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Waterstone； however； knew that ‘browsers’； the majority （60 per cent；
according to his research） of people who go into bookshops to look around；
had no idea what book they wanted； so didn’t know where to start looking。
His differentiating strategy was that as well as following the conventional
model of having books on shelves； he sca。。ered the books in piles around
Operations Management 241
the store using a variety of methods： new books in one pile； special offers
in another。 Sales and profits soared； sufficient to more than pensate for
the near doubling of book stock。
Inventory categories
There are three different categories of inventory that a business needs to
have and keep track of：
。 Finished goods： These are products ready to ship out to customers。
For Apple these would be puters； iPods and so forth； for General
Motors vehicles and for a baker loaves of bread。
。 Work in progress （WIP）： These are products in the process of being
pleted。 They have used up some raw materials and had workers
paid to start the manufacturing process； so the cost will reflect those
inputs。 For General Motors WIP would include vehicles awaiting paint
or a pre…delivery inspection。
。 Raw materials： These are the basic materials from which the end product
is made。 For General Motors this would include metal and paint； but
it could also include a plete bought…in engine for the vehicles in
which they use third…party power units。
Economic order quantity （EOQ）
Businesses have to carry a certain minimum amount of stock to ensure
that the production pipeline works efficiently and likely demand is met。
So the costs associated with ordering large quantities infrequently and
so reducing the order cost but increasing the cost of holding stock has to
be balanced with placing frequent orders； so pushing the costs in placing
orders up； but reducing stock holding costs。 EOQ is basically an accounting
formula that calculates the point at which the bination of order costs
and inventory carrying costs are the least and so arriving at the most costeffective
quantity to order。
The formula for EOQ is：
Economic order quantity = （√ （2×R×O））
C
Where： R = Annual demand in units； O = Cost of placing and order； C= Cost
of carrying a unit of inventory for the year。
InventoryOps； a website created and run by Dave Piasecki to support
his book Inventory Accuracy： People； Processes； & Technology （2003； Ops
Publishing）； provides a useful starting point in your quest for information
242 The Thirty…Day MBA
on all aspects of inventory management and warehouse operations。 At this
link （inventoryops/economic_order_quantity。htm）； you will find
a full explanation of how to use EOQ。
QUALITY
As well as using efficient operation and control procedures an organization
has to deliver a quality product or service。 Quality in operations does
not carry quite the same meaning as it does in； say； marketing； where it
signifies something of a high standard。 In operations； quality means that
something meets a set of prescribed standards and performs as expected。
In other words； promises are made and kept。 But quality is also part of
the efficiency equation too。 Quality below standard can lead to high waste；
disrupted schedules and lost orders。 The ideas； concepts and techniques
that drive thinking on quality e from these management ideas。
Inspection
Frederick W Taylor （see above） in his book The Principles of Scientific Management
stated that one of the clearly defined tasks of management was
to ensure that no faulty product le。。 the factory or workshop。 This led to
a focus on the detection of problems in the product； testing every item to
ensure that it plied with product specifications。 The task was carried
out at the end of the production process using specially trained inspectors。
The ‘big idea’ emerging from this approach was defect prevention as the
means to ensure quality control。 Inspection still plays a part in modern
quality practices； but less as an answer and more as one tool in the toolkit。
Philosophy
W Edwards Deming （deming）； an American statistician and
member of the faculty at the New York University Graduate School of
Business and Columbia University； where he taught up until 10 days
before his death in 1993； is considered as the founder of modern quality
management。 He took the inspection aspect of quality control a stage
further with the introduction of statistical probability techniques。 His view
was that quality should be designed into products and processes and that
mass inspection was redundant as statistical sampling using control charts
will signal when a process is out of control。
Deming is remembered most for his 14…point ‘System of Profound
Knowledge’。 In this he explains that being a quality…driven organization
requires everyone； starting with top management； ‘to fully embrace a
new way of thinking that involves seeking the greater good for everyone
Operations Management 243
involved and implementing continuous improvement’。 He wanted slogans；
targets and numerical targets removed and emphasized to all employees
in the pany that if change is to be made and processes are to be continuously
improved then it’s down to them to achieve it。 Deming’s ideas
were adopted enthusiastically by the Japanese whose economy； having been
crippled by the war （WW2）； was ready to embrace radical change。 It was
not until the Japanese motor industry was cu。。ing deep into its home market
that US industry woke up to Deming’s message on quality。 Total Quality
Management； Quality Circles and Six Sigma have bee buzzwords for
variations and extensions of Deming and other pioneers’ work on quality。
The la。。er term was in use in the 1920s where mathematicians used it as the
symbol for a unit of measurement in product quality variation。 But it was
not until the mid…1980s that engineers in the US pany Motorola used
‘Six Sigma’ first as an informal name – later as a brand – for their initiative
aimed at reducing defects in production processes。 The name Six Sigma
was chosen because mathematically it represents 3。4 parts – or defects – per
million； an extremely high level of quality。
INFORMATION TECHNOLOGY
Information technology is universally seen as important by all major business
schools； but taught differently and with a different level of emphasis
by all。 At London Business School the course is relatively short； entitled ‘IT
for Business Value’； and has two intended outputs： to enhance students’
confidence in choosing the right technology for meeting business needs；
and to examine issues involved in managing the implementation of business
systems。 At Wharton the Management Information Systems （MIS）
course on the MBA programme covers ‘the practice of using puter
and munication systems to solve problems in organizations and provide
the essential skills and technology…based insights needed in order to
manage effective problem solving with information technologies and
systems （IT&S）； and to extract the most value from an actual or potential
information system’。 The course itself is organized around several ‘hands
on’ cases or projects； through which student teams bee familiar with
important information technologies； including databases and the internet。
MBAs will be expected to have some appreciation of these key issues；
though they will usually expect to be able to rely on professional expertise
either from within the organization or outside。
Data protection
Holding data on customers； employees and indeed on any living person
requires an organization to register with the Information missioner’s
244 The Thirty…Day MBA
Office （ico。gov。uk 》 For organizations 》 Data protection guide） and
to ply with the Data Protection Act’s eight principles； which make sure
that personal information is：
。 fairly and lawfully processed；
。 processed for limited purposes；
。 adequate； relevant and not excessive；
。 accurate and up to date；
。 not kept for longer than is necessary；
。 processed in line with your rights；
。 secure；
。 not transferred to other countries without adequate protection。
Website operations
MBAs need a good grasp of how the internet is currently affecting the
business operations。 Everything from books and DVDs； through puters；
medicines and financial services； on to vehicles and real estate is being sold
or having a major part of the selling process transacted online。 Not only
are products and services being sold online； they are being supported both
technically and mercially and to an increasing extent being fulfilled
online too。 So。。ware； films and books are just three ‘tangible’ product categories
for which more or less every business operation can be and is being
delivered via the internet。 Holidays； airline tickets； so。。ware； training and
even university degrees are bundled in with the mass of conventional
retailers such as Tesco who fight for a share of the ever…growing online
market。 The online gaming market alone has over 217 million users。
The value of web transactions in the United States in 2007/08 was over
450bn and in the UK alone was ￡55。5bn； up from ￡19bn in 2002； the value
of sales to households as opposed to businesses over the same period
doubled to ￡14bn； ￡78 in every ￡100 spent in 2007/08 on the internet was
used to buy physical goods。 In the United States 16 million people visited
jewellery websites； 35 million hit flower and gi。。 sites and 42 million looked
for travel…related products and services。
Not all business sectors are penetrated to the same extent by the internet；
according to Forrester （forrester）； the internet research pany；
although sales of clothing and footwear online is a multi…billion business
it accounts for only 8 per cent of total sales。 Contrast that with puters
where 41 per cent of sales occur online。
According to eMarketer （emarketer）； 88 per cent of shoppers
prefer online to conventional shopping because they can shop at any time；
66 per cent like being able to shop for more than one product and in many
outlets at the same time； 54 per cent claim that there are products that they
Operations Management 245
can only find online； 53 per cent like not having to deal with salespeople；
44 per cent reckon product information is be。。er online； and perhaps the
most revealing statistic of all； only 40 per cent preferred online to offline
because they expected to find lower prices。
Information systems （IS）
If the internet is the external operations powerhouse； IS systems are the
mirror image； handling all the data needed to run a 21st…century organization。
Every part of a business collects data； production monitors output
efficiencies； stock levels and quality； finance gets the accounts； marketing
gets figures on customer demand and petitor market share； HR keeps
track of pay； training； accidents at work and sickness。 But none of this data
is much use unless there is an integrated system that can integrate； collate；
analyse and disseminate this information in a timely manner and in a
format that can be understood and used by operating management。
To be effective； IS needs an appropriate amount of hardware and so。。ware；
as firms that effectively exploit the power muter information systems
can deliver can outperform others。 It can play a major role in opening new
distribution channels； streamlining supply chains and providing efficient
electronic markets。 Mainframe/legacy systems； PCs； workstations； intranets
and the internet； as well as local area networks （LANs） and wide area
networks （WANs）； customer relationship management （CRM） and the
ubiquitous Moore’s Law stating that processing power doubles every 18
months while costs halve； are all vital elements in an MBA’s IS vocabulary。
Quantitative
and qualitative
research and
analysis
。 Decision…making tools
。 Statistical methods
。 Making forecasts
。 Assessing cause and effect
。 So。。 studies
。 Carrying out surveys
Finance； marketing； operations and HRM （human resource management）
collect an inordinate amount of data an