1. 5-1
Lecture 4
Exploring Corporate Strategy
• Understanding Strategy Development
• The strategy lenses
• Strategy development processes in
organisations
2. 5-2
Understanding Strategy Development
Learning curve theory is based on three assumptions:
1. The amount of time required to complete a given task or
unit of a product will be less each time the task is
undertaken;
2. The unit time will decrease at a decreasing rate; and
3. The reduction in time will follow a predictable pattern.
Learning curve is a line displaying the relationship between unit production time and the cumulative
number of units produced.
3. 5-3
The strategy lenses
Some general guidelines to improve individual performance
based on learning curves:
1. Proper selection of workers;
2. Proper training;
3. Motivation;
4. Work specialisation;
5. Do not or very few jobs at a time;
6. Use tools or equipment that assists or supports
performance;
7. Provide quick and easy access for help; and
8. Allow workers to help redesign their tasks.
4. 5-4
Strategy development processes in
organisations
Managerial Considerations in Using Learning Curve with
the following factors.
1. Individual learning and incentives;
2. Learning on new jobs versus old jobs;
3. Improvement comes from working smarter, not harder;
4. Built-in production blas through suggesting any learning
rate;
5. Preproduction versus postproduction adjustments;
6. Changes in indirect labour and superision;
7. Changes in purchasing practices, methods, and
organisation structure; and
8. Contract phase-out.
5. 5-5
1. Individual learning and incentives.
• Extensive research indicates a rather obvious fact: In
order to enhance worker learning, there must be
adequate incentives for the worker and the organization.
• However, the concept of incentives may be broadened
to include any of the positive or negative administrative
options available to managers.
6. 5-6
2. Learning on new jobs versus old jobs.
• The newer the job, the greater will be the improvement
in labor hours and cost.
• Conversely (on the other hand), when production has
been underway for a long time, improvement will be less
discernible.
• For example, for an 80 percent learning curve situation,
the improvement between the first and second units will
be 20 percent.
• However, if the product has been manufactured for 50
years, it will take another 50 years to reduce labor hours
by 20 percent, assuming that yearly production volume
remains the same.
7. 5-7
3. Improvement comes from working smarter,
not harder.
• While incentives must be included to motivate
the individual worker, most improvement in
output comes from better methods and
effective support systems rather than simply
increased worker effort
8. 5-8
4. Built-in production bias through suggesting any
learning rate.
• If a manager expects an 80 percent
improvement factor, he or she may treat this
percentage as a goal rather than as an
unbiased measure of actual learning.
9. 5-9
5. Preproduction versus postproduction adjustments.
• The amount of learning shown by the learning curve
depends both on the initial unit(s) of output and on the
learning percentage.
• If there is much preproduction planning, experimentation,
and adjustment, the early units will be produced more
rapidly than if improvements are made after the first few
units.
10. 5-10
6. Changes in indirect labor and supervision.
• Learning curves represent direct labor output, but if the
mix of indirect labor and supervision changes, it is likely
that the productivity of direct labor will be altered.
• For example, more supervisors, repairpersons, and
material handlers would speed up production, whereas a
reduction in their numbers would slow it down.
11. 5-11
7. Changes in purchasing practices, methods, and
organization structure.
• Significant adjustments in any of these factors will affect
the production rate and, hence, the learning curve.
• Likewise, the institution of preventive maintenance
programs, zero-defect programs, and other schemes
designed to improve efficiency or product quality
generally would have some impact on the learning
phenomenon.
12. 5-12
8. Contract phase-out.
• The point should be made that the learning curve may
begin to turn upward as a contract nears completion.
• This may result from transferring trained workers to
other projects, non-replacement of worn tooling, and
reduced attention to efficiency on the part of
management.
14. 5-14
Learning Objectives
1. Recognize three basic types of processes: a
serial flow process, parallel processes (such
as what happens in a restaurant), and
logistics processes.
2. Understand basic flowcharting of processes.
3. Explain how to analyze processes using
Little’s law.
4. Understand how to calculate process
performance measures.
15. 5-15
Process Analysis
• Process: any part of an organization
that takes inputs and transforms them
into outputs
• Cycle time: the average successive
time between completions of
successive units
• Utilization: the ratio of the time that a
resource is actually activated relative to
the time that it is available for use
LO 1
16. 5-16
Analyzing a Las Vegas Slot
Machine
1. Analyzing the mechanical slot
machine
2. Analyzing the new electronic slot
machine
3. Comparison
4. The slot machine is one of many
casino processes
LO 1
17. 5-17
Process Flowcharting
• Process flowcharting: the use of a
diagram to present the major elements
of a process
• The basic elements can include tasks
or operations, flows of materials or
customers, decision points, and storage
areas or queues
• It is an ideal methodology by which to
begin analyzing a process
LO 2
21. 5-21
Buffering, Blocking, and Starving
• Buffer: a storage area between stages where
the output of a stage is placed prior to being
used in a downstream stage
• Blocking: occurs when the activities in a
stage must stop because there is no place to
deposit the item
• Starving: occurs when the activities in a
stage must stop because there is no work
• Bottleneck: stage that limits the capacity of
the process
LO 2
23. 5-23
Other Types of Processes
• Serial flow process: a single path for
all stages of production
• Parallel process: Some of production
has alternative paths where two or
more machines are used to increase
capacity
• Logistics processes: the movement of
things such as materials, people, or
finished goods
LO 1
24. 5-24
Make-to-Stock versus Make-to-
Order
• Make-to-order
– Only activated in response to an actual order
– Both work-in-process and finished goods inventory
kept to a minimum
• Make-to-stock
– Process activated to meet expected or forecast
demand
– Customer orders are served from target stocking
level
• Hybrid
– Combine the features of both make-to-order and
make-to-stock
LO 2
26. 5-26
Production Process Mapping and
Little’s Law
• Total average value of inventory
– Sum of the value of raw materials, work-in-process,
and finished goods inventory
• Inventory turns
– Cost of goods sold divided by the average
inventory value
• Days-of-supply
– Inverse of inventory turns scaled to days
• Little’s law
– There is a long-term relationship between
inventory, throughput, and flow time
– Inventory = Throughput rate X Flow time
LO 4
27. 5-27
Example: Car Batteries
• Average cost $45
• 12 hours to make a car
• Assembles 200 cars per 8 hour shift
– Currently one shift
• Holds on average 8,000 batteries in
raw material inventory
LO 4
28. 5-28
Example: Average Inventory
• WIP = Throughput x flow time
• WIP = 25 batteries x 12 hours
• WIP = 300 batteries
• Total = 8,000 + 300 = 8,300 batteries
LO 4
29. 5-29
Example: Value and Flow Time
• Value = 8,300 x $45 = $375,000
• Flow time = Inventory / Throughput
Flow time = 8,000 / 200 = 40 days
LO 4
31. 5-31
Example: Running at 100 Loaves
Per Hour
• Both bread making and packaging
operate the same amount of time
• Capacity is 100 loaves per hour
• Packaging idle for a quarter hour
– Has 75 percent utilization
LO 4
33. 5-33
Example: Multiple Shifts
• Bread making runs two shifts
– Produces 200 x 8 x 2 = 3,200
• Packaging runs three shifts
– Produces 133.3 x 8 x 3 = 3,200
• Capacities are roughly equal
LO 4
