Capacity Measurement

Today's case study from Collier (2015) chapter 10 provided an opportunity to experiment with two capacity measurement formulas:

• capacity required for an individual work order (Ci)
• total capacity required for the shop (sum Ci)

These formulas are detailed on Collier (2015), p. 208.

Applying these formulas to the David Christopher case is a bit tricky, as the "set-up time" used by our orthopedic surgeons actually does vary with volume, unlike the standard set-up time in a factory setting. Most of you caught this variation, and accommodated for it in your calculations. Congratulations! Here's a video detailing the calculations for this case...

Now the question is what to do about the delta between Dr. Christopher's available capacity and demand? Many of you suggested variations on hiring another surgeon (maybe part time), hiring other non-physician staff to free up the doctors, and reducing set-up/changeover time.

Kristen, Michael, and others had an important conversation about the costs associated with hiring another physician, and the hope that increased capacity would generate new revenue. What we don't know from the case are demand trends that might change this hope into a reality. It would be helpful to have that info.

Personally, I'm a fan of having a fully rested physician operating on me, so I'm a supporter of the set-up times between procedures (many of you want to reduce those times). Let me suggest another non-hiring alternative: what about using one Friday per month as a surgery day? Most other Fridays would still be available for conferences, etc. Then if demand warranted additional capacity, another surgeon could be hired after X period of time. Something to think about.

Now, how might you be able to apply these capacity measurement tools to your case study companies?

Capacity Management

Today's discussion board posts provided a number of insights about how different businesses manage their capacity: the ability "to accomplish their purpose over a period of time." (Collier & Evans, 2015, p. 205). We can measure capacity in two ways:

• maximum rate of output per unit of time (e.g., number of pizzas/hour)
• units of resource availability (e.g., number of seats in McInnis Auditorium)

As many of your pointed out through your posts, capacity is relevant to both goods and services producing businesses. It can be impacted by facility size/location, process design, workstation or equipment. Watch this video for a helpful introduction.

It is important to distinguish capacity management from inventory management. When we're talking about capacity management, were talking about maximum rates of output or resources availability based on constraints imposed by the facility, process or workstation design, or equipment. Inventory availability will certainly impact our ability to run our processes at full capacity, but it does not determine capacity. For example, a movie theatre may have 500 seats (its capacity), but the number of customers may not fill the theatre at any one showing. This lower number of customers does not result in lower capacity.

The intent of today's assignment was to give you a head start on case study part 3, item 4: planning and control tools. Today's capacity management topic fits under that umbrella. See these posts in today's discussion board for helpful examples as you continue to develop your own final case study installment:

• Long and/or short term capacity management strategies: Andrew B., Lauren S., Michael G., Katie K. 
• Short-term capacity management via labor skills mix: Jacob S., Mario M.
• Short-term capacity management via labor capacity & schedules: Edem A. & Xia C., then see Ryan's post for thoughts about the down side of this method over the long-term.

Finally, Kyle presents an example of a company that has created a distribution system with a large amount of capacity flexibility. What specific tools from Collier & Evans (2015), chapter 10, do you see at work in Kyle's example?

Lean Operating Systems

Today we were introduced to a successful example of lean operating systems implementation through our case study at the end of Collier and Evans (2015) chapter 17. The videos below are helpful supplements to our reading, highlighting some of lean's key concepts. We'll put these concepts to work in class next week. We'll also apply them in case study, part 3.

An introduction to lean.

This next video captures Collier and Evan's (2015) four principles of lean, but in a slightly different way.

And now a review of the seven types of waste. Note that the narrator adds an eighth type. This video does a particularly good job applying lean to service environments.

Finally, this video highlights some additional lean concepts not captured in today's case study, but that are critical to lean operations. Can you identify the concepts and tools we've discussed earlier in the semester?

Reference

Collier, D.A. & Evans, J.R. (2015). OM5. Boston: Cengage Learning.

Pareto Charts & Fish Bone Diagrams

Xia makes an important connection in today's discussion board between Pareto charts and cause-and-effect (or fish bone) diagrams. She proposes that fish bone diagrams can be used to dig into the top problem(s) identified in a Pareto chart for the purpose of conducting root cause analysis. This is absolutely correct. The combination of Pareto charts and fish bone diagrams is a powerful quality assurance tool.

This video from Jay Arthur (author of Lean Six Sigma Demystified) connects Pareto charts and fish bone diagrams, and succinctly explains how the "5 whys" can be used to complete the cause-and-effect chart.

Process Mapping

Process mapping is an important tool in process design and process improvement. One critical aspect of process improvement is identifying valued-added activities and waste. Waiting time is always a form of waste (we'll talk about this more in our lean module in the coming weeks). We can identify waste in a process by taking process mapping a step further using value stream mapping. Take a look at this video for a helpful introduction to value stream mapping.

Several of your process maps included a number of different parties participating in the process. Xia's map of the "fulfillment by Amazon" (FBA) process is a good example. Sometimes we want to have a clear picture of who's responsible for what step of the process and when. We do this using a swim lane diagram. The approvals swim lane diagram below uses all of the flow charting symbols we used in today's project, but organizes them by responsible party using "swim lanes".

Source: Paul Kerr, Wikimedia Commons, Public Domain

This next video provides a helpful tutorial on how to get started with a swim lane diagram. 

How might you use this tutorial to convert Xia's FBA process map into a swim lane diagram?

The Wedding Wagon

Collier & Evans (2015) characterize four basic process types: project, job shop, flow shop, and continuous flow. How would you classify this process, and where would you place it on their service positioning matrix. How might that be different from more traditional wedding planning?




Reference: Collier, D.A. & Evans, J.R (2015). OM5. Boston: Cengage Learning.

How to Create a Productive Office Space

View image | gettyimages.com

Here's a useful article covering the basics of office space design. Check it out and enjoy: How to Create a Productive Office Space

Store Location Using the Factor Weighting Method

Save-A-Lot is a good example of a company using a cost leadership strategy to meet unique needs in the  marketplace. This video from Good Morning America provides a nice overview of their strategy from the consumer's side of the check-out counter.



World News Videos | US News Videos

Save-A-Lot operationalizes their cost leadership strategy using a limited-assortment approach to grocery retailing. Their stores are smaller than conventional grocery stores, and carry a reduced number of SKUs (as you saw in the GMA video). The site requirements you built into your factor weighting grids all play a key role in ensuring each Save-A-Lot location is sustainable over the long term. See Julie, Kristen, Andrew and Eddie's posts for good examples of grids with well considered factor weightings.

Ryan brings up another important point in his grid and question to Eddie: the role of median family income. Save-A-Lot's operationalization of its cost leadership strategy allows it to locate in neighborhoods with median household incomes below $45,000 (approximately). These neighborhoods are often neglected by conventional supermarkets, resulting in Save-A-Lot meeting a real social need. This story from WCPO in Cincinnati illustrates just such a circumstance (note the importance of foot traffic for this location).

This video shed new light on Save-A-lot's site requirements, helping us to understand the role/importance of each factor. A special shout-out to Lauren and Micah who not only created their factor weighting grids, but researched location data to come up with some potential store sites (though they didn't identify this location).  :-)   Nice work!

As we discussed in class, the factor weighting grid can be used for any number of management decisions. You now have a tool you can put to use in a variety of OM settings and circumstances; anytime you have multiple variables against which you need to exercise managerial discretion and judgement in making your decision.

Fashion Supply Chain Case

H&M business concept | Source: about.hm.com

Thanks for your thoughtful comparisons of the H&M and Zara supply chains this week . Many of you made the point that these two supply chains have similarities, but also some important differences. See Kristen, Andrew, Mario, Michael, and Micah's posts for excellent comparisons of the two supply chains using the SCOR model. 

A central concept in supply chain design is effectiveness. How do we determine and design the most effective supply chain for our business? The answer to this question goes back to our company's overall strategy. Do we want an efficient supply chain, a responsive supply chain, or some combination of both? (See Collier & Evans, 2015, chapter 9, for a full discussion of the differences between these choices.)

H&M identifies their core business concept is "fashion and quality at the best price". Fashion certainly implies some level of supply chain responsiveness, but H&M spends significant time and energy outlining the efficiency aspects of their supply chain design as well. H&M ensures best price by designing in-house, purchasing in large volumes, efficient logistics, and overall cost consciousness (H&M, 2015). Zara, as Mario points out in his post, has a different focus. Zara clearly comes down on the responsiveness side of the design discussion with their focus on fast fashion. Your posts this week and earlier in the month detail how Zara delivers on their fast fashion commitment.

Sustainability is an important third measure of supply chain effectiveness. Andrew and Jacob point out H&M's efforts in this area. Resource efficient transportation is an important part of the H&M sustainability mix, as are reverse logistics: taking back used clothing for fabric re-purposing or fiber recycling. Note that the most resource efficient transportation methods are also the slowest. This is not necessarily a problem for supply chains that are strictly designed for efficiency, but can be problematic for supply chains designed to be responsive. It will also be a challenge for supply chain design that seeks to balance both efficiency and responsiveness. 

So, which supply chain design is most effective? The answer is the supply chain that best supports the company's strategy and facilitates delivery of the their customer benefit package. Be sure to consider these issues of efficient, responsiveness, sustainability and alignment with company strategy as you conduct the supply chain analysis in your case studies.

Enjoy the weekend. Stay warm. We'll continue our supply chain discussion in class on Monday. See you then!

References

Collier, D.A. & Evans, J.R. (2015). OM5. Boston: Cengage Learning.

H&M (2015). About H&M: Our business concept. Retrieved from http://about.hm.com/en/About/facts-about-hm/about-hm/business-concept.html. 

Zara Case

Zara, Rittenhouse Square, Philadelphia, PA / Photo by Tsedey Bogale on Google Maps

The Zara case provides us with an interesting example of value chain integration that runs contrary to many of their competitors. Rather than outsource all manufacturing and sell through others retailers, Zara's value chain includes a significant vertical integration component.

Many of you identified Zara's stores as an example of forward integration. But Zara's most unusual approach is their backward integration highlighted by Eddie and Michael. As Kristen and Jacob note, Zara makes 40% of their own fabric and 60% of their own merchandise. Key to their vertical integration are the lean and just-in-time practices identified by Julie, Kristen and Andrew. We'll talk more about "lean thinking" in the weeks to come. The key thing for us to understand at this point is that lean manufacturing and just-in-dime processes significantly reduce waste of all types in the value chain. This helps deliver savings to the organization. Think back to our Interface discussion in class... Interface financed their product and equipment innovations through savings garnered through lean practices. For Zara, lean and JIT help address Tim's question regarding the risk of being on the cutting edge of fashion: what do you do with leftover inventory when customer taste changes? Zara has a lower unsold item rate than the industry average, and they get closer to full price on the clothes they sell than most other fashion retailers. (See the Berfield and Biagorri (2013) Bloomberg Business article.)

Some of your most interesting questions and discussion centered on the value this vertical integration creates for Zara customers, and whether this model can be duplicated by competitors. Julie helps us with this discussion by first clearly linking the value created in the value chain with our value equation (see Collier, 2015, p. 26) and the customer benefit package (CBP) discussed in chapter 1. It is this relationship between affordable price (driven by Zara's lean/JIT value chain) and leading-edge fashion that creates value for Zara customers. Julie, Katie, Kristen, Lauren, Andrew, Kyle, Mario, Michael, and Ryan all ask or discuss this question: can Zara's model be duplicated? Perhaps, but not easily. In a future case we'll see the steps that H&M has taken to speed new fashions to their stores, but they do so without attempting the vertical integration we witness in the Zara model.

So what is it that makes this model so difficult to duplicate? More to come as our study of OM progresses this semester.

Reference

Collier, D.A. & Evans, J.R. (2015). OM5, Boston: Cengage Learning.

Sustainable OM

Hi all. Thanks for the excellent discussion on Spencer, White & Vroblesky (2009), chapter six. The authors challenge us by boiling down all of our reading to date into this one controlling idea: sustainability is all about the quality of relationships between God and human beings. This controlling idea echoes Nicholas Wolterstorff's characterization of shalom. This Hebrew word is often translated as peace in English Bibles. Wolterstorff (1983) argues that the peace of shalom is not simply an absence of violence, but is also the enjoyment of one's relationships with God, fellow human beings, oneself, and also the environment. This is the full meaning of shalom. We see all of these elements in Spencer's eight principles for sustainable living and your Blackboard posts.

The theme in many of your questions and response to one another revolved around application. What does "sacrifice" look like? (Katie and Mario.) How do we change the our perspective of industry so that we can approach caring for creation as a joy rather than a regulatory burden or hurdle to overcome? (Ryan, Michael, Tim & Mario.) How do we build justice for the vulnerable and the marginalized into the fabric of our businesses? (Katie, Julie, Andrew, Micah & Justus.) Whose job is it to ensure healthy relationships inside our companies (Tim & Kyle), and can a desire for improved relationships be intrinsic for business owners, managers and leaders? (Andrews, Kyle & Katie.)

As you might guess, there is no one way to answer these questions. The response/solution that each business provides will be different. The important thing is that you are all thinking about how to operationalize these concepts that stand in contrast to the common ways of conducting American business. We'll be discussing these questions throughout the semester in our study of operations management.

The owners of Broetje Orchards have asked many of the same questions, answering them in the design of their business strategy and their daily operations. Click on the image/link above to see how First Fruits applies Spencer's controlling idea, incorporating all four aspects of relationship identified by Wolterstorff. In the coming weeks we'll examine similar cases initiated by business owners operating from a non-faith based perspective.

So until Monday, may you enjoy all of your relationships!

References

Spencer, N., White, R. & Vroblesky, V. (2009). Christianity, climate change and sustainable living. Peabody, MA: Hendrickson.

Wolterstorff, N. (1983). Until justice and peace embrace: The Kuyper lectures for 1981 delivered at the Free University of Amsterdam. Grand Rapids, MI: Eerdmans.