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OM Case Studies

1. PRODUCTIVITY GAINS AT WHIRLPOOL

Workers and management at Whirlpool Appliances Benton Harbor plant in


Michigan have set an example of how to achieve productivity gains, which has benefited
not only the company and its stockholders, but also Whirlpool customers, and the workers
themselves.
Things werent always rosy at the plant. Productivity and quality werent good. Neither
were labor-management relations. Workers hid defective parts so management wouldnt
find
them, and when machines broke down, workers would simply sit down until sooner or
later
someone came to fix it. All that changed in the late 1980s. Faced with the possibility that
the
plant would be shut down, management and labor worked together to find a way to keep
the plant open. The way was to increase productivity-producing more without using more
resources.
Interestingly, the improvement in productivity didnt come by spending money on
fancy machines. Rather, it was accomplished by placing more emphasis on quality. That
was a shift from the old way, which emphasized volume, often at the expense of quality. To
motivate workers, the company agreed to gain sharing, a plan that rewarded workers by
increasing their pay for productivity increases.
The company overhauled the manufacturing process, and taught its workers how to
improve quality. As quality improved, productivity went up because more of the output
was good, and costs went down because of fewer defective parts that had to be scrapped or
reworked. Costs of inventory also decreased, because fewer spare parts were needed to
replace defective output, both at the factory and for warranty repairs. And workers have
been able to see the connection between their efforts to improve quality and productivity.
Not only was Whirlpool able to use the productivity gains to increase workers pay,
it was also able to hold that lid on price increases and to funnel some of the savings into
research.
Questions
1. What were the two key things that Whirlpool management did to achieve productivity
gains?
2. Who has benefited from the productivity gains?
3. How are productivity and quality related?
4. How can a company afford to pay it workers for productivity gains?
2. MAKING HOTPLATES

Group of 10 workers were responsible for assembling hotplates (instruments for


heating solutions to a given temperature) for hospital and medical laboratory use. A
number of different models of hotplates were being manufactured. Some had a vibrating
device so that the solution could be mixed while being heated. Others heated only test
tubes. Still others could heat solutions in a variety of different containers.
With the appropriate small tools, each worker assembled part of a hotplate. The
partially completed hotplate was placed on a moving belt, to be carried from one assembly
station to the next. When the hotplate was completed, an inspector would check it over to
ensure that it was working properly. Then the last worker would place it in a specially
prepared cardboard box for shipping.
The assembly line had been carefully balanced by industrial engineers, who had
used a time and motion study to break the job down into subassembly tasks, each requiring
about three minutes to accomplish. The amount of time calculated for each subassembly
had also been balanced so that the task performed by each worker was supposed to take
almost exactly the same amount of time. The workers were paid a straight hourly rate.
However, there were some problems. Morale seemed to be low, and the inspector was
finding a relatively high percentage of badly assembled hotplates. Controllable rejects-
those
caused by the operator rather than by faulty materials-were running about 23 percent.
After discussing the situation, management decided to try something new. The
workers
were called together and asked if they would like to build the hotplates individually. The
workers decided they would like to try this approach, provided they could go back to the
old program if the new one did not work well. After several days of training, each worker
began to assemble the entire hotplate.
The change was made at about the middle of the year. Productivity climbed quickly.
By the end of the year, it had leveled off at about 84 percent higher than during the first half
of the year, although no other changes had been made in the department or its personnel.
Controllable rejects had dropped from 23 percent to 1 percent during the same period.
Absenteeism had dropped from 8 percent to less than 1 percent. The workers had
responded positively to the change, and their morale was higher. As one person put it,
Now, it is my hotplate. Eventually, the reject rate dropped so low that the assembly
workers themselves did all routine final inspection. The fulltime inspector was transferred
to another job in the organization.

Questions
1. What changes in the work situation might account for the increase in productivity and
the decrease in controllable rejects?
2. What might account for the drop in absenteeism and the increase in morale?
3. What were the major changes in the situation? Which changes were under the control
of the manager? Which were controlled by workers?
4. What might happen if the workers went back to the old assembly line method?
3. SHEENA
Sheena had worked for the same Fortune 500 Company for most 15 years. Although
the company had gone through some tough times, things were starting to turn around.
Customer orders were up, and quality and productivity had improved dramatically from
what they had been only a few years earlier due company wide quality improvement
program. So, it comes as a real shock to Sheena and about 400 of her co-workers when they
were suddenly terminated following the new CEOs decision to downsize the company.
After recovering from the initial shock, Sheena tried to find employment elsewhere.
Despite her efforts, after eight months of searching she was no closer to finding a job than
the day she started. Her funds were being depleted and she was getting more discouraged.
There was one bright spot, though: She was able to bring in a little money by mowing lawns
for her neighbours.
She got involved quite by chance when she heard one neighbour remark that now
that his children were on their own, nobody was around to cut the grass. Almost jokingly,
Sheena asked him how much hed be willing to pay. Soon Sheena was mowing the lawns of
five neighbours. Other neighbours wanted her to work on their lawns, but she didnt feel
that she could spare any more time from her job search.
However, as the rejection letters began to pile up, Sheena knew she had to make an
important decision in her life. On a rainy Tuesday morning, she decided to go into business
for herself taking care of neighbourhood lawns. She was relieved to give up the stress of job
hunting, and she was excited about the prospects of being her own boss. But she was also
fearful of being completely on her own. Nevertheless, Sheena was determined to make a go
of it.
At first, business was a little slow, but once people realized Sheena was available,
many asked her to take care of their lawns. Some people were simply glad to turn - the
work over to her; others switched from professional lawn care services. By the end of her
first year in business, Sheena knew she could earn a living this way. She also performed
other services such as fertilizing lawns, weeding gardens, and trimming shrubbery.
Business became so good that Sheena hired two part-time workers to assist her and, even
then, she believed she could expand further if she wanted to.

Questions
A. In what ways are Sheenas customers most likely to judge the quality of her lawn care
services?
B. Sheena is the operations manager of her business. Among her responsibilities are
forecasting, inventory management, scheduling, quality assurance, and maintenance.
(a) What kinds of things would likely require forecasts?
(b) What inventory items does Sheena probably have? Name one inventory decision she
has to make periodically.
(c) What scheduling must she do? What things might occur to disrupt schedules and cause
Sheena to reschedule?
(d) What kinds of maintenance must be performed?
C. The town is considering an ordinance that would prohibit putting grass clippings at the
curb for pickup because local landfills cannot handle the volume. What options might
Sheena consider if the ordinance is passed? Name two advantages and two drawbacks of
each option.

4. Kitchen Appliances Quality


The operations manager for the only facility of a small manufacturer of kitchen
appliances is interested in getting managements attention on quality issues. He has allies
in the marketing manager and finance, but little interest from CEO and the primary owner;
both of whom are interested in production efficiency, sales volume, short term profits, and
growth. The operations manager and his allies have following data, but dont know how to
organize the data into an effective presentation.

Customer evaluation of top-selling product last year.


Style Good
Price Excellent
Reliability Poor
Recommend to friend No
Percentage defective for top-selling product last year
Fabrication 1.9
Assembly 3.4
Finished goods 2.8
Previous year Quality costs (in Rs )
Training 12,000
Vendor selection 5,000
Field testing 35,000
Quality measurement tools 4,000
Scrap 47,50,000
In plant inspection 8,50,000
Field repair 1,50,000
Rework 12,00,000
Warranty returns 4,50,000
Processing and repairing returns 3,75,000
Laboratory testing 37,000
Financial Results (In Rs)
Annual sales 10,00,00,000
Total cost of goods sold 7,00,00,000
Selling and admin expenses 1,30,00,000
Estimated cost due to loss of distributors good will (in Rs)
Late deliveries 5,00,000
Poor quality 20,00,000

Discussion Questions:
a) What are the different categories to classify Cost of Quality?
b) Classify these as per the categories listed above.
c) From this information put together the best case possible to impress management
that quality is important and should be stressed. Also give tentative action plan.

5. Toyota, Ford, GM, Volkswagen

Some differing opinions about working with Suppliers.

It is interesting to see how large automobile manufacturers differ in their opinion about
working with suppliers & standardization of parts. Consider the following.

Working with Suppliers.

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 AutoXchange, where automakers & their suppliers hope to do business
more efficiently & cut costs. Ford & GM are in a race to build the largest online marketplace
to achieve greater economies of scale, & both are trying to woo other automakers. The two
companies have urged that creating a marketplace in which hundreds of billions of dollars
in goods & service are traded would give their suppliers access to more business globally,
allowing suppliers & manufacturers to slash costs.

Toyota considers the internet marketplace only a means to efficiency & not an end in itself,
Jagawa said. Because the procurement process involves not only the price but also the
quality, lead time, & delivery of components, Jagawa said Toyota doesnt want to put
competitive components on the open market, such as GM TradeXchange; it would go
against Toyotas 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 open mind. Although it may
mean Toyota would trade only raw material & commonly used parts on either GM or Ford
system, Toyota is interested in making its buying more efficient, he said.

Standardizing Auto Parts

Some of Toyotas talks with GM also involve standardizing components. That would allow
the two companies & GMs other participants to share a common electronic procurement
infrastructure & maximize the online networks effectiveness.

Toyota & Volkswagen are also trying to hammer out an agreement to standardize select
components for vehicles sold in Europe. Jagawa said the two companiess 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 has said it was considering standardizing components & 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 Toyotas discussion with both GM & 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 & in some cases even wire connectors, whereas GM & Volkswagen seem to believe
many components can be standardized without hurting competitiveness. They think we
can compete on things like styling & packaging of vehicles; we believe we compete
component by component in creating vehicles, said Jagawa.

Questions:

a. GM & Ford have quickly pushed the development of large internet sites to create an
environment where suppliers must compete for business. Ford & GM argue that these
internet sites should reduce cost because the negotiations are streamlined. How do you
think the suppliers view these sites?

b. Rather than having vendors compete against one another, Toyota is interested in
treating suppliers as partners. Is Toyota just being old-fashioned in its view?

c. A major reason for differences in opinions may be the differences 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 & wire
connectors competitive components?

6. The Nightmare On Telecom Street

Ref : The Management & Control of Quality By James Evans & William Lindsay

H. James Harrington, a noted quality consultant related the following story in Quality Digest
Magazine:

I called to make a flight reservation just an hour ago. The telephone rang five times
before a recorded voice answered. Thank you for calling ABC Travel Services it said. To
ensure the highest level of consumer service, this call may be recorded for future analysis.
Next I was asked to select from one of the following three choices: If the trip is related to
company business, press 1. Personal business, press 2. Group travel, press 3 I pressed 1.
I was then asked to select from the following four choices: If this trip is within the
United States, press 1. International press 2. Scheduled training, press 3. Related to a
conference, press 4. Because I was going to Canada, I pressed 2.

Now two minutes into my telephone call, I was instructed to be sure that I had my
customer identification card available. A few seconds passed & a very sweet voice came on,
saying, All international operators are busy, but please hold because you are a very
important customer. The voice was then replaced by music. About two minutes latter
another recorded message said, Our operators are still busy, but please hold & the first
available operator will take care of you. More music. Then yet another message: Our
operators are still busy, but please hold. Your business is important to us. More bad music.
Finally the sweet voice returned, stating, To speed up your service, enter your 19 digit
customer service number. I frantically searched for their card, hoping that I could find it
before I was cut off. I was lucky; I found it & entered the number in time. The same sweet
voice came back to me, saying, To confirm your customer service number, enter the last 4
digits of your social security number. I pushed the 4 numbers on the keypad. The voice
said: Thank you. An operator will be with you shortly. If your call is an emergency, you can
call 1-800-CAL-Help, or push all of the buttons on the telephone at the same time.
Otherwise please hold, as you are a very important customer. This time in place of music I
heard a commercial about the service that the company provides.

At last a real person answered the telephone & asked, Can I help you? I replied,
Yes, oh yes. He answered, Please give me your 19 digit customer service number,
followed by the last 4 digits of your social security number so I can verify who you are. (I
thought I gave these numbers in the first place to speed up service. Why do I have to rattle
them off again?)

I was now convinced that he would call me Mr. 5523-3675-0714-1313-040. But to


my surprise, he said, Yes Mr. Harrington. Where do you want to go & when? I explained
that I want to go to Montreal the following Monday morning. He replied, I only handle
domestic reservations. Our international desk has new telephone number: 1-800-1WE-
GOTU. I will transfer you. A few clicks later a message came saying: All our international
operators are busy. Please hold & your call will be answered in the order it was received.
Do not hang up or redial, as it will only delay our response to your call. Please continue to
hold, as your business is important to us.

Discussion Questions:

1. Summarize the service failure associated with this experience.

2. What might the travel agency do to improve its customers service experience?
7 TATA NANO: The INR 1,00,000 Peoples Car

When Ratan Tata unveiled the prototype of the Tata Nano car in Jan 2008 at the auto show
in New Delhi, it opened up a new chapter in product development. The compact car, priced
at US$ 2,500 , is a valuable experiment from which much can be learnt about the best
practices in New Product Development.
The product development team at Tata Motors had to meet three requirement for
the new vehicle: (i) be low cost, (ii) adhere to regulatory requirement, and (iii) achieve
performance targets such as fuel efficiency and acceleration capacity. Balancing design
changes with their cost implications is an important challenge in any new product
development project. Each design, therefore, had to cater to these three key requirements.
Clearly, while the cost was very critical, the company was unwilling to make any
compromise in other areas. Fuel economy is a major driver for selling a vehicle in India. It
also was important to ensure that the car could be maneuvered in urban / city areas.
There is considerable value in having multiple stakeholders in a product
development team. Ideas for the Nano came from unexpected sources and they were given
due consideration before a decision was taken. For instance, in addition to the vendor
/suppliers, a small group of auto mechanics was part of the development phase. The group
suggested an additional opening on the rear floor, which would provide access to the
Intake Manifold and the Starter. While the design team was trying to avoid this for cost
reasons, the mechanics insisted on this change.
The design team had to redesign several aspects before the style could be frozen.
The cars body was designed twice and the engine was design thrice. The floor and the
seats were designed 10 times. There were two simultaneous concepts for the cars
dashboard, with detailed design and cost estimate. The Nano team eventually chose the
concept they thought would look more attractive to the customer. The Nano is not over
engineered like, say, the German cars. It is an example of frugal, cost effective and relevant
engineering. Several suppliers got involved in the project at a very early stage. This was
perhaps, one of the ways by which costs were reduced. Electronic Sourcing has been
another approach to cut costs.
Rane Group (Chennai based), which makes Rack-and-Pinion steering system,
focused on reducing the weight of the material used by replacing the steel rod of the
steering with a steel tube. This acted as a major cost saver. Further, the product, which is
made of two parts, was redesigned into one piece to save on machining and assembling
cost. GKN Driveline India, a subsidiary of global auto parts leader, spent a year developing
32 experimental variants for the rear wheel drive system and finally designed a smaller
diameter of shaft which made it lighter and saved on material cost. All the suppliers have
similar stories and most of them were able to meet the target cost.
A good product development exercise has several features: unambiguous and clear
objective for the project, the involvement of multiple stakeholders, the critical role of
suppliers cutting time and cost, and value engineering. We observe several examples of
these in the Nano Project.

Questions:
A) In the context of the case above, discuss the role and contribution of each of the multiple
stakeholders in the Nano Project.

B) Describe in brief the various phases of a New Product Development with an


appropriate Industry Example. (Exclude Auto Industry).