Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(by Andy Shogan)
Kristen’s Cookie Company is a student company making cookies overnight. Kirsten explains the
operations model of the company as follows: “The first production step is done by myself and
consists to wash out the mixing bowl, prepare all of the ingredients and mix them in my food
processors. I’m able to prepare ingredients for three dozen in this step, but it takes always six
minutes if I cook one or three dozens. Secondly, I must dish up the cookies onto a tray, and this takes
two minutes. As I can’t prepare several trays in the same time, it takes me two minutes per tray. Then,
the next step is done by my roommate. He puts the cookies into the oven and sets the thermostat at
timer, the whole takes a one little minute. Then, the cookies cook alone in the oven for nine minutes.
After these nine minutes, the roommate removes the cookies from the oven and they cool outside for
five minutes. When they are cool, the roommate takes two minutes to pack them in a box. Finally, for
the last minute he accepts the payment and gives the cookies to the customer.”
Question 1
Assume that Kristen’s most important customer has just submitted an order for one dozen cookies,
and that she wants to give the highest priority to this order. How long will it take to fill this order?
The time required to fill the “rush order” is: Process’s Throughput Time =
NOTE: The answer of __ assumes that there no cookies in the oven, or, if there are cookies in the oven, the remaining
baking time is at most 8 minutes. If cookies are in the oven and have a baking time in excess of 8 minutes, then, if the
cookies are not removed from the oven, the time required to fill the “rush order” increases above __.
1
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
Question 2
Assuming that Kristen’s Cookie Company is open for four hours each night, how many orders can be
filled each night?
Which activity is the process’s bottleneck?
Once it is “up and running”, what is the process’s hourly capacity?
If we stood at the end of the process, and, if the process were continually busy, how much time would
elapse between the completion of successive units (in this case, successive dozens of cookies? The
answer is known as the process’s cycle time. Because the process’s hourly capacity is 6 dozen per
hour, the process’s cycle time is …
What is the process’s nightly capacity?
NOTE: The process completes its first dozen after 26 minutes, and, thereafter, the process completes a dozen every 10
minutes. That is, process completes a dozen at the following times: 26, 36, 46, 56, …, 216, 226, 236. So, Kristen’s nightly
capacity is actually __ dozen.
Question 3
During each night, what percentage of time will Kristen be busy, and what percentage of time will
Kristen’s roommate be busy?
NOTE. Recall that the process’s cycle time is 10 minutes.
KRISTEN
ROOMMATE
Total
Total
We know that Kristen will
idle 20% of the time, and her roommate will be
idle
60% of the time.
Busybe
Time
Busy
Time
Within
Mix can +a worker
Spoon do
= when he/she would otherwise
Load
+ be
Pack
What
idle? +
Each
Question 4
10-minute
Cycle
= 8 minutes
Pay
Within
Each
10-minute
Cycle
= 4 minutes
=
6
+
2
1
+
2
Assume
that
Kristen
pays herself and her roommate
$12
per +hour.1 In each 10-minute cycle, Kristen
Kristen's
Utilization work
= 8/10
Roommate's
Utilization cost
= 4/10
= 40%is $0.60 for
and
her roommate
a total= 80%
of 8 + 4 =12 minutes.
The materials
per dozen
ingredients and $0.10 for the box, for a total of $0.70.
If Kristen and her roommate are not paid for idle time, what is the minimum amount Kristen should
charge for one dozen cookies?
If Kristen and her roommate are paid regardless of whether they are busy or idle, what is the minimum
amount Kristen should charge for one dozen cookies?
2
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(by Richard B. Chase, F.
Robert Jacobs, Nicholas J. Aquilano)
This case illustrates how a bank applied some of the basic process management tools to improve
customer service. It is a story of a program implemented in the main office of a large bank. An average
of 500 customers call this office every day. Surveys indicated that callers tended to become irritated
if the phone rang more than five times before it was answered and often would not call the company
again. In contrast, a prompt answer after just two rings reassured the customers and made them feel
more comfortable doing business by phone.
Selection of a theme. Telephone reception was chosen as a quality improvement theme for the
following reasons: (1) Telephone reception is the first impression a customer receives from the
company, (2) the theme coincided with the company's telephone reception slogan 'Don't make
customers wait, and avoid needless switching from extension to extension", and (3) it also coincided
with a companywide campaign being promoted at that time which advocated being friendly to
everyone one met.
First, the staff discussed why the present method of answering calls made callers wait. Figure below
illustrates a frequent situation, where a call from customer B comes in while the operator is talking
with customer A. Let's see why the customer has to wait.
At (1), the operator receives a call from the customer but, due to lack of experience, does not know
where to connect the call. At (2), the receiving party cannot answer the phone quickly, perhaps
because he or she is unavailable, and no one else can take the call. The result is that the operator
must transfer the call to another extension while apologizing for the delay.
Customer A
Operator
Receiving party
Customer B
Cause-and-effect diagram. To fully understand the situation, the analytical team decided to conduct
a survey regarding callers who waited for more than five rings. They itemized factors at a
brainstorming discussion and arranged them in a cause-and-effect diagram. Operators then kept
check sheets on several points to tally the results spanning 12 days from June 4 to 16.
3
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
Results of the check sheet analysis. The data recorded on the check sheets unexpectedly revealed
that 'one operator (partner out of the office)' topped the list by a big margin, occurring a total of 172
times. In this case, the operator on duty had to deal with large numbers of calls when the phones
were busy. Customers who had to wait a long time averaged 29.2 daily, which accounted for 6 percent
of the calls received every day.
Setting the target. After an intense but productive discussion, the staff decided to set a program goal
of reducing the number of waiting callers to zero. That is to say that all incoming calls would be
handled promptly, without inconveniencing the customer.
4
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
Measures and execution
(a) Taking lunches on three different shifts, leaving at least two operators on the job at all times. Up
until this resolution was made, a two-shift lunch system had been employed, leaving only one
operator on the job while the other was taking a lunch break. However, since the survey revealed that
this was a major cause of customers waiting on the line, the company brought in a helper operator
from the clerical section.
(b) Asking all employees to leave messages when leaving their desks. The objective of this rule was
to simplify the operator's chores when the receiving party was not at his desk. The new program was
explained at the employees' regular morning meetings, and companywide support was requested.
To help implement this practice, posters were placed around the office to publicize the new
measures.
(c) Compiling a directory listing the personnel and their respective jobs. The notebook was specially
designed to aid the operators, who could not be expected to know the details of every employee's
job or where to connect the incoming calls.
Confirming the results. Although the waiting calls could not be reduced to zero, all items presented
showed a marked improvement. The major cause of delays "one operator (partner out of the office)"
plummeted from 172 incidents during the control period to 15 in the following survey.
5
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(by Donald Waters)
The Freemantle Restaurant is a well-established business near the centre of Manchester. It serves
business launches, and there is a healthy demand for its high-quality, expensive dinners. Paul
Samson is the owner of Freemantle, and looks after all the administration personally. There are few
complaints from customers, but Paul always keeps a record of them. Over the past three years he has
collected the following figures.
Cause
Number of
complaints
80
31
19
11
5
5
2
2
2
2
Faults in the bill
Slow service
Smokers too near non-smokers
Comfort of the chairs
Wine
Temperature of the restaurant
Wait for a table
Too limited a menu
Food: ingredients
Food: cooking
Percentage of
complaints
51%
20%
12%
7%
3%
3%
1%
1%
1%
1%
Based on the data, draw the Pareto chart. What should be the main areas for concern? What could
Paul do to address the majority of customer complaints?
6
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(by Keith Bradsher, The New York
Times, September 8, 2005)
When Walt Disney Co. opened its Euro Disney theme park on the outskirts of Paris in 1992, the park
struggled to attract enough visitors, and the ones who came and spent less than expected. The new
Hong Kong Disneyland, which is scheduled to open to the public on Monday, faces a very different
problem: too many guests, too many of whom clog rides while taking lots of photos of each other
and clog restaurants ordering long, expensive meals. A charity day on Sunday that was supposed to
test the park's ability to run at near its capacity of 30,000 people turned into a fiasco of hourlong
lines for rides, food shortages, inadequate parking and even the partial closing of a large area of the
park because of overcrowding.
The English- and Chinese-language media here have been full of unfavorable coverage of the park's
modest size, and the financial secretary of Hong Kong, Henry Tang, has publicly urged Disney to
reconsider how many people the park could really hold. "Of course we do not want to spoil the fun
of the visitors by making them queue for a long time, or they may not be used to queuing for so long,"
Tang said this week. "That's why we are discussing with Disney to see if we could have flexible
arrangements, like during certain days, when the number of people entering the park reaches a
certain figure, they should not let the park become too crowded."
The criticism has clearly irked Disney. Stopped during a tour of the park on Wednesday afternoon, a
group of Disney executives interrupted each other repeatedly in expressing their indignation, albeit
in the polite terms of a company that caters heavily to children and to adults with a fondness for
childhood. "To take one day where there were 30,000 people and say, 'Oh my gosh,' would be
inappropriate," said Michael Mendenhall, the executive vice president for global marketing in
Disney's parks and resorts division. "The press has made it about size - it has never been about size,"
said Zenia Mucha, Disney's senior vice president for corporate communications.
The park here is considerably smaller than the original Disneyland in Anaheim, California, or Euro
Disney; this is part of a new strategy by Disney to try to open theme parks in phases, instead of trying
to build an extensive park all at once, as was done in Paris and in Florida before that. A second phase
of construction is under discussion here between the Hong Kong government, which owns 57 percent
of Hong Kong Disneyland, and Walt Disney, which owns the rest. The park was open again on
Wednesday afternoon for what the company called a rehearsal day, with smaller crowds than
Sunday. It was the latest of 17 test days before the park opens to the public on Monday. The park's
modest scale meant that it was possible to stroll at a leisurely pace from the end of Main Street past
all the rides in Adventureland, Fantasyland and Tomorrowland and back to Main Street in just 10
minutes - although that is without stopping along the way, something very few visitors are ever likely
to do.
Hong Kong Disneyland has only one roller coaster, Space Mountain, and it is so tame that any
children taller than 3 feet 4 inches, or 102 centimeters, are allowed to ride it. Most of the rides are
7
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
gentle, like the spinning Mad Hatter Tea Cups or the Cinderella Carousel, following Disney research
showing that mainland tourists in particular wanted a fairly tame experience.
Visitors seemed to have varying reactions on Wednesday to the park, with people from mainland
China voicing greater enthusiasm than Hong Kong residents. The mainland, with 1.3 billion people
compared with the 6.9 million people in Hong Kong, is Disney's real target, and expectations there
may be lower, especially as the fading vestiges of central planning have left Chinese citizens inured
to long lines. Wu He-yan, a 26-year-old woman who said she grew up on a farm in nearby Guangdong
province but recently used the family's savings to open a small Internet café in the provincial capital,
Guangzhou, toured the park after winning a free visit from the pull-tab of a Coca-Cola can. Clutching
a Minnie Mouse purse that she said she had been carrying for a full year, Wu waited in line for a
quarter of an hour for the Jungle Cruise and said that she did not even consider Space Mountain
because it might be too scary. "Compared with Guangzhou, the lines here are very short," she said
after watching the robotic zebras, elephants, gorillas, and other mechanical animals along the banks
during the cruise.
Louie Kwan, a 30-year-old worker at a Hong Kong soy sauce factory, was less enthused as he fanned
himself with a park map and waited with his wife, Wang Wei, in a long line to be photographed with
Goofy and Pluto. Kwan said that Disneyland was less interesting than Ocean Park, the local
amusement park that has operated for two decades. The cars inside Space Mountain "just keep
turning round and round but not going up and down, so it's not exciting," he said.
But the crowds here could prove profitable for Disney. Mendenhall said that visitors were staying
twice as long in restaurants as did visitors to the company's American theme parks. That is partly
because the visitors here took more time eating, but also because they ordered more food. Tang said
that in the past three weeks the company had added 20 mobile food carts and 600 more seats in
dining areas in an attempt to meet the demand.
Disney made a point of trying to address local sensibilities here through steps like orienting the park
along lines suggested by a feng shui master. But the company kept a heavily American tone to most
of the park, starting with the Main Street area, and this decision also seems to have been popular:
the Main Street Corner Café had a 45-minute wait for a table at 2:15 on Wednesday afternoon, while
the Plaza Inn Restaurant across the street, serving Chinese food, had a few empty tables. Addressing
the local penchant for taking myriad photos from every possible angle has been harder. One step has
been to install another, stationary teacup next to the line for the Mad Hatter Tea Cups so that visitors
can take photos while waiting, and not slow the loading and unloading process.
(by Helen Luk, Associated Press, September 8, 2005)
Hong Kong Disneyland said Thursday it won't cut its daily maximum capacity of 30,000 people
despite complaints of large crowds and long queues from visitors ahead of its opening. Many of the
8
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
29,000 visitors who visited Hong Kong Disneyland for a charity day last weekend complained of
excessively long queues to enter the park as well as to get on rides, and critics have urged Disney to
reduce its maximum daily capacity, local newspapers reported. About 16,000 people – one-third of
them from mainland China – were expected to attend the park's opening on Monday, said Eva Cheng,
Hong Kong's tourism commissioner. But a Disney spokeswoman, Esther Wong, said the company is
"confident we can manage peak day attendance in the future and have designed our marketing and
sales plan to manage attendance at Hong Kong Disneyland throughout the year." Earlier, Disney said
it was considering extending opening hours and adding more shows at the park as Hong Kong's
financial chief expressed concern about the large crowds when the park is operating at its capacity.
The park, a joint venture between the Hong Kong government and The Walt Disney Co., is expected
to draw 5.6 million people in its first year of operation, with mainland Chinese tourists accounting for
about a third of that number. But mainland travel agents said ticket sales for Hong Kong Disneyland
are poor as the long queues and expensive hotel rates are driving mainland tourists away, the South
China Morning Post reported Thursday. "We only managed to sell roughly 300 tickets during the first
week after the park opens," Huang Feiyueh, executive director of Amsito Travel Service, was quoted
as saying.
(by Bruce Einhorn and Frederik Balfour, Businessweek, March 17, 2009)
Pixie dust is in mighty short supply at Hong Kong Disneyland. The park, a joint venture between Walt
Disney (DIS) and the Hong Kong government, was supposed to be Disney's foothold in the potentially
lucrative China market but has steadily lost money since opening in September 2005. The Hong Kong
version of the Magic Kingdom is the smallest of Disney's theme parks, and some visitors gripe that
it's too small to entice them back for a second visit.
Now the project has hit a new snag: Disney has indicated that it is putting on hold long-awaited plans
to expand on the park. In a statement from Disney's Burbank (Calif.) office released on Mar. 16, the
company said it was laying off employees in Hong Kong after failing to reach an agreement with the
Hong Kong government to fund a much-needed expansion. According to Disney, "the uncertainty of
the outcome requires us to immediately suspend all creative and design work on the project." Thirty
Hong Kong-based Disney "Imagineers" will be losing their jobs, leaving a skeleton team of 10 behind.
The government has received plenty of heat over the financing of the project since the first balloons
were released on the site. Although Hong Kong covered more than 80% of the initial $2.9 billion cost
of the project, the government has just a 57% share in the joint venture, with Disney holding the other
43%. "Ever since Day One, Hong Kong Disneyland has been controversial," says Paul Tse, the
representative of the tourism industry on Hong Kong's Legislative Council. "The government paid a
lot of money for very little control, and the park hasn't been doing well in the past two years. That's
not a big selling point to the Hong Kong public."
9
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
Small World After All. Scrapping expansion plans could threaten the park's viability. The park
occupies just 126 hectares and has only four "lands"—Fantasyland, Tomorrowland, Adventureland,
and Main Street USA—and two hotels. Hong Kong Disneyland Managing Director Andrew Kam has
said expansion is vital to the park's success. Speaking to reporters in September, shortly after he
joined Disney from Coca-Cola (KO), Kam said the park had plenty of room to grow, since it was only
using half of the land available. "Expansion is part of the strategy to make this park work for Hong
Kong," he said. Both Disney and the government were "very much interested in growing the
business," said Kam, adding that new rides and features "will drive our future growth."
Local reports have put a $500 million price tag on the proposed expansion, which would increase the
size of the park by about one-third. A Disney spokesman declined to confirm the figures. Although
they are currently at an impasse about how to fund expansion, the two sides have agreed in the past
to make some additions, albeit within the park's original boundaries. For instance, the addition of
the attraction "It's a Small World" helped boost visitors for all of 2008 by 8% over 2007, and Kam
said to reporters last September: "We have plans to open new attractions within the existing site."
One reason Disney might be willing to walk away from negotiations with the government: The
company has another China option, since it is talking with Shanghai officials to open a theme park
there that would be much larger and easier for many Chinese families to visit. "Now that the
government has decided not to support Disneyland in Hong Kong, Walt Disney is going to shift its
focus towards its new and arguably more exciting China project—Disneyland Shanghai," Parita
Chitakasem, a research manager with research firm Euromonitor, said in an e-mail. The Shanghai
park, which has not yet received final government approval, could open in 2014 and be as large as
800 hectares. "Hong Kong Disneyland would have a lot of trouble competing," she says.
Even without competition from a larger Disney park in Shanghai, Hong Kong Disneyland's numbers
have been disappointing. The 4.27 million tickets sold in 2007 were well below the 5 million who
visited in 2006, the first full year of operation and well below government projections before Hong
Kong Disneyland opened. In 2007 Disney agreed to waive management and royalties for two years
after the joint venture failed to meet performance targets. Although Disney does not release financial
figures, Euromonitor estimates the park made an operating loss of $46 million in the year ended June
2006, and lost $162 million the following year. Estimates for 2008 were not available.
Meeting the Shanghai Challenge. One area of opportunity has been China. A company spokesman
said the park draws one-third of its visitors from Hong Kong, one-third from mainland China, and onethird from international tourists. "We are merely scratching the surface of business in China," Kam
said in September. However, the possible shift of mainland Chinese away from Hong Kong to
Shanghai could mean a drop of as much as 60% in visitor numbers to the Hong Kong park, estimates
Euromonitor's Chitakasem.
10
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
That's why the threat of Disney walking away and focusing on the Shanghai project may force the
hand of Hong Kong
government officials.
"The bottom line is
that the government
needs Hong Kong
Disneyland to keep
expanding in order to
stay as competitive
as possible as a
tourism
destination," says
Chitakasem. "With
this in mind, it would
definitely be in the
Hong
Kong
government's
interest to come up
with
the
cash,
despite
its
disappointment in
Disneyland
Hong
Kong so far."
(by Amy Nip, South China Morning Post, January 26, 2014)
As the number of visitors to Hong Kong continues to rise, the biggest challenge for the city's theme
parks is to ensure everyone has their share of fun without having to wait too long. Ocean Park and
Hong Kong Disneyland saw their annual attendance figures exceed six million in 2012, but both had
yet to reach their maximum capacity, a government assessment of Hong Kong's tourism capacity
concluded.
The government has predicted annual visitor numbers will reach 70 million by 2017 and 100 million
in 2023. Queues for rides are growing longer even before the Lunar New Year holiday, with waiting
times for popular attractions in Hong Kong Disneyland reaching up to an hour. However, according
to an informal survey by the Post, the majority of visitors would prefer to skip a ride if the wait took
longer than half an hour.
11
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
On Friday afternoon, Disneyland was buzzing with energy, with its Main Street USA full of visitors.
The waiting times for a ride on the Big Grizzly Mountain rollercoaster and The Many Adventures of
Winnie the Pooh in Disneyland dark ride was an hour. "The queue is too long. Let's go for another
ride," said one mother from Zhejiang province to her daughter in front of the Dumbo the Flying
Elephant ride. The waiting time was 50 minutes. Local James Cheung, 23, was frustrated by the hourlong wait for the Grizzly Gulch roller
coaster. He said he could accept a 30minute wait, but not an hour. "Parks
should put a cap on admission
numbers," he suggested, adding he
would not visit the park again this
year.
Better prepared visitors went for fast
passes, which allow them to book a
ride two hours in advance and then
wait in a shorter queue. People using
the passes said they found the
waiting time acceptable in general.
The waiting time for other rides
ranged from 10 to 40 minutes. As for
Ocean Park, visitors wanting to take
the cable car ride to the top of the
park had to wait 45 minutes on a
weekday afternoon, while it took 30
minutes to get into the Grand Aquarium. Waiting time for the scariest Hair Raiser roller coaster was
15 minutes, while that for the milder Whirly Bird and Arctic Blast rides was 30 to 45 minutes.
Another visit to the park yesterday showed queueing times similar to those on a weekday. Queues
for older rides were much shorter, with people being able to jump on in five minutes. Getting off the
cable car, Mary Zhao from Zhejiang said she found the wait reasonable: "It's similar to the other
attractions on the mainland." Local Kelvin Lam, 20, said he was currently comfortable, but did not
want more crowds. Others suggested the park adopt a fast pass system so they could skip the
queues.
A Disneyland spokesman said the park attached great importance to guest experiences. A new
themed area based on the comic hero Iron Man is expected to be ready in late 2016, while a new
electronic parade will be launched later this year. The park set a record for daily attendance of nearly
45,000 during Lunar New Year last year, with about 34,300 people inside the park at one time. Its
current maximum capacity is 42,000. After expansion, the park will be able to cope with more visitors
by 2020. At Ocean Park, the highest daily attendance was 46,700 last year, while its maximum
capacity at any one time is 36,300.
12
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
New attractions featuring koala
bears and sharks will open this
year, but the park's attendance cap
would remain unchanged, chief
executive Tom Mehrmann said. A
new water park due to open in 2017
would cater for a maximum of
10,500 people per day. Queueing
times had been shortened since the
park opened more attractions, he
said. Whereas in 2005 people
visited one attraction every two
hours, last year they could visit an
average of 1.75 attractions in an
hour.
Dr Sam Kim, associate professor in
Polytechnic University's school of
hotel and tourism management,
suggested the parks set different
prices for weekdays and weekends
to spread out usage. He expects the
rate of increase in visitors to Hong
Kong Disneyland to slow in the
years
following
Shanghai
Disneyland's opening next year, but said it would pick up again in the long run.
1.
2.
3.
4.
What are the most important problems experienced by Hong Kong Disneyland?
What are the causes of these problems?
Diagnose the problems and their causes by means of a fishbone (cause-and-effect) diagram.
Propose how to address the problems.
13
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(by Lee J. Krajewski, Larry P. Ritzman and Manoj K.
Malhotra)
Subject charted: Ankle injury patient
Beginning: Enter emergency room
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
X
Storage
Enter emergency room, approach
patient window
Sit down and fill out patient
history
Nurse escorts patient to ER triage
room
Nurse inspects injury
Return to waiting room
Wait for available bed
Go to ER bed
Wait for doctor
Doctor inspects injury and
questions patient
Nurse takes patient to radiology
Technician x-rays patient
Return to bed in ER
Wait for doctor to return
Doctor provides diagnosis and
advice
Return to emergency entrance
area
Check out
Walk to pharmacy
Pick up prescription
Leave the building
Delay
1
Inspection
Description
Movement
Step
Operation
Ending: Leave hospital
Time Distance
(min) (meters)
0.50
X
15
10.0
X
0.75
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
14
3.00
0.75
1.00
1.00
4.00
5.00
40
40
40
2.00
3.00
2.00
3.00
2.00
200
1.00
60
4.00
2.00
4.00
1.00
60
180
20
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(by Lee J. Krajewski, Larry P. Ritzman and Manoj K. Malhotra)
Subject charted: Man
Beginning: Remove tools
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Time Distance
(min) (meters)
X
0.1
0.5
X
0.5
X
X
0.1
0.1
3.0
X
1.0
X
X
1.0
0.1
3.0
X
X
X
X
X
X
X
X
X
X
X
15
Storage
Remove shaving bowl and soap
from cabinet
Remove brush from cabinet
Turn warm water faucet on
Hold hand under faucet until water
is warm
Create shaving lather with brush
and warm water
Apply shaving lather to face
Plug sink
Turn faucet off when sink is half
full
Remove razor from cabinet
Insert new razor blade
Draw blade across face
Rinse blade in sink
Repeat steps 11 and 12 until face is
clear of stubble
Inspect face
Thoroughly rinse razor
Dry face with towel
Return shaving brush, bowl, and
soap to cabinet
Unplug sink, drain completely, and
clear area
Delay
1
Inspection
Description
Movement
Step
Operation
Ending: Clear area
0.1
0.5
0.1
0.1
5.0
0.5
0.2
0.1
0.2
1.0
0.5
0.5
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(by Donald Waters)
The Autumn 2014 conference of the International Management Association has 2,100 delegates. All
of these had to register at the conference, using a procedure that had been used for several years.
This started with delegates queueing to pick up registration documents at an information booth. They
filled out the forms and walked 30 meters to the hotel reception, where they formed another queue
at the front desk. Here a receptionist checked the delegates' details, confirmed their hotel booking
and gave them information about the hotel and their room.
After the hotel, delegates went up two floors, walked 120 meters to the conference administrators,
and joined a queue to have their registration forms checked, see what sessions and functions they
planned to attend, and what special arrangements they needed. Then they walked 50 meters to the
conference registrar's office, where a clerk calculated any fees they had to pay, and handed over
tickets and information about the various functions. Then the delegates walked 30 meters to a
cashier's window to pay their fees and get a receipt.
If delegates wanted car parking at the hotel, they had to go to the parking desk, which was 150 meters
from the cashier. Anyone who wanted special arrangements had to visit other areas.
The wait at each window was about 10 minutes and the actual processing time was two minutes. The
registration usually took over an hour and delegates had to walk 400 meters. Sometimes the system
was busy and people took a lot longer.
One delegate was so annoyed by the system that he suggested a streamlined process in which they
would walk 30 meters and take an average of 10 minutes.
Questions:
1) Draw a process chart for delegate registration for the conference.
2) Calculate the average time a delegate needs to go through the whole process.
3) What improvements can you suggest to the process?
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Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(by David A. Collier, James R. Evans)
The Janson Medical Clinic recently conducted a patient satisfaction survey of 100 patients. Using a
scale of 1-5 with 1 being "very dissatisfied" and 5 being "very satisfied", the clinic compiled a check
sheet for responses that were either 1 or 2, indicating dissatisfaction with the performance attributes.
Results of the survey (number of responses of patients who were dissatisfied or very dissatisfied
with each item):
Making an appointment




Ease of getting through on the phone: 10
Friendliness of the telephone receptionist: 5
Convenience of office hours: 7
Ease of getting a suitable appointment: 12
Check-in/Check-out




Courtesy and helpfulness of the receptionist: 7
Amount of time to register: 1
Length of wait to see a physician: 13
Comfort of registration waiting area: 4
Care and treatment






Respect shown by nurses/assistants: 0
Responsiveness to phone calls related to care: 5
How well the physician listened: 3
Respect shown by the physician: 2
Confidence in the physician's ability: 1
Explanation of medical condition and treatment: 2
Doctors have extremely busy schedules. They have surgeries to perform, and many are teaching
faculty at the local medical school. Many surgeries are emergencies or take longer than expected,
resulting in delays of getting back to the clinic. In the clinic, one or two telephone receptionists
answer calls for three different departments, which include 20 or more doctors. Their job is basically
to schedule appointments, provide directions, and transfer calls to the proper secretaries. This
generally requires putting the patient on hold. Often, the receptionist must take a hand-written
message and personally deliver it to the secretary because the secretary's phone line is busy.
However, the receptionist cannot leave her desk without someone else to cover the phones. A
student intern examined the processes for answering phone calls and registering patients. The flowcharts she developed are shown below.
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Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
Current process for answering phone calls
Current patient registration process
Questions:
1) What conclusions do you reach from the satisfaction survey results? What implications would
this have for a better process design?
2) Propose some process improvements to the flow-charts, and develop redesigned processes
along with new flowcharts. How will your suggestions address the sources of dissatisfaction that
customers cited?
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Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(9)
Gifford Hospital Pharmacy (by David A. Collier, James R. Evans)
Gifford Hospital is trying to reduce costs yet improve patient and medical services. A hospital pharmacy uses
two types of medications - fluids such as intravenous liquids and pharmaceuticals such as pills. The pharmacy
buys drugs in bulk containers and bottles and dispenses them in smaller unit-dose amounts based on doctor's
orders. The objective of the pharmacy is to 'get the right drug in the right amount to the right patient at the
tight time'. The consequences of errors in this process ranged from no visible effects on patient health to
allergic reactions, or in the extreme case, to death of the patient. National studies on hospital pharmacies
found error rates ranging from .01 percent (0.0001) to 15 percent (0.15).
The hospital pharmacy process at Gifford Hospital includes seven major steps.
Step 1 - Receive the doctor's patient medication order via a written prescription, over the telephone, or through
the hospital Intranet system. This step averages 0.2 minutes per prescription and could be done by the medical
technician or a legally registered pharmacist.
Step 2 - Verify and validate the order through whatever means necessary. For example, if the handwriting was
not legible, the doctor must be contacted to verify the medical prescription. Only a registered pharmacist could
do this step, which took from 1 to 10 minutes depending on the nature of the prescription and checking out
potential problems. Since only 10 percent of prescriptions required extensive verification, the weighted
average time for this step is 1.9 minutes [0.9 x (1 minute) + 0.1 x (10 minutes)].
Step 3 - Determine if duplicate prescriptions exist, and check the patient's allergic reaction history and current
medications. This work activity averages 1.4 minutes using the hospital pharmacy's computer system. Only a
registered pharmacist can perform this step.
Step 4 - Establish that the drug(s) are is stock, have not expired, and are available in the requested form and
quantity. Only a registered pharmacist can perform this step and it takes 1 minute.
Step 5 - Prepare the prescription including the label, and attach the proper labels to the proper bottles. Only
a registered pharmacist can do this work activity and it averages 4.5 minutes.
Step 6 - Store the prescription in the proper place for pickup and delivery to the patient. Only a registered
pharmacist can do this step and it takes 1 minute.
Step 7 - Prepare all charges, write notes or comments if needed, and close the patient's pharmacy record in
the pharmacy computer system. This step takes 2 minutes and may be done by a registered pharmacist but
the law does not require it.
Currently, the pharmacist(s) performs steps 2 to 7 for each patient's prescription. Two medical technicians are
on duty at all times to receive the prescriptions, answer the telephone, receive supplies and stock shelves,
deliver prescriptions through the service window, and interact with nurses and doctors as they visit the
pharmacy service window.
You have been called in as a consultant to improve the process. Your first activity is to draw a flowchart,
including processing times and capacities for each work activity. As a baseline measure, what is the labor
utilization if 32 prescriptions arrive between 8 and 9 A.M. on Monday and five pharmacists are on duty? Are
there other ways to organize the process and assign pharmacists to filling prescriptions in the hospital
pharmacy? clearly identify two alternative process designs, and discuss in one short paragraph the
advantages and disadvantages of each option. What do you recommend?
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Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(by Shawn Tully, Fortune, March 29, 2006)
Just about everyone who works on Wall Street has heard the stories about Jamie Dimon. The one
about his shutting down the gyms and pulling the fresh flowers at J.P. Morgan Chase. (That story is
true.) And the one about his grilling limo drivers parked in front of headquarters to find out who'd
ordered the Lincolns, then screaming at the culprits for wasting money. (That one's apocryphal, but
Dimon doesn't mind people repeating it, because fear helps him control costs.)
Here's one you haven't heard. Dimon became president of J.P. Morgan Chase (Research) in mid-2004
when it acquired Bank One, where he had been CEO. Soon after, he convened an emergency meeting
and ripped into his new colleagues for "letting pay get totally out of hand."
Among the examples that set him off: Regional bank managers at J.P. Morgan earned around $2
million -- five times the $400,000 that comparable Bank One people made. Morgan's human
resources chief was pocketing better than $5 million. Outraged, Dimon announced he was slashing
comp for hundreds of staff positions by 20% to 50% over two years.
"I'd tell people they were way overpaid," Dimon recalls, "and guess what? They already knew it."
The kicker: Most of the managers stayed on despite the cuts.
A few months later, at a retirement party for J.P. Morgan CFO Dina Dublon, 52--whom Dimon was
replacing with an ally from Bank One -- Dimon stepped to the podium and praised her service to the
company. Then he unleashed a biting one-liner: "But if you paid one dollar for Texas Commerce
bank" -- which J.P. Morgan acquired in 1987 for $1.2 billion -- "you paid a dollar too much!" The room,
studded with Texas Commerce alumni and executives who had championed the deal, went dead
silent.
As these stories suggest, Jamie Dimon is not known for subtlety. He has shouted down a U.S.
Congresswoman who was pushing Bank One to keep more jobs in Chicago, and told a roomful of J.P.
Morgan internal auditors that a colleague "knows as much about accounting in her baby finger as all
of you combined."
He will lash out in meetings with trusted confidants -- "That's the dumbest thing I've ever heard" -and expect them to come right back at him. ("If not, he won't respect you," says J.P. Morgan assetmanagement and private-bank chief Jes Staley.)
Yet far from hindering his career, this brash, iconoclastic manner has made Dimon the most watched,
most discussed, most loved, and most feared banker in the world today. From Wall Street to the City
of London, just mention "Jamie," and everyone knows you're talking about the rampaging rebel
who's as loud as he is tight. He's much more than a cost cutter with a colorful personality, and his
compulsive candor is just one of his highly effective management tools.
Working alongside boss and mentor Sandy Weill, Dimon helped engineer 12 years of audacious
mergers that turned an obscure Baltimore loan company called Commercial Credit into Citigroup
(Research), the world's largest financial services company. After being unexpectedly shoved aside
by Weill, he re-emerged at a dysfunctional Bank One, turned it around, and sold it in the deal that
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Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
made him, as of January, CEO of J.P. Morgan Chase, the third-largest financial corporation in the U.S.
(2005 revenues: $55 billion), behind Citi and Bank of America.
Now he wants to perfect the model he and Weill created at Citigroup -- and defeat the house he
helped build. "It's all about having the best systems, the best people, the best products, the best
risk controls," he says. "It's all about being the best, the best, the best."
That's why investors, industry watchers, and fellow CEOs trade all those Jamie stories. They see him
as the one figure with the skills and opportunity to prove once and for all whether the model of a onestop-shop financial firm can live up to its promise. And they know that Jamie is just itching to expand
his empire with at least one breathtaking deal.
It would be hard to find a company more in need of the Dimon treatment than J.P. Morgan. A
hodgepodge of businesses from multiple mergers that were never fully integrated, the giant bank is
burdened with a lazy culture and an underperforming stock ripe for reinvigoration. While J.P. Morgan
ranks at or near the top in many key categories--second in retail deposits, credit card balances, and
investment-banking fees; first in U.S. private-banking assets and cash-management revenues-growth has been tepid and profitability mediocre. J.P. Morgan's return on equity, a crucial yardstick
for financial firms, is just 10%, well below that of its top rivals. No wonder the stock has barely moved
in five years.
J.P. Morgan, of course, isn't the only financial conglomerate with an identity crisis these days. At Citi,
the original incarnation of the do-it-all firm, CEO Charles Prince is struggling to overcome scandals
and management turnover (see "The Unlikely Revolutionary").
"Financial conglomerates like J.P. Morgan are feeding grounds for smaller, more nimble and focused
players," says Tom Brown, chief of hedge fund Second Curve Capital. "Shareholders of all the
supermarkets would be better served if they were broken up." Some analysts are already getting
impatient with Dimon. "He told us to expect big progress in 2005," says Meredith Whitney of CIBC.
"Now we won't see major improvements until 2007."
But many are betting that Dimon's rare combination of an analytical, Cartesian mind with a
passionate, damn-the-social-graces style will end up rewriting the rules of the game. As Larry
Bossidy, former Honeywell chairman and a J.P. Morgan director, puts it, "I don't use superlatives
lightly, but he's the best guy I've ever seen in financial services."
"It's offensive to me to be called a cost cutter," says Dimon during one of a series of in-depth,
exclusive interviews with FORTUNE. Striding about his eighth-floor Manhattan office, the stocky CEO,
who took boxing lessons after being ousted from Citigroup, karate-chops the air and punches out
sentences in staccato bursts that bear traces of his Queens upbringing.
He grabs a pen and begins scribbling on an easel to illustrate how the bank's revamped computer
systems work. He pulls out a dog-eared piece of paper that he carries in his breast pocket to jot notes
to himself--the "people who owe me stuff" list, he calls it (a surprisingly low-tech tool for someone
who considers himself an IT geek).
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Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
A huge operation "can get arrogant and full of hubris and lose focus, like the Roman Empire," says
Dimon. To prevent J.P. Morgan from falling into that trap, he has imposed rigorous pay-forperformance metrics and requires managers to present exhaustive monthly reviews, then grills them
on the data for hours at a time.
"He jumps into the decision-making process," says Steve Black, co-head of investment banking. "If
you just want to run your business on your own and report results, you won't like working for Jamie."
To be sure he's getting the real story, Dimon buttonholes staffers in the elevators and calls suppliers
out of the blue like a hyperactive gumshoe, collecting scraps of information he can throw back at
executives. "In a big company, it's easy for people to b.s. you," he says. "A lot of them have been
practicing for decades."
While Dimon's rudeness can be offputting, the sheer force of his passion and intensity can be
irresistible. And that's been the story of his life. "He loves misbehaving in places where he's
supposed to behave," says his wife, Judy Dimon, who met him when they were fellow students at
Harvard Business School.
She vividly remembers the first time she saw him, at an HBS watering hole called the Pub. "The room
was a sea of Ivy Leaguers in pastel Lacoste shirts, all grinning, all trying to win each other over," she
says. In the middle stood a Johnny Cash--style figure clad in black jeans, a black shirt, and black
sunglasses. "He was sphinxlike, taking things in, not trying to be part of the group."
She recalls being astounded by his gall when, in the midst of a party she threw after they'd been
dating for a few weeks, Jamie gave her a blunt ultimatum: "I'm going home, and I want you to go with
me." That she said yes--and that they've been living together ever since, for 26 years, and have three
daughters, ages 16, 18, and 20--is testament to how endearing Dimon's rough edges can be.
Two weeks into Dimon's first year at Harvard, recalls classmate Steve Burke, now COO of Comcast,
they were assigned a case about a troubled cranberry co-op. "We'd just arrived, so we were all
intimidated by this godlike professor," says Burke. "The professor starts discussing the cranberry
case, and Jamie says, 'I think you're wrong!' We were all amazed." Dimon walked to the blackboard
and wrote out his solution. The imperious prof was forced to acknowledge, "You're right," and Dimon
immediately became a hero to fellow students.
He's had the same inspirational effect on the people who have worked for him over the years, many
of whom have followed him from job to job. "Jamie's strength is that he's a leader, not a classic
manager," says Charlie Scharf, who started with Dimon at Commercial Credit in the 1980s and is now
head of retail banking at J.P. Morgan. "He can't help himself," adds Heidi Miller, chief of treasury and
securities services at J.P. Morgan. "He can be a total pain, overdemanding, but you'd trust your life
to him."
Dimon shuns the black-tie circuit and never sets foot on a golf course. He yanked Bank One's
sponsorship of the Masters golf tournament because the country club hosting the event doesn't
accept women members. His taste in food is basic; his favorite dish is a cheeseburger with fries.
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Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
He flies home to Chicago every week to be with his wife and youngest daughter, who is in high school
there. On Friday evenings he invariably takes the family to dinner at a neighborhood Italian restaurant
and orders the same thing: a martini followed by the house salad and grilled chicken Parmesan.
Music is practically his sole hobby. Dimon, who's taking guitar lessons, surprised his aides by
practicing chords on a recent flight to China. At home he relishes lying on the couch in his library in
a sort of trance, with the stereo blasting a melange of schmaltzy tunes that includes Sinatra's "My
Way," "The Impossible Dream," "New York, New York," "What a Wonderful World," and Ray
Charles's "America the Beautiful." He throws in "Ave Maria" for high art. (The family is so concerned
about the blaring Americana that at the Park Avenue apartment they're renovating in Manhattan the
interior walls are being lined with lead soundproofing.)
Of course, you might call cost cutting a hobby too. At home, spying a not totally empty bottle of
ketchup in the trash ignites an explosion. At one point Dimon was appalled to see that his daughters
were using bushels of towels--so he imposed a strict quota of one a week. He's so frugal that, to the
shock of family and friends, he continued to wear T-shirts with the Citigroup logo long after Citi had
fired him.
In 1982, armed with his Harvard MBA, Dimon hooked up with Sandy Weill, an old family friend,
becoming his assistant at American Express. When Weill was forced out of his post as AmEx's
president soon thereafter, Dimon followed him into exile, spending more than a year in a suite in
Manhattan's Seagram Building hatching plans to build a financial empire.
During their long partnership, Weill was the strategist with the golden gut, Dimon the nuts-and-bolts
operator who made the machine work. Citigroup was the culmination of their grand design. Yet Dimon
grew increasingly frustrated at sharing power with other executives at Citi, and his natural
combativeness got the best of him: He bickered with co-CEOs Weill and John Reed, among others,
and in late 1998 found himself reliving the into-the-wilderness experience when Weill showed him
the door.
As Weill and Dimon were building Citi, J.P. Morgan Chase was being cobbled together in its own series
of mega-mergers: The old Chemical Bank bought Texas Commerce in 1987, then gobbled up
Manufacturers Hanover in 1991, Chase in 1996, and J.P. Morgan in 2000. But unlike at Citi, there was
no sustained effort to merge operations or substantially cut costs, and shareholders suffered.
William Harrison, who became CEO in 1999, eventually zeroed in on Dimon as the solution. In 2004
he agreed to buy Bank One. After becoming Bank One's CEO in 2000, Dimon had turned the sickly
operation around by combining a crazy quilt of computer systems and imposing strict guidelines on
a haphazard set of credit standards, almost doubling the market cap, to $58 billion.
For Dimon the merger represented a return to the big time--and a chance to face off against his old
creation, Citi. As president, Dimon immediately set to work on a major makeover, attacking costs,
consolidating systems, and instilling an aggressive sales culture. He filled key positions with trusted
confidants, including Citi alumni Michael Cavanagh as CFO (replacing Dina Dublon), Charlie Scharf,
and Heidi Miller.
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Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
Harrison, who was scheduled to stay on as CEO through June 2006, quickly ceded day-to-day control.
In October it was announced that Dimon would take the helm in January, six months ahead of
schedule (Harrison remains chairman). The truth is, he has been in charge from the moment he
walked in the door.
Dimon's strategy for J.P. Morgan is deceptively simple: boost revenues at a healthy pace while
keeping a lid on costs. "If the market is convinced you'll keep the cost line flat and that you have the
disciplines to raise revenues faster than your competitors, your stock price can rise in double digits,"
says Dimon. "But you have to do both."
In pursuit of those goals, he doesn't get bogged down in a search for consensus or worry about hurt
feelings. At a meeting early last year, Todd Maclin, head of J.P. Morgan's commercial bank,
complained to Dimon that the investment bankers were hoarding hundreds of so-called middlemarket firms--those with annual sales of $500 million to $2 billion--on their "prospects" list, keeping
the commercial bankers from approaching them.
Dimon dropped everything and convened the top executives of the investment bank. "Are you calling
on this company?" he demanded. "How often? How much business are you doing with them?" When
it became clear that many prospects were being neglected, Dimon started reassigning them to the
commercial bank. "The room was filled with hollering and yelling," says Maclin. But Dimon was
adamant. "You're protecting clients you don't do business with," he said.
That was only half the battle. Dimon wanted Maclin's crew to have strong incentives to steer business
to the investment bank. Maclin and his investment-banking counterpart, Douglas Braunstein, worked
out an arrangement: The commercial bank gets 25% to 50% of the fees from M&A, debt, and equity
deals involving their clients. The system is a success. Last year the investment bank sold almost $500
million in services to middle-market customers, twice as much as two years ago.
It's a prime example of how Dimon thinks a financial supermarket should work. Having a mix of
businesses, he believes, has two advantages. It adds stability to earnings--consistent profits from
branch banking, say, help smooth out swings in trading--and it should also lift sales, if you make sure
that different divisions feed one another.
Dimon has already revamped J.P. Morgan's retail-branch system to encourage greater selling of
mortgages, credit cards, and other products. When he arrived, branch personnel got the same pay
for pushing products as for dozing behind their desks; 50% of branch managers received bonuses of
$8,000 to $18,000. Today, under the watchful eye of retail-banking head Scharf--who instituted a
similar plan for Dimon at Bank One--the firm pays big bucks to stars and fires laggards.
Branch managers are ranked based on how much they raise both profit and revenues; the top group
gets bonuses as high as $65,000, and the lowest quintile zip. Salespeople in the branches can do
even better, collecting "points" for selling credit cards, mortgages, and other products. Last year the
biggest point-gatherer pocketed a $145,000 bonus. If you don't make your quota, you're out.
Dimon is bringing that kind of rigor to every corner of the firm. In the old J.P. Morgan, big units
combined their results, so it was difficult for top management to figure out which ones were really
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Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
making money. "Strong businesses were subsidizing weak ones, but the numbers didn't jump out at
you," says CFO Cavanagh. "With the results mashed together, it was easy for managers to hide."
The hiding game is over. Right after the merger, Dimon split J.P. Morgan into six major profit centers-investment banking, retail, and cards are the three biggest--with dozens of units that must report
like separate companies. Each month, division heads send Dimon 50-page books packed with data,
from the ratio of overhead to sales on every product to BlackBerry bills per employee. Then Dimon
goes over the reports in grueling sessions that last hours.
"He'll ask, 'Why do we have three times as many HR people in Europe as in Asia?'" says privatebanking chief Staley. "'Are we doing something better in Asia?'" Last year the exercise led Dimon to
have the communications and marketing department replace expatriates with local hires in its
overseas offices, saving more than $100,000 per post.
Transforming the bank's technology is another pillar of Dimon's plan. When he arrived, J.P. Morgan
was saddled with mismatched computer systems inherited from Chase, Chemical, and Texas
Commerce. Lots of expensive software and interfaces were needed for the different systems to talk
to one another, making J.P. Morgan's costs per transaction among the highest in the industry.
The computer confusion also hampered the bank's ability to market more products to existing
customers. Sitting with a client, a branch banker couldn't call up much more than a checking history.
Nothing popped up about whether the customer qualified for a mortgage or credit card.
On a Saturday in mid-February 2004, a month after the Bank One deal was announced, Dimon
brought together the top IT people. He dazzled them with his grasp of protocols and software costs,
then told the managers to choose a single platform in any area where multiple systems were in place.
"If you don't do it in six weeks," he warned, "I'll make all the choices myself."
The IT managers met the deadline. Now, for example, J.P. Morgan has just one system for credit cards.
The new platform, called TSYS, has helped bring down the bank's annual cost of processing
statements to $52 per customer from $80. That makes J.P. Morgan one of the most efficient operators
in the industry.
In the branches (all of which now carry the Chase brand), computers are now sales tools; the screens
prompt bankers to offer customers every Chase product they qualify for but don't have, from homeequity loans to financial planning. One example of the new culture at work: Chase increased the
number of credit card accounts opened in the branches by 55% in 2005.
In cleaning up the computer mess, Dimon displayed another tenet of his philosophy: Keep a firm grip
on IT. Last year he canceled IBM's seven-year contract to manage J.P. Morgan's computer systems.
IT isn't a sideline, he believes, but rather an essential skill the firm should totally control.
"When you're outsourcing it's almost impossible to do the integration, because people don't care
that much," he says. "We want patriots, not mercenaries." And of course, he also hates paying the
markup for having outsiders do the work.
Cutting costs isn't just about saving money --for Dimon it means freeing up capital to seed new
growth. Retail banking is a case in point. When Dimon arrived, the bank employed five people and
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spent some $750,000 per branch in back-office costs, compared with two employees and $250,000
at Bank One. Consolidating the computer systems helped cut that down--as did eliminating nearly
2,000 support jobs in New York City. Now Chase is approaching Bank One's efficiency.
But Dimon has also spent heavily to upgrade dowdy branch facilities and to take on competition.
Dimon and Scharf fired back at New York--area invaders like Bank of America and Wachovia, blitzing
the Big Apple with fresh TV, radio, and billboard ads. Chase installed 270 ATMs in heavily trafficked
Duane Reade drugstores, the first such arrangement by any bank with a big retailer in New York.
Across the U.S., Chase hired 3,000 new salespeople. Despite the new spending on advertising,
systems, and the opening of 150 new branches, Chase managed to raise operating earnings at the
retail bank 8% in 2005, to $3.4 billion.
One area that Dimon has not yet tamed is J.P. Morgan's wildly inconsistent trading operation. By its
nature, proprietary trading--where firms bet their own capital on the direction of stock prices or
interest rates--is risky. J.P. Morgan's problem is that it both makes less money and suffers from far
more volatility than rivals like Goldman Sachs and Morgan Stanley.
And while J.P. Morgan's investment bank is raking in fee income (its take tops all rivals but Citi), the
division lives and dies on trading. In the fourth quarter of 2005, for example, when the proprietary
traders lost several hundred million dollars betting that both oil prices and interest rates would jump,
profits at the investment bank slumped 29% from the previous quarter.
Still, Dimon embraces trading, for a simple reason: It's extremely profitable, despite the swings. So
he's instituting stricter controls and spreading risks by diversifying beyond fixed-income and
derivatives trading into energy and mortgage-backed securities--two fields where competitors were
cleaning up. Last year J.P. Morgan hired a crack energy team from Morgan Stanley and recruited
mortgage traders from all over Wall Street. Dimon is promising far smoother trading results in 2006.
"We'll have less volatility, and we'll get paid more for the swings we do have," he says.
While Dimon would seem to be moving at lightning speed, things are actually going more slowly than
he'd hoped. Getting J.P. Morgan's house in order has "probably taken longer than I thought," he
says. "We had to increase spending in a lot of areas more than I initially said we would." Ultimately,
he expects that spending to lead to greater profits and a higher stock price.
And a higher stock price is important, because even as Dimon lasers in on operations, dealmaking is
never far from his mind. Harrison and board member Bob Lipp are out hunting for prospective
partners. J.P. Morgan needs to expand its retail-branch footprint in California and Florida, the two big
domestic markets from which it's absent. There are a number of banks Dimon could buy to fill those
gaps, including SunTrust, Wachovia, and Washington Mutual.
But his grand dream, according to those close to him, is to create a worldwide retail network that
rivals Citigroup's--so he also wants to ride the growth wave of the future, Asia. An ideal merger
partner would be HSBC, which boasts interests in retail networks spanning from Mumbai to
Shanghai. It's that quest that gives added urgency to fixing J.P. Morgan's operational problems and
boosting its stock price. It's only when you accomplish those things, says Dimon, that "you earn the
right to do a deal."
26
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
An extraordinary reunion took place last summer. Citigroup CEO Chuck Prince invited a dozen current
and former colleagues, including Sandy Weill and Dimon, to dinner. They gathered in a renovated
mansion on the grounds of Citi's Greenwich, Conn., retreat, a place many of them had been coming
to since the late 1980s when Commercial Credit bought it. Back then, the building was a ramshackle
relic with leaky plumbing and worn furniture, decorated in a style they called "early frat house."
For Dimon, the evening was a replay of good times--lavish dinners lubricated with rare wines from
the mansion's hidden cellar--and bad: Seven years earlier, Weill had summoned Dimon to another
building at the retreat to fire him. The mood was light, though, as the group joked and reminisced
about the old days at the "frat house."
"You finally fixed it up," Dimon said, admiring the sumptuous renovations. Of course, Dimon is deep
into a renovation of his own. What was unspoken that evening is that he wants nothing more than to
vanquish the very people with whom he was swapping memories. And that's one Jamie story that
remains to be told.
27
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(by Frank S. Leonard)
Hank Kolb was whistling as he walked toward his office, still feeling a bit like a stranger since he had
been hired four weeks before as director–quality assurance. All that week he had been away from the
plant at a seminar given for quality managers of manufacturing plants by the corporate training
department. He was now looking forward to digging into the quality problems at this industrial
products plant employing 1,200 people.
Kolb poked his head into Mark Hamler's office, his immediate subordinate as the quality control
manager, and asked him how things had gone during the past week. Hamler's muted smile and
answer: "Oh, fine," stopped Kolb in his tracks. He didn't know Hamler very well and was unsure
about pursuing this reply any further. Kolb was still uncertain of how to start building a relationship
with him since Hamler had been passed over for the promotion to Kolb's job—Hamler's evaluation
form had stated "superb technical knowledge; managerial skills lacking." Kolb decided to inquire a
little further and asked Hamler what had happened; he replied:
"Oh, just another typical quality snafu. We had a little problem on the Greasex line last week [a
specialized degreasing solvent packed in a spray can for the high technology sector]. A little high
pressure was found in some cans on the second shift, but a supervisor vented them so that we could
ship them out. We met our delivery schedule!"
Since Kolb was still relatively unfamiliar with the plant and its products, he asked Hamler to
elaborate; painfully, Hamler continued:
"We've been having some trouble with the new filling equipment and some of the cans were
pressurized beyond the upper specification limit. The production rate is still 50% of standard, about
14 cases per shift, and we caught it halfway into the shift. Mac Evans [the inspector for that line]
picked it up, tagged the cases "hold," and went on about his duties. When he returned at the end of
the shift to write up the rejects, Wayne Simmons, first-line supervisor, was by a pallet of finished
goods finishing sealing up a carton of the rejected Greasex; the reject "hold" tags had been removed.
He told Mac that he had heard about the high pressure from another inspector at coffee break, had
come back, taken off the tags, individually turned the cans upside down and vented every one of
them in the eight rejected cartons. He told Mac that production planning was really pushing for the
stuff and they couldn't delay by having it sent through the rework area. He told Mac that he would
get on the operator to run the equipment right next time. Mac didn't write it up but came in about
three days ago to tell me about it. Oh, it happens every once in a while and I told him to make sure
to check with maintenance to make sure the filling machine was adjusted; and I saw Wayne in the
hall and told him that he ought to send the stuff through rework next time."
Kolb was a bit dumbfounded at this and didn't say much—he didn't know if this was a big deal or
not. When he got to his office, he thought again what Morgenthal, general manager, had said when
he had hired Kolb. He warned Kolb about the " lack of a quality attitude" in the plant, and said that
Kolb "should try and do something about this." Morgenthal further emphasized the quality problems
in the plant: "We have to improve our quality; it's costing us a lot of money; I'm sure of it, but I can't
28
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
prove it! Hank, you have my full support in this matter; you're in charge of these quality problems.
This downward quality-productivity-turnover spiral has to end!"
The incident had happened a week before; the goods were probably out in the customer's hands by
now, and everyone had forgotten about it (or wanted to). There seemed to be more pressing problems
than this for Kolb to spend his time on, but this continued to nag him. He felt that the quality
department was being treated as a joke, and he also felt that this was a personal slap from
manufacturing. He didn't want to start a war with the production people, but what could he do? Kolb
was troubled enough to cancel his appointments and spend the morning talking to a few people.
After a long and very tactful morning, he learned the following information.
1. From personnel. The operator for the filling equipment had just been transferred from shipping two
weeks ago. He had had no formal training in this job but was being trained by Wayne, on-the-job, to
run the equipment. When Mac had tested the high-pressure cans, the operator was nowhere to be
found and had only learned of the rejected material from Wayne after the shift was over.
2. From plant maintenance. This particular piece of automated filling equipment had been purchased
two years ago for use on another product. It had been switched to the Greasex line six months ago
and maintenance had had 12 work orders during the last month for repairs or adjustments on it. The
equipment had been adapted by plant maintenance for handling the lower viscosity of Greasex,
which it had not originally been designed for. This included designing a special filling head. There
was no scheduled preventive maintenance for this equipment and the parts for the sensitive filling
head, replaced three times in the last six months, had to be made at a nearby machine shop.
Nonstandard downtime was running at 15% of actual running time.
3. From purchasing. The plastic nozzle heads for the Greasex can, designed by a vendor for this new
product on a rush order, were often found with slight burrs on the inside rim, and this caused some
trouble in fitting the top to the can. An increase in application pressure at the filling head by
maintenance adjustment had solved the burr application problem or had at least forced the nozzle
heads on, despite burrs. Purchasing agents said that they were going to talk to the sales
representative of the nozzle head supplier about this the next time he came in.
4. From product design and packaging. The can, designed especially for Greasex, had been contoured
to allow better gripping by the user. This change, instigated by marketing research, set Greasex apart
from the appearance of its competitors and was seen as significant by the designers. There had been
no test of the effects of the contoured can on filling speed or filling hydrodynamics from a highpressured filling head. Kolb had a hunch that the new design was acting as a venturi [carrier creating
suction] when being filled, but the packaging designer thought that was unlikely.
5. From manufacturing manager. He had heard about the problem; in fact, Simmons had made a joke
about it, bragging about how he beat his production quota to the other foremen and shift supervisors.
The manufacturing manager thought Simmons was one of the "best foremen we have... he always
gets his production out." His promotion papers were actually on the manufacturing manager's desk
when Kolb dropped by. Simmons was being strongly considered for promotion to shift supervisor.
The manufacturing manager, under pressure from Morgenthal for cost improvements and reduced
delivery times, sympathized with Kolb but said that the rework area would have vented with their
29
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
pressure gauges what Wayne had done by hand. "But, I'll speak with Wayne about the incident," he
said.
6. From marketing. The introduction of Greasex had been rushed to market to beat competitors, and
a major promotional-advertising campaign was underway to increase consumer awareness. A deluge
of orders was swamping the order-taking department and putting Greasex high on the back-order
list. Production had to turn the stuff out; even being a little off spec was tolerable because "it would
be better to have it on the shelf than not there at all. Who cares if the label is a little crooked or the
stuff comes out with a little too much pressure? We need market share now in that high-tech
segment."
What bothered Kolb most was the safety issue of the high pressure in the cans. He had no way of
knowing how much of a hazard the high pressure was or if Simmons had vented them enough to
effectively reduce the hazard. The data from the can manufacturer, which Hamler had showed him,
indicated that the high pressure found by the inspector was not in the danger area. But again, the
inspector had only used a sample testing procedure to reject the eight cases. Even if he could morally
accept that there was no product safety hazard, could Kolb make sure that this would never happen
again?
Skipping lunch, Kolb sat in his office and thought about the morning's events. The past week's
seminar had talked about the role of quality, productivity and quality, creating a new attitude, and
the quality challenge, but where had they told him what to do when this happened? He had left a very
good job to come here because he thought the company was serious about the importance of quality,
and he wanted a challenge. Kolb had demanded and received a salary equal to the manufacturing,
marketing, and R&D directors, and he was one of the direct reports to the general manager. Yet he
still didn't know exactly what he should or shouldn't do, or even what he could or couldn't do under
these circumstances.
Questions:
1) What are the causes of the quality problems of the Greasex line? Display your answer on a
fishbone diagram.
2) What general steps should Hank follow in setting up a continuous improvement program for the
company? What problems will he have to overcome to make it work?
30
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(by Roger G. Schroeder)
Slayton's Furniture Store is an upscale furniture store located near Lake Michigan in downtown Chicago. The
store generally carries medium-to-high-price furniture in famous lines such as Drexel, Henredon and Ethan
Allen. In order to keep up with the latest trends, about 50 percent of the styles and fabrics change each year.
Joan Jeffrey, furniture buyer for Slayton's, received a call from Eric Townsend, the Drexel Furniture sales
representative. Eric began: "Joan, I can give you a better deal on our standard Dovetail bedroom furniture set
if you buy a larger quantity. We have just received a new rate from our trucking firm which reduces the shipping
cost from $10 per cwt (hundredweight, or 100 pounds) t $9 per cwt provided we ship a minimum of 100 cwt.
This would require you to order at least 10 bedroom sets at a time instead of your current order size of 6 sets.
If you order 10 at a time, we will pass along the freight savings to you: a saving of $10 a set just on freight
alone. what do you think of the deal?"
Upon hearing the offer, Joan replied, "Eric, it sounds good, but I will have to do some checking and a little
pencil pushing before I can decide what to do". Joan added: "What would be a further economy if we ordered
15 sets at a time?" Excited by the prospects of more business, Eric responded: "The freight company would
not reduce its price further, but we could give you a 2 percent price discount ($12 a set) if you order 15 sets or
more. Why don't you think it over and I'll call you back next week to get your decision".
As Joan hung up the phone, she wondered what to do. There was room in the warehouse to store up to 15
bedroom sets, but there would be an opportunity cost, since the space would not be available for other
merchandise. Also, interest rates had been soaring in recent months, and the additional capital would be
costly to obtain. Joan decided to work through the problem using available economic data for the product.
Dovetail bedroom set:
Selling price (each)
$1000.00
Annual carrying cost
30%
Unit cost (each)*
$600.00
Safety stock
2 sets
Average annual sales
80 sets
Weight per set
1000 lb
Ordering cost**
$40 per order
Lead time (average)
4 weeks
* excludes freight cost
** this cost includes receiving ($20 per order) and paperword ($20 per order)
*** this cost includes the cost of capital (15%), insurance (3%), warehouse space (5%) and obsolescence (7%)
Obsolescence was a significant factor in Joan's mind. While the annual carrying cost included 7 percent for
obsolescence, she wondered if this were enough. Also, is the obsolescence factor included in the carrying cost
the proper way to incorporate the risk of furniture markdowns required to sell slow-moving or out-of-style
furniture?
Questions:
1) What should Joan do?
2) What assumptions are implicit in your analysis of the situation?
31
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(by Jerold L. Zimmerman)
The Ohio Tool Company designed a new machine, which it considered to be superior to anything else
of its type on the market. Estimated sales were about $200,000 per year. The principal advantage of
this machine over competition was a unique cam arrangement enabling the operator to adjust the
unit quickly. To achieve the advantages offered by the design, the cam - of which two were required
per unit - had to be manufactured to very close tolerances and the part could not readily be made
from solid bar stock.
Possible methods of manufacture rapidly narrowed down to some type of casting. The materials
under consideration were aluminum, zinc and iron. Aluminum and iron sand castings or die castings
were excluded for technical reasons. A feasible way of producing the part seemed to be through
powder metallurgy, a process by which finely divided metal particles (in this case powdered iron)
were formed to the desired shape by means of high pressure in a metal die, and then "sintered" at
high temperature to form a solid metal piece. The Ohio Tool Company located three possible
powdered-metal sources and sent parts drawings to each.
Supplier A, located about 1,000 miles away, was one of the leaders in the powder metallurgy field.
The Ohio Tool Company had purchased parts for another product from this supplier within the past
year, and the supplier had failed to deliver on the agreed schedule. After many delivery promises via
long-distance telephone and after a special trip to the plant by the purchasing manager, the parts
arrived three months late. During this delay all other parts for the project had to be set aside and
some workers laid off. In addition, the delays caused the Ohio Tool Company considerable loss of
face with it customers because the product had been announced to the trade.
Supplier A submitted this quotation:





5,000 pieces: $0.146 each
10,000 pieces: $0.145 each
20,000 pieces: $0.144 each
Die cost: $1,968
Delivery: approximately 10 weeks, depending on the production schedule at the time order is
entered.
The quotation did not include incoming freight cost of $0.012 each. Further, it was based on
furnishing a cam with a slight projection on one of the surfaces, which would require a machining
operation by the Ohio Tool Company at an estimated cost of $0.05 each.
Supplier B, located 300 miles away, was a relative newcomer to the powdered-metal field. The
manager of the shop had been with the firm only a short time but had gained his experience from one
of the old-line companies. The Ohio Tool Company's experience with this company had been very
satisfactory. In the past, it had undertaken the job t the same costs as Supplier A and had produced
satisfactory parts in record time.
In reply to the request for a quotation, Supplier B suggested that, since it could not manufacture to
specified tolerances, they be relaxed on several dimensions. However, the engineering department
32
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
at Ohio Tool insisted that the critical function of this cam necessitated the tolerances as originally
specified. When this information was passed along to Supplier B, it asked to be excused from
quoting.
A third supplier, with whom the Ohio Tool Company had had no previous dealings, was asked to
quote on the part. Supplier C was a subsidiary of one of the large automotive players and had an
excellent technical reputation. It was understood, however, that the parent company was considering
introducing several powdered-metal parts on its line of automobiles. The quotation of Supplier C
was:





5,000 pieces: $0.186 each
10,000 pieces: $0.185 each
20,000 pieces: $0.183 each
Die cost: $890
Delivery: 10 weeks.
Supplier C was located 900 miles from the Ohio Tool Company plans, and incoming freight would
cost $0.012 per unit. The drawing accompanying the quotation indicated a projection on one of the
cam surfaces, which would have to be machined by the Ohio Tool Company for the proper functioning
of the part. Although special machining techniques would be required in this case, the Ohio Tool
Company estimator felt that the company could machine off the projection for about $0.06 each in
quantities of 5,000 or more.
Because of the past performance record of Supplier B, the purchasing manager decided that he
should make an effort to obtain a quotation. He made a personal visit to the plant to discuss the
problem, and learned that the plant could hold the tolerances on the center hole closer than the
engineering department required, making the cumulative tolerances on the outside diameter of the
cam surfaces almost within the tolerances specified. The engineering department agreed to change
the drawing accordingly and grant additional latitude on the cam surfaces. On this basis, Supplier B
entered the following quotation:






5,000 pieces: $0.50 each
10,000 pieces: $0.40 each
20,000 pieces: $0.32 each
50,000 pieces: $0.275 each
Die cost: $1,350
Delivery: 10 to 12 weeks.
Freight in amounted to $0.005 each. The quotation was based on a part in exact accordance with the
drawing, since the cost of secondary operations had been included in the quotation and would be
performed by the supplier. By the time this quotation was received, manufacture of other parts of the
product was ensured and final assembly was scheduled for 12 weeks from that date.
33
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
Upon reviewing all the quotations, the relatively high cost of Supplier B was readily apparent. The
purchasing manager decided to call Supplier B and ask him to review his costs again. The quotation
was revised:



5,000 pieces: $0.45
10,000 pieces: $0.37
No change in 20,000 and 50,000 pieces
Questions:
1) Which vendor would you select for the job and why?
2) Should a purchasing agent enter into negotiations with one vendor after bids from competitors
have been examined?
3) With reference to question 2, prepare a policy statement that would guide the future actions of
the purchasing department in this case.
34
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(by Donald Waters)
David Brown is the Quality Control Manager of West Midland Electronic Car Component Company. On
Tuesday morning he got to work at 7.30 and was immediately summoned by the General Manager.
As David approached, the General Manager threw him a letter that had obviously come in the morning
mail. David saw that the General Manager had circled two sections of the letter in red ink.
"We have looked at recent figures for the quality of one of the components you supply, AM7402174222. As you will recall, we have an agreement that requires 99.5 per cent of delivered units of this
product to be within 5 per cent of target output ratings. While your recent supplies have been
achieving this, we are concerned that there has been some inconsistency. We had hoped for more
positive signs of quality improvement."
"We put considerable emphasis on the quality of our materials, and would like to discuss a joint
initiative to raise the quality of your components. By working together we can share ideas and get
mutual benefits."
The General Manager waited for a while and said:
- I find it incredible that we are sending poor quality goods to one of our biggest customers. We have
a major complaint about our quality. Complete strangers clearly think that we can't do our job
properly, so they'll come and show us how to do it. This is your problem, and if you don't come up
with some quick suggestions we should start looking for someone who can.
The General Manager's tone made David rather defensive and his reply was less constructive than
normal:
- There is absolutely nothing wrong with our products. We agreed measures for quality and are
consistently achieving these. We haven't improved quality because we didn't agree to improve it,
and any improvement would increase our own costs. We are making 995 units of a thousand at higher
quality than they requested, and the remaining 0.5 per cent are only just below it. To me, this seems
a level of quality that almost anyone would be proud of.
The process for making AM74021-74222 is in five stages, each of which is followed by an inspection.
The units then have a final inspection before being sent to customers. David considered more
inspections of 100 per cent of manufactured units, but each manual inspection costs about $0.60 and
the selling price of the unit is only $24.75. There is also the problem that manual inspections are only
80 per cent accurate. Automatic inspections cost $0.30 and are almost completely reliable, but they
cannot cover all aspects of quality and at least three inspections have to remain manual.
Dave produced a weekly summary of figures to show that things were really going well.
35
Week
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
A
Inspect
B
Reject
Inspect
C
Reject
Inspect
D
Reject
Inspect
E
Reject
Inspect
F
Reject
Inspect
Reject
1
4,125
125
350
56
287
0
101
53
3,910
46
286
0
2
4,086
136
361
0
309
0
180
0
3,854
26
258
0
3
4,833
92
459
60
320
0
194
0
4,651
33
264
0
4
3,297
43
208
0
186
0
201
0
3,243
59
246
0
5
4,501
83
378
0
359
64
224
65
4,321
56
291
0
6
4,772
157
455
124
401
0
250
72
4,410
42
289
0
7
4,309
152
420
87
422
0
266
123
3,998
27
287
64
8
4,654
101
461
0
432
0
278
45
4,505
57
310
0
9
4,901
92
486
0
457
0
287
0
4,822
73
294
0
10 5,122
80
512
0
488
0
301
0
5,019
85
332
0
11 5,143
167
524
132
465
48
290
61
4,659
65
287
0
12 5,119
191
518
0
435
0
256
54
4,879
54
329
0
13 4,990
203
522
83
450
0
264
112
4,610
55
297
0
14 5,231
164
535
63
475
0
276
0
5,002
32
267
0
15 3,900
90
425
56
288
0
198
0
3,820
37
290
58
16 4,277
86
485
109
320
0
229
0
4,109
38
328
0
17 4,433
113
435
0
331
0
265
67
4,259
29
313
0
18 5,009
112
496
0
387
0
198
62
4,821
52
269
0
19 5,266
135
501
65
410
0
299
58
5,007
51
275
64
20 5,197
142
488
0
420
72
301
73
4,912
48
267
0
21 4,932
95
461
0
413
0
266
0
4,856
45
286
0
22 5,557
94
510
0
456
0
160
64
5,400
39
298
61
23 5,106
101
488
74
488
0
204
131
4,795
36
326
0
24 5,220
122
472
0
532
0
277
125
4,989
29
240
56
25 5,191
111
465
0
420
0
245
185
4,927
42
321
0
26 5,620
87
512
45
375
0
223
134
5,357
48
332
0
Notes on inspections. For sampling inspections, all production is considered in batches of one hour's output.
Random samples are taken from each batch and if the quality is too low, the whole batch is rejected, checked
and reworked as necessary.






A - automatic inspection of all units: rejects all defects.
B - manual inspection of 10 per cent of output: rejects batch if more than 1 per cent of batch is defective.
C - manual inspection of 10 per cent of output: rejects batch if more than 1 per cent of batch is defective.
D - manual inspection of 5 per cent of output: rejects batch batch if more than 2 per cent of batch is
defective.
E - automatic inspection of all units: rejects all defects.
F - manual inspection of 5 per cent of output: rejects batch batch if more than 2 per cent of batch is
defective.
Questions:
1) Do you think the General Manager's view is reasonable? What about David Brown's reaction?
2) How effective is the quality control at West Midland?
3) Do you think the product quality needs to be improved? How would you do this?
36
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
(by David A. Collier, James
R. Evans)
"The kid almost died! He's a diabetic! How did that patient get the wrong food tray?" said Bonnie
Blaine, director of hospital operations, to Drew Owensboro, the director of dietary services. Bonnie
Blaine, a woman in her early fifties, had worked in almost every area of the hospital. By going to
school in the evenings for three years, she had earned a master's in business administration.
Owensboro had worked in the hospital for 19 years and had a high school education.
"Bonnie, I don't know! I'll try to find out but it may be impossible. The dietary department is really a
very complex operation and it's very difficult to audit or trace anything," Owensboro said in
frustration.
"Drew, I've got enough problems trying to contain hospital costs without having to worry about
patient lawsuits due to poor quality control on our part," Blaine continued. "The kid's family and
family doctor are furious! Your employees are all blaming one another, but no one is really doing
anything about it. Now fix it or maybe I'll have to get someone else in here to do the job," Blaine said
as she turned to answer the telephone.
The Hospital's Dietary Department. The dietary department provides food services to three basic
groups: patients, employees and visitors. The greatest demand for food services comes from the
patients and because of the many different diet requirements which must be fulfilled, this can be
rather complex. Rach day the patient fills out their required dietetic menu for all three meals for the
following day and chooses from several different food items in each food group (main course,
vegetable, fruit, dessert, beverage). Since the average patient stays five days, the dietary department
offers different daily menus for two weeks and then repeats the menu selection.
The dietary department, as shown in the accompanying figure, is a large department with a total of
124 full-time equivalent (FTE) employees, assuming two part-time employees equal one full-time
position. The department has 10 managers (supervisors), 8 clinical dieticians, 9 administrative
dieticians (7 of which are also managers), 89 full-time employees, and 30 part-time employees. The
89 direct full-time employees have an average work experience of 10.8 years. The annual average
salary for a part-time employee is $15,000, full-time service employees excluding cooks earn
$28,000, and clerk employees earn $31,000. Benefits for full-time employees average an additional
20 percent of their annual salary.
Clerical support in patient services. Eight full-time employees in the patient services area fill out diets
for each patient, menus for tomorrow's meals, and last-minute changes or today's diets and menus.
Central control is necessary due to the myriad of changes, which take place each day because of
surgery, discharges, new admittances, or doctor-prescribed diet changes.
37
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
Director of hospital
operations
Director of dietary
services
Food services
manager (1FT)
Purchasing & cost
accounting (2FT)
Receiving & issuing
(3FT)
Assistant director of
patient services
(1FT)
Patient services
supervisors (3FT)
Assistant director of
dietary services
(1FT)
Catering (4FT)
Assistant director of
administrative
services (1FT)
Tray assembly &
production (20FT,
9PT)
Evening cafeteria
service (2FT)
Assistant director of
education &
personel (1FT)
Chef (1FT)
Tray delivery &
distribution (16FT,
10PT)
Cashiers (2FT)
Cooks (5FT, 1PT)
Dietitian (1FT)
Clerical (1FT)
Special diet cooks
(3FT)
Clerical suport (8FT,
2PT)
Sanitation & utility
(5FT, 7PT)
(
38
Cafeteria cold foods
& salads production
(15FT, 1PT)
Assistant director of
clinical service (1FT)
In/out patient
services (6FT)
Patient research
(2FT)
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
The clerks assemble the diets by room and floor and check to see that all menus are properly filled
out. When patients are discharged, the clerks pull the patient's diet history from the room number of
the floor and file it with the medical records. The prescribed diets of new admittances are to be
checked by the clinical nutritionist in charge of the floor, but in the case of emergencies, the clerk
calls the floor and speaks to the head nurse about what type of diet is to be presented. Besides the
obvious patient health issues with regard to the accuracy of the prescribed diets, the patient and
doctor expect the dietary department to "provide timely, neat meals with no errors".
Before each meal, the clerk's office gives the shift supervisor of tray assembly and production the
updated list of menus for each patient's room. The clerks sequence the room numbers by floor for
easy tray production and delivery. The clerks remain in the office during the day answering phones
and messages about diet and menu changes. After each meal, the clerk's office distributed a patient
census in terms of trays actually served. then the process begins all over again for the next meal. Due
to the short time between meals, some clerks are working on, say, the breakfast meal while others
are working on the lunch meal.
Food production. The kitchen and patient tray assembly lines are located in the basement of the
hospital. The kitchen is a beehive of activity for about 18 hours a day. The regular cooks, special diet
cooks, kitchen workers, dieticians, and clerks from patient services are constantly visiting or calling
the kitchen concerning patient meals. Meanwhile, food constantly arrives at the loading docks that
had been ordered from the hospital's purchasing department or the hospital's food service manager.
Employees are assigned to one of three basic shifts - a breakfast shift that begins at 4 a.m., a lunch
shift that arrives at staggered times from 6 a.m. until noon, and a dinner shift that begins at 3:30 p.m.
Part-time employees help out during peak demand periods and when full-time employees are absent.
Purchasing. The dietary department obtains its food and supplies from several sources. Bulk items
are stored in the hospital's central warehouse and are delivered once a week. Many frozen items are
delivered weekly from the warehouse. The remaining supplies, whether refrigerated, nonrefrigerated, or frozen, are delivered by private vendors at various frequencies during the week.
The hospital food service manager has five employees plus himself (see Figure 1) to coordinate the
incoming food and supply orders. Dietary personnel are not responsible for the transportation of
goods. However, they are responsible for receiving and accepting high-quality goods and
maintaining that quality through the internal storage of food at the hospital.
Patient tray assembly. The food is assembled on each patient tray on a large rotating oval track.
Twelve employees staff the tray assembly line. The first position on the tray assembly line is the
"caller", who places the patient's menu on a tray and puts the tray on a carrier with the necessary
condiments. The second position puts the salad (tossed fruit, macaroni, cottage cheese, tuna, potato,
chicken, bean, and chef's salad) and the ordered salad dressing on each tray. The third position puts
the breads (white, wheat, rye) and butter on the tray along with jelly. The fourth position is
responsible for the ordered cold beverage (soft drink, milk, buttermilk, orange juice, and so on).
Position five places the dessert (pie, fruit jelly, and so on) on the tray. The sixth position serves the
entrees and starch for each tray. The seventh position serves the ordered vegetables and soups. The
39
Process management - case study set
IBP, Faculty of Management, University of Warsaw
www.timo.wz.uw.edu.pl
special diet cook, who both prepares and serves special foods, handles the eight position. The ninth
position is reserved for the supervisor, who checks each menu to determine if the ordered food in on
the proper patient tray. The tenth position, the "loader", covers the tray and loads the tray onto the
proper cart, now ready for delivery. Two other workers are also considered to work on the line - the
coffee pourer, who works just off the line, and the "runner", who gets special items as needed to
keep the tray assembly line moving.
Patient tray delivery. Once the clerks in patient services have sequenced the patient menu orders by
floor and room numbers and a completed cart of patient trays is assembled in the basement, the tray
delivery teams are responsible for the timely delivery and pickup of all patient meals. This particular
hospital has 20 floors spread over three wings of the hospital.
Three teams of four delivery aides each deliver trays for each meal. Once the cart is loaded, the
delivery team takes the cart and the appropriate hot beverage to the correct floor. After the cart is on
the correct floor, the trays are "set-up" by the team captain. A "setup" includes putting the correct
hot beverage on the tray, checking the patient's name with the room number, and covering the tray.
This procedure expedites service, as the other three delivery aides simply deliver trays from room to
room. When eight trays are left, the team captain directs one of the aides to go back to the kitchen,
get the next cart, and take it to the next floor for which the team is responsible. After delivering all
trays to their assigned floors, the team goes back to the initial floor and begins picking up empty
trays, putting them on carts, and returning the carts to the kitchen.
The medical staff. The doctors and nurses are usually the first to hear complaints about the accuracy
of menu orders, the timely delivery and pickup of trays, whether the delivery aides were polite and
respectful of the patient's privacy, and the quality of the food. The medical staff is most concerned
about the accuracy of prescribed diets for obvious patient health reasons. Occasionally, a doctor
would ask a dietician to check or test the content of the food served the patient. At a few hospitals,
the nurses deliver the tray to the patient.
Blaine's decision. After completing her telephone conversation, Blaine slowly got up from her desk,
told the secretary she was not to be disturbed, shut the door, and began to write down a few notes.
Some key questions that need to be answered are listed below.
Questions:
1) What are the problems facing the hospital's dietary food service?
2) what is the cost to the hospital of a minor versus major service upset or failure?
3) What does the value chain look like? Describe the features of each area. Provide examples of
opportunities for errors at each stage of the value chain.
4) Who is responsible for quality?
5) Define the patient's wants and needs, and associated processes.
6) Select a process and discuss how to mistake proof it and improve process performance.
7) How do we turn this dietary food service around? What are your recommendations?
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