May 22, 2008

Operation Strategy Lesson 5 Exercise

A “process technology” is the 'the appliance of science in any operations process'[1]. The piece of process technology (recently introduced in my area of organization) I’m going to describe is the “on-line customer administrative support”.

Actually it is a web site where IBM customers (provided of a user-id and a password) can find information on:

      • the contract they have with IBM (on their terms & conditions and status)

      • the invoices/credit notes status

      • payment

      • shipments

      • assistance

      • calendar of technical specialists’ availability for on site support.

      As per the Oblivion example this process technology created many challenges:

          • What does the technology do which is different from other similar technologies? This technology compared to the previous (customer call centre) offers an online response, a 24/h a day availability, a greater interaction with customer and printable documentations.

          • How does it do it? It’s simply based on web technology, easy to use and completely widespread among IBM customers.

          • What constraint does using the technology place on the operation? Since it’s quite simple and user friendly it’s quite hard to find constraints.

          • What skills will be required from the operations staff in order to install, operate and maintain the technology? The web site was created through IBM consultants (several customers were contacted in order to discover the most suitable view), IT architect and web designer. It’s maintained by 5 IT specialists in Italy that also answer to the tool free for customers’ technical assistance requirements.

          • What is the expected useful lifetime of the technology? It’s going to be kept and maintained. Several investments have been performed in order to reduce the “manual data entering”: this tool now is connected with all the already existing tools within IBM administration.

          Dealing both with a new service and with a new product this picture highlight its process/product life cycle:

          Picture 1: product/process life cycle.

          (Picture 1: product/process life cycle.

          Source: "Operations Strategy", Warwick Business School, Lesson 5)

          This process technology may be defined as an indirect (or supporting) one: it looks like the appliance of science to a process that supports the infrastructure of other processes which directly contribute to the production/delivery of products/services.

          The main impacts of this technology on the market (customers) I mostly recognize is an increase in customers’ satisfaction and loyalty. Also a decrease in the skews information and in poor communication is evident.

          The market impact is described in picture 2:

          (Picture 2 market impact)
          (Picture 2 market impact)  

          The new system (in bleu) cannot be compared to the previous one, better only in the simpler easy design & set up. All the other characteristics are much better:
          • Quality: being directly connected to other administrative tools errors are infrequent; as any web site it’s available all day long and for all the information required by a specific customer.
          • Speed: the waiting time that characterize call centre (previous technology) has been eliminated.
          • Dependability & Flexibility: working by their own customers can decide what kind of information, which level of detail and in which moment of the day receive them (there’s also a personalized news letter the customer may decide to receive)
          • Cost: cost related to web site maintenance cannot be compared to those related to the call centre one.

          The resource base analysis is described in picture 3:

          (Picture 3 resource based analysis)
          (Picture 3 resource based analysis)
          Since IBM is an IT company, resources for this process technology aren’t scarce. The ability to move towards this new system is present from an intangible, SW and HW point of view (mostly in the HW contest thanks to the entire servers present in the company).
          The technology is not very difficult to be copied (actually IBM, in the “business to business” market,
          is selling this “product” to his customers for their own customers).
          I recognize a difficulty in the substitution only in the SW contest.

          References:



          [1] Slack, Nigel and Lewis, Michael (2008), "Operations Strategy", 2nd Edition, Prentice Hall


          May 14, 2008

          Operation Strategy Lesson 4 Exercise

          Lesson 4 Exercise:

          The supply network strategy (“the strategic direction of an organisation’s relationships with suppliers, customers, suppliers’ suppliers…”[1]) I’m going to describe in order to analyze the “potential perception mismatches” according to the picture 4.10[2] is the IBM “SW consulting” sales.

          In this process operations are:

          A. Final Customer

          B. IBM Technical specialists & sales men (IBM)

          C. Non IBM Technical specialists (Suppliers)

          IBM “SW consulting” is one of the most big and complex providers of the Italian market scenario. It’s made up of around 200 sales men, 500 technicians and it uses to work with more then 30 suppliers.

          In this organization I mostly recognize 3 possible mismatches of perception:

          1.  “market perception gaps” both between
          • what Customer wants and what IBM thinks he wants
          • what IBM wants and what suppliers think IBM wants.
          This kind of mismatches is due to skews information and poor communication but IBM tries to face it building “partnership relationships” both with its customers and its suppliers. With this approach competitive and cooperative forces are developed. Having a relative small number of chosen suppliers IBM has reduced the cost of selecting/changing them. In these last years, having abandoned the promiscuous behaviour of constantly switching suppliers, IBM has become an attractive customer to its suppliers and a solid supplier to its customers.

          2. “operations performance gaps” that occurs when there’s a mismatch between the performance a supplier thinks it’s giving and how its customer evaluate the same performance. Again this kind of mismatch may occur at both side of the analyzed chain (Suppliers-IBM and IBM-Customers) but IBM tries to anticipate and to face it: 
          • Ex-ante: with two strategic functions that are: “Contract & Negotiation” (that works in the IBM-customer relationship) and “Procurement” (that works in the IBM-suppliers relationship). These structures are responsible for the contracts signed with final customer/suppliers. These documents have to specify in detail terms & conditions and the level of services acquired/provided.
          • Ex-post: with continuous surveys in order to test satisfaction and requirements of both customers and services providers.

          3. “supplier improvement gap” (mismatch between what IBM/final customer think they need and what they think are getting from their suppliers). Actually IBM tries to anticipate this kind of gap since the early stages of each project. In the planning phase: regular assessment moments, mid-stages assessments, highlight and exception reports are prepared and shared with customers and suppliers.

          According to me with all this attention on quality and on preventing the accumulation of gaps in perception IBM is able to avoid the typical “quantitative supply chain dynamics” and the “bull whip effect” along all its supply chain.

          Post comment insert:

          About the statement that "constantly swapping suppliers can make IBM obtain best price" I would only better describe the last years chosen approach. IBM and its SWG suppliers share the basic idea that their objective is common: “satisfy end customer”. They all know that is their “common” performance that may bring some competitive advantages and not the “personal” one. About choosing a supplier IBM SWG claims that they do “strategic considerations” more then focus on price or availability issues… even if some customers’ requirement or some specific year’s moments (i.e. end quarter) sometimes make they change their mind. The relationship between IBM SWG and its suppliers is actually more a “partnership” then a “transactional” one in fact:

          • Success is shared

          • IBM encourages investment in improvement

          • Contacts are through many channels (sales, consultant, administration…)

          • Information are constantly shared

          • Problems are solved together

          [1] Slack and Lewis, Operation strategy

          [2] Slack and Lewis, Operation strategy pag.126

          References:

          ·   Slack, Nigel and Lewis, Michael (2008), "Operations Strategy", 2nd Edition, Prentice Hall, Great Britain

          ·   University of Warwick(2008), "The Warwick MBA: Operations Strategy", IB812Z, Warwick Business School, Coventry, Great Britain


          April 25, 2008

          Operation Strategy Lesson 3 Exercise

          Economies / Diseconomies of scale:

          The IBM business area I’m going to analyse is the Italy “Customer Fullfilment” (CF) that deals with the entire administrative tasks related to IBM sales (HW, SW and Services).

          It has to manage the contracts acceptance, customer billings, financial evaluations and closure reconciliations. These activities require high specialized project administrators, legal specialists, financial and accounting analysts. Training period of new new recruits is quite long.

          In the mentioned area economies of scale (that may be defined as the decreasing total cost per unit associated with capacity increases) are derived from:

          • Spreading overheads: i.e. reducing the number of departments, making processes and activity as simple as possible, creating more flexible skills;

          • Improved technology: several internal projects are performed in order to find out the easiest way to manage a contract. The constrain remains the ability to answer customers’ requirement in terms of timing and quality of documents produced (for instance the billing accuracy);

          • Specialization: several “Centres of Excellence” have been created in the last 10 years.

          All above brings the risk of:

          • increasing borrowing (to develop improving projects);

          • unforeseen costs (due to the introduction of new technology that require time to reach complete knowledge and experience);

          • Diseconomies of scale for an increase in the cost related to additional management structure and control systems to cope with the added complexity. We’ve also to remember that the risk of diseconomies of scale is always present when we deal with big structure: CF is a big one inserted in an enormous company (IBM)

          The “subcontracting” is another way to create economies of scale but it has not (up to this moment) been used because we’ve to think that this department faces directly with customers (with their “cash”) and with rigid accounting and financial rules.

          Capacity strategy:
          Capacity (output per unit of time) in this department it is conventionally calculated as “revenue managed by a single project administrator” per unit of time.

          Capacity strategy (an important part of operation strategy) is the first of 3 level of capacity management. Several strategic capacity decisions have been developed in CF in the last few years.

          In the decision “whether individual sites should focus on a relatively narrow range of activities or whether all sites should be ‘general purpose” a big change occurred 10 years ago. Up to 1995 all CF sites were ‘general purpose’: business was divided in 3 sectors according to the customer it dealt with (Public / Industrial / Telco&Media customers).

          Each business had its own Administration that dealt with administrative, financial and accounting activities (see Lesson 3 Image 1).

          Lesson 3 Image 1:

          Lesson 3 Image 1

          After 1995 it was decided that individual sites should focus on a relatively narrow range of activities. In a matrix organization single departments were created. Each one deals with 1 specific task (financial, administrative or accounting) and cross all the sectors.

          Another big “capacity strategy” change started in 1997. Up to that moment IBM Italy had many relatively small sites all over the country (at least in each regional capital). Several evaluations have been performed, sites closed and today in Italy we’ve only 2 very large sites. Now CF is all located in 1 of these (Rome). As stated also by Slack and Lewis “a minimum level of geographical coverage is necessary to provide acceptable degrees of customer service” but the cost of having all that sites was much bigger then the service quality perceived by the customer.

          About the location of individual sites CF started a “capacity strategy” project (PANGEO) in 2000. It was decided to keep only 1 site in Italy (Rome) and to start building “Centres of Excellence” in states or regions able to make themselves attractive to inward investment.

          It was started with Dublin, then Madrid followed by Bratislava and Bangalore (India).

          Factors that influence CF location were:

          • Supply side: labour & land costs and community factors (dealing with services transportation costs do not occur);

          • Demand side: labour skills, suitability of site, image of location. (In my opinion IBM image and convenience for customers has not been properly taken in the right consideration).

          Attractive factors were:

          • financial support and tax concessions offered by these Countries;

          • it was easy to find English speaking young people attracted by “IBM”;

          • cost of labour;

          • flexibility of the labour market (compared to Italian one).

          References:

          ·      Slack, Nigel and Lewis, Michael (2008), "Operations Strategy", 2nd Edition, Prentice Hall, Great Britain

          ·      University of Warwick(2008), "The Warwick MBA: Operations Strategy", IB812Z, Warwick Business School, Coventry, Great Britain


          April 24, 2008

          Operations Strategy Lesson 2 Exercise

          I’m going to analyse the “Nestlè-Nespresso Coffee Capsules” competitive factors. Nespresso is a division of Nestléthat introduced all over the world the coffee-capsule technology.

          It’s becoming more and more widespread, it’s started enlarging products/services offered and its competitors’ number is increasing enormously.

          The Coffee Capsules can be bought only on-line, through a call centres or in one of the few boutiques (only 3 in Italyfor instance).

          Analisying deeply its 5 performance objectives I summarised the analysis in the first sheet (Image 1) of the attached file (Lesson 2.xls).

          In this description the performance objectives trade-off against each other clearly appears.

          Nespresso focuses on quality, flexibility and speed but has to face with quite high cost.

          The competitive factors’ categorization appears in the second sheet (Image 2) of the already  mentioned file (Lesson 2.xls).

          Considering a 2 year forward horizon time:

          1. The 2 delights highlighted in the image should move towards order winners because of the competitors’ number increase and because of the continuous customers’ variety demand.

          2. In my opinion “short delivery” and “response time” will erode to be qualifiers. The “on-time arrival of products” is a characteristic that depends on internal, external factors and on unpredictable events so may be (an may always will be) improved by a company.

          3. With the introduction of new products, qualifiers like “taste” or “Reliable products” will cyclically pass through phase of being order winners and then (after an assessing period) reach again the qualifier phase.

          4. As already mentioned Nespresso works hard in order to test customers’ satisfaction and to prevent future requirements. It’s also developed commercial agreement with coffee machine producers in order to be more available on the market scenario.

          Images:

          lesson_2.xls

          References:


          October 23, 2007

          Lesson 10 – Exercise

          Operation Management: Lesson 10 – Exercise

          Moving from a “maintaining” to an “improving” approach of the Operation Management we’ve analyzed methods and tools that help in “closing the gap between current and desired performance.

          The system, that often fails, I want to analyze is the “IBM IT Support Call Centre”.

          It’s been established by the company to help IBM Staff with their personal computer and net connections.

          It also provides IBM staff support on internal IT tools and IT applications.

          The problem with this support is mostly related to the waiting time.

          I mean that they can satisfy more then 95% requirements but the waiting time and the time they need to find resolution are too long.

          I suggest them to more focus on customer needs and to try to:

          • eliminate waste

          • introduce quality measurement

          • empower the workforce

          • reduce the level of ‘command and control’ style management
          (Slack et al)

          Among Deming’s principles those they should mostly focus on are:

          • Improve constantly

          • Institute training on the job

          • Give people pride in their jobs

          • Institute education and a self-improvement programme

          (Lesson 10)

          Improvement activities need a “starting point”.

          They should fix some performance objectives to achieve in order to satisfy staff requirements (Slack et al p. 419). The service was created one year ago so they cannot compare their result to historical targets.

          Finding out strategic targets may be difficult because, dealing with services, the only way to fix them would be some kind of survey so customers’ answer is supposed to be “it depends on the kind of request”!!

          I suggest them to compare their results to the rest of Europe ones (i.e. to fix “external targets”) or to make some kind of “benchmarking analysis” (that could bring important benefits like enabling the best practices and providing motivation).

          Dealing with the better approach between “breakthrough improvement” and “continuous improvement” I suggest this second one because I strongly believe in the behaviour change that it requires:

          • develop the CI habit

          • share strategy & direction

          • management involvement

          • develop habits that remain and are retained in the whole organisation’s memory

          Applying a quality improvement tool like “Cause–effect diagrams” we may find this:

          lesson_10_image_1.jpg

          Only from this analysis it appears that they should set up some other kind of communication (i.e. instant messaging?), improve the training phase and give employees salaries that help in motivating.

          Moving to a “Why–Why Analysis” we can deeply describe the situation:

          lesson_10_image_2.jpg

          So what I strongly suggest is to implement a CI initiative:
          • Being aware in defining an appropriate improvement strategy,
          • Establishing an appropriate management support,

          • Limiting bureaucracy,
          • Recognizing and sharing with the team the reached success.

          References:

          Lesson 10 

          Slack R., Chambers S. Johnston R. Betts A. Operations and process management. Pearson Ecucation 2006.


          October 22, 2007

          Lesson 9 – Exercise

          Operation Management: Lesson 9 – Exercise

          The process I want to go through in order to describe if and how it’s applied a concept of Quality Management (those through which we can reach “consistent conformance to customers’ expectations” – Slack et al p. 376) is the IBM Customer Fulfilment (CF from now on).

          The organization take care of a contract from the moment in which the contract with the customer is signed, the service are performed (or products delivered) and the invoices are paid by the customer.

          All within IBM is recognized the customer centrality in the approach but this department is particular because it face with both

          • Internal customer (Selling dept, delivery management dept, SW developing and design dept…)

          • External customer (final customer outside IBM)

          and has to satisfy both of them.

          Each person within CF is asked constantly not only to deal with his own daily job. They’re involved both in process design and in suggesting new ideas or methods to improve the quality of the offering (both to internal and external customers).

          Details about services offered are listed in an INTRAnet web site and IBMers who need assistance can see there if the required services are performed within CF.

          An INTERnet web site has also been created and each external customer can go through (with a specific id and password) in order to check their contract status and to ask further information.

          This activities list has been designed with customer’s needs in mind but it’s always open to new suggestion or requirements.

          The main objective is to attenuate gaps (Slack et al p.381) that in this particular contest may be “customer-operation” (both customers are aware of the services offered by the CF).

          CF keeps on trying to minimize the “concept-specification” gap:

          • with a continuous observation of evolving customer requirements 
          • with quarterly analysis of the main request that are discussed in management meetings.

          The “actual quality – communicated image gap” is minimized through a constant staff analysis of their own knowledge of “customer” and results are compared with customers’ ones.

          Analyzing cost (Slack et al p. 385)

          • PREVENTION: these are quite high both in terms of identifying potential problems and in training of personnel.

          • APPRAISAL: a Business Control Manager (from now on BCM) checks the operation daily made by 10 administrative. Customer surveys are conducted twice a year and quality audits quarterly.

          • INTERNAL & EXTERNAL failure: from an internal point of view is mostly an issue of “reworking” while with external customers the risk (and cost associated) to the loss of future business is quite high.

          The Quality control System, as already mention, includes 4 BCM (only in Italy) that face with the rest of Europe ones in order to assure and to control quality.

          In our lessons we’ve seen the 6 steps to perform in order to establish an effective quality management system.

          The 1st and the 2nd have been performed at the birth of this department but are constantly updated (at least once a year).

          Each action (contract acceptance, billing, delivery…) has to meet specific characteristic/attributes measured in each operation.

          The 3rd and the 4th is mostly defined outside Italy, at a European level, and with a monthly “scorecard call” the BCM has to respond of Italy’s results and to justify any mismatch.

          Dealing not only with services the interaction between the customer and the CF service provider is very important. As already mention each administrative has to get a customer feedback (through surveys) twice a year and this is one of the main aspects of his evaluation.

          Even a “statistical process control” system exists in the CF quality control system.

          This deal mostly with QUANTITY & TIME... of wrong invoices for instance, of delivery time and location, of contract acceptance and loading…

          Customer satisfaction graphs have also been created and are constantly updated in order to compare the actual value both to the historical average data and to the upper and lower control limits.

          References:

          Lesson 9; 

          Slack R., Chambers S. Johnston R. Betts A. Operations and process management. Pearson Ecucation 2006.


          Lesson 4 – Exercise

          Operation Management: Lesson 4 – Exercise

          The product I want to analyze to describe and use the Quality function development matrix (QFD) is an “espresso coffee machine”.

          Coffee’s quite an important moment all over the world but in Italy it’s more then a habits!

          Lesson 4 image 1Lesson 4 image 2

          Each Italian family (made up of 1 or of 5 persons) has got a machine like that and several factories produce them with a range price between 30€ and 200€.

          I’ve chosen the TALEA machine produced by Saeco.

          In order to create the QFD matrix for this product I’m going to follow the six steps described on the digital support (CD) inserted in Slacks et al (2006). Here's the result:

          Lesson 4 picture 1

          The 1st step deals with identifying and scoring the key customer requirements (i.e. describing the “WHATS”). The espresso coffee machine is both something we need to create the loved drinking but it’s also part of the kitchen furniture.

          All these characteristic are mentioned in www.coffeeplease.it :

          • Produce a good coffee: 9 (this is what it is bought for)

          • Fast to be ready to use: 6 (especially in the morning you cannot wait)

          • Easy to use: 7 (it’s the very 1st thing you do in the morning )

          • Easy to clean: 6

          • Nice: 8 (it’s one of the first thing you see entering the kitchen)

          • Price: 7 (it’s important to let the client find the right connection between price and required quality)

          The 2nd step (determining the ‘competitive scores’) result is inserted in the QFD matrix and is based on market analysis (stated in the factory web site).

          Talea seems very good in quality but too high in price.

          The 3rd step deals with identifying and scoring the key characteristics (i.e. analyzing the “HOWS”). The “TALEA” machine characteristics are (from http://products.saeco.com/prodotto.asp?id_linea=1&id_lingua=ITA&id_paese=1&id_articolo=10000243)

          • Saeco Brewing System: 1st (it can produce the kind of coffee you want)

          • Rapid steam: 3rd (ready to be used in 4 minutes)

          • “Touch screen” and “touch lift”: 2nd (it can be used with one hand and with any kind of cup)

          • Several colours available: 4th

                • Different parts are removable: 5th

                In the 4th step it’s required to determine the relationship between customer requirements and product characteristics. It’s described in the central part of the QFD matrix. Several strong relationships are highlighted in the matrix and this shows the success of this product in answering customers’ requirements.

                Also the 5th step result can be red in the matrix, at the bottom under the “technical difficulties” that are evaluated in the lower part of the matrix.

                In the last step we have to capture correlations between design characteristics and insert them in the upper part of the matrix.

                References:

                Slack R., Chambers S. Johnston R. Betts A. Operations and process management. Pearson Ecucation 2006.


                October 17, 2007

                Lesson 8 – Exercise

                Operation Management: Lesson 8 – Exercise

                The process I want to go through in order to understand if each step could improve moving to a “lean thinking perspective” is the following, implemented in a furnish factory.

                Blog 8 imange 1

                Womack and Jones underlined the inefficiencies a large-scale, capital intensive integrated technology may bring.

                The factory should recognize the “blanket of obscurity” an excess of inventories (at any production level) may become and so try to minimize them.

                All the factory resources seem to flow, with no interruption delay or error (Slack et Al p. 342). The staffs are often required with surveys or direct suggestion to improve the working environment. Job rotation is performed in order to increase flexibility and creativity; equality (especially in salaries) is applied and problem solving courses are developed.

                Even in the very 1st step woods are bought when needed, waste are tried to be avoided. A particular attention is paid to “flow” and they try to make them as regular as possible in order to avoid too many transports, waiting time, useless movement and storing.

                Especially at this level it seems quite important to avoid an excess of inventory since storing is quite expensive because of the space they need and because of the right temperature they’ve to be preserved.

                From employees point of view autonomy and involvement is widespread (even in the system ordering).

                In the 2nd step, when woods are cut, an excess of inventory out of this department could lead to a mismatch between request and customers’ demand.

                A lean approach may attenuate inexact supply like over/under production (Slack et Al p.350). Analyzing the employee situation we may found that a rigid discipline is required but several attentions are paid to development of personal and quality of working life.

                In the 3rd one (varnish) a lean approach may attenuate inexact supply to the assembly department (narrow process) like early or late delivery. In this sector creativity is not only suggested but even required to employees.

                The 4th (assemblage): In this step an irregular flow may bring to process inefficiency and to unnecessary variability like poor reliability of equipment or defective products.

                As we’ve seen (Slack et al p.356) a big contrast between LEAN and TRADITIONAL OM lies in the “point of view”. I mean that while:

                §   with a Traditional approach we try ex ante to predict future demand and to plan

                §   with a Lean one we more focus ex post on control.

                The whole organization should understand that 2nd, 3rd and 4th department couldn’t work more then a specific quantity per day and even the final storing magazine cannot afford the cost related to an excess of finished products ready to be sold but that shops cannot accept.

                All the departments should adopt a “Kanban system” in order to make the previous understand the level (and quality) they need.

                In the very first step, dealing with suppliers it seems not easy to prefer a pull approach. It should create with suppliers a real partnership in order to substitute more competitive short term contract with exceptionally high quality.

                The best way in which the 2nd department should communicate to the 1st the quantity it need is a simple telephone signals (or electronic messages).

                The 3rd could use “Kanban cards” (even with colour to highlight priority) and the 4th some “Kanban containers”.

                All this “pull” approach could improve efficiency but the factory should be flexible in switching from one variety of products to another in order to avoid interruptions.

                Another success key is that the factory should be good in matching the produced to the demand as precisely as possible.

                This lean approach may be effectively used in this contest because of the cellular operation developed in this system and because of the workstation that are located close together.

                References: Slack R., Chambers S. Johnston R. Betts A. Operations and process management. Pearson Ecucation 2006.


                Lesson 7 – Exercise

                Operation Management: Lesson 7 – Exercise

                Re-order point (from now on ROP), Material requirement planning (MRP), Enterprise Resource planning (ERP) are all stock control methodologies used for planning tasks associated with short/medium term planning.

                Looking for a material processing operation that let me talk about them (not only one) I’ve chosen a furnish creator and selling store that both sells “in house” created and “outsourced bought” pieces of furniture and has to manage stocks of finished and semi-worked materials.

                It manage its “ready for selling materials” (finished materials) through a ROP system (material are reordered when a specific trigger point is reached) and a perfect two “bin” system (actually 2 store rooms system) is utilized.

                The factory takes advantages of the simplicity of this system and tries to forecast demand and to make future projection better then it can.

                Unfortunately it suffers the mechanistic approach this system brings with him.

                For the dependant demand connected to the “in house” creation it may choose between ROP and MRP.

                As we’ve seen MRP and ROP can be used side by side and in the choosing a Pareto analysis was conducted showing that:

                A. High value items: are around 20% of items and account for 70% of the total annual inventory value.

                B. Medium value items: are 30% of the items and account for approximately 20% of the total annual inventory value.

                C. Low value items: are almost 50% of the total number of items and account for 10% of the annual inventory value.

                The factory decided to use both of the methods: MRP is used to calculate demand for high value items (Woods, varnish, finishing materials, cloth…) while ROP is used for simple, low value items (nails, glues…).

                In the searching for the right approach to use with medium value items several considerations has been made.

                The MRP with its:

                §    master production schedule

                §    bill of materials (that shows what part are required for each product and through which we list all the raw materials, components and assemblies have to be put in a specific product)

                §    Inventory record files (a file with a list of all the parts and with important information about them, financial information and their location)

                and its looking at the 4 key variables (gross requirements, scheduled receipts, on hand inventory and planned order releases) seemed to be the best way to avoid disruption to the production schedules and delays to customers’ orders.

                So MRP was adopted both for high and medium value items.

                In order to calculate demand for these items they use “MRP Explosion” that is the process of converting their need for finished products into requirements for component parts.

                The factory takes advantages of this method that is quite difficult to implement, and try to avoid the poor implementation planning. It keeps on investing in adequate computer support, find out accurate data, involve the management in order to achieve the best commitment and perform training session.

                References Slack R., Chambers S. Johnston R. Betts A. Operations and process management. Pearson Ecucation 2006.


                Lesson 6 – Exercise

                Operation Management: Lesson 6 – Exercise

                We’ve looked at capacity not only as the output over a specified period of time but as the study of the “perfect” connection between resources and demand.

                Since demand is always seasonal and affected by random elements we always need to cover mismatches through “level capacity plan” or “through chase capacity”.

                With the level capacity management periods of high demand are satisfied from existing stocks that are created when demand goes below capacity.

                A good example of this policy application may be found in the house textile sector.

                In fact it doesn’t deal with perishing material and it is quite resistant to “trends” and “fashion”.

                We’ve also to consider that house textile factories are always located outside cities in very large buildings where the storing costs are not so high.

                They neither suffer climatic changes (i.e. no costs for air conditioning during summer) and their dimension makes it hard to be stolen (i.e. low supervising costs).

                A much more difficult management to achieve is the chase capacity one.

                With this approach they try to match capacity closely to the varying level of forecast demand. A good example may be found in a pastry shop where both ice-cream and pastries are sold. In these kinds of shops equipment and employees are moved day by day from one “space” to another.

                Actually not only day by day since even in summer, during all morning long (nobody wants ice-cream for breakfast!) the pastry space is bigger then the ice-cream one.

                And again during a sunny winter Sunday it’s probably that high ice-cream demand is higher then pastry one.

                All this is possible because it’s quite easy to change the production from one to the other and because the staff “specialization” is quite similar for both outputs.

                Among the methods available to adjust capacity (stated in Slack et al p256) we can recognize the staff scheduling, skill flexibility and change of output rate.

                Yield management is a collection of methods used to maximise the revenue from perishable resources.

                A perfect example is a theatre located in Rome city centre that, 2 days before the representation, start selling the tickets for empty seats with quite hard discount.

                It’s also possible to “buy” at a discounted price ticket for seats which belong to “subscriber”. If the subscription owner doesn’t attend the specific representation one can seat at his place (at a really different price!).

                A good example of Queue design is the Italian post offices. Here (only by few years) the queue design moved from a “multi queue-multi server” to a “single queue-multi server”. In addition tickets with numbers are distributed according to the kind of operation you have to process. In order to entertain people waiting “post shops” have been set up. While you wait you can do some kind of shopping (pen, papers, toys, books, dvd..). It’s been high appreciated by people, has became a good business for the post office itself and staff (through system of job rotation) show to appreciate the new activities.


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