B7801 - Operations Management
Agenda - 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
1
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.
2
Benetton’s Markets, Marketing &
Manufacturing Strategies
Jennifer Prosek
Luis Felli
3
Benetton’s Marketing and Manufacturing Strategies
Market Target
Marketing
Manufacturing
Young adults,
18 - 25
Fashion
conscious
Limited
budget
Active
Interested in
casual wear
4
What are production lines and why are they so
efficient?
Many “flavors” of production line
fabrication line
assembly line
packaging line
etc.
Q: Why are they so efficient?
A: Economies of specialization
1) job design and balance
2) layout
3) tools
4) time & motion
5
1) Job design and balance
Objective: Eliminate idle time
Several tasks required to complete a job.
• Example: hand packed fruit.
Brand X
• Tasks:
•
–
–
put paper divider in box
fill each section with appropriate fruit
•
•
–
–
oranges
grapefruit
place top on box
place label on box
Brand X
6
Divide tasks to create two jobs
Job 1
Job 2
place paper divider in box.
– fill appropriate sections
with fruit.
–
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
7
2) Specialized layout (“production line”)
Functional Layout
cut
grind
wasted movement and effort
weld
Product-Oriented Layout
minimal movement - operations are arranged
8
in the sequence required for production.
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)
9
An example: Quick Lube
Oil and Filter Change
Oil Reservoir
Filters
Waste Oil
10
4) Time and motion efficiency
•
Use of the human body
–
–
–
–
–
•
Arrangement of work
Two hands should begin
– Fixed stations for all tools.
and complete motion at the
– Preposition tools, materials
same instant.
and controls near workplace.
Both hands should not be
– Use gravity feed bins for
idle simultaneously.
material and finished work.
Motion of both hands
– Provide good illumination.
should be opposite and
– Height of worker should be
symmetrical.
adjusted for easiest motion.
Use lowest classification of
• Design of tools
motion possible 1)finger,
– Combine tools whenever
2)hand, 3) wrist, 4) arm
possible.
Continuous, curved motion.
– Handle should be large and
Avoid sudden changes in
contact entire hand.
direction.
– Locate tools to provide
greatest mechanical
advantage.
11
Example: time standards/operator charts
JOB 2: Putting cover and label on unit.
work area
layout
boxes
tote
Left Hand
1. Reach for box
2. Select box
3. Grasp box
4. Move box to assembly position.
5. Hold box.
6. “
7. “
8. “
9. “
10. Move assembly to tote
11. Release assembly
covers
Summary:
Total Steps: 11
Std. Time: 0:38
labels
Right Hand
1. Reach for cover
2. Select cover
3. Grasp cover
4. Move cover to assembly position.
5. Assemble cover to box
6. Reach for label
7. Grasp label.
8. Move label to assembly position
9. Assemble label to box
10. Idle
11. Idle.
12
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
13
Who should determine the best work methods?
Staff specialists (Taylorism)
“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
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
14
Such continuous improvement of the process is the
reason for the learning curve effect
$ unit production cost
0
0
cumulative
production output
15
Specialization affects cost structure
Shift from variable to fixed costs
fixed costs
- specialized staff
- engineering/maintenance
variable costs
- direct labor
- materials
- scrap
revenue
$ revenue/cost
F1
Breakeven volume
Increase in assets
plant
equipment/tools
F2
BE2
Specialization tends to increase breakeven and operating
leverage.
NOTE: Average unit cost varies tremendously with
volume!
BE1
volume
1) specialized
2) not specialized
16
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)
Some examples ...
• 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.
17
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 Ford
Today and Tomorrow (1926)
But variety provides value !!!
What are we to do?
18
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 Flexibility
Process has same operating performance and unit cost
regardless of the volume of the output (production rate).
•
Product Mix Flexibility
Process has same operating performance and unit cost
regardless of the relative mix of outputs.
19
Solution 1: Batch production
•
•
•
•
Produce products/service of similar type at the same time.
Reconfigure facility periodically to achieve variety in output.
Temporarily specialized production process.
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
–
inventory
model #3X-45
producing
–
idle
producing
idle
time
Less efficient than truly dedicated process
Moderate efficiency with some volume & mix flexibility
20
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
21
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. technology
Given the answers to these questions, what process is
best for each product or market?
22
The product-process matrix
H variety
L volume
Job Shop
The Terrace,
Commercial printer
Batch Process
Product
Variety/
Volume
Tom’s Restaurant
Heavy Equipment
Production Line
Burger King
Automobile assembly
Continuous Flow
L variety
H volume
Paper mill
L effec / H flex
Process Efficiency/Flexibility
H effec / L flex
23
Stages can be different (e.g. Benetton)
Standardized material & fabrication
Procurement
Knitting
prod. line
Standardized logistics & store operations
Assembly &
Garment Dying
batch/job-shop
Distribution
prod. line
Color variety added here!
24
The product-process life cycle
(Hayes and Wheelwright)
•
Early in a products life cycle ....
–
–
–
–
•
During maturity
–
–
–
–
•
volumes are low
product design changes rapidly
process technology evolves rapidly
speed to market critical (first mover adv.)
–
–
batch
prod. line
volumes stabilize
product design/features stabilize
process technology stabilizes
first-mover advantage subsides
In decline ...
–
job-shop
batch
volumes decrease
no new model variations
service parts/repairs dominate
25
Matching process to local economics
•
Factors of production differ
–
–
–
–
–
labor (skills and cost)
equipment
materials (availability and cost)
energy cost
transportation (infrastructure and cost)
26
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
27
Linking Strategies to Missions
Mission
Investment
Requirements
Marketing
Strategy
Sales
Strategy
Low Unit Cost
Automation
Narrow line and
conservative design
Price
competition
High service
level
Inventory
Image of dependability
Rapid
delivery
The Classic Facility Missions
Mission
Low Unit Cost
Facilities
Specialized
machines linked
by the time cycle
Infrastructure
Materials
planning & control
Labor
Repetitive
work
High service
level
Reserve machine
capacity
Inventory management
Overtime and
idle time
28
Burger King & McDonald’s
Kate Gleason
Elena Katz
Dan Brown
29
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?
30
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)
programmable
Offers new possibilities
- tremendous product variety
- flexibility (enter/exit markets, absorb variability in demand)
- economies of scope (investment/capacity shared across several products)
31
Examples of fixed automation
–
–
–
–
–
bread line
paper mill
steel mill
printing press
engine block transfer line
production line/continuous flow processes
32
Examples of flexible automation
•
Fabrication and assembly
–
robots
paint spraying
• spot welding
• assembly
•
–
flexible machining center
–
programmable punch press
33
Flexible automation in services
•
•
•
Internet
Voice response unit (VRU) - Teleservicing
Optical bar codes
1 01658 348 3987
•
Transactions and communications
–
–
electronic data interchange (EDI)
electronic funds transfer (EFT)
purchase order
firm
invoice
supplier
ANSI X12
funds transfer
request
bank
deposit
confirmation
34
Justifying investments in flexible automation is a bit
tricky
•
Investment scope is larger
–
–
•
Requires specialized skills
–
–
•
software development
systems integration
Intangible benefits are hard to quantify
–
–
•
several product lines
multiple product life cycles
reduced lead time, increased variety
shorter product life cycles, strategic capability
New risks are introduced
–
–
obsolescence
system complexity
35
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)
•
36
Levi’s Personal Pair Jeans
Traditional Sizing
8 sizes
(size 1-15, odd
only)
x
= 24
total sizes
3 lengths
Personal Pair Sizing
12 waist
sizes
x
8 hip
sizes
x
4 rises
x
11 lengths
= 4,224
total sizes
And each size is available in 5 colors!
Price: $65 vs. $49 for standard Levi’s
Lead time: 3-4 weeks
37
National Bicycle
18 models
(road, off-road,
track)
x
x
x
199 color
patterns
x
2 name
positions
x
15 frame sizes
2 pedal
styles
6 calligraphies
x
x
6 handlebar
stems
3 toe clip
styles
x
x
3 handlebar
widths
2 tire
widths
= 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.
38
But flexible automation can be misapplied
A Comparison of US and Japanese FMS
US
Japan
#mach/system
7
6
#types of parts
10
93
ann. vol./part
1,727
258
daily tot. vol.
88
120
1
22
0%
78%
52%
84%
#new parts/yr.
#sys unattended
utilization
Based on study of 95 flexible manufacturing systems in the U.S. and Japan - more than
(Jaikumar, HBR ‘86)
half the installed FMSs at the time.
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.
39
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
40
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.
41
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.
•
42