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Unit 7: Process Control Charts

The designation is relative. Core and non-core activities can change depending on the perception Notes
of management. For example, when TELCO put up its Jamshedpur plant, it decided to have its

own foundry and forge divisions. These were considered core activities that would reflect upon
the quality of the TATA vehicle.
However, when TELCO expanded its operations to Pune, the management decided that the
investment in a forge plant was not warranted, but a foundry was. Gradually, as the capacity of
TELCO increased, the management realized that it would be better off by investing in expansion
of its automobile assembly capacity and engine manufacture rather than in forgings or castings.
Today, most of the forgings and casting required by TELCO are outsourced.
How many activities—related to the product—that the organization performs depend on
its Operations Management strategy and the investments required for backward or forward
integration. Not all the components need necessarily be produced or activities be performed
by the organization. The manufacture of automobiles, once the most vertically integrated of all
businesses, is now among the most disaggregated.
Companies are focusing on the functions they can best perform, and outsource the rest to their
partners. Designated non-core activities or secondary activities are often outsourced to a specialist

to realize not only higher performance levels but also significant savings.
The Operations Management manager must assess the current performance of a process or asset
and also it’s potential for improvement so as to take a correct decision regarding outsourcing. He
must judge whether suppliers are meeting standards and are abreast with changes in the field.

When managed well, assets will follow the operators—inside or outside an organization—that
can create the most value.
By shedding assets, some organizations boost their return on invested capital in the short
term. They take on the roles as product designers, solutions providers, industry innovators, or
supply chain integrators. But in handing over capital-intensive manufacturing assets to outside
suppliers, companies may be losing the very skills and processes that have distinguished them
in the marketplace.

Organizations need to critically assess the pros and cons of limiting its manufacturing investments,
and ensure the decision implemented improves its company’s performance by maximizing the
products value.

For example, Nokia has been working towards improving the productivity of its existing assets
and integrating its sourcing, sales, and manufacturing efforts. The company has designed its new
Beijing complex, for example, to assemble phones with zero inventories for the supply base that
it manages. All components come from their suppliers.
The basis for decisions on outsourcing or vertical integration is knowledge of the true cost of
manufacturing goods internally against the cost of acquiring these goods from suppliers. A good
decision is based on the assessment by the senior management in the light of the following three
dimensions of performance:
1. Strategic: Does owning or enjoying preferential access to the asset have any strategic
importance? How does the company’s manufacturing strategy meet the needs of its overall
business strategy? For example, TELCO took a decision on building a forge division at
Jamshedpur, when the forging industry in the country was not developed. It gave TELCO
the advantage that it was certain of the quality of the TATA vehicle, especially as the
steering components were forgings.
2. Operational: What are the performance targets and needs of the manufacturing process
and the supply chain? What are the optimal supply chain arrangements for meeting those
targets? In the case of the TELCO, the closest forging units were Wyman Gordon and
Bharat Forge. Both were on the west coast, while Jamshedpur was located on the east coast.
Neither of these companies was in a position to come forward in delivering in a crisis.

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