Block 6

Question 1

Management Science

Answer 1

a scientific method of providing executive departments with a quantitative basis for decisions regarding the operations under their control. (Morse and Kimball, 1950)

One significant outgrowth of scientific management was management science (MS), which is often now encompassed within the field of operations management (OM).

Question 2

Inventory Management

Answer 2

The question to be resolved through applying management science is ‘how much stock to order?’

Material inventories can represent a substantial proportion of cash tied up in working capital. Reducing them can release cash, but this can lead to lack of stock to fulfil customer orders. This is the dilemma that EOQ can assist with resolving. Inventory only exists because supply and demand are not exactly in harmony with each other. Calculations can be used to define the most economic order quantity (EOQ) for each item of inventory, with the aim of minimising ordering costs and holding costs.

Question 3

Inventory Levels

Answer 3

Inventory levels have an impact on Return on Assets in the following ways:

1. Absence of inventory – inability to satisfy customer demand – reduced revenues.
2. Obsolescence (as better inventory alternatives become available).
3. Damage or loss of inventory items – potential increase in cost and reduced revenue.
4. Variation in storage costs – e.g, refrigeration (frozen food), security (jewellery), size of item (watch compared to car), hazardous materials (chemicals such as solvents) - EOQ values are intended to take account of this variance.
5. Administrative – e.g. selecting suppliers, placing orders, maintaining inventory records.
6. Insurance costs: since inventory has value, it is usual for workplace insurance to include the value of inventory. Insurance will vary depending on inventory value.

Question 4

Calculating Economic Order Quantity (EOQ)

Answer 4

To calculate EOQ, the costs need to be calculated or estimated and generally holding costs will include working capital costs, storage costs and obsolescence risk costs. Order costs take into account cost of placing the order (including any transportation) and price discount costs.

Total costs = holding cost + order cost
𝐶t = 𝐶h𝑄2 + C0D𝑄

Question 5

Factors for modelling queue behaviour

Answer 5

The following factors are needed to model queue behaviour
 average time between arrival
 arrival rate
 coefficient of variation of arrival times
 number of parallel servers at a station
 mean processing time
 processing rate
 coefficient of variation of process time
 utilisation of station
 average WIP (number of items) in queue
 expected WIP (number of times) in queue
 expected waiting time in queue
 expected waiting time in system (queue time + process time)

Question 6

Queueing theory is a broad general theory with applications to:

Answer 6

 telecommunications
 manufacturing facilities
 passenger transportation
 supply chains
 retail outlets
 healthcare systems
 law courts
 back office functions

Question 7

Little’s Law

Answer 7

a simple but very useful calculation to analyse queuing in stable processes. It can help managers to evaluate staffing levels, e.g. how many staff need to be available at ticket booths.
The average number of people in a queue is a product of the average rate at which people enter the system and the average time each one spends in the system. The cycle time for a process is calculated by number of staff serving and the length of the process, for example, if two members of staff take two minutes to serve a customer, on average one customer will emerge from the process every minute, so the cycle time is one minute.
————–
Throughput time = Work in progress (WIP) x Cycle time
10 minutes = 10 people in the system x 1 minute per person
Assumption = single server

Question 8

Toyota Production System (TPS)

Answer 8

The Toyota Motor Company was one of the originators of the concept of Lean Manufacturing. This represents a development of MS to utilise data to reduce various types of waste and to synchronise the supply chain.
One of the key concepts of ‘Lean’ is the minimisation of waste. Toyota identified 7 types of waste, as outlined below:
Waste Type Description
1 Overproduction Producing more than is needed by the next process (greatest source of waste)
2 Waiting time Equipment efficiency and labour efficiency are two popular measures
3 Transport Moving items around the operation, double or triple handling
4 Process Some stages may only exist because of poor design of a product, or to rectify poor maintenance of equipment
5 Inventory All inventory should be a target for elimination
6 Motion Are all operator actions necessary – do they ‘add value’
7 Defectives Poor quality, poor reliability, rework costs

Question 9

The 7 Wastes contribute to 4 barriers to achievement of lean synchronisation

Answer 9

 Waste from irregular flow (links to queuing theory – variation in arrival times source of lengthens throughput time).
 Waste from inexact supply (aim to match supply and demand exactly – contrast with EOQ).
 Waste from inflexible response (processes need to be flexible to respond to customer demand).
 Waste from variability (regular schedules can reduce variability).

Question 10

Benefits and risks of The Toyota Production System (TPS)

Answer 10

BENEFITS:
1. (TPS) represents a set of practices that includes Statistical Process Control (SPS) to analyse quality variability, and to ensure that processes are stopped if the process begins to run near the unacceptable limit.

RISKS:
1. if one link in the synchronised chain breaks, then all processes stop. Toyota encountered this problem when production was stopped in some plants as a result of the Fukushima volcanic eruption in 2011, and production in their US plants was also halted.

Question 11

How Information revolution affected Management Science

Answer 11

In 1985, the information revolution was sweeping through the economy (Porter & Millar, 1985).

1. Dramatic reductions in the cost of obtaining, processing and transmitting information changed the way that organisations did business.
2. Organisations began to utilise integrated Management Information Systems (MIS) that provided information from activities across the organisation.
3. More and more data became available to provide inputs to a wide range of MS models e.g. number of clicks on a web page
4. It has improved some processes dramatically, e.g. supermarkets swipe each item to give the customer a receipt, but also to maintain inventory data, they can use data from current sales patterns to plan replenishment.

Question 12

Wearables in the Workplace

Answer 12

An updated approach to time and motion studies that is becoming more widespread is the use of wearables in the workplace (Wilson, 2013).
The use of wearables in the workplace enables managers to:
-improve workplace layouts
-to identify ways to improve processes
-to monitor how hard workers are working.
-Remote sensors can also be placed in vehicles and links to GPS are used by managers to improve safety.
This illustrates how new tools can be used with older concepts from MS, and similar objections will be raised by the workforce. Some examples:
 Telemetry Systems (1965) allowed remote observers access to an astronaut’s physiological functions and how they linked to ability to undertake tasks, leading to many applications in health care and business.
 Polar Heart Rate monitor (1982) wireless device bringing scientific measurement onto sports fields.
 Vuman 1 (1991) head-up display of blueprints for architects and contractors, reducing contract time.
 Xerox Forget-me-Not (1994) registers movement and interaction to help understand where time is spent at work.
 Nike+ (2006) activity trackers, a shoe mounted accelerometer to record pace and distance.
 Hitachi Business Microscope (2009) gauges movement to identify when workers are most focused.
 Mindset EEG (2009) Electro-Encephalograph identifies patterns of brain waves associated with creativity.

Question 13

Growing Data Sources - Big Data

Answer 13

The key point is that there is a significant change of emphasis in MS. Finding, gathering and analysing data used to be a very time-consuming task, often requiring specialist analysts, but managers now have to spend more time thinking about which of the wide range of available data to use, and what advantages can be gained by undertaking particular analyses.

Question 14

Management Science and the Manager in the 21st Century

Answer 14

The increased use of computers has improved ability to generate graphical representations of data, graphs and pie charts automatically update to illustrate current values in a spreadsheet or database. This has facilitated the development of ‘Management Dashboards’. The idea is to replicate the car dashboard, which aims to tell the driver the current performance of important aspects of the vehicle performance.
A management team that has defined Key Performance Indicators (KPIs) can develop graphical representations of monitoring measures for each. This requires managers to be clear about what it is important to measure, and keep KPIs to the few items that will result in action being taken if performance fails to meet a target or expected value (e.g. exceeds monthly budget limit, on-time delivery less than 95%, sales for a given period compared to target, number of customer complaints increasing over period).

Question 15

‘management by exception’ (Drury, 2013)

Answer 15

This approach to management utilises outputs of Management Science