(Mt) – MGT 530 Saudi Electronic Operation Management Forecasting Applications Discussion

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Operations Management Operations Management THIRTEENTH EDITION William J. Stevenson Saunders College of Business Rochester Institute of Technology This book is dedicated to you. OPERATIONS MANAGEMENT, THIRTEENTH EDITION Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2018 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2015, 2012, and 2009. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 0 LWI 21 20 19 18 17 ISBN MHID 978-1-259-66747-3 1-259-66747-2 Chief Product Officer, SVP Products & Markets: G. Scott Virkler Vice President, General Manager, Products & Markets: Marty Lange Vice President, Content Design & Deliver: Betsy Whalen Managing Director: Tim Vertovec Senior Brand Manager: Charles Synovec Director, Product Development: Rose Koos Lead Product Developer: Michele Janicek Product Developer: Christina Holt / Ryan McAndrews Marketing Manager: Trina Maurer Senior Director of Digital Content: Douglas Ruby Digital Product Analyst: Kevin Shanahan Director, Content Design & Delivery: Linda Avenarius Program Manager: Mark Christianson Content Project Managers: Harvey Yep (Core) / Kristin Bradley (Assessment) Buyer: Sandy Ludovissy Design: Matt Diamond Content Licensing Specialists: Shawntel Schmitt (Image) / Beth Thole (Text) Typeface: 10/12 STIX Mathjax Main Compositor: SPi Global Printer: LSC Communications – Willard Cover images: © Andrew Bret Wallis/Getty Images; © Peopleimages.com/Getty Images; © Echo/Getty Images; © Jorg Greuel/Getty Images; © Monty Rakusen/Getty Images Library of Congress Cataloging-in-Publication Data Names: Stevenson, William J., author. Title: Operations management / William J. Stevenson, Saunders College of Business, Rochester Institute of Technology. Description: Thirteenth edition. | New York, NY : McGraw-Hill Education, [2018] | Series: The McGraw-Hill series in operations and decision sciences Identifiers: LCCN 2016052871| ISBN 9781259667473 (alk. paper) | ISBN 1259667472 (alk. paper) Subjects: LCSH: Production management. Classification: LCC TS155 .S7824 2018 | DDC 658.5–dc23 LC record available at https://lccn.loc.gov/2016052871 All credits appearing on page or at the end of the book are considered to be an extension of the copyright page. The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites. mheducation.com/highered The McGraw-Hill Series in Operations and Decision Sciences Operations Management Beckman and Rosenfield, Operations, Strategy: Competing in the 21st Century, First Edition Benton, Purchasing and Supply Chain Management, Second Edition Bowersox, Closs, Cooper, and Bowersox, Supply Chain Logistics Management, Fourth Edition Brown and Hyer, Managing Projects: A Team-Based Approach, First Edition Burt, Petcavage, and Pinkerton, Supply Management, Eighth Edition Cachon and Terwiesch, Operations Management, First Edition Cachon and Terwiesch, Matching Supply with Demand: An Introduction to Operations Management, Third Edition Cooper and Schindler, Business Research Methods, Twelfth Edition Finch, Interactive Models for Operations and Supply Chain Management, First Edition Fitzsimmons, Fitzsimmons, and Bordoloi, Service Management: Operations, Strategy, Information Technology, Eighth Edition Gehrlein, Operations Management Cases, First Edition Harrison and Samson, Technology Management, First Edition Hayen, SAP R/3 Enterprise Software: An Introduction, First Edition Hill, Manufacturing Strategy: Text & Cases, Third Edition Hopp, Supply Chain Science, First Edition Jacobs, Berry, Whybark, and Vollmann, Manufacturing Planning & Control for Supply Chain Management, Sixth Edition Jacobs and Chase, Operations and Supply Management: The Core, Fourth Edition Jacobs and Chase, Operations and Supply Management, Fifteenth Edition Jacobs and Whybark, Why ERP? First Edition Larson and Gray, Project Management: The Managerial Process, Seventh Edition Leenders, Johnson, and Flynn, Purchasing and Supply Management, Fifteenth Edition Olson, Introduction to Information Systems Project Management, Second Edition Schroeder, Goldstein, Rungtusanatham, Operations Management: Contemporary Concepts and Cases, Seventh Edition Seppanen, Kumar, and Chandra, Process Analysis and Improvement, First Edition Simchi-Levi, Kaminsky, and Simchi-Levi, Designing and Managing the Supply Chain: Concepts, Strategies, Case Studies, Third Edition Sterman, Business Dynamics: Systems Thinking and Modeling for Complex World, First Edition Stevenson, Operations Management, Thirteenth Edition Swink, Melnyk, Cooper, and Hartley, Managing Operations Across the Supply Chain, Third Edition Thomke, Managing Product and Service Development: Text and Cases, First Edition Ulrich and Eppinger, Product Design and Development, Fourth Edition Zipkin, Foundations of Inventory Management, First Edition Quantitative Methods and Management Science Hillier and Hillier, Introduction to Management Science: A Modeling and Case Studies Approach with Spreadsheets, Fifth Edition Stevenson and Ozgur, Introduction to Management Science with Spreadsheets, First Edition v Preface The material in this book is intended as an introduction to the field of operations management. The topics covered include both strategic issues and practical applications. Among the topics are forecasting, product and service design, capacity planning, management of quality and quality control, inventory management, scheduling, supply chain management, and project management. My purpose in revising this book continues to be to provide a clear presentation of the concepts, tools, and applications of the field of operations management. Operations management is evolving and growing, and I have found updating and integrating new material to be both rewarding and challenging, particularly due to the plethora of new developments in the field, while facing the practical limits on the length of the book. This text offers a comprehensive and flexible amount of content that can be selected as appropriate for different courses and formats, including undergraduate, graduate, and executive education. This allows instructors to select the chapters, or portions of chapters, that are most relevant for their purposes. That flexibility also extends to the choice of relative weighting of the qualitative or quantitative aspects of the material and the order in which chapters are covered because chapters do not depend on sequence. For example, some instructors cover project management early, others cover quality or lean early, etc. As in previous editions, there are major pedagogical features designed to help students learn and understand the material. This section describes the key features of the book, the chapter elements, the supplements that are available for teaching the course, highlights of the eleventh edition, and suggested applications for classroom instruction. By providing this support, it is our hope that instructors and students will have the tools to make this learning experience a rewarding one. What’s New in This Edition Class preparation exercises are now available for all chapters and chapter supplements. The purpose of these exercises is to introduce students to the subject matter before class in order to enhance classroom learning. These exercises are available in the Instructor’s Resource Manual. Special thanks to Linda Brooks for her help in developing the exercises. Some content has been rewritten or added to improve clarity, shorten wording, or update information. New material has been added on supply chains (including a different, more realistic, way to conceptualize supply chains), as well as on product life-cycle management, 3-D printing, drones, locations, and other topics. New critical thinking exercises have been added. The explanation of learning curve time reduction has been simplified with a new diagram. Some older readings have been deleted, and new readings added on such topics as fracking, mass customization of fast foods, and self-driving vehicles. Acknowledgments I want to thank the many contributors to this edition. Reviewers and adopters of the text have provided a “continuously improving” wealth of ideas and suggestions. It is encouraging to me as an author. I hope all reviewers and readers will know their suggestions were valuable, were carefully considered, and are sincerely appreciated. The list includes postpublication reviewers. Robert Aboolian, California State University—San Marcos Pamela Barnes, Kansas State University Greg Bier, University of Missouri Gary Black, University of Southern Indiana Jeff Brand, Marquette University Cenk Caliskan, Utah Valley University Cem Canel, University of North Carolina—Wilmington Jen-Yi Chen, Cleveland State University Robert Clark, Stony Brook University Dinesh Dave, Appalachian State University Abdelghani Elimam, San Francisco State Kurt Engemann, Iona College Michael Fathi, Georgia Southwestern State Warren Fisher, Stephen F. Austin State University Gene Fliedner, Oakland University Theodore Glickman, George Washington University Haresh Gurnani, University of Miami Johnny Ho, Columbus State University Ron Hoffman, Greenville Technical College Lisa Houts, California State University—Fresno Stella Hua, Western Washington University Neil Hunt, Suffolk University Faizul Huq, Ohio University Richard Jerz, St. Ambrose University George Kenyon, Lamar University Casey Kleindienst, California State University—Fullerton John Kros, East Carolina University vii viii Preface Anita Lee-Post, University of Kentucky Nancy Levenburg, Grand Valley State University F. Edward Ziegler, Kent State University Other contributors include accuracy checkers: Gary Black, University of Southern Indiana, Michael Godfrey, University of Wisconsin at Oshkosh, and Richard White, University of North Texas; Test Bank: Alan Cannon, University of Texas at Arlington; PowerPoints: David Cook, Old Dominion University; Data Sets: Mehdi Kaighobadi, Florida Atlantic University; Excel Templates and ScreenCam tutorials: Lee Tangedahl, University of Montana; Instructors Manual: Michael Godfrey. Special thanks goes out to Larry White, Eastern Illinois University, who helped revise, design, and develop interactive content in Connect ® Operations Management for this edition. Finally I would like to thank all the people at McGrawHill/Irwin for their efforts and support. It is always a pleasure to work with such a professional and competent group of people. Special thanks go to Dolly Womack, Senior Brand Manager; Michele Janicek, Lead Product Developer; Christina Holt and Ryan McAndrews, Product Developers; Harvey Yep and Kristin Bradley, Content Project Managers; Sandy Ludovissy, Buyer; Matt Diamond, Designer; Shawntel Schmitt and Beth Thole, Content Licensing Specialists; and many others who worked behind the scenes. I would also like to thank the many reviewers of previous editions for their contributions. Vikas Agrawal, Fayetteville State University; Bahram Alidaee, University of Mississippi; Ardavan Asef-Faziri, California State University at Northridge; Prabir Bagchi, George Washington State University; Gordon F. Bagot, California State University at Los Angeles; Ravi Behara, Florida Atlantic University; Michael Bendixen, Nova Southeastern; Ednilson Bernardes, Georgia Southern University; Prashanth N. Bharadwaj, Indiana University of Pennsylvania; Greg Bier, University of Missouri at Columbia; Joseph Biggs, Cal Poly State University; Kimball Bullington, Middle Tennessee State University; Alan Cannon, University of Texas at Arlington; Injazz Chen, Cleveland State University; Alan Chow, University of Southern Alabama at Mobile; Chrwan-Jyh, Oklahoma State University; Chen Chung, University of Kentucky; Robert Clark, Stony Brook University; Loretta Cochran, Arkansas Tech University; Lewis Coopersmith, Rider University; Richard Crandall, Appalachian State University; Dinesh Dave, Appalachian State University; Scott Dellana, East Carolina University; Kathy Dhanda, DePaul University; Xin Ding, University of Utah; Ellen Dumond, California State University at Fullerton; Richard Ehrhardt, University of North Carolina at Greensboro; Kurt Engemann, Iona College; Diane Ervin, DeVry University; Farzaneh Fazel, Illinois State University; Wanda Fennell, University of Mississippi at Hattiesburg; Joy Field, Boston College; ­Warren Fisher, Stephen F. Austin State University; Lillian Fok, University of New Orleans; Charles Foley, Columbus State Community College; Matthew W. Ford, Northern Kentucky University; Phillip C. Fry, Boise State University; Charles A. Gates Jr., Aurora University; Tom Gattiker, Boise State University; Damodar Golhar, Western Michigan University; Robert Graham, Jacksonville State University; Angappa Gunasekaran, University of Massachusetts at Dartmouth; Haresh Gurnani, University of Miami; Terry Harrison, Penn State University; Vishwanath Hegde, California State University at East Bay; Craig Hill, Georgia State University; Jim Ho, University of Illinois at Chicago; Seong Hyun Nam, University of North Dakota; Jonatan Jelen, Mercy College; Prafulla Joglekar, LaSalle University; Vijay Kannan, Utah State University; Sunder Kekre, Carnegie-Mellon University; Jim Keyes, University of Wisconsin at Stout; Seung-Lae Kim, Drexel University; Beate Klingenberg, Marist College; John Kros, East Carolina University; Vinod Lall, ­Minnesota State University at Moorhead; Kenneth Lawrence, New ­Jersey Institute of Technology; Jooh Lee, Rowan University; Anita Lee-Post, University of Kentucky; Karen Lewis, University of Mississippi; Bingguang Li, Albany State University; Cheng Li, California State University at Los Angeles; Maureen P. Lojo, California State University at Sacramento; F. Victor Lu, St. John’s University; Janet Lyons, Utah State University; James Maddox, Friends University; Gita Mathur, San Jose State University; Mark McComb, Mississippi College; George Mechling, Western Carolina University; Scott Metlen, University of Idaho; Douglas Micklich, Illinois State University; Ajay Mishra, SUNY at Binghamton; Scott S. Morris, Southern Nazarene University; Philip F. Musa, University of Alabama at Birmingham; Roy Nersesian, Monmouth University; Jeffrey Ohlmann, University of Iowa at Iowa City; John Olson, University of St. Thomas; Ozgur Ozluk, San Francisco State University; Kenneth Paetsch, Cleveland State University; Taeho Park, San Jose State University; Allison Pearson, Mississippi State University; Patrick Penfield, Syracuse University; Steve Peng, California State University at Hayward; Richard Peschke, Minnesota State University at Moorhead; Andru Peters, San Jose State University; Charles Phillips, Mississippi State University; Frank Pianki, Anderson University; Sharma Pillutla, T ­ owson University; Zinovy Radovilsky, California State University at Hayward; Stephen A. Raper, University of Missouri at Rolla; Pedro Reyes, Baylor University; Buddhadev Roychoudhury, Minnesota State University at Mankato; ­Narendra Rustagi, Howard University; Herb Schiller, Stony Brook ­University; Dean T. Scott, DeVry University; Scott J. Seipel, Middle Tennessee State University; Raj Selladurai, Indiana University; Kaushic Sengupta, Hofstra University; Kenneth Shaw, Oregon State University; Dooyoung Shin, Minnesota State University at Mankato; Michael Shurden, Lander University; Raymond E. Simko, Myers University; John Simon, Governors State University; Jake Simons, Georgia Southern University; Charles Smith, Virginia Commonwealth University; Kenneth Solheim, DeVry University; Young Son, Preface Bernard M. Baruch College; Victor Sower, Sam H ­ ouston State University; Jeremy Stafford, University of North ­Alabama; Donna Stewart, University of Wisconsin at Stout; Dothang Truong, Fayetteville State University; Mike Umble, Baylor University; Javad Varzandeh, California State University at San Bernardino; Timothy Vaughan, University of Wisconsin at Eau Claire; Emre Veral, Baruch College; Mark Vroblefski, University of Arizona; Gustavo Vulcano, New York University; Walter Wallace, Georgia State University; ix James Walters, Ball State University; John Wang, Montclair State University; Tekle Wanorie, Northwest Missouri State University; Jerry Wei, University of Notre Dame; Michael Whittenberg, University of Texas; Geoff Willis, University of Central Oklahoma; Pamela Zelbst, Sam Houston State University; Jiawei Zhang, NYU; Zhenying Zhao, University of Maryland; Yong-Pin Zhou, University of Washington. William J. Stevenson Walkthrough MAJOR STUDY AND LEARNING FEATURES A number of key features in this text have been specifically designed to help introductory students learn, understand, and apply Operations concepts and problem-solving techniques. Examples with Solutions Rev.Confirming Pages Throughout the text, wherever a quantitative or analytic technique is introduced, an example is included to illustrate the application of that technique. These are designed to be easy to follow. Chapter Three Forecasting EXAMPLE Determining a Regression Equation Sales of new houses and three-month lagged unemployment are shown in the following table. Determine if unemployment levels can be used to predict demand for new houses and, if so, derive a predictive equation. Period . . . . . . . . . . . 1 Units sold . . . . . . . . 20 Unemployment % (three-month lag) 7.2 1. 2 41 3 17 4 35 5 25 6 31 7 38 8 50 9 15 10 19 11 14 4.0 7.3 5.5 6.8 6.0 5.4 3.6 8.4 7.0 9.0 Plot the data to see if a linear model seems reasonable. In this case, a linear model seems appropriate for the range of the data. 50 Units sold, y 40 30 20 10 0 2 4 6 8 10 Level of unemployment (%), x 2. Check the correlation coefficient to confirm that it is not close to zero using the website template, and then obtain the regression equation: r = −.966 This is a fairly high negative correlation. The regression equation is y = 71.85 − 6.91x Note that the equation pertains only to unemployment levels in the range 3.6 to 9.0, because sample observations covered only that range. x 105 10 mhhe.com/stevenson13e S O L U T I O N 1. Competitive pressure often means that business organizations must frequently assess their competitors’ strengths and weaknesses, as well as their own, to remain competitive. 2. Strategy formulation is critical because strategies provide direction for the organization, so they can play a role in the success or failure of a business organization. 3. Functional strategies and supply chain strategies need to be aligned with the goals and strategies of the overall organization. 4. The three primary business strategies are low cost, responsiveness, and differentiation. 5. Productivity is a key factor in the cost of goods and services. Increases in productivity can become a competitive advantage. 6. High productivity is particularly important for organizations that have a strategy of low costs. competitiveness, 42 core competencies, 46 environmental scanning, 48 goals, 44 mission, 44 Solved Problems At the end of chapters and chapter supplements, “Solved Problems” are provided to illustrate problem solving and the core concepts in the chapter. These have been carefully prepared to help students understand the steps involved in solving different types of problems. The Excel logo indicates that a spreadsheet is available on the text’s website, to help solve the problem. mission statement, 44 operations strategy, 51 order qualifiers, 48 order winners, 48 productivity, 56 quality-based strategies, 53 strategies, 44 SWOT, 47 tactics, 45 time-based strategies, 53 Computing Productivity A company that processes fruits and vegetables is able to produce 400 cases of canned peaches in one-half hour with four workers. What is labor productivity? 400 cases Quantity produced Labor productivity = ________________ = ________________________ Labor hours 4 workers × 1 / 2 hour / worker = 200 cases per labor hour A wrapping-paper company produced 2,000 rolls of paper one day. Labor cost was $160, material cost was $50, and overhead was $320. Determine the multifactor productivity. Quantity produced Multifactor productivity = ______________________________ Labor cost + Material cost + Overhead 2,000 rolls = _______________ = 3.77 rolls per dollar input $160 + $50 + $320 Problem 2 mhhe.com/stevenson13e Solution Computing Multifactor Productivity Problem 3 mhhe.com/stevenson13e 705 Usable output Multifactor productivity = __________________________________ Labor cost + Material cost + Overhead cost 300 units = _____________________________________________________ (3 workers × 8 hours × $20 / hour) + (600 pounds × $1 / pound) + (3 workers × 8 hours × $20 / hour × 1.50) 300 units = ________________ $480 + $600 + $720 = .167units of output per dollar of input Solution Excel Spreadsheet Solutions ste67472_ch02_040-073.indd 63 Using earliest due date as the selection criterion, the job sequence is C-A-E-B-D-F. The measures of effectiveness are as follows (see table): (1) Average flow time: 110/6 = 18.33 days. (2) Average tardiness: 38/6 = 6.33 days. (3) Average number of jobs at the work center: 110/41 = 2.68. (3) mhhe.com/stevenson13e A variation of the multifactor productivity calculation incorporates the standard price in the First Pages numerator by multiplying the units by the standard price. TABLE 16.5 Excel solution for Example 2a (2) Problem 1 Solution Computing Multifactor Productivity Chapter Sixteen Scheduling (1) KEY TERMS SOLVED PROBLEMS Compute the multifactor productivity measure for an eight-hour day in which the usable output was 300 units, produced by three workers who used 600 pounds of materials. Workers have an hourly wage of $20, and material cost is $1 per pound. Overhead is 1.5 times labor cost. c. KEY POINTS (2) – (3) Where applicable, the examples and solved problems include screen shots of a spreadsheet solution. Many of these were taken from the Excel templates, which are on the text’s website. Templates are programmed to be fully functional in Excel 2013 and earlier. 01/06/17 09:11 PM xi CHAPTER ELEMENTS Within each chapter, you will find the following elements that are designed to facilitate study and learning. All of these have been carefully developed over many editions and have proven to be successful. Learning Objectives Every chapter and supplement lists the learning objectives to achieve when studying the chapter material. The learning objectives are also included next to the specific material in the margins of the text. Rev.Confirming Pages Confirming Pages 4 Product and Service Design LEARNING OBJECTIVES After completing this chapter, you should be able to: LO4.1 Explain the strategic importance of product and service design. LO4.2 Describe what product and service design does. LO4.3 Name the key questions of product and service design. LO4.4 Identify some reasons for design or redesign. LO4.5 List some of the main sources of design ideas. LO4.6 Discuss the importance of legal, ethical, and sustainability considerations in product and service design. LO4.7 Explain the purpose and goal of life cycle assessment. LO4.8 Explain the phrase “the 3 Rs.” LO4.9 Briefly describe the phases in product design and development. © Mark Lennihan/AP Images 4.11 Service Design, 165 Overview of Service Design, 165 Differences between Service Design and Product Design, 165 Phases in the Service Design Process, 166 Service Blueprinting, 167 Characteristics of Well-Designed Service Systems, 168 Challenges of Service Design, 168 Guidelines for Successful Service Design, 168 4.12 Operations Strategy, 169 Operations Tour: High Acres Landfill, 173 Chapter Supplement: Reliability, 174 LO4.10 Discuss several key issues in product or service design. LO4.11 Discuss the two key issues in service design. LO4.12 List the characteristics of well-designed service systems. LO4.13 List some guidelines for successful service design. C H A P T E R 4.1 O U T L I N E Introduction, 138 What Does Product and Service Design Do?, 138 Key Questions, 138 Reasons for Product or Service Design or Redesign, 139 4.2 Idea Generation, 140 4.3 Legal and Ethical Considerations, 143 4.4 Human Factors, 144 4.5 Cultural Factors, 145 4.6 Global Product and Service Design, 145 4.7 Environmental Factors: Sustainability, 146 Designing for Mass Customization, 154 Reliability, 155 Robust Design, 156 Degree of Newness, 157 Quality Function Deployment, 157 The Kano Model, 160 Cradle-to-Grave Assessment, 146 End-of-Life Programs, 146 The Three Rs: Reduce, Reuse, and Recycle, 146 Reduce: Value Analysis, 146 Reuse: Remanufacturing, 148 Recycle, 149 4.9 Phases in Product Design and Development, 161 4.8 Other Design Considerations, 151 4.10 Designing for Production, 162 Strategies for Product or Service Life Stages, 151 Product Life Cycle Management, 152 Degree of Standardization, 153 Concurrent Engineering, 162 Computer-Aided Design, 163 Production Requirements, 164 Component Commonality, 164 The essence of a business organization is the products and services it offers, and every LO4.1 Explain the strateaspect of the organization and its supply chain are structured around those products and gic importance of product services. Organizations that have well-designed products or services are more likely to and service design. realize their goals than those with poorly designed products or services. Hence, organizations have a strategic interest in product and service design. Product or service design should be closely tied to an organization’s strategy. It is a major factor in cost, quality, time-to-market, customer satisfaction, and competitive advantage. Consequently, marketing, finance, operations, accounting, IT, and HR need to be involved. Demand forecasts and projected costs are important, as is the expected impact on the supply chain. It is significant to note that an important cause of operations failures can be traced to faulty design. Designs that have not been well thought out, or incorrectly implemented, or instructions for assembly or usage that are wrong or unclear, can be the cause of product and service failures, leading to lawsuits, injuries and deaths, product recalls, and damaged reputations. The introduction of new products or services, or changes to product or service designs, can have impacts throughout the organization and the entire supply chain. Some processes may change very little, while others may have to change considerably in terms of what they do or how and when they do it. New processes may have to be added, and some current ones may be eliminated. New suppliers and distributors may need to be found and integrated into the system, and some current suppliers and distributors may no longer be an appropriate fit. Moreover, it is necessary to take into account projected impact on demand as well as financial, marketing, and distribution implications. Because of the potential for widespread effects, taking a “big picture” systems approach early and throughout the design or redesign process is imperative to reduce the chance of missing some implications and costs, and to understand the time it will take. Likewise, input from engineering, operations, marketing, finance, accounting, and supply chains is crucial. In this chapter you will discover insights into the design process that apply to both product and service design. 137 ste67472_ch04_136-173.indd 136 01/06/17 08:07 PM Chapter Outlines Opening Vignettes Every chapter and supplement includes an outline of the topics covered. Each chapter opens with an introduction to the important operations topics covered in the chapter. This enables students to see the relevance of operations management in order to actively engage in learning the material. xii ste67472_ch04_136-173.indd 137 01/16/17 04:35 PM Figures and Photos The text includes photographs and graphic illustrations to support ­student learning and provide interest and motivation. Approximately 100 ­carefully selected photos highlight the 13th edition. The photos illustrate applications of operations and supply chain concepts in many successful companies. More than 400 graphic illustrations, more than any other text in the field, are included and all are color coded with ­pedagogical ­consistency to assist students in understanding concepts. 56 Chapter Two Confirming Pages Chapter Six Process Selection and Facility Layout 244 FIGURE 6.1 Process selection and capacity planning influence system design Inputs Outputs Forecasting Facilities and equipment Capacity Planning Product and service design Layout Confirming Pages Process Selection Technological change Work design Competitiveness, Strategy, and Productivity A major key to Apple’s continued success is its ability to keep pushing the boundaries of innovation. Apple has demonstrated how to create growth by dreaming up products so new and ingenious that they have upended one industry after another. of where process selection and capacity planning fit into system design. Forecasts, product and service design, and technological considerations all influence capacity planning and process selection. Moreover, capacity and process selection are interrelated, and are often done in concert. They, in turn, affect facility and equipment choices, layout, and work design. How an organization approaches process selection is determined by the organization’s process strategy. Key aspects include: • Capital intensity: The mix of equipment and labor that will be used by the organization. • Process flexibility: The degree to which the system can be adjusted to changes in processing requirements due to such factors as changes in product or service design, changes in volume processed, and changes in technology. Pieter Beens/Shutterstock LO6.2 Name the two main factors that influence process selection. 6.2 PROCESS SELECTION Process choice is demand driven. The two key questions in process selection are: 1. 2. How much variety will the process need to be able to handle? How much volume will the process need to be able to handle? and business organizations need to be aware of the impact they Answers are havingtointhese thesequestions areas and will serve as a guide to selecting an appropriate process. Usually,tovolume andpressure variety groups are inversely related; a higher level of one means a lower level of the respond accordingly. Otherwise, organizations may be subject attack by other. However, the need for flexibility of personnel and equipment is directly related to the and risk damage to their reputation. LO2.6 Define the term productivity and explain why it is important to companies and to countries. Productivity A measure of the effective use of resources, usually expressed as the ratio of output to input. level of variety the process will need to handle: the lower the variety, the less the need for flexibility, while the higher the variety, the greater the need for flexibility. 2.7 PRODUCTIVITY There is another aspect of variety that is important. Variety means either having separate operations for each product or service, with a steady demand for each, or being willing to One of the primary responsibilities of a manager is to achieve productive useidle of an organizalive with some time, or to get equipment ready every time there is the need to change the tion’s resources. The term productivity is used to describe this. Productivity is an index thatservice being provided. product being produced or the Icons measures output (goods and services) relative to the input (labor, materials, energy, and other resources) used to produce it. It is usually expressed as the ratio of output to input: Process Types Icons are included in the text, to point out relevant applications in a discussion or concept. TheseOutput include: Excel icons to point Excel ScreenCam Tutorial and icons to Thereout are five basicapplications; process types: job and shop, batch, repetitive, continuous, project. Productivity = ______ (2–1) link toInput the tutorials on the text’s website. Job Shop. A job shopimporusually operates on a relatively small scale. It is used when a low Although productivity is important for all business organizations, it is particularly of high-variety goods tant for organizations that use a strategy of low cost, becausevolume the higher the productivity, the or services will be needed. Processing is intermittent; work includes small jobs, each with somewhat different processing requirements. High flexibility lower the cost of the output. A productivity ratio can be computed for a single operation, department, an organizausinga general-purpose equipment and skilled workers are important characteristics of a job tion, or an entire country. In business organizations, productivity are used forexample plan- of a job shop is a tool and die shop that is able to produce shop. Aratios manufacturing ning workforce requirements, scheduling equipment, financial analysis, and other important tasks. Productivity has important implications for business organizations and for entire nations. screenCam tutorial mhhe.com/stevenson13e For nonprofit organizations, higher productivity means lower costs; for profit-based organizations, productivity is an important factor in determining how competitive a company is. For a nation, the rate of productivity growth is of great importance. Productivity growth is the increase in productivity from one period to the next relative to the productivity in the preceding period. Thus, ste67472_ch06_242-295.indd 244 Current productivity − Previous productivity Productivity growth = _____________________________________ × 100 Previous productivity For example, if productivity increased from 80 to 84, the growth rate would be 84 − 80 ______ × 100 = 5% 80 01/06/17 07:38 PM (2–2) xiii Confirming Pages Chapter Five Strategic Capacity Planning for Products and Services 211 Operations Strategies 5.12 OPERATIONS STRATEGY The strategic implications of capacity decisions can be enormous, impacting all areas of the organization. From an operations management standpoint, capacity decisions establish a set of conditions within which operations will be required to function. Hence, it is extremely important to include input from operations management people in making capacity decisions. Flexibility can be a key issue in capacity decisions, although flexibility is not always an option, particularly in capital-intensive industries. However, where possible, flexibility allows an organization to be agile—that is, responsive to changes in the marketplace. Also, it reduces to a certain extent the dependence on long-range forecasts to accurately predict demand. And flexibility makes it easier for organizations to take advantage of technological and other innovations. Maintaining excess capacity (a capacity cushion) may provide a degree of flexibility, albeit at added cost. Some organizations use a strategy of maintaining a capacity cushion for the purpose of blocking entry into the market by new competitors. The excess capacity enables them to produce at costs lower than what new competitors can. However, such a strategy means higherthan-necessary unit costs, and it makes it more difficult to cut back if demand slows, or to shift to new product or service offerings. Efficiency improvements and utilization improvements can provide capacity increases. Such improvements can be achieved by streamlining operations and reducing waste. The chapter on lean operations describes ways for achieving those improvements. Bottleneck management can be a way to increase effective capacity, by scheduling nonbottleneck operations to achieve maximum utilization of bottleneck operations. In cases where capacity expansion will be undertaken, there are two strategies for determining the timing and degree of capacity expansion. One is the expand-early strategy (i.e., before demand materializes). The intent might be to achieve economies of scale, to expand market share, or to preempt competitors from expanding. The risks of this strategy include an oversupply that would drive prices down, and underutilized equipment that would result in higher unit costs. The other approach is the wait-and-see strategy (i.e., to expand capacity only after demand materializes, perhaps incrementally). Its advantages include a lower chance of oversupply due to more accurate matching of supply and demand, and higher capacity utilization. The key risks are loss of market share and the inability to meet demand if expansion requires a long lead time. In cases where capacity contraction will READING be undertaken, capacity disposal strategies DUTCH BOY BRUSHES become important. This can be the result of the need to replace aging equipment with newer equipment. It can also be the result of outsourcing and downsizing operations. The cost or Sherwin-Williams’ Dutch Boy Group put a revolutionary spin benefit of asset disposal should be taken into account when contemplating these actions. on paintcans with its innovative square-shaped Twist & Pour™ paint-delivery container for the Dirt Fighter interior latex paint line. The four-piece square container could be the first major change in how house paint is packaged in decades. Lightweight but sturdy, the Twist & Pour “bucket” is packed with so many conveniences, it’s next to impossible to mess up a painting project. Capacity refers to a system’s potential for producing goods or Best delivering overpackaging a specified time Winning of Show services in an AmeriStar competition sponsoredisbya the Institute Packaging the excluinterval. Capacity decisions are important because capacity ceiling onofoutput andProfessionals, a major determisive, all-plastic paint container stands almost 7½ in. tall and holds nant of operating costs. a bit lessthat thanwill 1 gal.be Rust-resistant and moisture-resistant, Three key inputs to capacity planning are the kind126 ofoz., capacity needed, how much will be the plastic bucket gives users a new way to mix, brush, and store needed, and when it will be needed. Accurate forecasts are critical to the planning process. paint. The capacity planning decision is one of the mostAimportant managers make. The hollow handledecisions on one sidethat makes it comfortable to pour and capacity decision is strategic and long-term in nature, often involvingsnap-in a significant investment [carry]. A convenient, pour spoutinitial neatly pours paint into traycases with no dripping but can be accrue removed over if desired, to allow of capital. Capacity planning is particularly difficultain where returns will a lengthy a wide brush to be dipped into the 5¾-in.-dia. mouth. Capping period and risk is a major consideration. the container is a large, twist-off lid that requires no tools to open A variety of factors can interfere with effective capacity, so effective capacity is usually somewhat or close. Molded with two lugs for a snug-finger-tight closing, less than design capacity. These factors include facilities design layout, factors, the threaded cap and provides a tighthuman seal to extend theproduct/ shelf life of service design, equipment failures, scheduling problems, and quality considerations. unused paint. the lid requiresLong-term no tools to access, the snap-off carry bail Capacity planning involves long-term and short-termWhile considerations. considerations relate is assembled container in “locked-down position” and to the overall level of capacity; short-term considerations relateontothe variations inacapacity requirements pulled upIdeally, after purchase for toting hangingdemand. on a ladder. due to seasonal, random, and irregular fluctuations can in be demand. capacity willormatch Large, nearly 4½-inch-tall label panels allow glossy front and back Thus, there is a close link between forecasting and capacity planning, particularly in the long term. In labels printed and UV-coated to wrap around the can’s rounded the short term, emphasis shifts to describing and coping with indisplay. demand. corners, forvariations an impressive Jim MacDonald, co-designer of the Twist & Pour and a packaging engineer at Cleveland-based Sherwin-Williams, tells Packaging Digest that the space-efficient, square shape is easier to ship and for retailers to stack in stores. It can also be nested, courtesy Readings Readings highlight important real-world applications, provide examples of production/operations issues, and offer further elaboration of the text material. They also provide a basis for classroom discussion and generate interest in the subject matter. Many of the end-of-chapter readings include assignment questions. ste67472_ch05_188-219.indd xiv 211 An Operations Strategy section is included at the ends of most chapters. These sections discuss how the chapters’ concepts can be applied and how they impact the operations of a company. Confirming Pages UP ITS PAINTS SUMMARY Courtesy of Dutch Boy of a recess in the bottom that mates with the lid’s top ring. “The new design allows for one additional shelf facing on an eight-foot rack or shelf area.” The labels are applied automatically, quite a feat, considering their complexity, size, and the hollow handle they likely encounter during application. MacDonald admits, “Label application was a challenge. We had to modify the bottle several times to accommodate the labeling machinery available.” Source: “Dutch Boy Brushes Up Its Paints,” Packaging Digest, October 2002. Copyright © 2002 Reed Business Information. Used with permission. smaller microprocessor that spawns a new generation of personal digital assistants or cell phones). Technology also can indirectly affect product and service 01/06/17 07:26 PMdesign: Advances in processing technology may require altering an existing design to make it compatible with the new processing technology. Still another way that technology can impact product design is illustrated by new digital recording technology that allows television viewers to skip commercials when they view a recorded program. This means that advertisers (who support a television program) can’t get their message to viewers. To overcome this, some advertisers have adopted a strategy of making their products an integral part of a television program, say by having their products prominently displayed and/or mentioned by the actors as a way to call viewers’ attention to their products without the need for commercials. The following reading suggests another potential benefit of product redesign. Technique Formula Exponential smoothing forecast Ft = Ft – 1 + α(At – 1 − Ft – 1) α = Smoothing factor Ft = a + bt where n∑ ty − ∑ t∑ y b = ______________ n∑ t 2 − (∑ t 2) a = y intercept b = Slope Linear trend forecast Definitions ∑ y − b∑ t a = ______ or ¯y − b¯t n Trend-adjusted forecast TAF t+1 = S t + T t where S t = TAF t + α( A t − TAF t) T t = T t−1 + β( TAF t − TAF t−1 − T t−1) t = Current period TAF t+1 = Trend-adjusted forecast for next period S = Previous forecast plus smoothed error T = Trend component Y c = a + bx where n(∑ xy) − (∑ x) (∑ y) b = ___________________ n(∑ x 2) − (∑ x 2) y c = Computed value of dependent variable x = Predictor (independent) variable b = Slope of the line a = Value of y c when x = 0 END-OF-CHAPTER RESOURCES Linear regression forecast For student study and review, the following items are provided at the end of each chapter or chapter supplement. ∑ y − b∑ x a = ______ or ¯y − b¯x n Standard error of estimate Tracking signal Control limits √ ________ Se = (y − y c) 2 ∑ _______ n−2 S e = Standard error of estimate y = y value of each data point n = Number of data points Summaries n ∑e TS t = _____ MAD _____ UCL = 0 + z √MSE _____ LCL = 0 − z √MSE _____ Chapters contain summaries that provide an overview of the material covered. √MSE = standard deviation z = Number of standard deviations; 2 and 3 are typical values Confirming Pages KEY POINTS 1. Demand forecasts are essential inputs for many business decisions; they help managers decide how much supply or capacity will be needed to match expected demand, both within the organization and in the supply chain. Key Points 2. Because of random variations in demand, it is likely that the forecast will not be perfect, so manChapter One Introduction to Operations Management 37 agers need to be prepared to deal with forecast errors. The key points of the chapter are emphasized. 3. Other, nonrandom factors might also be present, so it is necessary to monitor forecast errors to 7. What are models and why are they check important? for nonrandom patterns in forecast errors. 8. Why is the degree of customization in processtechnique planning?that is cost-effective and one that minimizes fore4. Itan is important important consideration to choose a forecasting castfor error. 9. List the trade-offs you would consider each of these decisions: Key Terms a. Driving your own car versus public transportation. b. Buying a computer now versus waiting for an improved model. Key terms are highlighted in the text and then repeated in the margin with brief definitions for emphasis. They are listed at the end of each chapter (along with page references) to aid in reviewing. c. Buying a new car versus buying a used car. d. Speaking up in class versus waiting to get called on by the instructor. Taking Stock and Critical Thinking Exercises e. A small business owner having a website versus newspaper advertising. 10. Describe each of these systems: craft production, mass production, and lean production. 11. Why might some workers prefer not to work in a lean production environment? 12. Discuss the importance of each of the following: a. Matching supply and demand Theseb. activities analytical thinking Managing a supply encourage chain List and briefly explain the four basic sources of variation, and explain why it is important for and13.help broaden conceptual managers to be able to effectively deal with variation.understanding. 14. Why do people do things that are unethical? A question related 15. Explain the term value-added.to ethics is included in the 16. Discuss the various impacts of outsourcing. Critical Thinking Exercises. 17. Discuss the term sustainability, and its relevance for business organizations. ste67472_ch03_074-135.indd 116 This item appears at the end of each chapter. It is intended to focus your attention on three key issues for business organizations in general, and operations management in particular. Those issues are trade-off decisions, collaboration among various functional areas of the organization, and the impact of technology. You will see three or more questions relating to these issues. Here is the first set of questions: Discussion and Review Questions 01/06/17 08:04 PM Each chapter and each supplement have a list of discussion and review questions. These precede the problem sets and are intended to serve as a student self-review or as class discussion starters. TAKING STOCK 1. What are trade-offs? Why is careful consideration of trade-offs important in decision making? 2. Why is it important for the various functional areas of a business organization to collaborate? 3. In what general ways does technology have an impact on operations management decision making? This item also will appear in every chapter. It allows you to critically apply information you learned in the chapter to a practical situation. Here is the first set of exercises: 1. Many organizations offer a combination of goods and services to their customers. As you learned in this chapter, there are some key differences between production of goods and delivery of services. What are the implications of these differences relative to managing operations? 2. Why is it important to match supply and demand? If a manager believes that supply and demand will not be equal, what actions could the manager take to increase the probability of achieving a match? 3. One way that organizations compete is through technological innovation. However, there can be downsides for both the organization and the consumer. Explain. 4. a. What would cause a business person to make an unethical decision? CRITICAL THINKING EXERCISES Confirming Pages b. What are the risks of doing so? Chapter Five Strategic Capacity Planning for Products and Services 216 Problem Sets Each chapter includes a set of problems for assignment. The problems have been refined over many editions and are intended to be challenging but doable for students. Short answers to most of the problems are included in Appendix A so that students can check their understanding and see immediately how they are progressing. ste67472_ch01_002-039.indd 37 PROBLEMS 1. Determine the utilization and the efficiency for each of these situations: a. A loan processing operation that processes an average of 7 loans per day. The operation has a design capacity of 10 loans per day and an effective capacity of 8 loans per day. b. A furnace repair team that services an average of four furnaces a day if the design capacity is six furnaces a day and the effective capacity is five furnaces a day. c. Would you say that systems that have higher efficiency ratios than other systems will always have higher utilization ratios than those other systems? Explain. 2. In a job shop, effective capacity is only 50 percent of design capacity, and actual output is 80 percent of effective output. What design capacity would be needed to achieve an actual output of eight jobs per week? 3. A producer of pottery is considering the addition of a new plant to absorb the backlog of demand that now exists. The primary location being considered will have fixed costs of $9,200 per month and variable costs of 70 cents per unit produced. Each item is sold to retailers at a price that averages 90 cents. 01/06/17 09:09 PM a. What volume per month is required in order to break even? b. What profit would be realized on a monthly volume of 61,000 units? 87,000 units? c. What volume is needed to obtain a profit of $16,000 per month? d. What volume is needed to provide a revenue of $23,000 per month? e. Plot the total cost and total revenue lines. 4. A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified, and the associated costs and revenues have been estimated. Annual fixed costs would be $40,000 for A and $30,000 for B; variable costs per unit would be $10 for A and $11 for B; and revenue per unit would be $15. a. Determine each alternative’s break-even point in units. b. At what volume of output would the two alternatives yield the same profit? c. If expected annual demand is 12,000 units, which alternative would yield the higher profit? 5. A producer of felt-tip pens has received a forecast of demand of 30,000 pens for the coming month from its marketing department. Fixed costs of $25,000 per month are allocated to the felttip operation, and variable costs are 37 cents per pen. xv Operations Tours These provide a simple “walkthrough” of an operation for students, describing the company, its product or service, and its process of managing operations. Companies featured include Wegmans Food Markets, Morton Salt, Stickley Furniture, and Boeing. OPERATIONS TOUR First Pages BRUEGGER’S BAGEL BAKERY Bruegger’s Bagel Bakery makes and sells a variety of bagels, output at each step in the process. At the stores, employees are including plain, onion, poppyseed, and cinnamon raisin, as well as instructed to watch for deformed bagels and to remove them when assorted flavors of cream cheese. Bagels are the major source of they find them. (Deformed bagels are returned to a processing plant revenue for the company. where they are sliced into bagel chips, packaged, and then taken First Pages The bagel business is a $3 billion industry. Bagels are very back to the stores for sale, thereby reducing the scrap rate.) Employpopular with consumers. Not only are they relatively low in fat, ees who work in the stores are carefully chosen and then trained they are filling, and they taste good! Investors like the bagel so that they are competent to operate the necessary equipment in industry because it can be highly profitable: it only costs about the stores and to provide the desired level of service to customers. $.10 to make a bagel, and they can be sold for $.50 each or more. The company operates with minimal inventories of raw materiAlthough some bagel companies have done poorly in recent years, als and inventories of partially completed bagels at the plant and due mainly to poor management, Bruegger’s business is booming; very little inventory of bagels at the stores. One reason for this CASE it is number one nationally, with over 450 shops that sell bagels, is to maintain a high degree of freshness in the final product by coffee, and bagel sandwiches for takeout or onpremise consumpcontinually supplying fresh product to the stores. A second reation. Many stores in the Bruegger’s chain generate an average of son is to keep costs down; minimal inventories mean less space is $800,000 in sales annually. needed for storage. Background Current Inventory Control System Production of bagels is done in batches, according to flavor, Harvey Industries, a Wisconsin company, specializes in the assemThe current inventory control “system” consists of orders for stock with each flavor being produced on a daily basis. Production of Questions bly of highpressure washer systems and in the sale of repair parts replenishment being made by the stockroom foreman, the purbagels at Bruegger’s begins at a processing plant, where the basic 1. Pages Bruegger’s for these systems. The products range from small portable highchasing manager, or the manufacturing managerFirst whenever one ofmaintains relatively little inventory at either its ingredients of flour, water, yeast, and flavorings are combined in plants or its retail stores. List the benefits and risks of this pressure washers to large industrial installations for snow removal them notices that the inventory is low. An order for replenishment a special mixing machine. After the dough has been thoroughly from vehicles stored outdoors during the winter months. Typical of inventory is also placed whenever someone (eitherpolicy. a customer mixed, it is transferred to another machine that shapes the dough uses for high-pressure water cleaning include: or an employee in the assembly area) wants an item it isisnot 2. and Quality very important to Bruegger’s. into individual bagels. Once the bagels have been formed, they in stock. a. What features of bagels do customers look at to judge their are loaded onto refrigerated trucks for shipping to individual Automobiles Airplanes Some inventory needed for the assembly quality? stores. When the bagels reach a store, is they are unloaded from theof the high-pressure Building maintenance Barns equipment for thethey car rise. washThe andfinal industrial applications. arepoints in the production process do workers check b. There At what trucks and temporarily stored while two steps current andtheaccurate bills of material for and these assemblies. Ice cream plants CASE Engines bagelThe quality? of processing involve boiling bagels in a kettle of water material needs to support the in assembly are Lift trucks Machinery c. generally List the steps in the production process, beginning with malt for one minute, and then baking the bagels an ovenschedule for known well in advance of the build schedule. purchasing ingredients, and ending with the sale, and state Swimming pools approximately 15 minutes. The majority of inventory transactions are for repair parts and can be positively affected at each step. how quality Background Current Inventory Control System The process is depicted in the figure. for supplies the car business. washes, such as paper towels, deterIndustrial customers include General Motors, Ford,Quality Chrysler, is an featureused ofcontrol a by successful CustomHarvey Industries, a Wisconsin company, specializes in the assemTheimportant current inventory “system” consists of orders 3. for Which stock inventory models could be used for ordering the ingreand by wax concentrate. Because of the and rugged Delta Airlines, United Parcel Service, and Shell Oil Company. ersparts judge thereplenishment qualitygent, of bagels their appearance (size, shape, andconstant bly of highpressure washer systems and in the sale of repair being made by the stockroom foreman, thedients pur- for bagels? Which model do you think would be most use of the car wash equipment, there istoa the steady demand for the for deciding how many bagels to make in a given Although the industrial applications are a significant part of itsand consistency. appropriate shine), are also sensitive for these systems. The products range from small portable high-taste, chasing manager,Customers or the manufacturing manager whenever one of various repairmake parts.their purchases. Bruegger’s sales, Harvey Industries is primarily an assembler service of equipment batch? they them receive when that they pressure washers to large industrial installations for snow removal notices the inventory is low. An order for replenishment The stockroom is well organized, with from parts stored in locationshas bagel-making machines at its plants. Another for coin operated self-service car wash systems. The typical car attention 4. Bruegger’s at every stage of operation, from vehicles stored outdoors during the winter months.devotes Typical careful of inventorytoisquality also placed whenever someone (either a customer according to each vendor. The number of vendors is relatively limwash is of concrete block construction with an equipment room in would be to have a bagel-making machine at each choosing suppliers ingredients, careful monitoring ingredients, uses for high-pressure water cleaning include: or an of employee in the assembly area) of wants an item and it possibility is not ited, with each vendor generally supplying many different the center, flanked on either side by a number of bays. The carsequipment store. parts. What advantages does each alternative have? and keeping in stock. in good operating condition to monitoring For example, the repair parts from Allen Bradley, a manufacturer are driven into the bays where the owner can wash and wax the Automobiles Airplanes Some inventory is needed for the assembly of the high-pressure of electrical motors, are stocked in the same location. These repair car, utilizing high-pressure hot water and liquid wax. A dollar bill Building maintenance Barns equipment for the car wash and industrial applications. There are parts will be used to provide service for the many electrical motors changer is available to provide change for the use of the equipcurrent and accurate bills of material for these assemblies. The Engines Ice cream plants that are part of the high-pressure pump and motor assembly used ment and the purchase of various products from dispensers. The material needs to support the assembly schedule are generally Liftproducts trucks include towels, Machinery Mixer by all of the car washes. of tire cleaner, and upholstery cleaner. known well in advance of Trays the build schedule. Swimming pools bagels The majority of inventory transactions are for repair parts and for supplies used by the car washes, such as paper towels, deterIndustrial customers include General Motors, Ford, Chrysler, President Shaper gent, and wax concentrate. Because of the constant and rugged Kettle Oven Delta Airlines, United Parcel Service, and Shell Oil Company. use of the car wash equipment, there plant is a steady demand for the Although the industrial applications are a significant part of its Processing A retail store various repair parts. sales, Harvey Industries is primarily an assembler of equipment The stockroom is well organized, with parts stored in locations for coin operated self-service car wash systems. The typical car Sales Purchasing according toController each vendor. The number of vendors is relatively limwash is of concrete block construction with an equipmentManufacturing room in manager manager many different parts. ited, with each vendor generally supplying the center, flanked on either side by a number of bays.manager The cars For example, the repair parts from Allen Bradley, a manufacturer are driven into the bays where the owner can wash and wax the of electrical motors, are stocked in the same location. These repair car, utilizing high-pressure hot water and liquid wax. A dollar bill parts will be used to provide service for the many electrical motors changer is available to provide change for the use of the equipthat are partQuality of the high-pressure pump and motor assembly used Stockroom ment and the purchase of various Assembly products from dispensers. The foreman foreman by all of the engineer car washes. products include towels, tire cleaner, and upholstery cleaner. HARVEY INDUSTRIES HARVEY INDUSTRIES FLOU R 604 xvi In recent years Harvey Industries has been in financial difficulty. President The company has lost money for three of the last four years, with the last year’s loss being $17,174 on sales of $1,238,674. Inventory levels have been steadily increasing to their present levels of $124,324. Untitled-5 604 The company employs management team Sales23 people with the Manufacturing manager consisting of the following key employees: manager president, sales manager, manufacturing manager, controller, and purchasing manager. The abbreviated organization chart reflects the reporting relationship of the key employees and the three individuals who report directly to the manufacturing manager.Stockroom Assembly foreman foreman In recent years Harvey Industries has been in financial difficulty. The company has lost money for three of the last four years, with the last year’s loss being $17,174 on sales of $1,238,674. Inventory Because of the heavy sales volume of repair parts, there are generally two employees working in the stockroom—a stockroom foreman who reports to the manufacturing manager and an assistant to the foreman. One of these two employees will handle customer orders. Many customers stop by and order the parts and supplies they need. Telephone Purchasingorders are also received and are Controller manager shipped by United Parcel Service the same day. The assembly area has some inventory stored on the shop floor. This inventory consists of low-value items that are used every day, such as nuts, bolts, screws, and washers. These purchased items do not amount to very much dollar volume throughout the year. Quality Cases The text includes short cases. The cases were selected to provide a broader, more integrated thinking opportunity for students without taking a full case approach. engineer (continued) Because of the heavy sales volume of repair parts, there are generally two employees working in the stockroom—a stockroom foreman who reports to the manufacturing manager and an assis- 601 01/10/17 06:31 PM INSTRUCTOR RESOURCES Available within Connect, instructors have access to teaching supports such as electronic files of the ancillary materials: Solutions Manual, Instructor’s Manual, Test Bank, PowerPoint Lecture Slides, Digital Image Library, and Excel Lecture scripts. Instructor’s Manual. This manual includes teaching notes, chapter overview, an outline for each chapter, and solutions to the problems in the text. Test Bank. Prepared by Larry R. White, Eastern Illinois University, the Test Bank includes over 2,000 true/false, multiple-choice, and discussion questions/problems at varying levels of difficulty. TestGen. TestGen is a complete, state-of-the-art test generator and editing application software that allows instructors to quickly and easily select test items from McGraw Hill’s testbank content. The instructors can then organize, edit and customize questions and answers to rapidly generate tests for paper or online administration. Questions can include stylized text, symbols, graphics, and equations that are inserted directly into questions using built-in mathematical templates. TestGen’s random generator provides the option to display different text or calculated number values each time questions are used. With both quick-and-simple test creation and flexible and robust editing tools, TestGen is a complete test generator system for today’s educators. PowerPoint Lecture Slides. Prepared by James Anthony Swaim, Kennesaw State University, the PowerPoint slides draw on the highlights of each chapter and provide an opportunity for the instructor to emphasize the key concepts in class discussions. Digital Image Library. All the figures in the book are included for insertion in PowerPoint slides or for class discussion. Operations Management Video Series The operations management video series, free to text adopters, includes professionally developed videos showing students applications of key manufacturing and service topics in real companies. Each segment includes on-site or plant footage, interviews with company managers, and focused presentations of OM applications in use to help the companies gain competitive advantage. Companies such as Zappos, FedEx, Subaru, Disney, BP, Chase Bank, DHL, Louisville Slugger, McDonald’s, Noodles & Company, and Honda are featured. xvii Required=Results ©Getty Images/iStockphoto McGraw-Hill Connect® Learn Without Limits Connect is a teaching and learning platform that is proven to deliver better results for students and instructors. Connect empowers students by continually adapting to deliver precisely what they need, when they need it, and how they need it, so your class time is more engaging and effective. 73% of instructors who use Connect require it; instructor satisfaction increases by 28% when Connect is required. Using Connect improves retention rates by 19.8%, passing rates by 12.7%, and exam scores by 9.1%. Analytics Connect Insight® Connect Insight is Connect’s new one-of-akind visual analytics dashboard—now available for both instructors and students—that provides at-a-glance information regarding student performance, which is immediately actionable. By presenting assignment, assessment, and topical performance results together with a time metric that is easily visible for aggregate or individual results, Connect Insight gives the user the ability to take a just-in-time approach to teaching and learning, which was never before available. Connect Insight presents data that empowers students and helps instructors improve class performance in a way that is efficient and effective. Mobile Connect’s new, intuitive mobile interface gives students and instructors flexible and convenient, anytime–anywhere access to all components of the Connect platform. Students can view their results for any Connect course. Adaptive THE ADAPTIVE READING EXPERIENCE DESIGNED TO TRANSFORM THE WAY STUDENTS READ More students earn A’s and B’s when they use McGraw-Hill Education Adaptive products. SmartBook® Proven to help students improve grades and study more efficiently, SmartBook contains the same content within the print book, but actively tailors that content to the needs of the individual. SmartBook’s adaptive technology provides precise, personalized instruction on what the student should do next, guiding the student to master and remember key concepts, targeting gaps in knowledge and offering customized feedback, and driving the student toward comprehension and retention of the subject matter. Available on tablets, SmartBook puts learning at the student’s fingertips—anywhere, anytime. Over 8 billion questions have been answered, making McGraw-Hill Education products more intelligent, reliable, and precise. www.mheducation.com SCREENCAM TUTORIALS Confirming Pages These screen “movies” and voiceover tutorials explain key chapter content, using Excel and other software platforms. screenCam tutorial Confirming Pages Chapter Three Forecasting 94 Chapter Three Forecasting 95 Trend-Adjusted Exponential Smoothing c. Substituting values of t into this equation, the forecasts for the next two periods A variation of simple(i.e., exponential smoothing usedare: when a time series exhibits a linear t = 11 and tcan =be12) trend. It is called trend-adjusted exponential smoothing or, sometimes, double smoothing, Trend-adjusted exponential F = 699.40 + 7.51(11) = 782.01 to differentiate it from 11 simple exponential smoothing, which is appropriate only when data smoothing Variation of expovary around an average have699.40 step or gradual changes. If = a series exhibits trend, and simple nential smoothing used when F12or = + 7.51(12) 789.52 smoothing is used on it, the forecasts will all lag the trend: If the data are increasing, each a time series exhibits a linear trend. forecast will be too low; if decreasing, each forecast will be too high. d. For purposes of illustration, the original data, the trend line, and the The trend-adjusted forecast (TAF) is composed of two elements—a smoothed error and a LO3.12 Prepare a trendtrend factor. (forecasts) are shown on the following graph: TAF t+1 = St + T t 800 where (3–11) Forecasts St = Previous forecast plus smoothed error Tt = Current trend estimate 780 and St = TAF t + α(At − TAF t ) α = Smoothing constant for average β = Smoothing constant for trend Excel Templates Sales Tt = Tt−1 + β (TAF t − TAF t−1 − Tt−1 ) where 760 two projections adjusted exponential smoothing forecast. screenCam tutorial (3–12) 740 Data through trial and Trend line In order to use this method, one must select values of α and β (usually error) and make a starting forecast and an estimate of trend. Using the cell phone data from the previous example (where it was concluded that the data 720 smoothing to obtain forecasts for exhibited a linear trend), use trend-adjusted exponential periods 6 through 11, with α = .40 and β = .30. The initial estimate of trend is based on the net change of 28 for the three changes from period 1 to period 4, for an average of 9.33. The700 Excel spreadsheet is shown in Table 3.2. Notice that an initial estimate of trend is estimated from the first four values and that the starting forecast (period 5) is developed using the previous (period 4) value of 728 plus the initial trend estimate: Templates created by Lee Tangedahl, University of Montana, are included on the OLC. The templates, over 70 total, include dynamically linked graphics and variable controls. They allow you to solve a number of problems in the text or additional problems. All templates have been revised to allow formatting of1 all2 cells, columns, and 3 4 hiding 5 6 7rows 8 9or 10 11 12 Starting forecast = 728 + 9.33 = 737.33 Week entering data or calculations in blank cells. Many of the templates have been expanded to accommodate solving Unlike a linear trend line, trend-adjusted smoothing has the ability to adjust to changes in trend. Of course, trend projections are much simpler with a trend line than with trendlarger problems and cases. adjusted forecasts, so a manager must decide which benefits are most important when choosing between these two techniques for trend. Techniques for Seasonality TABLE 3.1 Excel solution for Example 5 Seasonal variations in time-series data are regularly repeating upward or downward movements in series values that can be tied to recurring events. Seasonality may refer to regular annual variations. Familiar examples of seasonality are weather variations (e.g., sales of winter and summer sports equipment) and vacations or holidays (e.g., airline travel, greeting card sales, visitors at tourist and resort centers). The term seasonal variation is also applied to daily, weekly, monthly, and other regularly recurring patterns in data. For example, rush hour traffic occurs twice a day—incoming in the morning and outgoing in the late afternoon. Theaters and restaurants often experience weekly demand patterns, with demand higher later in the week. Banks may experience daily seasonal variations (heavier traffic during the noon hour and just before closing), weekly variations (heavier toward the end of the week), and monthly variations (heaviest around the beginning of the month because of Social Security, payroll, and welfare checks being cashed or deposited). Mail volume; sales of toys, beer, automobiles, and turkeys; highway usage; hotel registrations; and gardening also exhibit seasonal variations. ste67472_ch03_074-135.indd xx 95 Seasonal variations Regularly repeating movements in series values that can be tied to recurring events. 01/06/17 08:04 PM Note to Students . The material in this text is part of the core knowledge in your education. Consequently, you will derive considerable benefit from your study of operations management, regardless of your major. Practically speaking, operations is a course in management. This book describes principles and concepts of operations management. You should be aware that many of these principles and concepts are applicable to other aspects of your professional and personal life. You can expect the benefits of your study of operations management to serve you in those other areas as well. Some students approach this course with apprehension, and perhaps even some negative feelings. It may be that they have heard that the course contains a certain amount of quantitative material that they feel uncomfortable with, or that the subject matter is dreary, or that the course is about “factory management.” This is unfortunate, because the subject matter of this book is interesting and vital for all business students. While it is true that some of the material is quantitative, numerous examples, solved problems, and answers at the back of the book will help you with the quantitative material. As for “factory management,” there is material on manufacturing as well as on services. Manufacturing is important, and something that you should know about for a number of reasons. Look around you. Most of the “things” you see were manufactured: cars, trucks, planes, clothing, shoes, computers, books, pens and pencils, desks, and cell phones. And these are just the tip of the iceberg. So it makes sense to know something about how these things are produced. Beyond all that is the fact that manufacturing is largely responsible for the high standard of living people have in industrialized countries. After reading each chapter or supplement in the text, attending related classroom lectures, and completing assigned questions and problems, you should be able to do each of the following: 1. 2. 3. 4. Identify the key features of that material. Define and use terminology. Solve typical problems. Recognize applications of the concepts and techniques covered. 5. Discuss the subject matter in some depth, including its relevance, managerial considerations, and advantages and limitations. You will encounter a number of chapter supplements. Check with your instructor to determine whether to study them. This book places an emphasis on problem solving. There are many examples throughout the text illustrating solutions. In addition, at the end of most chapters and supplements you will find a group of solved problems. The examples within the chapter itself serve to illustrate concepts and techniques. Too much detail at those points would be counterproductive. Yet, later on, when you begin to solve the end-of-chapter problems, you will find the solved problems quite helpful. Moreover, those solved problems usually illustrate more and different details than the problems within the chapter. I suggest the following approach to increase your chances of getting a good grade in the course: 1. 2. 3. 4. Look over the chapter outline and learning objectives. Read the chapter summary, and then skim the chapter. Read the chapter and take notes. Look over and try to answer the discussion and review questions. 5. Solve the problems, referring to the solved problems and chapter examples as needed. Note that the answers to many problems are given at the end of the book. Try to solve each problem before turning to the answer. Remember—tests don’t come with answers. And here is one final thought: Homework is on the Highway to Happiness! Enjoy the journey! W.J.S. xxi Brief Contents Preface vii 1 Introduction to Operations Management 2 2 Competitiveness, Strategy, and Productivity 40 3 Forecasting 74 4 Product and Service Design 136 SUPPLEMENT TO CHAPTER 4: Reliability 174 5 Strategic Capacity Planning for Products and Services 188 SUPPLEMENT TO CHAPTER 5: Decision Theory 220 6 Process Selection and Facility Layout 242 7 Work Design and Measurement 296 SUPPLEMENT TO CHAPTER 7: Learning Curves 330 8 Location Planning and Analysis 342 9 Management of Quality 372 10 Quality Control 416 11 Aggregate Planning and Master Scheduling 462 12 MRP and ERP 500 13 Inventory Management 550 14 JIT and Lean Operations 608 SUPPLEMENT TO CHAPTER 14: Maintenance 644 15 Supply Chain Management 652 16 Scheduling 690 17 Project Management 730 18 Management of Waiting Lines 782 19 Linear Programming 822 Appendix A: Answers to Selected Problems 854 Appendix B: Tables 866 Appendic C: Working with the Normal Distribution 872 Company Index 877 Subject Index 879 xxiii Contents 2 Preface vii 1 Introduction to Operations Management 2 Introduction 41 Competitiveness 42 Mission and Strategies 44 Reading: Amazon Tops in Customer Service Introduction 4 Production of Goods Versus Providing Services 8 Why Learn About Operations Management? 10 Career Opportunities and Professional Societies 12 Process Management 13 The Scope of Operations Management 14 Reading: Why Manufacturing Matters 17 Dutch Tomato Growers’ Productivity Advantage 60 Productivity Improvement 62 T he Historical Evolution of Operations Management 21 Operations Today 24 Reading: Agility Creates a Competitive Edge 26 Summary 62 Key Points 63 Key Terms 63 Solved Problems 63 Discussion and Review Questions Taking Stock 64 Critical Thinking Exercises 65 Problems 65 Key issues for Today’s Business Operations 27 Readings: Universities Embrace Sustainability 28 Case Hazel Home-Style Cookies Hazel Revisited 33 68 69 “Your Garden Gloves” Operations Tour The U.S. Postal Service 36 70 70 Selected Bibliography and Further Readings 3 38 Selected Bibliography & Further Readings Problem-Solving Guide 39 64 Case An American Tragedy: How a Good Company Died 67 Diet and the Environment: Vegetarian vs. Nonvegetarian 29 Summary 36 Key Points 36 Key Terms 36 Discussion and Review Questions Taking Stock 37 Critical Thinking Exercises 37 38 45 Operations Strategy 51 Implications of Organization Strategy for Operations Management 54 Transforming Strategy into Action: The Balanced Scorecard 54 Productivity 56 Readings: Why Productivity Matters 59 perations Management and Decision O Making 18 Reading: Analytics 20 Operations Tour Wegmans Food Markets Competitiveness, Strategy, and Productivity 40 73 Forecasting 74 Introduction 76 Features Common to All Forecasts 77 Elements of a Good Forecast 78 xxv xxvi Contents Forecasting and the Supply Chain 78 Steps in the Forecasting Process 79 Forecast Accuracy 79 Reading: High Forecasts Can Be Bad News 80 Cultural Factors 145 Global Product and Service Design 145 Environmental Factors: Sustainability 146 Readings: Best Buy Wants Your Junk 147 Approaches to Forecasting 82 Qualitative Forecasts 82 Forecasts Based on Time-Series Data 84 Associative Forecasting Techniques 101 Monitoring Forecast Error 106 Choosing a Forecasting Technique 110 Using Forecast Information 111 Computer Software in Forecasting 112 Operations Strategy 112 Reading: Gazing at the Crystal Ball 113 Kraft Foods’ Recipe for Sustainability Summary 114 Key Points 116 Key Terms 117 Solved Problems 117 Discussion and Review Questions Taking Stock 124 Critical Thinking Exercises 124 Problems 124 Xerox Diverts 2 Billion Pounds of Waste From Landfills Through Green Initiatives 149 Recycle City: Maria’s Market Fast-Food Chains Adopt Mass Customization 155 P hases in Product Design and Development 161 Designing for Production 162 Service Design 165 Operations Strategy 169 Reading: The Challenges of Managing Services 169 Case M&L Manufacturing 134 4 Summary 170 Key Points 170 Key Terms 170 Discussion and Review Questions Taking Stock 171 Critical Thinking Exercises 171 Problems 172 135 Selected Bibliography and Further Readings 135 Product and Service Design 136 Reading: Design as a Business Strategy Operations Tour High Acres Landfill 138 170 173 Selected Bibliography and Further Readings Introduction 138 Readings: Product Redesign, Not Offshoring, Holds Cost Advantage for U.S. Manufacturers 139 Dutch Boy Brushes up Its Paints 149 Other Design Considerations 151 Readings: Lego A/S in the Pink 152 123 Highline Financial Services, Ltd. 148 173 SUPPLEMENT TO CHAPTER 4: Reliability 5 Idea Generation 140 Reading: Vlasic on a Roll with Huge Pickle Slices Strategic Capacity Planning for Products and Services 188 Introduction 189 Reading: Excess Capacity Can Be Bad News! 140 142 Legal and Ethical Considerations 143 Human Factors 144 Reading: Do You Want Pickled Beets with That? 145 174 190 Capacity Decisions are Strategic 191 Defining and Measuring Capacity 192 Determinants of Effective Capacity 193 Strategy Formulation 195 Forecasting Capacity Requirements 196 Contents dditional Challenges of Planning Service A Capacity 198 Do it in-House or Outsource it? 199 Reading: My Compliments to the Chef, er, Buyer 200 Developing Capacity Strategies Constraint Management 205 Evaluating Alternatives 205 Operations Strategy 211 Summary 211 Key Points 212 Key Terms 212 Solved Problems 212 Discussion and Review Questions Taking Stock 215 Critical Thinking Exercises 215 Problems 216 Critical Thinking Exercises 288 Problems 288 Selected Bibliography and Further Readings 7 219 SUPPLEMENT TO CHAPTER 5: Decision Curves Process Selection and Facility Layout 242 Introduction 243 Process Selection 244 Operations Tour Morton Salt 248 Technology 250 Readings: Foxconn Shifts its Focus to Automation Self-Driving Vehicles are on the Horizon 252 257 Process Strategy 257 Strategic Resource Organization: Facilities Layout 257 Reading: A Safe Hospital Room of the Future 267 Designing Product Layouts: Line Balancing Reading: BMW’s Strategy: Flexibility 278 Summary 283 Key Points 283 Key Terms 283 Solved Problems 283 Discussion and Review Questions Taking Stock 288 278 287 329 SUPPLEMENT TO CHAPTER 7: Learning Theory 220 Designing Process Layouts Work Design and Measurement 296 Summary 323 Key Points 323 Key Terms 324 Solved Problems 324 Discussion and Review Questions 325 Taking Stock 326 Critical Thinking Exercises 326 Problems 326 Selected Bibliography and Further Readings 215 Case Outsourcing of Hospital Services 219 6 295 Introduction 297 Job Design 297 Quality of Work Life 301 Methods Analysis 306 Motion Study 310 Work Measurement 311 Operations Strategy 322 200 Selected Bibliography and Further Readings xxvii 269 8 330 Location Planning and Analysis 342 The Need for Location Decisions 343 The Nature of Location Decisions 344 Global Locations 346 General Procedure for Making Location Decisions 348 Identifying a Country, Region, Community, and Site 349 Service and Retail Locations 356 Reading: Site Selection Grows Up: Improved Tech Tools Make the Process Faster, Better 357 Evaluating Location Alternatives Summary 364 Key Points 364 Key Terms 364 Solved Problems 364 Discussion and Review Questions Taking Stock 366 Critical Thinking Exercises 366 Problems 367 Case Hello, Walmart? 358 366 370 Selected Bibliography and Further Readings 370 Contents xxviii 9 Reading: Making Potato Chips Management of Quality 372 Introduction 373 Reading: Whatever Happened to Quality? 374 The Evolution of Quality Management 374 The Foundations of Modern Quality Management: The Gurus 375 Insights on Quality Management 378 Readings: The Sounds of Quality 380 Hyundai: Kissing Clunkers Goodbye 384 Rework and Morale 386 Quality Awards 386 Quality Certification 387 Quality and the Supply Chain 389 Reading: Improving Quality and Reducing Risk in Offshoring 390 Total Quality Management 390 Problem Solving and Process Improvement 394 Reading: What Keeps Six Sigma Practitioners up at Night? 397 Quality Tools 398 Reading: Benchmarking Corporate Websites of Fortune 500 Companies 406 Operations Strategy 406 Summary 406 Key Points 407 Key Terms 407 Solved Problem 407 Discussion and Review Questions Taking Stock 409 Critical Thinking Exercises 409 Problems 409 408 10 Quality Control 416 Introduction 417 Inspection 418 Summary 447 Key Points 447 Key Terms 449 Solved Problems 449 Discussion and Review Questions Taking Stock 454 Critical Thinking Exercises 454 Problems 454 Case Toys, Inc. Tiger Tools 453 460 460 Selected Bibliography and Further Readings 414 461 11 Aggregate Planning and Master Scheduling 462 Introduction 464 Reading: Duplicate Orders Can Lead to Excess Capacity 468 asic Strategies for Meeting Uneven Demand B Techniques for Aggregate Planning 474 Aggregate Planning in Services 481 Disaggregating the Aggregate Plan 483 Master Scheduling 483 The Master Scheduling Process 484 493 Case Eight Glasses a Day (EGAD) 412 Selected Bibliography and Further Readings Statistical Process Control 423 Process Capability 441 Operations Strategy 446 Reading: Bar Codes Might Cut Drug Errors in Hospitals 447 Summary 489 Key Points 489 Key Terms 490 Solved Problems 490 Discussion and Review Questions Taking Stock 493 Critical Thinking Exercises 493 Problems 493 Case Chick-N-Gravy Dinner Line 411 Tip Top Markets 422 498 Selected Bibliography and Further Readings 12 MRP and ERP 500 Introduction 501 An Overview of MRP 501 498 471 Contents MRP Inputs 502 MRP Processing 506 MRP Outputs 513 Other Considerations 514 MRP in Services 516 Benefits and Requirements of MRP 516 MRP II 517 Capacity Requirements Planning 519 ERP 521 Readings: The ABCs of ERP 523 The Top 10 ERP Mistakes Operations Strategy Summary 585 Key Points 586 Key Terms 587 Solved Problem 587 Discussion and Review Questions Taking Stock 592 Critical Thinking Exercises 592 Problems 593 Case UPD Manufacturing 592 600 Harvey Industries 601 Grill Rite 602 Farmers Restaurant 603 Operations Tour Bruegger’s Bagel Bakery 527 529 Summary 529 Key Points 529 Key Terms 530 Solved Problems 530 Discussion and Review Questions Taking Stock 539 Critical Thinking Exercises 540 Problems 540 xxix PSC, Inc. 604 605 Selected Bibliography and Further Readings 14 JIT and Lean Operations 608 539 Introduction 610 Reading: Toyota Recalls 612 Case Promotional Novelties 545 Supporting Goals 613 Building Blocks 614 Readings: General Mills Turns to Nascar to Reduce Changeover Time 617 Dmd Enterprises 546 Operations Tour Stickley Furniture 546 Selected Bibliography and Further Readings 607 549 “People” Firms Boost Profits, Study Shows 621 13 Inventory Management 550 Introduction 551 Reading: $$$ 552 Lean Tools 631 Reading: Nearby Suppliers Match Ford’s Mix The Nature and Importance of Inventories 552 Requirements for Effective Inventory Management 555 Reading: Radio Frequency Identification (RFID) Tags 557 Transitioning to a Lean System 633 Lean Services 634 Reading: To Build a Better Hospital, Virginia Mason Takes Lessons from Toyota Plants 636 Inventory Ordering Policies 561 How Much to Order: Economic Order Quantity Models 561 Reorder Point Ordering 573 How Much to Order: Fixed-Order-interval Model The Single-Period Model 580 Operations Strategy 585 JIT II 637 Operations Strategy 577 637 Summary 638 Key Points 639 Key Terms 639 Solved Problems 639 Discussion and Review Questions Taking Stock 640 Critical Thinking Exercises 640 Problems 640 640 633 Contents xxx Case Level Operations 641 Key Terms 685 Discussion and Review Questions Taking Stock 686 Critical Thinking Exercises 686 Problems 686 Operations Tour Boeing 642 Selected Bibliography and Further Readings Case Master Tag 643 SUPPLEMENT TO CHAPTER 14: Maintenance Introduction 654 Trends in Supply Chain Management 655 Reading: At 3M, a Long Road Became a Shorter Road Global Supply Chains 659 ERP and Supply Chain Management 659 Ethics and the Supply Chain 660 Small Businesses 660 Management Responsibilities 661 Procurement 662 Reading: IBMs Supply Chain Social Responsibility 658 665 675 Readings: Springdale Farm 677 RFID Tags: Keeping the Shelves Stocked Active RFID vs. Passive RFID 678 Creating An Effective Supply Chain 680 Reading: Clicks or Bricks, or Both? 681 684 Summary 685 Key Points 685 Scheduling Operations 692 Scheduling in Low-Volume Systems Scheduling Services 713 Operations Strategy 717 Summary 717 Key Points 717 Key Terms 718 Solved Problems 718 Discussion and Review Questions Taking Stock 722 Critical Thinking Exercises 722 Problems 723 Case Hi–Ho, Yo–Yo, Inc. 695 722 729 Selected Bibliography and Further Readings 729 17 Project Management 730 668 Supplier Management 669 Reading: NestléUSA and Ocean Spray Form Strategic Operations Alliance 671 Strategy 688 16 Scheduling 690 15 Supply Chain Management 652 Inventory Management 672 Order Fulfillment 673 Logistics 674 Operations Tour Wegmans’ Shipping System 687 Selected Bibliography and Further Readings 644 E-Business 666 Reading: E-Procurement at IBM 685 678 Introduction 732 Project Life Cycle 732 Behavioral Aspects of Project Management 733 Reading: Project Managers Have Never Been More Critical 738 Work Breakdown Structure 739 Planning and Scheduling with Gantt Charts 739 PERT and CPM 740 Deterministic Time Estimates 743 A Computing Algorithm 744 Probabilistic Time Estimates 751 Determining Path Probabilities 754 Simulation 756 Budget Control 757 Time–Cost Trade-offs: Crashing 757 Advantages of Using PERT and Potential Sources of Error 760 Critical Chain Project Management 761 Contents ther Topics in Project Management 761 O Project Management Software 762 Operations Strategy 763 Risk Management 763 Summary 764 Key Points 765 Key Terms 765 Solved Problems 765 Discussion and Review Questions Taking Stock 772 Critical Thinking Exercises 772 Problems 772 Summary 813 Key Points 814 Key Terms 814 Solved Problems 814 Discussion and Review Questions Taking Stock 816 Critical Thinking Exercises 816 Problems 816 Case Big Bank 772 820 781 18 Management of Waiting Lines 782 Why is There Waiting? 784 Managerial Implications of Waiting Lines 785 Reading: New Yorkers Do Not Like Waiting in Line 785 Goal of Waiting-Line Management 785 Characteristics of Waiting Lines 786 Measures of Waiting-Line Performance 790 Queuing Models: Infinite-Source 790 Queuing Model: Finite-Source 805 Constraint Management 811 The Psychology of Waiting 811 Reading: David H. Maister on the Psychology of Waiting 812 Operations Strategy 812 Reading: Managing Waiting Lines at Disney World 820 19 Linear Programming 822 781 Selected Bibliography and Further Readings 816 Selected Bibliography and Further Readings Case The Case of the Mexican Crazy Quilt 779 Time, Please xxxi Introduction 823 Linear Programming Models 824 Graphical Linear Programming 826 The Simplex Method 838 Computer Solutions 838 Sensitivity Analysis 841 Summary 844 Key Points 844 Key Terms 844 Solved Problems 844 Discussion and Review Questions Problems 847 Case Son, Ltd. 847 851 Custom Cabinets, Inc.© 852 Selected Bibliography and Further Readings 853 APPENDIX A Answers to Selected Problems 854 APPENDIX B Tables 866 APPENDIX C Working with the Normal Distribution 813 Company Index 877 Subject Index 879 872 TEN THINGS TO REMEMBER BEYOND THE FINAL EXAM 1 The way work is organized (i.e., project, job shop, batch, assembly, or continuous) has significant implications for the entire organization, including the type of work that is done, forecasting, layout, equipment selection, equipment maintenance, accounting, marketing, purchasing, inventory control, material handling, scheduling, and more. 2 Pay attention to variability, and reduce it whenever you can. Variability causes problems for management, whether it is variability in demand (capacity planning, forecasting, and inventory management), variability in deliveries from suppliers (inventory management, operations, order fulfillment), or variability in production or service rates (operations planning and control). Any of these can adversely affect customer satisfaction and costs. Recognize this, and build an appropriate amount of flexibility into systems. 3 “Homework is on the Highway to Happiness.” This relates not only to coursework, but also to your career: Be prepared for interviews, meetings, conferences, presentations (yours and others’), and other events. You can achieve a great deal of success by simply “doing your homework.” 4 How managers relate to subordinates can have a tremendous influence on the success or lack of success of an organization. Selection, training, motivation, and support are all important. One philosophy is: “Choose the right people, give them the tools they need, and then stay out of their way.” 5 Quality and price will always be prominent factors in consumers’ buying decisions. Strive to integrate quality in every aspect of what you do, and to reduce costs. 6 Pay careful attention to technology; consider both the opportunities and the risks. Opportunities: improvements in quality, service, and response time. Risks: technology can be costly, difficult to integrate, needs to be periodically updated (for additional cost), requires training, and quality and service may temporarily suffer when new technology is introduced. 7 Pay attention to capacity; the roads to success and failure both run through capacity. 8 Never underestimate your competitors. Assume they will always make the best decisions. 9 Most decisions involve tradeoffs. Understand the tradeoffs. 10 Make ethics a part of everything you do. 1 Introduction to Operations Management LEARNING OBJECTIVES After completing this chapter, you should be able to: LO1.1 Define the terms operations management and supply chain. LO1.2 Identify similarities and differences between production and service operations. LO1.3 Explain the importance of learning about operations management. LO1.4 Identify the three major functional areas of organizations and describe how they interrelate. LO1.5 Summarize the two major aspects of process management. LO1.6 Describe the operations function and the nature of the operations manager’s job. LO1.7 Explain the key aspects of operations management decision making. LO1.8 Briefly describe the historical evolution of operations management. LO1.9 Describe current issues in business that impact operations management. LO1.10 Explain the need to manage the supply chain. C H A P T E R 1.1 O U T L I N E Introduction 4 1.2 Production of Goods versus Providing Services 8 1.3 Why Learn about Operations Management? 10 1.4 Career Opportunities and Professional Societies 12 1.5 Process Management 13 Managing a Process to Meet Demand 13 Process Variation 14 1.6 The Scope of Operations Management 14 Managing the Supply Chain to Achieve Schedule, Cost, and Quality Goals 15 2 1.7 Operations Management and Decision Making 18 Models 18 Quantitative Approaches 19 Performance Metrics 19 Analysis of Trade-Offs 19 Degree of Customization 20 A Systems Approach 20 Establishing Priorities 20 1.8 The Historical Evolution of Operations Management 21 The Industrial Revolution 21 Scientific Management 21 The Human Relations Movement 24 Decision Models and Management Science 24 The Influence of Japanese Manufacturers 24 1.9 Operations Today 24 1.10 Key Issues for Today’s Business Operations 27 Environmental Concerns 27 Ethical Conduct 29 The Need to Manage the Supply Chain 30 Elements of Supply Chain Management 32 Operations Tour: Wegmans Food Markets 33 Case: Hazel 38 Problem Solving Guide 39 O FP Michie Turpin/Piedmont Healthcare Recalls of automobiles, foods, toys, and other products; major oil spills; and even dysfunctional state and federal legislatures are all examples of operations failures. They underscore the need for effective operations management. Examples of operations ­successes include the many electronic devices we all use, medical breakthroughs in diagnosing and treating ailments, and high-quality goods and services that are widely available. Operations is what businesses do. Operations are processes that either provide services or create goods. Operations take place in businesses such as restaurants, retail stores, supermarkets, factories, hospitals, and colleges and universities. In fact, they take place in every business organization. Moreover, operations are the core of what a business organization does. As you read this book, you will learn about managing those operations. The subject matter is relevant for you regardless of your major. Productivity, quality, e-business, competition, and customer satisfaction are important for every aspect of a business organization. This first chapter presents an introduction and overview of operations management. Among the issues it addresses are: What is operations management? Why is it important? What do operations management professionals do? The chapter also provides a description of the historical evolution of operations management and a discussion of the trends and issues that impact operations management. You will learn about (1) the economic balance that every business organization seeks to achieve; (2) the condition that generally exists that makes achieving the economic balance challenging; (3) the line function that is the core of every business organization; (4) key steps in the history and evolution of operations management; (5) the differences and similarities between producing products and delivering services; (6) what a supply chain is, and why it is essential to manage it; and (7) the key issues for today’s business operations. 3 Chapter One Introduction to Operations Management 4 LO1.1 Define the terms operations management and supply chain. Goods Physical items produced by business…



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