An important component of warehouse layout is the relationship between the receiving/unloading area and the shipping/loading area.Cross-DockingCross-docking means to avoid placing materials or supplies in storage by processing them as they are received. Cross-docking reduces product hanlding, inventory and facility costs, it requires both 1) tight scheduling and 2) that shipments received include accurate product identification.Example The Gap strives for both high quality and low cost. It does designing its own clothes and ensuring a quality control and maintaining downward pressure on distribution cost.

Product-Oriented Layout

Product-oriented layouts are organized around products or families of similar high volumne, low varity products.

The two types of product-oriented layouts are.1) fabrication line- A machine paced, product oriented facility

for building components.2) Assembly line- An approach that puts fabricated parts

together at a series of workstations, used in repetitive processes.

Advantages

1) The low variable cost per unit usually associated with high-volume.

2) Low material handling costs.3) Reduced work-in-process inventories.

Disadvantages1) High volume is required because of the large investment

needed to establish the process. 2) Work stoppage at any one point ties up the whole

operation.3) There is a lack of flexibility of hanlding a variety of

products or products rates.Example

Walter Chrysler and Louis Chevrolet could not have imagined that rusting cars and trucks that bear testimony to the automotive culture they helped invent that the old car can be reused in the next generation. Example In 1990 BMW have announced in US to offer 500 to towards the purchase of new model BMW to anyone to bringing a junked BMW to its salvage centers in NY.

ConclusionThe Layouts make a big difference in operating efficiency. A variety of techniques have been developed to solve the company layout issues. Industrial firm focus on reducing material movement in assembly line. Retail firms are focusing on product exposure. Storage layout focus on the optimum trade of between storage cost and material handling cost.

4. Explain in details what you know about the role of Supply-Chain Management in profitability and cost reduction of an organization. Share some examples in order to support your arguments.

Chapter-11 Supply Chain Management

DefinitionManagement of activities that procure materials and services,

transforming them into intermediate goods and final products and delivering the products through a distribution system.

The strategic importance of the supply chain:

Supply-chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and final products, and deliver them to customers. These activities include purchasing and outsourcing activities, plus many other functions that are important to the relationship with suppliers and distributors.

Supply chain management includes determining1) Transportation vendors2) Credit and cash transfers3) Suppliers4) Distributors and banks5) Accounts payable and receivable6) Warehousing and inventory levels7) Order fulfillment8) Sharing customer, forecasting, and production

information.

Objective:The objective is to build a chain of suppliers that focuses on maximizing, marketing, and the operations discipline.

Global supply-chain issues The development of a successful strategic plan for supply-chain management requires innovative planning and careful research.

1) Flexible enough to react to sudden changes in parts availability, distribution or shipping channels, import duties, and currency rates.

2) Able to use the latest computer and transmission technologies to schedule and manage the shipment of parts in and finished products out.

3) Staffed with local specialists to handle duties, trade, freight, customs and political issues.

Supply-chain economicsThe supply chain is the integral part of the firm’s

strategy and most expensive activity in most companies. The supply-chain provides major opportunities to reduce cost and increase contribution margins.

Make-or-buy decisionsChoosing between producing the component or a

service in house or purchasing it from an outside source.

OutsourcingTransferring a firm’s activities that have traditionally

been internal to external suppliers.

Reasons for Making1) Maintain core competence.2) Lower production cost3) Unsuitable suppliers

4) Assure adequate supply5) Obtain desired quality6) Remove supplier collusion.7) Increase or maintain the size of the company

Reasons for buying1) Frees management to deal with its primary business.2) Lower acquisition cost3) Preserve supplier commitment4) Obtain technical or management ability5) Inadequate capacity6) Reduce inventory costs.

Supply-chain strategies

For goods and services to be obtained from outside sources, the firm must decide on a supply-chain strategy. There are nearly five strategies.

Many SuppliersFirst strategy is the approach of negotiating with many

suppliers. Integrating suppliers, production and distribution requires that operations be as agile as possible

Few SuppliersA second strategy is to develop long-term,” partnering”

relationships with a few suppliers to satisfy the end customer. Few suppliers each with the large commitment to the buyer may also be more willing to participate in JIT Systems, as well as provide design innovations and technological expertise.

Vertical Integration

A third strategy is vertical integration, where firms may decide to use vertical backward integration by actual buying the supplier.

And it is developing the ability to create goods or services previously purchased or actually buying a supplier or distributor.

Keiretsu NetworksThe fourth variation is a combination of few suppliers and

vertical integration. Keiretsu is the Japanese term which is to describe suppliers

who become a part of a company coalition.

Virtual CompaniesFinally fifth is to develop virtual companies that use suppliers

on an as-needed basis.Virtual companies are to rely on a variety of supplier

relationships to provide services on demand. Also known as hollow corporations or network companies.

Logistics ManagementLogistics management is an approach that seeks efficiency of

operations through the integrations of all material acquisition, movement and storage activities.

Distribution Systems of logistics management1) Trucking2) Railroads3) Air flight4) Waterways5) Pipelines

Cost of shipping alternatives

The longer a product is in transit, the longer the firm has its money invested.Daily cost of holding the product= (annual holding cost x product value)/365

Benchmarking supply-chain managementFor most companies the percent of revenue spent on labor is

going down, but the percent spent in the supply chain is going up. Benchmark firm has driven down costs, lead times, late deliveries and shortages, all while improving quality. It provides a competitive advantage by aiding firms in their response to a demanding global marketplace.

Conclusion: A substantial portion of the cost and quality of the products

of many firms, including most manufacturing, restaurant, wholesale and retail firms, is determined by how efficiently they manage the supply chain. Supply-chain management provides a great opportunity for firms to develop a competitive advantage. The five supply-chain strategies are 1) Many suppliers, 2) Few suppliers, 3) Vertical Integration, 4) Keiretsu networks, 5) Virtual companies.

5. Explain in details the major points of two chapters of your choice from chapters 9 to chapter 17th.

Chapter -10 Human Resources and Job design

Human Resource StrategyThe objective of a human resource strategy is to manage

labor and design jobs so people are effectively and efficiently utilized.

Constraints on Human Resource Strategy4) The product mix may determine seasonality and stability

of employment.5) The technology equipment and processes may have

implications for safety and job content.6) The location decision such as assembly line versus work

cell, influence job content.

Labor planningLabor planning is determining staffing policies that deal with employment stability and work schedule.

Employment stability PoliciesEmployment stability deals with the number of employees maintained by an organization at any given time. There are two very basic policies for dealing with stability:

1) Follow demand exactly2) Hold employment constant

The above policies are efficient and provide a reasonable quality of work life. Firms must determine policies about employment stability. Employment policies are partly determined by management’s view of labor costs- as a variable cost or a fixed cost.

Work ScheduleThe standard work schedule in the US is Five 8- hours’ days.

Flextime allows employees within limits, to determine their own work schedule.

Flexible workweekA work schedule that deviates from the normal or standard

five 8-hour days (such as four 10-hour days)

Part-time statusWhen an employee works less than a normal week; less than

32 hours per week often classifies an employee as part time.

Job DesignJob Design specifies the tasks that constitute a job for an

individual or a group. The components of job designs are:1) Job Specialization2) Job Expansion3) Psychological components4) Self-directed teams5) Motivation and incentive systems.6) Ergonomics and work methods7) The visual workplace

Job Specialization The division of labor into unique (“special”) tasks is knows as job Specialization.

Job expansionJob expansion is to improve the quality of work life by moving from labor specialization toward more varied job design. The jobs are being modified into two ways; The first approach is job enlargement and second is job rotation.Psychological components

The five desirable characteristics are:1) Skill variety, requiring the worker to use a variety of

skills and talents2) Job identity, allowing the worker to perceive the job

as a whole and recognize a start and a finish.

3) Job significance, providing a sense that the job has impact on the organization and society.

4) Autonomy, offering freedom, independence and discretion

5) Feedback, providing clear, timely information about the performance.

Self-directed TeamSelf-directed team is a group of empowered individual

working together to reach a common goal.

Motivation and Incentive SystemsMoney often serves as a psychological as well as financial

motivator. Monetary rewards take the form of bonuses, profit and gain sharing and incentive systems.

ErgonomicsThe operations manager is interested in building a good

interface between human and machine. A study of this interface is known as ergonomics. Ergonomics means ‘The study of work’.

The Visual WorkplaceThe Visual workplace uses low-cost visual devices to share

information quickly and accurately. It uses the variety of visual communication techniques to rapidly communicate information to stakeholders.

Labor StandardsLabor standards are the amount of time required to perform a job or part of a job.

ConclusionOutstanding firms know the importance of an effective and

efficient human resource strategy. Often a large percentage of employees and a large part of labor costs are under the direction of OM. Consequently, the operations manager usually has a large role to play in achieving human resource objectives. Regardless of the strategy chosen, the skill with which a firm manages its human resources ultimately determines its success.

==============================================Chapter-11 Supply Chain Management

DefinitionManagement of activities that procure materials and services,

transforming them into intermediate goods and final products and delivering the products through a distribution system.

The strategic importance of the supply chain:

Supply-chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and final products, and deliver them to customers. These activities include purchasing and outsourcing activities, plus many other functions that are important to the relationship with suppliers and distributors.

Supply chain management includes determining9) Transportation vendors10) Credit and cash transfers11) Suppliers12) Distributors and banks13) Accounts payable and receivable14) Warehousing and inventory levels15) Order fulfillment

16) Sharing customer, forecasting, and production information.

Objective:The objective is to build a chain of suppliers that focuses on maximizing, marketing, and the operations discipline.

Global supply-chain issues The development of a successful strategic plan for supply-chain management requires innovative planning and careful research.

4) Flexible enough to react to sudden changes in parts availability, distribution or shipping channels, import duties, and currency rates.

5) Able to use the latest computer and transmission technologies to schedule and manage the shipment of parts in and finished products out.

6) Staffed with local specialists to handle duties, trade, freight, customs and political issues.

Supply-chain economicsThe supply chain is the integral part of the firm’s

strategy and most expensive activity in most companies. The supply-chain provides major opportunities to reduce cost and increase contribution margins.

Make-or-buy decisionsChoosing between producing the component or a

service in house or purchasing it from an outside source.

OutsourcingTransferring a firm’s activities that have traditionally

been internal to external suppliers.

Reasons for Making8) Maintain core competence.9) Lower production cost10) Unsuitable suppliers11) Assure adequate supply12) Obtain desired quality13) Remove supplier collusion.14) Increase or maintain the size of the company

Reasons for buying7) Frees management to deal with its primary business.8) Lower acquisition cost9) Preserve supplier commitment10) Obtain technical or management ability11) Inadequate capacity12) Reduce inventory costs.

Supply-chain strategies

For goods and services to be obtained from outside sources, the firm must decide on a supply-chain strategy. There are nearly five strategies.

Many SuppliersFirst strategy is the approach of negotiating with many

suppliers.

Integrating suppliers, production and distribution requires that operations be as agile as possible

Few SuppliersA second strategy is to develop long-term,” partnering”

relationships with a few suppliers to satisfy the end customer. Few suppliers each with the large commitment to the buyer may also be more willing to participate in JIT Systems, as well as provide design innovations and technological expertise.

Vertical IntegrationA third strategy is vertical integration, where firms may

decide to use vertical backward integration by actual buying the supplier.

And it is developing the ability to create goods or services previously purchased or actually buying a supplier or distributor.

Keiretsu NetworksThe fourth variation is a combination of few suppliers and

vertical integration. Keiretsu is the Japanese term which is to describe suppliers

who become a part of a company coalition.

Virtual CompaniesFinally fifth is to develop virtual companies that use suppliers

on an as-needed basis.Virtual companies are to rely on a variety of supplier

relationships to provide services on demand. Also known as hollow corporations or network companies.

Logistics ManagementLogistics management is an approach that seeks efficiency of

operations through the integrations of all material acquisition, movement and storage activities.

Distribution Systems of logistics management6) Trucking7) Railroads8) Air flight9) Waterways10) Pipelines

Cost of shipping alternatives

The longer a product is in transit, the longer the firm has its money invested.Daily cost of holding the product= (annual holding cost x product value)/365

Benchmarking supply-chain managementFor most companies the percent of revenue spent on labor is

going down, but the percent spent in the supply chain is going up. Benchmark firm has driven down costs, lead times, late deliveries and shortages, all while improving quality. It provides a competitive advantage by aiding firms in their response to a demanding global marketplace.

Conclusion: A substantial portion of the cost and quality of the products

of many firms, including most manufacturing, restaurant, wholesale and retail firms, is determined by how efficiently they manage the supply chain. Supply-chain management provides a great opportunity for firms to develop a competitive advantage. The five supply-chain strategies are 1) Many suppliers, 2) Few suppliers, 3) Vertical Integration, 4) Keiretsu networks, 5) Virtual companies.===============================================