5568 Operation Management

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10/5/2011

MOHSIN QAYYUM |

2011

5568 OPERATIONAL MANAGEMENT


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Q. 1 Suppose you have been appointed as the manager of production department in ABC firm. Yousupervise employees and operations in production department. Customers of productiondepartment are not satisfied and are showing switching intentions. Describe in detail that howthe department under your supervision can deliver better quality services than earlier to itsinternal customers?

Quality

The starting point of TQM systems is the development of quality specifications for the product or service in

question, specifications which must be developed with reference to the customer. Manufacturing quality iscommonly defined as 'fitness for use'(Juran and Gryna, 1988), the definition of quality as fitness for use

does assume that quality is an attribute of the product itself - something that can be created through thedesign and production process.

Customer Focus

The customer is the reason for and the driving force behind an organization's mission. Accordingly, the

customer is where an organization should focus every goal.

Customers are those people who pay us. .

SOME MAJOR ISSUES IN CUSTOMER SERVICE

All organizations are created to serve a purpose, and that purpose involves a customer. There are internal

customers within the organization and there is the external customer. The external customer is usually the

target market that the organization as a whole desires to serve. The entire organization involves theresources within it to serve the core competency of the company.

Internal Customer Focus

If an organization is not fully functioning or if it is not meeting the customers expectations and needs, theproblem may not lie in the processes or manufacturing of the product. Instead, the true culprit may be

deeper within the organizations culture. The true source could be poor interaction between departments,

departments, and coworkers. Poor internal customer service can be just as detrimental to the success of acompany as poor external customer service.

Perhaps one of the reasons behind poor internal customer service is the issue of education and

understanding. It is important for each person within an organization to be aware of his role as an internalcustomer service provider as well as one of an internal customer. Likewise, it is also important for him to

understand the significance these roles play in the overall success of the organization and ultimately his own

success.

Individual departments within an organization do not work independent from each other. Bosses do not

work independent from their subordinates. Everything and everyone must mesh at some point. . Simply put,

every person within an organization is at some point both the customer of someone else within theorganization as well as one of a customer service provider. This is true not only for the vertical reporting

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structure but also for any horizontal interaction among coworkers. The understanding of and follow-through

with this concept is imperative for the success of external customer service.

It is as important for everyone to know and understand the concept of the internal customer service provideras is the importance of how to be a good internal customer. Communication is the key. For this relationship

to work, both the internal customer service provider and the internal customer must communicate their

needs and expectations.

Steps taken to deliver better quality services than earlier to its internal customers

To evaluate level of internal customer service try the following assessment, which has been adapted fromthe Leading Edition an e-Newsletter for Purdue University Supervisors. Afterward, in order to gain a better

understanding of how internal customers perceive service, I may want to forward the assessment to them.

Ask r internal customers to complete it with regards to my attitude toward them. (Knight 2-3)

Assessing My Level of Internal Customer Service

Scale: 1 Very Large, 2 Large, 3 Some, 4 Little, 5 Very Little,

DK Dont Know

To what degree do you?

1. Blame others for your customer service difficulties? 1 2 3 4 5 DK

2. Treat others differently than you would like to be treated? 1 2 3 4 5 DK

3. Moan and groan about internal customers? 1 2 3 4 5 DK

4. Believe there is no point in trying to improve internal customer service?1 2 3 4 5 DK

5. Believe that customer service interferes with the completion of your tasks?1 2 3 4 5 DK

6. Talk negatively about your employer? 1 2 3 4 5 DK

7. Place little value on customer service problem solving? 1 2 3 4 5 DK

8. Speak in the jargon of your discipline rather than in terms your customer can understand? 1 2 3 4 5DK

9. Dismiss other employees or customers? 1 2 3 4 5 DK

10. Consider customer service boring? 1 2 3 4 5 DK

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Your Score:

45 50 Your work sets the example for others.

35 44 With some coaching, you can exceed the expectations of your internal customer.

25 34 Other employees may be complaining about you.

10 24 Your boss may have issues with your work.

Note: This assessment was taken and adapted from the Leading Edition, an e-Newsletter for Purdue

University Supervisors.

Conclusion

By analyzing the score I get from questionnaire I will take immediate definite and appropriate action to

overcome the deficiencies by doing that I m really sure the production department of ABC company willshow good progress as compared to earlier

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Q. 2 Assume that a company has just committed to change from a traditional style of management tonew one based on TQM. Give the details of topics which you think necessary to be included for

Shop floor employees Front-line supervisors Middle-level managers

Total quality management vs traditional management style

Total quality management has changed the traditional management style forever. It was a very radicalmovement those days. Some of these changes are radical even today. Few of these changes are discussed

below.

Traditional way of management focused on internal activities. Quality had a meaning which was totally

internally defined. Products or services provided by organization were assumed to be good in quality, if this

organization has done its best in producing that product or service. But in total quality management, focus is

the customer. So that ultimate decider of the quality is the customer. Fitting to the customer requirementwas the least requirement while delighting them is the ultimate goal.

Traditionally people thought bad quality products are due to the workers who do not perform their job

correctly. One of the major differences between total quality management and traditional management styleis the assignment of the responsibility of the quality to the management. Especially responsibility of the

quality goes into the middle level management in the operational level.

Total quality management is an organization wide movement. All the organization has to be in unity to

apply TQM principles. Total quality management, unlike traditional management calls for high amount ofteam working. Team building, specially cross functional teams are feature of TQM. These teams will

provide the necessary momentum to the implementation process and will propel the system forward, with

very less resistance.

TQM believes in quality assurance rather than checking. Quality is inbuilt to the system, so that products are

assured to be in good quality. Some decision like narrowing down the supplier base is total quality

management concepts used for this purpose, which is revolutionary still today.

Unlike in traditional management style, total quality management makes decisions on facts and figures.

Therefore problems are identified correctly. Therefore solutions are well planned.

TQM depends on cyclic thinking. Also it is continuous. Therefore improvements are small, stable and

continuous in nature. This is also known as Kaizen. These events are used in teambuilding, brain storming

and decision making.

There are many other differences between the old or the traditional way of management to the total quality

management. In the bigger picture, TQM has basically changed the culture and the thinking patterns of theorganization.

Employee Involvement

In the old paradigm, employee involvement programs are implemented without a focus to contribute tosystems. Employee involvement in improvement programs tends to focus on quality of work life issues and

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some limited operational changes. In the new paradigm, employee involvement is strategically focused and

contributes to system purposes.

Shop floor employees

. Employee Involvement on the Shop-Floor

Employees generally have a comparative advantage in information and knowledge on the shop floor. On the

basis of this advantage, they often participate in decision-making on ways to improve work efficiency andjob satisfaction. Firms in mature economies become increasingly knowledge-based, and the innovative ideas

and firm-specific human capital embodied in core employees become the most valuable assets. The successof such enterprises depends critically on how effectively workers are encouraged to make their best efforts.

TQM, Labor Unions, and Corporate Governance

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Many decisions made at the top have a profound impact on workers on the shop-floor. Issues at the top-

level and those on the shop-floor are often closely linked. Thus, employees who are actively involved inshop-floor decisions are likely to demand more information sharing with the management and ultimately

participation in top-level decision-making. In the absence of a role in corporate governance (and the

consequent support of labor organizations),TQM practices are unlikely to be very successful. On the part ofemployers, sharing the governance function with employees becomes less objectionable, since workers can

make an effective contribution on the basis of their enhanced capacity obtained from active participation in

autonomous, self-managed shop-floor activities.

However, labor unions see TQM with apprehension as they do work councils, since it challenges the basis

of union power-worker solidarity. Actually, managers often pushtqm programs for the purpose of

weakening the appeal of unions to their employees. There seems to be a clear link between tqm programsand union decline, particularly in countries where labor participates actively in decision-making at the

strategic and shop-floor levels (Maranto, 1994).TQM programs are more common in non- unionized firms

and where workers do not hold favorable views about unionization (Russel, 1988). Nevertheless,TQM tendsto be more sustainable and effective when it has union support and involvement. Union involvement brings

a long-term perspective toTQM programs. The best results are expected where unions participate as equal

partners in designing and implementing them as well as sharing the gains. Labor unions tend to push themanagement to institute complementary practices to enhance the efficiency ofTQM programs. Thus, to

promote the effectiveness ofTQM, firms are ill-advised to weaken union leadership, its solidarity andbargaining power.

Employers are often also reluctant to introduce TQ M programs if they believe workers already have too

strong a bargaining power would lead to such a situation (Levine, 1995). They worry that the union might

demand too much managerial power and too large a share of the gains from TQM practices. Particularly inplaces whereTQM practices cover broader issues rather than a mere narrow focus, they are likely to result in

substantial changes in information-sharing, access to top managers, and processes of collective bargaining

and even strategic decision-making (Cutcher- Gershenfeld, et. al., 1991). For both management and unions,high-powered TQM practices seem to be a double-edged sword. Understandably, before the development of

mutual trust, they are hesitant toward TQM programs for fear of seeing their power undermined.

Front-line supervisors

A survey of 221 front-line supervisors was conducted, to investigate their perceptions of the impact of total

quality management (TQM) programmers on their jobs and satisfaction. Two key findings emerged in theresults. First, front-line supervisors perceived that the TQM programmes had led to a variety of changes that

made their jobs more demanding, requiring greater individual skill and accuracy. Second, front-line

supervisors did not seem to like this change, stating that TQM programme did not make their job moreinteresting and important. As a whole, most of the front-line supervisors claimed that TQM had not

increased their satisfaction with their job.

First-line managers (or first-line supervisors) are those managers having the least authority and are atthe lowest level in the hierarchy of the organization. First-line managers are at the lowest level of

management and manage the work of non-managerial individuals who are involved with the production or

creation of the organizations products. Theyre often called supervisors but may also be called linemanagers, office managers, or even foremen. They are directly responsible for the work of operating (non-

managerial) employees. a. Titles often include the term, supervisor. b. Factors changing the jobs of first-

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line managers include emphasis upon worker participation and teamwork and the use of computers to

regulate any activities formerly regulated by first-line managers. c. The jobs of first-line managers arelikely to change toward a greater emphasis on dealing with internal human relations.

Group cohesiveness is the degree to which members are attracted to a group, aremotivated to remain in the group, and are mutually influenced by one another

Middle-level managers

The middle level of management, usually including lower executives and employees who manage

supervisors overseeing day-to-day operations.

The Goal of the Mid-Level Manager

. The purpose of the Mid-Level Manager is to enable the enterprise manager to write SNMP managementapplications (scripts), which are distributed to subordinate managers (Mid-Level Managers) who turn this

wealth of data that they retrieve/manipulate into information useful to the enterprise manager. This useful

information can be retrieved by the enterprise manager in the usual SNMP way, or the Mid-Level Managercan notify the enterprise manager using traps and notifications.

Architecture

Mid-Level Manager Features

Mid-level Manager offers the following features:

Can aggregate, summarize, and transform data into information.

Communicates results to the enterprise managers via the Manager-to-Manager inform-request.

Provides scripts that are flexible and configurable. A single script may provide management of

multiple MIB variables on a single node, a single MIB

variable on multiple nodes, or multiple MIB variables onmultiple nodes.

Runs in the background.

Has scripts that can perform appropriate corrective

behavior.

Can run scripts that call Applications.

Provides synchronous or asynchronous execution of

scripts.

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Q. 3 Identify the quality cost elements associated with the institutions listed below. Define each of theseelements and suggest how each might be quantified in practice:

A University A Hospital A Bank The Local Bus Line A Text Book Publisher A Manufacturer of Mens Shoes (20)

The reason quality has gained such prominence is that organizations have gained an understanding of the

high cost of poor quality. Quality affects all aspects of the organization and has dramatic cost implications.

The most obvious consequence occurs when poor quality creates dissatisfied customers and eventually leads

to loss of business.However, quality has many other costs, which can be divided into two categories. The first category consists

of costs necessary for achieving high quality, which are called quality control costs. These are of two types:

prevention costs and appraisal costs. The second category consists of the cost consequences of poor quality,which are called quality failure costs. These include external failure costs and internal failure costs.

Prevention costs are all costs incurred in the process of preventing poor quality from occurring. They

include quality planning costs, such as the costs of developing and implementing a quality plan. Alsoincluded are the costs of product and process design, from collecting customer information to designing

processes that achieve conformance to specifications.

Employee training in quality measurement is included as part of this cost, as well as the costs of maintainingrecords of information and data related to quality.

Appraisal costs are incurred in the process of uncovering defects. They include the cost of qualityinspections, product testing, and performing audits to make sure that quality standards are being met. Also

included in this category are the costs of worker time spent measuring quality and the cost of equipment

used for quality appraisal.

Internal failure costs are associated with discovering poor product quality before the product reaches thecustomer site. One type of internal failure cost is rework, which is the cost of correcting the defective item.Sometimes the item is so defective that it cannot be corrected and must be thrown away. This is called

scrap, and its costs include all the material, labor, and machine cost spent in producing the defective

product.

Other types of internal failure costs include the cost of machine downtime due to failuresin the process and the costs of discounting defective items for salvage value.

External failure costs are associated with quality problems that occur at the customer site. These costs canbe particularly damaging because customer faith and loyalty can be difficult to regain. They include

everything from customer complaints, product returns, and repairs, to warranty claims, recalls, and even

litigation costs resulting from product liability issues. A final component of this cost is lost sales and lostcustomers. For example, manufacturers of lunch meats and hot dogs whose products have been recalled due

to bacterial contamination have had to struggle to regain consumer confidence. Other examples include auto

manufacturers whose products have been recalled due to major malfunctions such as problematic braking

systems

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and airlines that have experienced a crash with many fatalities. External failure can sometimes put a

company out of business almost overnight. Companies that consider quality important invest heavily inprevention and appraisal costs in order to prevent internal and external failure costs. The earlier defects are

found, the less costly they are to correct. For example, detecting and correcting defects during product

design and product production is considerably less expensivethan when the defects are found at the customer site. The reason is that with a service the customer spends

much time in the service delivery system, and there are fewer opportunities to correct defects than there are

in manufacturing. Examples of external failure in services include an airline that has overbooked flights,

long delays in airline service, and lost luggage.

Q. 4 With reference to your own organization, find out the application of forecasting. Identify theareas where forecasting techniques are applied and the areas when the techniques can be

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applied? If possible, give the time span of application of each forecasting technique in operationsmanagement.

FORECASTING IN PRODUCTION

Forecasting techniques are classified as qualitative, involving primarily judgment, and quantitative,

involving primarily historical data and mathematical models. Quantitative techniques use both intrinsic data,

data pertaining to the item to be forecast, and extrinsic data, All quantitative forecasting methods involvethe implicit assumption that the near future will be similar to the recent past. To be reliable, all quantitative

forecasting techniques require accurate data. Insuring accurate data requires that the data be monitoredcarefully to eliminate data input error and to adjust for one-time occurrences, such as special promotions.

The study of a set of data describing demand over time is called time series analysis. Three common

techniques of time series analysis are moving averages, exponential smoothing, and time series

decomposition. Time series decomposition is the most accurate of the three, but there is often too little datato permit decomposition, Winters' three-factor model, the most complex exponential smoothing application,

is a good compromise whenever seasonal variation in demand exists but there is insufficient data to use time

series decomposition.All forecasts are subject to error, even when the model used for the forecast is properly defined. Production

and inventory managers require an estimate of the average forecast error to determine appropriate levels of

safety stock and other precautionary measures. The most frequently used measure of forecast error is themean absolute deviation (MAD), the average of the absolute values of the forecasts minus the actual

demands. And now for more detail...

STEPS IN FORECASTING PROCESS

STEP 1. ESTABLISH THE BUSINESS NEED

Healthcare financial managers need to clearly understand how their forecast will influence businessplanning and decisions within their organization. Without this important understanding, the resulting effort

will very likely produce adverse results. For example, many business managers rely on monthly cash

forecasts. These are used by collections managers for setting monthly cash collection goals, by finance toschedule capital expenditures for clinical equipment, and by staffing managers for their budgets.

Step 2. Acquire Data

For each business driver and influencing factor, the typical forecasting effort should use at least two years,

and ideally up to five years, of historical data. When forecasting efforts have short time horizons in small

time periods, fewer data can be used. To collect the most accurate and robust data sets, all available data

sources, such as multiple healthcare information systems (HIS), spreadsheets, small departmental databases,and/or an enterprise data warehouse, should be used. By sourcing from multiple areas, differences in

organizational behavior can be balanced out to yield the best data set.

Step 3. Build the Model

Once the business needs, drivers, and influencing factors have been established with the associated

historical data, a decision needs to be made on the type of forecasting model to use. The forecasting modelis the technique or algorithm that determines the projections based on identified business drivers,

influencing factors, and business constraints. There are three major categories of forecasting models: cause-

and-effect, time series, and judgment.

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Evaluate the Results

Once the model has been built and executed, the resulting forecast accuracy should be evaluated using themost recent time period. Overall model accuracy should be measured using statistical functions such as F

statistic, standard error of the estimate, or [R.sup.2]. [R.sup.2] is a statistical measure used for regression

models describing what percentage of the changes from month to month can be explained by the forecast.By visualizing the results as shown in the graph below, a healthcare manager can easily understand a

model's accuracy.

Step 5. Apply the ForecastOnce all the work has been done to create a high-quality forecast, it should be deployed to the stakeholders

and end users in a manner tailored to their use. The forecast should ideally be made accessible to all

appropriate business areas in reports and analyses packaged to unique end-user perspectives. For example, acontract manager is most interested in revenue forecasts by payer contracts. Each healthcare financial

manager should have access to a "sandbox" area to perform "what-ifs" to better understand the impact of

business decisions.

Techniques of Forecasting

A. Quantitative forecasting relies on numerical data and mathematical model to predict future conditions.There are two types of quantitative forecasting most frequently used.

1. Time-series methods used historical data to develop forecasts of the future.

a. The underlying assumption is that patterns exist and that the future will resemble the past.b. Time-series methods do not in themselves predict the impact of present or future actions that managers

might take to bring about change.

c. A trend reflects a long-range general movement is either an upward or a downward direction.

d. A seasonal pattern indicates upward or downward changes that coincide with particular points within agiven year.

e. A cyclical pattern involves changes at particular points in time that span longer than a year.

f. Time-series are more valuable for predicting broad environmental factors than in predicting the impact ofpresent or future actions.

g. Because time-series rely on past trends there can be a danger in their use if environmental changes are

disregarded.

2. Explanatory or causal models attempt to identify the major variables that are related to or have caused

particular past conditions and then use current measures of those variables (predictors) to predict futureconditions.

a. Explanatory models allow managers to assess the probable impact of changes in the predictors.

. Regression models are equations that express the fluctuations in the

variable being forecasted in terms of fluctuations among one or more other variables.

c. Econometric models are systems of simultaneous multiple regression equations involving severalpredictor variables used to identify and measure relationships or interrelationships that exist in the economy.

d. Leading indicators are variables that tend to be correlate with the phenomenon of major interest but alsotend to occur in advance of the phenomenon.

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B. Technological, or Qualitative, Forecasting is aimed primarily at predicting long-term trends in

technology and other important aspects of the environment

The focus is upon longer-term issues that are less amenable to numerical analysis as quantitative

approaches.

The Delphi method and Scenario analysis can be used as techniques.

C. Judgmental Forecasting relies mainly on individual judgments or committee agreements regardingfuture conditions.

1. Judgmental forecasting methods are highly susceptible to bias.2. The jury of executive opinion is one of the two judgmental forecasting model. It is a means of

forecasting in which organization executives hold a meeting and estimate, as a group, a forecast for a

particular item.3. The Sales-force composite is a means of forecasting that is used mainly to predict future sales and

typically involves obtaining the views of various salespeople, sales managers, and/or distributors regarding

the sales outlook.The choice of which forecasting method to use depends upon the needs within particularforecasting situations.

1. Quantitative forecasting methods:

1.have a short-to-medium time horizon2.require a short period of time if a method is developed

3.often have high development costs

4.are high in accuracy in identifying patterns5.are low in accuracy in predicting turning points for time series, but

6.medium for other methods.

7.Are difficult to understand

2. Technological forecasting methods:

1.have a medium-to-long time horizon2.require a medium-to-long time

3.have medium development costs

4.are of medium accuracy in identifying patterns

5.are of medium accuracy in predicting turning points6.are easily understood.

7.3. Judgmental forecasting methods:

8.have a short-to-long time horizon9.require a short time

10. require a short time

11. have low development costs

12. are of medium-to-high accuracy in identifying patterns13. are of low accuracy in predicting turning points

14. are easily understood

Q. 5 Fabrication unit of your department should supply 5000 good parts to another departmentassembly. Processing time is 4 min/unit and the equipment efficiency for 3 shifts daily is

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estimated at 80%. Calculate the equipment requirement of the department. Also calculate therevised output if the defective output amounts to 5 percent. (20)

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5568 Operation Management

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