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B7801 - Operations ManagementAgenda - 20 March 1998

• Benetton’s marketing and manufacturing strategies

• Types of processes– Production Line– Batch Processes– Job Shop

• Product process matching & technology choice

• Burger King & McDonald’s

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Operations Strategy: A Summary

There are many ways to compete, and firms cannot be all things to all people… there are tradeoffs in operating decisions about structure (bricks and mortar, machinery) and infrastructure (people, systems, procedures)… an operating strategy’s success is determined by the coherence of the pattern across decision categories, and by the match between operations strategy and the other functional and overall business strategies… over the long term an operations strategy is deemed successful if it guides the organization in building capabilities essential to attaining competitive advantage.

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Benetton’s Markets, Marketing & Manufacturing

Strategies

Jennifer ProsekLuis Felli

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Benetton’s Marketing and Manufacturing Strategies

Market Target Marketing Manufacturing

Young adults,18 - 25

Fashionconscious

Limitedbudget

Active

Interested incasual wear

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What are production lines and why are they so efficient?

Many “flavors” of production linefabrication lineassembly linepackaging lineetc.

Q: Why are they so efficient? A: Economies of specialization

1) job design and balance 2) layout3) tools4) time & motion

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1) Job design and balanceObjective: Eliminate idle time

• Several tasks required to complete a job.• Example: hand packed fruit.• Tasks:

– put paper divider in box– fill each section with appropriate fruit

• oranges• grapefruit

– place top on box– place label on box

Brand X

Brand X

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Divide tasks to create two jobs

Job 1– place paper divider in

box.– fill appropriate

sections with fruit.

Job 2– assemble top on box– fix label to box

Objectives: - specialize tools/work to make each job efficient - achieve desired output rate (cycle time) - cycle time J1 = cycle time J2

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2) Specialized layout (“production line”)

Product-Oriented Layout

Functional Layout

cutgrind

weld

minimal movement - operations are arranged in the sequence required for production.

wasted movement and effort

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3) Specialized “tools” and facilities

• There are different ways to specialize tools...– fix form/shape/configuration (e.g. mold,

stamping die, loan application form)– pre-position it (hanging air gun, fixed

equipment set-up)– dedicated assignment

• How can specialized tools help improve efficiency?– eliminates processing steps– reduce movement of material/people– regularize process (quality, efficiency)

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An example: Quick LubeOil Reservoir

Filters

Waste Oil

Oil and Filter Change

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4) Time and motion efficiency• Use of the human body

– Two hands should begin and complete motion at the same instant.

– Both hands should not be idle simultaneously.

– Motion of both hands should be opposite and symmetrical.

– Use lowest classification of motion possible 1)finger, 2)hand, 3) wrist, 4) arm

– Continuous, curved motion. Avoid sudden changes in direction.

• Arrangement of work– Fixed stations for all tools.– Preposition tools,

materials and controls near workplace.

– Use gravity feed bins for material and finished work.

– Provide good illumination.– Height of worker should be

adjusted for easiest motion.

• Design of tools – Combine tools whenever

possible.– Handle should be large and

contact entire hand.– Locate tools to provide

greatest mechanical advantage.

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Example: time standards/operator charts

1. Reach for cover2. Select cover3. Grasp cover4. Move cover to assembly

position.5. Assemble cover to box6. Reach for label 7. Grasp label.8. Move label to assembly position9. Assemble label to box10. Idle11. Idle.

1. Reach for box2. Select box3. Grasp box4. Move box to assembly position.5. Hold box.6. “7. “8. “9. “10. Move assembly to tote11. Release assembly

JOB 2: Putting cover and label on unit.

boxescovers

labels

tote

Summary: Total Steps: 11 Std. Time: 0:38

Left Hand Right Hand

work arealayout

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The old fashioned toaster

Activity Time (min)

Toasting ( 1 side) 0.50

Turning time 0.02

Toasting (other side)0.50

Removing time 0.05

Insertion time 0.05

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Who should determine the best work methods?

Staff specialists (Taylorism)

Workers themselves (Kaizen)“...You firmly believe that good management means executives on one

side, and workers on the other; on one side, men who think, and on the other side, men who can only work. For you, management is the art of smoothly transferring the executives’ ideas to the workers’ hands.

For us, management is the entire workforce’s intellectual commitment to the service of the company without self-imposed functional or class barriers... Only the intellect of all employees can permit a company to live with the ups and downs and meet the requirements of its new environment.” Kononsuke Matsushita

1988 Speech to U.S. executives

“Now one of the very first requirements for a man who is fit to handle pig iron as a regular occupation is that he shall be so stupid and so phlegmatic that he more nearly resembles in his mental make-up the ox than any other type...Therefore the workman who is best suited to handling pig iron is unable to understand the real science of doing this class of work. He is so stupid that the word `percentage’ has no meaning to him, and he must consequently be trained by a man more intelligent than himself into the habit of working in accordance with the laws of this science before he can become successful .” Frederick Winslow Taylor

The Prin. of Sci. Mgmt., 1911

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Such continuous improvement of the process is the reason for the learning

curve effect

$ unit production cost

cumulativeproduction output

0

0

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Specialization affects cost structure

Shift from variable to fixed costs fixed costs - specialized staff - engineering/maintenance variable costs - direct labor - materials - scrap

Increase in assets plant equipment/tools

volume

$ revenue/cost

1) specialized2) not specialized

F1

F2

BE2 BE1

revenue

Specialization tends to increase breakeven and operating leverage.NOTE: Average unit cost varies tremendously with volume!

Breakeven volume

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Specialization results in tremendous efficiency

“Whenever one can line up machinery for the making of exactly one thing and study everything to the end of making only that thing, then the savings which come about are startling.”

Henry Ford

Today and Tomorrow (1926)

• Ford’s assembly lines reduced the labor required to assemble an automobile chassis from 12.5 hrs. to 93 min.

• The most efficient car plants today (Japanese) have reduced the total labor content (direct, indirect and management) to under 20 hours per vehicle produced.

Some examples ...

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A BIG “problem”: product variety

• Variety reduces effectiveness of specialization– harder to effectively specialize tools– work methods more varied/complex– flow/sequence of tasks may fluctuate– balance along line may get disrupted (bottlenecks)

• Tremendous investment required to retool and redesign process

• RESULT: Production lines lack volume & mix flexibility“We believe that no factory is large enough to make two

kinds of products. Our organization is not large enough to make two kinds of motor cars under the same roof.”

Henry FordToday and Tomorrow (1926)

But variety provides value !!!

What are we to do?

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An aside: What is flexibility?

Definition: A process is flexible if its operating performance (quality, service standards, etc.) and unit cost are insensitive to “changes” in output.

• Volume FlexibilityProcess has same operating performance and unit cost regardless of the volume of the output (production rate).

• Product Mix FlexibilityProcess has same operating performance and unit cost regardless of the relative mix of outputs.

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Solution 1: Batch production• Produce products/service of similar type at the same time.• Reconfigure facility periodically to achieve variety in output.

• Allows some flexibility in volume and mix of outputs• Fundamental trade-off

– Switch-over/set-ups are expensive and time consuming– BUT … long production runs cause large cycle stocks

– Less efficient than truly dedicated process

Moderate efficiency with some volume & mix flexibility

Temporarily specialized production process.

inventorymodel #3X-45

timeproducing producingidle idle

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Solution 2: Job shop production

One-of-kind products (low volume/high variety)Set-up costs of batch production become prohibitive.

Solution:• Use only general purpose equipment

– increase flexibility– increase utilization– eliminate set-up/change-over costs

• Combine jobs to eliminate idleness• Reduce standardization of jobs to add flexibility (cross

training)• Rely on workers rather than work method and tools (e.g.

craftsmanship) for productivity/quality.• Workers reallocated or added/subtracted to adjust the

volume and mix of output. (“SCALEABLE”)

Least efficient, but high volume & mix flexibility

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Process choice is a strategic decision

• What do our customer’s value?– low prices– quality (What “type” of quality?)– variety, convenience and service

• How do we intend to differentiate ourselves in the market?

• What are the dominate characteristics of our market and product?– niche/mass– mature market/new market– stable/seasonal– mature prod. technology/rapidly evolving prod.

technologyGiven the answers to these questions, what process is best for each product or market?

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The product-process matrix

Process Efficiency/Flexibility

ProductVariety/Volume

L effec / H flex

H varietyL volume

Production Line

Job Shop

Batch Process

H effec / L flex

L varietyH volume

Continuous Flow

The Terrace,Commercial printer

Tom’s RestaurantHeavy Equipment

Burger KingAutomobile assembly

Paper mill

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Stages can be different (e.g. Benetton)

ProcurementKnitting

Assembly &Garment Dying Distribution

prod. line batch/job-shop prod. line

Color variety added here!

Standardized material & fabricationStandardized logistics & store operations

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The product-process life cycle (Hayes and Wheelwright)

• Early in a products life cycle ....– volumes are low– product design changes rapidly– process technology evolves rapidly– speed to market critical (first mover adv.)

• During maturity– volumes stabilize– product design/features stabilize– process technology stabilizes– first-mover advantage subsides

• In decline ...– volumes decrease– no new model variations– service parts/repairs dominate

job-shop

prod. line

batch

batch

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Matching process to local economics

• Factors of production differ– labor (skills and cost)– equipment– materials (availability and cost)– energy cost– transportation (infrastructure and cost)

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Product/process mismatches

• Conscious strategic choice• Incremental drift of markets/process• Applying same operations strategy to two

different markets• Progression through life cycle without

corresponding process change• Rapid advances in technology• Rapid product maturity

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Mission Investment Marketing SalesRequirements Strategy Strategy

Low Unit Cost Automation Narrow line and Priceconservative design competition

High serviceInventory Image of dependability Rapidlevel delivery

The Classic Facility MissionsMission Facilities Infrastructure LaborLow Unit Cost Specialized Materials

Repetitivemachines linked planning & control workby the time cycle

High serviceReserve machine Inventory management Overtime andlevel capacity idle time

Linking Strategies to Missions

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Burger King & McDonald’s

Kate GleasonElena KatzDan Brown

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McDonald’s & Burger King

1. Draw a process flow diagram of hamburger production in each restaurant.

2. What are the objectives of each operation? What standards (implicit or explicit) are used?

3. What major design choices has each firm made in terms of both their product and process? How do these choices reflect the differences in competitive strategy? In what ways do these design choices impact each restaurant's operating performance

4. What problems, limitations or competitive threats does each restaurant face as a result of their process choice?

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Two basic types of automation• Fixed automation

– special purpose (custom engineered for one operation)

– fixed tooling– fixed orientation– fixed sequence/motion

Another form of specialized tools

• Flexible automation– general purpose (capable of performing multiple operations)– multiple tools (tool magazine)– flexible orientation (multiple axis - XYZ)

– programmableOffers new possibilities

- tremendous product variety- flexibility (enter/exit markets, absorb variability in

demand)

- economies of scope (investment/capacity shared across several products)

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Examples of fixed automation– bread line – paper mill– steel mill– printing press– engine block transfer

line

production line/continuous flow processes

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Examples of flexible automation• Fabrication and

assembly– robots

• paint spraying• spot welding• assembly

– flexible machining center

– programmable punch press

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• Internet• Voice response unit (VRU) - Teleservicing• Optical bar codes

• Transactions and communications– electronic data interchange (EDI)– electronic funds transfer (EFT)

1 01658 348 3987

firm supplier

purchase order

invoice

ANSI X12

funds transferrequest

deposit confirmation

bank

Flexible automation in services

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Justifying investments in flexible automation is a bit tricky

• Investment scope is larger– several product lines– multiple product life cycles

• Requires specialized skills– software development– systems integration

• Intangible benefits are hard to quantify– reduced lead time, increased variety– shorter product life cycles, strategic capability

• New risks are introduced– obsolescence – system complexity

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Some mass customization success stories

– Motorola Pagers (Boynton Beach, Florida)• `Bravo’ model pager• varieties: color/frequency/vibration• mixed production/prototyping on same line

– ABB Stotz-Kontakt GmbH (Heidelberg)• electric overload switches• 80-85% stock, 15-20% custom• One day delivery on custom switches

– Levi Strauss Personal Pair Jeans• make-to-order custom sizes• computer order entry• 3-4 week lead time

– National Bicycles Ind. Co. (Osaka, Division of Panasonic)• market share in Japan: 9% (2nd largest)• customized, made-to-order bicycles• varieties: frame size/color/equipment• 3-4% of total annual volume of 700,000 (70,000 customized bikes

‘87-93)

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Levi’s Personal Pair Jeans

8 sizes(size 1-15, odd only)

3 lengths

12 waistsizes

8 hip sizes 4 rises 11 lengths

x

x x x = 4,224 total sizes

Traditional Sizing

Personal Pair Sizing

= 24 total sizes

And each size is available in 5 colors!

Price: $65 vs. $49 for standard Levi’s Lead time: 3-4 weeks

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National Bicycle

18 models(road, off-road,track)

15 frame sizes6 handlebar stems

3 handlebar widths

199 colorpatterns

2 pedal styles

3 toe clip styles

2 tire widths

2 namepositions 6 calligraphies

x x x

x x x x

x x = 11,231,860 total variations

Price: 150,000 Yen ($1300) - about twice price of mass produced bike

Lead time: 10 days manf., approx. 2-3 weeks total.

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But flexible automation can be misapplied

US Japan

#mach/system 7 6

#types of parts 10 93

ann. vol./part 1,727 258

daily tot. vol. 88 120

#new parts/yr. 1 22

#sys unattended 0% 78%

utilization 52% 84%

Based on study of 95 flexible manufacturing systems in the U.S. and Japan - more than half the installed FMSs at the time. (Jaikumar, HBR ‘86)

A Comparison of US and Japanese FMS

General Motors (Hamtramck plant, Detroit, 80’s) - “Technology leadership is what will keep us ahead.” Roger Smith, ‘81 - $80 billion investment in technology (EDS, Hughes) - Failed to improve productivity or quality.

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Looking ahead • Concept: The 3D Printer• Stereolithography (SLA)

– 3D Systems, Valencia, CA (1986)– Process

• 3D object represented in data base• Laser scans cross-sections of object in liquid polymer• Laser fuses polymer to form plastic object

• Selective Laser Sintering (SLS). – Sandia National Laboratory (Rapid Prototyping Lab,

1993)– Process

• Uses powdered wax fused by laser to produce wax model• Wax model coated in ceramic • Wax is melted to form ceramic mold for liquid metal• Metal casting made from mold• Takes 5 days versus several months to produce prototype

part

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Other strategies for mass customization

• Postponement (a la Benetton)– delay differentiation as much as possible– modularize design then assemble to order

• Design user configurable products/services– switchable power supply– IKEA modular furniture– customizable internet interface

Companies and industries are constantly redefining the technological frontier of the variety/cost trade-off.

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Summary

• There’s more than one way to make a product or provide a service!

• A firm’s technology choice (prod. line, batch, job shop) has profound business impact– value created (variety, quality, lead time, cost)– cost structure– flexibility

• Maintaining the right strategic match between a firm’s products/markets and processes is a dynamic process.

• Technology is constantly changing the efficient frontier.