Cases of Operation Management

CASE PROBLEM
OPERATION MANAGEMENT

Fahmy Radhi, MBA, PhD

Magister Management Program

The Faculty of Economics and Business
Gadjah Mada University
2014/2015

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Cases of Operation Management

Case #01: Operations Strategy in a Global Environment

Motorolas Global Strategy
For years Motorola and other U.S. firms such as RCA, Magnavox,
Philco, and Zenith were among the worlds most successful
consumer electronics firms. In the face of withering competition from
the Japanese, however, these firms began to fall by the wayside.
Motorola has remained the exception: Today it is one of the world
leaders

in

mobile

communication

technology,

including

the

manufacture of cellular telephones, paging devices, automotive

semiconductors, and microchips used to operate devices other than
computers. Motorola has taken on the Japanese head-to-head.
Although it may have lost a few battles here and there, the firm has
won many more.
Motorola heard the call to battle in the early 1980s. The firm then
controlled the emerging U.S. market for cellular telephones and
pagers but, like many other firms at the time, was a bit complacent
and not aggressively focused on competing with the Japanese.
Meanwhile, Japanese firms began to flood the U.S. market with lowpriced, high-quality telephones and pagers. Motorola was shoved
into the background.
At first, managers at Motorola were unsure how they should
respond. They abandoned some business areas and even
considered merging the firms semiconductor operations with those
of Toshiba. Finally, however, after considerable soul searching, they
decided to fight back and regain the firms lost market position. This
fight involved a two-part strategy: First learn from the Japanese and
then compete with them.
To carry out these strategies, executives set a number of broadbased goals that essentially committed the firm to lowering costs,

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improving quality, and regaining lost market share. Managers were

sent on missions worldwide, but especially to Japan, to learn how to
compete better. Some managers studied Motorolas own Japanese
operation to learn more fully how it functioned; others focused on
learning about other successful Japanese firms. At the same time,
the firm dramatically boosted its budgets for R&D and employee
training worldwide.
One manager who visited Japan learned an especially important
lesson. While touring a Hitachi plant north of Tokyo, he noticed a flag
flying in front of the factory emblazoned with the characters P200.
When he asked what it meant, he was told by the plant manager
that the factory had hoped to increase its productivity by 200% that
year. The manager went on to note somewhat dejectedly that it
looked as if only a 160% increase would be achieved. Because
Motorola had just adopted a goal of increasing its own productivity
by 20%, the firms managers soberly realized that they had to forget
altogether their old ways of doing business and reinvent the firm
from top to bottom.
Old plants were shuttered as new ones were built. Workers
received new training in a wide range of quality-enhancement
techniques. The firm placed its new commitment to quality at the
forefront of everything it did. It even went so far as to announce
publicly what seemed at the time to be an impossible goal: to
achieve Six Sigma quality, a perfection rate of 99.9997%. When
Motorola actually achieved this level of quality, it received the
prestigious Malcolm Baldrige National Quality Award.
Even more amazing have been Motorolas successes abroad,
especially in Japan. The firm has 20 offices and more than 3,000
employees there. It is currently number three in market share there

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in both pagers and cellular telephones. Worldwide, Motorola controls

much of the total market for these products, has regained its
number-two position in semiconductor sales, and is furiously
launching so many new products that its rivals seem baffled.
Today, Motorola generates over 56% of its revenues abroad. Major
new initiatives are underway in Asia, Latin America, and Eastern
Europe. The firm has also made headway in Western Europe
against entrenched rivals Philips and Thomson. But not content to
rest on its laurels, Motorola has set newand staggeringgoals for
itself. It wants to take quality to the point where defects will be
counted in relation to billions rather than millions. It wants to cut its
cycle times (the time required to produce a new product, the time to
fill an order, and/or the time necessary to change a production
system from one product to another) tenfold every five years. It also
wants over 75% of its revenues to come from foreign markets by
2002.

DISCUSSION QUESTIONS
1. What are the components of Motorolas international
strategy?
2. Describe how Motorola might have arrived at its current
strategy as a result of a SWOT analysis.
3. Discuss Motorolas primary business strategy.

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Cases of Operation Management

Case #02: Product and Service Design

The Technocratic Hamburger
Nowhere in the entire service sector are the possibilities of the
manufacturing mode of thinking better illustrated than in fast-food
franchising. Nowhere have manufacturing methods been employed more
effectively to control the operation of distant and independent agents.
Nowhere is "service" better. The thriving nationwide chain of hamburger
stands called "McDonald's" is a supreme example of the application of
manufacturing and technological brilliance to problems that must ultimately
be viewed as marketing problems.
The explanation of McDonald's thundering success is not a purely
fiscal one- i.e., the argument that it is financed by independent local entrepreneurs who bring to their operations a quality of commitment and
energy not commonly found among hired workers. Nor is it a purely geographic one- i.e., the argument that each outlet draws its patronage from a
relatively small geographic ring of customers, thus enabling the number of
outlets easily and quickly to multiply. The relevant explana6on must deal
with the central question of why each separate McDonald's outlet is so
predictably successful, why each is so certain to attract many repeat
customers.
Entrepreneurial financing and careful size selection do help. But
most important is the carefully controlled execution of each outlet's central
function-the rapid delivery of a uniform, high-quality mix of prepared foods
in an environment of obvious cleanliness, order, and cheerful courtesy. The
systematic substitution of equipment for people, combined with the
carefully planned use and positioning of technology, enables McDonald's to
attract and hold patronage in proportions no predecessor or imitator has
managed to duplicate. Consider the remarkable ingenuity the system,
which is worth examining in some detail.
To start with the obvious, raw hamburger patties are carefully prepacked and pre-measured, which leaves neither the franchisee nor his em-

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ployees any discretion as to size, quality, or raw material consistency. This

kind of attention is given to all McDonald's products. Storage and preparation space and related facilities are expressly designed for, and limited to,
the predetermined mix of products. There is no space for any foods, beverages, or services that were not designed into the system at the outset.
There is not even a sandwich knife or, in fact, a decent place to keep one.
Thus the owner has no discretion regarding what he can sell-not because
of any contractual limitations, but because of facilities limitations. And the
employees have virtually no discretion regarding how to prepare and serve
things.
Discretion is the enemy of order, standardization, and quality. On an
automobile assembly line, for example, a worker who has discretion and
latitude might possibly produce a more personalized car, but one that is
highly unpredictable. The elaborate care with which an automobile is
designed and an assembly line is structured and controlled is what
produces quality cars at low prices, and with surprising reliability
considering the sheer volume of the output. The same is true at
McDonald's, which produces food under highly automated and controlled
conditions.
French-Fried Automation
While in Detroit the significance of the technological process lies in
production, at McDonald's it lies in marketing. A carefully planned design is
built into the elaborate technology of the foodservice system in such a
fashion as to make it a significant marketing device. This fact is impressively illustrated by McDonald's handling of that uniquely plebeian
American delicacy, french-fried potatoes.
French fries quickly become soggy and unappetizing; to be good,
they must be freshly made just before serving. Like other fast-food
establishment, McDonald's provides its outlets with precut, partially cooked
frozen potatoes that can be quickly finished in an on-premises, deep-fry fa-

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cility. The McDonald's fryer is neither so large that it produces too many
French-fries at one time (thus allowing them to become soggy) nor so small
that it requires frequent and costly frying.
The fryer is emptied onto a wide, flat tray adjacent to the service
counter. This location is crucial. Since the McDonald's practice is to create
an impression of abundance and generosity by slightly overfilling each bag
of French-fries, the tray's location next to the service counter prevents the
spillage from an overfilled bag from reaching the floor. Spillage creates not
only danger underfoot but also an unattractive appearance that causes the
employees to become accustomed to an unclean environment. Once a
store is unclean in one particular (area), standards fall very rapidly and the
store becomes unclean and the food unappetizing in general.
While McDonald's aims for an impression of abundance, excessive
overfilling can be very costly for a company that annually buys potatoes
almost by the trainload. A systematic bias that puts into each bag of
French-fries a half ounce more than 'is intended can have visible effects on
the company's annual earnings. Further, excessive time spent at the tray
by each employee can create a Cumulative service bottleneck at the
counter.
McDonald's has therefore developed a special wide-mouthed scoop
with a narrow funnel in its handle. The counter employee picks up the
scoop and inserts the handle end into a wall clip containing the bags. One
bag adheres to the handle. In a continuous movement the scoop descends
into the potatoes, fills the bag to the exact proportions its designers
intended, and is lifted, scoop facing die ceiling, so that the potatoes funnel
through the handle into the attached bag, which is automatically
disengaged from the handle by the weight of the contents. The bag comes
to a steady, non-wobbling rest on its flat bottom.
Nothing can go wrong-the employee never soils his hands, the floor
remains clean, dry, and safe, and the quantity is controlled. Best of all, the
customer gets a visibly generous portion with great speed, the employee

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Cases of Operation Management

remains efficient and cheerful, and the general impression is one of extravagantly good service.

Mechanized Marketing
Consider the other aspects of McDonald's technological approach to
marketing. The tissue paper used to wrap each hamburger is color-coded
to denote the mix of condiments. Heated reservoirs hold pre-prepared
hamburgers for rush demand. Frying surfaces have spatter guards to
prevent soiling of the customer. Nothing is left to chance or the employees'
discretion.
The entire system is engineered and executed according to a tight
technological discipline that ensures fast, clean, reliable service in an
atmosphere that gives the modestly paid employees a sense of pride and
dignity. In spite of the crunch of eager customers, no employee looks or
acts harassed, and therefore no harassment is communicated to the
customers.
What is important to understand about this remarkably successful
organization is not only that it has created a highly sophisticated piece of
technology, but also that it has done this by applying a manufacturing style
of thinking to a people-intensive service situation. If machinery is to be
viewed as a piece of equipment with the capability of producing a
predictably standardized, customer satisfying output while minimizing the
operating discretion of its attendant, that is what a McDonald's retail outlet
is. It is a machine that produces, with the hell of totally unskilled machine
tender, a highly polished product. Through painstaking attention to total
design and facilities planning, everything is built integrally into the machine
itself, into the technology of the system. The only choice available to the
attendant is to operate it exactly as the designers intended.

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Cases of Operation Management

QUESTIONS:
1.

What are the characteristics of the McDonald's "product" that make it

successful?

2.

Explain how the design of the product and the design of the service
delivery are intertwined in the McDonald's example.

3.

McDonald's approach to assembly-line service has become the norm

for the fast-food industry. There are, however, variations to their
approach that competitors emphasize as a marketing tool. How do
the design of the product, design of the service, and design of the
service delivery system differ for a company such as Wendy's? In
other words, how are the marketing strategies of Wendy's versus
McDonald's reflected in their product/service/delivery system design?

Source: Murdick, Render, and Russell, 1990, Service Operation Management,

Prentice Hall, Englewood Cliffts, pp. 101-103

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Cases of Operation Management

Case #03: Quality Management

Quality at the Ritz-Carton Hotel Company
Ritz-Carlton. The name alone evokes images of luxury and quality.
As the first hotel company to win the Malcolm Baldrige National
Quality Award, the Ritz treats quality as if it is the heartbeat of the
company. This means a daily commitment to meeting customer
expectations and making sure that each hotel is free of any
deficiency.
In the hotel industry, quality can be hard to quantify. Guests do not
purchase a product when they stay at the Ritz: They buy an
experience. Thus, creating the right combination of elements to
make the experience stand out is the challenge and goal of every
employee, from maintenance to management.
Before applying for the Baldrige Award, company management
undertook a rigorous self-examination of its operations in an attempt
to measure and quantifies quality. Nineteen processes were studied,
including room-service delivery, guest reservation and registration,
message delivery, and breakfast service. This period of self-study
included statistical measurement of process work flows and cycle
times for areas ranging from room service delivery times and
reservations to valet parking and housekeeping efficiency.
The results were used to develop performance benchmarks against
which future activity could be measured.
With specific, quantifiable targets in place, Ritz-Carlton managers
and employees now focus on continuous improvement. The goal is
100% customer satisfaction: If a guest's experience does not meet
expectations, the Ritz-Carlton risks losing that guest to competition.
One way the company has put more meaning behind its quality

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efforts is to organize its employees into "self-directed" work teams.

Employee teams determine work scheduling, what work needs to be
done, and what to do about quality problems in their own areas. In
order that they can see the relationship of the specific area to the
overall goals, employees are also given the opportunity to take
additional training in hotel operations. Ritz-Carlton believes that a
more educated and informed employee is in a better position to
make decisions in the best interest of the organization.
Discussion Questions:
1. In what ways could the Ritz-Carlton monitor its success in
achieving quality?
2. Many companies say that their goal is to provide quality products
of services. What actions might you expect from a company that
intends quality to be more than a slogan or buzzword?
3. Why might it cost the Ritz-Carlton less to "do things right" the first
time?
4. How could control charts, Pareto diagrams, and cause-and-effect
diagrams be used to identify quality problems at a hotel?
5. What are some non-financial measures of customer satisfaction
that might be used by the Ritz-Carlton?

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Case #04: Supply Chain Management

Dells Supply Chain and the Impact of E-commerce
Dell, the personal computer manufacturer highlighted in
chapter 7s Global Company Profile, has long embraced the internet
and e-commerce in its supply chain. The figure at the bottom of this
page shows Dells unique e-commerce model.
Dell sell high-volume, low-cost products directly to end users.
Assembly begins immediately after receiving the customer order.
Traditional

PC

manufacturers,

in

contrast,

have

previously

assembled PCs ready for purchase at retail stores. Dell uses direct
sales, primarily the internet, to increase revenues by offering a
virtually unlimited variety of PC configurations or customize them.
Customization allows Dell to satisfy customers by giving them a
product that is close to their specific requirements. Options are easy
to display over the internet and allows Dell to attract customers that
value this choice. Dell also uses customized Web pages to enable
large business customers to track past purchases and place orders
consistent with their current needs. In addition, Dell constructs
special Web pages for suppliers, allowing them to view orders for
components they produce as well as current levels of inventory at
Dell. This allows suppliers to plan based on customer demand and
as a result reduces the bullwhip effect.
Products in the PC industry have life cycles of only a few
moths. But PCs across different manufacturers are

highly

substitutable because they often have the same components. Thus

a firm like Dell, which brings products to market faster than the
competition, enjoys a huge early-to-market advantage. Competing
firms that sell through distributors and retailers have to fill shelves at
retailers before a product reaches the customer. Dell, in contrast,
introduces a new product to customers over the internet as soon as
the first of that model is ready.

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By using direct sales (phone and Internet) to sell PCs, Dell is

able to eliminate distributor and retailer margins and increase its
own margin. The direct sales model allows Dell customers to place
orders at any time of the day from anywhere in the world and is
much cheaper; retail stores have a huge array of additional costs
because of their bricks-and-mortar model. Direct sales allow Dell to
collect payment for its PCs in a matter of days after they are sold.
However, Dell pays its suppliers according to the more traditional
billing schedules. Given its low levels of inventory, Dell is able to
operate its business with negative working capital because it
manages to receive payment for its PCs an average of 5 days
before it plays its suppliers for components. A PC supply chain that
includes distributors and retailers finds it nearly impossible to
achieve these results.
Dells order processing, products, and assembly lines are
designed such that all components on which customers are offered
customization can be assembled in a matter of hours. This allows
Dell to postpone assembly until after the customer order has been
placed. As a result, Dell holds inventory in the form of components
that are common across a wide variety of finished products.
Postponement, component modularity, and tight scheduling allow

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low inventory and support mass customization. Dell maximizes the

benefit of postponement by focusing on new PC models for which
demand is hard to forecast.
PC manufacturers who sell via distributors and retailers find
postponement

virtually

impossible.

Therefore,

traditional

PC

manufacturers are often stuck with PC configurations that are not

selling while simultaneously being out of the configurations that are
selling. Dell, in contrast, is better able to match supply and demand.
Dells e-commerce model results in higher shipping costs
than, selling through distributors and retailers, however, Dell sends
individual PCs to customers from its factories. Because these
shipments are small (often one or a few PCs), manufacturers selling
through distributors and retailers ship with some economy of scale,
using large truck shipments to warehouses and retailers, with the
end user providing the last portion of delivery. The Dell supply
chains outbound transportation costs are higher, but relative to the
price of a PC, transportation cost is low (typically 2% to 3%), and
thus the impact on the overall cost is low.
Discussion Questions
1. Although it might seem that Dell, with its build-to-order model,
is best equipped to benefit from e-commerce, a traditional PC
manufacturer, selling through distributors and retailers, may
also have a lot to gain from e-commerce. Why?
2. How has Dell exploited the advantage of the internet to
improve performance?
3. What is the main disadvantage of Dells selling PCs over the
internet?
4. How does Dell compete with a retailer who already has a PC
in stock?
5. How does Dells supply chain deal with the bullwhip effect?

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Case #05: Jus-In-Time

TOYOTA, FORD, GM, AND VOLKSWAGENSOME DIFFERING OPINIONS ABOUT WORKING WITH SUPPLIERS
It is interesting to see how the large automobile manufactures
differ in their opinions about working with suppliers and standardization
of parts. Consider the following.
WORKING WITH SUPPUERS
Tadaaki Jagawa, a Toyota executive vice president, said the number
one Japanese automaker "received an invitation" from Ford to join the Ford
Internet-based marketplace, tentatively called AutoX-change, where auto
makers and their suppliers hope to do business more efficiently and cut
costs. Ford and GM are in a race to build the largest online marketplace to
achieve greater economies of scale, and both are trying to woo other
automakers. The two companies have argued that creating a marketplace
in which hundreds of billions of dollars in goods and services are traded
would give their suppliers access to more business globally, allowing
suppliers and manufacturers to slash costs.
Toyota considers the Internet marketplace only a means to efficiency and not an end in itself, Jagawa said. Because the procurement
process involves not only the price, but also the quality, lead, and delivery
of components, Jagawa said Toyota doesn't want to put competitive
components on an open market, such as GM TradeXchange; it would go
against Toyota's philosophy of treating suppliers as partners. "We help
suppliers cut costs through a guarantee of a long-term contract putting
those parts on the open market pits us against suppliers in an adversary
relationship. Jagawa stressed that Toyota is in discussions with GM "with
an open mind." Although it may mean Toyota would trade only raw materials and commonly used parts on either the GM or Ford system, Toyota
is interested in making its buying more efficient, he said.

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STANDARDIZING AUTO PARTS

Some of Toyota's talks with GM also involve standardizing components. That would allow the two companies and GM's other participants to
share a common electronic procurement infrastructure and maximize the
online network's effectiveness.
Toyota and Volkswagen are also trying to hammer out an agreement to standardize select components for vehicles sold in Europe.
Jagawa said the two companies launched the talks last summer to identify
specific parts they can standardize. He added, however, that the process
has been slow because of a "wide gap" between what the two companies
consider common components. "VW put on the table 20 to 30 parts as
possible targets for standardization, we identified several at most," said
Jagawa.
Toyota had said it was considering standardizing components and
platforms with the German automaker to cut operating costs in Europe,
where the Japanese company has had trouble reducing costs because of
its limited sales volume. Toyota sold fewer than 600,000 vehicles in Europe
last year.
In Toyota's discussions with both GM and Volkswagen, Jagawa said
one problem that could potentially delay an early agreement is their
difference over the definition of "competitive" components. Toyota
considers a wider range of parts competitive, including steering wheels
and in some cases even wire connectors, whereas GM and Volkswagen
seem to believe many components can be standardized without hurting
competitiveness. "They think we can compete on things like styling and
packaging of vehicles; we believe we compete component by component
in creating a competitive vehicle," said Jagawa.

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Cases of Operation Management

QUESTIONS
1. GM and Ford have quickly pushed the development of large Internet
sites to create an environment where suppliers must compete for
business. Ford and GM argue that these Internet sites should
reduce cost because the negotiations are streamlined. How do you
think the suppliers view these sites?
2. Rather than having vendors compete against one another, Toyota is
interested in treating suppliers as partners. Is Toyota just being oldfashioned in its views?
3. A major reason for the differences in opinions may be the difference
in what Toyota considers "competitive" components. These are the
components that would mostly be bought using the Internet trading
sites. Who is right? Are steering wheels and wire connectors
competitive components?

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Cases of Operation Management

Case #06: Project Management

Managing Hard Rocks Rock Fest
At

the

Hard

Rock Cafe,

like

many organizations, project

management is a key planning tool. With Hard Rocks constant

growth in hotels and cafes, remodeling of existing cafes, scheduling
for Hard Rock Live concert and event venues, and planning the
annual Rockfest, managers rely on project management techniques
and software to maintain schedule and budget performance.
Without Microsoft Project, says Hard Rock Vice-President Chris
Tomasso, there is no way to keep so many people on the same
page. Tomasso is in charge of the Rockfest event, which is
attended by well over 100,000 enthusiastic fans. The challenge is
pulling it off within a tight 9-month planning horizon. As the event
approaches, Tomasso devotes greater energy to its activities. For
the first 3 months, Tomasso updates his MS Project charts monthly.
Then at the 6-month mark, he updates his progress weekly. At the 9month mark, he checks and corrects his schedule twice a week.
Early in the project management process, Tomasso identifies 10
major tasks (called level 2 activities in a work breakdown structure,
or WBS): talent booking, ticketing, marketing/PR, online promotion,
television, show production, travel, sponsorships, operations, and
merchandising. Using a WBS, each of these is further divided into a
series of subtasks. Table 3.8 (see page 100 in textbook) identifies 26
of the major activities and sub activities, their immediate
predecessors, and time estimates. Tomasso enters all of these into
the MS Project software. Tomasso alters the MS Project document
and the time line as the project progresses. Its okay to change it as
long as you keep on track, he states.

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Cases of Operation Management

The day of the rock concert itself is not the end of the project
planning. Its nothing but surprises. A band not being able to get to
the venue because of traffic jams is a surprise, but an 'anticipated'
surprise. We had a helicopter on stand-by ready to fly the band in,
says Tomasso.
On completion of Rockfest in July, Tomasso and his team have a 3month reprieve before starting the project planning process again.
Discussion Questions
1. Identify the critical path and its activities for Rockfest. How long
does the project take?
2. Which activities have a slack time of 8 weeks or more?
3. Identify five major challenges a project manager faces in events
such as this one.
4. Why is a work breakdown structure useful in a project such as
this? Take the 26 activities and break them into what you think
should be level 2, level 3, and level 4 tasks.

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References
Brian

McWilliams, Reengineering
Technology, March 19, 1996

the

small

Factory,

Inc.

Griffin, R. W. and M. W. Pustay, International Business: A

Managerial Perspective, Second Edition, (pages 647/648)
1999, 1996 Addison Wesley Longman. Reproduced by
permission of Addison Wesley Longman. All rights reserved.
Heizer, J. and Render, B, 2004, Operation Management, Seventh
Edition, Prenhall, p. 185.
Horngren, C. T., Foster, G. and S. M. Dator, Cost Accounting, 11th
ed. (Upper Saddle River, NJ: Prentice Hall, 2003).
Krajewski and Ritzman, Operations Management: Strategy and
Analysis, 6th ed., Addison-Wesley Publishing Company, 2001
Murdock Robert G, Render Russell Barry and Roberta S., Service
Operation Management, Prentice-Hall, Inc, 1990
Presentation of the Alternative Work Structure Team, Huffy
Bicycles, at the Case Studies in Team Excellence
Competition,
The
Ohio
manufactures Association,
Columbus, Ohio, October 6, 1993
Ricard B, Chase, Robert Jacobs, Nicholas J., Aquilano, Operation
Management for Competitive Advantage, tenth edition, 2006
Russell Roberta S. and Taylor III, Bernard W., Operation
Management, 3rd ed., Upper Saddle Rivers, NJ: Prentice-Hall,
Inc, 2000
Saladin, Brooke, case prepared as a basis for classroom discussion,
at Wake Forest University,

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