VTU- MBA DEPT- III SEM –(2009-11 BATCH)

ADVANCED OPERATIONS MANAGEMENT ( SUB.CODE : PBAA51)

V UNIT- CASE STUDIES

CASE STUDY : 1

ROCHESTER MANUFACTURING CORPORATION

Rochester Manufacturing Corporation (RMC) is considering moving some of its production from

traditional numerically controlled machines to a flexible machining system (FMS). Its numerical control

machines have been operating in a high variety, low volume, intermittent manner. Machine utilization

as near as it can determine is hovering around 10%. The machine tool salespeople and a consulting firm

want to put the machines together in an FMS. They believe that a #3,000,000 expenditure on machinery

and the transfer machines will handle about 30% of RMC’s work. There will of course be transition and

start-up costs in addition to this.

The firm has not yet entered all its parts into a comprehensive group technology system, but

believes that the 30% is a good estimate of products suitable for the FMs. This 30% should fit very nicely

into a family. A reduction because of higher utilization, should take place in the number of pieces of

machinery. The firm should be able to go form 15 to about 4 machines and personnel should go form 15

to perhaps as low as 3. Similarly, floor space reduction will go from 20,000 square feet to about 6,000.

Throughput of orders should also improve with processing of this family of parts in 1 to 2 days rather

than 7 to 10. Inventory reduction si estimated to yield a one time $750,000 savings, and annual labor

savings should be in the neighborhood of #300,000.

Although the projections all look very positive, an analysis of the project’s return on investment

showed it to be between 10% and 15% per year. The company has traditionally had an expectation that

projects should yield well over15% and have payback periods of substantially less than 5 years.

DISCUSSION QUESTIONS :

1. As a production manager for RMC, what do you recommend? Why?

2. Prepare a case by a conservative plant manager for maintaining the sdtatus quo until the returns are

more obvious.

3. Prepare the case for an optimistic sales manager that you should move ahead with the FMS now.

CASE STUDY : 2

CASE COPPER KETTLE CATERING

Copper Kettle Catering (CKC) is a full service catering company that provides services ranging

from box lunches for picapics or lunch on meetings to large wedding, dinner, or office parties.

Established as a lunch delivery service for office parties. Established as a lunch delivery service for offices

in 1972 by Wayne and Janet Williams, CKC has grown to be one of the largest catering businesses in

Raleigh, North Carolina. The Williams divide customer demand into two categories : deliver only and

deliver and serve.

The deliver only side of the business provides drop-off of boxed meals consisting of a sandwich,

salad, dessert, and fruit. The menu for this service is limited to six sand which selections, three salads or

potato chips, and a brownie or fruit bar. Grapes and an orange slice are included with every meal, and

iced tea can be ordered to accompany the meals. The overall level of demand for this service

throughout the year is fairly constant, although the mix of menu items delivered varies. The planning

horizon for this segment of the business is short customers usually call no more than a day ahead of

time. CKC requires customers to call deliver only orders in by 10,00 am to guarantee delivery the same

day.

The deliver and serve side of the business focuses on catering large parties, dinners, and

weddings. The extensive range of menu items includes a full selection of hors poevres, entries,

beverages and special request items. The demand for these services is much more seasonal, with

heavier demands occurring in the ate spring early summer for weddings and the late fall early winter for

holiday parties. However, this segment also as a longer planning horizon. Customers book dates and

choose menu items weeks or months ahead of time.

Copper Kettle Company’s food preparation facilities support both operations. The physical

facilities layout resembles that of a job shop. There are five major work areas : a stove oven area for hot

food preparation, a cold area for salad preparation, an hors dioeuvre preparation area, a sandwich

preparation, area and an assembly area where deliver only orders and based on deliver and serve orders

are assembled and trayed. Three walk in coolers store food requiring refrigeration, and a large pantry

houses nonperishable goods. Space limitations and the risk of spolilage limit the amount of raw

materials and page pared food items that can be carried in inventory or any one time. CKC purchases

desserts from outside vendors. Some deliver the desserts to CKC others require CKC to send someone to

pick up desserts at their facilities.

The scheduling of orders is a two stage process. each Monday the Williams develop the schedule

of deliver and serve orders to be processed each day. CKC typically has multiple deliver and serve orders

to fill each day of the week. This level of demand allows a certain efficiency in preparation of multiple

orders. The delivery only orders are scheduled day to day owning to the short order lead times. CKC

Sometimes runs out or ingredients for deliver only menu items because of the limited inventory space.

Wayne and Janet Williams have 10 full time employees two cooks and eight food preparation

workers, who also work as servers for the deliver and serve orders. In periods of high demand, the

williamses hire additional part time servers. The position of cook is speciliased and requires a high

degree of training and skill. The rest of the employees are flexible and move between tasks as needed.

The business environment for catering is competitive. The competitive priorities are high quality

food, delivery reliability, flexibility and cost in that order. The quality of the food and its preparation a

paramount states wayne willaims, caterers with poor quality food will not stay in business long. Quality

is measured by both freshness and taste. Delivery reliability encompasses both on time delivery and the

time required to respond to customers orders (in effect, the order lead time). Flexibility focuses on both

the range of catering requests that a company can satisfy and menu variety.

Recently, CKC has begun to feel the competitive pressures of increasingly demanding customers

and several new specialty caterers. Customers are demanding more menu flexibility and faster response

times. Small specialty caterers have entered the market and have targeted specific well defined market

segments. One example is a small caterer called lunches, R-US, which located a facility in the middle of a

large office complex to serve the lunch trade and competes with CKC on cost.

Wayne and Janet Williams have been impressed by the concepts of just in ti e operating

systems, especially the ideas of increasing flexibility, reducing lead times, and lowering costs. They

sound like what CKC needs to do to remain competitive. But the Williams wonder whether JIT concepts

and practices are transferable to a service business.

QUESTIONS

1. Are the operations of copper kettle catering conductive to the application of JIT concepts and

practices? Explain

2. What, if any are the major barriers to implementing a JIT system at Copper Kettle Catering?

3. What would you recommend that wayne and Janet Williams do to take advantage of JIT concepts in

operating CKC?

CASE STUDY : 3

CASE FITNESS PLUS, PART A

Fitness plus, part B explores alternatives to expanding a new own town facility and is included in

the Instructor’s Manual If you’re interested in this topic ask your instructor for a preview.

Fitness plus is a full service health and sports club in Greensboro, North Carolina. The club

provides a range of facilities and services to support three primary activities fitness, recreation, and

relaxation. Fitness activities generally take place in four areas of the club the aerobics room, which can

accommodate 35 people per class ; a room equipped with free weights ; a workout room with 24 pieces

of Nautilus equipment ; and a large workout room contain in g29 pieces of cardiovascular equipment.

This equipment includes nine stair steppers, six treadmills, six life cycle bikes, three aerodyne bikes, two

cross aerobics machines, two rowing machines, and one climber. Recreational facilities comprise eight

racquetball courts, six tennis courts, and a large outdoor pool. Fitness Plus also sponsors softball,

volleyball, and swim teams in city recreation leagues. Relaxation is accomplished through yoga classes

held twice a week in the aerobics room, whirlpool tubs located in each locker room, and a trained

massage therapist.

Situated in a large suburban office park, Fitness plus opened its doors in 1991. During the first

two years, membership was small and use of the facilities was light. By 1992, membership had grown as

fitness began to play a large role in more and ore people’s lives. Along with this growth came increased

use of club facilities. Records indicate that in 1995 an average of 15 members per hour checked into the

club during a typical day. of Course, the actual number of members per hour varied by both day and

time. On some days during a slow period, only six to eight members would check in per hour. At a peak

time, such as Mondays from 4.00 PM to 7.00 PM the number would be as high as 40 per hour.

The club was open from 6.30 AM to 11.00 PM Monday through Thursday. On Friday and

Saturday, the club closed at 8.00 PM and on Sunday the hours were 12.00 noon to 8.00 PM

As the popularity of health and fitness continued to grow, so did Fitness Plus. By May 2000, the

average number of members arriving per hour during a typical day had increased to 25. The lowest

period has a rat of 10 members per hour during peak periods 80 members per hour checked in to use

the facilities. This growth brought complaints fro members about overcrowding and unavailability of

equipment. Most of these complains centered on the Nautilus, cardiovascular, and aerobics fitness

areas. The owners began to wonder whether the club was indeed too small for its membership. Past

research had indicated that individuals work out an average of 60 minutes per visit. Data collected from

member surveys showed the following facilities usage pattern : 30 percent of the members do aerobics,

40 percent use the cardiovascular equipment, 25 percent use the Nautilus machines 20 percent use the

free weights, 15 percent use the racquetball courts, and 10 percent was the tennis courts. The owners

wondered whether they could use this information to estimate how well exiting capacity was being

utilized.

If capacity levels were being stretched, now as the time to decide what to do. It was already

May and any expansion of the existing facility would take at least four months. The owners knew that

January was always a peak membership enrollment month and that any new capacity needed to be

ready by then. However other factors had to be considered. The area was growing both in terms of

population and geographically. The downtown area had just received a major facelift, and many new

offices and businesses were moving back to it, causing a resurgence in activity.

With this growth came increased competition. A new YMCA was offering a full range of services

at a low cost. Two new health and fitness facilities had opened within the past year in locations 10 to 15

minutes from Fitness plus. The first called the Oasis, catered to the young adult crowd and restricted the

access of children under 16 years old. The other facility, Gold’s Gym, provided excellent weight and

cardiovascular training only.

AS the owners thought about the situation, they had many questions. Were the capacities of the

existing facilities constrained, and if so, where? If capacity expansion was necessary, should the existing

facility be expanded? Because of the limited amount of land at the present site, expansion of some

services might require reducing the capacity of others. Finally owing to increased competition and

growth downtown, was not the time to open a facility to serve that marker? A new facility would take

six months to renovate, and the financial resources were not available to do both.

QUESTIONS :

1. What method would you use to measure the capacity of Fitness Plus? Has Fitness Plus reached its

capacity?

2. Which capacity strategy would be appropriate for Fitness Plus? Justify your answer.

3. How would you link the capacity decision being made by Fitness Plus to other types of operating

decisions?

CASE STUDY : 4

MINIT LUBE, INC.

A substantial market exists for automobiles tune ups, oil changes, and lubrication services for

more than 200 million cars on U.S roads. Some of this demand is filled by full service auto dealerships

some by Sears and Firestone, and some by other tire/services dealers. However, Minit-Lube, Mobil-

Lube, Jiffy-Lube and others have also developed strategies to accommodate this opportunities.

Minit Lube stations perform oil changes, lubrication, and interior cleaning in a spotless

environment. The buildings are clean painted white, and often surrounded by neatly trimmed

landscaping. To facilitate fast service, cars can be driven through three abreast. At Minit Lube, the

customer is greeted by service representatives who are graduates of the Mini Lube School in Salt Lake

City. The Minit Lube school is not unlike Mc Donald’s Hamburger University near Chicago or Holiday

Inn’s training school in Memphis. The greater takes the order, which typically includes fluid checks (oil,

water, brake fluid, transmission fluid, differential grease) and the necessary lubrication, as well as filter

changes for air and oil. Service personnel in neat uniforms then move into action. The standard three

person team has one person checking fluid levels under the hood, another assigned interior vacuuming

and window cleaning, and the third in the garage pit, removing the oil filter, draining the oil, checking

the differential and transmission, and a lubricating as necessary. Precise task assignments and good

training are designed to move the car into and out of the bay in 10 minutes. The idea is to charge no

more, and hopefully less, than gas stations, automotive repair chains, and auto dealers, while providing

better service

DISCUSSION QUESTIONS

1. What constitutes the mission of Minit Lube?

2. How does the Minit Lube operations strategy provide competitive advantage? (Hint : Evaluate how

Minit Lube’s traditional competitors perform the 10 decisions of operations management vs how

Minit Lube performs them)

3. Is it likely that Minit Lube has increased productivity over its more traditional competitors? Why?

How would we measure productivity in this industry?

CASE STUDY : 5

ALABAMA AIRLINES ON TIME SCHEDULE

Alabama Airlines opened its doors in December 2001 as a commuter service with its

headquarters and only hub located in Birmingham. A product of airline deregulation, Alabama Air joined

the growing number of short-haul, pint to point airlines, including Lone Star, Comair, Atlantic Southeast,

and Skywest.

Alabama Air was started and managed by two former pilots, David Douglas (who had been with

now defunct Midway Airlines) and Michael Hanna (formerly with continental) It acquired a fleet of 12

used prop jet planes and the airport gates vacated by Delta Airlines in 2001 when it curtailed flights due

to the terrorist attacks of 9-11.

One of Alabama Air’s top competitive priorities is on time arrivals. The airline defines on time to

mean any arrival that is within 20 minutes of the scheduled time.

Mike Hanna decided to personally monitor Alabama Air’s performance. Each week for the past

30 weeks. Hanna checked a random sample of 100 flight arrivals for on-time performance. The table

that follows contains the number of flights that did not meet Alabama Air’s definition of on-time.

Sample (Week) Late Flights Sample (Week) Late Flights

1 2 16 2

2 4 17 3

3 10 18 7

4 4 19 3

5 1 20 2

6 1 21 3

7 13 22 7

8 9 23 4

9 11 24 3

10 0 25 2

11 3 26 2

12 4 27 0

13 2 28 1

14 2 29 3

15 8 30 4

DISCUSSION QUESTIONS

1. Using a 95% confidence level, plot the overall percentage of late flights (p) and the upper and lower

control limits on a control chart.

2. Assume that the airline industry’s upper and lower control limits for flights that are not on-time are

1000 and 0400 respectively draw them on your control chart.

3. Plot the percentage of late flights in each sample. Do all samples fall within Alabama Airlines control

limits? When one falls our side the control limits, what should be done?

4. What can Mike Hanna report about the quality of service?

CASE STUDY : 6

ALABAMA AIRLINES ON TIME SCHEDULE

World renowned Toyota Motor Company has a worldwide presence, with Toyota’s investment

in North America alone exceeding $12 billion in 10 manufacturing plants. Toyota is at the forefront of

lean firm and a showcase of JIT Executives from all over the world make the journey to Toyota to see

how JIT Works.

But early one Saturday morning in February, a fire roared through the huge Aisin Seiki plant in

Kariya, Japan. The fire incinerated the main source of crucial brake valves that Toyota buys from Aisin

and uses in mot of its cars. Aisin has long been a supplier of the critical brake fluid proportioning valves

(P valves), supplying 99% of Toyota’s requirement for the valve. About 80% of Aisin’s total output goes

to Toyota. As the smoke cleared, the extent of the disaster was clear most of the 506 special machines

used to manufacture the P valves were useless. A few might be repaired in 2 weeks. but most would

need to be replaced and the lead time was 6 weeks. Both Aisin and Toyota had been operating at full

capacity.

Consistent with JIT Practices, Toyota maintained only a 4 hour supply of the valve. And there

were few of the valves in the closely knit network that constituted Toyota’s supply chain. Depending on

a single source and holding little inventory is a risk, but it also keeps Toyota lean and its costs low. The

Toyota plants in Japan build 14,000 cars a day. Without that valve, production would come to a rapid

halt. Moreover, Toyota production managers were dismayed to find they needed 200 variations of the

P- Valve.

Consistent with the keiretsu networks that are typical of Japan’s manufacturing sector, Toyota

holds 23% of Aisin’s stock, and Aisin’s president is Kanshiro Toyota of the Toyota family that founded the

automaker. Kosuke Ikebuchi, a Toyota senior managing director, was tracked down at 8 am at a golf

course clubhouse and given the bad news.

DISCUSSION QUESTIONS :

1. If you are Mr. Ikebuchi, what do you do ?

2. What does this experience tell you (and Aisin and Toyota) about just-in-time?

3. If you had been in charge of Daimler Chrysler’s JIT supplies the morning of September 11, 2001,

what actions would you have been?

Sources : Case is based on material in : The wall street Journal (September 13, 2001): B3 (May 8, 1997):

A1, A5 and (September 24, 2001): B1, B4 and Harvard Business Review (September – October 1999) 97 –

106.

CASE STUDY : 7

SMT’S NEGOTIATION WITH IBM

SMT and one other, much larger company were asked by IBM to bid on 80 more units of a

particular computer product. The RFQ (request for quote) asked that the overall bid be broke down to

show the hourly rate, the parts and materials component in the price and any charges for subcontracted

services. SMT quoted $1.62 million and supplied the cost breakdown as requested. The second company

submitted only one total figure, 55 million, with no cost break down. The decision was made to

negotiate with SMT.

The IBM negotiating team included two purchasing managers and two cost engineers. One cost

engineer had developed manufacturing cost estimates for every component, working from engineering

drawings and cost data books that he had built up from engineering drawings and cost data books that

he had built up from previous experience and that contained time factors, both setup and run times, for

a large variety of operations. He estimated materials costs by working both from data supplied by the

IBM corporate purchasing staff and from purchasing journals. He visited SMT facilities to see the tooling

available so that he would know what processes were being used. He assumed that there would be

perfect conditions and trained operators, and he developed cost estimates for the 158 th unit (previous

orders were for 25, 15 and 38 units). He added 2% for the use of temporary tools, jigs and fixtures 5%

for quality control and 9% for purchasing burden. The using an 85% learning curve, he backed up his

costs to get an estimate for the first unit. He next checked the data on hours and materials for the 25, 15

and 38 units already made and found that his estimate for the first unit was within 4% actual cost. His

check, however, had indicated a 90% learning curve effect on hours per unit.

In the negotiations, SMT was represented by one of the two owners of the business, two

engineers, and one cost estimator. The session opened with a discussion of learning curves. The IBM

cost estimator demonstrated that SMT had in fact been operating ona 90% learning curve. But he

argued, it should be possible to move to an 85% curve, given the longer runs, reduced setup time, and

increase continuity of workers on the job that would be possible with an order for 80 units. The owner

agreed with this analysis and was willing to reduce his price by 4%.

However, as each operation in the manufacturing process was discussed, it became clear that

some IBM cost estimates were too low because certain crating and shipping expenses had been over

looked. These oversights were minor, however, and in the following discussions, the two parties arrived

at a common understanding of specifications and reached agreements on the costs of each

manufacturing operation.

At this point SMT representative expressed great concern about the possibility of inflation in

material costs. The IBM negotiators volunteered to include a form of price escalation in the contract as

previously agreed among themselves. IBM representatives suggested that if overall material costs

changed by more than 10% the price could be adjusted accordingly. However if one party took the

initiative to have the price revised, the other could require an analysis of all parts and materials invoices

in arriving at the new price.

Another concern of the SMT representatives was that a large amount of overtime and

subcontracting would be required to meet IBM’s specified delivery schedule. IBM negotiators thought

that a relaxation in the delivery schedule might be possible if a price concession could be obtained. In

response, the SMT team offered a 5% discount, and this was accepted. As a result of these negotiations,

the SMT price was reduced almost 20% below its original bid price.

In a subsequent meeting called to negotiate the prices of certain pipes to be used in the system,

it became apparent to an IBM cost estimator that SMT representatives had seriously underestimated

their costs. He pointed out this apparent error because he could not understand why SMT had quoted

such a low figure. He wanted to be sure that SMT was using the correct manufacturing process. In any

case if SMT estimators had made a mistake, it should be noted. It was IBM’s policy to seek a fair price

both for itself and for its suppliers. IBM procurement managers believed that if a vendor was losing

money on a job, there would be a tendency to cut corners. In addition, the IBM negotiator felt that by

pointing out the error, he generated some goodwill that would help in future sessions.

CASE STUDY : 8

Chad’s Creative concepts designs and manufacturers wood furniture. Founded by Chad Thomas

on the banks of Lake Erie in Sandusky, ohio, the company began by producing custom made wooden

furniture for vacation cabins located along the coast of Lake Erie and on nearby Kelly’s Island and Bass

Island. Being an outdoors type himself, Chad Thomas originally wanted to brig a bit of the out doors

inside. Chal’s creative concepts developed a solid reputation for creative designs and high quality

workman ship. Sales eventually encompassed the entire Great Lakes region. Along with growth came

additional opportunities.

Traditionally, the company had focused entirely on custom made furniture, with the customer

specifying the kind of wood from which the piece would be made. As the company’s reputation grew

and sales increased, the sales force began selling some of the more popular pieces to retail furniture

outlets. This move into retail outlets led Chad’s creative concepts into the production of a more

standard line of furniture. Buyers of this line were much more price sensitive and imposed more

stringent delivery requirements than did clients for the custom line. Custom designed furniture,

however, continued to dominate sales, accounting for 60 percent of volume and 75 percent of dollar

sales. Currently, the company operates a single manufacturing facility in Sandusky, where both custom

and standard furniture is manufactured. The equipment is mainly general purpose in nature in order to

provide the flexibility needed for producing custom pieces of furniture. The layout groups saws in one

section of the facility, lathes in another, and so on. The quality of the finished product reflects the

quality of the wood chosen and the craftsmanship of individual workers. Both custom and standard

furniture compete for processing time on the same equipment by the same craftspeople.

During the past few months, sales of the standard line have steadily increased, leading to more

regular scheduling of this line. However, when scheduling trade offs had to be made custom furniture

was always given priority because of its higher sales and profit margins Thus scheduled lots of standard

furniture pieces were left sitting around the plant in various stages of completion.

As he reviews the progress of Creative concepts, Thomas is pleased to note that the company

has grown. Sales of custom furniture remain strong, and sales of standard pieces are steadily increasing.

However finance and accounting have indicated that profits aren’t what they should be. Costs

associated with the standard line are rising. Dollars are being tied up in inventory, both of raw materials

and work in process. Expensive public ware house space has to be rented to accommodate the

inventory volume. Thomas also is concerned with increased lead times for both custom and standard

orders, which are causing longer promised delivery times. Capacity is being pushed, and no space is left

in the plant for expansion. Thomas decides that the time has come to take a careful look at the overall

impact that the new standard line is having on his operations.

QUESTIONS :

1. What types of decisions must Chad Thomas make daily for his company’s operations to run

effectively? over the long run?

2. How did sales and marketing affect operations when they began to sell standard pieces to retail

outlets?

3. How has the move to producing standard furniture affected the company’s financial structure?

4. What might Thomas have done differently to avoid some of the problems be now faces?