1. Read the following
case carefully and answer the questions that follows:
Nepal Jute Mill (NJM) was established just after the Second World
War in Biratnagar. From its inception the ownership and management of NJM was
with private sector. Biratnagar, Jhapa, Sunsari, and many parts of Saptari are
known for producing raw jute.
The Mill was getting raw materials from these districts. The main
jute product was jute bags. Just after WW II, there was a huge demand of jute
products in Nepal, India and Bangladesh. Until 1975 Nepal was
also exporting pressed jute in these countries. During that time farmers were
also getting satisfactory price from selling the raw jutes. It was until 1980
the market of jute product and raw jut was quite satisfactory to earn profits
for the Mill.
In the beginning of 1980’s the massive use of plastic bags began,
and jute bags have been almost replaced by them in this region. This has great
negative impact in every jute mill of the region specially Nepal, India and Bangladesh.
Looking at this situation of low demand for jute products, in the early 1990 Bangladesh government
has banned the use of plastic bags for domestic and packaging purposes. At the
same time, jute mills in Bangladesh were encouraged by the government
to produce jute bags and jute carpets. Jute carpets are having good
international markets even in these days. In India and Nepal,
there is no such regulation to ban the use of plastic bags and encouraging jute
farmers and producers.
In the late 90s NJM faced a big economic crisis and it had to
close its mill for about a year. There was declining national and international
market for jute bags, exports of raw and finished jute declined in our
neighboring markets as well. Its earning declined heavily. The Mill was not in
a position to pay salary and other maintenance costs. They were not having
alternative plan to survive in this situation. Finally, it decided to sell its
plant to a local entrepreneur. Now this Mill has shifted from the place of its
original establishment. Employing 230 employees regularly the Mill is making
return of 5% on its investment per annum. The Mill has been encouraging jute
farmers to cultivate raw jute. With the increasing awareness against the use of
plastic products, demands for jute product are increasing. Now, company is
planning to make a survey of the demand of jute carpets in the national market.
1. Describe the problems in
this case.
2. How do you compare the
situation of demand of jute products between the past and present?
3. Identify weakness of NJM?
4. How do you evaluate the idea
of Management of NJM to sale the Mill? Can you give some alternative to run the
mill by NJM itself?
Study the case carefully and Answer the following
One of the most successful discount department stores in America is
known as Wal-Mart stores and is named after its founder Sam Walton. Because of
the phenomenal success of these stores, Sam Walton became the richest man in America.
Also, because of his leadership, the stores have enjoyed continuous growth and
expansion, so that by mid 1980s, the chain had over 700 stores and increasing
at the rate of an additional 100 stores per year. Its sales increased annually
by over 35% per year and the profits have soared close to 40% per year since
1975.
Sam Walton, until he died in 1992, took personal interest in his
employees. His managerial philosophy was to get the right people in the right
places and then give them the freedom to be innovative to accomplish their
tasks. He called his employees as associated and treated them as associates. As
per company policy, all associated are eligible for profit sharing plans which
motivate the employees further. The managers of the stores are required and
encouraged to meet with their employees in a social setting to discuss their
concerns as well as issues of organizational interest, and this makes the
employees feel that their input is taken seriously by the management.
Sam Walton himself led a simple life. He did not exhibit any aura
about himself, giving the employees a feeling that he was one of them. He and
his executives regularly traveled in company owned planes to visit Wal-Mart
stores situated at various sites across the country. He met with sales clerks,
stock boys and sales managers to find out what items were popular. He knew most
of them by their first names and addresses them so. He initiated “employee of
the month” in all categories and created honour roles for more successful
stores. This created inner competition requiring extra effort to improve sales
and service. This policy gained high respect for him as a leader.
The administration of the organization is very cost conscious. It
only spends about 2% of sales for general administrative expenses. It shops for
suppliers at bargain prices all around the world and has built giant warehouses
around the country in such a manner so that most stores are within six hours of
driving distance from a warehouse. This helps in better delivery system and
reduced inventories at retail stores. Each store prepared a monthly financial
report which can be studies line by line to look for ways to reduce costs
further. These cost savings are passed on to the customers and this is turn
generates customer loyalty. Wal-Mart slogan of “Quality you need, prices you
want” has become a generic organizational statement.
Wal-Mart with more than 2000 stores at present is faced with tough
competition from a similar chain of discount stores known as K-Mart. However,
Sam Walton did not worry about the competition because he felt that his people
oriented philosophy of operations and cost cutting efforts without diluting the
quality of the merchandise would always meet the competition head-on.
Questions:
1. What are the major reasons
for the company’s phenomenal success? Explain those reasons in detail.
2. How would you describe Sam
Walton as an effective leader? What leadership theory is consistent with his
leadership style?
3. How important it is for a
leader to mix with the employees? How does this leadership style of “being one
of the boys” affect the motivation of the employees?
4. What factors, other than the
leadership style contributed towards the survival and the growth of the
organization? Support your reasons.
Read the following case carefully and answer the questions that
follow
Fourteen stores of Blue Bell Stores located in three different
locations of Nepal specialized in essentials food items, dairy
products and fresh meats. The central office is in Lainchour, Kathmandu.
Mahesh Bikram, General Manager of the Stores is a strong believer in
decentralization operations. He believes the strength of the Blue Bell lies in
the competency of each stores manager to operate sound retail stores as he or
she sees it. As a result, the local store manager decides what items will be
carried out in that stores, the prices charged, the number of employees, wages
paid, hours the store open, arrangements used for displayed products and
advertising.
The major activities of the central office are to: (i) audit the
records and reports sent in by each store managers, (ii) consolidate this
information into summary statement for the corporation, and (iii) select
examples of good store management from this information and describe the
distribute each information in a newsletter each month to all store managers.
In about every six-month, a two-day stores managers' meeting is called by the
general manager. At these meetings, new ideas are discussed for introducing the
business, problems common to most of the stores are discussed and tentative
suggestions for what to do about them are developed. Mr. Mahesh Bikram spends
much of his time on the road calling on and discussing ways to improve the
sales effectiveness of each store.
For the past seven to eight months, there have been losses in the
stores operations. From his visits to the various stores managers, Mahesh find
that each store appears to be busy, judged by the number of people visiting the
store. Also the traffic count is high in each of the shopping centers where the
stores are located. Some store managers complain to Mahesh about the reports
they are required to turn into the central office saying they take too much
time and they could better spend their time selling in the store.
Mahesh is becoming concerned about the decline of the
corporation's sales and profits. From available business news letters, Mahesh
knows that sales of all stores in the same category as Blue Bell Stores
attained a 10% sales increase during the past six months. The current financial
positions of five Blue Bell stores is critical and seven of the remaining nine
stores of the corporation are just about meeting their total expenses.
What to do has been "bugging" Mahesh for several months.
When sales and profits first began to decline, Mahesh along with many others
attributed the change to a slackening in general business activity. Now he is
not certain what the cause or causes are. He feels that perhaps special
promotions and rearrangement of the store items may be the answer, but not one
store manager agrees with Mahesh. Several store managers flatly state they will
quit if Mahesh does not continue to let them manage the store as they feel it
should be run. Mahesh feels that this is all bluff. His position has not weakened;
however, from permitting the local store managers autonomy in management, as
Mahesh states, it helps to take full advantage of local conditions, makes
effective ties and relationship meaningful and effective and facilitates greater
enthusiasm and drive.
Questions:
a) What are the problems in the
Blue Bell Stores?
b) Examine organizational
arrangements of Blue Bell and assess managerial functioning of Mahesh Bikram.
c) As a store manager, what
suggestions would you make and why?
d) What action do you recommend
Mahesh to take? Justify your answer.
Read the following case carefully and answer the questions
that follow:
Sharma & Co. is a leading firm of Chartered Accountants in Kathmandu.
Mr. Raghav, a managing partner of the company was in a happy mood as he checked
his e-mail. His only son Pratik had passed the examination of chartered
accountant. The future looked fine and the family legacy, he thought, would now
be safe and secure.
Raghav Sharma recalled with satisfaction his career progression so
far. It was in 1974 that he has set up Sharma & Co. and started accounting
practices in Kathmandu. During the three decades of his stewardship, the
firm had secured dramatic improvements in client base and billings. The firm
had also built up a reputation in business circles with a high rating on
professional integrity. And his son, he was convinced, would take it further in
the long run. Of course, in the short run, Pratik would have to work toward
restoring the focus the firm seemed to have lost of late.
Ever since its inception, Sharma & Co. had three streams of
revenues – auditing, taxation of income and wealth and attestation. In an era
in which official regulations dictated the governance of business and
compliance with the rule book was considered a good sign of corporate conduct,
these streams offered a wealth of opportunities for a practicing chartered
accountant to enhance his income. Doing a post-martem of each accounting transaction,
certifying that the statements of accounts were ‘true and fair to the best of
our knowledge’ and that the tax returns were in order, were enough to bring
home the enough income at the end of the year.
The recent policies of liberalization, however, have changed the
nature of audit practice. The number of gray areas in tax-assessment, the
traditional source of fees for tax practitioners – declined. Summary assessment
has now become the norm. The number of tax disallowances has declined. Status-
based activities and the compliance mode became almost irrelevant. De-licensing
for example had eliminated the need to certify capacity utilization. At the
same time, the clients have now become more demanding. They now ask for value
based services from their chartered accountant like management audit, risk
management, accessing international capital markets, structuring strategic
alliances and so on. Clearly, Raghav Sharma did not have expertise in these
areas.
There were other related developments too. Business houses were
beginning to maintain online records and the auditing of electronic data
required a new orientation. Earlier, a chartered accountant used to be treated
by most business hours as their friend, philosopher and guide. There was
considerable bonding and connectivity between an auditor and the business
houses. But the personal element in their relationship was now fading away.
Besides, financial analyses were being given to business graduates with specialization
in finance.
Raghav Sharma had often discussed these emerging issues with his
three partners. Each of them had his own independent business interests and it
was Raghav Sharma who was holding the cards all the way. The consensus seemed
to be that the firm should identity the areas of core competencies, specialize
management consultancy. These called for skills, which had to be recruited a
fresh. It was in this context that the induction of Pratik was perceived to
mark a new beginning in the firm.
But after talking to Pratik over these matters, Raghav was in a
surprise. Pratik told him that he was not interested in joining the family
firm. He was signing up with a foreign institution, which had opened an equity
research office in Kathmandu and had offered him handsome salary.
Pratik told that Sharma & Co. can not pay him that kind of salary. He also
told his father that he would not stay with this institution for too long. He
would look for other opportunities overseas.
Raghav Sharma was disappointed. His life’s work was at stake.
Questions:
a. What is the problem
with Sharma & Co. as you see it?
b. What factors have
contributed to the current state of the firm?
c. What areas of change
and challenges face professions like accountancy in practice?
What options are available with Sharma & Co. to survive in the
new competitive environment and technological advancement?
Read the following case carefully and answer the following questions
that follow:
Aahar Meat products are a family owned business involved in the
production and distribution of chicken and mutton for the last eight years. The
company with its head office and a small production plant in Katmandu is
serving all over Katmandu valley, Banepa, Dhulikhel, Narayanghat and
Hetauda. Aahar does not supply to the rest of the country but there is a
substantial demand of the products because of its quality ensured by technology
deployed to separate consumables excluding skin, blood and other inedible
ingredients from the livestock. The livestock are slaughtered, cut and packed
scientifically so that there is no chance of quality deterioration and presence
of harmful components in the products. Most of the star hotels, casinos,
restaurants, high ranking officials as well as upper class citizens of the
society are regular customers of Aahar. Presently the numbers of competitors
are few. However there is a high chance of new competitor’s entry into the
business. The market opportunity is very high with strong possibility of growth
and expansion for the business throughtout the country and beyond.
Since the inception of the business, Chandra and Surya are handling production
and distribution departments respectively. Tara, the owner of Aahar, keeps
close control over the finance department which is headed by Dharti. There are
about eighty employees working for Aahar in these days and most of them are
very ambitious, achievement-oriented and eager to expand the business in a
large scale covering major Indian cities that are close to the Nepalese border. Tara was
extremely satisfied with the past performance of Aahar but she has a sense of
fear of poor performance in the near future. She does not want to expand the
business with a belief that the present volume and coverage is enough for her
and believes that expansion will be difficult to manage.
As
of now, Chandra and Surya are the major persons contributing for the overall
success of Aahar. Both of them want to have some share in the concern and
strongly advocate in favour of business expansion. It is noticed that if Tara does
not agree with them they will establish their own company and do business as
exactly as Aahar is doing. Once they go to establish their own company Aahar
will be affected adversely and at the same time it would be very difficult for
them to go outside the Katmandu valley without strong support of Tara.
In addition to monthly remuneration, Aahar is not giving extra facilities to its
employees. Most of the employees are in favour of expansion as mentioned above.
Moreover, they want to maximize their interests in the concern as Chandra and
Surya. In these days employees are not well motivation to do jobs at their
best. There are some indications of poor performance of the employees. One of
the competitors is trying to attract Aahar’s key employees and employ them in
its own company. Employees of Aahar usually meet and discuss fortnightly but
the last few months have been passed without having single meeting. Chandra,
Surya and Tara all are not acting as before in the organization. Junior
employees are feeling insecure in Aahar. The competitors are also trying to
capitalize the situation in their favor.
Questions:
a) Assess the problems and
prospects of Aahar meat products.
b) What viable solutions do you
recommend to tap the opportunities of Aahar? Why?
c) What would be the suitable
organization design of Aahar for the future? Justify.
d) What could be appropriate ways
to enhance the motivation level of employees of Aahar?
Read the following case carefully and answer the questions that
follow
Oriental Food Company is a wholly owned subsidiary of Star Group
of Companies. With the growth of the tourism industry and the economy in
general since the 1980s, Oriental Foods has grown from a small division of
fruit processing company where it now accounts for more than 40% of the sales
and 50% of the profits of the star Group.
Oriental Foods products a wide variety of fruit products like juice, jam,
marmalade, preserved fruits, a variety of pickles, potato products, snacks tidbits
and a variety of bakery products, a range of soup ingredients, and quick food
like instant rice, porridge, noodles, momo, etc.Most of these are sold in the
local market, department stores, hotels and chain stores in some selected
overseas market. The company has established a reputation for good quality with
stringent quality control procedures built in its production processes. The
company has almost 25 to 30 types of products in the line, but 70 to 80% of its
annual sales come from roughly 8 basic food products. One of these high volume
products is the instant rice which is very popular among trekkers, field based
workers, single working people and students, hotels etc. Rice being a stable
food of the Nepalese and the South Asian sub-continent, this product is
exported to some other countries in the region also.
The operations of Oriental Foods are often interfered by Star Group especially
in matters of pricing and planning, which are normally imposed by the
parent company. The company feels that it needs to expand its operations and
market, but at the same time, streamline its manpower to be clear ahead
of its competitors. The parent company is reluctant to commit resources
for expansion, and thus there is some form of conflict between the Oriental
Foods and some key people in the Star Group.
Questions:
a) As owner of the company, what
influence should Star Group have on the operations of Oriental Foods Company in
terms of authority decentralization?
b) What should be the nature of
organizational design within Oriental Food product lines?
c) What desired objectives of the
Oriental Food are threatened in the case?
What kind of control should Oriental Food exercise to maintain its
market lead and financial position?
Read the following case carefully and answer the questions that
follow:
Nepal Academy (NA) is a Biratnagar based academic institution
established as a private enterprise and registered under Company Act of Nepal
in the year 2004. NA has twenty five members in it with an even capital
investment of ten hundred thousand each. Among the investors Rakesh, Mukesh and
Yogesh are assuming the responsibility of CEO, Financial Controller and
Operation Manager respectively and also enjoying perquisites from NA in
addition to the earnings of the enterprise. Rakesh and Mukesh are very popular
as promoters in creating and transferring academic institutions with immense
gain and their team is considered as pioneer in the field. Going back to their
past records, it was found that both of them without alienation continued such
endeavor for the last fifteen years and had set success stories numbering to
seven institutions. Since their efforts had always paid they were also
successful in keeping and rolling most of the investors in-tact.
Yogesh, the operation manager is assuming the responsibilities of
operating intermediate level academic programs. The number of students at this
level far exceeded with the number of students at bachelor and master levels.
Though the mission set by NA is to build the institutions to the level of university,
the way Yogesh is viewing it is as a profit center even in the short run. As a
consequence the approach of Rakesh and Mukesh as compared to Yogesh revealed
often contradictory in most of the issues related to NA operation. Rakesh and
Mukesh emphasized on introducing different levels of academic programs with
multifaceted demanding disciplines and considering the long term perspectives
academic as well as financial soundness. Both of them are of the opinion that
such views really enhance the image and finally the good health of the
institution, financial hardships in the short run though. On the contrary,
Yogesh usually stresses on intermediate level and in addition running
coaching classes heavily. He is of the opinion that the market share as well as
the growth rate is high along with substantially low discipline problem. This
is the argument always thrown in the board meeting by him. Yogesh was redundant
enough to propose in the formal as will as informal meetings too to segregate
the investors to programs as per their will when in minority. This
attitude of Yogesh has culminated unhealthy formation of groups creating
uncongenial environment at NA.
Rakesh and Mukesh on the other hand are of the opinion that issues
raised by Yogesh are of trivial matter which should not at all disturb the very
mission of the institution. They have started initiating major decisions and
getting approval from the board afterwards. On different occasions, both Rakesh
and Mukesh have filtered their expressions which stated that any member not
interested with the way the institutions is heading may quit with their
investments based on the assessment of present status of NA.
Vocal attitude of this sort of all the three active members led
the institutions to a state of confusion and more towards uncertainty.
Communication breakdown is common. Operation level and board meetings are rare.
Misunderstanding mounted and the compliance of common principles and functions
of management faded away. Violation of authority and responsibility are
rampant. Due to all these, NA is facing acute problems.
The persisting situations flair up amongst other members of NA and
sixty five percent of the shareholders has already lodged application to the
chair person of the board highlighting the problems. It is likely that there
will be special general meeting in the near future. This way it seems apparent
that the fate of the institution and the members associated to it is in serious
danger.
Questions:
a. What is your assessment about
the conditions of NA from the general management perspective?
b. Explain the strengths and
weakness of NA and also describe the possibility of correcting misunderstanding
amongst the three major active organizational participants.
c. What do you think as the
major factors contributing to uncongenial environment at NA putting the
institution fate in serious danger? What rescue measures do you suggest to deal
with the situation and save the institution.
d. What would be your advice to
Rakesh, Mukesh and Yogesh in the given situation of NA?
8. Comprehensive answers
Ramesh Bhandari, the president of ABC corporation, leaned back in
his chair and reflected with well-deserved satisfaction on the success of his
company, which produces and distributes home appliances. That afternoon, at a
meeting of distributors, Mr. Bhandari had been urged to introduce new models to
satisfy the changing demands of customers.
The president, who had an engineering background, recognized the
implications of the distributors’ suggestions. It would require greater
investments in research and development. Furthermore, the changes in the highly
automated production system would be costly indeed. Also, having a greater
variety of models would require stocking of many products. Depending on the
kinds of changes, mechanics also might need to retrained.
Reflecting on previous staff meetings, the president realized that
sales and marketing people always wanted a greater variety of model’s but
never acknowledged the costs involved in changing models. After all, the
company had been extremely successful with just few models. Consequently, the
president decided against the introduction of new models. Instead, he
considered improving the current models and reducing the cost price. He felt
that what the customer really wants is value. Nevertheless, to test his
judgment, the president asked a consultant for an opinion.
a. How
would you state the mission of your company?
- What
is all about introducing new models of products in management.
- Why
do you think that only few models of the products are successful?
- If
you were the president how would you react with your distributors
suggestions and why.
Video Case: Hard Rock Cafe: Operations Management in Services
- Read
the case that follows.
- View the
video tour of Hard Rock Cafe that addresses this issue.
- If
you wish to have further background, reread the material in this chapter
of the text.
In its 30 years of existence, Hard Rock has grown from a modest
London pub to a global power managing 110 cafes, three hotels, casinos, live
music venues, a rock museum, and a huge annual Rockfest concert. This puts Hard
Rock firmly in the service industry—a sector that employs over 75% of the
people in the U.S. Hard Rock moved its world headquarters to Orlando, Florida,
in 1988 and has expanded to more than 40 locations throughout the U.S., serving
over 100,000 meals each day. Hard Rock chefs are modifying the menu from
classic American—burgers and chicken wings—to include higher-end items such as
stuffed veal chops and lobster tails. Just as taste in music changes over time,
so does the Hard Rock Cafe, with new menus, layouts memorabilia, services, and
strategies.
At Orlando’s Universal Studios, a traditional tourist destination,
Hard Rock Cafe serves over 3,500 meals each day. The cafe employs about 400
people. Most are employed in the restaurant, but some work in the retail shop.
Retail is now a standard and increasingly prominent feature in Hard Rock Cafes
(since close to 48% of revenue comes from this source). Cafe employees include
kitchen and wait staff, hostesses, and bartenders. Hard Rock employees are not
only competent in their job skills; they are also passionate about music and
have engaging personalities. Cafe staff is scheduled down to 15-minute
intervals to meet seasonal and daily demand changes in the tourist environment
of Orlando. Surveys are done on a regular basis to evaluate quality of food and
service at the cafe. Scores are done on a 1 to 7 scale, and if the score is not
a 7, the food or service is a failure.
Hard Rock is adding a new emphasis on live music and is
redesigning its restaurants to accommodate the changing tastes. Since Eric
Clapton hung his guitar on the wall to mark his favorite bar stool, Hard Rock
has become the world’s leading collector and exhibitor of rock ’n’ roll
memorabilia, with changing exhibits at its cafes throughout the world. The
collection includes 1,000’s of pieces, valued at $40 million. In keeping with
the times, Hard Rock also maintains a Web site, www.hardrock.com, which receives over
100,000 hits per week, and a weekly cable television program on VH-1. Hard
Rock’s brand recognition, at 92%, is one of the highest in the world.
Discussion Questions
- From
your knowledge of restaurants, from the video, from the Global Company
Profile that opens this chapter, and from the case itself, identify how
each of the 10 decisions of operations management is applied at Hard Rock
Cafe.
- How
would you determine the productivity of the kitchen staff and wait staff
at Hard Rock?
- How
the 10 decisions of OM are different when applied to the operations
manager of a service operation such as Hard Rock versus an automobile
company such as Ford Motor Company?
Video Case: Hard Rock Cafe's Global Strategy
- Read
the case that follows.
- View the
video tour of Hard Rock Cafe that addresses this issue.
- If
you wish to have further background, reread the material in this chapter
of the text.
Hard Rock is bringing the concept of the "experience
economy" to its cafe operation. The strategy is to incorporate a unique
“experience” into its operations. This innovation is somewhat akin to mass
customization in manufacturing. At Hard Rock, the experience concept is to
provide not only a custom meal from the menu, but a dining event that includes
a unique visual and sound experience not duplicated anywhere in the world. This
strategy is succeeding. Other theme restaurants have come and gone while Hard
Rock continues to grow. As Professor C. Markides of the London Business School
says, "The trick is not to play the game better than the competition, but
to develop and play an altogether different game." At Hard Rock, the
different game is the experience game.
From the opening of its first cafe in London in 1971, during the
British rock music explosion, Hard Rock has been serving food and rock music
with equal enthusiasm. Hard Rock Cafe has 40 U.S. locations, about a dozen in
Europe, and the remainder scattered throughout the world, from Bangkok and
Beijing to Beirut. New construction, leases, and investment in remodeling are
long term, so a global strategy means special consideration of political risk,
currency risk, and social norms in a context of a brand fit. While Hard Rock is
one of the most recognized brands in the world, this does not mean its cafe is
a natural everywhere. Special consideration must be given to the supply chain
for the restaurant and its accompanying retail store. About 48% of a typical
cafe’s sales are from merchandise.
The Hard Rock Cafe business model is well defined, but because of
various risk factors and differences in business practices and employment law,
Hard Rock elects to franchise about half of its cafes. Social norms and
preferences often suggest some tweaking of menus for local taste. For instance,
Europeans, particularly the British, still have some fear of mad cow disease;
therefore, Hard Rock is focusing less on hamburgers and beef and more on fish
and lobster in its British cafes.
Because 70% of Hard Rock’s guests are tourists, recent years have
found it expanding to "destination" cities. While this has been a
winning strategy for decades, allowing the firm to grow from 1 London cafe to
110 facilities in 41 countries, it has made Hard Rock susceptible to economic
fluctuations that hit the tourist business hardest. So Hard Rock is signing a
long-term lease for a new location in Nottingham, England, to join recently
opened cafes in Manchester and Birmingham—cities that are not standard tourist
destinations. At the same time, menus are being upgraded. Hopefully, repeat
business from locals in these cities will smooth demand make Hard Rock less
dependent on tourists.
Discussion Questions
- Identify
the strategy changes that have taken place at Hard Rock Cafe since its
founding in 1971.
- As
Hard Rock Cafe has changed its strategy, how has its responses to some of
the 10 decisions of OM changed?
- Where
does Hard Rock fit in the four international operations strategies
outlined in Figure 2.9? Explain your answer.
Video Case: Strategy at Regal Marine
- Read
the case study that follows.
- View the
video tour of Regal Marine and its strategy decisions, then view the
video clip containing the authors’ observations.
- If
you wish to have further background, reread the material on strategy in
Chapter 2.
- Answer
the questions about the case, and if your instructor wishes, email your
answers to him or her.
Chapter 2 deals with operations management strategy. Strategy is
the action plan to achieve a company’s mission. The firm’s mission is then
supported by each activity. Each activity, including the production activity
has a strategy for achieving its mission and for helping the organization reach
the overall mission. These strategies exploit opportunities and strengths,
neutralize threats, and avoid weaknesses. In this case we explore how
strategies are developed and implemented at Regal Marine.
Firms achieve missions in three ways: (1) differentiation, (2)
cost leadership, and (3) quick response. This means operations managers are
called on to deliver goods and services that are (1) better, or at least
different, (2) cheaper, and (3) more responsive.
Regal Marine, one of the US’s ten largest powerboat manufacturers,
achieves its mission—providing luxury performance boats to customers
worldwide—using the strategy of differentiation. It differentiates its products
through constant innovation, unique features, and high quality. Increasing
sales at the Orlando, Florida, family-owned firm suggests that the strategy is
working.
Differentiation goes beyond physical characteristics to encompass
everything about the boat that influences the value that the customers derive
from it. Operations managers at Regal assist in defining everything about their
boats that will influence the potential value to the customer. This may be the
convenience of a broad product line, product features, or product service.
Product service can manifest itself through convenience (location of boat
distributors or stores), training, boat delivery, or maintenance services.
As a quality boat manufacturer, Regal Marine starts with
continuous innovation, as reflected in computer aided design (CAD),
high-quality molds, and close tolerances that are controlled through both
defect charts and rigorous visual inspection. In-house quality is not enough,
however. Because a product is only as good as the parts put into it, Regal has
established close ties with a large number of its suppliers to ensure both
flexibility and perfect parts. With the help of these suppliers, Regal can
profitably produce a product line of 22 boats, ranging from the $11,000
3-passenger Rush to the $250,000 40-foot Commodore Yacht.
"We build boats," says VP Tim Kuck, "but we’re
really in the 'fun' business. Our competition includes not only 300 other boat,
canoe, and yacht manufacturers in our $17 billion industry, but home theaters,
the Internet, and all kinds of alternative family entertainment."
Fortunately for Regal, with the strong economy and the repeal of the boat
luxury tax on its side, it has been paying down debt and increasing market
share.
Regal has also joined with scores of other independent boat makers
in the American Boat Builders Association. Through economics of sale in
procurement, Regal is able to navigate against billion-dollar competitor
Brunswick (makers of Sea Ray and Bayliner brands). The Global Company Profile
featuring Regal Marine (which opens Chapter 6) provides further background on
Regal and its strategy.
Discussion Questions
- State
Regal Marine’s mission in your own words.
- Identify
the strengths, weaknesses, opportunities, and threats that are relevant to
the strategy of Regal Marine.
- How
would you define Regal’s strategy?
Extra Credit:
There are 10 decisions that operation managers at Regal Marine
must make to support the firm’s mission and implement its strategy:
- Boat
design,
which defines much of the transformation process.
- Quality. Customers’
quality expectations must be determined and policies and procedures
established to identify and achieve that quality.
- Process
design,
which commits management to specific technology, quality, human resource
use, and maintenance.
- Location
selection,
which for a boat builder may determine ultimate success.
- Layout
design,
processes and materials must be sensibly located in relation to each
other.
- Human
resources and job design. People are an integral and
expensive part of the total system design at Regal. The quality-of-work
life provided, the talent and skills required, and their costs must be
determined.
- Supply-chain
management.
These decisions determine what parts of the boat are to be made and what
parts are to be purchased.
- Inventory. Inventory
decisions are tied to customer satisfaction, suppliers, production
schedules, and human resource planning.
- Scheduling.
Feasible and efficient schedules of production have to be developed.
- Maintenance. Regal has to
make decisions regarding desired levels of reliability and stability.
Briefly, pick three of the above operations management decisions
and discuss how each would apply to operations decision making at Regal Marine.
Video Case: Project Management at
Arnold Palmer Hospital
- Read
the case that follows.
- View the
video tour of Arnold Palmer Hospital that addresses this issue.
- If
you wish to have further background, reread the material in this chapter
of the text.
- Answer
the questions about the case, and if your instructor wishes, email them to
him or her.
The equivalent of a new kindergarten class is born every day at
Orlando’s Arnold Palmer Hospital. With more than 10,500 births in 2004 in a
hospital that was designed in 1989 for a capacity of 6,500 births a year, the
newborn intensive care unit was stretched to the limit. Moreover, with
continuing strong population growth in central Florida, the hospital was often
full. It was clear that new facilities were needed. After much analysis,
forecasting, and discussion, the management team decided to build a new 273-bed
building across the street from the existing hospital. But the facility had to
be built in accordance with the hospital’s Guiding Principles and its
uniqueness as a health center dedicated to the specialized needs of women and
infants. Those Guiding Principles are: Family-centered environment, a healing
environment where privacy and dignity are respected, sanctuary of caring that
includes warm, serene surroundings with natural lighting, sincere and dedicated
staff providing the highest quality care, and patientcentered flow and
function.
The Vice president of Business Development, Karl Hodges, wanted a
hospital that was designed from the inside out by the people who understood the
Guiding Principles, who knew most about the current system, and who were going
to use the new system, namely, the doctors and nurses. Hodges and his staff
spent 13 months discussing expansion needs with this group, as well as with
patients and the community before developing a proposal for the new facility on
December 17, 2001. An administrative team created 35 user groups, which held
over 1,000 planning meeting (lasting from 45 minutes to a whole day). They even
created a “Supreme Court” to deal with conflicting views on the multifaceted
issues facing the new hospital.
Funding and regulatory issues added substantial complexity to this
major expansion, and Hodges was very concerned that the project stay on time
and within budget. Tom Hyatt, Director of Facility Development, was given the
task of onsite manager of the $100 million project, in addition to overseeing
ongoing renovations, expansions, and other projects. The activities in the
multiyear project for the new building at Arnold Palmer are shown in Table 3.
ACTIVITY
|
SCHEDULED TIME
|
PRECEDENCE ACTIVITY(IES)
|
|
1.
Proposal and review
|
1
month
|
—
|
2.
Establish master schedule
|
2
weeks
|
1
|
3.
Architect selection process
|
5
weeks
|
1
|
4.
Survey whole campus and its needs
|
1
month
|
1
|
5.
Conceptual architect's plans
|
6
weeks
|
3
|
6.
Cost estimating
|
2
months
|
2,
4, 5
|
7.
Deliver plans to board for consideration/decision
|
1
month
|
6
|
8.
Surveys/regulatory review
|
6
weeks
|
6
|
9.
Construction manager selection
|
9
weeks
|
6
|
10.
State review of need for more hospital beds (“Certificate of Need”)
|
3.5
months
|
7,
8
|
11.
Design drawings
|
4
months
|
10
|
12.
Construction documents
|
5
months
|
9,
11
|
13.
Site preparation/demolish existing building
|
9
weeks
|
11
|
14.
Construction start/building pad
|
2
months
|
12,
13
|
15.
Relocate utilities
|
6
weeks
|
12
|
16.
Deep foundations
|
2
months
|
14
|
17.
Building structure in place
|
9
months
|
16
|
18.
Exterior skin/roofing
|
4
months
|
17
|
19.
Interior buildout
|
12
months
|
17
|
20.
Building inspections
|
5
weeks
|
15,
19
|
21.
Occupancy
|
1
month
|
20
|
|
Discussion Questions
- Develop
the network for planning and construction of the new hospital at Arnold
Palmer.
- What
is the critical path and how long is the project expected to take?
- Why
is the construction of this 11-story building any more complex than
construction of an equivalent office building?
- What
percent of the whole project duration was spent in planning that occurred
prior to the proposal and reviews? Prior to the actual building
construction? Why?
Video Case: Managing Hard Rock's Rockfest
- Read
the case that follows.
- View the
video tour of Hard Rock Cafe that addresses this issue.
- If
you wish to have further background, reread the material in this chapter
of the text.
- Answer
the questions about the case, and if your instructor wishes, email them to
him or her.
At the Hard Rock Cafe, like many organizations, project management
is a key planning tool. With Hard Rock’s constant growth in hotels and cafes,
remodeling of existing cafes, scheduling for Hard Rock Live concert and event
venues, and planning the annual Rockfest, managers rely on project management
techniques and software to maintain schedule and budget performance.
“Without Microsoft Project,” says Hard Rock Vice-President Chris
Tomasso, “there is no way to keep so many people on the same page.” Tomasso is
in charge of the Rockfest event, which is attended by well over 100,000
enthusiastic fans. The challenge is pulling it off within a tight 9-month
planning horizon. As the event approaches, Tomasso devotes greater energy to
its activities. For the first 3 months, Tomasso updates his MS Project charts
monthly. Then at the 6-month mark, he updates his progress weekly. At the 9-
month mark, he checks and corrects his schedule twice a week.
Early in the project management process, Tomasso identifies 10
major tasks (called level 2 activities in a work breakdown structure, or WBS):†
talent booking, ticketing, marketing/PR, online promotion, television, show
production, travel, sponsorships, operations, and merchandising. Using a WBS,
each of these is further divided into a series of subtasks. Table 3.8 (see page
100 in textbook) identifies 26 of the major activities and subactivities, their
immediate predecessors, and time estimates. Tomasso enters all of these into
the MS Project software.‡ Tomasso alters the MS Project document and the time
line as the project progresses. “It’s okay to change it as long as you keep on
track,” he states.
The day of the rock concert itself is not the end of the project
planning. “It’s nothing but surprises. A band not being able to get to the
venue because of traffic jams is a surprise, but an 'anticipated' surprise. We
had a helicopter on stand-by ready to fly the band in,” says Tomasso.
On completion of Rockfest in July, Tomasso and his team have a
3-month reprieve before starting the project planning process again.
Discussion Questions
- Identify
the critical path and its activities for Rockfest. How long does the
project take?
- Which
activities have a slack time of 8 weeks or more?
- Identify
five major challenges a project manager faces in events such as this one.
- Why
is a work breakdown structure useful in a project such as this? Take the
26 activities and break them into what you think should be level 2, level
3, and level 4 tasks.
Video Case: Forecasting at Hard Rock Cafe
- Read
the case that follows.
- View the
video tour of Hard Rock Cafe that addresses this issue.
- If
you wish to have further background, reread the material in this chapter
of the text.
- Answer
the questions about the case, and if your instructor wishes, email them to
him or her.
With the growth of Hard Rock Cafe—from one pub in London in 1971
to more than 110 restaurants in more then 40 countries today—came a corporate-wide
demand for better forecasting. Hard Rock uses long-range forecasting in setting
a capacity plan and intermediate-term forecasting for locking in contracts for
leather goods (used in jackets) and for such food items as beef, chicken, and
pork. Its short-term sales forecasts are conducted each month, by cafe, and
then aggregated for a headquarters view.
The heart of the sales forecasting system is the point-of-sale
system (POS), which, in effect, captures transaction data on nearly every
person who walks through a cafe’s door. The sale of each entrée represents one
customer; the entrée sales data are transmitted daily to the Orlando corporate
headquarters’ database. There, the financial team, headed by Todd Lindsey,
begins the forecast process. Lindsey forecasts monthly guest counts, retail
sales, banquet sales, and concert sales (if applicable) at each cafe. The
general managers of individual cafes tap into the same database to prepare a
daily forecast for their sites. A cafe manager pulls up prior years’ sales for
that day, adding information from the local Chamber of Commerce or Tourist
Board on upcoming events such as a major convention, sporting event, or concert
in the city where the cafe is located. The daily forecast is further broken into
hourly sales, which drives employee scheduling. An hourly forecast of $5,500 in
sales translates into 19 workstations, which are further broken down into a
specific number of wait staff, hosts, bartenders, and kitchen staff.
Computerized scheduling software plugs in people based on their availability.
Variances between forecast and actual sales are then examined to see why errors
occurred.
Hard Rock doesn’t limit its use of forecasting tools to sales. To
evaluate managers and set bonuses, a 3-year weighted moving average is applied
to cafe sales. If cafe general managers exceed their targets, a bonus is
computed. Todd Lindsey, at corporate headquarters, applies weights of 40% to
the most recent year’s sales, 40% to the year before, and 20% to sales 2 years ago
in reaching his moving average.
An even more sophisticated application of statistics is found in
Hard Rock’s menu planning. Using multiple regression, managers can compute the
impact on demand of other menu items if the price of one item is changed. For
example, if the price of a cheeseburger increases from $6.99 to $7.99, Hard
Rock can predict the effect this will have on sales of chicken sandwiches, pork
sandwiches, and salads. Managers do the same analysis on menu placement, with
the center section driving higher sales volumes. When an item such as a
hamburger is moved off the center to one of the side flaps, the corresponding
effects on related items, say french fries, is determined.
Hard Rock’s Moscow Cafe
|
Month
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
9
|
10
|
|
Guest
count (in thousands)
|
21
|
24
|
27
|
32
|
29
|
37
|
43
|
43
|
54
|
66
|
Advertising (in
$ thousand)
|
14
|
17
|
25
|
25
|
35
|
35
|
45
|
50
|
60
|
60
|
Discussion Questions
- Describe
three different forecasting applications at Hard Rock. Name three other
areas in which you think Hard Rock could use forecasting models.
- What
is the role of the POS system in forecasting at Hard Rock?
- Justify
the use of the weighting system used for evaluating managers for annual
bonuses.
- Name
several variables besides those mentioned in the case that could be used
as good predictors of daily sales in each cafe.
- At
Hard Rock's Moscow restaurant, the manager is trying to evaluate how a new
advertising campaign affects guest counts. Using data for the past 10
months (see the table) develop a least squares regression relationship and
then forecast the expected guest count when advertising is $65,000.
Video Case: Product Design at Regal Marine
- Read
the case study that follows.
- View the
video tour of Regal Marine and its product design, then view the
video clip containing the authors' observations.
- If
you wish to have further background, reread the material on product design
in Chapter 5.
- Answer
the questions about the case, and if your instructor wishes, e-mail your
answers to him or her.
Global firms like Regal Marine know that the basis for an organization's
existence is the good or service it provides society. Great products are the
keys to success. With hundreds of competitors in the boat business, Regal
Marine must work to differentiate itself from the flock. As you read in the
Global Company Profile that opened this chapter of your text, Regal
continuously introduces innovative, high-quality new boats. Its differentiation
strategy is currently reflected in a product line consisting of 22 models. But
why must Regal Marine constantly worry about designing new boats? The answer is
that every product has a life cycle. Products are born. They live and they die.
As Figure 5.1 shows, a product's life cycle can be divided into four phases:
introduction, growth, maturity, and decline.
Figure 5.2 shows the four life cycle stages and the relationship
of product sales, costs, and profit over the life cycle of a product. When
Regal is developing a new model boat, it typically has a negative cash flow. If
the boat is successful, those losses may be recovered and yield a profit prior
to its decline. The life cycle for a successful Regal boat is three to five
years.
To maintain this stream of innovative new products, Regal
constantly seeks design input from customers, dealers, and consultants. Design
ideas rapidly find themselves in Regal's styling studio, where Computer Aided
Design (CAD) technology speeds the development process. A Regal design engineer
can start with a rough sketch or even just an idea and use the graphic display
power of CAD as a drafting board to construct the geometry of the new boat. The
CAD system helps the designer determine engineering data such as the strength,
dimensions, or weight. It also allows the designer to be sure all parts will
fit together. Existing boat designs are always evolving as the company tries to
stay stylish and competitive. Moreover, with life cycles so short, a steady
stream of new products is required. A few years ago, the new product was the
3-passenger $11,000 Rush, a small, but powerful boat capable of pulling a
water-skier. The next year, it was a 20-foot inboard-outboard performance boat
with so many innovations that it won prize after prize in the industry. Then it
was a redesigned 42-foot Commodore that sleeps six in luxury staterooms. With
all these models and innovations, Regal designers and production personnel are
under pressure to respond quickly.
By getting key suppliers on board early and urging them to
participate at the design stage, Regal improves both innovations and quality
while speeding product development. Regal finds that the sooner it brings
suppliers on board, the faster it can bring new boats to the market. The first
stage in actual production is the creation of the "plug," a
foam-based carving used to make the molds for fiberglass hulls and decks.
Specifications from the CAD system drive the carving process. Once the plug is
carved, the permanent molds for each new hull and deck design are formed. Molds
take about 4-8 weeks to make and are all handmade. Similar molds are made for
many of the other features in Regal boats–from galley and stateroom components
to lavatories and steps. Finished molds can be joined and used to make
thousands of boats.
Discussion Questions
- How
does the concept of product life cycle apply to Regal Marine products?
- What
strategy does Regal use to stay competitive?
- What
kind of engineering savings is Regal achieving by using CAD technology
rather than traditional drafting techniques?
- What
are the likely benefits of the CAD design technology?
Video Case: The Culture of Quality at Arnold Palmer Hospital
- Read
the case study that follows.
- View the
video tour of Arnold Palmer Hospital that addresses this issue.
- If
you wish to have further background, reread the material on quality in
Chapter 6.
- Answer
the questions about the case, and if your instructor wishes, e-mail your
answers to him or her.
Founded in 1989, Arnold Palmer Hospital is one of the largest
hospitals for women and children in the U.S., with 431 beds in two facilities
totaling 676,000 square feet. Located in downtown Orlando, Florida, and named
after its famed golf benefactor, the hospital, with more than 2,000 employees
serves an 18-county area in central Florida and is the only Level 1 trauma
center for children in that region. Arnold Palmer Hospital provides a broad
range of medical services including neonatal and pediatric intensive care,
pediatric oncology and cardiology, care for high-risk pregnancies, and maternal
intensive care.
The Issue of Assessing Quality Health Care
Quality health care is a goal all hospitals profess, but Arnold
Palmer Hospital has actually developed comprehensive and scientific means of
asking customers to judge the quality of care they receive. Participating in a
national benchmark comparison against other hospitals, Arnold Palmer Hospital
consistently scores in the top 10% in overall patient satisfaction. Executive
Director Kathy Swanson states, "Hospitals in this area will be
distinguished largely on the basis of their customer satisfaction. We must have
accurate information about how our patients and their families judge the
quality of our care, so I follow the questionnaire results daily. The in-depth
survey helps me and others on my team to gain quick knowledge from patient
feedback." Arnold Palmer Hospital employees are empowered to provide gifts
in value up to $200 to patients who find reason to complain about any hospital
service such as food, courtesy, responsiveness, or cleanliness.
Swanson doesn't focus just on the customer surveys, which are
mailed to patients one week after discharge, but also on a variety of internal
measures. These measures usually start at the grassroots level, where the staff
sees a problem and develops ways to track performance. The hospital’s
longstanding philosophy supports the concept that each patient is important and
respected as a person. That patient has the right to comprehensive,
compassionate family-centered health care provided by a knowledgeable
physician-directed team.
Some of the measures Swanson carefully monitors for continuous
improvement are morbidity, infection rates, readmission rates, costs per case,
and length of stays. The tools she uses daily include Pareto charts, flow- and
process charts, in addition to benchmarking against hospitals both nationally
and in the southeast region.
The result of all of these efforts has been a quality culture as
manifested in Arnold Palmer's high ranking in patient satisfaction and one of
the highest survival rates of critically ill babies.
Discussion Questions
- Why
is it important for Arnold Palmer Hospital to get the patient's assessment
of health care quality? Does the patient have the expertise to judge the
health care she receives?
- How
would you build a culture of quality in an organization, such as Arnold Palmer
Hospital?
- What
techniques does Arnold Palmer Hospital practice in its drive for quality
and continuous improvement?
- Develop
a fish-bone diagram illustrating the quality variables for a patient who
just gave birth at Arnold Palmer Hospital (or any other hospital).
Video Case: Quality at the Ritz-Carlton Hotel Company
- Read
the case study that follows.
- View the
video tour of the Ritz-Carlton Hotel Company and its strategy decisions,
then view the
video clip containing the authors' observations.
- If
you wish to have further background, reread the material on quality in
Chapter 6.
- Answer
the questions about the case, and if your instructor wishes, e-mail your
answers to him or her.
Ritz-Carlton. The name alone evokes
images of luxury and quality. As the first hotel company to win the Malcolm
Baldrige National Quality Award, the Ritz treats quality as if it is the
heartbeat of the company. This means a daily commitment to meeting customer
expectations and making sure that each hotel is free of any deficiency.
In the hotel industry, quality can be hard to quantify. Guests do
not purchase a product when they stay at the Ritz: They buy an experience.
Thus, creating the right combination of elements to make the experience stand
out is the challenge and goal of every employee, from maintenance to
management.
Before applying for the Baldrige Award, company management
undertook a rigorous self-examination of its operations in an attempt to
measure and quantify quality. Nineteen processes were studied, including room-service
delivery, guest reservation and registration, message delivery, and breakfast
service. This period of self-study included statistical measurement of process
work flows and cycle times for areas ranging from room service delivery times
and reservations to valet parking and housekeeping efficiency.
The results were used to develop performance benchmarks against
which future activity could be measured.
With specific, quantifiable targets in place, Ritz-Carlton
managers and employees now focus on continuous improvement. The goal is 100%
customer satisfaction: If a guest's experience does not meet expectations, the
Ritz-Carlton risks losing that guest to competition. One way the company has
put more meaning behind its quality efforts is to organize its employees into
"self-directed" work teams. Employee teams determine work scheduling,
what work needs to be done, and what to do about quality problems in their own
areas. In order that they can see the relationship of the specific area to the
overall goals, employees are also given the opportunity to take additional
training in hotel operations. Ritz-Carlton believes that a more educated and
informed employee is in a better position to make decisions in the best
interest of the organization.
Discussion Questions
- In
what ways could the Ritz-Carlton monitor its success in achieving quality?
- Many
companies say that their goal is to provide quality products of services.
What actions might you expect from a company that intends quality to be
more than a slogan or buzzword?
- Why
might it cost the Ritz-Carlton less to "do things right" the
first time?
- How
could control charts, pareto diagrams, and cause-and-effect diagrams be
used to identify quality problems at a hotel?
- What
are some non-financial measures of customer satisfaction that might be
used by the Ritz-Carlton?
Video Case: Process Analysis at Arnold Palmer Hospital
- Read
the case that follows.
- View the
video tour of Arnold Palmer Hospital that addresses this issue.
- If
you wish to have further background, reread the material in this chapter
of the text.
- Answer
the questions about the case, and if your instructor wishes, email them to
him or her.
The Arnold Palmer Hospital (APH) in Orlando, Florida, is one of
the busiest and most respected hospitals for the medical treatment of children
and women in the U.S. Since its opening on golfing legend Arnold Palmer's
birthday September 10, 1989, more than 1.5 million children and women have
passed through its doors. It is the fourth busiest labor and delivery hospital
in the U.S. and the largest neonatal intensive care unit in the Southeast. And
APH ranks fifth out of 5,000 hospitals nationwide in patient satisfaction.
"Part of the reason for APH's success," says Executive
Director Kathy Swanson, "is our continuous improvement process. Our goal
is 100% patient satisfaction. But getting there means constantly examining and
reexamining everything we do, from patient flow, to cleanliness, to layout
space, to colors on the walls, to speed of medication delivery from the
pharmacy to a patient. Continuous improvement is a huge and never-ending
task."
One of the tools the hospital uses consistently is the process
flowchart (like those in Figures 7.1 to 7.3 in this chapter and Figure 6.5e in
the Quality chapter). Staffer Diane Bowles, who carries the “Clinical Practice
Improvement Consultant,” charts scores of processes. Bowles's flowcharts help
study ways to improve the turnaround of a vacated room (especially important in
a hospital that has operated at 130% of capacity for years), speed up the
admission process, and deliver warm meals warm.
Lately, APH has been examining the flow of maternity patients (and
their paperwork) from the moment they enter the hospital until they are
discharged, hopefully with their healthy baby a day or two later. The flow of
maternity patients follows these steps:
- Enter
APH’s Labor & Delivery check-in desk entrance.
- If
the baby is born en route or if birth is imminent, the mother and baby are
taken by elevator and registered and admitted directly at bedside. They
are then taken to a Labor & Delivery Triage room on the 8th floor for
an exam. If there are no complications, the
mother and baby go to step 6.
- If
the baby is not yet born, the front desk asks if the mother is
preregistered. (Most do preregister at the 28–30-week pregnancy mark). If
she is not, she goes to the registration office on the first floor.
- The
pregnant woman is taken to Labor & Delivery Triage on the 8th floor
for assessment. If she is ready to deliver, she is taken to a Labor &
Delivery (L&D) room on the 2nd floor until the baby is born. If she is
not ready, she goes to step 5.
- Pregnant
women not ready to deliver (i.e., no contractions or false alarm) are
either sent home to return on a later date and reenter the system at that
time, or if contractions are not yet close enough, they are sent to walk
around the hospital grounds (to encourage progress) and then return to
Labor & Delivery Triage at a prescribed time.
- When
the baby is born, if there are no complications, after 2 hours the mother
and baby are transferred to a “mother-baby care unit” room on floors 3, 4,
or 5 for an average of 40–44 hours.
- If
there are complications with the mother, she goes to an operating room
and/or intensive care unit. From there, she goes back to a mother–baby
care room upon stabilization — or is discharged at another time if not
stabilized. Complications for the baby may result in a stay in the
Neonatal Intensive Care Unit (NICU) before transfer to the baby nursery
near the mother's room. If the baby cannot be stabilized for discharge
with the mother, the baby is discharged later.
- Mother
and/or baby, when ready, are discharged and taken by wheelchair to the
discharge exit for pickup to travel home.
Discussion Questions
- As
Diane’s new assistant, you need to flowchart this process. Explain how the
process might be improved once you have completed the chart.
- If
a mother is scheduled for a Caesarean-section birth (i.e., the baby is
removed from the womb surgically), how would this flowchart change?
- If
all mothers were electronically (or manually) preregistered, how would the
flowchart change? Redraw the chart to show your changes.
- Describe
in detail a process that the hospital could analyze, besides the ones
mentioned in this case.
Video Case: Capacity Planning at Arnold Palmer Hospital
- Read
the case that follows.
- View the
video tour of Arnold Palmer Hospital that addresses this issue.
- If
you wish to have further background, reread the material in this chapter of
the text.
- Answer
the questions about the case, and if your instructor wishes, email them to
him or her.
Since opening day in 1989 the Arnold Palmer Hospital has
experienced an explosive growth in demand for its services. One of only six
hospitals in the U.S. to specialize in health care for women and children,
Arnold Palmer Hospital has cared for over 1,500,000 patients who came to the
Orlando facility from all 50 states and more than 100 countries. With patient
satisfaction scores in the top 10% of 2,000 U.S. hospitals surveyed (over 95%
of patients would recommend the hospital to others), one of Arnold Palmer
Hospital's main focuses is delivery of babies. Originally built with 281 beds
and a capacity for 6,500 births per year, the hospital steadily approached and
then passed 10,000 births. Looking at Table S7.3, Executive Director Kathy
Swanson knew an expansion was necessary.
With continuing population growth in its market area serving 18
central Florida counties, Arnold Palmer Hospital was delivering the equivalent
of a kindergarten class of babies every day and still not meeting demand.
Supported with substantial additional demographic analysis, the hospital was
ready to move ahead with a capacity expansion plan and a new 11-story hospital
building across the street from the existing facility.
Thirty-five planning teams were established to study such issues
as (1) their specific forecasts, (2) services that would transfer to the new
facility, (3) services that would remain in the existing facility, (4) staffing
needs, (5) capital equipment, (6) pro forma accounting data, and (7) regulatory
requirements. Ultimately, Arnold Palmer Hospital was ready to move ahead with a
budget of $100 million and a commitment to an additional 273 beds. But given
the growth of the central Florida region, Swanson decided to expand the
hospital in stages: the top two floors would be empty interiors (“shell”) to be
completed at a later date, and the fourth-floor operating room could be doubled
in size when needed. “With the new facility in place we are now able to handle
up to 13,500 births per year,” says Swanson.
TABLE S7.3 Births at
Arnold Palmer Hospital
|
|
YEAR
|
BIRTHS
|
|
1995
|
6,144
|
1996
|
6,230
|
1997
|
6,432
|
1998
|
6,950
|
1999
|
7,377
|
2000
|
8,655
|
2001
|
9,536
|
2002
|
9,825
|
2003
|
10,253
|
2004
|
10,555
|
|
Discussion Questions
- Given
the discussion in the text (see Figure S7.4) what approach is being taken
by Arnold Palmer Hospital toward matching capacity to demand?
- What
kind of major changes could take place in Arnold Palmer Hospital's demand
forecast that would leave the hospital with an underutilized facility
(namely, what are the risks connected with this capacity decision)?
- Use
regression analysis to forecast the point at which Swanson needs to “build
out” the top two floors of the new building.
Video Case: Process Strategy at Wheeled Coach Ambulance
- Read
the case study that follows.
- View the
video tour of Wheeled Coach Ambulance and its process decisions, then view the
video clip containing the authors' observations.
- If
you wish to have further background, reread the material on process
strategy in Chapter 7.
- Answer
the questions about the case, and if your instructor wishes, e-mail your
answers to him or her.
Chapter 7 turns to helping managers find the best way to produce
their goods. A process strategy is how a company, like ambulance manufacturer
Wheeled Coach, the world's largest, transforms its resources into finished
products.
The 350 employees at Wheeled Coach make only custom-made ambulances.
Virtually every vehicle is different.
Wheeled Coach accommodates this growth by providing a wide variety
of options and an engineering staff accustomed to innovation and custom design.
Wheeled Coach's growth, now requiring that more than 20 ambulances roll off the
assembly line each week, makes process design a continuing challenge. Wheeled
Coach's response has been to build a focused factory: Wheeled Coach builds
nothing but ambulances. Within the focused factory, Wheeled Coach established
work cells for every major module feeding an assembly line, including aluminum
bodies, electrical wiring harnesses, interior cabinets, windows, painting, and
upholstery.
Labor standards drive the schedule so that every work cell feeds
the assembly line on schedule, just-in-time for installations. The chassis,
usually that of a Ford truck, moves to a station where the aluminum body is
mounted. Then the vehicle is moved to painting. Following a custom paint job,
it moves to the assembly line, where it will spend seven days. During each of
these seven workdays, each work cell delivers its respective module to the
appropriate position on the assembly line. During the first day, electrical
wiring is installed; on the second day, the unit moves forward to the station
at which cabinetry is delivered and installed, then to a window and lighting
station, on to upholstery, to fit and finish, to further customizing and
finally to inspection and road testing.
Discussion Questions
- Why
do you think major auto manufacturers do not build ambulances?
- What
is an alternative process strategy to the assembly line that Wheeled Coach
currently uses?
- Why
is it more efficient for the work cells to prepare "modules" and
deliver them to the assembly line than it would be to produce the
component (e.g., interior upholstery) on the line?
- How
does Wheeled Coach determine what tasks are to be performed at each
workstation?
Video Case: Where to Place Hard Rock's Next Cafe
- Read
the case study that follows.
- View the
video tour of Hard Rock Cafe that addresses this issue.
- If
you wish to have further background, reread the material in this chapter
of the text.
- Answer
the questions about the case, and if your instructor wishes, e-mail your
answers to him or her.
Some people would say that Oliver Munday, Hard Rock’s vice
president for cafe development, has the best job in the world. Travel the world
to pick a country for Hard Rock’s next cafe, select a city, and find the ideal
site. It’s true that selecting a site involves lots of incognito walking
around, visiting nice restaurants, and drinking in bars. But that is not where
Mr. Munday’s work begins, nor where it ends. At the front end, selecting the
country and city first involves a great deal of research. At the back end,
Munday not only picks the final site and negotiates the deal, but then works
with architects and planners and stays with the project through the opening and
first year’s sales.
Munday is currently looking heavily into global expansion in
Europe, Latin America, and Asia. "We’ve got to look at political risk,
currency, and social norms—how does our brand fit into the country," he
says. Once the country is selected, Munday focuses on the region and city. His
research checklist is extensive.
Hard Rock’s Standard Market Report (for off-shore sites)
A. Demographics (local, city, region,
SMSA), with trend analysis
1. Population of area
2. Economic indicators
B. Visitor market, with trend analysis
1. Tourists/business visitors
2. Hotels
3. Convention center
4. Entertainment
5. Sports
6. Retail
C. Transportation
1. Airport
(a) age of airport,
(b) no. of passengers
(c) airlines
(d) direct flights
(e) hubs
2. Rail
3. Road
4. Sea/river
D. Restaurants and nightclubs (a selection in key
target market areas)
E. Political risk
F. Real estate market
G. Hard Rock Cafe comparable market analysis
Site location now tends to focus on the tremendous resurgence of
"city centers," where nightlife tends to concentrate. That’s what
Munday selected in Moscow and Bogota, although in both locations he chose to
find a local partner and franchise the operation. In these two political
environments, "Hard Rock wouldn’t dream of operating by ourselves,"
says Munday. The location decision also is at least a10-to-15-year commitment
by Hard Rock, which employs tools such as break-even analysis to help decide
whether to purchase land and build, or to remodel an existing facility.
|
|
EUROPEAN
CITY UNDER
CONSIDERATION
|
Importance
of
This
Factor
at
This
Time
|
Factor
|
A
|
B
|
C
|
D
|
A.
Demographics
|
70
|
70
|
60
|
90
|
20
|
B.
Visitor market
|
80
|
60
|
90
|
75
|
20
|
C.
Transportation
|
100
|
50
|
75
|
90
|
20
|
D.
Restaurants/ nightclubs
|
80
|
90
|
65
|
65
|
10
|
E.
Low political risk
|
90
|
60
|
50
|
70
|
10
|
F.
Real estate market
|
65
|
75
|
85
|
70
|
10
|
G.
Comparable market analysis
|
70
|
60
|
65
|
80
|
10
|
|
Discussion Questions
- From
Munday’s standard market report checklist, select any other four
categories, such as population (A1), hotels (B2), or
restaurants/nightclubs (D), and provide three subcategories that should be
evaluated. (See item C1 (airport) for a guide.)
- Which
is the highest rated of the four European cities under consideration,
using the table above?
- Why
does Hard Rock put such serious effort into its location analysis?
- Under
what conditions do you think Hard Rock prefers to franchise a cafe?
Video Case: Laying Out Arnold Palmer Hospital's New Facility
- Read
the case study that follows.
- View the
video tour of Arnold Palmer Hospital that addresses this issue.
- If
you wish to have further background, reread the material in this chapter
of the text.
- Answer
the questions about the case, and if your instructor wishes, e-mail your
answers to him or her.
When Orlando's Arnold Palmer Hospital began plans to create a new
273-bed, 11-story hospital across the street from its existing facility, which
was bursting at the seams in terms of capacity, a massive planning process
began. The $100 million building, opened in 2006, was long overdue according to
Executive Director Kathy Swanson. “We opened Arnold Palmer Hospital in 1989,
with a mission to provide quality services for children and women in a
comforting, family-friendly environment. Since then we have served well over
1.5 million women and children and now deliver more than 10,000 babies a year.
By 2001, we simply ran out of room and it was time for us to grow.”
The new hospital's unique, circular pod design provides a
maximally efficient layout in all areas of the hospital, creating a
patient-centered environment. Servicescape design features include a serene
environment created through the use of warm colors, private rooms with
pull-down Murphy beds for family members, 14-foot ceilings, and natural lighting
with oversized windows in patient rooms. But these radical new features did not
come easily. "This pod concept with a central nursing area and pie-shaped
rooms resulted from over 1,000 planning meetings of 35 user groups, extensive
motion and time studies, and computer simulations of the daily movements of
nurses," says Swanson.
In a traditional linear hospital layout, called the racetrack
design, patient rooms line long hallways, and a nurse might walk 2.7 miles per
day serving patient needs at Arnold Palmer. "Some nurses spent 30% of
their time simply walking. With the nursing shortage and the high cost of
health care professionals, efficiency is a major concern," added Swanson.
With the nursing station in the center of a 10-bed circular pod, no patient room
is more than 14 feet from a station. The time savings are in the 20% range.
Swanson pointed to Figures 9.21 and 9.22 as examples of the old and new walking
and trip distances. She also referenced the pod layout shown in the photo on
page 350.
"We have also totally redesigned our neonatal rooms,"
says Swanson. "In the old system, there were 16 neonatal beds in a large
and often noisy rectangular room. The new building features semiprivate rooms
for these tiny babies. The rooms are much improved with added privacy and a
quiet, simulated night atmosphere, in addition to pull-down beds for parents to
use. Our research shows that babies improve and develop much more quickly with
this layout design. Layout and environment indeed impact patient care!"
Discussion Questions
- Identify
the many variables that a hospital needs to consider in layout design.
- What
are the advantages of the circular pod design over the traditional linear
hallway layout found in most hospitals?
- Figure
9.21 illustrates a sample linear hallway layout. During a period of random
observation, nurse Thomas Smith's day includes 6 trips from the nursing
station to each patient's room (back and forth), 20 trips to the medical
supply room, 5 trips to the break room, and 12 trips to the linen supply
room. What is his
total
distance traveled in miles?
- Figure
9.22 illustrates Arnold Palmer Hospital's new circular pod system, which
includes a linen storage area for each room outside that room. If nurse
Susan Jones's day includes 7 trips from the nursing pod to each room (back
and forth), 20 trips to central medical supply, 6 trips to the break room,
and 12 trips to the pod medical supply, how many miles does she walk
during her shift? What are the differences in the travel times between the
two nurses for this random day?
- The
concept of servicescapes is discussed in this chapter. Describe why this
is so important at Arnold Palmer Hospital and give examples of its use in
layout design.
Video Case: Facility Layout at Wheeled Coach Ambulance
- Read
the case study that follows.
- View the
video tour of Wheeled Coach Ambulance that addresses its layout issues,
then view the
video clip containing the authors' observations.
- If
you wish to have further background, reread the material on layout in
Chapter 9.
- Answer
the questions about the case, and if your instructor wishes, e-mail your
answers to him or her.
In this case, we look at how Wheeled Coach has designed its
facility. Chapter 9 provides information on different approaches to efficient
layouts. Six of these approaches are: Project (fixed position), Job Shop
(process focused), Office, Retail, Warehouse (storage), and
Repetitive/Continuous (product oriented). These six approaches and examples are
shown in Table 9.1 in the text.
As a large volume ambulance manufacturer, Wheeled Coach is
constantly challenged to find efficient production methods. Both ambulance
diversity and volume challenge Wheeled Coach’s operations managers. Virtually
no two ambulances are the same. Additionally, the technology that goes into
ambulances, which are now miniature hospitals, is constantly changing. These
three variables, volume, variety, and change, present a number of challenges to
Wheeled Coach. Among these challenges is layout.
Thinking of Wheeled Coach as a mass customizer may help to
understand the issue confronting their layout. Wheeled coach has approached the
layout problem in a unique way.
First, painting and aluminum fabrication are in focused work
centers. A brief presentation of focused work centers, work cells, and focused
factories is shown in Table 9.2.
Second, several work areas, such as wiring, cabinetry, and
upholstery are organized as flexible work cells. The cells themselves are
modular with many workbenches and staging racks borne on wheels so that they
can be easily rearranged. This flexibility can accommodate changes in product
mix and volume, as well as facilitate easy movement of components to the
assembly line.
Third, the final assembly line is a special version of a
repetitive line. It is product oriented, but designed for flexible material and
labor usage. Once an ambulance is committed to the assembly line, it must move
forward each day to the next workstation. Maintaining this balance of just
enough workers for each of the changing mix of ambulances on each of the
assembly lines is a never-ending challenge. Too many workers not only wastes
money, but they end up running into each other; too few cannot finish the
assigned tasks on schedule.
The growth of Wheeled Coach has resulted in fabrication and
assembly being done in several buildings. Consequently, there are shortcomings
in the layout. The separate buildings require more movement of material than is
ideal.
Discussion Questions
- What
analytical techniques are available to help a company like Wheeled Coach
deal with layout problems?
- What
suggestions would you make to Bob Collins about his layout?
- How
would you measure the "efficiency" of this layout?
Video Case: Hard Rock's Human Resource Strategy
- Read
the case study that follows.
- View the
video tour of Hard Rock Cafe that addresses this issue.
- If
you wish to have further background, reread the material on layout in
Chapter 9.
- Answer
the questions about the case, and if your instructor wishes, e-mail your
answers to him or her.
Everyone—managers and hourly employees alike—who goes to work for
Hard Rock Cafe takes Rock 101, an initial 2-day training class. There they
receive their wallet-sized "Hard Rock Values" card which they carry
at all times. The Hard Rock value system is to bring a fun, healthy, nurturing
environment into the Hard Rock Cafe culture. This initial course and many other
courses help employees develop both personally and professionally. The human
resource department plays a critical role in any service organization, but at
Hard Rock, with its “experience strategy,” the human resource department takes
on added importance.
Long before Jim Knight, manager of corporate training, begins the
class, the human resource strategy of Hard Rock has had an impact. Hard Rock’s
strategic plan includes building a culture that allows for acceptance of
substantial diversity and individuality. From a human resource perspective, this
has the benefit of enlarging the pool of applicants as well as contributing to
the Hard Rock culture. Creating a work environment above and beyond a paycheck
is a unique challenge. Outstanding pay and benefits are a start, but the key is
to provide an environment that works for the employees. This includes benefits
that start for part-timers who work at least 19 hours per week (while others in
the industry start at 35 hours per week); a unique respect for individuality;
continuing training; and a high level of internal promotions—some 60% of the
managers are promoted from hourly employee ranks. The company’s training is
very specific, with job-oriented interactive CDs covering kitchen, retail, and
front-of-the-house service. Outside volunteer work is especially encouraged to
foster a bond between the workers, their community and issues of importance to
them.
Applicants also are screened on their interest in music and their
ability to tell a story. Hard Rock builds on a hiring criterion of bright,
positive-attitude, self-motivated individuals with an employee bill of rights
and substantial employee empowerment. The result is a unique culture and work
environment which, no doubt, contributes to the low turnover of hourly
people—one-half the industry average. The layout, memorabilia, music, and
videos are important elements in the Hard Rock "experience," but it
falls on the waiters and waitresses to make the experience come alive. They are
particularly focused on providing an authentic and memorable dining experience.
Like Southwest Airlines, Hard Rock is looking for people with a cause—people
who like to serve. By succeeding with its human resource strategy, Hard Rock
obtains a competitive advantage.
Discussion Questions
- What
has Hard Rock done to lower employee turnover to one-half the industry
average?
- How
does Hard Rock’s human resource department support the company’s overall
strategy?
- How
would Hard Rock’s value system work for automobile assembly line workers?
Video Case: Arnold Palmer Hospital’s Supply Chain
- Read
the case study that follows.
- View the
video tour of Arnold Palmer Hospital that addresses this issue.
- If
you wish to have further background, reread the material in this chapter
of the text.
- Answer
the questions about the case, and if your instructor wishes, e-mail them
to him or her.
Arnold Palmer Hospital, one of the nation’s top hospitals
dedicated to serving women and children, is a large business with over 2,000
employees working in a 431-bed facility totaling 676,000 square feet in
Orlando, Florida. Like many other hospitals, and other companies, Arnold Palmer
Hospital had been a long-time member of a large buying group, one servicing 900
members. But the group did have a few limitations. For example, it might change
suppliers for a particular product every year (based on a new lower-cost
bidder) or stock only a product that was not familiar to the physicians at
Arnold Palmer Hospital. The buying group was also not able to negotiate
contracts with local manufacturers to secure the best pricing.
So in 2003, Arnold Palmer Hospital, together with seven other
partner hospitals in central Florida, formed its own much smaller, but still
powerful (with $200 million in annual purchases) Healthcare Purchasing Alliance
(HPA) corporation. The new alliance saved the HPA members $7 million in its first
year from two main changes. First, it was structured and staffed to assure that
the bulk of the savings associated with its contracting efforts went to its
eight members. Second, it struck even better deals with vendors by guaranteeing
a committed volume and signing not 1-year deals but 3–5 year contracts. “Even
with a new internal cost of $400,000 to run HPA, the savings and ability to
contract for what our member hospitals really want makes the deal a winner,”
says George DeLong, head of HPA.
Effective supply-chain management in manufacturing often focuses
on development of new product innovations and efficiency through buyer–vendor
collaboration. However, the approach in a service industry has a slightly
different emphasis. At Arnold Palmer Hospital, supply-chain opportunities often
manifest themselves through the Medical Economic Outcomes Committee. This
committee (and its subcommittees) consists of users (including the medical and
nursing staff) who evaluate purchase options with a goal of better medicine
while achieving economic targets. For instance, the heart pacemaker negotiation
by the cardiology subcommittee allowed for the standardization to two
manufacturers, with annual savings of $2 million for just this one product.
Arnold Palmer Hospital is also able to develop custom products
that require collaboration down to the third tier of the supply chain. This is
the case with custom packs that are used in the operating room. The custom
packs are delivered by a distributor, McKesson General Medical, but assembled
by a pack company that uses materials the hospital wanted purchased from
specific manufacturers. The HPA allows Arnold Palmer Hospital to be creative in
this way. With major cost savings, standardization, blanket purchase orders,
long-term contracts, and more control of product development, the benefits to
the hospital are substantial.
Discussion Questions
- How
does this supply chain differ from that in a manufacturing firm?
- What
are the constraints on making decisions based on economics alone at Arnold
Palmer Hospital?
- What
role do doctors and nurses play in supply-chain decisions in a hospital?
How is this participation handled at Arnold Palmer Hospital?
- Doctor
Smith just returned from the Annual Physician's Orthopedic Conference,
where she saw a new hip joint replacement demonstrated. She decides she
wants to start using the replacement joint at Arnold Palmer Hospital. What
process will Dr. Smith have to go through at the hospital to introduce
this new product into the supply chain for future surgical use?
Video Case: Supply-Chain Management at Regal Marine
- Read
the case study that follows.
- View the
video tour of Regal Marine that addresses its supply chain issues, then view the
brief video clip containing the authors' observations.
- If
you wish to have further background, reread the material on supply chain
management in Chapter 11.
- Answer
the questions about the case, and if your instructor wishes, e-mail them
to him or her.
Chapter 11 deals with Supply Chain Management. As firms become
increasingly focused and specialized, the supply chain performance grows in
importance. Money spent with suppliers represents a huge portion of most firms'
revenues. This is the case at Regal Marine where suppliers are relied upon not
only for quality components delivered on time, but for up-to-date technology
and innovation. Regal expects members of its supply chain to be full partners.
Suppliers are expected to join Regal in providing the customer not just quality
and on time delivery, but performance and image. Luxury performance boats
require no less. At the same time, Regal expects value.
Vendors meet with Regal’s designers to discuss changes to be
incorporated into new product designs. Regal’s strategy of differentiating
itself by building luxury performance boats means that suppliers must
participate in this ongoing effort. You will notice on the right hand side of
Table 11.1 in the text the characteristics expected of suppliers when the
strategy is one of differentiation. These include:
- Share
market research; jointly develop products and options.
- Select
primarily for product development skills.
- Use
modular processes that lend themselves to mass customization.
- Minimize
inventory in the chain to avoid obsolescence.
- Invest
aggressively to reduce development lead time.
- Use
modular design to postpone product differentiation for as long as possible.
These characteristics are high on the list of issues between Regal
and its suppliers and lead to the concept of 'partnering'. 'Partnering' extends
from jointly developing components, to modular designs at suppliers and at
Regal, to rapid delivery and low inventories. These techniques allow innovative
products to be rapidly and economically included in Regal’s boats.
Regal has also developed special arrangements with suppliers who
maintain shop floor components for Regal. In some instances title transfers when
the item is used, and in other cases title transfers when items are delivered
to the property. Both approaches help Regal reduce total inventory and the
related costs.
Additionally, Regal’s membership in the American Boat Builders
Association allows it to participate in lower costs because of the combined
purchase strength of the association.
Finally, Regal works with an Orlando personnel agency to outsource
part of the recruiting and screening process for employees. In all of these
cases, Regal is demonstrating creative approaches to supply chain management
that help Regal and the end user.
Discussion Questions
- What
other techniques might be used by Regal to improve supply chain
management?
- What
kind of response might members of the supply chain expect from Regal in
response to their "partnering" in the supply chain?
- Why
is supply chain management important to Regal?
Video Case: Inventory Control at Wheeled Coach Ambulance
- Read
the case study that follows.
- View the
video tour of Wheeled Coach Ambulance that addresses its inventory issues,
then view the
video clip containing the authors' observations.
- If
you wish to have further background, reread the material on inventory in
Chapter 12.
- Answer
the questions about the case, and if your instructor wishes, e-mail your
answers to him or her.
Firms like Wheeled Coach spend over half of their sales revenue on
purchases. These purchases are often in inventory and represent a huge portion
of Wheeled Coach’s assets. But, perhaps even more importantly, the ambulances
cannot be built if the proper inventory is not on hand when needed. Because of
the cost and critical nature of inventory, Chapter 12 deals with inventory
management.
Two important inventory management techniques are ABC analysis and
Cycle Counting. Wheeled Coach uses both. But effective inventory management
begins at the design stage. Efficient inventory control requires knowing what
is needed. Bills-of-material (BOM) provide this knowledge. Therefore Wheeled
Coach spends substantial time and effort making sure the BOMs are correct. Only
then does it know what to purchase and have available for the production
process.
ABC analysis helps firms develop policies and procedures for
controlling inventory. 'A' items are the expensive items such as the chassis
(usually purchased from Ford), aluminum (from Reynolds Metal), and plywood used
for flooring and cabinetry (from local suppliers). These few items constitute
the majority of the inventory values at Wheeled Coach. They are tightly
controlled, from purchase to use, with effective security. Orders are
negotiated to maximize quantity discounts while minimizing on-hand quantities.
Some items, such as aluminum, must be ordered as much as eight months in
advance. ‘B’ items are less expensive and controlled less tightly. Finally, 'C'
items have less control, but all items are stored under lock and key and only
removed from a secure area if they are on a BOM.
Part of the control of inventory items at Wheeled Coach is cycle
counting. Under cycle counting, 'A' items are counted on a very short cycle,
perhaps once a month to verify transaction accuracy. 'B' items are counted less
frequently, perhaps every two months. And 'C' items are verified once a quarter
or even less frequently. Cycle counting provides a much more effective auditing
procedure than periodic (annual) counts of inventory.
Only by driving down purchase costs and maintaining tight control
of inventory can Wheeled Coach control its total costs. With 45 competitors and
orders that are usually won only after a bidding process, Wheeled Coach has no
alternative to effective inventory management.
Discussion Questions
- Explain
how Wheeled Coach implements ABC analysis.
- If
you were to take over as inventory control manager at Wheeled Coach, what
additional policies and techniques would you initiate to ensure accurate
inventory records?
- How
would you go about implementing these suggestions?
Video Case: MRP at Wheeled Coach Ambulances
- Read
the case study that follows.
- View the
video tour of Wheeled Coach Ambulance that addresses its MRP issues, then view the
video clip containing the authors’ observations.
- If
you wish to have further background, reread the material on MRP in Chapter
14.
- Answer
the questions about the case, and if your instructor wishes, e-mail your
answers to him or her.
Chapter 14 deals with material requirements planning (MRP)
systems. MRP systems are the preferred method for managing dependent inventories.
This means that when demand is known, firms, including Wheeled Coach, use MRP.
Wheeled Coach builds thousands of different and constantly changing
configurations of its products. The custom nature of the business means lots of
options and special designs—and a potential scheduling and inventory nightmare.
With IBM’s MRP software, called MAPICS, on an IBM AS/400 computer, Wheeled
Coach addressed such problems and succeeded in solving many of them.
MRP also has application in many other businesses including
restaurants, hospitals, and floral wholesalers—provided the following 5 pieces
of information are assembled.
- Master
production schedule. The master production schedule shows what is to be
produced and when. It is not a forecast; it is a schedule to be met.
Master production schedules are often presented in terms of what is to be
produced each week, but they can be done in terms of months or days.
- Bill-of-material
(BOM). Bill-of-materials, which may take the form of formulas or menus,
state the quantities of what is needed to produce the product.
- MRP
Inventory availability. Accurate inventory is necessary so existing
inventory is not duplicated and potential shortages are known.
- Purchase
orders outstanding (what is on order and when it will arrive). Purchase
orders outstanding tell the system what material is expected and when.
- Lead
time (how long will it take to make each item). Lead-time for each phase
of production or assembly is necessary to make the schedule for component
parts.
All five elements of the input information are critical to make an
MRP system a success. Many MRP systems are not a success because one or more
data sources are not reliable and accurate. The flow of information for an MRP
system looks like the figure shown below.
The experience of Wheeled Coach is not unusual. Once computerized
bills-of-material were implemented, a ‘where used’ report determined the
inventory items that should be in inventory. Many items in inventory were not
listed on any of the BOMs. This led to a double-checking of the BOMs. With
renewed BOM accuracy, effort returned to assuring inventory accuracy. Some
items were in inventory because of customer changes in specifications after
orders were placed. This inventory excess occurs because many items have a longer
lead-time than the 17 days required for ambulance production at Wheeled Coach.
Plans were made for eliminating the excess inventory. ABC analysis and cycle
counting were implemented to increase inventory accuracy.
With added emphasis on BOM accuracy, the frequency of Engineering
Change Notices (ECNs) at Wheeled Coach was reduced. Then the focus moved to the
purchasing system and improvement in order quantities and part number accuracy.
Some of the excess inventory items were the result of the rapid changes in
ambulance technology.
Discussion Questions
- Why
is accurate inventory such an important issue at Wheeled Coach?
- What
kind of plan would you suggest for dealing with excess inventory at
Wheeled Coach?
- Be
specific in your suggestions for reducing inventory and how to implement
them.
Video Case: Scheduling at Hard Rock Cafe
- Read
the case that follows.
- View the
video tour of hard Rock Cafe that addresses this issue.
- If
you wish to have further background, reread the material in this chapter
of the text.
Whether it’s scheduling nurses at Mayo Clinic, pilots at Southwest
Airlines, classrooms at UCLA, or servers at a Hard Rock Cafe, it’s clear that
good scheduling is important. Proper schedules use an organization’s assets (1)
more effectively, by serving customers promptly, and (2) more efficiently, by
lowering costs.
Hard Rock Cafe at Universal Studios, Orlando, is the world’s
largest restaurant, with 1,100 seats on two main levels. With typical turnover
of employees in the restaurant industry at 80% to 100% per year, Hard Rock
General Manager Ken Hoffman takes scheduling very seriously. Hoffman wants his
160 servers to be effective, but he also wants to treat them fairly. He has
done so with scheduling software and flexibility that has increased
productivity, while contributing to turnover that is half the industry’s. His
goal is to find the fine balance that gives employees financially productive
daily work shifts, while at the same time, setting the schedule tight enough so
as to not overstaff between lunch and dinner.
The weekly schedule beings with a sales forecast. “First, we
examine last year’s sales at the cafe for the same day of the week,” says
Hoffman. “Then we adjust our forecast for this year based on a variety of
closely watched factors. For example, we call the Orlando Convention Bureau
every week to see what major groups will be in town. Then we send two
researchers out to check on the occupancy of nearby hotels. We watch closely to
see what concerts are scheduled at Hard Rock Live—the 3,000-seat concert stage
next door. From the forecast, we calculate how any people we need to have on
duty each day for the kitchen, the bar, as hosts, and for table service.”
Once Hard Rock determines the number of staff needed, servers
submit request forms, which are fed into the software’s linear programming
mathematical model. Individuals are given priority rankings from 1 to 9 based
on their seniority and how important they are to fill each day’s schedule.
Schedules are then posted by day and by workstation. Trades are handled between
employees, who understand the value of each specific shift and station.
Hard Rock employees like the system, as does the general manager,
since sales per manhour are rising and turnover is dropping.
Discussion Questions
- Name
and justify several factors that Hoffman could use in forecasting weekly
sales.
- What
can be done to lower turnover in large restaurants?
- Why
is seniority important in scheduling servers?
- How
does the schedule impact on productivity?
Video Case: JIT at Arnold Palmer Hospital
- Read
the case that follows.
- View the
video tour of Arnold Palmer Hospital that addresses this issue.
- If
you wish to have further background, reread the material in this chapter
of the text.
- Answer
the questions about the case, and if your instructor wishes, email them to
him or her.
Orlando’s Arnold Palmer Hospital, founded in 1989, specializes in
treatment of women and children and is renowned for its highquality rankings
(top 10% of 2000 benchmarked hospitals), its labor and delivery volume (more
than 10,000 births per year, and growing), and its neonatal intensive care unit
(5th highest survival rates in the nation). But quality medical practices and
high patient satisfaction require costly inventory—some $30 million per year
and thousands of SKUs.* With pressure on medical care to manage and reduce
costs, Arnold Palmer Hospital has turned toward controlling its inventory with
just-in-time (JIT) techniques.
Within the hospital, for example, drugs are now distributed at
nursing workstations via dispensing machines (almost like vending machines)
that electronically track patient usage and post the related charge to each
patient. The dispensing stations are refilled each night, based on patient
demand and prescriptions written by doctors.
To address JIT issues externally, Arnold Palmer Hospital turned
toward a major distribution partner, McKesson General Medical, which as a
first-tier supplier provides the hospital with about one quarter of all its
medical/surgical inventory. McKesson supplies sponges, basins, towels, mayo
stand covers, syringes, and hundreds of other medical/surgical items. To ensure
coordinated daily delivery of inventory purchased from McKesson, an account
executive and two service personnel have been assigned full-time to the
hospital. The result has been a drop in Central Supply average daily inventory
from $400,000 to $114,000 since JIT.
JIT success has also been achieved in the area of custom surgical
packs. Custom surgical packs are the sterile coverings, disposable plastic
trays, gauze, and the like, specialized to each type of surgical procedure.
Arnold Palmer Hospital uses 10 different custom packs for various surgical
procedures. “Over 50,000 packs are used each year for a total cost of about
$1.5 million,” says George DeLong, Head of Supply Chain Management.
The packs are not only delivered in a JIT manner but packed that
way as well. That is, they are packed in the reverse order they are used so
each item comes out of the pack in the sequence it is needed. The packs are
bulky, expensive, and must remain sterile. Reducing the inventory and handling
while maintaining an assured sterile supply for scheduled surgeries presents a
challenge to hospitals.
Here is how the supply chain works: Custom packs are assembled by
a packing company with components supplied primarily from manufacturers
selected by the hospital, and delivered by McKesson from its local warehouse.
Arnold Palmer Hospital works with its own surgical staff to identify and
standardize the custom packs to reduce the number of custom pack SKUs. With
this integrated system, pack safety stock inventory has been cut to one day.
The procedure to drive the custom surgical pack JIT system begins
with a “pull” from the doctor’s daily surgical schedule. Then, Arnold Palmer
Hospital initiates an electronic order to McKesson between 1:00 and 2:00 P.M.
daily. At 4:00 A.M. the next morning McKesson delivers the packs. Hospital
personnel arrive at 7:00 A.M. and stock the shelves for scheduled surgeries.
McKesson then reorders from the packing company, which in turn “pulls” necessary
inventory for the quantity of packs needed from the manufacturers.
Arnold Palmer Hospital’s JIT system reduces inventory investment,
expensive traditional ordering, and bulky storage, and supports quality with a
sterile delivery.
Discussion Questions
- What
do you recommend be done when an error is found in a pack as it is opened
for an operation?
- How
might the procedure for custom surgical packs described here be improved?
- When
discussing JIT in services, the text chapter notes that suppliers, layout,
inventory, and scheduling are all used. Provide an example of each of
these at Arnold Palmer Hospital.
- When
a doctor proposes a new surgical procedure, how do you recommend the SKU
for a new custom pack be entered into the hospital’s supply-chain system?
5:50 AM
Gaurab
