Management 370 Jersey SPRING 2013 Ramapo College of New REVIEW QUESTIONS FOR THE FIRST EXAM Do not assume that I will know what you are talking about so please answer the following questions as detailed and fully as you can. 1. Hyundai, an automobile company based in South Korea, has been in the US market since the late 1980s. It has positioned itself as a low-cost manufacturer with lower than average quality, reliability and selling prices. All of its offerings were sourced from factories in Korea. Shortly after the turn of the century, the company decided to reposition its brand from cost leadership to a differentiation strategy to sell stylish, appealing, high quality, high durability and high fuel efficiency automobiles. To support this new position in the US market, the company hired one of the foremost experts on Lean Production, John Krafcik, from Ford Motor Company. He became Hyundai’s Chief Strategy Officer and eventually the head of all US operations. In addition, the company built a modern assembly plant in Alabama which opened in 2006. How will the new factory and the new competitive position it is intended to support impact all other elements of Hyundai’s value chain? WORD FOR WORD Michael Porter first described “The Value Chain in his best seller, Competitive Advantage. The concept explained the chain of activities a firm performs in a certain industry. Below is Michael Porter’s Value Chain design. Up until the mid 2000’s, Hyundai has been a mid-sized car manufacturer based in South Korea sending inexpensive, low quality cars to America. Our image of Hyundai is a exactly that, low quality, inexpensive cars. Hyundai wanted to change that so they brought in a man named John Kraftk and built a new factory in Alabama. With these two new major components to Hyundai, the company attempted to reposition themselves to a differentiation strategy that included becoming stylish, high quality, and fuel efficient. The value chain will change drastically with this improvement. The Firm infrastructure will differ because of American culture, being in the United States means that the Alabama factory will have to play by American, not South Korean rules. The procurement was shifted to Just-inTime production to keep costs down by producing cars and selling them as demanded leaving time for capital to come in. Inbound and Outbound Logistics completely change as the factory is now in Alabama so no overseas shipping needs to be done for American sales. The technology available in America not only to the company, but in the hands of American citizens (such as access to mobile internet, television, etc.) is greater than in South Korea making it easier to market. Marketing is in charge of repositioning the brand from low quality, cheap cars – to high quality, desirable cars. All aspects of the value chain are changed during Hyundai’s repositioning and relocation, and it proved to be a good move because Hyundai is doing much better. 2. As a result of the decrease in the competitiveness of American companies during the 1980’s and 1990’s, the demand for US goods and services in the international market has continued to decline. Consequently, the US dollar has depreciated such that in order to recover the cost of producing cars in Europe, cars sold in the US by producers there required higher dollar prices compared to cars produced in America. To justify such higher prices, companies like Volkswagen sold cars which handled better (more sporty) on the road. That brand positioning however failed to yield high enough market shares for the company. To remedy this situation, Volkswagen wanted to lower the selling prices of its cars. To accomplish this, the company decided to build an assembly plant in the southern part of the United States. Using Michael Porter’s model, how will each of the components of the value chain be affected by this change in operations? If a company such as Volkswagen wanted to create an assembly plant in order to lower its prices, would create a new situation with each and every individual aspect of Michael Porter’s value chain. Starting with the infrastructure, the company would need to find a current location or build a new location to set up their assembly plant. This is the basis of the entire operation. The next thing that would be affected is the human resource management. The company would need to make sure there is a work force in the area or if locals would be available to hire after training to work in the plant. Another aspect of the value chain that would be affected is the technology development, if the company is creating an assembly plant they are going to want the latest of technologies to be included in this plant in order to maximize performance and outflow of the plant. The procurement would also be another factor that would be affected. The company must make sure that goods are services are available in the area or be delivered to the area for reasonable costs. The inbound logistics of the plant would be affected just as the procurement would be. The plant needs places to house inventory and a solid way for the products to be brought into the plant. The everyday operations of the company would obviously be affected more than any other, mainly by completely relocating the assembly plant. It takes time to get everything flowing and running to the company’s desired standards. The company needs also to get its outbound logistics in order as well. The company must have a way to get its new product to the customer. The company would also need to create an entirely new marketing and sales strategy for the current area, and would need to hire people to do so if you plan on selling the product in a new area, or even if you focus on selling more to that specific area than previously. The overall service would be affected in a positive way. To get the product from the assembly plant to the customers would now cost less money than before, in hopes of being able to lower prices of the product making it more available to a wider range of buyers. There is going to be a major change throughout the entire company and every aspect of the value chain is affected in a different way. 3. There are 10 decisions areas which pertain to Operations Management – design, quality, process selection, plant location, scheduling, layout, human resources, supply chain, inventory and maintenance. Discuss briefly how each of these will differ between a company that sells manufactured goods and one that sells service products. 4. How will each of the 10 decision areas which pertain to Operations Management of a brand name drug company differ from those of a generic drug manufacturer (such as the supplier of the drugs sold by Walmart or Shoprite)? im assuming this is the same question, just with shoes : WORD FOR WORD A brand name shoe company (such as New Balance) will differ from a generic shoe manufacturer (such as shoes sold by Walmart) in each of the 10 OM decision areas. The OM decision areas are based off each company’s competitive advantage. New Balance’s competitive differentiation is based on quality where Walmart’s shoes are based of low-cost. This diagram shoes the differentiation between Walmart’s shoes and New Balance’s shoes in each of the 10 OM decision areas. Goods and Service Design: New Balance – Invest capital in design of shoes to keep image up. Walmart Shoes – Basic shoes, in-expensive design investments to keep costs down. Quality: New Balance – Focus on high quality products by using more expensive materials. Walmart – Focus on inexpensive materials to keep costs low. Process and capacity design: New Balance – Focus more on quality and not quantity Walmart – Focus on most efficient process and capacity to mass product shoes to keep production cost per shoe low. Location Selection: New Balance – Keep in the US for higher image; get raw materials and labor from US which is more expensive Walmart – Outsource jobs nears the raw materials to keep costs low. Layout design: New Balance – Focus more on quality and not quantity Walmart – Focus on most efficient layout to mass product shoes to keep production cost per shoe low. Human Resources and Job Design: New Balance – Highly focus on HR and Job Design for technical skills and labor to keep customers happy, image high. Walmart – Low focus on HR and Job Design, cut COSTS! Supply Chain: New Balance – Needs to be important for maximum potential of a successful product. Walmart – Less important, again keep costs low. Inventory: New Balance – Just-in-Time production, trends may change you can’t have too many stored shoes. Walmart – Mass product, trends don’t matter for low costs Scheduling: NB: Level schedules WM: Very important, turnover is key to profit. 5. Use a diagram to present the concept of the Product Lifecycle, including Disposal. During each stage of this cycle, what are some of the issues which arise with regard to Operations Management? When does it make sense to outsource production to low-cost countries? It makes most sense to outsource production to a low-cost country during the Maturity stage. This is true because the product is now at its peak, but has been out long enough for any problems to be fixed. It is now time to maximize production and focus on cost cutting to maximize profits. 6. An American company has two manufacturing plants – one in the US and one in another country. Both produce the same item, each for sale in their respective countries. However, their productivity figures are quite different. As the Analyst, you think this is because the plant in the US uses more automated equipment for processing while the foreign plant uses a relatively higher percentage of labor. Referencing Chapter 2, explain how those factors can cause productivity figures to be misleading. Is there another more meaningful way to compare the two plants? These two plants are related through a transnational strategy. Transnational strategies exploit the economies of scale and learning, as well as pressure for responsiveness, by recognizing that core competence does not reside in the “home” country but can exist anywhere in the organization. Key activities in a transnational company are neither centralized in the parent company nor decentralized so that each subsidiary can carry out its own tasks on a local basis. Instead, the resources and activities are dispersed, but specialized so as to be both efficient and flexible in an interdependent network. The difference between the US using more automated equipment for processing while the foreign plant uses a relatively high percentage of human labor can be explained through what is called a “resources view.” This term is a method that managers utilize in order to evaluate the resources at their disposal and manage or alter them to achieve competitive advantage. In the US, we have the resources to capitalize on the advanced technology at our disposal in order to use more automated equipment, unlike other countries that may not be so resourceful. In that case, in order to keep up with production, they must increase the amount of human labor. Because of the difference between the available resources between the two countries, it can cause the productivity figures to be misleading. 7. Discuss fully the advantages and limitations of PERT/CPM. Advantages of PERT/CPM 1. Especially useful when scheduling and controlling large projects 2. Straightforward concept and not mathematically complex 3. Graphical networks help to perceive relationships among project activities 4. Critical path and slack time analyses help pinpoint activities that need to be closely watched 5. Project documentation and graphics point out who is responsible for various activities 6. Applicable to a wide variety of projects 7. Useful in monitoring not only schedules but costs as well Limitations of PERT/CPM 1. Project activities have to be clearly defined, independent, and stable in their relationships 2. Precedence relationships must be specified and networked together 3. Time estimates tend to be subjective and are subject to fudging by managers 4. There is an inherent danger of too much emphasis being placed on the longest or critical path 8. In modern project management, the criteria for success focus on project efficiency (triple constraints) and effectiveness (4 success variables). What is efficiency and what type of projects is it sufficient to determine whether or not the project was successful? What is effectiveness and when must it be used in addition to efficiency to evaluate project success? Explain your answers. WORD FOR WORD Project efficiency is the ability, usually by the project manager, to meet certain short-term project goals which can be generalized as optimizing the allocation of specific inputs to meet specific objectives. It is most appropriate in determining whether or not temporary endeavors (type of project) are sufficient; which is different from everyday operations of a company. Effectiveness is the long-term effects of the project on the customers, project team, business, and market in general. The three constraints of project efficiency are whether: 1. The Project is On-Time 2. The Project is On-Scope 3. The Project is On-Budget The Four Variables of effectiveness are whether: 1. The Impact on customer a. Satisfied b. Loyal c. Useful 2. Impact of Project Team a. Low Burn-Out b. Personal Growth c. Skills acquired 3. Success of Business a. Sales up b. Profits c. Turnover d. Quality 4. Preparing for the Future a. Developing new markets and tech b. Core competence Efficiency means doing the job well—with a minimum of resources and waste. The distinction between being efficient and effective is that efficient implies doing the job well while effective means doing the right thing. A job well done helps us be efficient, developing and using the correct strategy helps us be effective. The creation of goods and services requires changing resources into goods and services. The more efficiently we make this change, the more productive we are and the more value is added to the good or service provided. Efficient producing of goods and services requires effective applications of the concepts, tools, and techniques of OM. A type of project to determine whether or not the project was successful is by measuring its productivity (the ration of outputs—goods and services—divided by the inputs— resources such as labor and capital). Improving productivity means improving efficiency. Effectiveness must be used in addition to efficiency to evaluate a project’s success. One way to evaluate a project’s success is through a feedback loop. The feedback loop will evaluate the performance of a strategy and customer satisfaction in order to evaluate a projects success. 9. With regard to managing projects, a more enlightened approach has been suggested by, among others, Professor Aaron Shenhar of Rutgers Business School. He suggests that the approach should be based on a contingency model which consists of 4 project characteristics: novelty, technology, complexity and pace (the NTCP Model). Explain and provide examples for each of these characteristics.-Novelty–Derivative – modifications, extensions, improvements such as additional car models (Ipod mini compared to Ipod shuffle) –Platform – new generations of existing products such as hybrid cars (Xbox 360 compared to Xbox) –Breakthrough – radically new-to-the-world products such as all-electric cars, Post-it (Lightbulbs compared to candles and fire) -Technology –Low – existing, well-established (A two-sided picture frame) –Medium – incorporate new technology into an existing base technology such as electronic controls in washing machines (A TV with Wifi for Internet use) –High – most of the technologies already exist but are new to the firm (A magnetized car that lifts it off the ground) –Super-high – new technologies which do not exist at the start of the project (Teleports that transport things instantly) -Complexity -Assembly – collection of parts, components, modules such as a coffee machine (Lamp) -System – collection of highly interactive parts or subsystems such as a car or creating a new business unit (Gaming System) -Array – system of systems such as the air traffic control, power distribution, Mars landing mission (College campus) -Pace –Regular – not critical to success of organization (Gaming accessories, colored controllers, console face-plates) –Fast/competitive – address first-to-market opportunities (New smart-phone) –Time-critical – fixed window of opportunity such as the Y2K IT projects (Halloween supersale) –Blitz – solving a crisis such as the Gulf Oil Spill of British Petroleum (911, airport security) 10. For each of the 4 project characteristics – novelty, technology, complexity and pace - discuss the managerial approach which should be applied to a project. Provide an example for each characteristic or an integrated example that can cover all 4 variables. When a project is very novel (new) and requires super-high technology, what development process is recommended? Use an example, real or imagined to illustrate the process. 11. When is it necessary to use a qualitative approach to forecasting? Discuss the 4 methods used. Not word for word. The Qualitative Approach is used when situation is vague and little data exist. This usually occurs with new products or technology that involve intuition and experience, for example when the IPad first came out. There are four methods when using the Qualitative Approach to Forecasting. There is Jury of Executive Opinion, Delphi Method, Sales Force Composite, and Consumer Market Survey. Jury of Executive Opinion is Pool opinions of high-level experts, sometimes enhanced by statistical models. They are relatively quick meetings with a small group of high-level experts and managers where they combined managerial experience with statistical models. Delphi Method is a Panel of experts. It is an iterative group process, which continues until consensus is reached. The three participants are decision makers, who evaluate responses and make decisions, staff, who administer the survey, and respondents, who are people that can make valuable judgments. Sales Force Composite is estimates from individual salespersons, which know what the customer wants, rather then collective. Each salesperson projects his or her sales, combined at district and national levels, and they are reviewed for reasonableness. Consumer Market Survey would be to ask the customer about purchasing plans. It is sometimes difficult to answer because what the customers says and what the customers do are often different. 12. In the development of new products, Value Analysis or Value Engineering is performed to achieve better product performance at a lower cost. Explain the 3 primary principles used in this approach. Value engineering is the activities that help improve a product’s design, production, maintainability, and use. Value analysis seeks improvements that lead to either a better product or a product made more economically or a product with less environment impact. Their 3 main primary principles are design for quality, design for manufacturing and assembly, and design for sustainability. Design for quality is a knowledge system that gives all the necessary knowledge to a designer to achieve the requested “quality” of a product or process. In other words, it is the level of effectiveness of the design function in determining a product’s operational requirements that can be converted into a finished product in a production process. Design for manufacture and assembly focuses on the effect of design on assembly. It allows designers to examine the integration of product designs before the product is manufactured. For example, DFMA allows automobile designers to examine how a transmission will be placed in a car on the production line, even while both the transmission and the car are still in the design stage. Design for sustainability—also known as ecodesign—is the incorporation of environmental considerations in the design and development of products or services (the whole life cycle is considered). The entire product life cycle—from design to production, to final destruction or recycling—provides an opportunity to preserve resources and even benefit business. 13. Use a simple hypothetical example to illustrate that for a product composed of integrated components, its reliability a. will be impacted by the number of components b. will increase with a back-up to the components. What are the drawbacks of adding back- up components? 14. Draw a table to illustrate and discuss briefly the advantages and disadvantages of the following operations processes: Job shop/Craft, Batch, Repetitive/Assembly Line, Continuous and Mass Customization. 1. Job Shop/Craft: Customized goods/services (Custom Motorcycles) a. Pros: Handle wide variety of work b. Cons: Slow, high cost, complex 2.Batch: Semi-Standardized goods/services (Stock Automobiles) a. Pros: Flexible b. Cons: Moderate cost/scheduling complexity 3. Repetitive: Standardized goods/services (Fast Food) a. Pros: Low unit cost/high volume/high efficiency b. Cons: Low flexibility, high cost of downtime 4. Continuous/Mass Customization: Highly Standardized goods/services (Industrial Fans) a. Pros: Very Efficient/high volume b. Cons: Rigid, lack of variety, cost to change, high cost of downtime 15. Name 6 variables which can be examined to determine what process strategy (Job shop/Craft, Batch, Repetitive/Assembly, Continuous and Mass Customization) should be used for operations. Draw a diagram to illustrate how these variables determine which process is adopted.
