Chapter 1 Introduction to Operations and Supply Chain Management

In this chapter we will learn how companies plan, manage, control, and schedule projects like Mars' solar garden, including project management tools like CPM/PERT.

In other chapters we discuss the scheduling of repetitive operations and activities, such as work scheduling and job scheduling, as an important aspect of managing an operation. Operational schedules are established to keep the flow of products or services through the supply chain on time. However, not all operational activities are repetitive; some are unique, occurring only once within a specified time frame. Such unique, one-time activities are referred to as projects.

Project management is the management of the work to develop and implement an innovation or change in an existing operation. It encompasses planning the project and controlling the project activities, subject to resource and budget constraints, to keep the project on schedule. Examples of projects include constructing facilities and buildings, such as houses, factories, a shopping mall, an athletic stadium, or an arena; developing a military weapons system, new aircraft, or new ship; launching a satellite system; constructing an oil pipeline, developing and implementing a new computer system; planning a rock concert, football bowl game, or basketball tournament; and introducing new products into the market.

Projects have become increasingly pervasive in companies in recent years. The nature of the global business environment is such that new machinery and equipment, as well as new production processes and computer support systems, are constantly evolving. This provides the capability of developing new products and services, which generates consumer demand for even greater product diversity. As a result, a larger proportion of total organizational effort now goes toward project-oriented activities than in the past. Thus, the planning and management of projects has taken on a more crucial role in operations management.

In this chapter we focus on project management using CPM and PERT network scheduling techniques that are popular because they provide a graph or visual representation of the interrelationship and sequence of individual project activities. However, prior to our presentation of the CPM/PERT technique, we will discuss the primary elements of the project management process—planning, scheduling, and control.

PROJECT PLANNING

The general management process is concerned with the planning, organization, and control of an ongoing process or activity such as the production of a product or delivery of a service. Project management is different in that it requires a commitment of resources and people to an important undertaking that is not repetitive and involves a relatively short period of time, after which the management effort is dissolved. A project has a unique purpose, it is temporary, and it draws resources from various areas in the organization; as a result, it is subject to more uncertainty than the normal management process. Thus, the features and characteristics of the project management process tend to be unique.

Figure 9.1 The Project Management Process

ELEMENTS OF A PROJECT PLAN

Project plans generally include the following basic elements.

• Objectives—a detailed statement of what the project is to accomplish and how it will achieve the company's goals and meet the strategic plan; and an estimate of when it needs to be completed, the cost and the return.

• Project scope—a discussion of how to approach the project, the technological and resource feasibility, the major tasks involved, and a preliminary schedule; includes a justification of the project and what constitutes project success.

• Contract requirements—a general structure of managerial, reporting, and performance responsibilities, including a detailed list of staff, suppliers, subcontractors, managerial requirements and agreements, reporting requirements, and a projected organizational structure.

• Schedules—a list of all major events, tasks, and subschedules, from which a master schedule is developed.

• Resources—the overall project budget for all resource requirements and procedures for budgetry control.

• Personnel—identification and recruitment of personnel required for the project team, including special skills and training.

• Control—procedures for monitoring and evaluating progress and performance including schedules and cost.

• Risk and problem analysis—anticipating and assessing uncertainties, problems and potential difficulties that might increase the risk of project delays and/or failure and threaten project success.

PROJECT RETURN

In order for a project to be selected to be undertaken it typically has to have some kind of positive gain or benefit for the organization that is considering it. In a business one of the most popular measures of benefit is return on investment (ROI). ROI is a performance measure that is often used to evaluate the expected outcome of a project or to compare a number of different projects. To calculate ROI. the benefit (return) of a project is divided by the cost of the project; the result is expressed as a percentage or a ratio:

If a project does not have a positive ROI, or if there are other projects with a higher ROI. then the project might not be undertaken. ROI is a very popular metric for project planning because of its versatility and simplicity.

However, projects sometimes have benefits that cannot be measured in a tangible way with something like an ROI, what's referred to as a “soft” return. For example, a project that has raising employee satisfaction as its goal can result in real benefits—increased productivity, improved quality, and lower costs—which are difficult to measure monetarily in the short run. A project by an Internet online retailer to install backup power generators to keep orders coming in and customers happy during a power outage is like insurance for something that may never happen, making an ROI difficult to determine. A “green” project may not have a tangible dollar ROI, but it can protect a company against regulatory infractions and improve its public image. In general, it may be more appropriate to measure a project's benefit not just in terms of financial return, but also in terms of the positive impact it may have on a company's employees and customers, that is, quality improvement.

Projects undertaken by government agencies or “not-for-profits” typically do not have an ROI-type benefit; they are undertaken to benefit the “public good,” Examples of such projects are the restorations of the Royal Shakespeare and Company Theater in England and the American History Museum in Washington, DC, described, in the “Along the Supply Chain” box on page 388, and the U.S. Corps of Engineers New Orleans Restoration project following hurricane Katrina described in the “Along the Supply Chain” box on page 399. Cost containment is certainly an important consideration in such projects, but the actual benefit is not easy to measure in terms of dollars.

THE PROJECT TEAM

The project team is typically cross-functional, consisting of a group of individuals selected from other areas in the organization or from outside the organization because of their special skills, expertise, and experience related to the project activities. Members of the engineering staff are often assigned to project work because of their technical skills, especially if the project is related to production processes or equipment. The project team may also include managers and staff personnel from specific areas related to the project. Workers can also be involved on the project team if their job is a function of the project activity. For example, a project team for the construction of a new loading dock facility might include truck drivers, forklift operators, dock workers, and staff personnel and managers from purchasing, shipping, receiving, and packaging, as well as engineers to assess vehicle flow, routes, and space considerations.

The term matrix organization refers to a team approach to special projects. The team is developed from members of different functional areas or departments in the company. For example, team members might come from engineering, production, marketing, or human resources, depending on the specialized skills required by the project. The team members are, in effect, on loan from their home departments to work on a project. The term matrix is derived from the two-dimensional characteristics of this type of organizational structure. On one dimension, the vertical, is the company's normal organizational structure for performing jobs, whereas the horizontal dimension is the special functional structure (i.e., the functional team members) required by the project.

Project teams are made up of individuals from various areas and departments within a company.

Assignment to a project team is usually temporary, which can have both positive and negative repercussions. The temporary loss of workers and staff from their permanent jobs can be disruptive for both the employee and the work area. The employee must sometimes “serve two masters,” reporting to both the project manager and a regular supervisor. Since projects are usually exciting, they provide an opportunity to do work that is new and innovative, making the employee reluctant to report back to a more mundane, regular job after the project is completed.

ALONG THE SUPPLY CHAIN Cross-Cultural Project Teams

In today's global economy, cross-cultural project teams have become relatively common, but they still present unique situational problems because of the diversity of the team members. A project manager from the United States can be in Saudi Arabia working with local Saudi team members as well as team members from France and the United States and a virtual team in India on a project for a Chinese firm. This requires an awareness of cultural differences on the part of all team members and especially the project manager. In Saudi Arabia Islam will play a large role in a project; religious beliefs strongly influence how Saudis interact with foreigners in a business setting. For example, Saudi workers take time out several times a day for prayer, which will affect work schedules and productivity. Since Saudi women don't work alongside Saudi men, having foreign women as team members may create an uncomfortable situation. Being respectful of the culture is essential, thus foreign women should always cover their heads. Punctuality can vary across cultures; in some countries being late for a meeting may be casually overlooked while in others it may be considered bad manners or a sign of disrespect. The Korean culture has a very strong work ethic so foreign project team members should expect to work 16 hour days, 7 days a week, whereas for the French weekends and holidays are sacrosanct. In projects in China, Chinese team members will sometimes show too much deference and politeness, thus avoiding useful criticisms that are expected and would be beneficial to U.S. team members. As such, project team members in any country should understand the cultural environment of the country by reading the local newspapers and tourist guides and learning about their history; avoiding stereotypes and not letting them influence behavior; developing and showing an interest in cultural differences and learning about local traditions; communicating effectively and not always assuming you are being understood; and listening carefully and emphatically. By developing a cultural sensitivity and understanding, team members can see how cultural differences may impact the project environment and work together more effectively to achieve project success on time and within budget.

THE PROJECT MANAGER

The most important member of the project team is the project manager. Managing a project is subject to lots of uncertainty and the distinct possibility of failure. Since a project is unique and usually has not been attempted previously, the outcome is not as certain as the outcome of an ongoing process would be. A degree of security is attained in the supervision of a continuing process that is not present in project management. The project team members are often from diverse areas of the organization and possess different skills, which must be coordinated into a single, focused effort to complete the project successfully. The project is subject to time and budgetary constraints that are not the same as normal work schedules and resource consumption in an ongoing process. There is usually more perceived and real pressure associated with project management than in a normal management position. However, there are potential opportunities, including demonstrating management abilities in a difficult situation, the challenge of working on a unique project, and the excitement of doing something new.

SCOPE STATEMENT

The scope statement is a document that provides a common understanding of a project. It includes a justification for the project that describes which factors created a need within the company for the project. It also includes an indication of what the expected results of the project will be and what will constitute project success. The scope statement might also include a list of the types of planning reports and documents that are part of the project management process.

The project manager is often under greater pressure.

A similar planning document is the statement of work. In a large project, the statement of work is often prepared for individual team members, groups, departments, subcontractors, and suppliers. This statement describes the work in sufficient detail so that the team members responsible for it know what is required and if they have sufficient resources to accomplish the work successfully and on time. For suppliers and subcontractors it is often the basis for determining whether they can perform the work and for bidding on it. Some companies require that a statement of work be part of an official contract with a supplier or subcontractor.

WORK BREAKDOWN STRUCTURE

The work breakdown structure (WBS) is a tool used for project planning. The WBS organizes the work to be done on a project. In a WBS, a project is broken down into its major components, referred to as modules. These components are then subdivided into detailed subcomponents, which are further broken down into activities and, finally, individual tasks. The end result is a project hierarchical organizational structure made up of different levels, with the overall project at the top of the structure and the individual tasks for each activity at the bottom level. The WBS format is a good way to identify activities and to determine the individual task, module, and project workloads and resources required. It also helps to identify relationships between modules and activities as well as unnecessary duplication of activities. Finally, it provides the basis for developing and managing the project schedule, resources, and modifications.

Work breakdown structure (WBS):

breaks down a project into components, subcomponents, activities, and tasks.

There is no specific model to follow for the development of a WBS. It can be in the form of a chart or a table. It can be organized around project groups, project phases, or project tasks and events. However, experience has shown that there are two good ways for a project team to develop a WBS. One way is to start at the top and work one's way down asking, “What components constitute this level?” until the WBS is developed in sufficient detail. The other way is simply to brainstorm the entire project, writing down each item on a sticky note and then organizing them together into the branches of a WBS. The upper levels of the WBS hierarchy tend to indicate the summary activities, major components, or functional areas involved in the project. They are typically described by nouns that indicate “what” is to be done. The lower levels of the WBS tend to describe the detailed work activities of the project required under the major components or areas. They are typically described by verbs that indicate “how” things are done.

Figure 9.2 Work Breakdown Structure for a Computer Order Processing System Project

RESPONSIBILITY ASSIGNMENT MATRIX

After the work breakdown structure is developed, which organizes the project work into smaller, manageable elements, the project manager assigns the work elements to organizational units—departments, groups, individuals, or subcontractors—using an organizational breakdown structure (OBS). The OBS is an organizational chart that shows which organizational units are responsible for work items. After the OBS is developed, the project manager can then develop a responsibility assignment matrix (RAM). The RAM shows who in the organization is responsible for doing the work in the project. Figure 9.3 on the next page shows a RAM for the “Hardware/Installation” category from the work breakdown structure for the computerized order processing project shown in Figure 9.2. Notice that there are three levels of work assignment in the matrix reflecting who is responsible for the work, who actually performs the work, and those who perform support activities. As with the WBS, both the OBS and RAM can take many different forms depending on the needs and preferences of the company, project team, and project manager.

Organizational breakdown structure (OBS):

a chart that shows which organizational units are responsible for work items.

Responsibility assignment matrix (RAM):

shows who is responsible for the work in a project.

ALONG THE SUPPLY CHAIN Green Projects on the Increase Around the World

Sustainability or “green” projects are increasing around the world, not simply because they are a “good” thing for the future of the world's environment, but also because they can also have a positive impact on a company's bottom line. A recent survey of Fortune 500 executives reported that they expected sustainability projects to increase by almost 75% through 2010. Most sustainability projects involve reducing energy consumption, resource use, and waste, and thus have cost-cutting implications. They uniquely mix cost cutting and savings with an inspiring green message, which appeals to customers and stockholders; they provide an opportunity to achieve multiple benefits—they benefit the larger community, they benefit the environment, and they benefit the bottom line. The New York-based Environmental Defense Fund reaches out to firms to engage them in environmentally focused projects, but knows companies won't undertake such projects out of the goodness of their heart. Rather, it requires business-oriented incentives—bottom line results and reduced regulatory risk. British Petroleum (BP) has a portfolio of solar, wind, and hydrogen energy projects, and plans to spend $8 billion on alternative and renewable energy projects in the next decade. GE Energy China will invest $15 billion in clean energy projects including coal, wind, solar, and biofuel in China by 2010. Foster's, the Australian brewer, invested $14 million in a water management project at one of its breweries which allowed it to double its brewing capacity with only a 10% increase in water consumption, making it the most water-efficient brewery in the world. The Coca-Cola Foundation has provided $1 million to support four water infrastructure projects in developing countries. Finnish telecom company Nokia Siemens Networks plans to decrease the energy consumption of its building by 6% and increase the use of renewable energy in company operations by 50% in the next few years, initiatives that will reduce carbon dioxide emissions by about 2 million tons annually. Paper manufacturer Boise, Inc., has launched a program to reduce carbon dioxide emissions by 10% over 10 years. Food distributor U.S. Foodservice undertook a project to reduce fuel throughout its vehicle fleet and achieved fuel cost savings of $8.2 million, and a corresponding reduction in carbon dioxide emissions of 22,000 tons in just three months. At mattress manufacturer Sealy, in just three months sustainability projects in its manufacturing and delivery operations saved $1.2 million in fuel costs, reduced carbon dioxide emissions by 3,000 tons, and saved $4 million in material costs while eliminating 650 tons of solid waste. A $450,000 project at the State University of New York at Buffalo to upgrade a quarter of its older computer servers with more energy-efficient models saved $150,000 in annual energy costs while increasing computing capacity by 50%.

Identify and discuss some potential “green” projects at your university.

Figure 9.3 A Responsibility Assignment Matrix

GLOBAL AND DIVERSITY ISSUES IN PROJECT MANAGEMENT

In the existing global business environment, project teams form a mosaic of different genders, cultures, ethnicities, nationalities, religions, and races. Only by acknowledging and embracing this diversity will companies be able to attract the best people and achieve project success. Diversity offers a significant business advantage by providing a more well rounded perspective on a project from team members with different views, experiences, and values. The project leader must focus on creating common goals and objectives for the project by using good communication techniques and developing a cooperative environment that identifies common values and fosters mutual respect for differences. However, while a globally diverse project team can have advantages, project success typically requires respect for cultural differences and a management style that acknowledges these differences.

Global projects that involve companies and team members from different countries have expanded dramatically in recent years as a result of increased information and communication technology. Teamwork is a critical element in achieving project success, and in global projects diversity among international team members can add an extra dimension to project planning. For projects to be successful, cultural differences, idiosyncrasies, and issues must be considered as important parts of the planning process. The basics of project management tend to be universal, but cultural differences in priorities, nuances, and terminology can result in communication failures. Since English is used widely around the world, language is not necessarily an overriding problem. However, often it is not what people say that matters but what they mean.

An example of one cultural difference that can play havoc with developing project schedules is the difference in work days and holidays in different countries. Southern Europeans take a lot of holidays, which can mess up a project schedule if they are not planned for. In the United States you can ask people to move their vacations or work while on vacation (via phone or Internet), but in countries like France or Italy, don't ask. In India the work ethic is closer to the European than the U.S. model: when the day ends it's over, and weekends are inviolate. In some cultures, certain days are auspicious for starting a new venture or ending a task.

Some cultures tend to be less aggressive than others, and team members will avoid confrontation so that when problems on a project occur (such as cost overruns or missed due dates) they will not be as aggressively addressed as they might be in the United States or in Germany, for example. Some team members in underdeveloped countries may bow to the perceived superiority of those from developed countries and not aggressively press their points even though they may be correct. Some people may simply have trouble working with others with cultural differences. Team members may think they do not understand team members from a foreign country, when it's actually their culture they don't understand.

In Asian countries business typically employ a more methodical management style that values patience and building relationships. Project managers and team members in Japan consider establishing plans and providing direction to be more important managerial competencies than exist in the United States. What's considered to be micromanaging in the United States is the more common way of doing things in China. In Latin America a formal management style with specific managerial direction is a cultural trait. Business relationships are built slowly over time and they are based on trust and a sense of personal integrity. In Latin countries personal connections (that might include inquires into team members' personal lives) are often expected before business is transacted. In Malaysia a “boss” has almost absolute power over subordinates, whereas in Austria the perception is almost completely the opposite. The United States, Scandinavia, and many European countries fall somewhere in-between. In countries like the United Kingdom, Sweden, and Denmark, people tend to cope with uncertainty and unexpected events much better than people in Italy and Portugal.

ALONG THE SUPPLY CHAIN Project Management Diversity in China

China is the most likely country in the world where U.S. companies will be doing future global business. Business between U.S. and Chinese companies includes projects in which diversity and teamwork will be critical factors in determining project success. However, the cultural differences between the United States and China are probably as different as any two countries could be, thus making project teamwork a potential problem that requires special attention. That doesn't mean that the way things are done in the United States (or China) is better or worse, just different. Following are some examples of these cultural differences that should be addressed in order to achieve project success. First, while U.S. companies value individualism, China, reflecting 2,000 years of traditional Confucianism values, does not. Chinese managers can be good but their leadership style is typically different from U.S. project managers, using a more collaborative rather than direct leadership style. Relationships are very important in China. The Chinese word guanxi (Gwan-shee) refers to the strong reliance of business on social connections. A Chinese business partner with strong, well-placed relationships can enhance project success; however, such relationships are developed slowly. The Chinese focus on the “long-term” rather than the “short-term” view prevalent in many Western companies. “Face” or mianzi (me-ahn-zee) is very important in China. Every conversation, meeting, meal, social, or business engagement is an opportunity for an individual to gain or lose stature. Rudeness and anger have very negative consequences; raising your voice to a Chinese manager will cause him shame and embarrassment, and brand the offending person as a barbarian. Rank is important in China; people of high rank are given an extraordinary degree of deference. As such, instructions from team leaders are respected and followed, and advice from junior team members is not generally expected or valued. Humility helps; U.S. food is not better than Chinese food and the U.S. way of doing business is not better than the Chinese way, they're just different. Gifts are important in China, not so much for their intrinsic value as for their symbolic value (of respect). They should reflect a degree of thoughtfulness and effort, that is, not just a logo t-shirt. Patience is a respected virtue in China where time is used as a competitive tool. The little things can be important; learn the Chinese way of doing things like smiling, friendliness, and attention, which can pay off in successful teamwork.

Discuss the kind of training and personality characteristics that a company should look for in the U.S. members of a joint Chinese-American project.

As a result, the project manager must address the issue of cultural diversity up front in the planning process. Project managers have to approach diversity differently from country to country. The project manager should never assume that something that works at home will work abroad or that what will work in country A will work in country B. This makes cultural research and communication important elements in the planning process. The manager must determine what cultural faux pas must be avoided—the things you don't do. It's important to discover at the start what holidays and cultural celebrations exist and the work ethic of team members.

The project manager must often find team members who are particularly adept at bridging cultural differences. It may be helpful to identify a team associate who can keep the project manager and other team members informed of important cultural differences. Although long-distance communication via phone or e-mail is very easy, the face-to-face meeting is often better with someone with cultural differences, even with the added expense of travel.

PROJECT SCHEDULING

The project schedule evolves from the planning documents we discussed in the previous section. It is typically the most critical element in the project management process, especially during the implementation phase (i.e., the actual project work), and it is the source of most conflict and problems. One reason is that frequently the single most important criterion for the success of a project is that it be finished on time. If a stadium is supposed to be finished in time for the first game of the season and it's not, there will be a lot of angry ticket holders; if a school building is not completed by the time the school year starts, there will be a lot of angry parents; if a shopping mall is not completed on time, there will be a lot of angry tenants; if a new product is not completed by the scheduled launch date, millions of dollars can be lost; and if a new military weapon is not completed on time, it could affect national security. Time is also a measure of progress that is very visible. It is an absolute with little flexibility; you can spend less money or use fewer people, but you cannot slow down or stop the passage of time.

Developing a schedule encompasses the following basic steps. First, define the activities that must be performed to complete the project; second, sequence the activities in the order in which they must be completed; next, estimate the time required to complete each activity; and finally, develop the schedule based on this sequencing and time estimates of the activities.

Because scheduling involves a quantifiable measure, time, several quantitative techniques, including the Gantt chart and CPM/PERT networks, are available that can be used to develop a project schedule. There are also various computer software packages that can be used to schedule projects, including the popular Microsoft Project. Later in this chapter we are going to discuss CPM/PERT and Microsoft Project in greater detail. For now, we are going to describe one of the oldest and most widely used scheduling techniques, the Gantt chart.

THE GANTT CHART