Chapter 3 & Five Forces: Comprehensive PM and Strategy Notes

Five Forces Model (Porter) – Key ideas to keep in mind

• Purpose: Understand external factors shaping profitability and strategic decisions in any business operation.
• Forces in play (as discussed):
  • Threat of new entrants
  • Barriers to entry raise profitability because incumbents face capital equipment and facilities investments, compliance costs, etc.
  • Low barriers (e.g., candle supplier entry) illustrate how easy it can be to start in some spaces.
  • Bargaining power of buyers (customers)
  • Buyers can influence price, terms, and product mix.
  • Example: In a consumer-packaged goods context, buyers (retailers or distributors) can choose among Lay's, Cape Cod, store brands, etc. Hence buyers have leverage affecting profitability and price points.
  • Bargaining power of suppliers
  • Suppliers can exert leverage via price, quality, and supply reliability.
  • Case study mentioned: AKM (Asahi Kasei Microdevices) in Japan, a single-fab audio chip supplier. A fire in 2020 disrupted supply; the firm needed to outsource designs, causing a multi-month delay and price premiums (e.g., brokers charging up to 110 for a 5-dollar part). Also, volume leverage matters: low-volume parts incur higher effective setup costs.
  • Practical implication: Setup time and run size drive unit economics; low-volume parts are disproportionately expensive per unit due to fixed setup costs.
  • Threat of substitutes
  • Substitutes can render existing products obsolete (e.g., Kodak’s film cameras vs. digital cameras).
  • Competitive rivalry
  • Intense competition across industries (e.g., Samsung vs. Apple; Toyota vs. Ford).
• Integrated takeaway: These five forces are always in play; they shape strategies and operational decisions. Recall the analogy or frameworks from “Trash Gaze” (a non-textbook source) linking these forces to strategic choices.
• Practical note for problem-solving: When you analyze operations problems, keep these forces in mind to assess profitability, pricing, supplier negotiations, and competitive responses.
• Real-world relevance: Forces remain constant across careers in operations, supply chain, and strategic planning.

Chapter 3 Overview – Project Management (PM) fundamentals

• Instructor’s PM background (context for authority and approach): 20+ years in PM; certified professional project manager. Emphasis on practical PM workflows (AON vs AoA notional discussion).
• Core PM software reference: Microsoft Project (AON-based scheduling). AoA is deemphasized for exam purposes.
• Core PM concepts introduced in this chapter:
  • Forward pass and backward pass to determine activity times and critical path.
  • Critical path: the longest path through the network; determines the project’s minimum duration. Regular question focus in exams.
  • Variance of activity times and “crashing” a project to shorten duration.
  • Baseline schedule: after initial planning, lock the plan as a baseline; any changes (feature creep) require reassessment and rebaselining.
  • Project characteristics: typically one-off (design, build, test, launch). New products or equipment introduce uncertainty and require adaptive planning.
  • General purpose equipment and high labor skills interact with PM activities; engineering is central to PM’s interaction with operations.

PM lifecycle and flow – concept to launch

• Concept → Design → Manufacture → Launch (typical lifecycle)
• Operations’ role: collaboration across design and manufacturing; operations plan and execute prototyping, testing, and initial production ramp.
• Three PM phases:
  • Planning: define goals, scope, required resources, and deliverables.
  • Scheduling: allocate resources, set start/end times, and build the project network.
  • Controlling: monitor progress, manage deviations, and keep project on track; ongoing until project completion.

Work Breakdown Structure (WBS) – breaking the project down

• Purpose: decompose project into manageable components.
• Structure: multiple levels (book suggests 4 levels including the top-level project; practical view often 3 levels).
• Guiding rule of thumb:
  • Break tasks down so that no single activity exceeds roughly 2–3 weeks in duration. Shorter work packages improve control and reduce risk of drift.
• Example decomposition for a component (e.g., making a marker):
  • Part A: design → molding → test → refinement (example breakdown)
• WBS up to the level where each activity is a two-to-three week task; this drives scheduling and resource planning.

Resources and staffing in PM – matrix organization

• Matrix organization concept: project teams pull resources from functional units (design, quality, manufacturing, etc.).
• Project managers negotiate with functional managers to allocate resources with the necessary skills.
• Balancing skills: aim for a mix of experienced and less-experienced staff to balance quality and pace:
  • Highly experienced staff may write “better” designs but can slow progress and cost more; less-experienced staff bring speed and flexibility but may need guidance.
• Resource effectiveness rule of thumb:
  • Resources are not 100% productive; a common rule is 80% effectiveness due to vacations, meetings, training, sick time, etc.
  • Expressed as: ext{ResourceEffectiveness}
    ole=0.80
• Practical implication: plan with the assumption that only ~80% of available time is productive for project work.
• Why this matters for operations managers: even if you don’t run the PM office, you will influence schedules, budgets, and resource allocation in your role.

PM governance concepts – stage gates, ethics, and governance

• Stage gate / phase gate process: many projects follow a sequential gate-based approach where progress through major milestones is reviewed before approval to continue.
• Ethics and regulatory considerations (important for PM):
  • Government-related milestones (e.g., concept milestone) may trigger partial funding or approvals.
  • FAR (Federal Acquisition Requirements) and DFAR (Defense Federal Acquisition Regulations) govern defense-related PM; penalties exist for non-compliance.
  • Example: A milestone may trigger government-quarter funding; non-compliance can incur penalties.
• “Stump speech” analogy for scope communication:
  • The project scope statement acts as the PM’s stump speech—once defined, you continuously refer back to it. Changes that expand scope (e.g., adding widget features) may be out of scope and require rebaselining.
• Scope statements and SME involvement:
  • Scope statement: concise one-page (or shorter) document outlining broad project objectives.
  • Structure: collaborate with SMEs to define scope and break down activities to deliver the project.
• Scope creep vs. feature creep:
  • Even seemingly beneficial changes can drain resources and delay the end date; manage via change control and re-baselining if needed.

PM planning details – from concept to a baseline plan

• The process sequence:
  • Define project → Scope statement → Requirements → Resources → Work Breakdown Structure → Scheduling → Controlling
• Baseline plan:
  • Establish baseline schedule after planning; lock it in to measure progress.
  • If scope expands (e.g., new features), re-baseline the schedule/plan.
• Work packages and duration targets:
  • Target two-to-three-week work packages to maintain control and visibility of progress.
• The importance of a clear scope and SME alignment:
  • Align with design, quality, and manufacturing early to ensure feasibility and quality goals.

PM organization and project dynamics – key components

• Project duration and temporariness:
  • Projects are temporary with a defined start and end; most run months to a couple years; exceptions include large-scale programs like SpaceX rockets.
• Use of specialists across the company:
  • PMs draw on design, manufacturing, sales, and other functional areas as needed.
• Permanent structure for PMs: matrix organization
• Ethics and governance in PM work:
  • Regular checks for regulatory compliance (FAR/DFAR) and the risk of penalties if not followed.

Scheduling tools and concepts – from Gantt to networks

• Gantt charts explain scheduling visually; Excel can be used for simple charts when Microsoft Project isn’t available.
• Precedence relationships in project networks:
  • Example: You cannot install equipment on a new floor until the floor is laid; dependency sequencing is critical.
• Key scheduling outputs:
  • Network diagrams, start/end times, and the critical path.
• Critical path management:
  • The critical path determines the project finish date; any delay on CP delays the entire project.
  • Variances and “crashing” strategies to shorten the CP by adjusting critical path activities.
• Baseline and control mechanisms:
  • Weekly status meetings produce controlling reports; monitor resources, progress, and adherence to the baseline.

PERT vs. CPM, and project measurement basics

• CPM (Critical Path Method) and PERT (Program Evaluation and Review Technique) basics:
  • Both involve defining the project, building a WBS, deriving activity durations, sequencing activities, and identifying the critical path.
  • Six steps typically include: define project, validate WBS, determine durations, sequence activities, build network, identify critical path. (The lecture notes mention these steps broadly; the emphasis is on applying them in a practical PM context.)
• Waterfall vs. Agile (PM approaches):
  • Waterfall: well-defined, sequential, with defined specifications; preferred for tangible hardware or construction projects.
  • Agile: iterative, software-centric, uses sprints/rolls (scrum); shorter cycles and frequent builds/tests; not the focus of the exam per the instructor, but common in software development.
• Agile manifesto (12 principles): listed for reference; in-class slides will cover specifics; expect high-level questions rather than deep Agile procedures on exams.

Practical PM tips and examples from the lecture

• Examples of supplier power and setup costs:
  • Low-volume production increases cost per unit due to setup time; e.g., a $100 setup cost amortized over 4 parts adds $25 per part to the unit cost:
  • ext{AmortizedSetupCost} = rac{C_{ ext{setup}}}{N} = rac{100}{4} = 25 per part.
• Real-world supply risk example:
  • AKM fire (2020) disrupted the only audio-chip fab; forced outsourcing of designs; illustrates supplier concentration risk and the leverage suppliers have when there’s no backup capability.
• Resource planning pragmatism:
  • Do not fully resource at 100%; plan for 80% effectiveness to reflect real-world constraints (vacations, meetings, training, illness).
• The role of baseline schedules and change control in preventing scope creep:
  • Baseline protects against creeping scope; major changes require re-planning and re-baselining.
• The importance of milestones and governance in PM:
  • Milestones (e.g., concept completion) can trigger funding releases or regulatory reviews; ethics and compliance are essential because non-compliance leads to penalties and reputational risk.

Connections to prior learning and real-world relevance

• Links to Chapter 1: strategic frameworks (five forces) inform how operations decisions are made in competitive contexts.
• PM concepts tie directly to operations planning, scheduling, and resource allocation in manufacturing, supply chain, and product development.
• The discussion emphasizes that good PM is not just about timing; it’s about scope control, cross-functional collaboration, regulatory compliance, and ethical execution.

Quick-reference formulas and constants (LaTeX)

• Amortized setup cost per part:
  ext{AmortizedSetupCost} = rac{C_{ ext{setup}}}{N}
• Critical path duration (conceptual):
  D{ ext{CP}} = extstyle igoplus{i ext{ on CP}} t_i ext{ (sum of durations along the critical path)}
• Slack (float) for activity i:
  ext{Slack}i = LSi - ESi = LFi - EFi - ti
• Crash cost per unit time saved (conceptual):
  ext{CCC} = rac{igDelta C}{igDelta D}
• Resource effectiveness (typical assumption):
  ext{ResourceEffectiveness}
  ightarrow 0.80 ext{ (80%)}

What to study for Monday's discussion (based on the lecture plan)

• Review the five forces and be able to discuss how each force affects pricing, product choice, supplier relations, and entry/barriers in a given industry.
• Understand the PM lifecycle (Planning → Scheduling → Controlling) and be able to explain the function of a baseline schedule.
• Be able to describe WBS structure levels and justify the 2–3 week per task rule.
• Explain the matrix organization and why a balance of senior/junior resources is beneficial.
• Distinguish between waterfall and agile PM approaches and describe typical scenarios where each is appropriate.
• Explain the role of stage gates, ethics, FAR/DFAR obligations, and the consequences of non-compliance.
• Be comfortable with scheduling concepts: network diagrams, precedence relationships, and identifying the critical path.
• Understand practical examples (e.g., setup costs, supplier leverage, and their impact on project cost and duration).

Quick takeaway

• The core aim is to manage a project from concept to launch while balancing scope, time, cost, and quality—using a well-defined plan, a solid WBS, proper resource allocation (often in a matrix organization), and disciplined change control to avoid scope creep and surprises. The five forces framework provides the external context that shapes strategic and operational decisions throughout the PM lifecycle.