MGT 236 Chapter 1 Hightone Electronics Case Study Questions

Case analysis: Hightone Electronics, Chapter 1
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George Gonzales, operations director of Hightone Electronics, Inc. (HEI), sat quietly at the conference table
overlooking the lobby of the corporate headquarters office in Palo Alto, California. He reflected on the board
meeting that had just adjourned and the challenge that lay ahead for him. The board had just announced their
decision to start an Internet-based division of HEI. Web-based purchasing in the electronics industry had been
growing rapidly. The board felt that HEI needed to offer on-line purchasing to its customers in order to maintain
its competitive position. The board looked to George to outline the key operations management decisions that
needed to be addressed in creating a successful Internet-based business. The next board meeting was just a week
away. He had his work cut out for him. Hightone Electronics, Inc. was founded in Palo Alto, California over 50
years ago. Originally, the company provided radio components to small repair shops. Products were offered for
sale through a catalog that was mailed to prospective customers every four months. The company built its
reputation on high quality and service. As time passed, HEI began supplying more than just radio parts, adding
items such as fuses, transformers, computers, and electrical testing equipment. The expansion of the product
line had been coupled with an increase in the number and type of customers the company served. Although the
traditional repair shops remained a part of the company’s market, technical schools, universities, and wellknown corporations in the Silicon Valley were added to the list of customers. Today HEI operates the Palo Alto
facility with the same dedication to supplying quality products through catalog sales that it had when it was first
founded. Customer service remains the top priority. HEI stocks and sells over 22,000 different items. Most
customers receive their orders within 48 hours, and all components are warranted for a full year. Expanding
HEI to include Web-based purchasing seems to be a natural extension of catalog sales that the company already
does successfully. George Gonzales agrees that the company has no choice but to move in this competitive
direction. However, George does not agree with the opinion of the board that this would be “business as usual.”
He believes that there are many operations decisions that need to be identified and addressed. As he stated in
the meeting, “Having a slick Web site is one thing, but making sure the right product is delivered to the right
location is another. Operations is the key to making this happen.” His challenge for the next board meeting was
to identify the key operations decision and persuade the board that these issues needed serious consideration.
Case Questions:
1. Explain why operations management is critical to the success of a business.
1
2.
Why would developing an Internet-based business require different operations consideration for HEI? Is
George Gonzales correct in his assessment that this would not be “business as usual”?
3. Recall that HEI wishes to continue its reputation of high quality and service. Identify key operations
management decisions that need to be considered.
4. How different will these decisions be for the Internet business?
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Introduction to
Operations Management •1
CHAPTER
Learning Objectives
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Define operations management (OM)
Explain the role of OM in business
Describe the information flows between
operations & other business functions
Describe the differences between service &
manufacturing operations
Describe the types of decisions made in OM
Identify major historical developments & current
trends in OM
Operations Management (OM):
◼ OM is the business function responsible for planning,
coordinating, operating, and controlling transformation
systems (the resources and processes needed to produce a
company’s products and services).
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Involves managing people, equipment, technology, information, and
other resources.
The value-added process that transforms company’s inputs into
finished products or services.
Inputs (5 Ms+Information):
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Manpower (e.g., workers and managers),
Machines/facilities (e.g., equipments and buildings),
Materials,
Money
Methods,
Data/Information.
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Types of Transformation Processes
Physical: physical change of raw materials into products
(e.g., plastic into toys, leather and rubber into shoes).
◼ Physiological: transforming sick people to healthy ones or
ill people to well people (e.g., health care).
◼ Psychological: transforming feelings of people as in
entertainment (TV films).
◼ Exchange: as in retail operations (distribution).
◼ Locational: movement of people/items from one place to
another (e.g., transportation & warehousing)
◼ Conceptual/Informational: as in communications and
mass media (e.g., news channels & information systems).
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Outputs
Products (tangible and intangible)
◼ Services
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OM’s Transformational Role
Transforming inputs into outputs
Value Added
The amount of value added to inputs through the
transformational process to create the final value of a
product.
Example: Restaurants involved in physical + psychological +
locational (delivery) value-adding transformation processes.
Value Added by Process
Inputs in $$
Transformation
Process
Outputs in $$$
Typical -Simplified- Organizational Chart
Showing the three major business functions
Information Flows
Information Flows
To & From Operations
Differences between
Manufacturing and Service Org.
Dimension:
◼ Tangibility
◼ Perishability
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Simultaneity
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Interactivity
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Responsiveness
K/L Intensity
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Manufacturing:
◼ Tangible
◼ Non-perishable (can be
inventoried)
◼ Non-simultaneous
development, delivery,
and consumption
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Low Interactivity (low
customer contact)
Long response time
Capital (K) Intensity
Services:
◼ Intangible
◼ Perishable (no
inventories)
◼ Simultaneous
development, delivery,
and consumption
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High Interactivity (high
customer contact)
Short response time
Labor (L) Intensity
Similarities between
Manufacturing and Service Org.
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All use technology and labor.
Both have quality, productivity, & response
time issues.
All must forecast demand.
Each will have capacity, layout, and location
issues.
All have customers and suppliers.
All have scheduling and staffing issues.
Service-Manufacturing Continuum
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The differences between manufacturing and service orgs. are
not as clear-cut as they might appear, and there is much
overlap between them.
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Most manufacturers provide services as part of their offering.
◼ Manufacturers of furniture may also provide shipment of goods
and assembly of furniture.
Many service firms manufacture physical products that they deliver
to their customers or consume during service delivery.
◼ A barber shop may sell its own line of hair care products.
Even in pure service companies some segments may have low customer
contact.
◼ Fast food restaurant’s back room or behind the scene segment
(kitchen), or hospital’s lab where specimen analysis is done, that
can be managed like a manufacturing operation.
There are companies that have some characteristics of each type of
organization.
◼ companies that have low customer contact and are capital
intensive, yet provide a service, are called quasi-manufacturing orgs
(IT orgs.).
◼ Also possible to have quasi-service companies.
Comparison of Goods and Services
Services
Manufacturing
100%
75%
50%
25%
0%
25%
50%
Self-service groceries
Automobile
Installed carpeting
Fast-food restaurant
Gourmet restaurant
Auto maintenance
Haircut
Consulting services
75%
100%
OM Decisions
Dimensions
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Strategic
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Tactical
(contingent on situation)
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Scope
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Broad (cover many
areas)
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Narrow (limited to
specific areas)
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Timehorizon
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Long-term in (3
years or more)
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Short-term (1 year
or less)
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Influence
Not influenced
(unbound) by
tactical decisions
◼ Set the direction for
the entire company
(all encompassing)
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Influenced (bound)
by strategic
decisions
◼ Specific in nature
(concern a small
group of issues)
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OM Decisions
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OM decisions are important to all types of companies,
large and small.
OM in large companies is more complex because of the
scale (size) and scope of the organization.
◼ Large companies produce a great variety of products, have
multiple locations, and often use domestic and international
suppliers.
◼ Large companies make OM decisions in order to position
themselves for global collaboration with customers,
distributors, and suppliers.
◼ Large companies adopt a comprehensive software package
called enterprise resource planning (ERP) that integrates
information throughout the organization, manages
forecasts, and coordinates factory operations.
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Examples of OM Decisions
Historical Milestones (Developments)
Industrial Revolution
Scientific Management
Human Relations Movement
Management Science
Computer Age
Just-In-Time Systems
Total Quality Management (TQM)
Business Process Reengineering (BPR)
Flexibility
Time-based Competition
Supply Chain Management
Global Competition
Environmental Issues
Electronic Commerce
Late 1700s
Early 1900s
1930s to 1960s
Mid-1900s
1970s
1980s
1980s
1980s
1990s
1990s
1990s
1990s
1990s
Late 1990s – Early 21st
Century
Industrial Revolution
Late 1700s
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Replaced traditional craft methods
Substituted machine power for labor
Major contributions:
James Watt (1764): steam engine
◼ Adam Smith (1776): division of labor
◼ Eli Whitney (1790): interchangeable parts
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Scientific Management
Early 1900s
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Separated ‘planning’ from ‘doing’
Management’s job was to discover worker’s physical limits
through measurement, analysis & observation.
Major contributors:
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Fredrick Taylor:
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Time and motion studies:
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stopwatch time studies (observation and recording of a worker performing a task
over many cycles. This information is then used set a time standard for performing
the particular task).
Piece rate incentives
Henry Ford:
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Moving assembly line
Mass production (division of labor+ assembly line+ interchangeable parts)
Human Relations Movement
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1930s to 1960s
Recognition that factors other than money contribute
to worker productivity.
Major contributions:
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Understanding of the Hawthorn effect:
Study of Western Electric plant in Hawthorn, Illinois intended to study impact of
physical environmental factors (light, heat, humidity,..) on productivity, but found
workers responded to management’s attention regardless of environmental changes.
Hawthorne studies showed that scientific management
made jobs too repetitive and boring.
◼ Led to the emergence of Human Relations movement
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an entirely new philosophy based on the recognition that factors
other than money can contribute to worker productivity.
◼ Job enlargement (giving workers a larger portion of the task to
do).
◼ Job enrichment (giving workers a greater role in planning).
Management Science
Mid-1900s
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Also sometimes known as Operations Research.
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Played a large role in supporting American military
operations during World War II.
Developed new quantitative techniques for
common OM problems:
Major contributions include: inventory modeling,
linear programming, project management,
forecasting, statistical sampling, & quality control
techniques.
◼ Was also coupled with the development of
mainframe computers.
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Computer Age
1970s
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Personal computers (PCs) provided the tool
necessary to support the widespread use of
Management Science’s quantitative techniques
– the ability to process huge amounts of data
quickly & relatively cheaply.
Major contributions include the development
of Material Requirements Planning (MRP)
systems for production control.
Developments: 1980s
Japanese Influence
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Just-In-Time (JIT):
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Total Quality Management (TQM):
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Techniques designed to achieve high-volume production with
minimal amounts of inventory, using coordinated material flows,
continuous improvement, & elimination of waste.
Gradual improvement techniques designed to achieve high levels
of product quality through shared responsibility & by eliminating
the root causes of product defects.
Business Process Reengineering (BPR):
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‘Clean sheet’ or radical redesign of work processes to increase
efficiency, improve quality & reduce costs.
Developments: 1990s
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Flexibility-based Competition:
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Offers a greater variety of product choices on a mass scale (mass
customization). Different designs of diapers, dairy products, PCs, cars
using computer integrated manufacturing (CIM) systems that
combine computer aided design (CAD) with computer aided
manufacturing (CAM).
Mass customization involves keeping the product in generic
form/template as long as possible and postponing product
differentiation until customer preferences are known.
Time-based competition:
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Developing new product designs & delivering customer orders more
quickly than competitors.
Developments: 1990s- ctd.
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Supply Chain Management (SCM)
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Globalization of business:
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Involves managing the flows of materials from suppliers and buyers of raw
materials all the way to the final customer.
The objective is to have everyone in the chain work together to reduce overall cost
and improve quality and service delivery.
Internally, SCM requires integration or a team approach, with functions such as
marketing, purchasing, operations, and engineering (i.e., ERP).
Externally, SCM also requires cooperation with suppliers & customers to reduce
overall costs of the supply chain & increase responsiveness to customers (i.e.,
CRM).
International trade agreements open new markets for expansion & lower barriers to the
entry of foreign competitors (e.g.: FTA, NAFTA, GATT).
Creates the need for decision-making tools for facility location, compliance with with local
regulations, tailoring product offerings to local tastes, managing distribution networks, …
Environmental issues:
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Pressure from consumers & regulators to reduce, reuse & recycle solid wastes &
discharges to air & water.
Electronic Commerce
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Internet & computer systems enable new methods of
business transactions:
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E-Banking, E-learning, E-tailing, etc.
E-tailing creates a new outlet for retail goods & services with
global access and 24-7 availability
Internet provides a cheap network for coordinating supply
chain management information
The need to develop solid IT infrastructure (broadband
& wireless communication system).
Today’s OM Environment
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Customers demand better quality, faster
deliveries, and lower costs.
Increased cross-functional decision making.
Recognized need to better manage information
using IT.
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Enterprise Resource planning (ERP) and Customer
Relationship Management (CRM) systems.

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