The Ten-Day MBA 4th Ed.

by Steven A. Silbiger

  FREDERICK TAYLOR

  Frederick W. Taylor, considered the “father of scientific management,” developed his scientific management theories in the late 1800s and the early 1900s. He studied, measured, and documented the behavior of steelworkers. He showed that by breaking down a complex task into smaller component tasks, through a process that he called job fractionalization, each smaller task could be studied to find the most efficient way of accomplishing it. By successfully combining the most efficient elements, the best production methods could be adopted. Taylor performed countless time and motion studies using a stopwatch to find the “one right way” of doing things. In Taylor’s opinion, it was in a worker’s nature to “soldier,” meaning to slack off. Therefore, it was management’s responsibility to control the workplace and to force lazy workers to be efficient in spite of themselves.

  FRANK AND LILLIAN GILBRETH

  The Gilbreths also studied ways to achieve peak factory efficiency. Their investigations led them to the development of a spectrum of seventeen types of body movements that covered the range of a factory worker’s motion. Each motion was called a therblig. Like Taylor, the Gilbreths broke a complex task into its component parts. By understanding each element, one could simplify a job through the elimination of wasteful motion. Streamlining the task to its essential therbligs was key. Lillian’s children wrote about her attempts to streamline the chores of parenting a family of twelve children in a humorous book entitled Cheaper by the Dozen. In 1984 the U.S. Postal Service commemorated her contribution to business and literature with a forty-cent stamp.

  ELTON MAYO

  Elton Mayo is considered the father of the human relations movement of production management. In his search for efficiency, Mayo believed that the emotional state of workers is just as important as finding the right combination of movements.

  Mayo’s claim to fame came as a result of a series of experiments he conducted in 1927 at the Hawthorne Works of the Western Electric Company. In those studies, he varied the intensity of light on the shop floor in an effort to discover the degree of lighting that would result in the greatest productivity. He found that regardless of changes in lighting, worker productivity increased. Knowing that they were the subject of a study made the workers act differently. That phenomenon came to be known as the Hawthorne effect. Puzzled by the results, Mayo interviewed the workers and found that they had performed better because during the experiment they were being treated better by their supervisors. The assembly line workers were further motivated because their menial tasks acquired greater meaning as part of an experiment.

  WORLD WAR II AND THE MANAGEMENT SCIENCE APPROACH

  As the technology and the scale of industrialization became more complex, operational problems became more difficult to solve. During World War II, production bottlenecks forced the government to turn to scientists and engineers to help achieve maximum military production. In seeking solutions, these pioneers created mathematical models to apply to production problems. Today this branch of operational study is called operational research (OR). Some of those models are presented later in this chapter.

  THEORY X, THEORY Y, AND THEORY Z

  In 1960, Douglas McGregor of MIT renamed Taylor’s scientific approach to management Theory X and dubbed Mayo’s behavioral approach Theory Y. By repackaging these theories, he made a place for himself in the operational history books.

  Theory X adherents, like Taylor, take a more “pessimistic” view of human behavior. They believe that people are inherently lazy and need to be pushed to produce with rewards and punishments. Workers lack creativity and ambition and have little to offer management other than their labor.

  Theory Y adherents, like Mayo, believe that workers are self-motivated given a supportive work environment. Workers are inventive and should be consulted for ideas to improve productivity. They are also capable of assuming more responsibility for their work.

  In the 1980s Theory Y was taken a step further. William Ouchi called the benevolent Theory Y used by Japanese management Theory Z. In the mid-1980s some “experts” thought Theory Z was the secret of the Japanese competitive advantage. Using Z, the Japanese bring together management and workers in cohesive work groups. Everyone is part of a consensual decision-making process. To improve quality, workers and management work together in quality circles. Every employee is involved in kaizen—the continuous struggle necessary to improve all aspects of the self and of the company. MBAs refer to this as continuous quality improvement (CQI). When workers feel like partners in the business, they become more productive and committed to their jobs.

  THE CONTINGENCY APPROACH

  Because neither the scientific methods nor human relations approaches can be used successfully at all times, the proponents of the contingency approach believe that managers should alter and combine the two theories to fit the situation. If the classical methods of Taylor can be combined with a bit of Japanese Theory Z, so much the better if the result is good.

  THE PROBLEM SOLVING FRAMEWORK FOR OPERATIONS

  Now that you have acquired a little historical perspective, you are ready to experience the core MBA operations education. Five issues arise when trying to produce a product or service:

  Capacity—How much can I produce?

  Scheduling—How am I going to do it?

  Inventory—How much inventory is there and how can I reduce it?

  Standards—What do I consider efficient production and quality output?

  Control—Is the production process working?

  An MBA’s operations education is rudimentary. The object is to turn out not engineers, but managers who understand the manufacturing and service-rendering process. Each of the five issues raised above can and should be studied in great detail to achieve the most efficient production methods; however, in the spirit of this book, I will present only the highlights of some popular theories to offer you the basics.

  THE SIX M’S OF CAPACITY

  To answer the question of how much you can produce, MBAs use six M’s to guide them in manufacturing analysis. The M’s focus on the areas that determine the limits of any production facility. Some schools teach only four M’s, while others stretch the six into seven. In any case, M’s are taught at all the Top Ten schools.

  Methods—Have you chosen the best method of accomplishing the operational task? Are the machines placed in the most efficient factory-floor configuration?

  Materials—Are the materials you need available and of good quality? Do you have the capability to purchase efficiently, store, and distribute the materials when needed by the production process?

  Manpower—Do you have well-trained and productive workers and managers to accomplish your production goals? Are your workers sufficiently trained to operate any new technology that you may acquire?

  Machinery—Do you have the right tools for the job? Do your machines meet your needs: capabilities, speed, reliability, technology?

  Money—Is the cash to fund production available as needed? Is the investment in factories, equipment, and inventories justified in light of the entire organization’s priorities, capabilities, and other opportunities? Does the projected cash flow justify the investment? (A finance question.)

  Messages—Do you have a system for sharing accurate and timely information among all members of the production team—people and machines? A machine needs to electronically share information about output and quality on an assembly line with its operator, as well as with other machines.

  Production methods are of three basic types:

  Continuous Process

  Assembly Line

  Job Shop

  The more standardized the product, the more likely that a repetitive, high-volume production method is best. Oil refineries, for instance, use a continuous production process. Refining equipment works twenty-four hours a day. The operational focus at the refinery is to keep the equipment functioning smoothly. The downside of this kind of operation is that it is not flexi
ble. Changes in the system usually require costly shutdowns.

  The old Henry Ford assembly line is a somewhat less continuous process. Auto production is broken down into separate tasks; each is performed repetitively in a series of workstations. The challenge is to coordinate the outputs of each task to maximize efficiency, and to minimize the need to hold a great deal of costly inventory. The assembly line method allows for some flexibility. Minor changes can be made to the process without a shutdown. Auto assembly lines can accommodate different combinations of optional equipment without interrupting the process.

  The assembly line system can also be used to perform services. An enterprising surgeon in Russia who specialized in the removal of cataracts broke the operation into its component tasks and created a surgical assembly line.

  To produce customized products, the job shop system is often best. In a job shop, the factory is set up to do many different tasks. Machinery is organized in work centers to tackle unique production jobs. Metal machine shops, print shops, hospital operating rooms, and furniture makers are commonly organized in this way. Each order is somewhat different, but the same basic equipment or instruments may be used for each job.

  Diagnosing Capacity Problems with Flow Diagrams. Most MBAs are sent to factories as consultants rather than as plant managers. Instead of a wrench, they usually carry a flat plastic flow diagram template. These templates are plastic stencils with rectangles, triangles, and diamonds cut out. They are used to represent the manufacturing process. By mapping out the process, MBAs hope to find bottlenecks, inefficiency, and information-sharing problems. A clear sign that you are in the presence of an MBA is when he or she refers to production flows as throughputs.

  In my experience, changing my car’s oil at the gas station takes approximately twenty minutes; at Jiffy Lube, it takes only ten minutes. A simple process-flow-diagram analysis (below) tells why.

  Corner Gas Station—I must leave my car, appointment necessary

  Jiffy Lube—I wait for my car, no appointment necessary

  Jiffy Lube specializes in oil changes using an assembly line technique. The facility, the tools, and the workers are set up for only this task. Teams are used to complete the job as quickly as possible. Armed with your own template, you can act like a consultant too by diagramming any production process.

  Linear Programming: Dealing with Capacity Constraints. Production is always faced with constraints. Materials may be scarce. Machines have production limits. Skilled labor is tough to find. The goal is to choose the best course of action within the prevailing constraints. What is considered best is the decision that will yield the largest output, the most revenue, and greatest profits at the least cost. Because often there are dozens of production constraints, to try to find an optimal solution by trial and error can be nearly impossible. Mercifully, a computer technique exists to do the work. It’s called linear programming (LP). Linear programs use the simplex method to calculate their solutions.

  Consider the Tangerine Computer factory, which produces two types of computers: a Deluxe and a Standard. The Deluxe model requires a special chassis and two disk drives, whereas the Standard model requires one standard chassis and one disk drive. However, the parts supply is limited to 30 Deluxe chassis, 60 Standard chassis, and 120 disk drives. If the profit on the Deluxe model is $500 and the profit on the Standard model is $300, how many of each unit should the factory produce? How do you sort it out?

  The first step is to define the linear equation that will either maximize or minimize the desired results. In this case, Tangerine wants to maximize profits.

  (X Deluxe Models × $500) + (Y Standard Models × $300) = Total Profits

  The constraints on production are the parts supplies:

  Deluxe Chassis Use: (X units × 1) + (Y units × 0) < 30 units

  Standard Chassis Use: (X units × 0) + (Y units × 1) < 60 units

  Disk Drive Use: (X units × 2) + (Y units × 1) < 120 units

  The computer program tries many combinations until it has determined the production level that maximizes profits. In this case the solution is:

  (30 Deluxe Models × $500) + (60 Standard Models × $300) = $33,000 Max. Profit

  In most production settings there are many models that a company can choose to produce. There are also many production constraints. LP can determine the best plan.

  Linear programming techniques can also be used to solve transportation and distribution problems. For example, McDonald’s vendors have many warehouses, many franchisees, and a limited truck fleet. The goal is to find the cheapest way to ship the merchandise from a thousand or more possible warehouse/restaurant route combinations. Linear programming can do the job.

  SCHEDULING

  Henry Gantt and Gantt Chart Scheduling. In the late 1800s Henry Gantt postulated that standards should be set not only for the performance of tasks, but also for their scheduling sequence. “Mr. Scheduling” felt that optimal timing should be determined so that the sequence of production tasks could be efficiently planned, coordinated, and performed. If scheduling ran amok, bottlenecks would occur and inefficiency would poison the system.

  The Gantt chart, Henry Gantt’s contribution to efficiency, is a grid in which tasks required in a production cycle are listed along one axis and their time sequence along the other. With a Gantt chart the entire production process can be scheduled, and critical tasks or bottlenecks can readily be identified. Gantt charts can be used in a variety of settings; they are not restricted to a factory. A project such as buying a house can be depicted in a Gantt chart (see below).

  GANNT CHART FOR BUYING A HOUSE

  Critical Path Method of Scheduling (CPM). The 1950s brought us a more sophisticated way of determining optimal scheduling: the critical path method (CPM). CPM is used for complicated production projects that require the coordination of many tasks. An even more complex form of CPM exists called PERT, Program Evaluation and Review Technique. However, today most businesspeople use PERT and CPM interchangeably.

  Using CPM, production managers arrange each task or activity in sequential order and estimate the time needed to complete each one. Each time a task begins or is completed it is called an event. The CPM chart displays graphically all the events of a project. This enables a production engineer to estimate and manage the time to complete the job. Because all tasks are shown, the critical activities can be identified. The tasks that could potentially hold up a project are considered critical. The chart organizes and highlights the critical tasks, and it forecasts the time necessary to complete the entire project.

  To illustrate, Kip Mustang, production engineer at General Dynamics, would like to produce a new switch for a fighter plane. The switch in question that pilots reported as sticking during Operation Iraqi Freedom in 2003 controls the ejection seat. Kip determined the five main activities involved in the project:

  A: Design production machinery and prepare manufacturing drawings = 2 weeks

  B: Prepare production facilities to receive new machines and parts = 4 weeks

  C: Buy tooling and parts for production = 3 weeks

  D: Stock parts and install production machinery = 1 week

  E: Test new production line = 1 week

  The CPM chart would look like this:

  EJECTION SEAT SWITCH PROJECT CRITICAL PATH CHART

  Each task at General Dynamics is represented by an arrow for the activity and a circle for each event. As shown in the diagram, the shortest path to set up the production line for the switch is seven weeks. These activities along the longest path, called the critical path, determine and control the length of the project. When critical tasks can be accomplished faster, this is called crashing the project, because the project can be finished sooner. If designing the tooling could be sped up, that would crash the switch project. If any of the critical activities, such as designing the production tooling, is delayed, the project is delayed. Noncritical activities, such as preparing the facility, do not hold up the project. They
have built-in slack time.

  With large engineering, construction, and manufacturing projects, there are myriad tasks to keep track of. For these projects, computer software is available to help create the chart and do the timing calculations. The drawback to this wonder tool is the time needed to set up and manage the tedious CPM charts. “We all did them [CPM charts in the 1950s],” recalls Donald N. Frey, chief executive of Bell & Howell Co., “but it took so much effort to get the charts done, you might as well have spent the time getting the job done.” Today they are created using a computer, and although still difficult and time consuming, CPM charts are doable.

  Queuing Theory to Schedule. Ever been stuck in line at a bank? Trapped on hold while trying to order something by phone? Then queuing theory is a topic that you might find interesting. A queue is any line that either people or products wait in before they are serviced. Each person servicing a person in a queue is called a channel. MBAs use queuing theory to schedule workers and to design waiting lines to save money and improve service. The question of efficiency lies in the optimal number of channels needed per queue. For instance, a bank manager would like to have few tellers and short lines.

  To answer queuing questions, you must determine several things:

  A = Average number of random arrivals per unit of time

  S = Average number of services provided per channel per unit of time

  M = Number of available channels

  With those items of information and a series of tables, you can make several calculations:

  Let’s continue the banking example: Consider a Citibank in lower Manhattan with one express teller who can process deposits at a rate of 50 per hour with an average customer arrival rate of 45 people per hour.