Operations Management Final

Resource-to-order:

Only buy it if you have demand

Create-to-order or make-to-order:

you have everything you need but dont build it until there is demand

Make-to-stock

Everything already made waiting for demand

Dependent demand

Demand is governed by another factor

Independent demand

Largely governed by random factors

Scheduling

when to do things

Sequencing

What order to do things

Loading

How much to do

Monitoring and control

Are the activities going to plan?

OEE

Overall Equipment Effectiveness

Physical constraints

Jobs that physically fit together may be scheduled together

Customer Priority

Allows important customers or times to get processed prior to others

Due date

Work is sequenced according to when it is due

Longest operation time

Doing the longest operation first

Shortest Operation Time

Doing the shortest operation first (need cash)

Forward Scheduling

Doing work as soon as it is practical to do so

Backward scheduling

Finishing exactly when they are due (cost effective but risky)

Gnatt Charts

Visualization of what we intend to do - shows jobs at each process stage

Push Control

Material is moved onto the next stage as soon as it is processed

Pull System

Materials are moved on only when the next stage wants the materials

Capacity

The scale of on operation - with a dime dimension (per hour, per session, per week)

Aggregate Capacity

Rooms per night ignoring the number of guests in each room, Tons per month ignoring the types of alloy, gauge and batch variations

Objective of capacity planning and control

To provide an appropriate amount of capacity at any point in time

Level capacity plan (Absorb demand)

An approach to medium-term capacity management that attempts to keep output from an operation or its capacity, constant, irrespective of demand.

Chase demand plan (adjust output to match demand)

An approach to medium-term capacity management that attempts to adjust output and/or capacity to reflect fluctuations in demand

Demand management (Change demand)

An approach to medium- term capacity management that attempts to change or influence demand to fit available capacity.

supply chain management

the management of the interconnection of organizations that relate to each other through upstream and downstream linkages between the processes that produce value to the ultimate consumer in the form of products and services’

3 main pillars

Operations management, purchasing, logistics

Logistics

finding out the most cost effective way to get products

purchasing

buying ads selling from suppliers, need high EQ

operations management

How customers flow through the business.

Global Sourcing

The process of identifying, evaluating, negotiating, and configuring supply across multiple geographic locations.

Short-term ability to supply

Range of products or services, quality of products, dependability, delivery and volume flexibility

Longer-term ability to supply

Potential for innovation, ease of doing business, willingness to share risk, commitment, ability to transfer knowledge as well as products and services, technical and operational capability, financial capability, managerial capability

Inventory

the stored accumulation of transformed resources in a process usually applied to material resources but also be used for inventories of information; inventories of customers (queues)

Why is inventory created?

To compensate for the differences in timing between supply and demand.

Disadvantages of holding inventory

High costs, space, lowers quality, hides problems

Buffer inventory

An inventory that compensates for unexpected fluctuations in supply and demand

Cycle inventory

Inventory that occurs when one stage in a process cannot supply all the items it produces simultaneously and so has to build up on inventory of one item while it processes the others.

Pipeline inventory

The inventory that exists because material cannot be transported instantaneously

EOQ Economic order quantity

The quantity of items to order that minimizes the total cost of inventory management.

Cost of holding stock (Ch)

Working capital costs, storage costs, obsolescence risk costs.

Total costs of placing an order(Co)

Costs of placing the order including transportation, price discount costs

Holding costs

Total Cost (Ct)

Holding cost + ordering costs

Pareto Law

20% of something accounts for 80% of something else

ABC inventory control

An approach to inventory control that classes inventory by its usage value and varies the approach to managing it accordingly. 20% high value that accounts for 80% of the total value, 30% B class that accounts for 10% and 50% C class that accounts for 10%.

Lean operations

Leaning towards the elimination of waste

Lean philosophy of operations

Eliminate waste, involve everyone, continuous improvement

Muda

activities that are wasteful because they do not add value to the operation or the customer

Mura

Lack of consistency or unevenness that results in periodic overloading of staff or equipment

Muri

Absurd or unreasonable. Based on the idea that unnecessary or unreasonable requirements put on a process will result in poor outcomes.

Muda (waste)categories

Over-production, transport, waiting, inventory defect, overprocessing, motion

The 5 Ss

Sort, straighten, shine, standardize, sustain

Value stream mapping

Focuses on value adding activities and distinguishes between value adding and non value adding activities

Flow Principle

Traffic lights vs roundabout

Do you perceive that the people at the Bearington plant were like most manufacturing people in most companies?

Yes, the people at the Bearington plant are similar to employees in many manufacturing companies. They are hardworking but focused on traditional efficiency metrics rather than overall system performance. They struggle with outdated management thinking that prioritizes local efficiency over company-wide effectiveness.

Do you feel that the Bearington plant has the right equipment and technology to do the job?

The plant has modern equipment, including robots, but it still struggles with inefficiencies. This suggests that technology alone isn’t enough to improve productivity. The real issue is how work is organized and managed, not the machinery itself.

What is the “Goal”? How is it related to the three performance measurements: NP, ROI & CF? Why does Alex need another set of measurement: Throughput, Inventory, OE?

The “Goal” is to make money. It’s linked to three financial performance measures: Net Profit (NP): Total revenue minus total expenses. Return on Investment (ROI): Profit relative to invested capital. Cash Flow (CF): The ability of the company to generate cash and remain solvent.

However, traditional financial metrics don’t always help managers make operational decisions. Jonah introduces three operational metrics: Throughput: The rate at which the system generates money through sales. Inventory: All the money invested in things the company intends to sell. Operating Expense (OE): The money spent to turn inventory into throughput.

How is "productivity" defined traditionally? How does Jonah define "productivity"?

Traditionally, productivity is defined as producing more goods per unit of time—maximizing machine and worker output. Jonah redefines productivity as any action that moves the company closer to its goal (making money). This means that producing more doesn’t always equal being productive—if excess production creates inventory bottlenecks, it’s actually harmful.

Throughput

money generated through actual sales

Inventory Jonah

All money invested in raw materials, work in progress, and finished goods

Operating expense

All money spent to turn inventory into throughput.

How the standard cost system defines "efficiency"

The standard cost system defines efficiency as maximizing machine utilization—keeping robots working at full capacity to lower per-unit costs.

How high efficiency could lead to local optimum.

High efficiency at individual workstations (like robots) can create bottlenecks because parts get produced faster than they can be processed downstream. This leads to excess inventory, longer lead times, and inefficiencies at the system level. Instead of optimizing one area, the focus should be on optimizing the whole production flow.

What are the three questions that Jonah asked Alex about the productivity of the robots?

Did the robots increase sales (Throughput)? Did you sell more products?

Did the robots reduce inventory?

Did the robots reduce operational expenses? Did you fire anyone?

Using the analogy between the hiking and a manufacturing operation, explain the phenomena of “dependent events” and “statistical fluctuations”. Explain what a “balanced plant” is and explain why it would not work.

Dependent events: Later processes depend on earlier ones, like a line of hikers where the pace of the slowest person affects the whole group.

Statistical fluctuations: Some processes vary unpredictably (speed of hikers fluctuates, just like production rates).

Balanced plant: A system where every resource is used at full capacity to match demand exactly. In reality, variations cause bottlenecks, and dependent events mean delays accumulate. A balanced plant has no flexibility, so even small disruptions cause major inefficiencies.

Using the dice game to explain the phenomena of “dependent events” and “statistical fluctuations”. Explain why a “balanced plant” would not work.

Each person in a line rolls a die to determine how many items they pass to the next person. Each roll represents a statistical fluctuation, and since each person must wait for the output of the previous, these are also dependent events. Over time, even if the average roll is enough to meet demand, variation accumulates and causes delays. The person at the end of the line ends up receiving much less than expected. A balanced plant assumes that every step can operate at 100% efficiency with no variation, which is unrealistic. Because of statistical fluctuations and dependencies, delays build up and throughput suffers. That’s why a perfectly balanced plant fails in practice—it lacks the flexibility to handle variability.

Describe another real-life example to describe the phenomena of “dependent events” and “statistical fluctuations”.

Passengers must first check in, then go through security, then board. These are dependent events. Each station might take a different amount of time for each person (statistical fluctuations). If the security line is slower than check-in, people pile up between steps (excess inventory). Even if each step averages out to a decent speed, the variability causes backups and delays—just like in a plant.

The hiking did not go very well first, why? What did Alex do to improve the pace of the hiking? Why did he ask Herbie to lead the hiking? Did it work?

At first, the troop was spread out because the slower kids caused delays (dependent events), and fluctuations in speed led to gaps. The ones in front moved faster than the back could keep up, causing the group to stretch out and slow down overall.

Reordering the troop so that Herbie—the slowest hiker—was placed at the front. Unloading Herbie’s backpack to lighten his load (reducing the constraint).

Putting Herbie in front controlled the pace, and removing his burden improved throughput. This worked—the troop stayed together and moved more efficiently as a unit.

Explain the analogy between the hiking troop and a manufacturing operation in terms of Throughput, Inventory, OE, dependent events, statistical fluctuations, and balanced plant.

Throughput in the hiking analogy is the trail already walked—it represents actual progress made, just like in manufacturing it means the rate at which the system generates money through sales.

Inventory is the space between hikers—it represents the materials waiting in the system, just like unfinished goods waiting between steps in production.

Operating Expense is the effort or resources needed to keep moving—this includes things like food, water, and energy for the hikers, or labor, utilities, and overhead in a plant.

Dependent events are shown in how each hiker relies on the one in front—just like each step in a process depends on the output of the previous step.

Statistical fluctuations come from the varying speed of hikers—some move faster, others slower, just like variation in how long tasks or machines take in manufacturing.

A balanced plant is like assuming all hikers walk the same speed all the time—sounds good in theory, but in reality the variation causes delays and bottlenecks, which is why it doesn’t work.

Use the robot example in Chap 17 to explain the effects of statistical fluctuations and dependent events.

The robots were highly efficient at producing parts, but that didn't help the plant overall. Their output depended on what came before them (dependent events), and they sometimes produced parts that weren't needed right away (statistical fluctuations). This led to piles of inventory with no increase in actual sales—so the system looked busy but wasn’t productive.

Why did Jonah suggest “balance the flow with demand” instead of “balance capacity with demand”?

Jonah emphasized flow over capacity because having every machine running at full capacity creates excess inventory and delays. Instead, matching flow (the rate at which products are sold) with actual customer demand helps avoid overproduction and focuses on delivering value. Balance the flow through the bottleneck.

How does Jonah define "bottleneck resource"? Is bottleneck a bad thing to have? How did Alex identify the bottleneck resources in his plant? Why was he not able to compare the demand with the capacity to determine bottlenecks?

A bottleneck is any resource with capacity less than or equal to the demand placed on it—it limits the system’s throughput. It’s not necessarily bad; it just needs to be managed properly.

Alex found the bottlenecks by walking the floor and looking for work piling up in front of certain machines.

He couldn’t rely on reported numbers because they were often inaccurate, based on flawed assumptions and outdated routing times.

What did Jonah suggest to deal with the two bottlenecks that Alex and his managers discovered?

Prioritizing the bottleneck’s time (only work on parts that will help throughput).

Working the bottlenecks nonstop, including breaks and weekends.

Offloading some work to other resources or simpler methods (like using the old NCX-10 machine or outsourcing).

Placing quality control before bottlenecks to ensure they only process good parts

How did Jonah calculate the value of a "bottleneck part"? How is his approach different from conventional standard cost systems?

Jonah valued a bottleneck part based on its role in generating revenue, not standard cost calculations. Unlike the standard cost systems that allocate costs using averages, he focused on throughput accounting, prioritizing parts that directly impact overall output.

Based on Jonah’s discussion in Chapter 19, provide examples of why the “efficiency” mindset could lead to negative effects. Describe why some corporate policies could be the bottleneck for making improvement?

Focusing too much on machine efficiency caused workers to keep machines busy making parts that weren’t needed, building useless inventory and jamming the bottlenecks.

Corporate policies like strict labor utilization goals or incentives for full machine use encouraged the wrong behaviors, turning them into policy bottlenecks that blocked meaningful improvements.

What did Alex and his managers do to increase the capacity or the efficiency of the bottleneck resource? Are any of these approaches contradictory to conventional practices? Are they expensive/difficult to implement?

Had bottlenecks run full-time, including off-hours. Shifted non-bottleneck tasks away from them. Used older machines or manual labor where possible to take over simpler tasks. Outsourced parts when possible to free up capacity.

Describe the red and green tags system that Alex and his managers developed. What was the purpose of this tag system? How did the system work?

Alex and his managers developed a red and green tag system to prioritize work and improve production flow. The purpose was to ensure bottleneck resources processed the most critical parts first, preventing delays. Red tags marked parts that needed immediate attention from bottleneck machines, while green tags identified less urgent items.

Evaluate the decisions of bringing back Zmegma and engineering changes based on the T, I, and OE measurement.

Zmegma helped increase throughput (T) by reducing bottleneck strain, allowing more parts to move through production. It also decreased inventory (I) since work-in-process levels dropped as bottlenecks cleared. Operating expense (OE) saw a slight increase due to additional machine usage, but the overall financial impact was positive.

Use the robot example to explain why “the sum of local optimums is not equal to the global optimum”. Describe a similar example from an organization with which you are familiar.

The robots were “locally optimal”—super efficient on their own. But they didn’t help the whole plant because they overproduced and clogged up the system.

In a restaurant, having cooks constantly prepping food looks efficient, but if servers aren’t ready or the customers haven’t ordered yet, it just causes waste and confusion. Optimizing one station without thinking of the whole flow hurts the operation.

Describe the “drum” and “rope” ideas that Alex’s kids provided to solve his production problems. In addition, what did Ralph suggest for releasing materials for both bottleneck and non-bottleneck resources? What was the negative of applying this method in terms of ‘efficiency’?

The drum represents the bottleneck setting the pace, and the rope ensures the rest of the system follows that rhythm. Ralph suggested releasing materials based on a schedule that aligned with bottleneck availability, ensuring parts arrived at the right time. The downside was that this method could lead to idle time for non-bottleneck machines, reducing perceived efficiency

Even with the improvement, Peach still threatened to close down Alex’s plant. Why? What did Jonah suggest to achieve even more improvement? From the perspective of traditional measurement system, what are the negatives of Jonah’s suggestion? Be sure to read and understand the conversation between Alex and Julie on this topic.

Peach still wanted consistent, future-looking improvements, not just short-term wins. Jonah suggested reducing batch sizes to improve flow and cut inventory levels. Traditional measurement systems viewed this negatively because smaller batches increased setup costs and appeared inefficient. However, Jonah’s approach prioritized throughput over local efficiency, ensuring bottlenecks dictated production speed rather than rigid cost-cutting measures

Define "lead time". What are the four elements included in lead time? How are these four elements affected (increase or decrease) if batch size is reduced in half?

Lead time is the total time it takes for a part to move through the production process, from start to finish. It consists of setup time, process time, queue time, and wait time. If batch size is reduced by half, setup time increases due to more frequent machine setups, while process time remains unchanged. Queue time and wait time decrease because smaller batches move through the system faster, reducing delays

How does the batch size reduction in non-bottleneck resource affect T, I and OE?

Throughput (T) → Increases, because products flow faster and reach customers sooner

Inventory (I) → Decreases, because smaller batches reduce work-in-progress

Operating Expense (OE) → Might increase slightly (more setups), but is offset by system-wide gains in speed and sales

What did Alex promise Johnny Jons in order to get more business for his plant? What changes did he have to make in his production systems to deliver his promise?

Alex promised faster delivery(in 4 weeks) times to Johnny Jons to secure more business for his plant. To fulfill this, he made several production system changes, including reducing batch sizes, outsourcing, synchronizing bottleneck operations, and prioritizing high-demand orders. These adjustments improved flow and ensured the plant could meet tight deadlines while maintaining efficiency.

For any organizations that you are aware of, identify an outdated policy that had a good intention in the first place but has become a bottleneck to prevent the organization from making improvement.

One example is strict return-to-office policies in companies that initially aimed to foster collaboration but have now become bottlenecks. Many organizations implemented mandatory office attendance post-pandemic, believing it would improve teamwork. However, this policy has led to reduced flexibility, lower employee satisfaction, and difficulty in retaining talent, especially when remote work has proven effective. Instead of boosting productivity, it has created resistance and hindered adaptation to modern work trends

Give examples from Alex’s company to illustrate the notion of “common sense is not common at all”.

One example is how cost-accounting rules led Alex’s team to focus on balancing capacity with demand rather than maintaining flow, which actually hurt production. Another case is Hilton’s belief that rising product costs must lead to lower profits, ignoring the bigger picture of throughput and operational efficiency

Do you feel that Socratic approach, “Don’t give the answers, just ask the questions!” is an effective way to teach or to overcome the resistance to change? Why did Julie suggest that Alex needs to learn more Socrates’ method from Jonah?

Yes, because it makes people think for themselves, leading to better understanding and ownership of the solution. Julie noticed Jonah’s questions helped Alex come to conclusions on his own — a powerful leadership skill Alex needed to develop to lead others through change.

Describe the discussion in Chapter 33 that reducing inventory could lead to negatives.

Lou discovers a flaw in UniCo’s accounting system—inventory is counted as a positive asset, so reducing it appears to hurt financial performance. Although lowering inventory improves cash flow and efficiency, traditional accounting methods make it seem like a loss. This highlights how outdated financial metrics can misrepresent actual business improvements.

Define “capacity constraint resources” (CCR). Are they the same as bottlenecks? Why are they critical?

CCR = resources close to being bottlenecks or sometimes act like bottlenecks under certain conditions.

Not always bottlenecks, but still limit system throughput when demand shifts.

They’re critical because if not managed, they can become actual constraints and disrupt the flow.

What did Alex and his managers decide as to the first thing Alex should do in his new position? Why was Mendeleev’s classification involved in the discussion? What was the benefit when Mendeleev began to arrange elements on a periodic table? What did Alex and his manager learn from this example?

Alex and his managers decided that his first task in his new position should be to identify patterns in management challenges, similar to how scientists organize data. Mendeleev’s classification was discussed because he arranged elements based on their properties, revealing an intrinsic order that helped predict unknown elements. His periodic table showed that structuring information properly leads to better understanding and problem-solving. Alex and his team learned that business management should follow a scientific approach, identifying relationships between constraints to improve operations

What is the fallacy of the “product cost concept”? What did Alex do to obtain more orders?

The assumption that a product’s price must cover all associated costs, including labor, overhead, and materials. Jonah argues that if a plant has spare capacity, the only relevant cost is materials, since labor and overhead are already paid for. Alex applied this idea by accepting orders below traditional cost calculations, leveraging excess capacity to increase throughput and profitability

Was the observation in Chapter 39 regarding “the bottlenecks are moving all the time” correct? What was the real cause for the whole mess?

The observation that bottlenecks were moving was incorrect—bottlenecks remained the same, but their effects shifted due to changes in production flow. The real cause of the mess was that buffers in front of bottlenecks were depleted, causing bottlenecks to run out of material and temporarily stop working. Previously, non-bottleneck machines had enough spare capacity to rebuild buffers, but increased order volume reduced that flexibility. This led to disruptions, making it seem like bottlenecks were shifting when, in reality, the system needed better buffer management

Describe the five-step improvement process in relation to specific changes that the Bearington plant managers made in their plant. As an example, what exactly did they do corresponding to Step #1 – Identify system constraint(s)?

1. Identify the constraint – Found the bottlenecks: NCX-10 machine and the heat-treating process. 

2. Exploit the constraint – Made sure bottlenecks ran nonstop on only necessary parts.

3. Subordinate everything else – Scheduled other operations around the bottlenecks’ needs.

4. Elevate the constraint – Brought in extra capacity (e.g., old machines or external vendors).

5. Go back to step 1 – Monitored changes, ready to shift focus if the constraint moved.

What are the three questions in the thinking process?

1. What to change?

2. What to change to?

3. How to cause the change?