· Nortel, Lucent Automotive Supplier Parks 17 ...

Introduction to Operations Management

www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

1www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in

WWW.BSSVE.IN

Introduction to Operations Management

1. Introductions2. Housekeeping

a. SloanSpaceb. Course Introductionc. Professional Standards

3. Concepts & Nokia4. Course Outline5. Next Time

a. Segab. CPM



WWW.BSSVE.IN

“Housekeeping” for Operations Management

1. Course Materials:Course packet E.M. Goldratt and J. Cox, The Goal: A Process of Ongoing Improvement, North River Press, 2nd Rev. Ed., 1992.The Memory Jogger, Goal/QPC, 1988.

2. GradingClass participation: 30%First case write-up 20%Second case write-up 25%Third case write-up 25%

3. Professional StandardsAcademic Integrity--”Do your own work”Behavioral Integrity -- “Do unto others . . . “



WWW.BSSVE.IN

ProductDevelopment

SupplyChain

Process Design & Management

Three Foundational Components of Operations Management



WWW.BSSVE.IN

Product Development

• Product Design-Voice of the CustomerWhat is the role of product design in the demand and supply issues faced by Nokia and Ericsson?

-Product/System ArchitectureWere problem chips integral or modular?

• Product Development-Project management & Cost-Design for ManufacturingHow important was” “Nokia quickly redesigned some of its chips so they could be produced elsewhere?”

• Technology StrategyDid product technology play a role in the differential performance of N & E?



WWW.BSSVE.IN


• Process Design: Options & Assessment -Queueing Analysis-Capacity AnalysisHow did Nokia assess capacity in the crunch? How did they change capacity?

-Uncertainty AnalysisHow did each company prepare for difficult-to-anticipate events?

• Inventory Systems•Did N&E operate Just-in-Time, or did they hold big stores of chips waiting just in case?

• Production ControlWas Nokia’s software the principal instrument of control? How did they monitor the situation?

ERP/Software/Internet•Was Nokia’s software the principal instrument of communication?

• Operations Excellence- Continuous Improvement- Just-in-Time- Quality Management (SPC, 6σ)www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Supply Chain

• Strategic Supply Chain Design -Make Vs. Buy

•Did sourcing strategy play a role in the differential performance of N & E?

-Supplier Selection , Sourcing Single vs. Dual sourcing

• Supply Chain Management-End-to-end coordinationDo we see here examples of integrated enterprise?

-Supplier Relationshard-nosed, polite, hostile, collaborative?

• Delayed Differentiation



WWW.BSSVE.IN

ProductElectronics & SW SegaProcessAutos: ToyotaElectronics: Dell, Cisco, QuantaFinancial Bank of America Food Retailing Burger King Food Processing National CranberryAir Transport Alaska AirHealth Care: University Health Software: Sega, SAP (Vandelay), Oracle (Cisco)Supply ChainElectronics: Nokia, HPFashion Apparel Sport ObermeyerFood Distribution Barilla Pasta eSupply Webvan

Companies and Industries we will cover



WWW.BSSVE.IN

1 Introduction Course Introduction Trial by Fire, powerpoint on Ops Strat

2 Product Dev Dreamcast/Sega Chap 8 in Clkspd on 3-DCE, ABC's of CPM3 Operations Burger King Types of Processes, EOQ, Newsvendor 4 Strategy Inventory Mgmt Inven probs, Relevant costs, Whirlwind/Web,

Dell/Conqueror, Laptop King5 Process Alaska Airlines Levitt6 Technology Webvan They've got mail. 7 Cisco MRP note, ERP Technology Note8 Process Process Flow Models Queueing Note & Inventory Buildup9 Analysis National Cranberry

10 Univ Health Service

11 Process Quality Mgmt Deming, Juran, Crosby; 6sig, Berwick, Memory Jogger

12 Quality Toyota Lean Production, Karmarkar13 The Goal

14 Bank of America Hammer & Cole Articles15 Supply Hewlett-Packard SMR paper16 Chain Barilla SPA

17 Sport Obermeyer

18 Wrap-Up Wrap-up

Course Outline



WWW.BSSVE.IN

Evolution in the industrial world:INFOTAINMENT is faster than MICROCHIPS is faster than AUTOS evolve faster than AIRCRAFT evolve faster than MINERAL EXTRACTIONTHE KEY TOOL:Cross-INDUSTRYBenchmarking of Dynamic Forces

Clockspeed:The Dimension of Time on Operations Management

Study the Industry Fruitflies

Evolution in the natural world:

FRUITFLIESevolve faster than

MAMMALSevolve faster than

REPTILES

THE KEY TOOL:

Cross-SPECIES Benchmarking of Dynamic Forceswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

INDUSTRY CLOCKSPEED IS A COMPOSITE:OF PRODUCT, PROCESS, AND ORGANIZATIONAL

CLOCKSPEEDS

THEMobile Phone

MANUFACTURING COMPANY

organization

Mobile Phone INDUSTRY CLOCKSPEED

THEMobile Phoneproduct technology THE

Mobile PhonePRODUCTION

PROCESS process technology



WWW.BSSVE.IN

Mobile Phone System CLOCKSPEED is a mix of Transmission Standards, Software and Handsets

Mobile Phone SystemTRANSMISSION

STANDARDslow clockspeed

SOFTWAREAPPLICATIONS

medium clockspeedHAND SET

fast clockspeed

ISSUE: THE FIRMS THAT ARE FORCED TO RUN AT THE FASTEST CLOCKSPEED ARE THE MOST LIKELY TO STAY AHEAD OF THE GAME.

OPERATINGSYSTEM

slow clockspeed

SERVICESfast clockspeed



WWW.BSSVE.IN

Dynamics between New Projects and Core Capability Development: PROJECTS MUST MAKE MONEY AND BUILD CAPABILITIES

CORE CAPABILITIES

NEW PROJECTS(New products, new processes, new suppliers)

See Leonard-Barton, D. Wellsprings of Knowledge

Clockspeed drivesBusiness Strategy Cadence



WWW.BSSVE.IN

ALL COMPETITIVE ADVANTAGE IS TEMPORARY

Autos:Ford in 1920, GM in 1955, Toyota in 1990Computing:IBM in 1970, DEC in 1980, Wintel in 1990World Dominion:Greece in 500 BC, Rome in 100AD, G.B. in 1800Sports:Bruins in 1971, Celtics in 1986, Yankees no endThe faster the clockspeed, the shorter the reign



WWW.BSSVE.IN

Integral product architectures feature close coupling among the elements

- Elements perform many functions- Elements are in close spacial proximity- Elements are tightly synchronized- Ex: jet engine, airplane wing, microprocessor

Modular product architectures feature separation among the elements

- Elements are interchangeable- Elements are individually upgradeable- Element interfaces are standardized- System failures can be localized- Ex: stereo system, desktop PC, bicycle

ARCHITECTURES IN 3-DINTEGRALITY VS. MODULARITY



WWW.BSSVE.IN

SUPPLY CHAIN ARCHITECTURE

Integral supply-chain architecturefeatures close proximity among its elements

- Proximity metrics: Geographic, Organizational Cultural, Electronic

- Example: Toyota city - Example: Ma Bell (AT&T in New Jersey)- Example: IBM mainframes & Hudson River Valley

Modular supply -chain architecture features multiple, interchangeable supplier and standard interfaces

- Example: Garment industry- Example: PC industry- Example: General Motors’ global sourcing- Example: Telephones and telephone service



WWW.BSSVE.IN

DESIGNING ARCHITECTURES FOR PRODUCTS & VALUE CHAINS: THE NEED FOR ALIGNMENT

INTEGRAL

MODULAR

PRODUCTARCHITECTURE

VALUE CHAIN ARCHITECTURE(Geog., Organ., Cultural, Elec.)

Jet enginesMicroprocessorsMercedes vehicles

Personal ComputersBicyclesChrysler VehiclesCisco

INTEGRAL MODULAR

PolaroidNortel, Lucent

Automotive Supplier Parks



WWW.BSSVE.IN

- Focus- Architecture

- Technology

DesignDetailedPerform.Specs& Funct.

UnitProcesses

Tech.& Equip.

Mfg.SystFunctnlCellular.

S.C.Architect.Orgs Set& Alloc.of Tasks

Logistics& CoordSystemAuton vs.Integrated

Product Process Supply Chain

Architect.Modular

vs.Integral

A 3-D CE decision modelillustrating the imperative

of concurrencywww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

DESIGNING ARCHITECTURES FOR PRODUCTS & VALUE CHAINS: MODULARITY VS. OPENNESS

INTEGRAL

MODULAR

ARCHITECTURALSTRUCTURE

ARCHITECTURALPROPRIETARINESS

Pentium ChipMercedes VehiclesSAP ERP

Palm Pilot software & accessoriesPhones & serviceWeb-based ERP

CLOSED OPEN

IBM MainframesMicrosoft WindowsChrysler Vehicles

Linux

INFORMATION ARCHITECTURE MUST REFLECT BUSINESS MODELwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

All Conclusions are Temporary

Clockspeeds are increasing almost everywhere

3-D Concurrent Engineering must anticipate Industry and Value Chain Dynamics

3-D Concurrent Engineering is a key organizational competency

Study of Fruit Flies can help with crafting strategy



WWW.BSSVE.IN

123456789

1011121314151617

18

Course OutlineIntroduction Course Introduction Trial by Fire, powerpoint on Ops Strat

Product Dev Dreamcast/Sega Chap 8 in Clkspd on 3-DCE, ABC's of CPM Operations Burger King Types of Processes, EOQ, Newsvendor Strategy Inventory Mgmt Inven probs, Relevant costs, Whirlwind/Web,

Dell/Conqueror, Laptop KingProcess Alaska Airlines Levitt Technology Webvan They've got mail.

Cisco MRP note, ERP Technology Note Process Process Flow Models Queueing Note & Inventory Buildup Analysis National Cranberry

Univ Health Service

Process Quality Mgmt Deming, Juran, Crosby; 6sig, Berwick, Memory Jogger

Quality Toyota Lean Production, Karmarkar The Goal Bank of America Hammer & Cole Articles

Supply Hewlett-Packard SMR paper Chain Barilla SPA

Sport Obermeyer Wrap-Up Wrap-up www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

15.760: Sega Dreamcast/CPM1. What are the key elements of the value chain

for the home video game business? 2. What are the possible failure modes for Sega

and its Dreamcast product?

3. What capabilities does Sega require to succeed?

4. What’s the critical path for the CPM exercise?

5. Launch as scheduled or postpone?

6. What happened. Why?

7. Lessons learned.www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

15.760: CPM exerciseTask Description Duration (weeks Precedence A Market Study 14 B External Developer Focus Group 10 C Feature Selection 4 A,B D Hardware Engineering 25 C E Operating System Devlpt. 16 D,B F Advertising Campaign 20 D,M,N G Supplier Selection & Negotiation 20 D H Component Inventory Buildup 45 G I Assembly Facility Setup 18 D J Finished Good Inventory Buildup 7 I,H K Library & Programmer Toolkit Devlpt. 12 E L External Development Support Setup 5 K M Internal Game Devlpt. 30 K N External Game Devlpt. 32 L,O O Platform Promotion 6 K P Publisher Selection & Negotiation 5 M Q Website Setup 20 M R Release Promotion Material Design 3 D,M,N S Distribution Channels Devlpt. & Negotiation 9 R T Carrier Selection & Negotiation 4 S U Launch Event Organization & PR 5 R V Hardware & Software Shipment 1 J,T,P,N W Launch! 0 V,U,Q,F



WWW.BSSVE.IN

15.760: CPM exercise1. What is the critical path and total duration for this

project? 2. Suppose that a marketing study finds that the Advertising

Campaign can be shortened to 15 weeks without significant impact reduction. What is the new CP and total project duration?

3. Suppose we would like to reduce the time until launch to 28 months, what would you recommend?

4. Bonus: Suppose that the duration of the development tasks E, M and N are now random variables following exponential distributions with means 16, 30 and 32 respectively. What is the probability that the total project duration will be more than 135 weeks? www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

B 10

C 4

E 16

D 25

G 20

I 18

H 45

J 7

K 12

M 30

P 5

N 32

L 5

O 6

R 3

S 9 T

4

U 5

F 20

Q 20

V 1

W 0

A 14

Ext Dev Focus Grp

Mkt Study

Features

HW Eng

O/S Dev

Advert Plan

Supp Sel & Neg

Comps Inv

Setup Factory FG Inv Build

SW Dev Kit

Dev Supp

Int Dev

Ext DevPlatform Mktg

Publisher Sel & Neg

Setup Website

Release Promo

Distr Neg

Carrier Neg

Plan Launch Event

Ship HW & SW GO!



WWW.BSSVE.IN

B 10

C 4

E 16

D 25

G 20

I 18

H 45

J 7

K 12

M 30

P 5

N 32

L 5

O 6

R 3

S 9 T

4

U 5

F 20

Q 20

V 1

W 0

A 14

0, 10

4,14

ES, EF

LS, LF

0, 14

0,14 14, 18

14,18 43, 59

43, 59

18, 43

18, 43

59, 71

59, 71

43, 61

103,121 43, 63

56,76

108, 115

121,128

63, 108

76, 121

71, 77

71, 77

71, 101

79, 109

71, 76

72, 77

101, 121

109,129

101, 106

123,128

77, 109

77, 109 109, 129

109, 129

108, 111

112,115

111, 116

124,129

124, 125

128, 129

111, 120

115,124

120, 124

124,128

129, 129

129, 129



WWW.BSSVE.IN

Effects onRelationships

NEC recovers

NEC late

NEC very late

Corporate Decision

Supplier Performance

Market Dynamics

Demand H

Demand L

Demand H

Demand L

Demand H

Demand L

d elayed

launch

launc

h Exh

aus ti

vely

seek a

prod

uctio

n fix

NEC recovers

Retailers increase dedicated space Software development accelerate Win-Win-Win !!! Product is a dudReinvigorate or Exit.

Sales puts on the best face possiblePressure/help NECRetailers unhappy with empty shelvesDisgruntled CustomersSoftware developers anxious

Need to stimulate demand & NECProduct may be a dudSoftware developers may quit

Production ramp-up crucialMust maintain good communicationsSlow start is overcome: win-win-win

Recrimination mode Was product a dud or was lateness to

market the killer?

Deep trouble Try to mend relationships and make new plan

or just exit. www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN


CLOCKSPEEDS


THE Mobile Phone product technology THE

Mobile Phone PRODUCTION


THEMobile Phone


organization



WWW.BSSVE.IN


Mobile Phone System TRANSMISSION

STANDARD SOFTWARE APPLICATIONS HAND SETslow clockspeed

medium clockspeed fast clockspeedOPERATING SERVICES

SYSTEM fast clockspeedslow clockspeed




WWW.BSSVE.IN

Product

Design Architect. Detailed Modular Perform. vs. Specs Integral & Funct.

Process

Unit Mfg.SystProcesses Functnl

Tech. Cellular. & Equip.

Supply Chain

S.C. Logistics Architect. & Coord Orgs Set System & Alloc. Auton vs. of Tasks Integrated

- Focus - Architecture - Technology




WWW.BSSVE.IN

123456789

1011121314151617

18

Course Outline, 15.760AIntroduction Course Introduction Trial by Fire, powerpoint on Ops Strat

Product Dev Dreamcast/Sega Chap 8 in Clkspd on 3-DCE, ABC's of CPM Operations Burger King Types of Processes, EOQ, Newsvendor Strategy Inventory Mgmt Inven probs, Relevant costs, Whirlwind/Web,

Dell/Conqueror, Laptop KingProcess Alaska Airlines Levitt Technology Webvan They've got mail.

Cisco MRP note, ERP Technology Note Process Process Flow Models Queueing Note & Inventory Buildup Analysis National Cranberry

Univ Health Service

Process Quality Mgmt Deming, Juran, Crosby; 6sig, Berwick, Memory Jogger

Quality Toyota Lean Production, Karmarkar The Goal Bank of America Hammer & Cole Articles

Supply Hewlett-Packard SMR paper Chain Barilla SPA

Sport Obermeyer Wrap-Up Wrap-up www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN


Product Development

(Sega, #2)

Supply Chain

(Nokia, #1, Dell, #4)

Process Design & Management (Burger King, #3)



WWW.BSSVE.IN

15.760: Burger King

1. What are the operations objectives for Burger King? 2. Process flow diagram for hamburger sandwich

production. 3. Where are the inventories? Why? 4. Peak hourly capacity vs. peak hourly demand for

burger patties. 5. How does the management of operations relate to the

company's method of competing in the marketplace?

6. What are the fastest clockspeed components of theBurger King value chain?

7. How well integrated are BK’s product, process, andmarket? www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

BK: Process Flow Diagram for Sandwiches

RAW BURGERS

RAW BUNS

BROILER

BROILER

MATE BUNS & BURGERS STEAMER

CHEESE CONDI-MENTS

TOMA-TOES

SANDWICH ASSEMBLY

FIN-ISHED SAND-

WICHES

ORDER DELIVERY

MICRO-WAVE



WWW.BSSVE.IN

BK: Peak Load Demand vs. Capacity 34227 Sandwiches ÷ 4.3 weeks x 18% (Fridays) x 17.9% =

month month (noon hour)

256 sandwiches , of which 48 are hamburgers peak hour 51 are cheeseburgers

24 are double cheeseburgers => peak demand = 147 burger patties/hour

Each broiler chain cooks 8 patties => 480 patties minute hour

(Assume other chain used for Whoppers)

Case fact: max assembly rate = 200 burgers/hour 100 specialty sandwiches/hr

Broiler utilization = 147/200 = 74%Bottleneck is assembly www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Restaurant Operations Management1. What are the key DESIGN parameters for Burger King?

A. ProductB. Process TechnologyC. FacilityD. Work System/HR System

2. What are the key PLANNING tasks for Burger King?A. SupplyB. DemandC. Capacity/Workload

3. What are the key CONTROL processes for Burger King?A. Production ControlB. Quality ControlC. Process Control

4. What are the key IMPROVEMENT processes for BK?A. Quality ImprovementB. Productivity ImprovementC. Technological ImprovementD. Systems Improvementwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Some Characteristics of Services (vs. Manufacturing)

– Intangibility - explicit and implicit intangibles • “We manufacture perfume; we sell hope.”

– Perishability - an hour of non-production is an hour lost

• Airplane w/o spare part costs > $10K/hr

– Heterogeneity - inherent variability of service • Each doctor’s bedside care is unique

– Simultaneity - services are simultaneously produced and consumed

• A poor attitude by the server cannot be recalled www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN


CLOCKSPEEDS





THEMobile Phone


organization



WWW.BSSVE.IN



STANDARD SOFTWARE APPLICATIONS HAND SETslow clockspeed

medium clockspeed fast clockspeedOPERATING SERVICES





WWW.BSSVE.IN

Product


Process



Supply Chain






WWW.BSSVE.IN

15.760: Dell/Quanta/Inventory 1. Admin: SloanSpace, Namecards, CourseIntro 2. Explain the logic of the EOQ model. How useful

do you think it is? 3. Dellpaq problem 4. Explain the logic of the newsvendor model. How

useful do you think it is? 5. FruitflyTM problem 6. How would you characterize Dell’s approach to

inventory management? Are the math models relevant or informative?



WWW.BSSVE.IN

Inventory Problems: Dellpaq Computers

Relevant costs Fixed Costs: shipments $100,000

placing order 5hrs * $10/hr = $50 S = $100,050

Variable Costs: complete systems $3000 loading plus shipping $25 unloading employee .1 hr * $10/hr = $1 unloading equipment .1 hr * $50/hr = $5 arranging in storage .05 hr * $10/hr = $.50

C = $3031.50

Irrelevant costs Removing sets from storage, cost of processor and motherboard, surveillance/security equipment



WWW.BSSVE.IN

-------------------------

Inventory Problems: Dellpaq Computers

Annual demands: R=300,000 Carrying charge: K=20%

EOQ = 2(300,000)(100,050) = 9950

.20 (3031.50)



WWW.BSSVE.IN

Inventory Problems: TMFruitfly

Decision: D Demand: d~Normal(150000,45000) Price: p=150 Cost: c=50



WWW.BSSVE.IN

----------- ------------------------ ------

Inventory Problems: FruitflyTM

.167

P(d≤Q) =r-c

= 150-50

= 2

r 150 3

Z(.167) = .431 Q = 150,000 + .431 * 45,000 = 169,395



WWW.BSSVE.IN

Dell Operations Management 1. What are the key DESIGN parameters for Dell?

A. Product B. Process Technology C. Facility D. Work System/HR System

2. What are the key PLANNING tasks for Dell? A. Supply B. Demand C. Capacity/Workload

3. What are the key CONTROL processes for Dell? A. Production Control B. Quality Control C. Process Control

4. What are the key IMPROVEMENT processes for Dell? A. Quality Improvement B. Productivity Improvement C. Technological Improvement D. Systems Improvement www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

The Strategic Impact of Development Partnership Design:

Who let Intel Inside?1980: IBM designed a new product and

created a new set of development partners Customers

IBMIntel Inside

Intel

Microsoft The Outcome:

A phenomenally successful product design A disastrous market value impact (for IBM)



WWW.BSSVE.IN

LESSONS FROM A FRUIT FLY: THE PERSONAL COMPUTER

1. BEWARE OF INTEL INSIDE (Regardless of your industry)

2. MAKE/BUY IS NOT ABOUT WHETHER IT IS TWO CENTS CHEAPER OR TWO DAYS FASTER TO OUTSOURCE VERSUS INSOURCE.

3. DEVELOPMENT PARTNERSHIP DESIGN CAN DETERMINE THE FATE OF COMPANIES AND INDUSTRIES, AND OF PROFIT AND POWER

4. THE LOCUS OF VALUE CHAIN CONTROL CAN SHIFT IN UNPREDICTABLE WAYS



WWW.BSSVE.IN

Vertical Industry Structurewith Integral Product

ArchitectureComputer Industry Structure, 1975-85

IBM DEC BUNCH Microprocessors

Operating Systems

Peripherals

Applications Software

Network Services

Assembled Hardware

All Products

All Products

All Products

(Adapted from A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Horizontal Industry Structurewith Modular Product Architecture

Computer Industry Structure, 1985-95

Microprocessors

Operating Systems

Peripherals


Network Services

Assembled Hardware

Microsoft Mac Unix

Intel Moto AMD etc

HP Seagate etc Epson etc

AOL/Netscape EDS etc Microsoft

Microsoft NovellLotus etc

HP Dell etcIBMCompaq (Adapted from A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)



WWW.BSSVE.IN

THE DYNAMICS OF PRODUCT ARCHITECTURE AND VALUE CHAIN STRUCTURE:

THE DOUBLE HELIX

See Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?”



WWW.BSSVE.IN

Product


Process



Supply Chain






WWW.BSSVE.IN

15.760: Alaska Air1. Admin/Intro: PeaPod, Webvan 2. What are important characteristics of services

vs. manufactured products? 3. In what sense must AA concurrently develop

product & process? 4. What are the key operations tasks that AA must

accomplish? 5. Can “self-service through technology” provide

a “sustainable competitive advantage” for AA? 6. Why use hubs?



WWW.BSSVE.IN

15.760: WEBVAN ASSIGNMENT

Take the position of a consultant to Webvan. Write a memo to theCEO of Webvan, providing him with your assessment of theWebvan operations model and business model -- based solely onthe information available in the case. Include in your assessmentsome analysis of the value proposition to customers as well as thevalue proposition to investors. (I.e., how profitable will Webvanlikely be?) (Max length: 1500 words & six supporting exhibits.)

We all know that Webvan went broke. Feel free to take the positioneither that the business could make money (and provide theassumptions and/or analysis and/or creative ideas that supportyour position) or that the business is hopeless. If you take thelatter position, you still need to back up your assessment with ananalysis of why you concluded what you did. (I.e., whatspecifically are the flaws in the business model or operationsassumptions?)



WWW.BSSVE.IN

Some Characteristics of Services (vs. Manufacturing)– Intangibility - explicit and implicit intangibles • “We manufacture perfume; we sell hope.” • Mgmt Issues: Expectations & Perceptions

– Perishability - an hour of non-production is an hour lost • Airplane w/o spare part costs > $10K/hr • Mgmt Issues: Preventation Processes & Mentality

– Heterogeneity - inherent variability of service & customer • Each doctor’s bedside care is unique, as is each patient • Mgmt Issues: Hiring, Training, Listening, Customization

– Simultaneity - services simultaneously produced & consumed • A poor attitude by the server cannot be recalled • Mgmt Issues: Hiring, Training, Situation Control www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Product Development

(Sega, #2)

Supply Chain




(Alaska Air #5)



WWW.BSSVE.IN

Product Development

(Sega, #2)

Supply Chain




(Alaska Air #5)

Dell Product Features • µP & modem speed • CD ROM speed • MB DRAM & HD • screen size • order-to-deliv time • features range • fufillment accuracy

AA Product Features • check-in time • reservations help • meals • price • flight frequency • mileage awards • route coverage • baggage handling • customer coddling



WWW.BSSVE.IN

Operations Tasks for Alaska Airlines1. DESIGN

A. Product Features (See Above; Contrast with Southwest)B. Fleet ConfigurationC. Reservations SystemD. Human Resources System (Care of Employees; Esprit de Corp)

2. PLANNINGA. System schedule;B. Hiring/Training of Pilots, Flight Attendants, Ground CrewC. Workforce scheduling, Aircraft scheduling & maintenanceD. Pricing, Marketing, Promotions (Competitor Actions)

3. CONTROLA. Reservations, Check-in, & Flight processesB. Responses to unplanned events: weather, breakdowns, etc.C. Processing Customer Complaints

4. IMPROVEMENTA. Operations Costs; Capacity Utilization (Role of Technology)B. Customer Experience (Role of Technology)C. Reputation & Brandwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Technology Strategy at Alaska Airlines

Hypothesis: “Self-service through technology” provides “sustainable competitive advantage.”

***Eliminate, Simplify Automate*** 1. Culture of Innovation (among tech leadership) 2. IMAGE system

• customer service, employee satisfaction, • flexibility with laptops, missed opportunity?

3. On-line booking, e-tickets, kiosks, redeem miles • Reduce costs and Improve Customer Satisfac.

4. Navigation and Guidance Systems

Is this profitable? Sustainable? www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Why use hubs (e.g., Seattle) ?

Victoria Calgary

Seattle

San Francisco

Las Vegas

Victoria Calgary

Seattle

San Francisco

Las Vegas



WWW.BSSVE.IN

15.760: Webvan1. Admin/Intro: PeaPod: tomorrow night 2. What are the important features of the

product/service offered by Webvan? How does it differ from competing offerings?.

3. In what sense must Webvan concurrently develop product & process?.

4. What are the key operations tasks that Webvan must accomplish?

5. Can you make sense out of their financial model?

6. Why use hubs & spokes? www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

15.760: WEBVAN ASSIGNMENT

Take the position of a consultant to Webvan. Write a memo to theCEO of Webvan, providing him with your assessment of theWebvan operations model and business model -- based solely onthe information available in the case. Include in your assessmentsome analysis of the value proposition to customers as well as thevalue proposition to investors. (I.e., how profitable will Webvanlikely be?) (Max length: 1500 words & six supporting exhibits.)

We all know that Webvan went broke. Feel free to take the positioneither that the business could make money (and provide theassumptions and/or analysis and/or creative ideas that supportyour position) or that the business is hopeless. If you take thelatter position, you still need to back up your assessment with ananalysis of why you concluded what you did. (I.e., whatspecifically are the flaws in the business model or operationsassumptions?)



WWW.BSSVE.IN

Challenges of Service Interface:Grocery Stores vs. Webvan

– Intangibility - customer expectations vs. perceptions • Grocery Stores: quality, selection, ENVIRONMENT • Webvan: quality, selection, DELIVERY

– Perishability - use it or lose it • Grocery Stores: fresh foods (produce, meats, baked goods) • Webvan: fresh foods & TRUCK CAPACITY

– Heterogeneity - inherent variability of service & customer • Grocery: checkout people, counter people, customer needs • Webvan: DELIVERY PERSON

– Simultaneity - services simultaneously produced & consumed • Grocery: presentation in the store • Webvan: DELIVERY TO THE HOME www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Product Development

(Sega, #2)

Supply Chain




(Alaska Air #5, Webvan #6)



WWW.BSSVE.IN

Product Development

(Sega, #2)

Supply Chain




Grocery Store Features • selection • price • quality/freshness • shopping environment

Webvan Features • selection • price • quality/freshness • shop any hour • never leave home • choose delivery time • save your time • same day delivery • fulfillment accuracy • no lugging required

(Alaska Air #5, Webvan #6)

Who has the advantage on each dimension? www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Hub Operations for Webvan

1. ASSUMPTIONS & ANALYSIS, CASE EXHIBIT 2A. 50,000 SKU’sB. 2,920,000 orders/yearC. $103.00/orderD. ==> $300,000,000 revenue per hub per yearE. Requires 2920000/50000= 58 big trucks/year @ $100K = $5.8M

58x40x52=120640 hours/year ==> 120640 /(365x24)= 14 trucks on roadF. Requires 580 small trucks per year @ $60K = $34.8M

==> 140 small trucks on the roadG. If grocery business serves 20 stores per hub, they would need twice the

big truck capacity, but no small trucks,==> Webvan extra delivery cost ~ $34.8M-$5.8M=$29M ~ %9.67



WWW.BSSVE.IN

Hub Operations for Webvan

2. HUB PRODUCTIVITY A. 450 items/person/hrB. Assume 300,000,000 items/yrC. => 666,667 man hrs/yr = $6,666,667/yr @ $10/hrD. => $666,667/spoke /yr in direct laborE. Assumed 8000 orders/day x 365 x $103 = ~ $300M

F. Summer 1999: Sales of $1.05M/monthAvg order = $71 => 14,789 orders/month

= 493 orders/day“Management estimated that the hub was operatingat less than 20% of its designed capacity.”

G. 26 warehouses & 260 spokes staffed by 10000 people at$40K/year => $1,538,461 in labor per spoke



WWW.BSSVE.IN

%12???0.02Net Oper Profit

0.242Total expenses

2,900,0000.967Home Delivery

1,538,461total labor

warehouse opns

666,6670.022warehouse labor

300,0000.010.07Warehouse alloc

>3%?0.03HQ alloc

>%2?0.02IT costs

0.122Store related costs

7,860,0000.2623,682,4100.262Gross Margin

22,140,0000.73810,372,5900.738Cost of goods

2415Inv turns

30,000,000Rev/spoke/yr

14,055,000Rev/store/yr

WebvanWebvanGroceryGrocery



WWW.BSSVE.IN

Operations Tasks for Webvan

1. DESIGN

2. PLANNING

3. CONTROL

4. IMPROVEMENT



WWW.BSSVE.IN

Matching Fulfillment Strategies with Product Features

Demand uncertainty

H

L

Computers

GroceryBooks & CDs

Furniture

L H

Prof. David Simchi-Levi, MIT

Delivery costUnit price



WWW.BSSVE.IN

15.760: Cisco/MRP/ERP

1. Admin: Peapod, Questions/Feedback2. What were the lessons of the Beer Game?3. How does production control work in the beer game?4. Explain the purpose and logic of MRP. 5. What is the function of Cisco’s ERP system?



WWW.BSSVE.IN

Volatility Amplification in the Supply Chain:“The Bullwhip Effect”

Order Order Order InfoInfo Info

Retailer Wholesaler Distributor Factory How does production control work in the Beer Game?

Information lags

Over- and underordering Delivery lags SOLUTIONS:

Countercyclical MarketsMisperceptions of feedback Lumpiness in ordering

Countercyclical TechnologiesCollaborative channel mgmt.(Cincinnati Milacron & Boeing)

Chain accumulations www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Applying EOQ and Newsvendor models to setReorder Points and Reorder Quantities

(s,S) (ROP, ROQ), (min, max)

Q Q

Q Q

SS ROP

Q = 2RS = ROQ (REORDER QUANTITY) CK

ROP=Reorder Point = Expected Demand During the order lead time + safety stock = E{DDL} + SS

Prob {DDL≤ROP} = Cu/(Co+Cu) Cu=Cost of Underage (r-c in newsvendor); Co=Cost of Overage (c in newsvendor) But, Co with nonperishables is c x cost of holding ROP=SS+E{DDL}; DDL = X1 + X2 + . . . + XL; E{DDL} = E{L} x E{X} i.e., DDL has a mean of Expected lead time x Expected avg demand/unit time Variance{DDL}~Var{X} x E{L} + Var{L} x E{X2}



WWW.BSSVE.IN

What is the Purpose and Logic of MRP ?

Exception Report & Schedules

Master Production Schedule

Inventory Status

Bill of Materials

MRP: (Explosion

Offsets, Nets)

Engineering Changes

Inventory Transactions

Customer Orders

Forecasts



WWW.BSSVE.IN

What is the Purpose and Logic of MRP?

• Coordination of Production and Inventory in large, multi-stage production systems

• Used for - Scheduling & re-scheduling - Capacity Planning - Supplier coordination (internal & external)

• Timely dissemination of information • Time-phased production & procurement

- with lead time offsets & BOM explosions • Independent vs. Dependent demand • Requires centralized information system; hence ERP • Organizes large complex production and

delivery coordination requirements



WWW.BSSVE.IN

Criticisms of MRP

• Deterministic Model • Push system • poor data ==> GIGO • Self-fulfilling lead times • Difficult/costly ot install & maintain • Centralized command & control mindset



WWW.BSSVE.IN

Cisco’s End-to-End Integration for its Fulfillment Supply Chain

Cisco

Customers

Contract Manufacturers

ComponentSuppliers &Distributors

• New product development on-line with supply base

• Technology Supply Chain Design: Innovation through Acquisition

• Single enterprise information system • Dynamic replenishment, direct fulfillment,

merge in transit • Customer orders through Cisco

Connection online

Finished Product flows direct to customer via logistics supplier

Order info flows direct to Cisco and suppliers

Basic Design Principle: Arm’s length Relationship with Fulfillment Chain Partnerswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Cisco’s Strategy for Technology Supply Chain Design

1.Integrate technology around the router tobe a communications network provider.

2. Leverage acquired technology with - sales muscle and reach - end-to-end IT - outsourced manufacturing - market growth

3. Leverage venture capital to supply R&D

Basic Design Principle: Acquisition Relationship with Technology Chain Partnerswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN


Customer Retailer Distributor Factory Tier 1 Supplier Equipment

Information lags Delivery lags Over- and underordering Misperceptions of feedback Lumpiness in ordering

SOLUTIONS: Countercyclical Markets Countercyclical TechnologiesCollaborative channel mgmt.(Cincinnati Milacron & Boeing)

Chain accumulationswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Supply Chain Volatility Amplification:Machine Tools at the tip of the Bullwhip

“We are experiencing a 100-year flood.” J. Chambers, 4/16/01

See "Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case Study," E. Anderson, C. Fine & G. Parker Production and Operations Management,Vol. 9, No. 3, Fall 2000, pp. 239-261.



WWW.BSSVE.IN

LESSONS FROM A FRUIT FLY: CISCO SYSTEMS

1. KNOW YOUR LOCATION IN THE VALUE CHAIN

2. UNDERSTAND THE DYNAMICS OF VALUE CHAIN FLUCTUATIONS

3. THINK CAREFULLY ABOUT THE ROLE OF VERTICAL COLLABORATIVE RELATIONSHIPS

4. INFORMATION AND LOGISTICS SPEED DO NOT REPEAL BUSINESS CYCLES OR THE BULLWHIP.



WWW.BSSVE.IN

15.760 Class #8:Basic Concepts in Queueing

System Performance = f(System parameters)

Arrival rate ( λ )Output/throughput rate (

( λ �

))

Service rate ( µ )Inventory Level/Queue Size/ Service time ( M )

Line length Number of servers ( S )Waiting Time/Cycle Time ( W ) Queue/Buffer capacity ( R )Capacity or Server utilization ( ρ ) Capacity or Server utilization ( ρ )Probability that Queue is full ( Pfull ) Number of Service classes ( K )



WWW.BSSVE.IN

Fish Processing ExampleIn

put R

ate

(Ton

s per

mon

th)

4800

3600

600

0 4 8 12Time (Months)



WWW.BSSVE.IN

Fish Processing Example (con’t)λ = 3600 then 4800 then 600

µ=3000, R= unlimited

Freezer Inventory (Exhibit 3)

Average Inventory = 1/3 x (2400/2) + 1/3 x (9600 + 2400)/2 + 1/3 x (9600/2)

= (1200 + 6000 + 4800)/3 = 4000 tons www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN


µ=3000, R= 2400


Average Inventory = 1/3 x (2400/2) + 1/3 x 2400 + 1/12 x (2400/2) + 1/4 x 0

= (1200/3 + 2400/3 + 1200/12) = 1300 tons www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN


µ=3300, R= 2400


Average Inventory = 1/3 x (1200/2) + .8/12 x 1800+ 3.2/12 x (2400) + .89/12 x (2400/2)

= (200 + 120 + 640 + 89) = 1049 tons www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN


Average Thruput Capacity Inventory per month Utilization

µ=3000, R=∞ 4000 tons 3000 (.63) 100%

µ=3000, R= 2400 1300 tons 2400 (.63) 80%

µ=3300, R= 2400 1049 tons 2600 (.63) 79%

Tradeoffs: Cost of processing capacity vs. Cost of Storage Capacity vs. Value of output (net of holding costs)



WWW.BSSVE.IN

Basic Concepts in Queueing:Capacity Utilization in Stochastic Systems

Suppose avg arrival rate = 1/minuteAvg service rate = 1.33/minute (or avg service time = 45 seconds)

0 1 2 3 4 5 6 7 8 9 10 time

1 1 .5 1 1 .5 .5 .5 1 .5 arrivals www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Basic Concepts in Queueing:Capacity Utilization in Stochastic Systems


Capacity or Server utilization

ρ = λ / µ (arrival rate/service rate)

ρ = λ (S x µ)

ρ = λ x M



WWW.BSSVE.IN

Basic Concepts in Queueing:Little’s Law


Conservation of Flows in Stochastic Systems

L = λ x W Avg Length of the Queue = Arrival rate x Avg Waiting time

600 MBA’s = 300/year x 2 years



WWW.BSSVE.IN

Basic Concepts in Queueing:Nonlinearities in Congestion in Stochastic Systems

If service times and interarrival times have exponentialdistributions, then

L= ρ2/(1-ρ)

W= ρ2/λ(1-ρ) ∆WA

T ot a

l wa it

in th

e qu e

u e

∆ ρ ∆ ρ

A

B

∆WB

0 1 (Arrival Rate / Service Rate = ρ)

= “congestion”www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN



With exponential (λ) interarrivals, and service times with mean = M and std dev = σ, Then

W= λ (M2 +σ2) 2(1-ρ)



WWW.BSSVE.IN


Order Order Order InfoInfo Info

Retailer Wholesaler Distributor Factory How does production control work in the Beer Game?

Information lags Delivery lags SOLUTIONS: Over- and underordering Countercyclical Markets

Countercyclical Technologies

Lumpiness in ordering Misperceptions of feedback Collaborative channel mgmt.

(Cincinnati Milacron & Boeing)Chain accumulations www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Management of Queues The Physics of Waiting Lines

– Number and type of servers – Waiting time, service time, and system time – Queue discipline – Number of people in queue – System utilization

0

Delay Cost

Capacity Cost

Total Cost

Cost

∆ ρ ∆ ρ A

B

∆WA

∆WB

0

Tota

l tim

e in

the q

ueue

1 1 Congestion (Arrival Rate / Service Rate)

Congestion(Arrival Rate / Service Rate)



WWW.BSSVE.IN

Management of QueuesSERVERS

The Psychology of Waiting Lines

CUSTOMERS

WAITING LINE

Propositions 1. Unoccupied time feels longer than occupied time2. Process waits feel longer than in process waits 3. Anxiety makes waits seem longer 4. Uncertain waits seem longer than known, finite waits5. Unexplained waits are longer than explained6. Unfair waits are longer than equitable waits7. The more valuable the service, the longer the customer will wait8. Solo waits feel longer than group waits



WWW.BSSVE.IN

15.760: National Cranberry Case1. Admin: Webvan case; UHS case2. What are the sources of variability in the NCC case? 3. What are the problems NCC is experiencing that should be

addressed? 4. Describe the Process Flow Diagram.5. Assess possible options for relieving truck waiting.6. How would you assess converting some dry bins to wet? 7. How would you assess whether you can begin at 8 am?8. How would you assess labor cost impacts?9. How would you deal with the distribution of wet/dry and volume

over the days of the season?10. Can you eliminate/reduce demand peaks?



WWW.BSSVE.IN

National Cranberry Process Flow Diagram

Unload

weighed/ graded

tested/ sampled

destone

dechaff dry

separate

Bag 667 bbl/hr

dry1-16

250 bbls =4000 bbls

both 17-24

250 bbls =2000 bbls

wet 25-27

3x400 bbls = 1200 bbls

2 x 1500 bbls/hr

1500 bbls/hr

5-10 min/truck

3 x 200 bbls/hr

3 x 400 bbls/hr

destone 2 x 1500 bbls/hr

dechaff 1500 bbls/hr

Bulk Truck 2000 bbl/hr

Bulk Bins 800 bbl/hr

Freeze

Freeze

dry

wet



WWW.BSSVE.IN

Wet Cranberry Inventory Buildup Assume: buildup 18000 x 70% wet =12600 bbl/day 12600/12=1050 bbls/hr; Plant begins operations at 11:00; Drying bottleneck @ 600 bbl/hr Truck waiting =

7500

6000

4500

3000

1500

4200

7800

1050x4

450x8

-600/hr

4600/600= 7.67hrs = 2:40 am No more trucks

3200/1050 = trucks begin waiting at 10:03 am

16.67 hrs x (4600/2)/75 = 511 hours

7:00 9:00 11:00 13:00 15:00 17:00 19:00 21:00 23:00 1:00 3:00

Plant is empty after 7800/600 = 13 hours after 19:00 or 8 am the next morning Total run time = 12600/600 = 21 hours www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Wet Cranberry Inventory Buildup Assume: buildup 18000 x 70% wet =12600 bbl/day 12600/12=1050 bbls/hr; Plant begins operations at 7:00; Drying bottleneck @ 600 bbl/hr Truck waiting =

7500

6000

4500

3000

1500

450x12 =5400

-600/hr 2200/600= 3.67hrs = 20:40 pmNo more trucks

3200/450 = 7.1 = trucks begin waiting at 14:06 pm

8.67 hrs x (2200/2)/75 = 127 hours

7:00 9:00 11:00 13:00 15:00 17:00 19:00 21:00 23:00 1:00 3:00

Plant is empty after 5400/600 = 9 hours after 19:00 or 4 am the next morning Total run time = 12600/600 = 21 hours www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Wet Cranberry Inventory Buildup Assume: buildup 18000 x 70% wet =12600 bbl/day 12600/12=1050 bbls/hr; Plant begins operations at 7:00; Drying bottleneck @ 800 bbl/hr Truck waiting = 0 !!

7500

6000

4500

3000

1500

250x12 =3000

3000/800= 3.75hrs = 20:45 pmProcessing complete

No truck buildup

7:00 9:00 11:00 13:00 15:00 17:00 19:00 21:00 23:00 1:00 3:00

Plant is empty after 3000/800 = 3.75 hours after 19:00 or 20;45 the next morning Total run time = 12600/800 = 15.75 hours; dry berry processing drops to 400/hr www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

15.760 Basic Concepts in Queueing


Arrival rate ( λ )Output/throughput rate (

( λ �

))

Service rate ( µ )Inventory Level/Queue Size/ Service time ( M )

Line length Number of servers ( S )Waiting Time/Cycle Time ( W ) Queue/Buffer capacity ( R )Capacity or Server utilization ( ρ ) Capacity or Server utilization ( ρ )Probability that Queue is full ( Pfull ) Number of Service classes ( K )



WWW.BSSVE.IN

Kiwanee Dumpers:Capacity Analysis

Busy Day: Arrival rate = 18,000 bbl/day = 1500bbl/hr = 20 trucks/hr

L= ρ2/(1-ρ)

W= ρ2/λ(1-ρ)



WWW.BSSVE.IN


If service times and interarrival times have exponentialdistributions, then

L= ρ2/(1-ρ)

W= ρ2/λ(1-ρ) ∆WA

T ot a

l wa it

in th

e qu e

u e

∆ ρ ∆ ρ

A

B

∆WB

0 1 (Arrival Rate / Service Rate = ρ)

= “congestion”www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Management of Queues The Physics of Waiting Lines

– Number and type of servers – Waiting time, service time, and system time – Queue discipline – Number of people in queue – System utilization

Congestion0

Delay Cost

Capacity Cost

Total Cost

Cost

∆ ρ ∆ ρ A

B

∆WA

∆WB

0 Congestion

Tota

l tim

e in

the q

ueue

1 1(Arrival Rate / Service Rate) (Arrival Rate / Service Rate) www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Management of QueuesSERVERS


CUSTOMERS

WAITING LINE

Propositions 1. Unoccupied time feels longer than occupied time2. Process waits feel longer than in process waits 3. Anxiety makes waits seem longer 4. Uncertain waits seem longer than known, finite waits5. Unexplained waits are longer than explained6. Unfair waits are longer than equitable waits7. The more valuable the service, the longer the customer will wait8. Solo waits feel longer than group waits



WWW.BSSVE.IN

15.760: University Health Service1. Admin:

Memory Jogger, The Goal, Mike Hammer2. What are the sources of variability at UHS? 3. What are the problems UHS is experiencing

that should be addressed? 4. Describe the Process Flow Diagram.5. How to usefully model this system? 6. Utilization and waiting for nurse practitioners.7. Utilization and waiting for physicians.8. Recommendations



WWW.BSSVE.IN

UHS Process Flow Diagram

Wait for Wait for Triage

Front desk

AVF form

Nurse Practioners

Dr. A

NP wait

AnyMD wait

Exit

Patients arrive

Triage

records

Dr. B

Dr. C www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

ilsources ofvariab ity

- Patients arrival rates by hour, day, week and season.- Number of MD's on duty - by time of day, day of week.- Number of NP's on duty - by time of day, day of week.- MD service rates by Doctor and patient ailment- NP service rate by nurse and patient ailment.- Triage service rate.- Triage coordinator allocation to MD - NPs.

Others- # of patients wanting to see a special NP or MD, - by hour, day, week.- Speed of filling out AVF forms.



WWW.BSSVE.IN

Patient Arrival Rates

The clinic is opened to patients from 8:00AM to 5:30PM, a total of 9.5 hrs. Staff are asked to stay until 6:00 PM, So the clinic serves patients 10 hours per day. For simplification,

we will assume that patients arrive over the 10 hrs.

Patient average arrival rate = λ =(143 pat/day)/10 hrs/day = 14.3 pat/hr

8 - 9:00 AM on Monday mornings is a peak hour.

Patient peak arrival rate = λ = 14.3 [average rate] X (163/143)[the Monday factor]

X (18.2/14.3)[the 8-9 AM factor] = 20.7 patients/hr www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

ASSUMPTIONS OF THE QUEUEING MODELS

Poisson arrivals/exponentialservicetimessteady stateρ < 1, when computingthe queue lengths

and waiting timesConstant# ofserversFIFO serviceSingle-line queue (to MD's)Infinite queue capacityIgnore special priority emergenciesIgnore special priority requests



WWW.BSSVE.IN

Triage and arrivalrates

Let’sinterpretthe second column ofdatain Exhibit6 as follows:28% ofpatients are triaged tothe NP queue,48% aretriaged to the queue forfirstavailableMD,and 24% queue up for a specific MD.(I.e.,let’s assume thefraction of patients thatrequestto see a specific NP is zero.)However,since 5% of patients seen by NP’s getsenton toMD’s(bottom of p.4),these patients waittwiceand are seen twice, sothe totalload on the systemmightbe thought ofas greaterthan 100% ofinitialdemand.

Therefore,let’s assume thatthe percentage of patientswho see an MD =24% + 48% + [(28%) x 0.05] =73.4% ofinitialarrivals and the arrivalratetothe NP queueis 28% ofinitialarrivals.



WWW.BSSVE.IN

Arrival Rates

Patients average arrivalrateto an NP

Average overweek,λ = 14.3 pat/hr(28%)= 4.0 pat/hr.

Average overpeak hourλ = 20.7 pat/hr(28%)= 5.8 pat/hr.

Patients average arrivalrateto an MD

Average overweek,λ = 14.3 pat/hr(73.4%) = 10.5pat/hr

Av. over peak hour λ = 20.7 pat/hr (73.4%) = 15.2 pat/hrwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

NumberofServers

(From exhibit4)Weekly average number ofNP servers = 3.15Average number of NP serversduring peak Monday hour =2Weekly average number ofMD servers = 2.9Average number of MD servers during peak Monday hour = 2



WWW.BSSVE.IN

l

il

utilization rate,length of queue and waitingtime forthe MD's and NP's.

Sadly, asinreal ife,data and modelsareimperfect. As a result,one must often makedecisions with admittedlyimperfectunderstanding ofthe systems under study.The data inthe case permit a range ofanalyticalapproaches,two of which arelustrated below.

The firstmethod uses asinputsthe expected service time,patient arrivalrates and numberof servers given inthe case to computeutilization rates. The second method uses aninputs waitingtime and patients arrivalratefrom the case to compute the queue length usingLittle'sformula.Then,the queuelengthcombined with the number ofservers gives theutilization rateusing table A2.www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

METHOD #1

M, λ,S (from case) r by definition, ρ =λ M/S ρ, S L from Table A2. L, λ W(*)with Little'sformula, W = L/λ

(*compare with case data)

Method #2

W, λ L with Little'sformula,L= λ WL, S, ρ from Table A2ρ, λ, S M = λ/ρS by definition



WWW.BSSVE.IN

NP CalculationsA. Method #1

Average forthe Week. M = 32.8 min/patient(Ex5) =.547 hrs/pat S = 3.15(Ex4) λ = 4.0 patients/hour (above page) ρ = λ M/S = (4.0)(.547)/3.15 =.695 From table A-2, we have L = 1.15 patients W = L/λ = 1.15 pat/4.0 pat/hour = .29 hrs = 17 min

Peak Hour

M = 32.8 min/pat(above) =.547 hr/pat S = 2 (Exhibit4) λ = 5.8 patients/hour (above page) ρ = λM/S = (5.8)(.547)/2 = 1.58



WWW.BSSVE.IN

..

Method 2: Nurse PractitionersAverage forthe WeekW = 6.7 min =.112 hrsL = λW = 4.0 pat/hr(0.112 hrs)= .418 patientsS = 3.15 .from Table A2, ρ = 0.57

M = Sρ/λ = (3.15)(0.57)/4.0 =.449 hrs/patThus the service rateis1/(.449) =2.23 pat/hr and ρ/M = .57/.449 = 1.27 pat/hr,Peak Hour

S = 2.M =.449 hrs/pat,since we assume the sameservice rate as during regularhours,i.e.,theirservice rateisindependentofthe patients arrivalrate.ρ = λM/S = (5.8)(.449)/2 = 1.30, again greater than one, so inventory builds up.www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Method #1 : MD CalculationsAverage for week

M = 19.4 minutes/patient= .323 hrs/patientS = 2.9(exhibit4)λ = 10.5 pat/hrρ = λM/S = 10.5(.323)/(2.9) =1.17,implyingthatqueues buildallday. Thisissuspicioussince thereis no indication that some patientscamp overnight orare sent home. Perhaps:

- triage sends patientsto NP's when theMD's arebusy.

- Staffstayslate

Peak Hour

M =.323 hrs/patient, S =2λ = 15.2 pat/hr, ρ = (15.2)(.323)/2 = 2.45 !!www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

MD CALCULATIONS: Method #2Average for Week

W = 25.2min = .42 hrsL = λW = 10.5pat/hr (.42 hr)=>4.4 patinqueue.Using S = 2.9 and L = 4.4in Table A-2 gives

ρ =.86 M = Sr/l=(2.9)(.86)/10.5= .238 hrs/pat Thus the service rateis1/.238 = 4.21 pat/hr and ρ/M = (.86)/.238 = 3.61 PATIENTS/hr, neither ofwhich is very close tothe reported value of3.1 patients perhour.



WWW.BSSVE.IN

LEARNING POINTS1. Queueing models do not predictthe customerwaiting times with great accuracy.Thiscould be because one or more oftheassumptions underlying the model was seriouslyviolated,oritcould be thatinaccurate datawas reported in the case.

2. Analysissuggeststhatthe MD's were moreheavilyloaded than the NP's,and thattheentire staff was heavilyloaded during peak hours.3. The modelsprovide astructureforthinkingaboutthe operating system.The formulas L= λ W,ρ = λM, and W = λ (M2 + σ2)/2(1-ρ) do stimulatethought abouttheimportantparameters oftheSystem,theirrelationships with each otherand the decision variables availableto Ms. Angell.



WWW.BSSVE.IN

1

TQM 15.760

TOTAL QUALITY MANAGEMENT

THEMES

FOUR LEVELS OF QUALITY

FOUR THOUGHT REVOLUTIONS Customers first Continuous Improvement Total Participation Societal Learning

ORGANIZATIONAL MANAGEMENT Information & Measurement Systems Education Incentive Systems Organizational Change



WWW.BSSVE.IN

2

Four Levels of Quality 1. FITNESS FOR STANDARD

-inspection oriented -no consciousness to customer/mkt

2. FITNESS FOR USE -Must satisfy customer need for use -Hotel shampoo & body oil

3. FITNESS FOR MARKET -Must achieve low cost as well as

1 & 2

high cost low cost

4. FITNESS FOR LATENT REQ'TS -Listening to the voice of the customer -V-8 engine, Swatch -Uncovering latent req't adds value



WWW.BSSVE.IN

3

==> need continuous innovation



WWW.BSSVE.IN

4

TQM: Four Thought Revolutions 1. Customer-First Revolution

(From "Product-out to "Market-in")

market-in

work specs

job descrip.

satisfy customers (internal & external)

means

purpose

satisfy?

yes

noimprove

Develop Product

product-out

output



WWW.BSSVE.IN

5

2. Continuous Improvement Revolution

Fundamental Concept: PDCA (Observe, Assess, Design, Intervene)

Quality Control: Manage known sources of variation

-process control charts -management by exception -ROI control

Reactive Quality Management: Problem solving -application of SQC tools

(Pareto anlysis, proeess flow chart, fishbone diagrams, histograms)

Proactive Quality Management: Finding hidden opportunities

MANAGEMENT BY FACT: "IN GOD WE TRUST;



WWW.BSSVE.IN

6

ALL OTHERS BRING DATA"

3. Total Participation Revolution

-Total Involvement of CEO (Leadership)

-Quality Specialist ----> All Employees

-Build Infrastructure: goals, training, promotion, feedback, diagnosis, etc.



WWW.BSSVE.IN

7

4. Societal Learning Revolution

Success stories need wide diffusion (Baldridge, Deming Awards)

In Japan: progression through -Process industries -Mass Production -Small Volume Manufacturing -Construction -Services

Role of outside change agents -Deming, Juran, Shiba

Role of University/Industry Consortia -MIT: Center for Quality Management

Leaders for Manufacturing



WWW.BSSVE.IN

8

PRINCIPLES OF LEADERSHIP

1. LEADERS LEAD BY EXAMPLE -LEADERS MUST BE ROLE MODELS -LIVE YOUR LIFE AS A LEADER

2. LEADERS LEAD BY THEIR COMMITMENT -STATE CLEARLY YOUR COMMITMENTS -DEMONSTRATE YOUR COMMITMENT -HONOR YOUR COMMITMENTS

3. SET STANDARDS FOR -DISCIPLINE -ETHICS -ENTHUSIASM

4. MAKE EACH EMPLOYEE FEEL THAT HE/SHE MATTERS

5. CELEBRATE/RECOGNIZE ACHIEVEMENTS

6. BE A GOOD LISTENER

7. BE CONSISTENT AND PREDICTABLE



WWW.BSSVE.IN

9

TQM GOAL:

HABITUAL, CONTINUOUS IMPROVEMENT IN PURSUIT OF

PERFECT PRODUCTION

-Zero Defects -Zero Inventories -Zero Lead Times & Cycle Times -Zero Injuries -Zero Machine Downtime -Zero Customer Returns -Zero Warranty Costs -Zero Absenteeism -Process Capability > 2 and incr. -Rapid Product Introduction -Rapid Learning -Teamwork -High Morale



WWW.BSSVE.IN

10

-Pride



WWW.BSSVE.IN

11

QUALITY INFORMATION SYSTEMS

OBJECTIVE: RAPID FEEDBACK From Customers:

-Field personnel reports -Customer interviews & surveys

From Competitors/External Studies: -Benchmarking

In the Production/Delivery System: Rapid Feedback Systems: Detailed,

Comprehensive, Fast -Who are customers/suppliers? -Faster flow times==>less tracking -Tight Feedback Loops -CIM oriented--much integration

Provide Data on:

-Defects, Downtime, Warranties, Returns -Inventories, Lead Times, Cycle Times -Injuries, Absenteeism, Turnover -Process Capability, Learning Rates -Vendor Quality



WWW.BSSVE.IN

12

-Quality Costs



WWW.BSSVE.IN

13

QUALITY DECISION TOOLS AND DATA ANALYSIS

DEMING: SIX SQC TOOLS THAT EVERYONE SHOULD KNOW AND USE

1. Pareto Analysis

2. Process Flow Chart

3. Fishbone (Cause & Effect) Diagrams

4. Histograms

5. Control Charts

6. Scatter Plots



WWW.BSSVE.IN

14

WE HAVE TOOLS FOR TWO TYPES OF DATA: 1. NUMERICAL DATA

-HISTOGRAMS -PARETO DIAGRAMS -CONTROL CHARTS -SCATTER PLOTS -PROCESS CAPABILITY

2. LANGUAGE DATA -CAUSE & EFFECT DIAGRAMS -KJ (or “LP” PROCESS

(AFFINITY DIAGRAMS) MANY OF THE LANGUAGE DATA TOOLS ARE NOT WIDELY TAUGHT IN THE WEST.



WWW.BSSVE.IN

15

Quality Economics -Macro: International Competitiveness -Micro: Quality/Productivity Relation

(Economics of DIRTFT) -Cost of Quality:

Careful Analysis and Accounting -Failure Costs -Appraisal Costs -Prevention Investments -Revenue effects of quality

Contributions of Taguchi

-Quality Loss Function -Two-step process for parameter optimization (control variance and mean)



WWW.BSSVE.IN

16

-Orthogonal Arrays for experimental design

PRODUCT DEVELOPMENT LEVERAGE APPROXIMATELY 75% OF LIFE CYCLE (DESIGN AND MANUFACTURING) COSTS ARE DETERMINED DURING THE PRODUCT DEVELOPMENT PROCESS

Concurrent Design of Products and Processes Whitney & Nevins, et al

McGraw-Hill 1989

PRODUCT DEVELOPMENT IN THE JAPANESE AUTOMOBILE INDUSTRY (COMPARED WITH U.S.):

--25% FASTER --50% FEWER ENGINEERING HOURS

(EUROPEANS ARE FARTHER BEHIND)Product Development Performance

Clark & Fujimoto HBS Press 1991



WWW.BSSVE.IN

17

ACTIVE PARTICIPATION OF ALL PLAYERS IS CRITICAL

Customer-driven Requirements Suppliers (Vendor Management)

Company-wide Involvement

-Manufacturing

-Marketing

-Engineering (Design of Products, Processes, Systems)

-Purchasing

-Quality Assurance

-Workforce Participation

-Distribution and Field Service



WWW.BSSVE.IN

18

-Personnel



WWW.BSSVE.IN

19

CONTINUOUS TRAINING AND EDUCATION -General Quality Concepts -Statistical Quality Control -Cost of Quality -Problem Solving -Decision Making -Teamwork -Experimental Design -Parameter Optimization -Customer/Supplier Analysis -Design for Manufacturability

WHO GETS WHAT TRAINING?

WHO DOES THE TRAINING?

WHO DESIGNS THE CURRICULUM?

MOTIVATION FOR LEARNING



WWW.BSSVE.IN

20

SUPPLY CHAIN MANAGEMENT

Schonberger on Supplier Development

-RELY ON FEWER, BETTER SUPPLIERS -"TREAT THEM LIKE FAMILY" -EMPHASIZE PARTNERSHIP WITH

ORGANIZATIONAL INTERACTION ON ALL LEVELS

SINGLE SOURCE MULTIPLE SOURCES ______________ ________________

Get to know each supplier better

QC is easier

DFM is easier

Short supply lines

less risk to supplier strikes/shutdowns

lower spot prices

less scrutiny of each



WWW.BSSVE.IN

21

SUPPLY CHAIN MANAGEMENT:

DEMONSTRATE TO CUSTOMERS:

Quality at the Source Process Capability Declining Nonconformities Declining WIP, LT, Space, Flow Dists Operators -cross-trained, doing Prev Maint -presenting on SPC, Setup Reduction -charting probs, processes/methods -trained in JIT/TQC Concurrent Design Competitive Analysis Flexibility of labor and equipment Dedicated Capacity Exact counts in standard containers

COMMITMENT TO World Class STATUS



WWW.BSSVE.IN

22

EMPLOYEE INVOLVEMENT

"IF A FIRM THAT UTILIZES THE MINDS OF ONLY 50% OF ITS EMPLOYEES COMPETES WITH A FIRM THAT UTILIZES THE MINDS OF 100% OF ITS EMPLOYEES, WHICH DO YOU THINK WILL PREVAIL?"

EI OBJECTIVES:

EMPLOYEE INITIATIVE OWNERSHIP ENTHUSIASM LOYALTY

EI METHODS:

STRONG LEADERSHIP TEAMWORK PROGRAMS RECOGNITION AND REWARDS INDIVIDUAL RESPONSIBILITY TRAINING AND TOOLS



WWW.BSSVE.IN

23

INCENTIVES



WWW.BSSVE.IN

24

IMPLEMENTATION OF TQM

-Major Cultural Transition (Trust as the lubricant)

-Education and Training are Critical

-Tailor the process to the specific firm

-Quality Improvement Teams (Harnessing the Collective Genius)

Top Management Leadership: -Importance of Quality -Goals and Objectives -Commitment to these Goals -Responsibility for these Goals



WWW.BSSVE.IN

25

Dr. W. Edwards Deming’s Fourteen Points 1. Create constancy of purpose for impr. of product and service. 2. Adopt the new philosophy -- poor quality cannot be tolerated. 3. Cease dependence on inspection to achieve quality. 4. End the practice of awarding contracts on the price tag alone; work with a single supplier.

5. Improve constantly and forever every process for planning, production, and service.

6. Institute training on the job.

7. Adopt and institute leadership.

8. Drive out fear.

9. Break down barriers among staff areas.

10. Eliminate slogans, exhortations, and targets for workers.

11. Eliminate numerical quotas for the workforce and numerical goals for management.

12. Remove barriers that rob people of their pride of workmanship. Eliminate the annual rating or merit system.

13. Institute a vigorous program of education and self-improvement for everyone.



WWW.BSSVE.IN

26

14. Put everybody in the company to work to accomplish the transformation.



WWW.BSSVE.IN

27

Some Words from Dr. W. Edwards Deming

“The prevailing system of management has destroyed our people. People are born with intrinsic motivation, self-esteem, dignity, curiousity to learn, joy in learning. The forces of destruction begin with toddlers--a prize for the best Halloween costume, grades in school, gold stars--and on up through the university. On the job, people, teams, divisions are ranked--reward for the one at the top, punishment for the one at the bottom.”



WWW.BSSVE.IN

28

-Top Management Leadership

-Habitual Continuous Improvement

-Rapid Feedback Systems (Who are customers/suppliers?)

-Data-Driven Decision Support Tools (Statistical Quality Control, Cost of Quality, Taguchi Methods)

-Continuous training and education

-Company-wide participation

-Supply-Chain Management

-TQM Implementation

-Employee Involvement



WWW.BSSVE.IN

29€

Measuring Quality

Customer Satisfaction Defect Rates Cost of Poor Quality Inventory Productivity Innovativeness Complexity Order Lead Times Manufacturing Cycle Times Product Development Cycle Times Injuries Machine Downtime Absenteeism and Turnover Changeover time improvements Rate of Product Introduction Rates of Learning and Process Imp. Workforce Training and Education Workforce Suggestions



WWW.BSSVE.IN

30

Teamwork, Morale, Pride Vendor Cooperation



WWW.BSSVE.IN

31

Baldridge Quality Award Criticisms 1. requires large expenditures

2. fails to predict financial performance

3. not focused on superior product or service quality

Judging 1. Deployment - horizontal and vertical

2. Integration - alignment, communication - speed

Legacy Spirit of Cooperation



WWW.BSSVE.IN

32

Baldridge Quality Award Categories for Scoring 1. Leadership--symbolism & involvement

2. Info systems/analysis--internal, benchmk

3. Strategic Quality Planning Plans and Goals that are concrete, focused, integrated, aggressive

4. Human Resource Utilization -empowerment, teamwork, skills

5. Quality Assurance of Pdts & Services -process quality drives product quality

6. Quality Results -data on quality and defects, etc.

7. Customer Satisfaction -systems and results



WWW.BSSVE.IN

i

33€

Award's Merits

stimulate debate raise consciousness decathalon: composite

Award's Demer ts

ignores finan. perf. downplays product qua. self-nominating no definition of quality examiners also consult aims too low thermometer

-not instructive philosophically agnostic not focused on

world-class too process oriented bureaucratic



WWW.BSSVE.IN

34

Donald Berwick

"Controlling Variation in Health Care"

Subject: Control & Reduction of Variation

TQM = customer satisfaction + organ. culture (empowerment) + continuous improvement

Concept of variation categorized by -special causes -common causes

Identify disconnected alarm systems

Beware: local excellence, systemic garbage

Tells what (articulately) but not how



WWW.BSSVE.IN

35€

Peter Senge "Building Learning Organizations: The Real Message of the Quality Movement"

First Wave of Quality: -champion continuous improvement -remove impediments that disempower

people -support new practices

Second Wave of Quality: Improve Management Processes The industrial engineering of managment

work

Third Wave of Quality -institutionalize learning w/5 disciplines:

Shared Vision Personal Mastery Mental Models Team Learning Systems Modeling



WWW.BSSVE.IN

36

Intrinsic vs. Extrinsic motivation



WWW.BSSVE.IN

37

Schaffer and Thompson

Successful Change Programs Begin with Results

The Activity-Centered Fallacy:

1. Not keyed to specific results

2. Too large-scale and diffused

3. Results is a four-letter word (avoid appearance of short-termism)

4. Delusional Measurements

5. Staff and Consultant Driven

6. Bias to orthodoxy, not empiricism



WWW.BSSVE.IN

38€

THE TIMELESS SECRETS OF INDUSTRIAL SUCCESS (R. H. HAYES, HARVARD UNIVERSITY)

1. BEWARE OF COMPLACENCY

2. CONTINUALLY ENLIST THE HELP OF EMPLOYEES TO IMPROVE PRODUCT AND PROCESS

3. DENY EVERY INCH TO COMPETITORS AND POTENTIAL COMPETITORS

4. STUDY COMPETITORS' SOURCES OF SUCCESS

5. DON'T BE TOO RATIONAL

6. YOU ARE NEVER DONE



WWW.BSSVE.IN

39

Results Driven

1. Introduce Managerial and Process innovations only as needed

2. Empirical testing reveals what works

3. Frequent reinforcement energizes

4. Use lessons of each phase to design next phase (i.e., continuous process)

How to get started

1. Create the context and Identify the crucial business challenges

2. Ask each unit for a few ambitious short-term goals

3. Monitor progress, capture the essential learning, reformulate strategy



WWW.BSSVE.IN

40€

4. Institutionalize only what works FALSE STARTS & FAILURE MODES IN TQM PROGRAMS

1. TRAINING CAPACITY

2. RESISTANCE TO CHANGE

3. FEAR OF FIRING

4. CAPITAL CRUNCH

5. WORK OVERLOAD

6. SATISFIED CUSTOMERS

7. COST OF QUALITY

8. LOVED TO DEATH (institutionalized)



WWW.BSSVE.IN

TQM 15.760

TOTAL QUALITY MANAGEMENT

FOUR LEVELS OF QUALITY FOUR THOUGHT REVOLUTIONS Customers firstContinuous ImprovementTotal ParticipationSocietal Learning

ORGANIZATIONAL MANAGEMENTInformation & Measurement SystemsEducationIncentive SystemsOrganizational Change



WWW.BSSVE.IN

Four Levels of Quality 1. FITNESS FOR STANDARD

-inspection oriented -no consciousness to customer/mkt

2. FITNESS FOR USE -Must satisfy customer need for use -Hotel shampoo & body oil

3. FITNESS FOR MARKET -Must achieve low cost as well as 1 & 2

4. FITNESS FOR LATENT REQ'TS -Listening to the voice of the customer -V-8 engine, Swatch -Uncovering latent req't adds value

==> need continuous innovation www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

TQM: Four Thought Revolutions

1. Customer-First Revolution

From "Product-out (PUSH what you can do)

to

"Market-in” (Learn and develop what the market wants)



WWW.BSSVE.IN

PRODUCT DEVELOPMENT LEVERAGE

APPROXIMATELY 75% OF LIFE CYCLE (DESIGN AND MANUFACTURING) COSTS ARE DETERMINED DURING THE PRODUCT DEVELOPMENT PROCESS

See Concurrent Design of Products and Processes Whitney & Nevins, et al McGraw-Hill 1989

PRODUCT DEVELOPMENT IN THE JAPANESE AUTO INDUSTRY (COMPARED WITH U.S.):--25% FASTER--50% FEWER ENGINEERING HOURS (EUROPEANS ARE FARTHER BEHIND)

see Product Development Performance Clark, K. & Fujimoto, T. HBS Press 1991



WWW.BSSVE.IN

DEMONSTRATE TO CUSTOMERS:Quality at the SourceProcess CapabilityDeclining NonconformitiesDeclining WIP, LT, Space, Flow DistsOperators

-cross-trained, doing Prev Maint -presenting on SPC, Setup Reduction-charting probs, processes/methods-trained in JIT/TQC

Concurrent DesignCompetitive AnalysisFlexibility of labor and equipmentDedicated CapacityExact counts in standard containers



WWW.BSSVE.IN

2. Continuous Improvement Revolution Fundamental Concept: PDCA

(Observe, Assess, Design, Intervene) Quality Control:

Manage known sources of variation-process control charts-management by exception-ROI control

Reactive Quality Management:Problem solving-application of SQC tools

(Pareto anlysis, proeess flow chart,fishbone diagrams, histograms)

Proactive Quality Management:Finding hidden opportunities

MANAGEMENT BY FACT: "IN GOD WE TRUST;

ALL OTHERS BRING DATA" www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

QUALITY DECISION TOOLS AND DATA ANALYSIS

DEMING: SIX SQC TOOLS THAT EVERYONE SHOULD KNOW AND USE

1. Pareto Analysis

2. Process Flow Chart

3. Fishbone (Cause & Effect) Diagrams

4. Histograms

5. Control Charts

6. Scatter Plotswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Donald Berwick

"Controlling Variation in Health Care"

Subject: Control & Reduction of Variation TQM = customer satisfaction +

organ. culture (empowerment) + continuous improvement

Concept of variation categorized by -special causes -common causes

Identify disconnected alarm systems Beware: local excellence, systemic garbage

Tells what (articulately) but not how



WWW.BSSVE.IN

QUALITY INFORMATION SYSTEMS OBJECTIVE: RAPID FEEDBACK From Customers: -Field personnel reports

-Customer interviews & surveys From Competitors/External Studies:

-Benchmarking In the Production/Delivery System:Rapid Feedback Systems: Detailed, Comprehensive, Fast

-Who are customers/suppliers?-Faster flow times==>less tracking-Tight Feedback Loops

Provide Data on: -Defects, Downtime, Warranties, Returns -Inventories, Lead Times, Cycle Times-Injuries, Absenteeism, Turnover-Process Capability, Learning Rates-Vendor Quality-Quality Costs www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Measuring QualityCustomer Satisfaction Defect Rates Cost of Poor QualityInventoryProductivityInnovativeness ComplexityOrder Lead Times Manufacturing Cycle TimesProduct Development Cycle TimesInjuriesMachine Downtime Absenteeism and Turnover Changeover time improvementsRate of Product Introduction Rates of Learning and Process Imp.Workforce Training and EducationWorkforce SuggestionsTeamwork, Morale, Pride Vendor Cooperation



WWW.BSSVE.IN

WE HAVE TOOLS FOR TWO TYPES OF DATA:

1. NUMERICAL DATA -HISTOGRAMS -PARETO DIAGRAMS -CONTROL CHARTS -SCATTER PLOTS -PROCESS CAPABILITY

2. LANGUAGE DATA -CAUSE & EFFECT DIAGRAMS -KJ (or “LP” PROCESS

(AFFINITY DIAGRAMS)

MANY OF THE LANGUAGE DATA TOOLSARE NOT WIDELY TAUGHT IN THE W EST.



WWW.BSSVE.IN

Quality Economics -Macro: International Competitiveness -Micro: Quality/Productivity Relation

(Economics of DIRTFT) -Cost of Quality:

Careful Analysis and Accounting -Failure Costs -Appraisal Costs -Prevention Investments -Revenue effects of quality

Contributions of Taguchi -Quality Loss Function -Two-step process for parameter optimization

(control variance and mean) -Orthogonal Arrays for experimental design



WWW.BSSVE.IN

3. Total Participation Revolution -Total Involvement of CEO (Leadership) -Quality Specialist ----> All Employees -Build Infrastructure: goals, training,

promotion, feedback, diagnosis, etc.

Customer-driven Requirements Suppliers (Vendor Management) Company-wide Involvement

-Manufacturing -Marketing -Engineering (Design of Products, Processes, Systems) -Purchasing -Quality Assurance -Workforce Participation -Distribution and Field Service -Personnel www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

EMPLOYEE INVOLVEMENT "IF A FIRM THAT UTILIZES THE MINDS OF ONLY 50% OF ITS EMPLOYEES COMPETES WITH A FIRM THAT UTILIZES THE MINDS OF 100% OF ITS EMPLOYEES, WHICH DO YOU THINK WILL PREVAIL?" EI OBJECTIVES: EMPLOYEE INITIATIVE

OWNERSHIP ENTHUSIASM LOYALTY

EI METHODS: STRONG LEADERSHIP TEAMWORK PROGRAMS RECOGNITION AND REWARDS INDIVIDUAL RESPONSIBILITY TRAINING AND TOOLS INCENTIVES



WWW.BSSVE.IN

PRINCIPLES OF LEADERSHIP 1. LEADERS LEAD BY EXAMPLE

-LEADERS MUST BE ROLE MODELS -LIVE YOUR LIFE AS A LEADER

2. LEADERS LEAD BY THEIR COMMITMENT -STATE CLEARLY YOUR COMMITMENTS -DEMONSTRATE YOUR COMMITMENT -HONOR YOUR COMMITMENTS

3. SET STANDARDS FOR -DISCIPLINE -ETHICS -ENTHUSIASM

4. MAKE EACH EMPLOYEE FEEL THAT HE/SHE MATTERS 5. CELEBRATE/RECOGNIZE ACHIEVEMENTS 6. BE A GOOD LISTENER 7. BE CONSISTENT AND PREDICTABLE www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

CONTINUOUS TRAINING AND EDUCATION

-General Quality Concepts-Statistical Quality Control-Cost of Quality-Problem Solving-Decision Making-Teamwork-Experimental Design-Parameter Optimization-Customer/Supplier Analysis-Design for Manufacturability

WHO GETS WHAT TRAINING?

WHO DOES THE TRAINING?

WHO DESIGNS THE CURRICULUM?

MOTIVATION FOR LEARNINGwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

TQM GOAL:HABITUAL, CONTINUOUS IMPROVEMENT IN PURSUIT OF

PERFECT PRODUCTION -Zero Defects-Zero Inventories-Zero Lead Times & Cycle Times-Zero Injuries-Zero Machine Downtime-Zero Customer Returns -Zero Warranty Costs-Zero Absenteeism-Process Capability > 2 and incr.-Rapid Product Introduction-Rapid Learning-Teamwork-High Morale-Pride



WWW.BSSVE.IN

4. Societal Learning Revolution Success stories need wide diffusion

(Baldridge, Deming Awards) In Japan: progression through

-Process industries -Mass Production -Small Volume Manufacturing -Construction -Services

Role of outside change agents -Deming, Juran, Shiba

Role of University/Industry Consortia -MIT: Center for Quality Management

Leaders for Manufacturing www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Baldridge Quality Award Categories for Scoring 1. Leadership--symbolism & involvement 2. Info systems/analysis--internal, benchmk 3. Strategic Quality Planning

Plans and Goals that are concrete, focused, integrated, aggressive

4. Human Resource Utilization -empowerment, teamwork, skills

5. Quality Assurance of Pdts & Services -process quality drives product quality

6. Quality Results -data on quality and defects, etc.

7. Customer Satisfaction -systems and results



WWW.BSSVE.IN

Award's Merits

stimulate debate raise consciousness decathalon: composite

Award's Demerits

ignores finan. perf. downplays product qua. self-nominating no definition of quality examiners also consult aims too low thermometer

-not instructive philosophically agnostic not focused on

world-class too process oriented bureaucratic



WWW.BSSVE.IN

Baldridge Quality Award Criticisms 1. requires large expenditures 2. fails to predict financial performance 3. not focused on superior product or service quality

Judging 1. Deployment - horizontal and vertical 2. Integration - alignment, communication

- speed

Legacy

Spirit of Cooperation www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

IMPLEMENTATION OF TQM

-Major Cultural Transition (Trust as the lubricant)

-Education and Training are Critical

-Tailor the process to the specific firm

-Quality Improvement Teams (Harnessing the Collective Genius)

Top Management Leadership: -Importance of Quality -Goals and Objectives -Commitment to these Goals -Responsibility for these Goals



WWW.BSSVE.IN

DEMING’S FOURTEEN POINTS

1. Create constancy of purpose for improvement of product and service.2. Adopt the new philosophy -- poor quality cannot be tolerated.3. Cease dependence on inspection to achieve quality.4. End the practice of awarding contracts on the price tag alone; work with a single supplier.5. Improve constantly and forever every process for planning, production, and service.6. Institute training on the job.7. Adopt and institute leadership.8. Drive out fear.9. Break down barriers among staff areas.10. Eliminate slogans, exhortations , and targets for workers.11. Eliminate numerical quotas for the workforce and numerical goals for management.12. Remove barriers that rob people of their pride of workmanship. Eliminate the annual rating or merit system.13. Institute a vigorous program of education and self-improvement for everyone.14. Put everybody in the company to work to accomplish the transformation.



WWW.BSSVE.IN

Some Words from Dr. W. Edwards Deming

“The prevailing system of management has destroyed our people. People are born with intrinsic motivation, self-esteem, dignity, curiousity to learn, joy in learning. The forces of destruction begins with toddlers--a prize for the best Halloween costume, grades in school, gold stars--and on up through the university. On the job, people, teams, divisions are ranked--reward for the one at the top, punishment for the one at the bottom.”



WWW.BSSVE.IN

-Top Management Leadership -Habitual Continuous Improvement-Rapid Feedback Systems (Who are customers/suppliers?) -Data-Driven Decision Support Tools

(Statistical Quality Control, Cost of Quality, Taguchi Methods)

-Continuous training and education

-Company-wide participation -Supply-Chain Management -TQM Implementation -Employee Involvement



WWW.BSSVE.IN

Peter Senge "Building Learning Organizations:

The Real Message of the Quality Movement" First Wave of Quality:

-champion continuous improvement-remove impediments that disempower people-support new practices

Second Wave of Quality:Improve Management ProcessesThe industrial engineering of management work

Third Wave of Quality-institutionalize learning w/5 disciplines:

Shared Vision Personal MasteryMental Models Team LearningSystems Modeling

Intrinsic vs. Extrinsic motivation www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Schaffer and Thompson

Successful Change Programs Begin with Results

The Activity-Centered Fallacy:

1. Not keyed to specific results

2. Too large-scale and diffused

3. Results is a four-letter word (avoid appearance of short-termism)

4. Delusional Measurements

5. Staff and Consultant Driven

6. Bias to orthodoxy, not empiricismwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Results Driven 1. Introduce Managerial and Process

innovations only as needed 2. Empirical testing reveals what works 3. Frequent reinforcement energizes 4. Use lessons of each phase to design next

phase (i.e., continuous process) How to get started 1. Create the context and

Identify the crucial business challenges 2. Ask each unit for a few ambitious short-term goals 3. Monitor progress, capture the essential

learning, reformulate strategy Institutionalize only what works



WWW.BSSVE.IN

FALSE STARTS & FAILURE MODES IN TQM PROGRAMS

1. TRAINING CAPACITY

2. RESISTANCE TO CHANGE

3. FEAR OF FIRING

4. CAPITAL CRUNCH

5. WORK OVERLOAD

6. SATISFIED CUSTOMERS

7. COST OF QUALITY

8. LOVED TO DEATH (institutionalized)www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

JUST-IN-TIME PRODUCTION OBJECTIVE:

-Constant Improvement of the Production/Delivery System, as measured by Quality, Cost, Lead Times, Service, Flexibility

METHOD: -Simplify the Production System -Rapid Feedback on Problems Thru

Tightly Integrated Production -Pull System for Inventory Control -Exploratory Stress to Drive Improvement -Effective Management of Capital Equipment



WWW.BSSVE.IN

SIMPLIFY THE PRODUCTION SYSTEM

Fewer SuppliersReduced Parts CountsFocused FactoriesScheduling by rate, not lotsFewer storage containersMore Frequent DeliveriesSmaller PlantsShorter DistancesLess ReportingFewer InspectorsLess Buffer StockFewer Job Classifications



WWW.BSSVE.IN

RAPID FEEDBACK "A DEFECT IS A TREASURE"

ACTION STEPS:

1. REMOVE FEEDBACK DELAYS --ESPECIALLY WIP INVENTORIES

2. LINE WORKERS STOP PRODUCTION WHEN PROBLEMS ARISE

BENEFITS: INSTANT FEEDBACK TO PROBLEM SOURCE

JOB ENRICHMENT -UTILIZE MENTAL POWERS

INCENTIVES TO AVOID DEFECTS -CAUSE IS EASILY TRACEABLE



WWW.BSSVE.IN

PULL SYSTEM FOR PRODUCTION AND INVENTORY CONTROL

PRODUCE EXACTLY -WHAT IS NEEDED -WHEN IT IS NEEDED

KANBAN OR CARD CONTROL REPLACES COSTLY COMPUTERIZED PLANNING AND TRACKING SYSTEM

PROBLEMS ARE QUICKLY FELT THROUGHOUT THE SYSTEM

ELIMINATES JUST-IN-CASE INVENTORIES

REQUIRES -FLEXIBILITY -FAST CHANGEOVERS -SMALL LOT SIZES



WWW.BSSVE.IN

EXPLORATORY STRESS TO DRIVE IMPROVEMENT TO EXPOSE PROBLEMS

REDUCE BUFFERSREDUCE CYCLE TIME TARGETSREDUCE LABOR ALLOCATIONS

PROBLEM EXPOSURE DRIVES EMPLOYEES TO WORK ON

SETUP REDUCTION VARIABILITY REDUCTION CYCLE TIME REDUCTION



WWW.BSSVE.IN

MANAGING CAPITAL EQUIPMENT

TOTAL PREVENTIVE MAINTENANCE

-ASSURES BETTER UPTIME RELIABILITY -OFTEN PROVIDES MORE TOTAL UPTIME -OPERATORS PERFORM REGULAR MAINT.

PRE-AUTOMATION

-PRODUCT DESIGN FOR ASSEMBLY -REDUCE PARTS COUNT -UTILIZE MODULARITY -SET SPECICATIONS EFFICIENTLY

Know cust. needs and mfg capability

-PROCESS DESIGN FOR ASSEMBLY -REDUCE FLOW DISTANCES -UTILIZE FAIL-SAFE DEVICES -LOCATE TOOLS CONVENIENTLY -STREAMLINE BEFORE AUTOMATING

ADD CAPITAL INCREMENTALLY

-SEVERAL SMALL MACHINES MORE FLEXIBLE -MATCH SUPPLY WITH DEMAND -LESS CYCLE INVENTORY NEEDED

-MOVABILITY PERMITS DEDICATED CELLS



WWW.BSSVE.IN

JIT IMPLEMENTATION ISSUES

1. INVENTORY AS A SECURITY BLANKET 2. REDUCE INVENTORY CARRYING COSTS

VS. REDUCE SOURCES OF VARIABLIITY

3. SUPPLIER MANAGEMENT-BULLYING VS. COOPERATION

-HOW TO SHARE THE PAINS & GAINS -GET OWN HOUSE IN ORDER FIRST?

4. PHYSICAL DISTANCES-BETWEEN PLANTS

-BETWEEN WORKSTATIONS 5. COOPERATIVE EFFORTS AMONG

-MANUFACTURING -MARKETING -PURCHASING -ENGINEERING

6. PATIENCE www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

760 Class #13: JUST-IN-TIME/TPS

1. Admin:2. What are the principles of TPS?3. Why are they so hard to copy & get right?4. What is the nature of TMM-Georgetown’s seat

problem. 5. What should they do?



WWW.BSSVE.IN

JUST-IN-TIME PRODUCTION OBJECTIVE:

-Constant Improvement of the Production/Delivery System, as measured by Quality, Cost, Lead Times, Service, Flexibility

METHOD: -Simplify the Production System -Rapid Feedback on Problems Thru

Tightly Integrated Production -Pull System for Inventory Control -Exploratory Stress to Drive Improvement -Effective Management of Capital Equipment



WWW.BSSVE.IN

SIMPLIFY THE PRODUCTION SYSTEM

Fewer SuppliersReduced Parts CountsFocused FactoriesScheduling by rate, not lotsFewer storage containersMore Frequent DeliveriesSmaller PlantsShorter DistancesLess ReportingFewer InspectorsLess Buffer StockFewer Job Classifications



WWW.BSSVE.IN

RAPID FEEDBACK "A DEFECT IS A TREASURE"

ACTION STEPS:

1. REMOVE FEEDBACK DELAYS --ESPECIALLY WIP INVENTORIES

2. LINE WORKERS STOP PRODUCTION WHEN PROBLEMS ARISE

BENEFITS: INSTANT FEEDBACK TO PROBLEM SOURCE

JOB ENRICHMENT -UTILIZE MENTAL POWERS

INCENTIVES TO AVOID DEFECTS -CAUSE IS EASILY TRACEABLE



WWW.BSSVE.IN

PULL SYSTEM FOR PRODUCTION AND INVENTORY CONTROL

PRODUCE EXACTLY -WHAT IS NEEDED -WHEN IT IS NEEDED

KANBAN OR CARD CONTROL REPLACES COSTLY COMPUTERIZED PLANNING AND TRACKING SYSTEM

PROBLEMS ARE QUICKLY FELT THROUGHOUT THE SYSTEM

ELIMINATES JUST-IN-CASE INVENTORIES

REQUIRES -FLEXIBILITY -FAST CHANGEOVERS -SMALL LOT SIZES



WWW.BSSVE.IN

EXPLORATORY STRESS TO DRIVE IMPROVEMENT TO EXPOSE PROBLEMS

REDUCE BUFFERSREDUCE CYCLE TIME TARGETSREDUCE LABOR ALLOCATIONS

PROBLEM EXPOSURE DRIVES EMPLOYEES TO WORK ON

SETUP REDUCTION VARIABILITY REDUCTION CYCLE TIME REDUCTION



WWW.BSSVE.IN

MANAGING CAPITAL EQUIPMENT

TOTAL PREVENTIVE MAINTENANCE

-ASSURES BETTER UPTIME RELIABILITY -OFTEN PROVIDES MORE TOTAL UPTIME -OPERATORS PERFORM REGULAR MAINT.

PRE-AUTOMATION

-PRODUCT DESIGN FOR ASSEMBLY -REDUCE PARTS COUNT -UTILIZE MODULARITY -SET SPECICATIONS EFFICIENTLY

Know cust. needs and mfg capability

-PROCESS DESIGN FOR ASSEMBLY -REDUCE FLOW DISTANCES -UTILIZE FAIL-SAFE DEVICES -LOCATE TOOLS CONVENIENTLY -STREAMLINE BEFORE AUTOMATING

ADD CAPITAL INCREMENTALLY

-SEVERAL SMALL MACHINES MORE FLEXIBLE -MATCH SUPPLY WITH DEMAND -LESS CYCLE INVENTORY NEEDED

-MOVABILITY PERMITS DEDICATED CELLS



WWW.BSSVE.IN

JIT IMPLEMENTATION ISSUES

1. INVENTORY AS A SECURITY BLANKET 2. REDUCE INVENTORY CARRYING COSTSVS.REDUCE SOURCES OF VARIABLIITY3. SUPPLIER MANAGEMENT

-BULLYING VS. COOPERATION -HOW TO SHARE THE PAINS & GAINS -GET OWN HOUSE IN ORDER FIRST?

4. PHYSICAL DISTANCES -BETWEEN PLANTS -BETWEEN WORKSTATIONS

5. COOPERATIVE EFFORTS AMONG -MANUFACTURING -MARKETING -PURCHASING -ENGINEERING

6. PATIENCE www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

The Logic and Processes of JIT Improvement

QualityProblems

+ +

Qual. Imp. Processes

+

Setup Times & Setup Costs System Problem

Variability Invisibility

P{D≤µ+kσ}=Cu/(Co+Cu) + ρ2 [ σA

2 + σSL≈ (1-ρ2 ) [ µA2 + µS

Inventories &EOQ = CK + 2RS

Rapid Feedback

2 ]/2 2 ]

Lead TimesL=λW



WWW.BSSVE.IN

See Karmarkar: Getting Control of JIT, HBR, Sept-Oct 1989



WWW.BSSVE.IN

Strategic Sourcing andSupply Chain Design



WWW.BSSVE.IN

1. Fruit Flies & Temporary Advantage

Strategic Sourcing andSupply Chain Design

1. Fruit Flies & Temporary Advantage 2. Supply Chain Design & 3-DCE

3. eBusiness Phenomena: Business Model Innovation

4. Technology Roadmapping: A telecom example



WWW.BSSVE.IN

Business System Design in a Fast-Clockspeed World:

Evolution in the industrial world: INFOTAINMENT is faster than MICROCHIPS is faster than AUTOS evolve faster than AIRCRAFT evolve faster than MINERAL EXTRACTION THE KEY TOOL: Cross-INDUSTRY Benchmarking of Dynamic Forces

Study the Industry Fruitflies Evolution in the natural world:

FRUITFLIES evolve faster than

MAMMALS evolve faster than

REPTILES

THE KEY TOOL:

Cross-SPECIES Benchmarking of Dynamic Forces



WWW.BSSVE.IN

Cisco’s End-to-End Integration for its Fulfillment Supply Chain

Cisco

Customers

Contract Manufacturers

ComponentSuppliers &Distributors

• New product development on-line with supply base

• Technology Supply Chain Design: Innovation through Acquisition

• Single enterprise information system • Dynamic replenishment, direct fulfillment,

merge in transit • Customer orders through Cisco

Connection online

Finished Product flows direct to customer via logistics supplier

Order info flows direct to Cisco and suppliers

Basic Design Principle: Arm’s length Relationship with Fulfillment Chain Partnerswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Cisco’s Strategy for Technology Supply Chain Design

1.Integrate technology around the router tobe a communications network provider.

2. Leverage acquired technology with - sales muscle and reach - end-to-end IT - outsourced manufacturing - market growth

3. Leverage venture capital to supply R&D

Basic Design Principle: Acquisition Relationship with Technology Chain Partnerswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN


Customer Retailer Distributor Factory Tier 1 Supplier Equipment

Information lags Delivery lags SOLUTIONS: Over- and underordering Countercyclical Markets

Countercyclical Technologies

Lumpiness in ordering Misperceptions of feedback Collaborative channel mgmt.

(Cincinnati Milacron & Boeing)Chain accumulations



WWW.BSSVE.IN

Supply Chain Volatility Amplification:Machine Tools at the tip of the Bullwhip

“We are experiencing a 100-year flood.” J. Chambers, 4/16/01

See "Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case Study," E. Anderson, C. Fine & G. Parker Production and Operations Management,Vol. 9, No. 3, Fall 2000, pp. 239-261.



WWW.BSSVE.IN

LESSONS FROM A FRUIT FLY:CISCO SYSTEMS

1.KNOW YOUR LOCATION IN THE VALUE CHAIN

2. UNDERSTAND THE DYNAMICS OF VALUE CHAIN FLUCTUATIONS

3. THINK CAREFULLY ABOUT THE ROLE OF VERTICAL COLLABORATIVE RELATIONSHIPS



WWW.BSSVE.IN


CLOCKSPEEDS





THEMobile Phone


organization



WWW.BSSVE.IN


HAND SET


STANDARD slow clockspeed

SOFTWARE APPLICATIONS

medium clockspeed OPERATING SERVICES

fast clockspeed





WWW.BSSVE.IN

Clockspeed drivesBusiness Strategy Cadence

Dynamics between New Projects and Core Capability Development: PROJECTS MUST MAKE MONEY AND BUILD CAPABILITIES

CORE CAPABILITIES

NEW PROJECTS (New products, new processes, new suppliers)

See Leonard-Barton, D. Wellsprings of Knowledgewww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

The Strategic Leverage of Supply Chain Design:Who let Intel Inside?

1980: IBM designs a product, a process, & supply chain

Customers

IBMIntel Inside

Intel

Microsoft The Outcome:

A phenomenally successful product design A disastrous value chain design (for IBM)



WWW.BSSVE.IN

LESSONS FROM A FRUIT FLY:THE PERSONAL COMPUTER

1. BEWARE OF INTEL INSIDE (Regardless of your industry)

2. MAKE/BUY IS NOT ABOUT WHETHER IT IS TWO CENTS CHEAPER OR TWO DAYS FASTER TO OUTSOURCE VS. INSOURCE

3. SUPPLY CHAIN DESIGN CAN DETERMINE THE FATE OF COMPANIES AND INDUSTRIES, AND OF PROFIT AND POWER

4. THE LOCUS OF VALUE CHAIN CONTROL CAN SHIFT IN UNPREDICTABLE WAYS



WWW.BSSVE.IN

Vertical Industry Structurewith Integral Product Architecture


IBM DEC BUNCH Microprocessors

Operating Systems

Peripherals


Network Services

Assembled Hardware

All Products

All Products

All Products

(See A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)



WWW.BSSVE.IN

Horizontal Industry Structurewith Modular Product Architecture


Microprocessors

Operating Systems

Peripherals


Network Services

Assembled Hardware

Microsoft Mac Unix

Intel Moto AMD etc

HP Seagate etcEpson etc

Microsoft NovellLotus etc

AOL/Netscape EDS etcMicrosoft

HP Dell etcIBMCompaq (See A. Grove, Intel; and Farrell, Hunter & Saloner, Stanford)



WWW.BSSVE.IN

THE DYNAMICS OF PRODUCT ARCHITECTURE AND VALUE CHAIN STRUCTURE:

THE DOUBLE HELIX

See Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?”



WWW.BSSVE.IN

Shimano Inside

THE DOUBLE HELIXIN OTHER INDUSTRIES

• TELECOMMUNICATIONS--– “MA BELL” was Vertical /Integral – BABY BELLS & LONG LINES & CELLULAR are

Horizontal/Modular – Today’s Verizon is going back to Vertical /Integral

• AUTOMOTIVE--– Detroit in the 1890’s was Horizontal/Modular – Ford & GM in the mid 1900’s were Vertical /Integral – Today’s Auto Industry is going back to Horizontal/Modular

• TELEVISION--– RCA was Vertical /Integral – 1970’S THROUGH 1990’S were Horizontal/Modular – Today’s media giants are going back to Vertical /Integral

• BICYCLES--– Safety Bikes to 1890’s boom to Schwinn to Shimano Inside



WWW.BSSVE.IN

Controlling the Chain Through Distribution:The End of P&G Inside ?

• Controlling the Channel Through Closeness to Customers: • consumer research, pricing, promotion, product development

Customers

Retailer

Retailer

Retailer

P&G



WWW.BSSVE.IN

Controlling the Chain Through Distribution:Beware of Walmart Outside

Controlling the Channel Through Closeness to Customers: Chain Proximity

Retailer

Retailer

Retailer

Customers

P&G

WalMart

WalMart Private Label

Vertical Growth on the Double Helixwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Volatility Amplification in “The Bullwhip Effect” and Clockspeed Amplification in “The Speedup Effect”

Customer Retailer Distributor Factory Tier 1 Equipment

Inventories & Orders fluctuate more as you look upstream, tough on suppliers, but

New Phone Applications

Handsets Telecom Equipment

OpticalComponents

Clockspeeds accelerate as you head downstream, closer to the final customer



WWW.BSSVE.IN

Media Supply Chains: An Industry at Lightspeed

-copper POTS Wireless phone -fiber

-DSL

PC/laptop Cable Networks

PDA Wireless: -broadcast TV

Television -CDMA, TDMA, GSM -satellite/microwave

VCR

Pager

Retail Outlets -Borders: -Blockbuster -Seven-Eleven

Delivery (e.g., Fedex)

Movies & Art & News & Sports

News/articles/books (newspapers &

magazines)

Communication: voice & video & email

Banking

Education

Shopping

Internet, et al

Customers The box The Pipe The Content (Access, Metro, Backbone) Video/Audio:Wired Phone

Land-basedTelco:



WWW.BSSVE.IN

ALL COMPETITIVE ADVANTAGE IS TEMPORARY

Autos: Ford in 1920, GM in 1955, Toyota in 1990

Computing:IBM in 1970, DEC in 1980, Wintel in 1990

World Dominion:Greece in 500 BC, Rome in 100AD, G.B. in 1800

Sports:Bruins in 1971, Celtics in 1986, Yankees no end

The faster the clockspeed, the shorter the reign



WWW.BSSVE.IN

1. Fruit Flies & Temporary Advantage2. Supply Chain Design & 3-DCE

Strategic Business System DesignAnd Technology Roadmapping

1. Fruit Flies & Temporary Advantage 2. Supply Chain Design & 3-DCE 3. eBusiness Phenomena:

Business Model Innovation 4. Telecom Value Chains:

A fruit fly example



WWW.BSSVE.IN

SUPPLY CHAIN DESIGN:Three Components

1. Insourcing/OutSourcing(The Make/Buy or Vertical Integration Decision)

2. Partner Selection(Choice of suppliers and partners for the chain)

3. The Contractual Relationship (Arm’s length, joint venture, long-term contract,

strategic alliance, equity participation, etc.)



WWW.BSSVE.IN

IMPLEMENTATION OF GUSINESS SYSTEM DESIGN: EMBED IT IN 3-D CONCURRENT ENGINEERING

PRODUCT PROCESS

VALUE CHAIN

Recipe, Unit Process

Performance Specifications

Product Architecture, Make/Buy components Time, Space, Availability

Technology, & Process Planning

Manufacturing System, Make/Buy processes

Details,Strategy



WWW.BSSVE.IN

ARCHITECTURES IN 3-DINTEGRALITY VS. MODULARITY

Integral product architectures feature close coupling among the elements

- Elements perform many functions - Elements are in close spacial proximity - Elements are tightly synchronized - Ex: jet engine, airplane wing, microprocessor

Modular product architectures feature separation among the elements

- Elements are interchangeable - Elements are individually upgradeable - Element interfaces are standardized - System failures can be localized - Ex: stereo system, desktop PC, bicycle



WWW.BSSVE.IN


Integral value-chain architecture features close proximity among its elements

- Proximity metrics: Geographic, Organizational Cultural, Electronic

- Example: Toyota city - Example: Ma Bell (AT&T in New Jersey) - Example: IBM mainframes & Hudson River Valley

Modular value-chain architecture features multiple, interchangeable supplier and standard interfaces

- Example: Garment industry - Example: PC industry - Example: General Motors’ global sourcing - Example: Telephones and telephone service



WWW.BSSVE.IN

DESIGNING ARCHITECTURES FOR PRODUCTS & SUPPLY CHAINS: THE NEED FOR ALIGNMENT


INTEGRAL

MODULAR

PRODUCT ARCHITECTURE

(Geog., Organ., Cultural, Elec.)

Jet engines Microprocessors Mercedes vehicles

Personal Computers Bicycles Chrysler Vehicles Cisco

INTEGRAL MODULAR

Polaroid Nortel, Lucent

Automotive Supplier Parks



WWW.BSSVE.IN

In/Outsourcing: Sowing the Seeds of Competence Development to develop

dependence for knowledge or dependence for capacity

+ Amount of

Work Outsourced knowledge +/or supply

Amount of Supplier Learning

Supplier Capability

Dependence

+

Independence

++ Amount of Work

Done In-house knowledge +/or supply

Amount of Internal Learning

Internal Capability

+ +www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Technology Dynamics in the Aircraft Industry:LEARNING FROM THE DINOSAURS

Japanese industry size & capability

Japanese appeal as

subcontractors

U.S. industry size &

capability

U.S. firms’ appeal as subcontractors

Boeing outsources to Japan

(Mitsubishi Inside?)

Japanese Industry Autonomy

+

+

+

+

-

+



WWW.BSSVE.IN

SOURCEABLE ELEMENTS

PROCESS ELEMENTS

ENGINEERING

ASSY

TEST

CONTROLLER

VALVETRAIN

BLOCK I4 V6 V8 PRODUCTS

SUBSYSTEMS



WWW.BSSVE.IN

Strategic Make/Buy Decisions: Assess Critical Knowledge & Product Architecture

DEPENDENT FOR INDEPENDENT FOR KNOWLEDGE KNOWLEDGE & INDEPENDENT FOR

CAPACITY

BEST OUTSOURCING OPPORTUNITY

WORST OUTSOURCING

SITUATION

CAN LIVE WITH

OUTSOURCING

A POTENTIAL

OUTSOURCING TRAP

BEST INSOURCING SITUATION

OVERKILL IN

VERTICAL INTEGRATION

& CAPACITY DEPENDENT FOR KNOWLEDGE & CAPACITY

ITEM

IS IN

TEG

RAL

ITEM

IS M

OD

ULA

R

Adapted from Fine & Whitney, “Is the Make/Buy Decision Process a Core Competence?”www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Strategic Make/Buy Decisions: Also consider Clockspeed & Supply Base Capability

DEPENDENT FORDEPENDENT FORKNOWLEDGE & CAPACITY

INDEPENDENT FORCAPACITY ONLY

Clockspeed

Supp

liers

F

ew M

any Fast

Clockspeed

Supp

liers

F

ew M

any Fast

Clockspeed

Supp

liers

F

ew M

any Fast

Clockspeed

Supp

liers

F

ew M

any Fast

OK Watch

it!

Trap

Best

Out

W or

st

OK

Clockspeed

Supp

liers

F

ew M

any Fast

Clockspeed

Supp

liers

F

ew M

any Fast

Over-

kill

Best

In

Slow

Slow

Slow

Slow

Slow

Slow

KNOWLEDGE & CAPACITY

DEC

OM

POSA

BLE

INTE

GR

AL

(Mod

ular

)

Adapted from C. Fine, Clockspeed, Chap. 9www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Strategic Sourcing Assessment requires evaluation of five key criteria

Customer Importance:

• High • Medium• Low

Technology Clockspeed:• Fast• Medium• Slow Competitive

Position:• Advantage• Parity• Disadvantage

Capable Suppliers:• None• Few• Many

Architecture:• Integral• Modular

Possible Decisions (Knowledge & Supply):

• Insource• Outsource• Partner/Acquire• Partial Insource• Partial Outsource• Invest• Spin Off• Develop Suppliers

Competitive Position:

• Advantage• Parity• Disadvantage

Model Developed by PRTM, Inc., GM Powertrain & Clockspeed, Inc.

� High customer importance and fast clockspeedmeans more strategic

� Competitive position is critical for assessing value of outsourcing

� Supply Base Capabilitymust be present for successful outsourcing

� Degree of modularity affects significantly the ease of outsourcing



WWW.BSSVE.IN

Every decision requires qualitative and quantitative analysis to reach a conclusion

Quantitative Model(Financial)

Qualitative Model

EVA

StrategicImportance

CustomerImportance:

• High• Medium• Low

TechnologyClockspeed:

• Fast• Medium• Slow

CompetitivePosition:

• Ad vantage• Parity• Disadvantage

Capable Suppliers:• None• Few• Many

Architecture:• In teg ral• Modular

Possible Decisions:• Insource• Outsource• Partner/Acquire• Partial Insource• Partial Outsource• Invest• Spin Off• Develop Suppliers

CompetitivePosition:

• Ad vantage• Parity• Disadvantage

NOPAT

AS-IS

BIC

CapitalCharge

AS-

IS

BIC

TransmissionsEVA

AS-

ISBI

C

EnginesEVA

AS-IS

BIC

.

.

.

Engine AEVA

AS-IS

BIC

Engine BEVA

AS-

ISBI

C

PBIT

AS-IS

BIC

−.

GMPTEVA

Net Assets

AS-IS

BM

K

+.X WACC

WorkingCapital

FixedAssets

AS-ISBMK

AS-ISBMK

Taxes

Revenue

−.

COGSAS-ISBMK

QuantitativeValue

Low High

Qua

litat

ive

Valu

eLo

wH

igh

KnowledgeSupply

Invest & Build

Harvest Investment

Divest/ Outsource

Improve Economics

Model Developed by PRTM, Inc., GM Powertrain & Clockspeed, Inc. www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Value Chain Mapping

Organizational Supply Chaincasting

Chrysler Eaton supplier clay

supplier

Technology Supply Chain

engines valve lifterscasting

manufacturing process

clay chemistry

Capability ChainSupply Chain Management Quality assurance NVH engineering R&D

Underlying Assumption: You have to drawthe maps before you can assess their dynamics.



WWW.BSSVE.IN

SUPPLY CHAIN DESIGN ISTHE ULTIMATE CORE COMPETENCY

Since all advantages are temporary, the only lasting competency is to continuously build and assemble capabilities chains.

KEY SUB-COMPETENCIES: 1. Forecasting the dynamic evolution of market power and market opportunities 2. Anticipating Windows of Opportunity

3. 3-D Concurrent Engineering: Product, Process, Value Chain CAPABILITIES

Fortune Favors the Prepared Firm PROJECTS CAPABILITIES



WWW.BSSVE.IN

PROCESS FOR SUPPLY CHAIN DESIGN

1. Fruit Flies 2. our Supply Chain

-Organizational Supply Chain -Technology Supply Chain -Competence Chain

3. namic Chain Analysis at each node of each chain map

BOEING

HELIXDOUBLE Benchmark the Map y

Dy

4. Identify Windows of Opportunity 5. Exploit Competency Development Dynamics

with 3-D Concurrent Engineering CAPABILITIES PROJECTS



WWW.BSSVE.IN






4. Telecom Value Chains: A fruit fly example



WWW.BSSVE.IN

Internet Era Phenomena:eCompetition in Business Model Innovation

E-tailing: Benchmarking the eFlies

Attack: Amazon, Webvan Market disruption in hopes of making a place

Defend: Walmart.com, Ford.com Defense can require costly SC revamping

B2B: E2E integration:

Cisco, Dell Integration pays off with modular productsMarketplace Creation:

Freemarkets Reverse auctions reduce short term costs Covisint Common standards reduced supplier investment cost

Free & Open Digital Content: Peer-toPeer Sharing/Theft:

Napster Industry-shaking disruptions require value chain SWAT team www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

DOT.COM COMPETITION: FOCUS ON THE SUPPLY CHAIN

CASE#1: WALMART.COM GOT NO TRACTION Customers

Walmart SupplierStore

Walmart WalMart Store Procurement

Shipper Walmart.com Supplier

Alternate Solution: Partner with UPS or Fedexwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

DOT.COM COMPETITION: FOCUS ON THE SUPPLY CHAINNapster’s New Supply Chain Strategy

(go to the end and steal everything!)

Identify Talent

Develop Songs

Record Music

Promote Music Press

CD’s Sell to Retail

Vertically Integrated Music Giants

Customer Consumption

Steal Songs

Alternate Solution: partner with your competitor www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN


4. Technology Roadmapping:A telecom example




4. Technology Roadmapping: A telecom example



WWW.BSSVE.IN

Moore’s Law Transistors per chip

See: Joel Birnbaum, HP, Lecture at APS Centennial, Atlanta, 1999



WWW.BSSVE.IN

Disk Drive Development1978-1991

Disk Drive Generation

14”

8”

5.25”

3.5”

2.5”

DominantProducer

IBM

Quantum

Seagate

Conner

Conner

Dominant Approx cost perUsage Megabyte

mainframe

Mini-computer

Desktop PC

Portable PC

Notebook PC

$750

$100

$30

$7

$2From 1991-98, Disk Drive storage density increased by 60%/year while semiconductor density grew ~50%/year. Disk Drive cost per megabyte in 1997 was ~ $ .10



WWW.BSSVE.IN

”Killer Technologies” of the Information Age:Semiconductors, Magnetic Memory, Optoelectronics

“We define a ‘killer technology’ as one that delivers enhanced systems performance of afactor of at least a hundred-fold per decade.”

C.H.Fine & L.K. Kimerling, "Biography of a Killer Technology: Optoelectronics Drives Industrial Growth with the Speed of Light,”published in 1997 by the Optoelectronics Industry Develoment Association, 2010 Mass Ave, NW, Suite 200, Wash. DC 20036-1023.

Killer Question: Will Integrated Optics evolve linearly like Semiconductors with Moore’s Law or like Disk Drives with repeated industry disruptions?



WWW.BSSVE.IN



Supply Chain Relationships must anticipateIndustry and Value Chain Dynamics

Proactive Relationships Design is a keyorganizational competency

Supply Chain Relationships must be designedconcurrently with the products and systems theywill deliver

Study of Fruit Flies can help with crafting strategywww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Retrospective: Introduction to Operations Management



WWW.BSSVE.IN

ProductDevelopment

(Sega, #2)

SupplyChain


Process Design & Management(Burger King, #3)


(Alaska Air #5,Webvan #6)



WWW.BSSVE.IN

B10

C4

E16

D25

G20

I18

H45

J7

K12

M30

P5

N32

L5

O6

R3

S9 T

4

U5

F20

Q20

V1

W0

A14

0, 10

4,14

ES, EF

LS, LF

0, 14

0,14 14, 18

14,1843, 59

43, 59

18, 43

18, 43

59, 71

59, 71

43, 61

103,12143, 63

56,76

108, 115

121,128

63, 108

76, 121

71, 77

71, 77

71, 101

79, 109

71, 76

72, 77

101, 121

109,129

101, 106

123,128

77, 109

77, 109 109, 129

109, 129

108, 111

112,115

111, 116

124,129

124, 125

128, 129

111, 120

115,124

120, 124

124,128

129, 129

129, 129



WWW.BSSVE.IN


• Process Design: Options & Assessment -Queueing Analysis-Capacity AnalysisHow did Nokia assess capacity in the crunch? How did they change capacity?

-Uncertainty AnalysisHow did each company prepare for difficult-to-anticipate events?

• Inventory Systems•Did N&E operate Just-in-Time, or did they hold big stores of chips waiting just in case?

• Production ControlWas Nokia’s software the principal instrument of control? How did they monitor the situation?

ERP/Software/Internet•Was Nokia’s software the principal instrument of communication?

• Operations Excellence- Continuous Improvement- Just-in-Time- Quality Management (SPC, 6σ)www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

ProductDevelopment

(Sega, #2)

SupplyChain




(Alaska Air #5)

Dell Product Features• µP & modem speed• CD ROM speed• MB DRAM & HD• screen size• order-to-deliv time• features range• fufillment accuracy

AA Product Features• check-in time• reservations help• meals• price• flight frequency• mileage awards• route coverage• baggage handling• customer coddling



WWW.BSSVE.IN

ProductDevelopment

(Sega, #2)

SupplyChain




Grocery Store Features• selection• price• quality/freshness• shopping environment

Webvan Features• selection• price • quality/freshness• shop any hour• never leave home• choose delivery time• save your time• same day delivery• fulfillment accuracy• no lugging required

(Alaska Air #5,Webvan #6)

Who has theadvantage oneach dimension?www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

Challenges of Service Interface: Grocery Stores vs. Webvan

– Intangibility - customer expectations vs. perceptions• Grocery Stores: quality, selection, ENVIRONMENT• Webvan: quality, selection, DELIVERY

– Perishability - use it or lose it• Grocery Stores: fresh foods (produce, meats, baked

goods)• Webvan: fresh foods & TRUCK CAPACITY

– Heterogeneity - inherent variability of service & customer• Grocery: checkout people, counter people, customer

needs • Webvan: DELIVERY PERSON

– Simultaneity - services simultaneously produced & consumed• Grocery: presentation in the store• Webvan: DELIVERY TO THE HOME



WWW.BSSVE.IN

Supply Chain

• Strategic Supply Chain Design -Make Vs. Buy

•Did sourcing strategy play a role in the differential performance of N & E?

-Supplier Selection , Sourcing Single vs. Dual sourcing

• Supply Chain Management-End-to-end coordinationDo we see here examples of integrated enterprise?

-Supplier Relationshard-nosed, polite, hostile, collaborative?

• Delayed Differentiation



WWW.BSSVE.IN

BK: Process Flow Diagram for Sandwiches

RAWBURGERS

RAWBUNS

BROILER

BROILER

MATE BUNS& BURGERS STEAMER

CHEESE CONDI-MENTS

TOMA-TOES

SANDWICHASSEMBLY

FIN-ISHEDSAND-

WICHES

ORDERDELIVERY

MICRO-WAVE



WWW.BSSVE.IN

National Cranberry Process Flow Diagram

weighed/graded

tested/sampled

destone

dechaffdry

separate

Bag667 bbl/hr

dry1-16

250 bbls=4000 bbls

both17-24

250 bbls=2000 bbls

wet25-27

3x400 bbls = 1200 bbls

2 x 1500 bbls/hr

1500 bbls/hr

Unload5-10 min/truck

3 x 200 bbls/hr

3 x 400 bbls/hr

destone2 x 1500 bbls/hr

dechaff1500 bbls/hr

Bulk Truck2000 bbl/hr

Bulk Bins800 bbl/hr

Freeze

Freeze



WWW.BSSVE.IN

1. What are the key DESIGN parameters for Burger King?A. ProductB. Process TechnologyC. FacilityD. Work System/HR System

2. What are the key PLANNING tasks for Burger King?A. SupplyB. DemandC. Capacity/Workload

3. What are the key CONTROL processes for Burger King?A. Production ControlB. Quality ControlC. Process Control

4. What are the key IMPROVEMENT processes for BK?A. Quality ImprovementB. Productivity ImprovementC. Technological ImprovementD. Systems Improvement

Restaurant Operations Management



WWW.BSSVE.IN


Retailer Wholesaler Distributor Factory

Information lagsDelivery lagsOver- and underorderingMisperceptions of feedbackLumpiness in orderingChain accumulations

SOLUTIONS:Countercyclical MarketsCountercyclical TechnologiesCollaborative channel mgmt.(Cincinnati Milacron & Boeing)

Order Info

Order Info

Order Info

How does production control work in the Beer Game?



WWW.BSSVE.IN

Applying EOQ and Newsvendor models to set Reorder Points and Reorder Quantities

(s,S) (ROP, ROQ), (min, max)

QQ

Q Q

SSROP

Q = 2RS = ROQ (REORDER QUANTITY)CK

ROP=Reorder Point = Expected Demand During the order lead time + safety stock= E{DDL} + SS

Prob {DDL≤ROP} = Cu/(Co+Cu)Cu=Cost of Underage (r-c in newsvendor); Co=Cost of Overage (c in newsvendor)But, Co with nonperishables is c x cost of holding ROP=SS+E{DDL}; DDL = X1 + X2 + . . . + XL; E{DDL} = E{L} x E{X}i.e., DDL has a mean of Expected lead time x Expected avg demand/unit timeVariance{DDL}~Var{X} x E{L} + Var{L} x E{X2}



WWW.BSSVE.IN

Safety Stock

Periodic Review System

LT = Lead TimeT = Cycle Time or

Review PeriodU = Actual Demand

During Lead TimeQ = Order SizeS = Order Up To

Level

LT 2

Order 1 placedOrder 1 received

U2

LT 1Q

1

Q2

Q3

U1

T T TSTI

If Q*=EOQ = 2DS , where Demand Rate=D units per week,CKThen T=Time between orders = D/Q*.Want Q1 units to arrive at time D/Q*, so order at D/Q*- E{LT}.

D/Q* -E{LT}. E{D/Q*} 2(D/Q*) -

E{LT}.

3(D/Q*) -E{LT}.



WWW.BSSVE.IN

15.760 Class #8:Basic Concepts in Queueing

Output/throughput rate ( λ )Inventory Level/Queue Size/ ( � )

Line lengthWaiting Time/Cycle Time ( W )Capacity or Server utilization ( ρ )Probability that Queue is full ( Pfull )


Arrival rate ( λ )Service rate ( µ ) Service time ( M )Number of servers ( S ) Queue/Buffer capacity ( R )Capacity or Server utilization ( ρ )Number of Service classes ( K )



WWW.BSSVE.IN

Fish Processing Example

4 8 120

4800

3600

600

Time (Months)

Inpu

t Rat

e (T

ons p

er m

onth

)



WWW.BSSVE.IN

Poisson arrivals/exponential service timessteady stateρ < 1, when computing the queue lengths

and waiting timesConstant # of serversFIFO serviceSingle-line queue (to MD's)Infinite queue capacityIgnore special priority emergenciesIgnore special priority requests

ASSUMPTIONS OF THE QUEUEING MODELS



WWW.BSSVE.IN


If service times and interarrival times have exponential distributions, then

L= ρ2/(1-ρ)

W= ρ2/λ(1-ρ) ∆ ρ∆ ρ

A

B

∆WA

∆WB

0 1(Arrival Rate / Service Rate = ρ)

= “congestion”

Tota

l wa it

in th

e qu e

u e



WWW.BSSVE.IN

Management of Queues

Propositions1. Unoccupied time feels longer than occupied time2. Process waits feel longer than in process waits 3. Anxiety makes waits seem longer 4. Uncertain waits seem longer than known, finite waits5. Unexplained waits are longer than explained6. Unfair waits are longer than equitable waits7. The more valuable the service, the longer the customer

will wait8. Solo waits feel longer than group waits


CUSTOMERS

WAITING LINE

SERVERS



WWW.BSSVE.IN

What is the Purpose and Logic of MRP ?

ExceptionReport & Schedules

MasterProductionSchedule

InventoryStatus

Bill ofMaterials

MRP:(Explosion

Offsets,Nets)

EngineeringChanges

InventoryTransactions

Customer Orders

Forecasts



WWW.BSSVE.IN

Evolution in the industrial world:INFOTAINMENT is faster than MICROCHIPS is faster than AUTOS evolve faster than AIRCRAFT evolve faster than MINERAL EXTRACTIONTHE KEY TOOL:Cross-INDUSTRYBenchmarking of Dynamic Forces

Clockspeed:The Dimension of Time on Operations Management

Study the Industry Fruitflies

Evolution in the natural world:

FRUITFLIESevolve faster than

MAMMALSevolve faster than

REPTILES

THE KEY TOOL:

Cross-SPECIES Benchmarking of Dynamic Forceswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

TQM 15.760, Spring 2002TOTAL QUALITY MANAGEMENTFOUR LEVELS OF QUALITYFOUR THOUGHT REVOLUTIONSCustomers firstContinuous ImprovementTotal ParticipationSocietal LearningORGANIZATIONAL MANAGEMENTInformation & Measurement SystemsEducationIncentive SystemsOrganizational Change



WWW.BSSVE.IN

The Logic and Processes of JIT Improvement

QualityProblems

Inventories & Lead Times

L=λW

ProblemInvisibility

Setup Times & Setup Costs

Qual. Imp.Processes

RapidFeedback

ρ2 [ σA2 + σS

2 ]/2(1-ρ2 ) [ µA

2 + µS2 ]

SystemVariability

L≈

P{D≤µ+kσ}=Cu/(Co+Cu)

EOQ = 2RSCK

+

+

+

+

+



WWW.BSSVE.IN

See Karmarkar: Getting Control of JIT, HBR, Sept-Oct 1989



WWW.BSSVE.IN

MIT Sloan SchoolDr. Michael HammerMarch 2002 Summary: Seven Things to Remember

From Reengineering to Process Management and Beyond

or

In the Footsteps of the Buffalo Springfield“Something’s happening here; what is ain’t exactly clear . . . “

• Process• Process redesign• Process evolution• Process enterprise• Process ownership• Process as universal enabler• Process integration across

enterprise boundarieswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

1. Measuring Operations Performance2. Flow System management3. Bottleneck Management

Operations Lessons fromThe Goal



WWW.BSSVE.IN

HP Supply Chain Problems•Long chain with bullwhip•local customization needs

with unpredictable demands

Possible solutions:•Air Ship• Europe Factory• Universal Model• Better Forecast• Product Line change• Shorten Review Period• More Inventory

Postponing customizationallows inventory poolingwhich provides greaterCoverage with lessstock



WWW.BSSVE.IN

1920’s: Ford & TaylorMoving Production line and standardized work

1930’s: ShewhartStatistical Control of Quality

1960’s: OhnoLean Production System

1980’s: Goldratt & KaplanMeasurement & Theory of Constraints

1990’s: HammerReengineering & Process Focus

A thumbnail sketch of the 20th century’s big ideas in operations management



WWW.BSSVE.IN

- Focus- Architecture

- Technology

DesignDetailedPerform.Specs& Funct.

UnitProcesses

Tech.& Equip.

Mfg.SystFunctnlCellular.

S.C.Architect.Orgs Set& Alloc.of Tasks

Logistics& CoordSystemAuton vs.Integrated

Product Process Supply Chain

Architect.Modular

vs.Integral




WWW.BSSVE.IN



Supply Chain Relationships must anticipate Industry and Value Chain Dynamics

Proactive Relationships Design is a key organizational competency

Supply Chain Relationships must be designed concurrently with the products and systems they will deliver

Study of Fruit Flies can help with crafting strategywww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in


WWW.BSSVE.IN

PROCESS CAPABILITY

GIVEN: A VARIABLE TO BE TRACKED, For example, the diameter of a machined part: Let T=Target Diameter

USL= Upper Specification Limit LSL= Lower Specification Limit

Collect some data for the diameters, X1, ..., Xn

Suppose µ=ΣXi/n, σ= Σ(Xi-µ)2/n-1 .

µ+3σ _ . .. . . . . . .. .

µ . . . ... .. .. . .... ... ___.____________.._____.______

. .. .. . .. . . . .. . . . . ... . . .. . . . . . .

µ−3σ . . _ .

How well is the process performing? One Measure: Cp=(USL-LSL)/6σ

If µ=T, µ+3σ=USL, and µ−3σ=LSL, then, Cp=1.

µ+3σ=USL _ . . . . . . . .. .



WWW.BSSVE.IN

µ=T .. ... .... .. ... ... ___.____________.._____.______

. .. ... . .. . . .. . . . .. . . . .

µ−3σ=LSL _ . . .

_____________________________________________________________________________

If µ=T, µ+6σ=USL, and µ−6σ=LSL, then, Cp=2.

µ+6σ=USL _ . . . . . . . . .. .

µ=T . . . .. ... .. .. . . . .. . . ___._____.______.._____._..____

. . . . . . . . .. . .. . .. . . . . . . ... .. ... . . .

. µ−6σ=LSL _

Which is better, Cp=1 or Cp=2?



WWW.BSSVE.IN

Define Cpk=min{(USL-µ)/3σ, (µ−LSL)/3σ} Suppose Τ+3σ=USL and Τ−3σ=LSL. If µ=T, then Cp=Cpk If µ>T, e.g., if µ=T+σ, then

Cp=(Τ+3σ-Τ−3σ)/6σ=1

Cpk=min{(Τ+3σ-T−σ)/3σ, (T+σ−Τ+3σ)/3σ} =min{2/3, 4/3}=2/3.

. . µ+2σ=USL _ . .

. . . µ=T+σ . . . . . .. . T ___.____________.._____.______

. . .. .. . . . .

µ−4σ=LSL _

Which measure do you prefer? At Motorola, 6σ program aims for Cpk=2 for all processes. What defect frequency does that imply? (Hint: Z~N(0,1)=6 =>area under curve=.4999983.)



WWW.BSSVE.IN

· Nortel, Lucent Automotive Supplier Parks 17 ...

Documents

Transcript of · Nortel, Lucent Automotive Supplier Parks 17 ...