OPC- Caselets

Operations Planning & Control Caselets Caselet –1- Chopra Creative Concepts Chopra’s Creative Concepts designs and manufactures wooden furniture. Founded by Vijaya Chopra, the company began by producing custom-made wooden furniture for vacation cabins. Creative concepts developed a solid reputation for its creative designs and high-quality workmanship. Sales eventually encompassed the entire northern region. Along with this growth came additional opportunities. Traditionally, the company had focused entirely on custom-made pieces of furniture, with the customer specifying the king of wood from which the piece would be made. As the company’s reputation grew and sales increased, the sales force began selling some of the more popular types of furniture pieces to retail furniture outlets. This move into retail outlets led Creative Concepts into the production of a more standard line of furniture. Byers of this line were much more price sensitive and imposed more stringent delivery requirements than did clients for the custom line. The custom designed furniture continued to dominate the company’s sales, accounting for 60 percent of the volume and 75 percent of the rupees sales. Currently, the company operates a single manufacturing facility where both custom and standard furniture pieces are manufactured. The equipment is mainly general purpose in nature in order to provide the flexibility needed for producing custom pieces of furniture. The layout groups saws together in one section of the facility, lathes in one another, and so on. The quality of the finished product reflects the quality of the wood chosen and the craftsmanship of the individual workers. Both the custom and the standard furniture pieces compete for processing time on the same equipment by the same craftspeople. During the past few months, sales of the standard line readily increased, leading to more regular scheduling of this line. However, when scheduling trade-offs had to be made, the custom furniture, was always given priority because of its higher sales and profits margins. Thus scheduled lots of standard furniture pieces were left sitting around the plant in various stages of completion. As he reviews the progress of Creative Concepts, Vijay is pleased to note that the company has grown: Sales of custom furniture remain strong, and sales of standard pieces are steadily increasing. However, finance and accounting have indicated that profits aren’t what they should be. Costs associated with the standard furniture line are rising. Rupees are being tied up in inventory, both of raw materials and work in process. Expensive public warehouse space has to be rented to accommodate the inventory volume. Vijay also is concerned with increased lead

times for both custom and standard orders, which are causing longer promised delivery times. Capacity is being pushed, and no space is left in the plant for expansion. Vijay decides that the times has come to take a careful look at the overall impact this new standard furniture line is having on his operations. Questions for discussion: What might Vijay have done differently to avoid some of the problems he now faces? Caselet-2- Fun Toys Fun toys in Hyderabad, has been making traditional wooden hunting decoys since 1957. Manohar Naidu began the business by carving a couple of ducks a day by hand. Demand and competition have long since driven the company to use modern machinery and assembly-line techniques, and they how turn out two hundred ducks daily even on the slowest days. When Suresh, Manohar Naidu’s grandson, took over the business, he knew things needed to change. Output hadn’t fallen, and the company was surviving financially despite competition from what he called “plastic ducks” from the Far East. But Suresh noticed that productivity per worker had stayed the same for ten years, even during the period since the company had bought the latest equipment. While touring the plant, he noticed many employees yawning, and he found himself doing the same. No one quit. No one complained. They all gave him a smile when he walked by. But no one seemed excited with the work. Suresh decided to take a survey. He appointed a respected worker at each step in the production process to ask each of his or her production process to ask each of his or her coworkers questions and to fill in the response sheets. One conclusion emerged from the survey: The “fine-tuners,” as Suresh thought of them, were the most content. That is, those who used fine tools and brushes to get the ducks’ heads, expressions, and feathers just right seemed to enjoy their work most. In contrast people who planed and cut the wood into blocks, rough-cut the body shapes, spray-painted the body color, and applied the varnish were all pretty bored. Suresh had heard about a technique called “job rotation” and decided to try it out. He gave all workers a taste of the “fun” jobs. He asked for volunteers to exchange jobs for one morning a week. The fine-tuners were skeptical, and the other workers were only slightly more enthusiastic. The whole program turned out to be a disaster. Even with guidance, the planers and spray-painters could not master the higher-precision techniques, and the fine-tuners seemed willing to give them only limited assistance. After one trial week, Suresh gave up.

During a lunch break that Friday; Suresh was wandering around outside the plant bemoaning his failure. Then he noticed one of the rough-cutters, Rangarao, whittling at something with an ordinary pocket knife. It turned out to be a block of wood that he had cut incorrectly and normally would have thrown in the scrap heap. But as price said, “It kind of looked like a duck, in a odd way,” and he had started whittling on it in spare moments. Suresh like what he saw and asked Price if he would be willing to sell him the duck when he got through with it. Price looked surprised, but he agreed. The following week, Suresh noticed that price had furnished the whittlign and was shading it in a way that made it look even odder. When it was finished, Suresh offered it to one of his regular customers, who took a look at it and said, “You’ve got hand made?” and asked if he could order a gross. By the middle of the next month, Suresh’s “Odd Ducks” program was in full swing. Workers were still responsible for producing the usual number of conventional ducks, but they were allowed to use company tools and materials any time they wanted to work on their own projects. There were no quotas or expectations for the Odd Ducks. Some employees worked on one for weeks; others collaborated and produced one or more a day. Some wouldn’t sell their ducks but crafted them to practice their skills and brought them home to display on their mantels. Those who would sell them kept half the selling price. That price usually did not amount to more than their regular hourly wage, but no one seemed to care about the precise amount of income. The response to the Odd Duct program was so great that Suresh put up a bulletin board he called “Odd Letter” as a place to post appreciative notes from customers. Mot of these customers, it seemed, had no interest in hunting but just liked to have the ducks around. And when Suresh leaned that some of his customers were in turn selling the ducks as “Manohar naidu’s old Time odd Ducks,” he did not complain. Questions for discussion: 1. How did the “Odd Ducks” program enrich the jobs at Standard Decoy? 2. What motivated workers to participate in making the Odd Ducks?

Caselet – 3- Abaya Life Today, many companies are experimenting with Reengineering, the wide-spread redesign of jobs and critical processes in an organization to increase efficiency, cut costs, increase customer satisfaction, and gain a competitive advantage. Often, reengineering focuses on improving critical organizational processes such as the way insurance claims are handled or how customer orders and complaints are processed. Reengineering and the jobs redesign that the accompanies if frequently result in higher levels of core job dimensions such as autonomy and task identity. Filling a claim with an insurance company, for example, can be an exercise in frustration. After making an initial call to notify the company of an accident, customers must to notify the company of an accident, customers must wait for days, weeks, and sometimes even months for their claim to be settled. Because many different employees are involved in processing the claim, there are many opportunities for delay, and no one person is ever sure of exactly where in the pipeline the claim is. As delays continue and questions go unanswered, customer annoyance increases. Reengineering the handling of insurance claims can be accomplished by reducing the number of steps and employees more autonomy to make decisions. Levels of task identity also increase because the same employee is more likely to handle a claim from start to finish. Abaya Life & Casualty has made major changes in the ways it processes insurance claims and in the design of jobs within its claim-processing units. Under its new system, a customer whose car has been stolen calls an 2424 number. In a single phone call, the customer is told where to pick up a rental car and who will be handling the claim at Abaya, and the customer is given an appointment with a claims adjuster. Under abaya’s old system, this procedure would have taken from two to five days. Levels of autonomy and task identity are likely to be higher under the new system because workers have more discretion to make decisions and can handle most claims from start to finish. According to the job characteristic model, these increases in autonomy and task identity should have positive effects on the intrinsic motivation of claims processors. The CEO of Abaya, Rohan Chopra, expects such changes tohelp the company dramatically cut its costs and gain a competitive advantage. In any case, customers appear to be delighted with the new system. Abaya has been receiving fan mail from satisfied customers! Questions for discussion:

1. Do you think redesigning of jobs at Abaya contributes to enhance its competitiveness? 2. Comment on the role of reengineering of processes in increasing the motivation levels of the employees. Caselet – 4- Crusher Section of Cement Plant The operations that take place in the crusher section of cement plant are as below: 1) 2) 3) 4) 5) 6) 7) 8) 9)

Unload the lime stone (at the warehouse) Move materials to the crusher. Load the crusher chute with material. Wait till the crusher stops Inspect the size of chips. Load the chips into a trucker. Transport the chips to the warehouse. Unload the chips. Store the chips until they are needed.

Questions for discussion: Design a process chart for the operations. Caselet – 5- Chabria Corporation In the year 2000, Chabria Corporation produced and sold Rs.4 crore worth of high performance ball bearings to the aerospace, industrial, and automative sectors. Chabria’s employment totaled about 750 people. Nearly 600 worked in its largest facility, in Lucknow with the rest in plants and offices in Delhi and Kolkata. About half of the Lucknow contingent were shop-floor people, while the rest worked in front-office support functions. The company had invested significant sums to expand and modernize the Lucknow plant and strengthen the MIS system but had not tampered with its organization or processes. For a standard product, total through put time, from order receipt to shiptime, totaled 10 to 15 weeks, provided that all went according to plan. Of that time, sales took 3 to 5 weeks for order entry and processing, while operations took 7 to 10 weeks for manufacturing. In operations, there were six organizational levels from the shop-floor employee to the head of the department. A typical purchase order might require seven or eight signatures. Departmental loyalties were strong, and interdepartmental coordination required numerous formal meetings. Sail one busy manager, “we have morning meetings, afternoon meetings, quality review

meetings, engineering review meetings, purchasing meetings, make-buy meetings, and meetings to schedule meetings”. The production process for an average bearing began in the plant engineering department, which developed the manufacturing drawings – except when supplied by the customer. All parts passed through a handful of very expensive machines in the two departments. All production employees and equipments were organized by type of activity rather than type of bearing or type of customer. For example, the same machine for operator might be used in the fabrication of Rs.10 lakh bearing for a jet engine and a Rupee 4000 bearing for a car engine. Most machine operators were paid on a piecework basis. Material handlers, accounting for nearly 20 percent of the shopfloor workforce, moved material from machine to machine and shop to shop in carts specially designed to minimize damage. Shipments were frequently held up for want of outside parts or because or internal production bottlenecks. In some cases delays extended for several weeks, infuriating customers. To cope, Chabria built up inventories of parts and work-inprocess at all stages. By 2000 inventories had risen to four months of sales. A computerized material requirements planning (MRP) system introduced in the mid1990s at a cost of nearly Rs.10 lakh generated detailed reports on schedules, inventories, and manufacturing costs (by order, by department, etc.). In addition, production planning and control (PPC) held periodic meetings to review the status of various jobs. When all else failed, the “sales action” group in the PPC department shepherded high-priority orders through the production maze to placate angry customers. Despite this, in 2000 only a fourth of all industrial orders and a tenth of all aerospace orders were delivered on time. To maintain in reputation for high-quality products, a big quality control department inspected parts and subassemblies at every stage of the production process. Inspectors used to send anything that fell short of meeting specifications of network. Rework typically accounted for 25 percent of the output. A competent 15- person (recently downsized) new-products engineering department focused heavily on product development for the automotive industry. Questions for discussion: Which principles of operations management, do you think, should be followed by Chabria Corporation?

Caselet – 6- Former Soviet Union Dramatic changes in the former Soviet Union have turned business conditions there into a roller-coaster ride. The unstable situation has created a great deal of uncertainty for firms that look at this part of the world as a market for goods and services. Yet the size of the market and the potential for international expansions remain tempting. Russia, with all its uncertainties, remains the most popular destination among the common wealth of independent States (CIS). “Only put in what you can afford to lost. Decide up front what you want – profits, market share, and the like,” advises Erich Zarnfaller, senior international treasury analyst at EG&G, Inc., a Wellesley, Massachusetts-based provider of environmental management services and manufacturer of radiation and security devices. Adds Kathy Creculius, a vice president at Bay Bank in Boston, “The former USSR presents .….great risks. However, for those with ethnic and linguistic ties to the CIS countries, with solid business experience and capital to invest – and risk – there are now opportunities.” A recent survey of CFOs of leading companies also echoes such sentiment of risk. Also, most firms view most governments as being neutral toward U.S. Firms. Some firms even found them to be a barrier to dong business. The following incidents are reported by Intertech International Corporation, a Boston-based form whose Austrian subsidiary was involved in a joint venture to install airconditioning systems in new buildings in the Republic of Georgia. The Soviet embassy in Washington, DC, said a letter from the Soviet partner was not sufficient to provide work and travel visas. But the soviet embassy in Vienna, home of Intertech’s joint venture partner, did agree to provide visas based on the same letter. Furthermore, in an attempt to send cargo by six precious weeks waiting for bureaucrats in Moscow to “find” the shipment. In that time, the goods could have been delivered by ocean fright to Vienna and trucked to the site. Such are the remnants of an incredibly complex web of bureaucracy left in the aftermath of decentralized control in the Soviet Union! Questions for discussion: 1. Discuss advantages and disadvantages of facility location analysis in the old Soviet Union with reference to the typical location selection criteria. 2. Discuss the issues involved in locating a specific company in Russia.

Caselet – 7- Auburn Machine Company Auburn Machine Co. produces parts that are shipped nationwide. It has an opportunity to produce plastic packaging cases, which are currently purchased at Rs.70 each. Annual demand depends largely on economic conditions, but long-run estimates are as shown in table. If the company produces the cases itself, it must renovate an existing work are and purchase a molding machine, which will result in annual fixed costs of Rs.8,000. variable costs for labor, materials, and overhead are estimated at Rs.50 per case. Questions for discussion: 1. Should Auburn Machine make or buy the cases? 2. At what volume of production is it more profitable to produce in-house rather than purchase from an outside supplier? Table: Estimated Demand Demand Chance, % 20,000 10 30,000 30 40,000 40 50,000 15 60,000 5 Caselet – 8 Location of R&D Facility The decision to locate a biotechnology research and developmental facility is based on a number of factors ranging from the preferences of founding senior management and proximity to educational/research institutions to the ability to attract and retain employees. The following table is based on a comprehensive survey of the biotechnology industry in Bangalore State, concluded in 1999 that is still relevant today. Survey respondents were asked to rate the importance of each location factor in their decision to site a biotechnology R & D facility: 1 = Very Important, 2 = Important, 3 = Less Important, 4 = Not Important. Mean category represents the mean

importance score, while percent importance is the percentage of respondents who answered either Very Important or Important. Location Factor (n = Mean 50) Founder/CRO wanted 1.33 to live in area Proximity to 1.72 educational institution Availability of 2.10 scientists Ability of attract 2.12 employees Availability of 2.12 technicians Attractive physical 2.16 environment Ample space for facility 2.49 expansion Availability of existing 2.58 facility Access to major airport 2.58 Productivity of 2.58 qualified labour

(%) 93 84 70 74 70 70 61 61 54 54

Questions for discussion: 1. Following the results of the survey which factors do you think will most influence the location of the new firm? Why? 2. Explain the importance of “Proximity to educational institute in location decision of this biotechnology firm?

Caselet – 9- Fun School Fun School (FS), a toy manufacturer, has a policy to introduce one or two new toys a year. In August 1999, the manufacturing manager, Mathew, has been informed by his toy inventors that they have designed a talking Barbie doll. This doll will stand two feet high and is capable of telling jokes via an electronic voice synthesizer. One of the company’s three manufacturing staff departments, design engineering, states that the product can be made primarily from molded plastic using the firm’s new all-purpose molders (now used for making small attachments to the firm’s wooden toys). FS in its previous initial production of new toys, has relied heavily on its skilled workforce to “debug” the product design as they make the product and to perform quality inspections on the finished product. Production runs have been short runs to fill customer orders. If the talking Barbie doll is to go into production, however, the production run size will have to be large and assembly and testing procedures will have to be more refined. Currently, each toy maker performs almost all of the processing steps at his or her workbench. The production engineering department believes that the assembly of the new toy is well within the skill levels of the current workforce but that the voice synthesizer and battery-operated movement mechanism will have to be subcontracted. FS has always had good relations with subcontractors, primarily because the firm has placed its orders with sufficient lead time so that its vendors could optimally sequence. FS orders with those of some larger toy producers. Mathew has always favored long-range production planning so that he can keep his 30 toymakers busy all year. The marketing department has forecast a demand of 50,000 talking Barbie dolls for the coming month. The dolls should sell at retail for Rs.980. a preliminary cost analysis from the process engineering department is that they will cost no more than Rs.410 each to manufacture. The company is currently operating at 60 percent capacity. Financing is available and there is no problem with cash flow. Mathew is wondering if he should go into production of talking Barbie dolls. Questions for discussion: How consistent is the talking Barbie doll order with the current capabilities and focus of FS?