This weekend was the 50th Anniversary Rolex 24 at Daytona, a 24-hour sports-car endurance race, at the great Daytona International Speedway.  Each entry requires 3-5 drivers to trade shifts, as well as a host of mechanics, technicians, and engineers.

In a 24-hour race, there is bound to be many caution flags and technical issues.  Throughout the race, car after car was set back by, or even dropped out of the race due to engine, transmission, and gear box troubles.  And I began to realize why there is so much emphasis on the manufacturer of the winning team, as Ford swept the podium this Sunday.

As I watched Ford take home 1^st, 2^nd, and 3^rd, I remembered an article I read in the Wall Street Journal a couple years ago – “At Ford Racing, Quality (Control) Is Job One.” (I would suggest to read it if you have the chance!)  The article discusses the impact Mary Ann Mauldwin has had as the director of operations at Roush & Yates Racing Engines, Ford’s primary NASCAR-engine builder.

Ms. Mauldwin has worked with Pelton & Crane (a dental equipment company) and Thorlo (a sock manufacturer) – both of which have a little or nothing to do with automobiles.  And apparently she is part of a larger trend in NASCAR.  (See article, “For decades, the sport was dominated…”)

I saw this as testament to the universal application of the operations management principles we have learned in class.  Ms. Mauldwin had said, “building engines was no different from making athletic socks.”  A lot of what she had done is basic inventory management.  She created a new inventory tracking system, standard bill of materials, and an improved forecasted inventory demand.  Her new system has cut the time it takes engine builders to gather parts from four hours to 45 minutes, which would be a 533% increase in laborer productivity.  She also improved supply chain management, as she worked with suppliers to improve the quality of parts and turned their used-parts sales into a lucrative business.

In class we stressed the importance of standardization.  She utilized standardization to identify whether a change represents a real & consistent improvement.

“She required engine builders to submit an engineering change form if they wanted to alter anything in the building process… Mr. Yates, the CEO, also started to see improvements in the quality and the consistency of the company’s engines. His five primary engine builders had each put an engine together a little differently. After Ms. Mauldwin standardized the process, “we were turning out nearly identical engines in terms of performance and reliability,” he said.”

What other advantages are there to a standardized process?

Lastly, due to the topic & since this will be my last post, I felt inclined to post a couple other NASCAR related operations questions:  What do you believe is the usual bottleneck of a pit crew?  What do you think they can/already do to remove this bottleneck?  Also, how might inventory management come into play for a pit crew?

 

Have you ever had a poor experience at a store, restaurant, or your own workplace, where you thought you could do it better?  Did it take too long for you to get your food from McDonald’s?  Maybe the clothes at Macy’s were unorganized? Or maybe you think your boss is incompetent, and you could manage yourself better?  I know I have on countless occasions, and in a sense this is what private equity firms do.  They buy businesses that are under performing or mismanaged, increase profitability, and then turn around and sell them for a steep profit.  In order to determine prospective investments worth, PE firms will forecast companies’ future earnings present value as well as the business’ expected re-sale value.  Before the recent financial crisis, financial engineering was a primary driver behind private equity returns. Now, private equity firms must utilize a wider set of strategies to see similar gains.

Their use of debt to buy businesses and re-sell them had once created massive profits, but as leverage becomes less obtainable (due to the recent financial crisis) – so do their profits.  Firms are not as easily able to quickly turn around and sell investments for “outsized” profits through delevering alone. Firms now are increasingly having to rely on rises in earnings through improved operations to generate similar returns.  As a result, these finance-driven firms are building, expanding, and focusing on in-house operations managers.

This change in focus amongst PE firms reminded me of an example from class, where the most efficient means of increasing our bottom line was reducing COGS by 30%.  An industry fueled by structuring debt and leveraged buyouts has returned to its foundation of improving operations; although, it seems to make perfect sense.  As mentioned in several previous comments and posts, operations management is anything but restricted to manufacturing.  PE firms are some of the most diverse, and with every business they purchase, they hope to generate revenue through better operations.

For some reason the WSJ seemed to look down on this change in the industry, “Today, the buyout business has become downright mundane.”  I happen to feel the exact opposite.  No longer can PE firms simply take advantage of easily available credit to turn a profit.  They have been forced to evolve and focus on improving operations to promote growth and long-term success for their investments.

Operations management is often the cause of success, or failure in any endeavor.  To stay profitable, private equity firms have been forced to return to their roots of business, and focus on operations.  Can you think of any business, or even daily activity that could improve operations using a strategy mentioned in class?

Main article derived from: http://online.wsj.com/article/SB10001424052970204331304577142911094483628.html