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98 Chapter 10
Toyota Motor manufacturing, U. S. A., Inc. HBS case 1-693-019.
In addition to the Zipkins article cited at the end of the chapter, we have assigned various one pagers on
just in time from Wall Street Journal, New York Times, Economist, etc.
For the supply chain management part of this chapter, we start by asking why inventories build up in the
house game. We develop economies of scale and variability in supply/demand as the reasons, leading to
EOQ and safety stocks, as in chapters 6 and 7 of the text. For this purpose we use the Palu Gear case
(developed by and available from J. A. Van Mieghem). Our colleague Professor Lariviere has developed
the CupCake Game which we now use to teach the newsvendor model.
In the past (but no longer), we followed the traditional way to consider supply chain dynamics is to use
the well known beer distribution game, the Benetton, Barilla, or HP cases.
Hewlett-Packard: DeskJet Printer Supply Chain (A) Stanford case by L. Koczak and H. Lee.
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5
25
5
A functional layout is preferred to a cell layout when a large variety of products is to be produced
with very uncertain demand for each product.
A cell layout is preferred to a functional layout when a large variety of products is to be produced
with very uncertain demand for each product.
A functional layout is preferred to a cell layout when a small variety of products is to be
produced with stable demand for each product.
A cell layout is always preferred to a functional layout.
A functional layout is always preferred to a cell layout.
10.3.3 Tower Automotive, a major manufacturer of auto parts based in Michigan, has just learnt about the
Toyota production system and wants to implement JIT. Traditionally there has been no control on the
amount of work in process inventory between stages (it has been known to exceed 500 parts between
some stages). Following Shonbergers zero inventories advice, Tower Automotive is considering as a
first step to limit the amount of work in process inventory between stages to a maximum of 5 parts.
What, if any, impact will this have on the output rate from the factory in the short term?
Arbitrarily reducing inventories may result in high changeover costs and/or equipment idleness due
to starvation. They should reduce inventories gradually, ironing out process imperfections. They
must work on reducing setup times and changeover costs (which will reduce EOQ) and reducing
variability (which will reduce the need for safety stocks). The goal is to improve the system, not just
reduce inventories for its own sake.
10.3.4 Company ABC manufactures widgets using a two--stage system in which there is one machine in the
first stage and 3 identical machines in the second stage. The machine in the first stage can produce at
an average rate of 5 jobs per shift. Each machine in the second stage can produce at an average rate
of 2.5 jobs per shift. Each product has to be first processed on the first machine and then on one of
the three second stage machines. The demand for widgets is 5 jobs/shift. Recently a Japanese
company entered the market and ABC faces severe competition. The CEO of ABC has heard about
the Japanese approach to operations and after visits to several facilities in Japan concludes that the
key to Japanese cost and time competitiveness is zero inventories. Based on the data supplied by the
accountant, the CEO acts as follows:
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He observes that there is excess capacity in the second stage. The first stage produces at 5
jobs/shift and the second stage at 7.5 jobs per shift. To reduce costs, he disposes off one
machine in the second stage.
He dictates that no inventories be carried in the shop floor.
You are hired as a consultant. Preliminary data collection shows that the first machine produces at the
rate of 8 jobs per shift 50% of the time and 2 jobs per shift the other 50%; similarly, each machine in
the second stage produces at 4 jobs/shift 50% of the time and 1 job/shift the other 50%.
What is the effect of CEOs decisions on the output rate of widgets at ABC? Is it less than, equal to,
or greater than 5 jobs per shift? Why?
Stage 1 variability and no inventory will lead to starvation of stage 2 and lower throughput
How would you approach this problem and achieve the JIT ideal of zero inventories with existing
resources. You realize that you cannot make the machines completely reliable overnight.
Given variability in stages 1 and 2, we need buffer inventory or excess capacity. The solution is to
gradually reduce inventory to increase urgency to make machines more reliable.
10.3.5 The lock box operation at NBD bank involves three stages. Envelopes arrive
from the post office every half hour in batches of 30. In the first stage the
envelopes are automatically opened at a rate of 60 per hour. In the second
stage the contents (deposit slips) are scanned and printed. This optical
character recognition machine is capable of processing 60 deposit slips per
hour. In the final third stage, deposit confirmation records are inserted into
envelopes at a rate of 60 records per hour, to be mailed to customers.
Between each stage the contents of envelopes are moved in batches of 30.
A suggested process improvement at NBD calls for movement between
stages in batches of 15 rather than 30. As a result the cycle time taken to
process each batch of 30 envelopes coming from the post office is expected to
Remain unchanged.
Decrease by 10 minutes.
Decrease by 15 minutes.
Decrease by 20 minutes.
Decrease by 30 minutes.
No change.
Decrease by 10 minutes.
Decrease by 15 minutes.
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Decrease by 20 minutes.
Decrease by 30 minutes.
10.3.6 The pop-group Hootie & The Operations Fish came out with a smash hit, singing about Lovers
Beer. As a result, in two weeks customer demand for Lovers Beer increased from 4 crates of
beer per week to 8 crates per week (and remained at 8 crates per week during the next 30 weeks).
Lead times in the supply chain are large and stages only communicate with each other through the
orders they place.
(a) What will be the main effect observed in the supply chain?
Small variability in customer demand is magnified and delayed upstream in the supply chain
leading to shortages and huge inventory excess.
(b) List two key actions that need to be taken in order to avoid this effect.
Action 1: Share end-customer order information and supply-chain inventory status. This cuts
information lead-times, coordinates each player to the same information set and allows each
station to figure out a reasonable estimate of lead-times given current, dynamic status of supplychain.
Action 2: Decrease material lead-times by cross-docking, fast transportation, decreasing the
number of middlemen.
10.3.7 In Reengineering WorkDont Automate, Obliterate, Michael Hammer advances organize
around outcomes, not task as a major `principle of reengineering.
What do they mean by this suggestion?
Have one person perform all the activities in a process. Thus, a persons job should be designed
around an objective or outcome, not a single activity.
This is re-integration of industrial work.
Give two major benefits that result from this principle?
1.: accountability
2.: pooling of - resources which means less waiting and fewer hand-offs
- information
What is the major disadvantage of this principle?
Loss of specialization benefits
10.3.8 Kelloggs admissions staff has embarked on a re-engineering project. Inspired by Hammer and
Champys Reengineering the Corporation, they are considering empowering each admissions
employee so that each employee will handle an entire application. That is, each employee will
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receive the application package, enter all administrative data in the computer data base, read all
essays and make an application decision (accept, ask a second opinion, put on waiting list, reject).
This contrasts to the current process where employees are dedicated to either data entry or
reading and deciding which are done sequentially. If this new process vision were implemented,
Kellogg can expect
(a) total theoretical cycle time to process an application to
decrease
remain the same
increase
decrease
remain the same
increase
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supplied to s customer should be based on past purchases. This eliminates any incentive they have
for inflating their orders.