Case Problem AP21A Jakarta

Cases of Operation Management

Case #01: Operations Strategy in a Global Environment

“Motorola’s Global Strategy”

For years Motorola and other U.S. firms such as RCA, Magnavox,

Philco, and Zenith were among the world’s most successful

consumer electronics firms. In the face of withering competition from

the Japanese, however, these firms began to fall by the wayside.

Motorola has remained the exception: Today it is one of the world

leaders in mobile communication technology, including the

manufacture of cellular telephones, paging devices, automotive

semiconductors, and microchips used to operate devices other than

computers. Motorola has taken on the Japanese head-to-head.

Although it may have lost a few battles here and there, the firm has

won many more.

Motorola heard the call to battle in the early 1980s. The firm then

controlled the emerging U.S. market for cellular telephones and

pagers but, like many other firms at the time, was a bit complacent

and not aggressively focused on competing with the Japanese.

Meanwhile, Japanese firms began to flood the U.S. market with low-

priced, high-quality telephones and pagers. Motorola was shoved

into the background.

At first, managers at Motorola were unsure how they should

respond. They abandoned some business areas and even

considered merging the firm’s semiconductor operations with those

of Toshiba. Finally, however, after considerable soul searching, they

decided to fight back and regain the firm’s lost market position. This

fight involved a two-part strategy: First learn from the Japanese and

then compete with them.

To carry out these strategies, executives set a number of broad-

based goals that essentially committed the firm to lowering costs,

improving quality, and regaining lost market share. Managers were

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sent on missions worldwide, but especially to Japan, to learn how to

compete better. Some managers studied Motorola’s own Japanese

operation to learn more fully how it functioned; others focused on

learning about other successful Japanese firms. At the same time,

the firm dramatically boosted its budgets for R&D and employee

training worldwide.

One manager who visited Japan learned an especially important

lesson. While touring a Hitachi plant north of Tokyo, he noticed a

flag flying in front of the factory emblazoned with the characters

P200. When he asked what it meant, he was told by the plant

manager that the factory had hoped to increase its productivity by

200% that year. The manager went on to note somewhat dejectedly

that it looked as if only a 160% increase would be achieved.

Because Motorola had just adopted a goal of increasing its own

productivity by 20%, the firm’s managers soberly realized that they

had to forget altogether their old ways of doing business and

reinvent the firm from top to bottom.

Old plants were shuttered as new ones were built. Workers

received new training in a wide range of quality-enhancement

techniques. The firm placed its new commitment to quality at the

forefront of everything it did. It even went so far as to announce

publicly what seemed at the time to be an impossible goal: to

achieve Six Sigma quality, a perfection rate of 99.9997%. When

Motorola actually achieved this level of quality, it received the

prestigious Malcolm Baldrige National Quality Award.

Even more amazing have been Motorola’s successes abroad,

especially in Japan. The firm has 20 offices and more than 3,000

employees there. It is currently number three in market share there

in both pagers and cellular telephones. Worldwide, Motorola controls

much of the total market for these products, has regained its

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number-two position in semiconductor sales, and is furiously

launching so many new products that its rivals seem baffled.

Today, Motorola generates over 56% of its revenues abroad. Major

new initiatives are underway in Asia, Latin America, and Eastern

Europe. The firm has also made headway in Western Europe

against entrenched rivals Philips and Thomson. But not content to

rest on its laurels, Motorola has set new–and staggering–goals for

itself. It wants to take quality to the point where defects will be

counted in relation to billions rather than millions. It wants to cut its

cycle times (the time required to produce a new product, the time to

fill an order, and/or the time necessary to change a production

system from one product to another) tenfold every five years. It also

wants over 75% of its revenues to come from foreign markets by

2002.

DISCUSSION QUESTIONS

1. What are the components of Motorola’s international

strategy?

2. Describe how Motorola might have arrived at its current

strategy as a result of a SWOT analysis.

3. Discuss Motorola’s primary business strategy.

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Case #02: Product and Service Design

“Product Design at Regal Marine”

Global firms like Regal Marine know that the basis for an

organization's existence is the good or service it provides society.

Great products are the keys to success. With hundreds of

competitors in the boat business, Regal Marine must work to

differentiate itself from the flock. As you read in the Global Company

Profile that opened this chapter of your text, Regal continuously

introduces innovative, high-quality new boats. Its differentiation

strategy is currently reflected in a product line consisting of 22

models. But why must Regal Marine constantly worry about

designing new boats? The answer is that every product has a life

cycle. Products are born. They live and they die. As Figure 5.1

shows, a product's life cycle can be divided into four phases:

introduction, growth, maturity, and decline.

Figure 5.2 shows the four life cycle stages and the

relationship of product sales, costs, and profit over the life cycle of a

product. When Regal is developing a new model boat, it typically

has a negative cash flow. If the boat is successful, those losses may

be recovered and yield a profit prior to its decline. The life cycle for a

successful Regal boat is three to five years.

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To maintain this stream of innovative new products, Regal

constantly seeks design input from customers, dealers, and

consultants. Design ideas rapidly find themselves in Regal's styling

studio, where Computer Aided Design (CAD) technology speeds the

development process. A Regal design engineer can start with a

rough sketch or even just an idea and use the graphic display power

of CAD as a drafting board to construct the geometry of the new

boat. The CAD system helps the designer determine engineering

data such as the strength, dimensions, or weight. It also allows the

designer to be sure all parts will fit together. Existing boat designs

are always evolving as the company tries to stay stylish and

competitive. Moreover, with life cycles so short, a steady stream of

new products is required. A few years ago, the new product was the

3-passenger $11,000 Rush, a small, but powerful boat capable of

pulling a water-skier. The next year, it was a 20-foot inboard-

outboard performance boat with so many innovations that it won

prize after prize in the industry. Then it was a redesigned 42-foot

Commodore that sleeps six in luxury staterooms. With all these

models and innovations, Regal designers and production personnel

are under pressure to respond quickly.

By getting key suppliers on board early and urging them to

participate at the design stage, Regal improves both innovations and

quality while speeding product development. Regal finds that the

sooner it brings suppliers on board, the faster it can bring new boats

to the market. The first stage in actual production is the creation of

the "plug," a foam-based carving used to make the molds for

fiberglass hulls and decks. Specifications from the CAD system

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drive the carving process. Once the plug is carved, the permanent

molds for each new hull and deck design are formed. Molds take

about 4-8 weeks to make and are all handmade. Similar molds are

made for many of the other features in Regal boats–from galley and

stateroom components to lavatories and steps. Finished molds can

be joined and used to make thousands of boats.

Discussion Questions:

1. How does the concept of product life cycle apply to Regal Marine

products?

2. Why does Regal Marine suffer negative cash flow in introduction

stage of its product life cycle?

3. What strategy does Regal use to stay competitive?

4. What kind of engineering savings is Regal achieving by using

CAD technology rather than traditional drafting techniques?

5. What are the likely benefits of the CAD design technology?

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Case #03: Quality Management

“Quality at the Ritz-Carton Hotel Company”

Ritz-Carlton. The name alone evokes images of luxury and quality.

As the first hotel company to win the Malcolm Baldrige National

Quality Award, the Ritz treats quality as if it is the heartbeat of the

company. This means a daily commitment to meeting customer

expectations and making sure that each hotel is free of any

deficiency.

In the hotel industry, quality can be hard to quantify. Guests do not

purchase a product when they stay at the Ritz: They buy an

experience. Thus, creating the right combination of elements to

make the experience stand out is the challenge and goal of every

employee, from maintenance to management.

Before applying for the Baldrige Award, company management

undertook a rigorous self-examination of its operations in an attempt

to measure and quantifies quality. Nineteen processes were studied,

including room-service delivery, guest reservation and registration,

message delivery, and breakfast service. This period of self-study

included statistical measurement of process work flows and cycle

times for areas ranging from room service delivery times and

reservations to valet parking and housekeeping efficiency.

The results were used to develop performance benchmarks against

which future activity could be measured.

With specific, quantifiable targets in place, Ritz-Carlton managers

and employees now focus on continuous improvement. The goal is

100% customer satisfaction: If a guest's experience does not meet

expectations, the Ritz-Carlton risks losing that guest to competition.

One way the company has put more meaning behind its quality

efforts is to organize its employees into "self-directed" work teams.

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Employee teams determine work scheduling, what work needs to be

done, and what to do about quality problems in their own areas. In

order that they can see the relationship of the specific area to the

overall goals, employees are also given the opportunity to take

additional training in hotel operations. Ritz-Carlton believes that a

more educated and informed employee is in a better position to

make decisions in the best interest of the organization.

Discussion Questions:

1. In what ways could the Ritz-Carlton monitor its success in

achieving quality?

2. Many companies say that their goal is to provide quality products

of services. What actions might you expect from a company that

intends quality to be more than a slogan or buzzword?

3. Why might it cost the Ritz-Carlton less to "do things right" the first

time?

4. How could control charts, Pareto diagrams, and cause-and-effect

diagrams be used to identify quality problems at a hotel?

5. What are some non-financial measures of customer satisfaction

that might be used by the Ritz-Carlton?

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Case #04: Supply Chain Management

“Dell’s Supply Chain and the Impact of E-commerce”

Dell, the personal computer manufacturer highlighted in

chapter 7’s Global Company Profile, has long embraced the internet

and e-commerce in its supply chain. The figure at the bottom of this

page shows Dell’s unique e-commerce model.

Dell sell high-volume, low-cost products directly to end users.

Assembly begins immediately after receiving the customer order.

Traditional PC manufacturers, in contrast, have previously

assembled PCs ready for purchase at retail stores. Dell uses direct

sales, primarily the internet, to increase revenues by offering a

virtually unlimited variety of PC configurations or customize them.

Customization allows Dell to satisfy customers by giving them a

product that is close to their specific requirements. Options are easy

to display over the internet and allows Dell to attract customers that

value this choice. Dell also uses customized Web pages to enable

large business customers to track past purchases and place orders

consistent with their current needs. In addition, Dell constructs

special Web pages for suppliers, allowing them to view orders for

components they produce as well as current levels of inventory at

Dell. This allows suppliers to plan based on customer demand and

as a result reduces the bullwhip effect.

Products in the PC industry have life cycles of only a few

moths. But PCs across different manufacturers are highly

substitutable because they often have the same components. Thus

a firm like Dell, which brings products to market faster than the

competition, enjoys a huge early-to-market advantage. Competing

firms that sell through distributors and retailers have to fill shelves at

retailers before a product reaches the customer. Dell, in contrast,

introduces a new product to customers over the internet as soon as

the first of that model is ready.

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By using direct sales (phone and Internet) to sell PCs, Dell is

able to eliminate distributor and retailer margins and increase its

own margin. The direct sales model allows Dell customers to place

orders at any time of the day from anywhere in the world and is

much cheaper; retail stores have a huge array of additional costs

because of their bricks-and-mortar model. Direct sales allow Dell to

collect payment for its PCs in a matter of days after they are sold.

However, Dell pays its suppliers according to the more traditional

billing schedules. Given its low levels of inventory, Dell is able to

operate its business with negative working capital because it

manages to receive payment for its PCs an average of 5 days

before it plays its suppliers for components. A PC supply chain that

includes distributors and retailers finds it nearly impossible to

achieve these results.

Dell’s order processing, products, and assembly lines are

designed such that all components on which customers are offered

customization can be assembled in a matter of hours. This allows

Dell to postpone assembly until after the customer order has been

placed. As a result, Dell holds inventory in the form of components

that are common across a wide variety of finished products.

Postponement, component modularity, and tight scheduling allow

low inventory and support mass customization. Dell maximizes the

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benefit of postponement by focusing on new PC models for which

demand is hard to forecast.

PC manufacturers who sell via distributors and retailers find

postponement virtually impossible. Therefore, traditional PC

manufacturers are often stuck with PC configurations that are not

selling while simultaneously being out of the configurations that are

selling. Dell, in contrast, is better able to match supply and demand.

Dell’s e-commerce model results in higher shipping costs

than, selling through distributors and retailers, however, Dell sends

individual PCs to customers from its factories. Because these

shipments are small (often one or a few PCs), manufacturers selling

through distributors and retailers ship with some economy of scale,

using large truck shipments to warehouses and retailers, with the

end user providing the last portion of delivery. The Dell supply

chain’s outbound transportation costs are higher, but relative to the

price of a PC, transportation cost is low (typically 2% to 3%), and

thus the impact on the overall cost is low.

Discussion Questions

1. Although it might seem that Dell, with its build-to-order model,

is best equipped to benefit from e-commerce, a traditional PC

manufacturer, selling through distributors and retailers, may

also have a lot to gain from e-commerce. Why?

2. How has Dell exploited the advantage of the internet to

improve performance?

3. What is the main disadvantage of Dell’s selling PCs over the

internet?

4. How does Dell compete with a retailer who already has a PC

in stock?

5. How does Dell’s supply chain deal with the bullwhip effect?

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Case #05: Just-In-Time

“Mutual Insurance Company of Iowa”

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Mutual Insurance Company of Iowa (MICI) has a major insurance

office facility located in Des Moines, Iowa. The Des Moines office is

responsible for processing all of MICI's insurance claims for the entire

nation. The company's sales have experienced rapid growth during the

last year, and as expected, record levels in claims followed. Over 2,500

forms for claims a day are now flowing into the office for processing-.

Unfortunately, fewer than 2,500 forms a day are flowing out. The total

time to process a claim, from the time it arrives to the time a check is

mailed, has gone froth 10 days to 10 weeks. As a result, some customers

are threatening legal action. Sally Cook, the manager of Claims

Processing, is particularly distressed as she knows that a claim seldom

requires more than 3 hours of actual work. Under the current

administrative procedures, human resources limitations, and facility

constraints, there appear to be no easy fixes for the problem. But clearly,

something must be done, as the workload has overwhelmed the existing

system.

MICI management wants aggressive, but economical, action

taken to fix the problem. Ms. Cook has decided to try a JIT approach to

claim processing. With support from her bosses, and as a temporary fix,

Cook has brought in part-time personnel from MICI sales divisions across

the country to help. They are to work down the claims backlog while a

new JIT system is installed.

Meanwhile, Claims Processing managers and employees are

to be trained in JIT principles. With JIT principles firmly in mind, managers

will redesign jobs to move responsibilities for quality control activities to

each employee, holding them responsible for quality work and any

necessary corrections. Cook will also initiate worker-training programs

that explain the entire claim processing flow, as well as provide

comprehensive training on each step in the process. Data entry skills will

also be taught to both employees and managers in an effort to fix

responsibility for data accuracy on the processor rather than data entry

clerks. Additionally, emphasis will be placed on cross training to enable

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workers within departments to process a variety of customer claim

applications in their entirety.

Cook and her supervisors are also reexamining the insurance and

claim forms currently in use. They want to see if standardization of forms

will cut processing time, reduce data entry time, and cut work-in-process.

They hope the changes will also save training time. Making changes in

work methods and worker skills leads logically to a need for change in the

layout of the Claims Processing Department. This potential change

represents a major move from the departmental layout of the past, and

will -be a costly step. To help ensure the successful implementation of

this phase of the changeover, Cook established a team made up of

supervisors, employees, and an outside office layout consultant. She also

had the team visit the Kawasaki motor cycle plant in Lincoln, Nebraska, to

observe their use of work cells to aid JIT.

The team concluded that a change in the office facilities is

necessary to successfully implement and integrate JIT concepts at MICI.

The team believes it should revise the layout of the operation and work

methods to bring them in line with "group technology cell" layouts. An

example of the current departmental layout and claim processing flow

pattern is presented in Figure S 12.6.

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Figure S12.6: Claims Processing Layout

As can be seen in this figure, customer claims arrive for

processing at the facility and flow through a series of offices and

departments to eventually complete the claim process. While the

arrangement of the offices and workers in Figure S12.6 is typical, the

entire facility actually operates 20 additional flows, each consisting of

the same three departments. However, not all of the 20 flows are

configured the same. The number of employees, for example, varies

depending on the claim from requirements (larger claims have to be

approved by more people). So while all forms must pass through the

same three departments (Customer Claim Entry, Accounting. and

Customer Claim Approval), the number of workers for each claim may

vary from two to four. For this reason, the MICI facility currently

maintains a staff of over 180 office workers just to process and route

claims. All of these people work for Ms. Cook.

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1. Identify the attributes you would expect the Claims Processing

Department at MICI to have once the new ".117-systern is in

place.

2. What would the restructured cell layout for claim processing in

Figure S 12.6 look like? Draw it.

3. What assumptions are you making about personnel and

equipment in the new group technology cell layout?

4. How will the new JIT oriented system benefit the MICI operation?

Explain.

Source: Adapted from Marc J. Schniederjans. Topics in Just-in-Time

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Case #06: Project Management

“ Managing Hard Rock’s Rock Fest

At the Hard Rock Cafe, like many organizations, project

management is a key planning tool. With Hard Rock’s constant

growth in hotels and cafes, remodeling of existing cafes, scheduling

for Hard Rock Live concert and event venues, and planning the

annual Rockfest, managers rely on project management techniques

and software to maintain schedule and budget performance.

“Without Microsoft Project,” says Hard Rock Vice-President Chris

Tomasso, “there is no way to keep so many people on the same

page.” Tomasso is in charge of the Rockfest event, which is

attended by well over 100,000 enthusiastic fans. The challenge is

pulling it off within a tight 9-month planning horizon. As the event

approaches, Tomasso devotes greater energy to its activities. For

the first 3 months, Tomasso updates his MS Project charts monthly.

Then at the 6-month mark, he updates his progress weekly. At the

9- month mark, he checks and corrects his schedule twice a week.

Early in the project management process, Tomasso identifies 10

major tasks (called level 2 activities in a work breakdown structure,

or WBS):† talent booking, ticketing, marketing/PR, online promotion,

television, show production, travel, sponsorships, operations, and

merchandising. Using a WBS, each of these is further divided into a

series of subtasks. Table 3.8 (see page 100 in textbook) identifies

26 of the major activities and sub activities, their immediate

predecessors, and time estimates. Tomasso enters all of these into

the MS Project software.‡ Tomasso alters the MS Project document

and the time line as the project progresses. “It’s okay to change it as

long as you keep on track,” he states.

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The day of the rock concert itself is not the end of the project

planning. “It’s nothing but surprises. A band not being able to get to

the venue because of traffic jams is a surprise, but an 'anticipated'

surprise. We had a helicopter on stand-by ready to fly the band in,”

says Tomasso.

On completion of Rockfest in July, Tomasso and his team have a 3-

month reprieve before starting the project planning process again.


1. Identify the critical path and its activities for Rockfest. How long

does the project take?

2. Which activities have a slack time of 8 weeks or more?

3. Identify five major challenges a project manager faces in events

such as this one.

4. Why is a work breakdown structure useful in a project such as

this? Take the 26 activities and break them into what you think

should be level 2, level 3, and level 4 tasks.

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References

Brian McWilliams, “Reengineering the small Factory,” Inc. Technology, March 19, 1996

Griffin, R. W. and M. W. Pustay, International Business: A Managerial Perspective, Second Edition, (pages 647/648) © 1999, 1996 Addison Wesley Longman. Reproduced by permission of Addison Wesley Longman. All rights reserved.

Heizer, J. and Render, B, 2004, Operation Management, Seventh Edition, Prenhall, p. 185.

Horngren, C. T., Foster, G. and S. M. Dator, Cost Accounting, 11th ed. (Upper Saddle River, NJ: Prentice Hall, 2003).

Krajewski and Ritzman, Operations Management: Strategy and Analysis, 6th ed., Addison-Wesley Publishing Company, 2001

Murdock Robert G, Render Russell Barry and Roberta S., Service

Operation Management, Prentice-Hall, Inc, 1990

Presentation of the Alternative Work Structure Team, “Huffy Bicycles, at the Case Studies in Team Excellence Competition,” The Ohio manufactures’ Association, Columbus, Ohio, October 6, 1993

Ricard B, Chase, Robert Jacobs, Nicholas J., Aquilano, Operation Management for Competitive Advantage, tenth edition, 2006

Russell Roberta S. and Taylor III, Bernard W., Operation Management, 3rd ed., Upper Saddle Rivers, NJ: Prentice-Hall, Inc, 2000

Saladin, Brooke, case prepared as a basis for classroom discussion, at Wake Forest University,

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