Operations Management – Final Exam Notes

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					                    Operations Management – Final Exam Notes

Walton Instruments Case: medical equipment maker (location not specified)
  1. Put yourself in the position of a banker and analyze the income statement and
      balance sheet in view of granting a loan to this company. Ideas?
  2. What are the main reasons for today’s problems?
  3. The company uses a materials management system based on EOQ’s. Do
      you think this system is appropriate? Why or why not? Motivate your answer.
  4. What kind of planning and control system do you suggest? Be specific.

1. I would definitely refuse the request. The company needs to first fix its operations
and processes, as evidenced by several key indicators in its financials:
      Sales increased by 27%, yet…
           o Direct labor costs increased by 37%
           o Materials costs increased by 40%
           o Manufacturing overhead increased by 23%
           o Net profit decreased by 45%
      Inventory increased by 46%, yet…
           o Cash decreased by 89% and there’s not even enough cash to pay one
               week of payroll
           o A/R increased by only 29%
           o Total current liabilities increased by 49%, so it seems as though the
               company already took out a loan during the year and is having a hard
               time paying it down
           o Total liabilities increased by 28%, keeping pace with the growth in
               sales.
      Conclusion: the company’s main problem has to do with its operations, as
       evidenced by its lack of control of costs for Direct labor and Materials.
      In other words, their inventories are increasing much faster than their sales
       and receivables.
      Also, the company is using its suppliers as a bank to finance sales, because
       the A/R cycle is 64 days and the A/P cycle is 117 days.

2. The company’s main problems are its lack of production planning and control.
They have not created regular processes, preferring instead to have special runs and
frequent changes. Though they are a young and entrepreneurial company, the time
has come for them to set some production guidelines and implement processes.

A critical problem is that their direct labor costs are super-variable. It takes them a
long time to make changes, so their set up time is costly whenever they have special
runs and changes. Additionally, they have a high number of product errors, with
87.5% of errors in new designs. So, they waste scrap materials. The opportunity cost
they sacrifice by having frequent changes is high as well – they sacrifice getting
volume discounts from suppliers. They also need to delay payments to suppliers.

3. The root of their problems is that the underlying assumptions for the EOQ formula
being used are wrong. This is causing the inventories between stations to pile up.
Additionally, there is no need for a buffer zone between fabrication and assembly.
This combination of problems is creating a bottleneck at the end of the line, which is
the worst possible place (and the most expensive one) for a bottleneck.

4. Walton is missing the mark in all four categories for operations management:
strategy, HR/ organization, technical, and planning and control. To align its strategy
of rapid growth and custom designs, it must implement an MRP system. This will
help the company plan and control its operations, particularly for forecasting demand.




Page 1 of 5                       Operations – final exam notes on cases, articles and sessions
Session 9 – Notes from slides
Competitive priorities:
    Price
           o Ability to profit in price competitive environments
    Flexibility
           o Ability to offer a broad product line
           o Ability to customize products and services to customer needs
           o Ability to make rapid volume changes
           o Ability to make rapid product mix changes
    Quality
           o Ability to offer consistent quality with low defects
           o Ability to provide high performance products or product amenities
    Delivery
           o Ability to provide fast deliveries
           o Ability to make dependable delivery promises
    Service
           o Ability to provide effective after-sale service
           o Ability to provide effective product support
    Innovativeness
           o Ability to introduce new products quickly
Competitive priority types:
    Order winners
    Qualifiers
    Non-issues
The role of manufacturing can be:
    Internally neutral
    Externally neutral
    Internally supportive
    Externally supportive
The Focused Factory: choose between…
    General or special purpose equipment
    Long or short-run operations
    High or low tolerances
    New or old products
    Standard items or customer specials
    Stable or changing designs
    Markets with reliable forecasts or unpredictable ones
    Seasonal or non-seasonal sales
    Short or long lead times
Factors that lead to a non-focused factory
    Marketing dominated strategy
    Too much emphasis on economies of scale
    Lack of a manufacturing strategy
Focus dimensions
    Products
    Markets
    Processes
    Product life cycle
    Order winning criteria
Product profiling: scale for volume/ variety       1         4
   o Type of product:                          special - standard
   o Product variety:                          high - low
   o Product volume:                           low      - high
   o Amount of change required:                high - low
   o Need for flexibility:                     high - low
   o Order winners:                delivery, quality, - price
                            product design, flexibility
Page 2 of 5                      Operations – final exam notes on cases, articles and sessions
Session 9 - Metallo Case: furniture company in Belgium
1. What has manufacturing to be good in to support the intended strategy of the
organization?
2. How should the various manufacturing system design variables be chosen such
that it supports the competitive strategy?
3. What are the manufacturing competences on which we can base a competitive
advantage?


1. Manufacturing must be good in making products based on tubes. One of the
company’s main strategies is to make metallic tube furniture that is of high quality
and delivered reliably. It currently makes three types of furniture: hospital, kitchen
and design.

2. The company’s manufacturing system design variables should be chosen
according to the critical focus dimensions
    Products
    Markets
    Processes
    Product life cycle
    Order winning criteria

3. The company has historically excelled in using batch or line production of its
products. The factory producing the design furniture it out of sync with the company’s
overall strategy and should be sold off or outsourced.

Key lessons from the case:
    Focus factories
    Stop the design business unit
    Outsource by:
          o Volume
          o Low margin




Page 3 of 5                        Operations – final exam notes on cases, articles and sessions
Session 9 – Competing Through Manufacturing (article)
It can take several years to turn around manufacturing from weakness to strength
      Stages in manufacturing’s strategic role:
        1) internally neutral: minimize manufacturing’s negative potential
        - e.g.- consumer electronics
        2) externally neutral: achieve parity with competitors
        - e.g.- steel, auto, heavy equipment. Oligopolies. Electronic instruments,
            pharma.
        3) internally supportive: provide credible support to the business strategy
        - view tech change as natural response to changes in business strategy
            and competitive position
        - e.g.- beer industry in 1970’s, but drifted back to Stage 2
        4) externally supportive: pursue a manufacturing-base competitive strategy
        - e.g. – process-intensive industries, GE, IBM (stories for each in article)
      transitioning between the stages
        - from 1-3 are mainly about manufacturing fixing itself
        - from 3-4 is mainly about changing the way the rest of the organization
            thinks of manufacturing
        - tests for how close to stage 4:
                 a. amount of ongoing in-house innovation
                 b. extent to which a company develops its own manufacturing
                     equipment
                 c. the attention paid to manufacturing infrastructure
                 d. the link between product design and manufacturing process
                     design
      good manufacturing practices require managers with conviction, vision, and
        ability to persuade management away from more conventional processes

Major types of manufacturing choices (exhibit 2 of article):
   - capacity
   - facilities
   - equipment & process technologies
   - vertical integration
   - vendors
   - new products
   - HR
   - Quality
   - Systems




Page 4 of 5                        Operations – final exam notes on cases, articles and sessions
Session 10 - International Plow Case:
Major issue: Don Cowles’ job is threatened because of Europeanization of operations
    Boss is moving operations from UK to Denmark
    Cowles had previously centralized operations and made each of the
        managing directors for each country into plant managers
    Now, his new boss has done the same thing
    Key topics of the case:
           o standardization of processes and aligning process development with
              product development
           o high pressure for global integration + low pressure for local
              responsiveness = global company

Key lessons from the case:
    The lower the value density of a product the shorter distance a company will
       be willing to ship it
    This case illustrates some of the key barriers in international manufacturing


Session 10 – How Should You Organize Manufacturing (article)
Key topics:
    Simplicity in designing manufacturing is critical: should your factory be
       product focused or process focused
    manufacturing strategy must be aligned with corporate strategy

Session 10 – Making The Most of Foreign Factories (article)
(not read this one)

Session 10 – Multi-site Manufacturing Configuration (slides)

Process plant strategy, appropriate for:
    capital intensive process phases
    complex, specialized processes
    high labor intensive processes
Product plant strategy, appropriate for:
Market plant strategy,




Page 5 of 5                      Operations – final exam notes on cases, articles and sessions