The Operation Management Course Learning Experiences

Published Date: 02 Nov 2017

FROM: Meghna Makwana, MBA Student

DATE: May 1st, 2013

SUBJECT: Operation management course learning experiences

Introduction:

Operation management course has made me learn the various concepts and methods utilized in planning, directing, and controlling the "transformation process" of resources into goods and services.

Learning Experiences:

I learned and understood the problems and issues confronting operations managers and others in the real world situations. I learned the language, concepts, insights and tools to deal with different issues in order to gain competitive advantage through operations. The various concepts and aspects of operation management like total quality management, process analysis, service management, capacity management, inventory management, cycle time management, supply chain and logistics management, production planning, lean production, and quality management expanded my horizons. Also, made me think that how these concepts relate to the real business world scenarios.

Changed behavior in me:

This course has made me learn how to differentiate between observations and problems. Taught me how to link the process design to market demand and business strategy. Understood how operations and technology can be a source of "competitive advantage". It helped me to think like operations management executive and improved my critical thinking, judgment and communication skills. By doing case studies in group, it developed my personal skills in teamwork and leadership.

Learning Experiences from Case Studies:

According to me the most powerful cases in my learning process were Donner Company; Benihana of Tokyo; Toyota Motor Manufacturing, USA; Deaconess-Glover Hospital; and Zara: Fast Fashion. These cases made me learn various concepts of operation management like lean or world-class manufacturing, just-n-time operations, time based competition, business re-engineering, information management, performance capacity, Toyota production system, etc.

The best part of this course was the learning that was based on case analysis and solving techniques in groups and individually. This made us think outside the box and made discussions more meaningful.

Recommendation:

Professor can enhance this learning experience by letting us choose any one company which is not in the syllabus and make us work and analyze that particular company and write a paper on it. For e.g. Accenture, how does it manages its operations, etc.

Conclusion:

I feel text book learning and understanding the concepts before doing the cases could be more beneficial. This will make the learning experience more meaningful. In nutshell, this course enhanced my learning experiences and made me connect the

course's ideas and techniques to their real-world application.

Sincerely,

Meghna Makwana

DEACONESS-GLOVER HOSPITAL CASE ANALYSIS

Introduction:

Deaconess Glover Memorial Hospital (DGH) began operation in 1909, serving the Needham Community. In 1980 Glover began to encounter financial difficulty which lead the town (community) hire the Corporation of America to provide professional management. In 1991 John Dalton Joined Glover administration and Learned that Needham wants to privatize the hospital. In 1994 Deaconess Hospital a large Harvard-affiliated teaching and research institution purchase Glover. In 1996 Deaconess merged its system with that of Beth Israel medical Center, and the combination named CareGroup which included Six Hospital network based in eastern Massachusetts, 13,000 Employees, and 2000 person medical staff. DHG was 41-bed community hospital had lost $2.7 million 12 months and DHG was part of CareGroup a 1,500 Bed hospital had lost $100 million.

Objective/Idea:

Dr. Carter, a vascular surgeon's primary objective was to indentify a site within DGH for a model line. The model line would be placed where small tests in applying TPS to health care would be tested. The idea was that once the model line was tested for functionality and its benefits where verified, the lessons learned can be throughout the rest of the hospital.

Problems Identified at DHS:

There are many unknowns in the case which are not highly specifies. How nurses should be assigned to patients, exchange patient information, record patient information, etc is not organized properly. How medications should be staged and changes to be made in the patient’s chart should be notified, and how additional medication deliveries should be made is not mentioned. Verbal communications of information are heavily used in the medication administration process. Doctor-nurse communications are not direct and half and two-thirds of a nurse’s time was spent not doing the value-adding nursing work. Time needed from the prescription of a medication to its administration is not specified. Pharmacy learned about the needs of patients in different ways and doctors could prescribe medications that were not available in-house, and many more.

Toyota Production System: Steps used for Analysis:

Before Dr. Carter made any change or new process he had to understand current conditions i.e. how the process actually works, grasping the current Condition, and determining the number of the distinct pathways. Communication played an important role over here. During a shift change a nurse completing a shift and a nurse starting shift would do a review of entire narcotics inventory and compare it to the narcotics usages. Once the count was done a "white sheet" was completed and send to pharmacy. The Nurses would frequently get interrupted by others who needed help to do their job or frequently asking to clarify information. Nurses also needed to communicate with the Dr's. about the patients and how they would care from them and with pharmacy to order medications.

The Dr. would also talk with patients twice a day during their rounds, make notes in the patients chart, let the nurse know about the new medications and information about the patients that where admitted at night. Some nurses would stage the medication for the entire day while some nurses would visit the medication room every two hours for the next round of doses.

Medication Orders where send to the pharmacy on Green sheets. Green orders are basically written by a Dr. during their rounds, or by nurse after discussing the patient's condition with a Dr. and a pharmacy personal would modify the pharmacy’s patients medication record (PMR) for intravenous medication. Pharmacy would also create new PMR patients who were admitted during the night, create and label the medication and staged the medication in the cart.

Toyota Production System (TPS) Principles:

TPS Principles consists of four major principles i.e. (1) Having a long-term philosophy that drives a long-term approach to building a learning organization, (2) The right process will produce the right results, (3) Add value to the organization by developing its people and partners, and (4) Continuously solving root problems to drive organizational learning

TPS for Medication administration:

Medication administration directly affected the quality and cost of patient care. Wrong medication could delay or compromise a patient’s well being. National studies has shown "prescribed medication to patients in the correct form and quantity, and right time, had error rate in the parts per hundred". The error problem could be solved by computerized prescription tracking and drug dispensing.

Benefits applying TPS to DGH:

There are many benefits to DGH with the application of TPS. First, it lowers delivery drug cost i.e. it allows Dr. and Nurses to have a view of the pharmacy stock. Second, it helps in improving the quality of patient care i.e. decrease errors in medication dispensing. Third, it improves communication by creating simple Paths i.e. all communication will be direct. Lastly, it helps in decreasing waste i.e. Nursing activities, by organizing medicine room.

Conclusion:

Since Dr. Carter has a strong understanding of issues and problems that are present at DGH. Dr. Carter faces challenge of applying TPS a manufacturing set of rules to a health care system. To apply TPS carter must: Define the individual work activities with a well defined sequence of steps. The steps should be defined in a ways that they are easy to perform by individuals and they are done correctly, and the activities are performed create the desired results. The communication paths could be defined between the different groups (i.e. nurses, Dr. and pharmacy ). Reduce redundant connections and generate simple pathways to move information among peoples who have the information to those who need the information to do their job.

ANALOG DEVICES: THE HALF-LIFE SYSTEM

Background:

Analog Devices Inc. (ADI) was a leading manufacturer of integrated circuits. It converted between analog and digital data. From the years 1981to1996, ADI experienced periods of growth and stagnation. Management at ADI introduced a number of different management tools to implement change and meet the needs of the changing market. One such tool was its corporate scorecard. ADI's corporate scorecard was acknowledged as a management best practice. Despite this ADI's management was wondering in 1996 how to change the scorecard to best fit the needs of management. How fast to change it and how best to use it to focus was management's attention in the future.

A single-page scorecard was introduced initially for measures within the categories indicated how well ADI was moving toward the goals. As well, it measured each critical success factor and financial performance. Half-life and target were provided as complementary linking between short-term results and long-term plans. Besides, 5-year planning was done every year. Latter, balanced scorecard was rolled out to the entire company. It became a communication tool and coordinated with various methodology methods. Consequently, scorecard has become natural and diversity.

The case explores the conflict between financial measures and performance improvements. Analog sales and revenues were stagnant when the rest of the industry was growing. In 1986, Analog hired a VP of Quality Improvement Productivity (QIP). The VP had a theory called the Half life concept. The purpose of the half-life method is to produce achievable and realistic goals. These goals helps for getting quality performances and then monitor the actual performance against the goals. The basis of the half-life system is the core of Total Quality Management.

SWOT analysis of ADI:

Strengths

ADI recognizes problems quickly

They use the concept of TQM and their products were fundamentally basis of many internet devices.

E-commerce has always played an important role for the company because of the success in the internet sales.

Using the Executive Information System(EIS) managers at all levels could break down performance result by region, product, customer or channel.

Weakness

ADI has very weak value chain in comparison to its competitors like Motorola who has more efficient value chain.

Due to poor quality control management, the cost and quality has become a responsibility for ADI.

They focused on existing customers and do not invite new customers to their innovation and product design.

Opportunities

The company should have greater focus on Research and Development.

In order to strengthen their outsourcing strategy and gain competitive advantage ADI attracts business and commercial customers and reduce their costs.

ADI should provide with reward systems and incentive policy.

Threats

ADI’s competitors had on-time delivery records and yields well above ADI’s level.

The supremacy of digital circuitry created new competition

The supply chains that ADI participated in were de-integrating

The traditional distinct separation between digital and analog markets had diffused.

Limitations of half life concept:

Difficult to determine half life as it is dependent on technical and organizational complexities

Calculated based on historical data which may not give a very clear picture

Conflicts between the QIP and the financial measures:

ADI’s incentive and performance evaluation systems were based on the financial measures only. QIP measures emphasized on the cost reduction whereas the financial measures were more inclined towards revenue enhancement. QIP measures were more useful for evaluating the performance of the cost centers whereas financial measures could more effectively capture the performance of the profit centers. QIP measures were not given much importance as these are mere avenues to achieve higher financial measures.

Current Situation:

Suttler noted that Quality Improvement Process (QIP) had worked nicely at improving wealth reducing activities, but it doesn’t naturally cause wealth creation activities. With this in mind that added "Hoshin Kanri" to the scorecard. Hoshin Kanri is the idea from Japan that focuses on improving one or two breakthrough objectives. At the same time, this idea is hard to do. It was helping with on time delivery for platinum products and sales from new products. They began focusing on planning to help in wealth creation using a program from Hewlett Packard called the 10-step planning methodology. This changed planning from centralized to multi-skilled teams within the organization that would actually implement the plans. These plans are now more important than the scorecard. Using Hoshin, specific goals are now translated into specific and measurable objectives.

Analysis:

Analog has obviously been through a long process of developing tools to help them control their business. They started with the correct end in sight, but lost focus due to lack of commitment from management. The measures were primarily financial at first but grew to include non-financial measures later. As the financial performance of the company continued downhill, they became convinced that QIP was not working and needed something else, like Hoshin even though the QIP measures were improving. While part of the problem is financial, the big problem is that their focus changes too often. The scorecard is supposed to give the overall big picture, not just pieces.

Recommendations:

I feel they need to focus on what they want. They need to balance everything they do. If they go to mass production they need to focus on optimizing their process. If they plan to diversify their products they need to concentrate on process flexibility and a force of designers with multiple capabilities to support the different processes. In order to decide which products serves them best, they should study their current core competencies. DSP is definitively a very good decision because the acquisition gave them capabilities in the digital and analog arena.

ZARA: FAST FASHION

Zara’s business and operating model is focused on speed and the need for fast fashion. It is targeted at young fashion and price conscious urban dwellers. It is built on a vertically integrated system focused on demand and supply. It constantly updates its design and production base to deliver exactly what the client wants based on their buying habits and the latest trends. Besides this they produce almost everything in house and have limited outsourcing. Zara takes care of its customers to great extent and provides them exactly with what they want. It sells a trend value proposition at affordable prices. Their integrated vertical supply chain; production time of a new product and re-production and delivery of an existing product all together makes it achieve the above branding.

Following this brief introduction it would be best to compare Inditex’s financial results with H&M. We need to do this as they are competing in very much the same market. Although their products and value chains are different their target consumer has the most overlap. Also GAP and Benetton do not follow the fashion. All they do is predict and produce in advance and in bulk.

Inditex when compared to H&Ms 14 is present in 39 countries and have over 50% more stores than H&M, and they still manage to have lower operating expenses. Their operating expense is only 30% of their operating revenue, compared with 38% for H&M. Operating profits are 22% for Inditex and only 13% for H&M.

It is interesting to observe that despite Inditex’s much more complex operating system that it manages to keep costs low and improve margins. By producing in small batches and having quick lead times Inditex is gradually cutting its costs. Inditex has a lean structure and involves each part of the value chain to ensure efficiency.

We can see a higher cost for property plant and equipment for Inditex though and this would be due to their preference for production in Europe (to reduce supply chain times) and because of their prime locations (to position themselves as a high end high street brand).

The integrated IT system is at the heart of Zara, allowing it to have such short and precise product cycles. It is used in its shops by which the store managers can report directly to the production centers and designers in Spain. The production centers in Spain then work on-demand and deliver the product in unbeatable market times.

Also by reducing the quantity of each style that it is produced, it means there are more styles but only for a limited time, so that buyers purchase more often as they realize that what they like might not be there anymore next week and it also means that buyers come to the store much more frequently than other retailers as the collection is constantly changing. Another key aspect of their business model is the location of their shops in prime locations and also the fact that they have a minimal advertising budget (0.3% of its revenue compared with 3-5% of other retailers).

All these factors show that they are reducing any waste and are producing on-demand where and when the client needs it. Each part of the process is essential in providing this and puts the decision-making with the store manager that is closest to the consumer which in turn will of course optimize sales and reduce wasted time and unwanted products.

This system seems more expensive, which in first instance it is but it requires much lower working capital and much lower inventory costs. Zara is a clear example of a company that using JIT and TQM to maximize profits, it is a delicate system but when well supervised and well functioning it's what works best, especially in the retail position that Zara has created for themselves.

The system is absolutely unique to Zara, there are many other retailers that are now trying to copy but so far no-one has been able to copy it as it requires a fully vertically integrated supply chain system requiring: designers, manufacturers, transporters, well trained store managers, fully integrated IT systems, just to name a few of the essential elements.

The distinctive features of Zara’s business model affect its economics immensely as they are reducing costs at every level but need to be so efficient and constantly updating and innovating that there is little room for mistakes. However, they maintain excellent rate on sales with only 1% of failure on new products compared with 10% for the industry average.

To further compare Zara and H&M, there are of course many advantages to H&Ms value chain as it can mass produce and does not need to rely heavily on short lead times and potential mishaps. It can uniform its branding and marketing and focus on products that are suitable for an international market instead of focusing on small batches that Zara does. H&M should be able to keep costs to a minimum as it is mass-producing with longer lead times. But there are of course many disadvantages too. H&M cannot play in on trends and produce goods that are bound to be best sellers. Another disadvantage is of course the number of times that the client visits the store that is every 3 to 4 weeks for Zara and 3 to 4 times a year for other retailers.

All of the production structure of Zara puts in a more vulnerable position because, as stated earlier, it is clear that every element of the value chain is vital for the effectiveness and value creation of the company, but if executed correctly it obviously adds value as can be seen by the figures provided.

Below are the key processes that provide the Quick Response capability. It is a highly reliable on an extensive IT system, this one of the first mover advantages that Inditex created as their founder and CEO saw the opportunities in using automated systems and adopted it early on helping to stream line the processes throughout the value chain.

Design – by having a small group of designers and producing almost everything in house 2 main collections a year and then multiple small collections in parallel, so that they can adapt to trends and differences across markets, relying on high-frequency information from the markets through the store managers, a constant and on-going process.

Sourcing & Manufacturing – sourcing happened from external suppliers with purchasing offices in Barcelona and Hong Kong (recently they have started to move more operations to Asia under the supervision of Li & Fung and that are doing more design too). Most of the fabric purchased was neutral color so that they could dye, pattern and finish it off in-house in Spain. And again the most fashionable items were produced in small batches to reduce risk.

Most manufacturing was done in the 20 fully owned factories, 18 of them close to the headquarters, through the introduction of vertical integration and JIT systems. And the partners that Inditex worked were all long-term partners that who they provided with a lot of logistics, technology, financial support and conducted inspections together. These kind of relationships of course added to the ‘value’ chain.

Distribution - Zara has its own centralized distribution system, one main one in Spain for Europe and then 3 in South America. All the merchandise pass through the distribution center in Arteixo, which operated in dual-shift basis and used the mobile tracking system that was capable of handling 45,000 folded garments per hour. Again the IT systems used is key for the Zara success. Usually merchandise never remained than a few hours in the warehouse. Again this proved the success of quick response and speeding up every process. Also the distribution was done 75% by truck for Europe and the rest was 25% by air(which often turned out to be cheaper.

Retailing - again the backward vertical integration provided a key success factor for the retail locations. With only 0.3% of revenue spent on advertising (compared to 3-4% of the market norm) Zara business model of quick moving fashion meant that people would come to the store. But also their prime locations and upscale interior design positioned Zara well. The store fronts were often the first contact that shoppers had and there for were carefully designed centrally to have a uniform and coherent positioning.

Store operations – they are both the face and selling point as well as the information sources. There staff were highly trained empowered and given a lot of responsibility with rewards to follow, therefore they had low staff turnover. They also ensured that their staff was dressed according to the social economic surrounding it was in to ensure that the customers felt comfortable.

This shows that at each stage of the value chain Zara is superior to its competitors mainly by creating mass customization and empowering their staff at every level. This is a real competitive advantage. This means that the staff are implicated and providing their best to ensure the future development of the brand and its operations. This cannot be said for a lot of the competitors including H&M and GAP.

One element that should be observed is the origin of revenues; almost half of Inditex revenue comes from their home country (Spain), compared with 12% for H&M and 44% for Benetton. This shows that Inditex is heavily reliant on the Spanish market that creates a large risk if anything should happen to the Spanish economy.

Albeit it seeming a bit chaotic, the parts do fit but it seems as if it is a very fragile system. Just one mistake and the whole system blocks, there is no room for mistakes, as there is no inventory and also one is relying heavily on the individual store manager’s judgment and management skills. Again if the store manager were to get it wrong, at what point would senior management know or would it become a problem. Having said this as all they really are doing is observing buying trends and reporting it there should not be much room for getting it wrong.

In its international expansion it will be harder and harder to centralize everything through Spain and at the least get all garments to pass through the main warehouse for inspection. Also the need for local trends and development of clothes to cater to them will be have to take into consideration and thus local design and production and inspection centers will have to be created. This will increase costs and will mean that the senior management loses control so it remains to be seen how well Zara can do when it starts to reach the four corners of the globe and cater to the fashion needs of everyone. However, as we are already more than 5 years on from when the case was written we can see that Zara continues to grow and is indeed tackling these problems by having local design, sourcing and manufacturing units. Also the high-end affordable retail is to a large degree homogenizing itself providing valuable lessons for Zara and allows them to stay on top of their game and continue to grow and post ever increasing positive results.