Operations Management Principles
1. The need for cycle time reduction is usually dictated by the highly competitive environment, cost pressures and capacity constraints. In the closed track race, fast car maintenance can become a competitive advantage and every second is crucial for the team’s victory, therefore all the efforts are put to reduce the pit stop time. Cycle time reduction in this case is achieved by decreasing set-up time and “internalizing” it by means of performing as many tasks as possible in parallel or even during the race.
Set-up time reduction is usually attained through standardization of maintenance processes and spare parts as well as through designing special easy-to-change mechanisms, which require little or no adjustments after the installation. Moreover, the time it takes for all the pit-crew tasks can be divided into internal and external. Setup time, which is required for internal activities, can be combined with the cycle time of the race. External activities, on the other hand, require cycle termination. Therefore, in order to reduce cycle time, as many processes as possible should take place internally. Thus, pit crew in the race often conducts preliminary tests already during the race, using remote monitoring systems, which allow them to detect any possible problems with the car before it reaches the pit, to prepare exactly the tools and people needed for resolving any issues, and to select the most appropriate spare parts, such as tyres, fuel etc., which would be consistent with the current team strategy and weather conditions. All the external processes, such as physical maintenance, are performed simultaneously by the crew during the pit stop. Therefore, the overall cycle time is very short, allowing the team to achieve spectacular 17 seconds for all the processes.
In the local garage or dealership resources are usually much more constrained than in a closed track race. They only have a few people to perform all the tasks, while there are no strict constraints on the throughput capacity. Moreover, garage or dealership employees have to deal with various cars, which need different spare parts and changing techniques. As only a few people perform all the tasks, changeover time is not incorporated into the internal process time; therefore there is a significant amount of time lost for switching between tasks, adjusting the tools and checking, whether the desired performance is achieved. Moreover, garages/ dealerships and car race crew have different objectives: while the pit crew needs to bring the car to the finish line, garage personnel aims to sustain results for much longer time. Therefore, they need to perform more tests and to assure full compliance with performance standards. All the processes combined result in the cycle time of 3 days in a garage/dealership, which seems intolerable compared to the 17 seconds during the race. However, there is no economic incentive for the garage staff to invest into cycle time improvement. If there are no constraints to their capacity, the opportunity cost of their time is relatively low, while the investment into equipment and personnel for throughput time reduction is high. Therefore, there is no reason for the garage or the dealership to modify their processes and to invest money into cycle time reduction.
2. Turnaround time is one of the key elements in the aircraft operations. It is defined as the time the aircraft stays on the ground for servicing after its arrival to the airport and before its next departure. Minimization of the turnaround time is usually a high priority for airline companies, because an aircraft, which is parked at the terminal gate, gains no revenues, but produces costs. It is especially important for the large passenger jets, where high initial investment and maintenance expenditures can be only compensated by frequent flights. Therefore, in order to utilize capacity more efficiently and to exploit scale economies, luggage is loaded onto the plane in aluminium containers, which have been prepacked in the airport. This method allows to reduce the cycle time of the loading process by conducting internal processes (placing luggage in containers) while the aircraft is still in the air.
However, it is important to keep in mind that turnaround time reduction comes at a cost. Aluminium containers, airport personnel packing luggage and equipment for delivering heavy containers onto the plane are all too expensive for the small aircraft. Moreover, for a small plane, the number of people needed to pack and deliver containers may exceed the staff required for manual loading, thus increasing the operation cost. The number of bags is so small, while the time it takes to load them is so short, that packing them into aluminium containers does not yield any economic benefit. Furthermore, the benefits of the improved loading time may be offset by the fuelling and maintenance time, as well as by the time on the ground, required by the safety standards. As the bottleneck or a constraint of the system is not likely to be in the loading of luggage, there is no economic incentive for small plane operators to invest in improving loading time.
3. In order to minimize the discrepancies between forecasted and actual sales, producers always try to shift the decoupling point as far upstream as possible, in order to reduce the amount of inventory necessary. Sweater manufacturer, in this case, minimized the possibility of forecast error by maintaining sweater inventory without adding the colour. As the cost of sweater customization, after it has been coloured, is very high, compared to the adjustment of the generic colourless piece, it is more efficient to wait until the orders are placed, thus the actual demand is known. Such approach is also known as mass customization. It combines the cost benefits of sweater mass production with the possibility to offer customers a larger variety of products. Mass customization is especially important for fast-moving goods, such as fashion items, since the demand for them is very volatile. Moreover, consumers are also averse to waiting, therefore inability to satisfy demand for sweaters immediately is likely to lead to a loss of customers. Mass customization offers an opportunity to reduce inventory of the finished goods, thus decreasing storage cost and the cost of sweaters, which are scrapped due to the absence of demand, to fully utilize production capacity and to respond to the market demand relatively fast. Therefore, the strategy of adding colours to the sweaters at a later stage of the production pipeline is a powerful method to stay competitive in the fast-changing fashion market.
4. The consequences of the hurricane create significantly more demand for the casualty claims, than it is common for the insurance company. Such unforeseen circumstances impact the company much more than regular activities. In case processing of the hurricane claims is directed into the general claims stream, they will take up all the capacity of the company. Not only would the hurricane victims wait many weeks before their claims are satisfied, but all the other clients would have to wait until all the hurricane cases are served. This fact would significantly reduce customer satisfaction and disrupt all the company’s operations. Therefore, the hurricane case should be managed as an exception, allowing higher flexibility for process execution and maintaining the exceptional case at the lowest possible level, so that it does not disrupt the whole system. This strategy goes in line with the concept of Supply Chain Event Management and prescribes an exceptional handling process via faster communication and decision-making.
An RV truck with a special crew provides exactly the way to handle the exceptional case of hurricane casualty claims. Firstly, this approach separates hurricane cases from the overall claims handling process, thus there is no effect on costs and service times for the other customers. Secondly, it is much easier to evaluate claims on site, right after the hurricane. Documenting all the facts, relevant for satisfying claims in a three week period, is an unnecessary cost both in terms of time and employee resources. Thirdly, the fact that all the hurricane victims are concentrated in one area makes it economically efficient to service them with an RV truck. Moreover, fast decision-making offers an opportunity to provide hurricane victims with a fast solution, which allows mitigating the consequences of the disaster earlier. Therefore, the technique of handling exceptional cases by an RV crew is very important for high service level and process stability in the case of unpredicted events.
