Unforgettable Business Learning

OperationsProduction, TQM, Human Resources, and Labor Negotiation

Krit Pattamaroj

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Agenda

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• Production Management• Total Quality Management (TQM)• Human Resources Management• Labor Negotiation

Marketing Production Finance Additional Modules

R &D

Buy or sell capacity (if applicable)In “Buy/Sell Capacity” cell:- Buy: enter (+) number- Sell: enter(-) number

For New Products:For Existing products:

Go to Decisions > Production

Discontinue a Product:

2. If there is inventory > Sell all but 1 unit of capacity

1. If no inventory > Sell all capacity (enter negative number in Buy/Sell Capacity)

Buy Capacity: Buy/Sell Capacity > enter positive number

Enter Production Schedule

Change Automation in: New Autom. Rating (if applicable)

Choose automation level: Enter (+) number in: New Autom. Rating.

Production

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Additional Modules

Ethics                                     N/A                                 TBA

Total Quality Management                    3                                       3

Human Resources (HR)                       2                                       4

Labor Negotiation                          N/A                          only 4 and 7

Advance Marketing                           2                                       2

Module                         Practice round      Competition Round

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Production

Purchase machinery to automate production facilities

Buy or sell capacity on product lines

Set production schedule

Manage the majority of the company’s fixed assets

Staff your facility with workers

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Production Plan

1. Long Range Plan• Buy Capacity (Factory Expansion)

(Pay $6.00 for floor space + $4.00/automation rating )/unit

• Sell Capacity (Discontinue Line)Get $0.65/Dollar Sell all capacity = Liquidation, Inventory sell @ half cost

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Production Plan (Cont.)

2. Medium/Short Range Plan• Technology (Automation vs Labor)

• Workforces Complement • Scheduling (1st/2nd/OT)

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AutomationAs automation levels increase, the number of labor

hours required to produce each unit falls.

Time Required to Move a Sensor on the Perceptual Map 1.0 Unit at Automation Levels 1 through 10 takes significantly longer at an automation level of 8.0 than at 5.0

Automation Rating1 10

Cost = $4 / unit of capacity x raise in automation

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Changing Automation• Reducing automation costs money.

• Determine the return on investment (ROI).

• Labor cost savings approx. 10% ($1.2) for 1 point of automation.

(Savings × Remaining Rounds) / Automation Cost = ROI on Automation

• Plant with highly utilized , Higher ROI.

• Raise Automation, need more time on R&D process

• Changes in automation require a full year to take effect– change it this year, use it next year.

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Production Decision

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Production Decision

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Production after adj.

Four constraints are taken into consideration:

1. Capacity. You cannot build more than twice your 1st Shift Capacity, because there are only two shifts.

2. Complement. If you do not have enough workers, then you may not be able to produce the production schedule even if your employees work 100% overtime.

3. Accounts Payable Lag policy from the Marketing Spreadsheet. As you extend your Payables policy, vendors increasingly withhold parts deliveries, making it impossible for you to meet your production schedule.

4. Time in market. New products introduced this year are further constrained by the time they will be in the market. For example, if a new product is introduced in October, you could only produce for three months.

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DM + DL & Contribution Margin

Labor Cost / Unit: The estimated labor cost to produce each unit, including 2nd shift/Overtime production costs.

Material Cost / Unit: The estimated material cost to produce each unit. The smaller the size, the higher the performance, and the higher the reliability (MTBF), the more expensive the materials.

Contribution margin: is defined as: (Price - Variable Costs) / Price or more completely:

(Price - Unit Cost – Inventory Carry Cost) / Price

Tip: try to keep your contribution margin above 30%. From your contribution margin you must cover marketing expenses, R&D costs, interest payments, HR overheads, etc.

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Production Decision

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Production Report (Performa)

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TQM / Sustainability

Total Quality Management or TQM is

an integrative philosophy of management for continuously improving the quality of products and processes.

TQM functions on the premise that the quality of products and processes is the responsibility of everyone who is involved with the creation or consumption of the products or services offered by an organization.

In other words, TQM requires the involvement of management, workforce, suppliers, and customers, in order to meet or exceed customer expectations.

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TQM / Sustainability

Sustainable business, or green business, is

an enterprise to be that has no negative impact on the global or local environment, community, society, or economy—a

business that strives to meet the triple bottom line.

In general, business is described as green if it matches the following four criteria:1. It incorporates principles of sustainability into

each of its business decisions.2. It supplies environmentally friendly products or

services that replaces demand for non-green products and/or services.

3. It is greener than traditional competition.4. It has made an enduring commitment to

environmental principles in its business operations.

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TQM / Sustainability

• Reduce material cost• Reduce labor cost• Reduce administrative costs• Shorten time required for R&D• Increase demand for product

The impacts of the investments produce returns in the year they are made and in

each of the following years.

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Process Management Initiative

1. CPI (Continuous Process Improvement) Systems

2. Vendor/JIT (Just in Time [Inventory])3. QIT (Quality Initiative Training)4. Channel Support Systems5. Concurrent Engineering6. UNEP Green Program

Decisions depend on strategy, i.e. fast R&D, low automation Low labor cost

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TQM Initiative

1. Quality Function Deployment Effort2. CCE (Concurrent Engineering)/6 Sigma

Training3. GEMI TQEM Sustainability (Global

Environmental Management Initiative, Total Quality Environmental Management)

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TQM/Sustainability OutcomesNo. Program Mat. 

CostLabor Cost

AdminOH

Demand R&D Time

PMI#1 CPI (Continuous Process Improvement) Systems

x x

PMI#2 Vendor/JIT (Just in Time) x x

PMI#3 QIT (Quality Initiative Training) x

PMI#4 Channel Support Systems: x

PMI#5 Concurrent Engineering: x

PMI#6 UNEP Green Program: x x

TQM#1 Quality Function Deployment Effort x x

TQM#2 CCE (Concurrent Engineering)/6 Sigma Training

x x

TQM#3 GEMI TQEM Sustainability x

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Expenditure on TQM Initiatives

• Suitable Investment Range/year : $750,000 – $1,500,000• Expenditures beyond $4,000,000 over two or three

years in each initiative pushes into diminishing returns.

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TQM Initiative

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TQM Initiative: Input

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TQM Initiative: Expected Outcome

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TQM Initiative Report (Performa)

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Human Resources Management

Human resource management (HRM, or simply HR) is

the management of an organization's workforce. It is responsible for the attraction, selection, training, assessment, and rewarding of

employees, while also overseeing organizational leadership and culture, and ensuring compliance with employment and labor laws.

1. Complement: Needed Complement is the number of workers required to fill the production schedule without overtime.

2. Caliber: The talent of the workforce. If you are willing to spend the money, you can recruit a higher caliber of worker. This results in higher productivity and lower turnover. (Default $1,000 – Max $5,000)

3. Training: The amount of time workers spends in training each year. Training leads to higher productivity and lower turnover, but takes people off the job while they are in the classroom. Each training hour costs $20.00 per worker. (Max 80 Hrs/year)

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Human Resources Decisions

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Some Definitions in HR

1. Turnover Rate: The percentage of workers who left the company last year, excluding downsizing. About 5% is rooted in unavoidable factors like retirement, relocation and weeding out poor workers.

2. Separated Employees: Employees lost because of downsizing or increases in Automation.

3. Overtime %: The percentage of first shift workers on overtime. 100% means that every first shift worker is working a double shift. 10% means each 1st shift worker performs 10% overtime. Overtime increases turnover and drags down productivity.

4. Productivity Index: The Productivity Index indicates how the general workforce compares with the workers employed in Round 0. 100% means that current workers are just as good as original workers. 110% means that, on average, you only need 91% (100 / 110 = 91) of the Complement to do the same work as a workforce comprised of original workers.

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Labor Negotiations

Negotiations can be viewed as exception events–sudden changes in the operating environment.

This creates an opportunity for a low labor-cost company (due to automation

and other investments) to impose higher labor costs upon other firms.

Labor opens the contract offers from all of the companies, picks the most favorable terms, and uses them as a

standard for negotiation with every company.

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Labor Negotiations

Labor and management negotiate over 4 separate categories:

1. Hourly Wage ($) – offer 80-150%2. Benefits ($) – start from $03. Profit Sharing Percent (%) – start from 0%4. Annual Raise (%) – start from 0%

Strike up to 12 weeks

Higher/Lower Labor Cost Next Year

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Labor Negotiations Process (1)

Labor will ask for a 10% across the board wage and benefit increase.

Company 1Start Ceiling

+10%

Company 2

Company 3

Company set “starting position” for Negotiator

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Labor Negotiations Process (2)

Labor demand at maximum starting position in the industry.

Company 1Start Ceiling

Company 2

Company 3

Company set “starting position” for Negotiator

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Labor Negotiations Process (3)

Company 2: Negotiation lead to agreement (if demand fall in bracket)

at $23.50 (1/2 way between starting position and labor demand)

Company 1Start Ceiling

Company 2

Company 3

Company 3: Get New Hourly Wage at $24.00

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Labor Negotiations Process (4)

Company 1: Negotiation lead to “STRIKE”(if demand not fall in bracket)

And new labor wage after arbitration is at $23.50 (1/2 way between ceiling and labor demand)

Company 1Start Ceiling

Company 2

Company 3

Labor strike approx. 1 week for…..1. Hourly Wage ($) - $12. Benefits ($) - $3003. Profit Sharing Percent (%) - 1%4. Annual Raise (%) - 1%

$23.50

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Strike Days

Starting Position

Negotiation Ceiling

Demand ContractApproximate Strike Days

Hourly Wage $18.00 $19.80 $22.00 $20.90 15

Benefits $2,500 $2,750 $2,750 $2,625 0

Profit Sharing 1.5% 1.7% 2.2% 1.95% 4

Annual Raise 0.0% 0.0% 7.2% 3.6% 50

Total Days of Strike 69

Strikes always occur at the end of the year. If a strike is 46 days long, workers would picket from the middle of November to the end of December.

If you have inventory on hand during the strike, sales continue. R&D projects also continue.Maximum Strike is 12 Weeks.

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Labor Negotiations Tactics

Negotiations is set only in round 4 and 7

(Competition Round)

Companies with low automation will want to control labor costs. They could offer the lowest acceptable wage, which is 80% of the current contract and eliminate all benefits. Companies with high automation might choose to be extremely generous with their workers, which will impose higher costs on their competitors (remember, labor looks at all offers and makes the highest offer part of their demand).

Unforgettable Business Learning

OperationsProduction, TQM, Human Resources, and Labor Negotiation

Question and Answer

IBMP Business Simulation Game