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book； An Inquiry into the Nature And Causes of the Wealth of Nations （1776）；
that：
The greatest improvement in the productive powers of labour； and the greater
part of the skill； dexterity； and judgment with which it is anywhere directed；
or applied； seem to have been the effects of the division of labour。 。 。。 I have
seen a small manufactory of this kind where ten men only were employed；
and where some of them consequently performed two or three distinct
operations。 But though they were very poor； and therefore but indifferently
acmodated with the necessary machinery； they could； when they exerted
themselves； make among them about twelve pounds of pins in a day。 There
are in a pound upwards of four thousand pins of a middling size。 Those ten
persons； therefore； could make among them upwards of forty…eight thousand
pins in a day。 But if they had all wrought separately and independently； and
without any of them having been educated to this peculiar business； they
certainly could not each of them have made twenty。
By Smith’s calculations； organizing production efficiently increased output
by 2；400 times； leaving the market itself as the primary limiting factor。
Since then the hunt has been on for ever more efficiencies in the methods of
production。 The main production methods employed today are：
236 The Thirty…Day MBA
。 One…off production is when a single product is made to the individual
needs of a customer； for example a designer dress。 This is very much
the pre…Smith way in which everything was made； o。。en without the
use of any machinery。
。 Batch production involves the making of a number of identical products
at the same time； then moving on to make a different product later。 For
example； a small food processing factory could make sausage rolls in
the morning and pizzas in the a。。ernoon。 This approach requires some
basic machinery and Smith would probably recognize this process were
he alive today。
。 Mass production is used for larger…scale production using machinery；
o。。en many different machines； for much of the work where individual
tasks are carried out repetitively。 This is an efficient and low…cost
method of production for small and medium…sized businesses。
。 Continuous…flow production produces the high volumes required by
larger panies。 These are highly automated and their cost usually
requires them to be run 24/7。 By reducing the workforce needed this
eliminates one of the blockages that Smith saw： ‘the improvement of
the dexterity of the workman necessarily increases the quantity of the
work he can perform’。
。 puter…aided manufacture （CAM） is a continuous…flow production
method controlled by puters； such as used in the motor industry。
。 Lean manufacturing is an approach ascribed to Toyota； where they
sought to eliminate or continuously reduce waste that is anything that
doesn’t add value。 Waste in the production process taking the ‘lean’
approach is categorized under such headings as：
– Transport： Keep process close to each other to minimize movement。
– Inventory： Carrying high inventory levels costs money and； if too
low； orders can be lost。 ‘Just in time’ （JIT） manufacturing should be
aimed for。
– Motion： Improve workplace ergonomics so as to maximize labour
productivity。
– Waiting： Aim for a smooth； even flow so that staff and machines are
working optimally； reducing downtime to a minimum。
– Defects： Aim for zero defects as that directly reduces the amount of
waste。
Production scheduling
Production scheduling is the process used to get the optimum amount of
output at the lowest cost。 Its success is measured by being able to meet
delivery promises while hi。。ing profit margin objectives。 It achieves this
by identifying possible resource conflicts； directing sufficient labour and
machinery to tasks on time； acmodating downtime and preventative
Operations Management 237
maintenance schedules； and minimizing stock and work in progress levels。
A production schedule also gives the production team explicit targets so
that supervisors and managers can measure their performance。
The techniques used to facilitate scheduling which an MBA should
understand include the following。
Gantt Charts
Henry Gan。。； a mechanical engineer； management consultant and associate
of Frederick Taylor； showed how an entire process could be described in
terms of both tasks and the time required to carry them out。 He developed
what became known as the Gan。。 chart； to help with major infrastructure
projects； including the Hoover Dam and US Interstate highway system；
around 1910。 By laying out the information on a grid with tasks on one axis
and their time sequence along the other it was possible to see at a glance
an entire production plan as well as highlight potential bo。。lenecks。 Gan。。
charts can be used for any task； not just production scheduling； as Figure
10。2； giving an example of how a website design project could be planned；
demonstrates。
Figure 10。2 Gan。。 chart showing weekly tasks for a website design project
＇！Figure 10。2！＇
0 1 2 3 4 5 6 7 8 9 10
Look at problem materials needed
Start button design software
Experiment with web design software
Prepare website text and images
Test website
Make revisions
Finish writing up project
Critical path method （CPM）
A more sophisticated way to schedule operations was developed in the
late 1950s。 DuPont； the US chemical pany； first used CPM to help
with shu。。ing down plants for maintenance。 Later； the US Navy adapted
it and improved it for use on the Polaris project。 CPM uses a chart （see
Figure 10。3） showing all the tasks to be carried out to plete a scheduled
activity； the sequence in which they have to be carried out and how long
each event； as tasks are known； will take to be pleted。 The critical path
is the route through the network that will take the longest amount of time。
The significance of the critical path is that any delays in carrying out events
238 The Thirty…Day MBA
on this path will delay the whole project。 Tasks not on the critical path have
more leeway； and may be slipped without affecting the end date of the
project。 This is called slack or float。
The steps in the critical planning method process are：
。 Identify the events。
。 Decide on the sequence in which they must be carried out。
。 Draw the network。
。 Calculate the pletion time for each event。
。 Identify the longest and hence critical path。
。 Keep the chart updated as events unwind。
Programme evaluation and review technique （PERT） and an activity network；
also known as an ‘activity…on…node diagram’； are more sophisticated
forms of CPM that allow for a degree of randomness in activity start and
pletion times。
Linear programming
In 1947； George Dantzig； an American mathematician； developed an algorithm
（a mathematical technique） that could help resolve problems involving
operational constraints。 His algorithm could； for example； help
with situations where several products could be produced； but materials；
labour or machine capacity is insufficient to make all that’s demanded – the
Start
Task 1
3 weeks
Task 2
3 weeks
Task 5
1 week
Task 4
2 weeks
Task 3
4 weeks End
This path is longest – takes 10 weeks – is critical path
This path takes 7 weeks
Tasks 4 or 5 could between them start or finish up to 3 days
late without delaying pletion – so critical path has 3 days slack in it
Figure 10。3 Critical path method applied
Operations Management 239
challenge in that last case being to decide what mix of products can be
produced that will make the maximum profit and then plan accordingly。
Unfortunately； the iterative nature of producing solutions using Dantzig’s
algorithm proved so tedious that until cheap puters arrived it remained
an academic idea of interest only to mathematics students。
The Dantzig algorithm prises an objective； the quantity to be optimized；
for example profit； nutrient content； water flow or production of one
particular product out of several； any variables and constraints on them； for
example a certain minimum amount of water must flow。
Excel incorporates a Solver add…in feature to solve standard linear programming
problems。 It is not usually installed when Excel is first loaded so
to add this facility：
。 Select the menu option Tools ｜ Add_Ins （you will need your original
installation disk）。
。 From the dialog box check Solver Add…In。
。 Access to the Solver option is now available from the new menu option
Tools ｜ Solver
These websites provide more information on using linear programming in
operations：
。 Economics Network （economicsnetwork。ac。uk/cheer/ch9_3/ch9_
3p07。htm） provides a detailed explanation and Excel worked example。
。 IBM （www…128。ibm/developerworks/linux/library/l…glpk1） has a
worked example。
Queuing theory
Agner Krarup Erlang； a Danish engineer who worked for the Copenhagen
Telephone Exchange； had the problem of estimating how many circuits
were needed to provide an acceptable telephone service。 He found out by
empirical observation that the relationship between the number of circuits
and the number of telephone customers who could be provided with an
acceptable level of service was not as obvious as it at first seemed。 For example；
in his experiments where one circuit was provided on a network；
adding just one more could reduce waiting time by over 90 per cent； rather
than just halving it as simple logic might suggest。 He published the first
paper on queuing theory in 1909 and this new operation scheduling technique
was born。
Queuing theory can help answer operational questions such as these
for a service business such as a restaurant； bank or call centre： Given the
present resources：
240 The Thirty…Day MBA
。 How long will a customer have to wait before they are served？
。 How long will it take for the service to be pleted？
。 How big a waiting area will be needed for the queue？
。 What is the probability of a customer having to wait longer than a
given time interval before they are served – the classic service standard
problem calling for； say； ‘all telephone calls to be answered within 10
rings’？
。 What is the average number of people in the queue？
。 What is the probability that the queue will exceed a certain length？ This
can cause congestion； say in a bank or supermarket。
。 What time period will the server be fully occupied for and how much
idle time are they likely to have； bearing in mind this is a cost to be
minimized？
The technique can be used for any operational problem where efficiency
is determined by calculating the optimal number of channels required
to meet a level of demand。 J E Beasley； formerly of the Tanaka Business
School （Imperial College） and currently Professor of Operational Research
at Brunel University； provides helpful notes on the subject at this web link
（h。。p：//people。brunel。ac。uk/~mastjjb/jeb/or/queue。html）。
INVENTORY MANAGEMENT
High inventory levels are popular with marketing departments； as having
them makes satisfying customers an easier task； they are less popular with
production departments who have to carry inventory costs in their budgets。
Finance departments insist on having the lowest possible stock levels； as
high stock pushes working capital levels up and return on investment
down。 （Look back to Financial ratios in Chapter 1 on accounting to see how
this works。） This tussle between departments is a strategic issue that has to
be resolved by top management。 The birth of Waterstone’s； the bookshop
business founded by Tim Waterstone； fortuitously a marketing visionary；
qualified accountant and the pany’s managing director； provides an
interesting illustration of the dimension of the stock control issue。 Until the
advent of Waterstone’s the convention had been to store books spine out on
shelves； in alphabetical order； under major subject headings – puting；
Sport； Travel。 This had the added advantage of making it easy to see
what books needed reordering and stock counts were a simple process。
Waterstone； however； knew that ‘browsers’； the majorit