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themselves addressing with increasing frequency is： what business are we
in？ Later in that analysis will e a more fundamental and challenging
question： what business should we be in？ These are strategic boundary
questions that will be explored in more detail in Chapter 12； Strategy。 The
answers are also key to deciding what operations a business should and
should not undertake itself； and the answer will not always be the same； as
business petence and market opportunities change。
Figure 10。1 Maternity clothes value chain
Creative design → Purchase of materials → Make up garments →
Package and distribute → Retail through own outlets → Consumers
The business example shown in Figure 10。1 doesn’t have to do all the activities；
from creative design； through manufacture； to selling out from its
own retail outlets。 It is highly likely that there are other businesses be。。er
at certain elements of the process。 For example； most businesses don’t
retail the products they manufacture； and even within the same industry
different approaches are taken。 Dell only sells direct via the internet；
Apple sells via the internet； through a small number of pany…owned
outlets and through other retailers。 IBM； having virtually created the personal
puter industry in 1981； sold its PC division to the Chinese pany
Lenovo on 1 May 2005 for 655 million in cash and 600 million in
Lenovo stock； moving away from personal consumers to concentrate on
businesses。
Operations Management 235
Outsourcing is the activity of contracting out the elements that are not
considered core or central to the business。 There are obvious advantages to
outsourcing： the best people can do what they are best at。 But the approach
can get out of hand； if le。。 unmanaged。 In 2008； IBM pleted a major
overhaul of its value chain and for the first time in its century…long history
created an integrated supply chain （ISC） – a centralized worldwide approach
to deciding what to do itself； what to buy in and where to buy in from。
Suppliers were halved from 66；000 to 33；000； support locations from 300 to
3 global centres； in Bangalore； Budapest and Shanghai。 Manufacturing sites
reduced from 15 to 9； all ‘globally enabled’ in that they can make almost any
of IBM’s products at each plant and deliver them anywhere in the world。
In the process IBM has lowered operating costs by more than 4 billion a
year。
Quality control is one strategic issue when it es to outsourcing； and
an emerging danger with the arrival of the ‘socially minded customer’
is that people are looking more closely at panies and their products
before buying from them。 Ge。。ing garments made cheaply by child labour
is very much an issue on consumers’ radar。 So while outsourcing plays
a vital role in operations； it still has to be managed and to conform with
corporate ethical standards。
PRODUCTION METHODS AND CONTROL
Manufacturing has e a long way since Adam Smith’s observation in his
book； An Inquiry into the Nature And Causes of the Wealth of Nations （1776）；
that：
The greatest improvement in the productive powers of labour； and the greater
part of the skill； dexterity； and judgment with which it is anywhere directed；
or applied； seem to have been the effects of the division of labour。 。 。。 I have
seen a small manufactory of this kind where ten men only were employed；
and where some of them consequently performed two or three distinct
operations。 But though they were very poor； and therefore but indifferently
acmodated with the necessary machinery； they could； when they exerted
themselves； make among them about twelve pounds of pins in a day。 There
are in a pound upwards of four thousand pins of a middling size。 Those ten
persons； therefore； could make among them upwards of forty…eight thousand
pins in a day。 But if they had all wrought separately and independently； and
without any of them having been educated to this peculiar business； they
certainly could not each of them have made twenty。
By Smith’s calculations； organizing production efficiently increased output
by 2；400 times； leaving the market itself as the primary limiting factor。
Since then the hunt has been on for ever more efficiencies in the methods of
production。 The main production methods employed today are：
236 The Thirty…Day MBA
。 One…off production is when a single product is made to the individual
needs of a customer； for example a designer dress。 This is very much
the pre…Smith way in which everything was made； o。。en without the
use of any machinery。
。 Batch production involves the making of a number of identical products
at the same time； then moving on to make a different product later。 For
example； a small food processing factory could make sausage rolls in
the morning and pizzas in the a。。ernoon。 This approach requires some
basic machinery and Smith would probably recognize this process were
he alive today。
。 Mass production is used for larger…scale production using machinery；
o。。en many different machines； for much of the work where individual
tasks are carried out repetitively。 This is an efficient and low…cost
method of production for small and medium…sized businesses。
。 Continuous…flow production produces the high volumes required by
larger panies。 These are highly automated and their cost usually
requires them to be run 24/7。 By reducing the workforce needed this
eliminates one of the blockages that Smith saw： ‘the improvement of
the dexterity of the workman necessarily increases the quantity of the
work he can perform’。
。 puter…aided manufacture （CAM） is a continuous…flow production
method controlled by puters； such as used in the motor industry。
。 Lean manufacturing is an approach ascribed to Toyota； where they
sought to eliminate or continuously reduce waste that is anything that
doesn’t add value。 Waste in the production process taking the ‘lean’
approach is categorized under such headings as：
– Transport： Keep process close to each other to minimize movement。
– Inventory： Carrying high inventory levels costs money and； if too
low； orders can be lost。 ‘Just in time’ （JIT） manufacturing should be
aimed for。
– Motion： Improve workplace ergonomics so as to maximize labour
productivity。
– Waiting： Aim for a smooth； even flow so that staff and machines are
working optimally； reducing downtime to a minimum。
– Defects： Aim for zero defects as that directly reduces the amount of
waste。
Production scheduling
Production scheduling is the process used to get the optimum amount of
output at the lowest cost。 Its success is measured by being able to meet
delivery promises while hi。。ing profit margin objectives。 It achieves this
by identifying possible resource conflicts； directing sufficient labour and
machinery to tasks on time； acmodating downtime and preventative
Operations Management 237
maintenance schedules； and minimizing stock and work in progress levels。
A production schedule also gives the production team explicit targets so
that supervisors and managers can measure their performance。
The techniques used to facilitate scheduling which an MBA should
understand include the following。
Gantt Charts
Henry Gan。。； a mechanical engineer； management consultant and associate
of Frederick Taylor； showed how an entire process could be described in
terms of both tasks and the time required to carry them out。 He developed
what became known as the Gan。。 chart； to help with major infrastructure
projects； including the Hoover Dam and US Interstate highway system；
around 1910。 By laying out the information on a grid with tasks on one axis
and their time sequence along the other it was possible to see at a glance
an entire production plan as well as highlight potential bo。。lenecks。 Gan。。
charts can be used for any task； not just production scheduling； as Figure
10。2； giving an example of how a website design project could be planned；
demonstrates。
Figure 10。2 Gan。。 chart showing weekly tasks for a website design project
＇！Figure 10。2！＇
0 1 2 3 4 5 6 7 8 9 10
Look at problem materials needed
Start button design software
Experiment with web design software
Prepare website text and images
Test website
Make revisions
Finish writing up project
Critical path method （CPM）
A more sophisticated way to schedule operations was developed in the
late 1950s。 DuPont； the US chemical pany； first used CPM to help
with shu。。ing down plants for maintenance。 Later； the US Navy adapted
it and improved it for use on the Polaris project。 CPM uses a chart （see
Figure 10。3） showing all the tasks to be carried out to plete a scheduled
activity； the sequence in which they have to be carried out and how long
each event； as tasks are known； will take to be pleted。 The critical path
is the route through the network that will take the longest amount of time。
The significance of the critical path is that any delays in carrying out events
238 The Thirty…Day MBA
on this path will delay the whole project。 Tasks not on the critical path have
more leeway； and may be slipped without affecting the end da