Contents

PART ONE:

O P E R A T I O N S M A N A G E M E N T 1

Operations and Supply Chain Management Introduction 1 • What do Operations and Supply Chain

Managers Do? 3

The Operations Function 4 The Evolution of Operations and

Supply Chain Management 6

Globalization 9 The China Factor 10

• The Balancing Act at New Balance 12 India, at Your Service 12

Productivity and Competitiveness 13 Strategy and Operations 16

Primary Task 16 Core Competencies 17 Order Winners and Order Qualifiers 17 Positioning the Firm 18

Competing on Cost 18 Competing on Speed 18 Competing on Quality 19 Competing on Flexibility 19

• Strategy at Green Mountain Coffee 19 Strategy Deployment 20

Policy Deployment 20

Balanced Scorecard 21

Operations Strategy 23

Organization of this Text 24

Learning Objectives of this Course 24

Summary 25

Summary of Key Terms 25

Questions 26

Problems 27

Case Problem 1.1 —What Does It Take to Compete? 28

Case Problem 1.2—Visualize This 29

Case Problem 1.3—Whither an MBA at Strutledge? 29

Case Problem 1.4—Weighing Options at the Weight Club 30

References 30

SUPPLEMENT

Decision Analysis Support Tools and Processes 32

Decision Analysis 33 Decision Making Without Probabilities 33 Decision Analysis With Excel 36 Decision Analysis With OM Tools 36

Decision Making With Probabilities 37

Expected Value of Perfect Information 38

Sequential Decision Trees 39

Summary 41

Summary of Key Formulas 41

Summary of Key Terms 41

Solved Problem 41

Problems 42

Case Problem S 1.1—Whither an MBA at

Strutledge?—Continued 48

Case Problem S 1.2—Transformer Replacement at

Mountain States Electric Service 49

Case Problem S 1.3—Evaluating Projects at

Nexcom Systems 49

References 51

2 _ J Quality and Quality Management 52 What is Quality? 53

Quality from the Customer's Perspective 53 Dimensions of Quality for Manufactured Products 53 Dimensions of Quality for Services 55 Quality from the Producer's Perspective 55 A Final Perspective on Quality 56

Quality Management System 57 The Evolution of Quality Management 57

• Applying Deming's PDSA Cycle in a Public School System and a Hospital 59

Quality Tools 60 Process Flowcharts 61 Cause-And-Effect Diagrams 61 Check Sheets and Histograms 62 Pareto Analysis 62 Scatter Diagrams 63 Process Control Charts and Statistical Quality Control 64

TQM and QMS 64

The Focus of Quality Management—Customers 65 Quality Management in the Supply Chain 65 Measuring Customer Satisfaction 66

The Role of Employees in Quality Improvement 67 Kaizen and Continuous Improvement 67 Quality Circles 68 Process Improvement Teams 69

Quality in Services 69 Quality Attributes in Services 70

• Quick Service and Customer Satisfaction at Pal's Sudden Service 70

• Ritz-Carlton Hotels: Two-Time Baldrige National Quality Award Winner 71

xii Contents

Six Sigma 72 The Six Sigma Goal—3.4 DPMO 72

• Motorola's Six Sigma Quality 73 The Six Sigma Process 74 Improvement Projects 74

• Six Sigma Highlights 74 The Breakthrough Strategy: DMA1C 75

• North Shore University Hospital: A Six Sigma Project Example 75

Black Belts and Green Belts 76 Design for Six Sigma 77 The Bottom Line—Profitability 77

The Cost of Quality 78 The Cost of Achieving Good Quality 78 The Cost of Poor Quality 79

• The Cost of Poor Quality at Firestone 80 Measuring and Reporting Quality Costs 80 The Quality-Cost Relationship 82

• Reducing Quality Costs at Seagate Technology 82

The Effect of Quality Management on Productivity 83 Productivity 83 Measuring Product Yield and Productivity 83 The Quality-Productivity Ratio 86

Quality Awards 87 The Malcolm Baldrige Award 87 Other Awards for Quality 88

• Baldrige National Quality Award Winners: What It Takes 89

ISO 9000 89 Standards 90 Certification 90 Implications of ISO 9000 for U.S. Companies 90

• ISO 9001 Certification at Monarcas Morelia 91 ISO Registrars 93

Summary 93 Summary of Key Formulas 93 Summary of Key Terms 93 Solved Problems 94 Questions 95 Problems 97 Case Problem 2.1—Designing a Quality-Management

Program for the Internet at D4Q 99 Case Problem 2.2—Quality Management at State

University 99

Case Problem 2.3—Quality Problems at the Tech

Bookstores 100

Case Problem 2.4—Product Yield at Continental

Luggage Company 101

References 102

Process Capability and Statistical Process Control 103

The Basics of Statistical Process Control 104 SPC in Quality Management 105 Quality Measures: Attributes and Variables 105

SPC Applied to Services 106 Where to Use Control Charts 107

Control Charts 107

Control Charts for Attributes 108 p-Chart 109

• Using Control Charts for Improving Health-Care Quality 111

c-Chart 112 Control Charts for Variables 114

Mean (*- ) Chart 114 Range (R-) Chart 117 Using x- and /f-Charts Together 118

• Using Control Charts at Kentucky Fried Chicken 119 Control Chart Patterns 119

Sample Size Determination 121 SPC with Excel and OM Tools 122

Process Capability 123 Process Capability Measures 126

• Design Tolerances at Harley-Davidson Company 126

Process Capability with Excel and OM Tools 127

Summary 128

Summary of Key Formulas 128

Summary of Key Terms 129

Solved Problems 129

Questions 130

Problems 131

Case Problem 3.1—Quality Control at Rainwater Brewery 139

Case Problem 3.2—Quality Control at Grass, Unlimited 140

Case Problem 3.3—Improving Service Time at Dave's

Burgers 141

References 142

n ^ l SUPPLEMENT

I—ll Acceptance Sampl ing as Decision Support Analysis 143

Single-Sample Attribute Plan 144

Producer's and Consumer's Risks 144

The Operating Characteristic Curve 145

Developing a Sampling Plan with OM Tools 145

Average Outgoing Quality 147

Double- and Multiple-Sampling Plans 148

Summary 149

Summary of Key Terms 149

Solved Problem 149

Questions 150

Problems 150

4 _ J Designing Products 151 The Design Process 152

Idea Generation 152 • Great Ideas from IDEO 154

Feasibility Study 154 Rapid Prototyping 155 Form Design 155 Functional Design 155

Contents xi i i

Reliability 155 • Mazda 's New Concept Car Embodies Motion 155

Usability 159 Production Design 160 Final Design and Process Plans 161

Concurrent Design 162

Technology in Design 163 Collaborative Product Design 164 Design Review 165 Design for Environment 166

Extended Producer Responsibility 166 Sustainability 167

• The Greening of Wal-Mart 168

Quality Function Deployment 169

Design for Robustness 174

Summary 175

Summary of Key Terms 176

Summary of Key Formulas 176

Solved Problems 177

Questions 177

Problems 178

Case Problem 4.1—Lean and Mean 180

References 182

Designing Services 183 The Service Economy 184

Characteristics of Services 185

The Service Design Process 187 The Service-Process Matrix 188

Tools for Service Design 191 Service Blueprinting 191 Front-Office and Back-Office Activities 192 Servicescapes 192 Quantitative Techniques 192

• The Health Benefits of Good Design 193 Waiting Line Analysis for Service Improvement 193

Elements of Waiting Line Analysis 193 Elements of a Waiting Line 194 The Calling Population 194 The Arrival Rate 195 Service Times 195 Arrival Rate Less Than Service Rate 195 Queue Discipline and Length 195 Basic Waiting Line Structures 196

Operating Characteristics 196 Traditional Cost Relationships in Waiting

Line Analysis 197 The Psychology of Waiting 198

• Improving Waiting Time in England's National Health Service 199

Waiting Line Models 200 • The Psychology of Waiting at Bank of America 200

The Basic Single-Server Model 201 Service Improvement Analysis 203 Solution of the Single-Server Model with Excel 203 Advance Single-Server Models 204

Multiple-Server Model 205

The Basic Multiple-Server Model 205

Summary 209

Summary of Key Terms 209

Summary of Key Formulas 209

Solved Problems 210

Questions 211

Problems 212

Case Problem 5.1—Streamlining the Refinancing Process 216

Case Problem 5.2—Herding the Patient 217

Case Problem 5.3—The College of Business Copy Center 218

Case Problem 5.4—Northwoods Backpackers 218

References 219

Process Design and Technology Decisions 220

Process Planning 221 Outsourcing 221 Process Selection 222

• Zara 's Lightning Fast Processes 223 Process Selection with Break-even Analysis 225 Process Plans 227

Process Analysis 228 Process Flowcharts 229

• Making Fast Food Faster 231

Process Innovation 234 Steps in Process Innovation 235

• Progressive Innovates Processes 237

Technology Decisions 238 Financial Justification of Technology 238

• Too Much of a Good Thing Turns Bad for JetBlue 239

A Technology Primer 240

Summary 243

Summary of Key Terms 243

Summary of Key Formulas 243

Solved Problem 243

Questions 244

Problems 245

Case Problem 6.1—A Manager 's Woes 247

Case Problem 6.2—Wrong Meds, Again! 247

Case Problem 6.3—Hooptie Ride! 248

References 250

1 Capacity and Facilities Planning 251 Capacity Planning 252

Facilities 254 Objectives of Facility Layout 254

• Bank of America 's Towering Achievement in Green Design 255

Basic Layouts 256 Process Layouts 256 Product Layouts 257 Fixed-Position Layouts 258

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Designing Process Layouts 260 Block Diagramming 260 HR in Operations Management 307 Relationship Diagramming 262 Human Resources and Quality Management 309 Computerized Layout Solutions 264 The Changing Nature of Human Resources Management 310

Designing Service Layouts 264 The Assembly Line 310 Designing Product Layouts 265 Limitations of Scientific Management 310

Line Balancing 266 Employee Motivation 311 Computerized Line Balancing 269 • Human Resources Management at Baldrige

Hybrid Layouts 269 National Quality Award-Winning Cellular Layouts 269 Companies 312

Advantages of Cellular Layouts 271 Contemporary Trends in Human Resources Management 312 • Cellular Prowess at Buck Knives, Parker-Hannifin, lob Training 313

and Rowe Furniture 271 Cross Training 313 Disadvantages of Cellular Layouts 273 • Employee Training at Kyphon, Inc., and Triage

Flexible Manufacturing Systems 274 Consulting Group 314 Mixed-Model Assembly Lines 274 Job Enrichment 314

Summary 277 Empowerment 314

Summary of Key Formulas 277 Teams 315

Summary of Key Terms 277 Flexible Work Schedules 315

Solved Problems 278 Alternative Workplaces and Telecommuting 316

Questions 279 • Telecommuting at Merrill Lynch 317

Problems 280 Temporary and Part-Time Employees 317

Case Problem 7.1—Workout Plus 285 • Part-Time Employees

317 Case Problem 7.1—Workout Plus

286 at UPS 317

Case Problem 7.2—Photo Op—Please Line Up 286 318

Case Problem 7.2—Photo Op—Please Line Up 286

Employee Compensation 318 Case Problem 7.3—The Grab 'n Go Cafe 286

Employee Compensation 318 Case Problem 7.3—The Grab 'n Go Cafe

288 Types of Pay 318

References 288 Gainsharing and Profit Sharing

Managing Diversity in the Workplace

318

319 r r n SUPPLEMENT Affirmative Action and Equal

I I Facility Location Models Opportunity 319

Decision Support Tools 289 Diversity Management Programs 320 Decision Support Tools • A Commitment to Diversity at UPS and

Types of Facilities 290 Kodak 321 Site Selection: Where to Locate 290 Global Diversity Issues 322 Global Supply Chain Factors 291 Job Design 322

Regional and Community Location Factors The Elements of Job Design 323 in the United States 292 Task Analysis 323

Location Incentives 293 Worker Analysis 323 Geographic Information Systems 293 Environmental Analysis 323

Location Analysis Techniques 294 Ergonomics 324 Location Factor Rating 294 Technology and Automation 324 Location Factor Rating with Excel 295 Job Analysis 325 Center-of-Gravity Technique 295 Process Flowchart 325 Center-of-Gravity Technique with Excel 298 Worker-Machine Chart 326 Load-Distance Technique 298 Motion Study 327 Load-Distance Technique with Excel 300 Learning Curves 328

Summary 300 Determining Learning Curves with Excel 331 Summary of Key Formulas 301 Learning Curves with OM Tools 332

Summary of Key Terms 301 Summary 332

Solved Problem 301 Summary of Key Formulas 332

Questions 302 Summary of Key Terms 332

Problems 302 Solved Problem 333

Case Problem S7.1—Selecting a European Questions 333

Distribution Center Site for American International Problems 334

Automotive Industries 305 Case Problem 8.1—Maury Mills 335

References 306 References 337

Contents xv

8. SUPPLEMENT

Work Measurement Decision Analysis Support Tools

Time Studies Stopwatch Time Study Number of Cycles Elemental Time Files Predetermined Motion Times

Work Sampling Summary Summary of Key Formulas Summary of Key Terms Solved Problems Questions Problems

Case Problem S8.1—Measuring Faculty Work Activity

at State University References

9 Managing Projects

Project Planning Elements of a Project Plan The Project Team

• A Drug Development Project to Combat Malaria The Project Manager Scope Statement Work Breakdown Structure Responsibility Assignment Matrix

Global and Diversity Issues in Project Management

• Project Management Diversity in China

Project Scheduling

The Gantt Chart

Project Control Time Management Cost Management Quality Management Performance Management Communication

• Reconstructing the Pentagon after 9/11 Enterprise Project Management

CPM/PERT The Project Network AOA Network AON Network

• British Airport Authority's Terminal Project at Heathrow Airport

The Critical Path Activity Scheduling Activity Slack

Probabilistic Activity Times Probabilistic Time Estimates

CPM/PERT Analysis with OM Tools

Probabilistic Network Analysis

Microsoft Project PERT Analysis with Microsoft Project

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Project Crashing and Time-Cost Tradeoff Project Crashing

• Improving Air Flight Safety and Efficiency at the FAA

The General Relationship of Time and Cost

Summary

Summary of Key Formulas

Summary of Key Terms

Solved Problem

Questions

Problems

Case Problem 9.1—The Bloodless Coup

Concert

Case Problem 9.2—Moore Housing Contractors

References

PART TWO:

SUPPLY C H A I N M A N A G E M E N T

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Strategic Supply Chain Management and Design

Supply Chains Supply Chains for Service Providers Value Chains

• Successful Supply Chain Design at Toyota and Honda

The Management of Supply Chains Supply Chain Uncertainty and Inventory The Bullwhip Effect Risk Pooling

• Eliminating the Bullwhip Effect at Philips Electronics

Information Technology: A Supply Chain Enabler Electronic Business Electronic Data Interchange

• Strategic Supply Chain Design at 7-Eleven in Japan and the United States

Bar Codes Radio Frequency Identification The Internet Build-To-Order (BTO)

• Quick Supply Chain Responsiveness and Flexibility at Zara

Supply Chain Integration Collaborative Planning, Forecasting,

and Replenishment • Supply Chain Success at Harley-Davidson

Supply Chain Management (SCM) Software Measuring Supply Chain Performance

Key Performance Indicators Process Control SCOR

Summary

Summary of Key Terms Summary of Key Formulas

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xvi Contents

Solved Problem

Questions

Problems

Case Problem 10.1—Somerset Furniture Company's

Global Supply Chain

References

11. Supply Chain Procurement and Distribution Globalization

Procurement Outsourcing

• Supplier Awards at Intel E-Procurement

E-Marketplaces • Virtual Manufacturing at Palm Inc.

Reverse Auctions

Distribution Speed and Quality Amazon.com Distribution Centers and Warehousing Postponement

• Supply Chain Management at Royal Caribbean

Warehouse Management Systems Vendor-Managed Inventory

• Vendor-Managed Inventory (VMI) at Dell Collaborative Logistics Distribution Outsourcing

Transportation

Internet Transportation Exchanges The Global Supply Chain

Obstacles to Global Supply Chain Management Duties, Tariffs, and Global Trading Groups Landed Cost Web-Based International Trade Logistics Systems

• Global Supply Chains in France Recent Trends in Globalization for U.S.

Companies China's Increasing Role in the Global Supply

Chain Effects of 9/11 on Global Supply Chains

Summary of Key Terms Questions

Case Problem 11.1—Somerset Furniture Company's Global Supply Chain—continued

11. SUPPLEMENT

Transshipment and Transportat ion Decision Analysis Tools

The Transportation Model Solution of the Transportation Model with Excel

The Transshipment Model Solution of the Transshipment Problem with Excel

Summary

Summary of Key Terms

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Solved Problem

Problems

Case Problem SI 1.1—Stateline Shipping and Transport

Company

Case Problem SI 1.2—Global Supply Chain

Management at Cantrex Apparel International

References

12 Forecasting The Strategic Role of Forecasting in Supply Chain

Management Supply Chain Management

• Sharing Forecasts at Boeing and Alcoa Quality Management Strategic Planning

Components of Forecasting Demand Time Frame Demand Behavior Forecasting Methods Forecasting Process

• Forecasting at Dell Time Series Methods

Moving Average Weighted Moving Average Exponential Smoothing Adjusted Exponential Smoothing Linear Trend Line

• Forecasting Service Calls at Federal Express Seasonal Adjustments

• The CPFR Process at Bayer Consumer Care in the EU

Forecast Accuracy Mean Absolute Deviation Cumulative Error Forecast Control

Time Series Forecasting Using Excel

Forecasting with OM Tools Regression Methods

Linear Regression Correlation

Regression Analysis with Excel Multiple Regression with Excel

• Forecasting Demand in the Utilities Industry

Summary

Summary of Key Formulas

Summary of Key Terms

Solved Problems

Questions

Problems

Case Problem 12.1—Forecasting at State University

Case Problem 12.2—The University Bookstore Student

Computer Purchase Program

Case Problem 12.3—Cascades Swim Club

References

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Contents vii

1 I Role of Inventory Management 526 The Role of Inventory in Supply Chain

Management 528 Inventory and Quality Management in the

Supply Chain 529

The Elements of Inventory Management 529 Demand 530 Inventory Costs 530

Inventory Control Systems 531 Continuous Inventory Systems 532 Periodic Inventory Systems 533 The ABC Classification System 533

• Inventory Management at Dell 533 • Determining Supply Chain Strategy by

Evaluating Inventory Costs at Hewlett-Packard 535 Economic Order Quantity Models 536

The Basic EOQ Model 536 The Production Quantity Model 539 Solution of EOQ Models with Excel 542 Solution of EOQ Models with OM Tools 542

Quantity Discounts 543 Quantity Discounts with Constant Carrying Cost 543

• Electronic Auctions for Quantity-Discount Orders at Mars, Inc. 544

Quantity-Discount Model Solution with Excel 545

Reorder Point 546 Safety Stocks 546 Service Level 547 Reorder Point with Variable Demand 547

• Establishing Inventory Safety Stocks at Kellogg's 549

Determining the Reorder Point with Excel 549 Order Quantity for a Periodic Inventory System 549

Order Quantity with Variable Demand 550 Determining the Order Quantity for the Fixed-Period

Model with Excel 550

Summary 552

Summary of Key Formulas 552

Summary of Key Terms 552

Solved Problems 553

Questions 554

Problems 555

Case Problem 13.1—The Instant Paper Clip Office

Supply Company

Case Problem 13.2—The Texas Gladiators Apparel Store

Case Problem 13.3—Pharr Foods Company

References

13. SUPPLEMENT

Simulat ion Decision Analysis Tools and Technique

Monte Carlo Simulation

Computer Simulation with Excel

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567

Decision Making with Simulation 568

Areas of Simulation Application 571 Waiting Lines/Service 571 Inventory Management 571 Production and Manufacturing Systems 571 Capital Investment and Budgeting 571

Logistics 571 Service Operations 572 Environmental and Resource Analysis 572

Summary 572

Summary of Key Terms 572

Solved Problem 573

Questions 574

Problems 574

References 578

1 4 . Aggregate Sales and Operations Planning

The Sales and Operations Planning Process • Disney's Magic Numbers

Strategies for Adjusting Capacity Level Production Chase Demand

• Following the Harvest Peak Demand Overtime and Undertime Subcontracting Part-Time Workers Backlogs, Backordering, and Lost Sales

Strategies for Managing Demand Quantitative Techniques for Aggregate Planning

Pure Strategies

• How Dell Excells Mixed Strategies General Linear Programming Model The Transportation Method Other Quantitative Techniques

The Hierarchical Nature of Planning Collaborative Planing Avai lable-to-Promise

Aggregate Planning for Services Yield Management

Overbooking Fare Classes Single-Order Quantities

Summary

Summary of Key Terms

Solved Problems

Questions

Problems

Case Problem 14.1—Have a Seat, Bloke

Case Problem 14.2—Erin's Energy Plan

References

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xvii i Contents

1 4 . SUPPLEMENT

Linear Programming Decision Analysis Tools and Technique

Model Formulation

Graphical Solution Method

Linear Programming Model Solution

The Simplex Method

Slack and Surplus Variables

Solving Linear Programming Problems with Excel

Sensitivity Analysis

Sensitivity Ranges

Summary

Summary of Key Terms

Solved Problem

Questions

Problems

Case Problem SI4.1—Mossaic Tile Company

Case Problem S14.2—Summer Sports Camp at

State University

Case Problem S 14.3—Spring Garden Tools

Case Problem S14.4—Walsh's Juice Company

Case Problem SI4.5—Julia 's Food Booth

Case Problem SI4.6—The Sea Village Amusement Park

References

15 . Resource Planning Systems Material Requirements Planning (MRP)

When to Use MRP Dependent Demand Discrete Demand Complex Products Erratic Orders Assemble-to-Order

Master Production Schedule Product Structure File

Phantom Bills K-Bills Modular Bills Time-Phased Bills

Item Master File • Five Million Possibilities at

Hubbell Lighting The MRP Process Lot Sizing in MRP Systems

Economic Order Quantity Periodic Order Quantity

MRP Outputs Capacity Requirements Planning (CRP)

Calculating Capacity Load Profiles Overloads Load Leveling Relaxing MRP Assumptions

Enterprise Resource Planning (ERP) ERP Modules

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Finance/Accounting Sales/Marketing

• Enterprise Resource Planning at Cybex Production/ Materials Management Human Resources

ERP Implementation • Best-of-Breed at Best Buy

Analyze Business Processes Choose Modules to Implement Align Level of Sophistication Finalize Delivery and Access

• Operational Excellence at Nike Link with External Partners

Customer Relationship Management (CRM)

Supply Chain Management (SCM)

Product Lifecycle Management (PLM)

Connectivity and Integration

Summary

Summary of Key Terms

Questions

Solved Problem

Problems

Case Problem 15.1—Hosuki

References

16. Lean System Methods The Basic Elements of Lean Production

Flexible Resources Cellular Layouts The Pull System

• Lean Service at Jefferson Pilot Kanbans Small Lots Quick Setups Uniform Production Levels Quality at the Source

Visual Control Kaizen Jidoka

Total Productive Maintenance Supplier Networks

The Benefits of Lean Production

• As You Like It

Implementing Lean Production • TPS, A Learning Organization

Drawbacks of Lean Production

Lean Services Lean Retailing Lean Banking Lean Health Care

• Lean Retailing at Blockbuster Leaning the Supply Chain Lean Six Sigma Lean and the Environment

• Xerox is Back, Thanks to Lean Six Sigma Lean Consumption

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Contents xix

Summary 715

Summary of Key Formulas 715

Summary of Key Terms 715

Questions 716

Problems . 717

Case Problem 16.1 — T h e B litz is On 718

Case Problem 16.2—Where 's My Cart? 718

References 720

1 Z J Scheduling 722 Objectives in Scheduling 724

Loading 724 The Assignment Method of Loading 725

Sequencing 727 Sequencing Jobs through One Process 728 Sequencing Jobs through Two Serial

Processes 730 Guidelines for Selecting a Sequencing Rule 732

• Patient Scheduling 734 Monitoring 734

Gantt Charts 735 Input/Output Control 735

Advanced Planning and Scheduling Systems 738 • When Good Genes Make

Good Schedules 740

Theory of Constraints 740

Drum-Buffer-Rope 741

Process vs. Transfer Batch Sizes 741

Employee Scheduling 743

Automated Scheduling Systems 745

Summary 745

Summary of Key Formulas 746

Summary of Key Terms 746

Solved Problems 746

Questions 747

Problems 748

Case Problem 17.1—From a Different Perspective 751

References 752

Appendix A—Normal Curve Areas 755

Solutions to Selected Problems 757

Index 765