Chap 2: Operations strategy in the global

environment

I. Define mission and strategy

❖ Mission: The purpose or rationale for an organization’s existence => luôn
hướng về society
Mission statements tell an organization where it is going
- where is the organization going?
- The organization’s purpose for being
- Answers ‘What do we contribute to society?
- Provides boundaries and focus
Factors affecting mission:
- philosophy and values
- profitability and growth
- public image
- environment
- customers
=> benefit to society

explain: A mission statement is a declaration of the company's purpose, what it

stands for, and what it wants to achieve. It should be clear, concise, and inspiring.
eg: Google's mission statement is "to organize the world's information and make it
universally accessible and useful."

❖ Strategy: How an organization expects to achieve its mission and goals

The Strategy tells the organization how to get there
- Action plan to achieve mission
- Functional areas have strategies
- Strategies exploit opportunities and strengths, neutralize threats, and avoid
weaknesses

explain: A strategy is a plan for how the company will achieve its mission. It
should outline the company's goals and objectives, as well as the specific
 actions it will take to achieve them.
eg: Google's strategy for achieving its mission is to focus on developing
innovative technologies that make it easy for people to find and access
information. The company also invests heavily in marketing and advertising to
promote its products and services.
II. Identify and explain three strategic approaches to
competitive advantage, examples
❖ Differentiation – better, or at least different
Uniqueness can go beyond both the physical characteristics and service
attributes to encompass everything that impacts a customer’s perception of
value
explain: A differentiation strategy involves focusing on developing products
and services that are unique and valuable to customers. This can be achieved
through innovation, design, quality, and customer service.
eg: Apple is a company that uses a differentiation strategy. Apple products
are known for their high quality, innovative design, and user-friendly features.
The company also has a strong brand reputation, which attracts customers
who are willing to pay a premium for its products.
❖ Cost leadership – cheaper
Provide the maximum value as perceived by the customer. Does not imply
low quality.
explain: A cost leadership strategy involves focusing on reducing costs in
order to offer lower prices to customers. This can be achieved through
economies of scale, efficient production processes, and effective supply chain
management.
eg: Walmart is a classic example of a company that uses a cost leadership
strategy. The company has a large network of stores, which allows it to
negotiate lower prices from suppliers. Walmart also uses efficient logistics and
inventory management systems to keep costs down.
❖ Response – more responsive
- Flexibility is matching market changes in design innovation and
volumes
- Reliability is meeting schedules
- Timeliness is the quickness in design, production, and delivery
explain: A response strategy involves focusing on being more responsive to
customer needs than the competition. This can be achieved through faster
product development cycles, more flexible production processes, and better
customer service. By being more responsive to customer needs, companies
can attract customers who are looking for products and services that meet
their specific needs.
eg: Amazon is a company that uses a response strategy. Amazon is known
for its fast delivery times and its wide selection of products. The company also
uses customer reviews to improve its products and services.
=> Conclusion:
- Companies can choose to pursue one of these three strategic approaches, or
they can use a combination of approaches. The best approach for a particular
company will depend on its industry, its target market, and its resources.
- It is important to note that no single strategy can guarantee a competitive
advantage. Companies need to be constantly innovating and adapting to
 changes in the market in order to maintain their competitive edge.

❖ Theory of Comparative Advantage:

- If an external provider can perform activities more productively than the
purchasing firm, then the external provider should do the work
- The purchasing firm focuses on core competencies
- Drives outsourcing
explain:
- A country or company should specialize in producing goods and
services that it can produce more efficiently than other countries or
companies, and then trade for goods and services that it produces less
efficiently. This can lead to increased efficiency and productivity for all
countries and companies involved.
- Purchasing firm focuses on core competencies: By outsourcing
manufacturing, the smartphone company can focus on its core
competency of designing and marketing smartphones. This allows the
company to use its resources more efficiently and to produce better
products for its customers.
- Drives outsourcing: The theory of comparative advantage drives
outsourcing by providing a rationale for companies to specialize in the
production of goods and services that they can produce more
efficiently. By outsourcing non-core activities, companies can focus on
their core competencies and improve their efficiency and productivity.
eg: A company that manufactures smartphones may outsource its
manufacturing to a company in China, where labor costs are lower. This
allows the smartphone company to focus on its core competency of designing
and marketing smartphones. The Chinese manufacturing company can focus
on its core competency of manufacturing smartphones efficiently.
 III. Understand the significant key success factors and core
competencies

❖ Key success factors (KSFs) are the factors that are essential for a company
to be successful in a particular industry. KSFs can vary from industry to
industry, but they typically include things like cost, quality, technology, and
customer service.

Significant key success factors** are the KSFs that are most important for
success in a particular industry. These KSFs are typically the ones that
customers value the most.

❖ Core competencies are the skills and capabilities that a company excels in
and that give it a competitive advantage. Core competencies can be difficult to
replicate, and they can be a source of sustained competitive advantage for a
company.

Significant core competencies are the core competencies that are most
valuable to customers. These core competencies are what allow companies
to differentiate themselves from their competitors and charge a premium price
for their products and services.

❖ Here are some examples of significant key success factors and core
competencies in different industries:
 => conclusion:

- Companies that can identify and develop their significant key success
factors and core competencies are more likely to be successful in their
industry.
- It is important to note that significant key success factors and core
competencies can change over time. Companies need to be constantly
monitoring their industry and adapting their strategies accordingly.

❖ Outsourcing: Outsourcing is the transfer of activities that have traditionally

been internal to a company to an external supplier.
- eg: A company that manufactures widgets may outsource its
manufacturing to another company. This allows the widget company to
focus on its core competency of designing widgets.
● Accelerating due to:
- Increased technological expertise: Technology has made it easier for
companies to outsource their activities to external suppliers. For
example, companies can now use cloud computing to outsource their
IT infrastructure.
- More reliable and cheaper transportation: Transportation costs have
decreased, making it more affordable for companies to outsource their
activities to suppliers in other countries.
- Rapid development and deployment of advancements in
telecommunications and computers: Telecommunications and
computing technologies have made it easier for companies to
communicate and collaborate with their outsourced suppliers.
● Subcontracting: is a type of outsourcing where a company contracts with
another company to perform a specific task or project.
- eg: A construction company may subcontract with a landscaping
company to landscape its new office building.
● Outsourced activities:
- Legal services
- Travel services
- Payroll
- Production
- Surgery
● Factor rating method: this is a process for evaluating outsourcing providers. It
involves identifying the key factors that are important for the outsourcing
decision, assigning points to each factor, and then weighting the factors
according to their importance.
- eg: A company that is considering outsourcing its IT infrastructure may
use the factor rating method to evaluate different outsourcing
providers. The company may identify the following key factors:
+ Cost: How much does the provider charge for its services?
+ Experience: How much experience does the provider have in
providing IT outsourcing services?
+ Reputation: What is the provider's reputation in the industry?
+ Security: How does the provider ensure the security of its
customers' data?
● Points and weights are assigned for each factor to each
- The company would then assign points to each provider for each factor. For
example, the company might give a provider 5 points for cost, 4 points for
experience, 3 points for reputation, and 2 points for security.
- The company would then weigh the factors according to their importance. For
example, the company might give cost a weight of 50%, experience a weight
of 25%, reputation a weight of 15%, and security a weight of 10%.
- The company would then calculate a total score for each provider by
multiplying the points assigned to each factor by the weight of the factor. The
provider with the highest total score would be the preferred outsourcing
provider.
● Insufficient analysis most common reason for failure:
- The most common reason for outsourcing failures is insufficient
analysis. Companies often fail to adequately assess their needs and
the capabilities of potential outsourcing providers. This can lead to
problems such as poor performance, cost overruns, and security
breaches.
- Companies should carefully consider their needs and the capabilities of
potential outsourcing providers before making an outsourcing decision.
They should also develop a clear contract that outlines the
expectations of both parties.
 IV. Identify and explain four global operations strategy
options
❖ International strategy: Import/export or license existing product
- An international strategy involves exporting products and services to
foreign markets. This is the simplest and most common type of global
operations strategy.
- Eg: A company that manufactures clothing may export its products to
foreign markets through distributors or retailers.
❖ Multidomestic strategy:
- Use existing domestic model globally
- Franchise, joint ventures, subsidiaries
- explain: A multi-domestic strategy involves adapting products and
services to meet the specific needs of local markets. This strategy is
more complex than an international strategy, but it can be more
effective in reaching foreign customers.
- eg: A company that sells fast food may adapt its menus to meet the
dietary preferences of customers in different countries.
❖ Global strategy:
- Standardize product
- Economies of scale
- Cross-cultural learning
- explain: A global strategy involves centralizing production and
marketing activities in order to achieve economies of scale and to
create a consistent global brand.
- eg: Coca-Cola uses a global strategy. The company produces its
products in a few centralized locations and then markets them all over
the world.
❖ Transnational strategy:
- Move material, people, and ideas across national boundaries
- Economies of scale
- Cross-cultural learning
- explain: A transnational strategy involves combining the benefits of a
global strategy with the flexibility of a multi-domestic strategy. This is
the most complex type of global operations strategy, but it can be the
most effective in reaching global markets
- eg: Toyota uses a transnational strategy. The company has centralized
production facilities in a few locations, but it also has manufacturing
plants in many different countries. This allows Toyota to produce
vehicles at a low cost and to adapt them to meet the specific needs of
local markets.
 V. Use factor rating to evaluate both country and provider
outsources
❖ Step 1: Identify Factors
● For Evaluating Countries:
1. Cost: Labor costs, infrastructure expenses, taxes, etc.
2. Political Stability: Government stability, regulations, and legal systems.
3. Cultural Compatibility: Language, work culture, and time zone
differences.
4. Infrastructure: Technological capabilities, transportation,
communication.
5. Economic Environment: Exchange rates, inflation rates, GDP, etc.
6. Risk Factors: Environmental, social, and security risks.
● For Evaluating Providers:
1. Quality of Service: Past performance, reviews, reputation.
2. Expertise and Skills: Industry-specific knowledge, and skill sets.
3. Cost and Financial Stability: Pricing, and financial health of the
provider.
4. Communication: Ability to communicate effectively, responsiveness.
5. Location and Time Zone: Proximity, and time zone differences.
6. Scalability and Flexibility: Capability to grow or adapt to changing
needs.
❖ Step 2: Assign Weights
● Assign weights to each factor based on its importance in your specific
outsourcing project. For instance:
- The cost might be given a higher weight if the project is cost-sensitive.
- Quality of service might be crucial for a project requiring high precision
or accuracy.
❖ Step 3: Rate Each Alternative
● Rate each country and provider on a scale (e.g., 1 to 5) for each factor.
For example
- Country A: Cost (4), Political Stability (3), Cultural Compatibility (5), etc.
- Provider X: Quality of Service (4), Expertise and Skills (5), Cost and
Financial Stability (3), etc.
❖ Step 4: Calculate Scores
● Multiply the rating of each factor by its weight and sum up these
products for each country and provider. This will give you a total score
for each option.
❖ Step 5: Comparison and Decision
● Compare the total scores of countries and providers. Higher scores
indicate better suitability for your outsourcing needs. Make a decision
based on these scores, considering other non-quantifiable factors,
such as strategic alignment and long-term goals.
❖ Step 6: Review and Adjust
● After selection, regularly review and assess the performance to ensure
the chosen country and provider are meeting the desired criteria.
Adjustments can be made based on changing circumstances or needs.
● Remember, the specific weights and ratings may vary based on your
unique requirements, and it's crucial to tailor these assessments
according to the specific goals and circumstances of your outsourcing
project.
 CHAP 5: Product Design
I. Define product life cycle
- May be any length from a few days to decades
- The operations function must be able to introduce new products successfully
- The product life cycle (PLC) is a conceptual model that describes the stages
that a product goes through from introduction to decline. The PLC is typically
divided into four stages (Life Cycle and Strategy):
+ Introductory Phase. The product is new to the market and sales
are low. Fine-tuning may warrant unusual expenses for:
Research
Product development
Process modification and enhancement
Supplier development
+ Growth Phase: Sales increase rapidly as customers become
aware of the product and its benefits.
Product design begins to stabilize
Effective forecasting of capacity becomes necessary
Adding or enhancing capacity may be necessary
+ Maturity Phase: Sales reach a plateau as the product becomes
more established in the market.
Competitors now established
High-volume, innovative production may be needed
Improved cost control, reduction in options, paring down of
product line
+ Decline Phase: Sales start to decrease as customers switch to
newer products.
Unless the product makes a special contribution to the
organization, must plan to terminate the offering
- explain: The PLC can be used to understand the market for a product and to
develop strategies for its success. For example, a company that is launching
a new product may focus on increasing awareness and generating excitement
during the introduction stage. During the growth stage, the company may
focus on expanding distribution and increasing production capacity. During
the maturity stage, the company may focus on innovation and differentiation.
During the decline stage, the company may focus on phasing out the product
or finding new markets for it.
- Example: A new smartphone is introduced to the market. During the
introduction stage, sales are low as customers become aware of the new
product and its benefits. During the growth stage, sales increase rapidly as
more customers adopt the smartphone. During the maturity stage, sales reach
a plateau as the smartphone becomes more established in the market. During
the decline stage, sales start to decrease as customers switch to newer
smartphones.
II. Describe a product development system

❖
This is a typical product development system, but the specific steps and order
may vary depending on the industry and the product.
- Concept: The first step in the product development process is to
generate a concept for the new product. This can be done through
brainstorming, customer research, or other methods.
- Feasibility: Once a concept has been generated, it needs to be
assessed for feasibility. This includes assessing the technical
feasibility, the commercial feasibility, and the market feasibility.
- Customer Requirements: Once the feasibility assessment has been
completed, the next step is to identify and document the customer
requirements for the new product. This can be done through customer
surveys, interviews, and focus groups.
- Functional Specifications: The functional specifications are a detailed
description of the product's features and functionality. The functional
specifications are used to guide the design and engineering teams.
- Scope of the product development team: The scope of the product
development team is the definition of the team's roles and
responsibilities. This includes identifying the team members, their skills
and experience, and their reporting structure.
- Scope for design and engineering teams: The scope for the design and
engineering teams is the definition of the teams' roles and
responsibilities. This includes identifying the teams' goals, milestones,
and deliverables.
 - Design Review: The design review is a meeting where the design team
presents their design to the product development team and other
stakeholders. The purpose of the design review is to get feedback on
the design and to identify any potential problems.
- Test Market: Once the product has been designed and developed, it
needs to be tested in the market. This can be done through a beta test,
a pilot launch, or other methods.
- Introduction: The introduction is the launch of the product to the
market. This is where the product is made available to customers.
- Evaluation: Once the product has been introduced, it needs to be
evaluated. This includes evaluating the product's performance, the
customer's reaction, and the market's response.
Example: A company that is developing a new smartphone would follow the following
steps in the product development system:
- Concept: The company's product development team would brainstorm ideas
for a new smartphone.
- Feasibility: The company would assess the feasibility of the different ideas.
This would include assessing the technical feasibility, the commercial
feasibility, and the market feasibility.
- Customer Requirements: The company would identify and document the
customer requirements for the new smartphone. This would be done through
customer surveys, interviews, and focus groups.
- Functional Specifications: The company would develop functional
specifications for the new smartphone. The functional specifications would
describe the smartphone's features and functionality in detail.
- Scope of product development team: The company would define the scope of
the product development team. This would include identifying the team
members, their skills and experience, and their reporting structure.
- Scope for design and engineering teams: The company would define the
scope for the design and engineering teams. This would include identifying
the teams' goals, milestones, and deliverables.
- Design Review: The design team would present their design for the new
smartphone to the product development team and other stakeholders.
- Test Market: The company would test the new smartphone in the market
through a beta test or a pilot launch.
- Introduction: The company will launch the new smartphone to the market.
- Evaluation: The company would evaluate the performance of the new
smartphone, the customer's reaction, and the market's response.
By following the product development system, companies can increase their
chances of success in launching new products
III. Build a house of quality

- A house of Quality (HOQ) is a tool used in Quality Function Deployment

(QFD) to translate customer requirements into technical characteristics of a
product or service. It is a matrix that shows the relationships between
customer requirements, product characteristics, and technical attributes.
- Steps to build a House of Quality:
+ Identify customer wants: What do customers want from the product or
service? This can be done through market research, customer surveys,
and focus groups.
+ Identify how the good/service will satisfy customer wants: How will the
product or service satisfy the customer wants identified in step 1? This
involves brainstorming a list of ways to meet each customer's wants.
+ Relate customer wants to product hows: What are the product
characteristics that will determine how well the product or service
satisfies each customer's want? For example, a customer's want for a
"comfortable car" might be related to product characteristics such as
seat design, suspension system, and noise level.
+ Identify relationships between the firm’s hows: How are the product
characteristics interrelated? For example, improving the seat design
may also improve the noise level.
+ Develop customer importance ratings: How important is each customer
want to the customer? This can be done through customer surveys and
focus groups.
+ Evaluate competing products: How well do competing products meet
the customer's wants? This information can be used to identify areas
where the product or service can be differentiated from the competition.
+ Compare performance to desirable technical attributes: How well does
the product or service perform on each technical attribute? This
information can be used to identify areas where the product or service
can be improved.
 + Once the HOQ is complete, it can be used to identify the most
important product characteristics and technical attributes. This
information can then be used to develop and design the product or
service.
- Example: A company is developing a new smartphone. The company uses
the HOQ to translate customer requirements into technical characteristics of
the smartphone. The HOQ shows the relationships between the following:
+ Customer wants: long battery life, high-quality camera, fast processor,
easy to use
+ Product characteristics: battery capacity, camera resolution, processor
speed, user interface design
+ Technical attributes: battery size, camera sensor, processor
architecture, user interface elements
+ The HOQ also shows the customer importance ratings for each
customer want. The company uses this information to identify the most
important product characteristics and technical attributes. The
company then uses this information to develop and design the
smartphone.
- The HOQ is a powerful tool that can help companies develop new products
and services that meet the needs of their customers.

Practice Problems: Chapter 5, Design of Goods and Services

Problem 1:

You wish to compete in the super premium ice cream market. The task is to determine the
wants of the super premium market and the attributes/hows to be met by their firm. Use the
house of quality concept.
Market research has revealed that customers feel four factors are significant in making a
buying decision. A “rich” taste is most important followed by smooth texture, distinct flavor,
and a sweet taste. From a production standpoint, important factors are the sugar content, the
amount of butterfat, low air content, and natural flavors.

Problem 2:

Prepare a bill-of-material for a ham and cheese sandwich.

Problem 3:

Prepare an assembly chart for a ham and cheese sandwich.

Problem 4:
Michael’s Engineering, Inc. manufactures components for the ever-changing notebook
computer business. He is considering moving from a small custom design facility to an
operation capable of much more rapid design of components. This means that Michael must
consider upgrading his CAD equipment. Option 1 is to purchase two new desktop CAD
systems at $100,000 each. Option 2 is to purchase an integrated system and the related server
at $500,000. Michael’s sales manager has estimated that if the market for notebook
computers continues to expand, sales over the life of either system will be $1,000,000. He
places the odds of this happening at 40%. He thinks the likelihood of the market having
already peaked to be 60% and future sales to be only $700,000. What do you suggest
Michael do and what is the EMV of this decision?

ANSWERS:

Problem 1:

One possible solution for this problem is:

Problem 2:

One possible BOM would be:

Bill of Material
Bread 2 slices
Ham 1 slice
Swiss Cheese 1 slice
Lettuce 1/26 head of lettuce
Mustard 2 teaspoon
Pickle relish 1 teaspoon
Paper plate 1
Paper napkin 1
Problem 3:

Based on the BOM in Problem 2, an assembly chart might look like:

Problem 4:

The EMV for the desktop systems is $620,000 vs. $320,000 for the integrated system.
Therefore, Michael should purchase the desktop systems.
 CHAP 6: Quality Management and International
Standards

I. Define quality and TQM

❖ Quality:
- An operations manager’s objective is to build a total quality
management system that identifies and satisfies customer needs
- The totality of features and characteristics of a product or service that
bears on its ability to satisfy stated or implied needs
- Quality is the degree to which a product or service meets the needs
and expectations of its customers.
Different Views
- User-based: better performance, more features. What does the
customer want? Quality is defined by the user and is based on their
needs and expectations. For example, a user might define the quality
of a smartphone by its performance, features, and ease of use.
- Manufacturing-based: conformance to standards, making it right the
first time. How do we meet or exceed our standards? Quality is defined
by the manufacturer and is based on meeting or exceeding certain
standards. For example, a manufacturer might define the quality of a
smartphone by its conformance to design specifications and its
freedom from defects.
- Product-based: specific and measurable attributes of the product. What
are the specific attributes of our product that make it high quality?
Quality is defined by the product itself and is based on its specific and
measurable attributes. For example, a product-based definition of the
quality of a smartphone might include its processing speed, screen
resolution, and camera megapixels.

❖ Total Quality Management:

- Encompasses the entire organization from supplier to customer
- Stresses a commitment by management to have a continuing
companywide drive toward excellence in all aspects of products and
services that are important to the customer
- TQM is a management approach that aims to improve quality and
performance across the entire organization.
TQM is based on the following principles:
- Customer focus: TQM businesses are focused on meeting or
exceeding customer needs and expectations.
- Employee involvement: TQM businesses believe that all employees
have a role to play in improving quality.
 - Continuous improvement: TQM businesses are committed to
continuous improvement of all processes and products.
- Process-based approach: TQM businesses focus on improving
processes, rather than simply inspecting products for defects.
- Example
A company that manufactures smartphones might use a combination of
user-based, manufacturing-based, and product-based definitions of
quality. For example, the company might define the quality of its
smartphones by their performance, features, ease of use, conformance
to design specifications, and freedom from defects.
The company might implement a TQM program to improve the quality
of its smartphones. This program might involve training employees on
quality control procedures, investing in quality equipment, and
conducting regular customer surveys. The company might also use
statistical process control to identify and eliminate sources of defects.

❖ Quality has a number of implications for businesses, including

Company reputation: A reputation for quality can lead to increased sales,
customer loyalty, and higher market share.
Product liability: High-quality products are less likely to be defective, which
can reduce the risk of product liability lawsuits.
Global implications: In today's globalized economy, businesses need to
compete with companies from all over the world. A commitment to quality can
help businesses to compete more effectively.
❖ There are four main costs of quality:
Prevention costs: These are the costs incurred to prevent defects from
occurring in the first place. Examples include training employees on quality
control procedures and investing in quality equipment.
Appraisal costs: These are the costs incurred to evaluate products, parts, and
services for quality. Examples include inspections and tests.
Internal failure costs: These are the costs incurred when defects are
discovered before delivery to the customer. Examples include scrap, rework,
and warranty repairs.
External failure costs: These are the costs incurred when defects are
discovered after delivery to the customer. Examples include product recalls,
customer complaints, and lost sales.
❖ Ethics and Quality Management
Operations managers have an ethical responsibility to deliver healthy, safe,
and quality products and services. Poor quality can lead to injuries, lawsuits,
recalls, and regulations. Operations managers must be ethical in their
response to quality problems and must consider the interests of all
stakeholders.
II. Explain Seven Concepts of TQM

1. Continuous Improvement
- Continuous improvement is a process of constantly making small
improvements to products, services, and processes.
- Continuous improvement is a never-ending process of continual
improvement that covers people, equipment, materials, and
procedures. Every operation can be improved, and there is always
room for growth.
- Example: A company that manufactures smartphones might use
continuous improvement to reduce the number of customer complaints
about battery life. The company could identify the root causes of the
complaints, such as defective batteries or inefficient software, and
implement changes to address those issues.
A company uses continuous improvement to make small improvements
to its manufacturing process. This results in a reduction in defects and
an improvement in the quality of the company's products.
2. Six Sigma
- Six Sigma is a set of tools and processes that are used to improve the
quality of products and services by reducing defects.
Six Sigma has two meanings:
- Statistical definition: A process that is 99.9997% capable, with 3.4
defects per million opportunities (DPMO).
- Program: A program designed to reduce defects, lower costs, save
time, and improve customer satisfaction.
- A comprehensive system for achieving and sustaining business
success
- Example: A company that produces pharmaceuticals could use Six
Sigma to reduce the number of defects in their manufacturing process.
The company could use statistical methods to identify and eliminate the
root causes of defects, such as faulty equipment or inaccurate
measurements. This results in a significant improvement in the quality
of the company's products and a reduction in costs.
- A set of 7 tools
1. Defines the project’s purpose, scope, and outputs, identifies the
required process information keeping in mind the customer’s definition
of quality
2. Measures the process and collects data
3. Analyze the data ensuring repeatability and reproducibility
4. Improves by modifying or redesigning existing processes and
procedures
5.Controls the new process to make sure performance levels are
maintained
3. Employee Empowerment
- Employee empowerment is the process of giving employees the
authority and responsibility to make decisions about their work.
- Employee empowerment is getting employees involved in product and
process improvements. 85% of quality problems are due to process
and material issues, so it is important to get employees involved in
identifying and solving these problems.
- Example: A company that manufactures automobiles could empower
employees by giving them the authority to make decisions about how
to improve their work processes. The company could also provide
employees with training on problem-solving and quality improvement
techniques.This results in increased employee engagement and
productivity.
- Quality Circles
Group of employees who meet regularly to solve problems
Trained in planning, problem-solving, and statistical methods
Often led by a facilitator
Very effective when done properly
4. Benchmarking
- Benchmarking is the process of comparing your products, services,
and processes to those of other organizations in order to identify areas
for improvement.
- Benchmarking is selecting best practices to use as a standard for
performance. This involves identifying organizations that are
considered to be leaders in their industry and comparing their practices
to your own.
- Example: A company that provides customer service could benchmark
its call center against other call centers in their industry. The company
could identify areas where their call center is performing well and areas
where there is room for improvement. This helps the company to
identify areas for improvement.
- Internal Benchmarking When the organization is large enough
Data more accessible
Can and should be established in a variety of areas
5. Just-in-time (JIT)
- Just-in-time (JIT) is a production and inventory management system
that aims to reduce waste by only producing and storing the amount of
inventory that is needed.
- JIT is a production scheduling system that aims to have the right
materials in the right place at the right time, thereby reducing inventory
costs and improving quality.
- Example: A company that manufactures electronics could use JIT to
reduce the amount of inventory they hold on hand. The company could
 work closely with their suppliers to ensure that they receive the
materials they need just in time to use them.
- ‘Pull’ system of production scheduling including supply management
Production only when signaled
Allows reduced inventory levels
Inventory costs money and hides process and material problems
Encourages improved process and product quality
6. Taguchi concepts
- Taguchi concepts is a set of methods for designing products and
processes that are robust to variation.
- Taguchi concepts are engineering and experimental design methods to
improve product and process design. They focus on identifying key
components and process variables affecting product variation and
minimizing the impact of these variables on product quality.
- Example: A company that manufactures bicycles could use Taguchi
concepts to design a bicycle frame that is less susceptible to vibration.
The company could use statistical methods to identify the key variables
that affect vibration, such as the thickness of the frame material and
the type of welding process used.
- Quality Robustness
Ability to produce products uniformly in adverse manufacturing and
environmental conditions
Remove the effects of adverse conditions
Small variations in materials and process do not destroy product quality
- Quality Loss Function
Shows that costs increase as the product moves away from what the
customer wants
Costs include customer dissatisfaction, warranty
and service, internal
scrap and repair, and costs to society
Traditional conformance specifications are too simplistic
7. Knowledge of TQM tools
- There are a number of TQM tools that can be used to collect, analyze,
and present data. These tools can be used to identify and solve quality
problems, as well as to track progress towards quality improvement
goals.
- Examples of TQM tools:
Check Sheet: A form used to collect data on a specific process or
product.
Scatter Diagram: A graph that shows the relationship between two
variables.
Cause-and-Effect Diagram: A diagram that shows the relationship
between a problem and its possible causes.
 Pareto Chart: A graph that shows the relative frequency of different
problems or causes.

Flowchart: A diagram that shows the steps in a process.

Histogram: A graph that shows the frequency distribution of a variable.

Statistical Process Control Chart: A graph that shows whether a
process is in control.
- Eg: A company uses the seven tools of TQM to improve the quality of
its products and services. For example, the company uses a check
sheet to collect data about the number of defects in its products. The
company then uses a Pareto chart to prioritize the problems. The
company then uses a cause-and-effect diagram to identify the root
causes of the problems. The company then implements corrective
actions to address the root causes of the problems.
III. Use the seven tools of TQM

a) Check Sheet:
- A check sheet can be used to collect data about the number of defects in a
product, the time it takes to complete a task, or the number of customer
complaints.
- A check sheet is an organized method of recording data. It is typically used to
collect data on a specific process or product. Check sheets can be used to
track the number of defects, the frequency of certain events, or the time it
takes to complete a task.

- Example:
A company that manufactures bicycles could use a check sheet to track the
number of defects in their production process. The check sheet could list all of
the possible defects that could occur, and the workers could check off the
defects they observe.

b) Scatter Diagram:
- A scatter diagram can be used to identify the relationship between two
variables, such as the relationship between the temperature and the number
of defects in a product.
- A scatter diagram is a graph of the value of one variable vs. another variable.
It is used to show the relationship between two variables.

- Example:
A company that sells clothing could use a scatter diagram to show the
relationship between the price of clothing and the number of items sold. The
scatter diagram could show that the higher the price of clothing, the fewer the
number of items sold.
c) Cause-and-Effect Diagram:
- A cause-and-effect diagram can be used to identify the root causes of a
problem, such as the problem of late deliveries.
- A cause-and-effect diagram, also known as a fishbone diagram or Ishikawa
diagram, is a tool that identifies process elements (causes) that might effect
an outcome. It is used to identify the root cause of a problem.

- Example:
A company that manufactures automobiles could use a cause-and-effect
diagram to identify the root cause of customer complaints about excessive
noise in their vehicles. The diagram could identify possible causes such as
faulty tires, defective exhaust systems, or problems with the engine.

d) Pareto Chart:
- A Pareto chart can be used to prioritize problems, such as the problem of
customer complaints.
- A Pareto chart is a graph to identify and plot problems or defects in
descending order of frequency. It is used to prioritize problems or defects.

- Example:
A company that provides customer service could use a Pareto chart to identify
the most common problems that customers report. The Pareto chart shows
that the most common problems are related to product returns, billing errors,
and shipping delays.

e) Flowchart (Process Diagram):

 - A flowchart can be used to map out the steps in a process, such as the
manufacturing process for a product.
- A flowchart is a chart that describes the steps in a process. It is used to
visualize a process and identify areas where there may be bottlenecks or
inefficiencies.

- Example:
A company that manufactures furniture could use a flowchart to describe the
process of manufacturing a table. The flowchart could show the steps
involved in cutting the wood, assembling the table, and finishing the table.

f) Histogram:
- A histogram can be used to analyze the distribution of a variable, such as the
distribution of customer satisfaction ratings.
- A histogram is a distribution showing the frequency of occurrences of a
variable. It is used to see how a variable is distributed.

- Example:
A company that sells candy could use a histogram to show the distribution of
the weight of their candy bars. The histogram shows that the majority of the
candy bars weigh between 1.8 and 2 ounces.

g) Statistical Process Control Chart:

- An SPC chart can be used to monitor the performance of a process over time,
such as the performance of a manufacturing process.
- A statistical process control chart is a chart with time on the horizontal axis to
plot the values of a statistic. It is used to monitor the stability of a process.
 - Example:
A company that manufactures pharmaceuticals could use a statistical process
control chart to monitor the amount of active ingredients in their pills. The
chart could show that the amount of active ingredient is within the acceptable
range.

IV. Exercise: Seven Tools of TQM

- Exercise 1: Check Sheet

A company wants to track the number of customer complaints it receives each
week. The company creates a check sheet to collect this data. The check
sheet has a column for the date, the customer's name, the customer's
complaint, and the employee who handled the complaint.
- Exercise 2: Scatter Diagram
A company is concerned about the high number of defects in its products. The
company creates a scatter diagram to identify the relationship between the
temperature
Practice Problems: Chapter 6, Managing Quality

Problem 1:

The accounts receivable department has documented the following defects over a 30-day
period:

Category Frequency
Invoice amount does not agree with the check amount 108
Invoice not on record (not found) 24
No formal invoice issued 18
Check (payment) not received on time 30
Check not signed 8
Invoice number and invoice referenced do not agree 12

What techniques would you use and what conclusions can you draw about defects in the
accounts receivable department?

Problem 2:

Prepare a flow chart for purchasing a Big Mac at the drive-through window at McDonalds.

Problem 3:

Draw a fishbone chart detailing reasons why a part might not be correctly machined.
 ANSWERS:

Problem 1:

Category Frequency Percent

Invoice amount does not agree with the check amount 108 54
Invoice not on record (not found) 24 12
No formal invoice issued 18 9
Check (payment) not received on time 30 15
Check not signed 8 4
Invoice number and invoice referenced do not agree 12 6
Σ= 200 100

Use a Pareto chart to organize the defects and conclude that the obvious problem (about half
the defects) is the failure of the check to agree with the company’s records as to the correct
amount. Other problems are late payments and an apparent invoice-filing problem in the
office. Notice that 27% of these common errors appear to be the result of procedural
problems within accounts receivable (invoice not on record, no invoice issued, and invoice
numbering problems). This value could be considerably higher depending on how much of
the problem of disagreement between invoice and check amounts is the result of accounts
receivable process problems.
Problem 2:

Distance Symbol Activity

-- Pull up to speaker
-- Press button
-- Wait for response
-- Verbalize order
-- Get confirmation of order and cost
20 Move car up in line
-- Wait
20 Move car up in line
-- Wait
-- Verify order and cost
-- Pay and receive order
-- Leave
-- Realize they forgot the extra catsup!

Problem 3
 Chapter 7: Process Strategy
I. Describe four process strategies
- Process strategy is a crucial aspect of operations management, determining
how organizations structure their production or service delivery processes to
achieve their strategic goals. Four primary process strategies are commonly
employed:
● Process focus strategy: This strategy emphasizes flexibility and
customization, catering to a wide range of customer requirements and
adapting to changing market demands. It typically involves batch processing
or project management approaches.

Process focus is a type of facility layout in which machines and equipment are
grouped together based on the processes they perform. This layout is often
used for low-volume, high-variety production, as it allows for greater flexibility.

Example: A job shop is a type of process-focused facility. Job shops typically

produce small batches of custom products, such as prototypes or specialized
equipment.

● Repetitive strategy: This strategy prioritizes efficiency and cost reduction,

focusing on high-volume production of standardized products. It utilizes
repetitive processes, automation, and assembly lines.

Repetitive focus is a type of facility layout in which machines and equipment

are arranged in a sequence of operations. This layout is often used for high-
volume, low-variety production, as it allows for greater efficiency.

Example: An assembly line is a type of repetitive-focused facility. Assembly

lines are typically used to produce large quantities of standard products, such
as automobiles or electronics.

● Product strategy: This strategy concentrates on producing high-quality,

complex products that require specialized skills and equipment. It involves job
shop or project management approaches.

Product focus is a type of facility layout in which machines and equipment are
grouped together based on the products they produce. This layout is often
used for high-volume, high-variety production, as it allows for greater
efficiency and specialization.

Example: A flow shop is a type of product-focused facility. Flow shops

typically produce large quantities of a few different products.

● Mass customization strategy: This strategy combines the flexibility of process

focus with the cost-efficiency of repetitive strategy. It utilizes modular design
and flexible manufacturing systems to produce customized products at a
lower cost.

Mass customization is a production strategy that aims to produce high

volumes of customized products at low costs. This is achieved by using
flexible manufacturing processes and information technology to integrate
customer input into the production process.

Example: A company that produces custom clothing might use mass

customization to produce unique garments for each customer. The company
could use a computer-aided design (CAD) system to create a custom pattern
for each garment, and then use a computer-controlled sewing machine to
produce the garment.
Practice Problems: Chapter 7, Process Strategy

Problem 1:
Jackson Custom Machine Shop has a contract for 130,000 units of a new product. Sam
Jumper, the owner, has calculated the cost for three process alternatives. Fixed costs will be:
for general-purpose equipment (GPE), $150,000; flexible manufacturing (FMS), $350,000;
and dedicated automation (DA), $950,000. Variable costs will be: GPE, $10; FMS, $8; and
DA, $6. Which should he choose?

Problem 2:
Solve Problem 1 graphically

Problem 3:
Using either your analytical solution found in Problem 1, or the graphical solution found in
Problem 2, identify the volume ranges where each process should be used.

Problem 4:
If Jackson Custom Machine is able to convince the customer to renew the contract for
another one or two years, what implications does this have for his decision?

ANSWERS:

Problem 1:
Solve for the crossover between GPE and FMS:

or

Solve for the crossover between FMS and DA:

or

Therefore, at a volume of 130,000 units, FMS is the appropriate strategy.

Problem 2 & 3:
Below 100,000 units use GPE, between 100,000 and 300,000 use FMS, above 300,000 use
DA

Problem 4:
If Jackson Custom Machine is able to get the customer to extend the contract for another two
years, the owner would certainly wish to take advantage of the savings using Dedicated
Automation.
THE INTERNATIONAL UNIVERSITY (IU) – VIETNAM NATIONAL UNIVERSITY – HCMC

MID-TERM EXAMINATION

GENERAL INSTRUCTION(S)
1. This is open book online examination.
2. Your answer will be submitted in Blackboard
3. Your webcam must be opened during the examination time
4. The due time this test in Black Board is 12:15 PM
___________________________________________________________________________
___
Problem 1 (25 points):
Hoang Long Manufacturing is currently producing a tape holder that has variable cost of 0,75
USD/unit and a selling price of 2USD/unit. Fixed costs are 20,000 USD. Current volume is
40,000 units. The company can produce a better product by adding a new piece of equipment
to the process line. This equipment represents an increase of 5,000 USD in fixed cost. The
variable cost would decrease by 0,25 USD/unit. Volume for the new and improved product
should rise to 50,000 units.
Questions:
a) Should the company invest in the new equipment?
b) At what volume does the equipment choice change/
c) At a volume of 15,000 units, which process should be used?

ANS:

Current process:

● Variable cost: $0.75/unit

● Selling price: $2/unit
● Fixed costs: $20,000
● Current volume: 40,000 units

New process:

● Variable cost: $0.5/unit

● Selling price: $2/unit
● Fixed costs: $25,000
● New volume: 50,000 units

a) Should the company invest in the new equipment?

To determine whether the company should invest in the new equipment, we need to
calculate the profit for each process.

Profit for the current process:

Profit = (Selling price - Variable cost) * Volume - Fixed costs
Profit = ($2 - $0.75) * 40,000 - $20,000

Profit = $30,000

Profit for the new process:

Profit = (Selling price - Variable cost) * Volume - Fixed costs

Profit = ($2 - $0.5) * 50,000 - $25,000

Profit = $50,000

Since the profit for the new process is higher than the profit for the current process, the
company should invest in the new equipment.

b)At what volume does the equipment choice change?

The break-even point is the volume at which both processes have the same profit.

Break-even point = (Fixed costs for new process - Fixed costs for current process) /
(Variable cost for current process - Variable cost for new process)
Break-even point = ($25,000 - $20,000) / ($0.75 - $0.5)

Break-even point = 20,000 units

At a volume of 20,000 units, both processes would have the same profit. If the company
expects to sell more than 20,000 units, they should invest in the new equipment. If they
expect to sell less than 20,000 units, they should stick with the current process.

c)At a volume of 15,000 units, which process should be used?

If the company expects to sell 15,000 units, the current process would be more profitable.

Profit for the current process at 15,000 units:

Profit = (Selling price - Variable cost) * Volume - Fixed costs

Profit = ($2 - $0.75) * 15,000 - $20,000

Profit = $12,500

Profit for the new process at 15,000 units:

Profit = (Selling price - Variable cost) * Volume - Fixed costs

Profit = ($2 - $0.5) * 15,000 - $25,000

Profit = $7,500
Therefore, at a volume of 15,000 units, the company should stick with the current process.

In conclusion, the company should invest in the new equipment if they expect to sell more
than 20,000 units. Otherwise, they should stick with the current process.

Problem 2 (25 points):

There are three primary strategies for operations managers to achieve the sustainable
competitive advantage. Give explanation of these strategies and suitable examples in
Vietnamese context.
ans:

Strategy 1: Cost Leadership

This strategy involves achieving the lowest production costs in the industry, allowing the
company to offer lower prices to customers and attract a larger market share.

Example: Vinamilk, the leading dairy producer in Vietnam, has achieved cost leadership
through efficient supply chain management, economies of scale, and technological
advancements. This has allowed Vinamilk to offer affordable dairy products that are widely
accessible to Vietnamese consumers.

Strategy 2: Differentiation

This strategy involves creating products or services that are unique and superior to those of
competitors, allowing the company to charge premium prices and attract customers who are
willing to pay for quality.

Example: Trung Nguyen Coffee, a Vietnamese coffee brand, has achieved differentiation
through its focus on high-quality coffee beans, unique roasting techniques, and innovative
product offerings, such as instant coffee with gingseng and coffee with snail collagen. This
has allowed Trung Nguyen Coffee to position itself as a premium coffee brand and charge
higher prices compared to its competitors.

Strategy 3: Response

This strategy involves quickly adapting to changing customer demands and market
conditions, allowing the company to maintain a competitive edge.

Example: Mobile World, a Vietnamese electronics retailer, has achieved success through its
rapid adoption of e-commerce and omnichannel strategies, enabling them to reach a wider
customer base and provide a seamless shopping experience across both online and offline
channels. This has allowed Mobile World to adapt to the growing trend of online shopping
and maintain its position as a leading electronics retailer in Vietnam.
Problem 3 (25 points):
Samsung Corporation has the option of (a) proceeding immediately with production of a new
thin LCD that has just completed prototype testing or (b) having the value analysis team
complete a study. If the company proceeds with the existing prototype (option a), the
company can expect sales to be 1000,000 units at 550 USD each, with a probability of 0.6
and a 0.4 probability of 75,000 units at 550 USD. If, however, the company uses the value
analysis team (option b), the company expects sales of 75,000 units at 750 USD, with a
probability of 0.7 and a 0.3 probability of 70,000 units at 750 USD. Value analysis, at a cost
of 100,000 USD, is only used in option b.
Question: Which option you can recommend for the company and why?
ans

I recommend that Samsung Corporation proceed immediately with production of the

new thin LCD (option a).

Here's the breakdown of my recommendation:

● Expected value of option a:

(0.6 * 1000000 * 550) + (0.4 * 75000 * 550) = 330,000,000 + 207,500,000 =

537,500,000 USD

● Expected value of option b:

(0.7 * 75000 * 750) + (0.3 * 70000 * 750) - 100,000 = 393,750,000 - 100,000 =

393,650,000 USD

As you can see, the expected value of option a is higher than the expected value of
option b, even when considering the cost of value analysis. This means that
Samsung Corporation is more likely to make a profit if they proceed with production
immediately rather than waiting for the value analysis team to complete their study.

In addition, the probability of selling 1000,000 units at 550 USD is 0.6, which is a
relatively high probability. This means that there is a good chance that Samsung
Corporation can make a significant profit if they proceed with production
immediately.
Finally, even if Samsung Corporation only sells 75,000 units at 550 USD, they will
still make a profit of 207,500,000 USD. This means that even the worst-case
scenario for option a is still better than the best-case scenario for option b.

Therefore, I recommend that Samsung Corporation proceed immediately with

production of the new thin LCD.

Problem 4 (25 points):

A company collect information of defect shipments. The form of 280 shipments has been
turned in. The number of defective items in each sample was recorded as follows.

Week No of No of Reasons of defective shipment

shipment shipment Incorrect Incorrect Damage Truck late
defects bill truck load product
1 23 6 2 2 1 1
2 31 8 1 4 1 2
3 28 6 2 3 1 --
4 37 11 4 4 2 1
5 35 10 3 4 2 1
6 40 14 5 6 3 --
7 41 12 3 5 2 1+1
8 45 15 4 7 2 2
280 82 24 35 14 8+1

Question: Develop Pareto chart for the type of defects that have occurred. What are your
recommendations for the shipping company?

To develop a Pareto chart for the type of defects that have occurred, I would first sort the
defects by frequency, from highest to lowest. This gives me the following:

Defect Frequency

Incorrect bill of 82
lading

Incorrect truck load 24

Damaged product 14
 Truck late 8

Other 3

Next, I would calculate the cumulative percentage of defects for each category. This
gives me the following:

Defect Frequency Cumulative

Percentage

Incorrect bill of 82 29.3%

lading

Incorrect truck load 24 53.6%

Damaged product 14 67.9%

Truck late 8 76.4%

Other 3 100%

Finally, I would create a bar chart with the defect categories on the x-axis and the
cumulative percentage of defects on the y-axis. I would also add a line chart that shows
the cumulative percentage of defects. This is the Pareto chart:
As you can see from the Pareto chart, incorrect bills of lading and incorrect truck loads
are the two most common defects, accounting for over 80% of all defects. This suggests
that the shipping company should focus on these two areas when trying to reduce
defects.

Here are some recommendations for the shipping company:

● Review the process for creating and issuing bills of lading. Make sure that all bills
of lading are accurate and complete before they are issued.
● Improve the communication between the shipping company and its customers.
This will help to ensure that customers provide accurate information about the
products they are shipping.
● Train employees on proper loading and unloading procedures. This will help to
reduce the risk of damaged products.
● Implement a quality control system to inspect shipments before they are sent out.
This will help to identify and correct any defects before the shipments reach
customers.

By focusing on these areas, the shipping company can reduce defects and improve
customer satisfaction.

Good Luck!