All entries for July 2010

July 26, 2010

Operations Management Lesson 6 Exercise

Question:

Find extreme or good examples of the following practices and justify the reasons for their adoption:

1.     Level capacity management

2.     Chase capacity management

3.     Yield management

4.     Queue design

Different business and operations are adapting different capacity managements. Capacity can be defined as an output over a specified period of time. Final designs of capacity management depend on customer demand and nature of operations (Walley 2010).

1. Level capacity management

Slack et al. (2006) describes level capacity management as a process in which processing capacity is set at a uniform level through the planning period, regardless of the fluctuation in demand. In case of non-perishable materials production, if not immediately sold, these can be transferred to finished goods inventory in anticipation of later sales. As captured in Figure 1, setting capacity below the forecast peak demand level will reduce the degree of underutilization, but, in the periods where demand is expected to exceed capacity, customer service may deteriorate.

Figure 1. Level capacity management – absorb fluctuations

Example:

Silicon is a metalloid widely distributed in dust & sand. Amongst its main industrial uses are: usage as components in semiconductor devices, but it is mainly used in integrated circuits (microchips). Production of silicon involves several steps in which pure quartz, at a cost around $1.7 cent per kilogram, is transformed into monocrystalline silicon rod worth more than $500 per kilo. Production of silicon is therefore rather costly and involves complicated technological process which incurs high fixed costs. It is not flexible to fluctuate based on demand, manufacturers are aiming to achieve economies of scale. Usage of level capacity management is most suitable approach to production of silicon. Products that are not immediately sold are stored in warehouses. Silicon is a non-toxic material which is fairly easy to store.

Picture 1. Silicon wafle

2. Chase capacity management

As portrayed in Figure 2, chase capacity management is an attempt to match capacity closely to the varying levels of demand (Slack et al. 2006). To achieve this, company has to vary its resources according to demand, which is not suitable for capital-intensive operations. Adjustment of capacity in chase capacity management can be achieved by several methods (e.g. overtime, annualized hours, staff scheduling, etc.).

Figure 2. Chase capacity management

Example:

IBM Mainframe customers, which are typically large enterprises (e.g. banks), can already for quite some time use the offering called “On/Off Capacity on Demand”. The idea behind is very simple and provides fast response to customer demand. Customers are purchasing from IBM Mainframe products with originally built-in high capacity, however they can choose what capacity they want to use and respectively pay only for selected level of capacity – customer uses only specified number of processing units while others remain disabled. Should the customer require increase of capacity due to peak of operation, instead of lengthy upgrade process, he can purchase fast access to extra processing unit already available on the machine. There is no physical shipment involved only access code is provided. Once normal workload levels resume, customer can choose to turn off the extra capacity. In this way IBM is matching fluctuation in customer demand, rather than selling level capacity, which is increased in steps without possibility of decrease (Figure 3). In such instance customers were facing underutilization of extra capacity in low demand periods.

Figure 3. Staged level increase capacity in standard mainframe purchase

3. Yield management

In yield management, as described by Slack et al. (2006), service providers always try to use the capacity to its full potential. This is especially used when:

    • Capacity is relatively fixed
    • Service cannot be stored
    • Service is sold in advance
    • Making a sale is at relatively low cost

    Number of methods is used to ensure operation is maximized (e.g. airlines overbooking).

    Example:

    One of the closest examples for yield management that comes into my mind is a beauty studio. Demand of women for beauty services was, is and probably always will be high. Premises of the studio are typically rather small, capacity is fixed. Rent for the studio depends on the area, however attractive areas have rents rather high and labor is relatively cheap. Studio therefore wants to be utilized to maximum and on top employees are willing to work harder to make more money for extra hours, but also for tips. Beauty treatment is a service that cannot be stored and most of the beauty services can only be performed at that particular place mainly due to equipment used. Customers are required to make an appointment well in advance and since typically there are customers who did not make an appointment trying their luck, in some studios service stuff contacts every customer shortly before the appointment to ensure it is still valid. This depends on the demand levels of course, some studios simply take available customer in case the scheduled one did not show up on time. Yield management is the best method to be used by beauty salons in order to maximize their profit.

    4. Queue design

    Good capacity plan acknowledges existence of queues and therefore designs the queue. As categorized by Walley (2010) we can allow the queues to form in two different forms:

    a)     single queue with multi-server design

    b)     multi-queue with multi-server design

    Customer behaviour in queues is also a very relevant factor. How fast can they proceed? How they can get entertained while waiting? These are all the aspects that should be considered when designing a queue.

    Example:

    Since I had the chance to observe different types of queues in different airports in the world, for this exercise I would like to compare three airports and their queue management at the arrival passport control. This is a particularly painful check point, as there is no way for the passenger to turn around and come another time, nor they can choose a different way of exit, while mostly they are anxious and under time pressure to leave the airport as soon as possible.

    1. Dubai Airport

    As pictured in Figure 4, arrival passport control in Dubai airport is a combination of two queue option designs described by Walley (2010). There is more than one server available per each queue. This design is very effective. Not only customers can easily move fast in the queue and select the shortest one, but speed at check points is higher due to more servers available. On top, there is always airport stuff regulating not only the number of people in queues, but also ensuring that people do not block the process by moving too slow to one of the free servers due to not noticing a free server.

    Dubai airport has established also fast track which is called E-Gate. The idea behind is that Dubai residents can purchase a pass which is added on their ID card. Card contains all required data about the resident in electronic form. Passengers scan their ID card at the E-Gate check point and proceed to the exit. Procedure is very fast and helps to off-load the passport control. Frequent travelers appreciate time savings allowed by E-Gate procedure.

    Figure 4. Arrival passport control Dubai airport

    2. Vienna Airport

    Vienna airport passport control upon arrival (Figure 5) is a typical example of multi-queue with multi-server design (Walley 2010). This queue design allows steady pace of the queue. There are queues for EU citizens and non-EU citizens as well, which helps to speed up the process. There is, however no fast track for passengers. Fast track is only available for crew members, airport stuff and disabled passengers. Considering the volumes of passengers arriving to Vienna airport, this design often becomes insufficient. Airport and authorities should consider increasing number of servers as well as fast track for EU-citizens.

    Figure 5. Arrival passport control Vienna airport

    3. Birmingham airport

    Queue design on Birmingham airport (Figure 6) is a typical example of single-queue with multi-server design (Walley 2010). The pace of the queue is rather slow, the arrival hall is small, so the atmosphere is tense. Similar to Vienna airport, fast track is only available for specified personnel. Birmingham airport is a small airport compared to Vienna and Dubai, therefore need for different design or more servers might not be justified.

    Figure 6. Arrival passport control Birmingham airport

    References:

    Hardware – IBM mainframe On/Off Capacity on Demand [Online] (http://www.mainframe-upgrade.com/mainframe-ibm-capacity-on-demand.php) (Accessed 25 July 2010)

    Silicon and Steel [Online] (http://www.softmachines.org/wordpress/?p=261) (Accessed 25 July 2010)

    Slack, N., Chambers, S., Johnston, R., and Betts, A. (2006). Operations Process Management. London: FT Prentice Hall

    Walley, P. (2010). Operations Management. Coventry: Warwick Business School

    Wikipedia [Online] (http://en.wikipedia.org/wiki/Silicon) (Accessed 25 July 2010)


    July 22, 2010

    Operations Management Lesson 4 Exercise

    Question:

    For a product or service of your own choice, complete a QFD matrix that relates customer requirements to design characteristics. Justify your entry.

    The Quality Function Deployment (QFD) is one of the best known techniques that can be employed in order to evaluate and improve the preliminary design and is typically used in design evaluation and improvement stage of design activity (Slack et al. 2006). In this exercise I will be using QFD to evaluate the design of Nikon camera D5000 released in April 2009.

    Nikon D5000 Digital SLR Camera with Nikon AF-S DX 18-55mm lens

    1. WHATS – definition & score of key customer requirements

    Slack et al. (2006) defines the key customer needs as WHATS. These represent the product essentials customer is looking for and values the most.

    When we scan camera customer groups it becomes obvious that different customers buy cameras for different purposes. While some are looking for small, inexpensive, easy to use and simple cameras producing quality pictures from holiday, others have requirements of professional photographers with number of special features always looking for best quality pictures and they are willing to spend more money.

    D5000 is aimed for customers of the second group. General customer ratings of cameras are mostly emphasizing strengths in photo quality, number of innovative features included, clarity and ease of use, performance of in-camera features, value for money, battery capacity, size and weight of the camera and also the overall look and design.

    Customer requirements

    Score (scale of 10)

    Photo quality

    10

    Ease of use

    8

    Innovative features

    9

    Design

    3

    Portability

    4

    Battery life

    5

    Price

    6

    Performance

    7

    2. Score vs competition

    Nikon D5000 can be compared to Canon cameras of similar range – Canon EOS Rebel T1i and Canon EOS Rebel XSi. Other camera producers do not compete in this range of camera products.

    On the scale of 1 to 5, 1 being the minimum and 5 being the maximum score, facts and customer ratings are resulting in the following picture:

    Customer requirements

    1

    2

    3

    4

    5

    Photo quality

    X

    Ease of use

    X

    Innovative features

    X

    Design

    X

    Portability

    X

    Battery life

    X

    Price

    X

    Performance

    X

    3. HOWS – definition and relationship to WHATS

    In listing the “HOWS” I am referring to concrete product dimensions with correlation to WHATS. This list boils down to parameters or items which are in weak to strong relationship to WHATS (Slack et al. 2006).

    HOWS

    Correlation

    Resolution

    Level of details an image on digital camera holds is directly affecting quality of pictures. D5000 features 12.3 effective megapixel sensor offering high photo quality.

    ISO

    Sensitivity of digital imaging system also directly impacts the photo quality. The higher the ISO the lower the picture quality. ISO of D5000 offers 200 – 3200 range, which is comfortable range for high quality photos. ISO also influences performance as it determines the length of exposure.

    Lens

    Lens directly affects quality of the picture, but it also has a relationship to ease of use and portability. D5000 features standard 18-55mm lens, which is sufficient for portraits, regular full figure pictures, however more demanding photographers have a desire for different lens range which requires changing lenses or investing. This further affects the portability as it is not convenient to carry around several lenses which are typically rather heavy.

    DSLR

    Digital single-lens reflex system allows the user to see how the picture will look like (much closer to final picture unlike with regular cameras). This feature, included in D5000, helps the quality of the picture and eases the use. It can surely be considered as an innovative feature and it influences design as it dictates the need for display (in case of D5000 it is a flip-down rotating 2.7” LCD). Apparently it also influences performance perception, as the live view in D5000 is rather slow.

    HD video

    An innovative feature on a camera which absorbs more battery energy.

    Operating system/software

    Links directly to ease of use, influences quality of photo and helps to improve the performance. D5000 contains fun-in camera retouching features allowing some minor image manipulation which is normally done with SW on PC. Therefore I can see weak correlation to innovative features.

    Case

    Camera case is relevant for product design and portability. D5000 is viewed positively for its compact body.

    Battery

    Battery quality affects battery life and performance of the camera.

    In all HOWS I have identified correlation to price. In optical and technological features I see strong correlation to price, while operating system/software, case and battery represent medium correlation.

    4. Technical evaluation

    Technical evaluation is carried out by scoring technical qualities of HOWS on the scale of 1 to 5 (5 being the best). The scores are representing user’s perception of the quality based on available technical parameters and their comparison to general standards.

    5. HOWS to HOWS correlation

    Comparison of HOWS to HOWS (Slack et al. 2006) is used for comparisons of interrelationships of product features. In case of D5000 this comparison shows that all the optical & digital features correlates to each other strongly positively or positively, while most of them would have strongly negative relationship to battery. In some instances there would be strongly negative correlation between features and case (e.g. lens and case – the quality and mechanism of the lens requires certain size and has been manufactured in standardized way, while there would always be a tendency to decrease the size of the case).

    5. Conclusion

    Applying the QFD matrix, as summarized in Figure 1 below, on Nikon camera D5000 SLR shows that product’s HOWS have mostly strong relationship to WHATS, which indicates that product features are addressing the customer requirements. Interrelation of HOWS represents a typical struggle of all the technological gadgets – delivering highly advanced technology product in a smallest possible format with energy that sustains for the longest duration at improved prices.

    D5000 is comparing to competition rather successfully with positive technical evaluation. Result of the QFD matrix analysis is in line with customer ratings and overall success of the product.

    Figure 1. QFD matrix of Nikon D5000

    References:

    Canon [Online] (http://www.canon.com/) (Accessed 22 July 2010)

    Nikon [Online] (http://www.nikon.com/) (Accessed 22 July 2010)

    Nikon D5000 [Online]

    (http://www.google.com/products/catalog?hl=en&q=d5000+nikon&um=1&ie=UTF-8&cid=8808454403248695864&ei=XtZHTOjwAYz80wTFrsW-BA&sa=X&oi=product_catalog_result&ct=result&resnum=1&ved=0CAYQ8wIwAA#) (Accessed 22 July 2010)

    Slack, N., Chambers, S., Johnston, R., and Betts, A. (2006). Operations Process Management. London: FT Prentice Hall

    Walley, P. (2010). Operations Management. Coventry: Warwick Business School


    July 19, 2010

    Operations Management Lesson 2 Exercise

    Question:

    Take two processes with different volume and variety characteristics. Profile these processes and establish the process choice and layout decisions they have taken. Critically appraise the design decisions taken.

    For the purpose of this exercise I have selected two air transportation services providers: Ryanair and Qatar Airways.

    Irish Ryanair is well known as low cost & no-frill airliner operating within Europe and Morocco more than 1,100 routes. It operates fleet of almost 250 aircraft. Qatar Airways is carrier based in Doha linking over 90 international destinations with fleet of 84 aircraft. It is a 5-star airline (rating given by UK consultancy company Skytrax, performing in-flight research services), one of only 6 airlines in the world indicating high quality of customer service. It also operates Qatar Airways Executive division offering private flights.

    1. Performance objectives

    Table below captures the analysis of performance objectives as defined by Slack et al. (2006).

    Performance objectives

    Ryanair

    Qatar Airways

    Quality

    Ryanair objective is not quality of customer service and it has been heavily criticized for many aspects of customer service quality.

    As already mentioned high rating of 5-star airline makes Qatar Airways one of the top airlines in the world with high focus on quality of customer service.

    Speed

    Communication with customers is brought down to minimum; therefore in the created communication channel airline reacts fast. Any non-standard requirements are answered late or not at all.

    Speed being part of customer service satisfaction is on priority list of Qatar Airways. Its Executive division offers bookings of flight only 4 hours in advance, which requires very fast response time.

    Flexibility

    There is little or no flexibility due high focus on minimal costs.

    Qatar Airways strives to provide unique customer experience. Flexible service is therefore also a priority.

    Dependability

    Transportation service is very punctual as any delays might drive extra cost for airline.

    Flight delays are minimal and only occur due to unexpected circumstances outside of airline influence.

    Cost

    High focus on efficiency in order to minimize cost and offer highly competitive prices to customers.

    Cost control is important, but not to the extent to compromise the quality of customer service. Margin expansion is achieved mainly by economies of scale and pricing model (especially for premium products).

    2. 4Vs

    There are four characteristics of demand which have a significant effect on how processes need to be managed (Slack et al. 2006). Let’s have a look at 4Vs of Ryanair and Qatar Airways transportation processes, visually captured in Figure 1:

    Ryanair has higher volumes than Qatar Airways, which is mainly determined by number of flights, fleet size and competitive prices. Thanks to the volumes and minimal costs Irish carrier can still benefit from economies of scale despite the low prices.

    Variety, on the other hand, is higher at Qatar Airways, since in 2009 company has launched its new charter division Qatar Executive. It is providing customers with exclusively premium travel experience. Qatar Executive’s customers can book an aircraft four hours before departure, 24/7 and check in 15 mins before departure. Regular Qatar Airways flights offer options of Business, First class or Economy. Entertainment system in Economy class is rated very highly. Ryanair provides only the service of continental transportation, Economy class only without any add-on services.

    Variation in demand is on higher side for both due to oil prices and seasonality.

    Visibility in both processes is fairly high, however due to the fact that business model of Ryanair does not establish clear communication channels, part of travel service is not visible to customers.

    3. Process type

    In terms of selected process types, as introduced by Slack et al. (2006), both airlines operate largely mass services process analyzed in Figure 2 below. The aim is to achieve economies of scale in order to maximize the margins. High number of passengers (specifically Ryanair) requires highly standardized service. On the other hand I consider Qatar Airways Executive division more of a Service shop process due to higher flexibility (although still limited due to nature of air travel and air travel procedures) and higher costs which are covered by premium prices.

    4. Process Layout

    Using Slack et al. (2006) definition of process layout I have come to conclusion that both airlines have selected Product layout to operate their processes. This enables them to handle large volumes of customer movements (Ryanair) and ensure all the security procedures are complied with. Even if smaller volumes of passengers are serviced (Qatar Airways Executive), the Product layout is still used, which is mainly due to the fact that airlines operate their processes jointly with airports operating massive amount of passengers on daily basis, therefore airlines have to adjust their processes accordingly. It can be handled on different quality levels increasing variety of service (e.g. Premium Terminal for First & Business Class passengers of Qatar Airways including nursery play area, spa treatment rooms, conference rooms, etc), however essentially the process layout is the same.

    References:

    Arabian Aerospace Online News Service [Online]

    (http://www.arabianaerospace.aero/article.php?section=business-aviation&article=qatar-s-executive-offering-goes-from-strength-to-strength) (Accessed 17 July 2010)

    Qatar Airways [Online] (www.qatarairways.com) (Accessed 17 July 2010)

    Ryanair [Online] (www.ryanair.com) (Accessed 17 July 2010)

    Slack, N., Chambers, S., Johnston, R., and Betts, A. (2006). Operations Process Management. London: FT Prentice Hall

    Waley, P. (2010). Operations Management. Coventry: Warwick Business School


    July 2010

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