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ISBN-13: 978-0-13-413042-2 ISBN-10: 0-13-413042-1

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OPER ATIONS MANAGEMENT Sustainability and Supply Chain Management

TWELFTH EDITION

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TWELFTH EDITION

JAY HEIZER | BARRY RENDER | CHUCK MUNSON

HEIZER RENDER MUNSON

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T W E L F T H E D I T I O N

O P E R A T I O N S MANAGEMENT Sustainability and Supply Chain Management

HEIZER J A Y

RENDER B A R R Y

Jesse H. Jones Professor of Business Administration Texas Lutheran University

Charles Harwood Professor of Operations Management Graduate School of Business Rollins College

Boston Columbus Indianapolis New York San Francisco Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto

Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

C H U C K

MUNSON Professor of Operations Management Carson College of Business Washington State University

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Library of Congress Cataloging-in-Publication Data

Heizer, Jay. [Production and operations management] Operations management; sustainability and supply chain management / Jay Heizer, Jesse H. Jones Professor of Business Administration, Texas Lutheran University, Barry Render, Charles Harwood Professor of Operations Management, Crummer Graduate School of Business, Rollins College, Chuck Munson, Professor of Operations Management, Carson College of Business, Washington State University. -- Twelfth edition. pages cm Original edition published under the Title: Production and operations management. Includes bibliographical references and index. ISBN 978-0-13-413042-2 -- ISBN 0-13-413042-1 1. Production management. I. Render, Barry. II. Munson, Chuck. III. Title. TS155.H3725 2015 658.5--dc23 2015036857

10 9 8 7 6 5 4 3 2 1

ISBN 10: 0-13-413042-1

ISBN 13: 978-0-13-413042-2

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http://www.pearsoned.com/permissions/
To Karen Heizer Herrmann, all a sister could ever be

To Donna, Charlie, and Jesse

J.H.

B.R.

To Kim, Christopher, and Mark Munson for their unwavering support, and to Bentonville High School teachers Velma Reed and Cheryl Gregory,

who instilled in me the importance of detail and a love of learning C.M.

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ABOUT THE A U T H O R S

JAY HEIZER

BARRY RENDER

Professor Emeritus, the Jesse H. Jones Chair of Business Administration, Texas Lutheran University, Seguin, Texas. He received his B.B.A. and M.B.A. from the University of North Texas and his Ph.D. in Management and Statistics from Arizona State University. He was previously a member of the faculty at the University of Memphis, the University of Oklahoma, Virginia Commonwealth University, and the University of Richmond. He has also held visiting positions at Boston University, George Mason University, the Czech Management Center, and the Otto-Von-Guericke University, Magdeburg.

Dr. Heizer’s industrial experience is extensive. He learned the practical side of operations management as a machinist apprentice at Foringer and Company, as a production planner for Westinghouse Airbrake, and at General Dynamics, where he worked in engineering administration. In addition, he has been actively involved in consulting in the OM and MIS areas for a variety of organizations, includ- ing Philip Morris, Firestone, Dixie Container Corporation, Columbia Industries, and Tenneco. He holds the CPIM certification from APICS—the Association for Operations Management.

Professor Heizer has co-authored 5 books and has published more than 30 arti- cles on a variety of management topics. His papers have appeared in the Academy of Management Journal , Journal of Purchasing , Personnel Psychology , Production & Inventory Control Management , APICS—The Performance Advantage , Journal of Management History , IIE Solutions, and Engineering Management , among others. He has taught operations management courses in undergraduate, graduate, and executive programs.

Professor Emeritus, the Charles Harwood Professor of Operations Management, Crummer Graduate School of Business, Rollins College, Winter Park, Florida. He received his B.S. in Mathematics and Physics at Roosevelt University, and his M.S. in Operations Research and Ph.D. in Quantitative Analysis at the University of Cincinnati. He previously taught at George Washington University, University of New Orleans, Boston University, and George Mason University, where he held the Mason Foundation Professorship in Decision Sciences and was Chair of the Decision Sciences Department. Dr. Render has also worked in the aerospace indus- try for General Electric, McDonnell Douglas, and NASA.

Professor Render has co-authored 10 textbooks for Pearson, including Managerial Decision Modeling with Spreadsheets , Quantitative Analysis for Management , Service Management , Introduction to Management Science , and Cases and Readings in Management Science . Quantitative Analysis for Management, now in its 13th edition, is a leading text in that discipline in the United States and globally. Dr. Render’s more than 100 articles on a variety of management topics have appeared in Decision Sciences , Production and Operations Management , Interfaces , Information and Management , Journal of Management Information Systems , Socio-Economic Planning Sciences , IIE Solutions , and Operations Management Review , among others.

Dr. Render has been honored as an AACSB Fellow and was twice named a Senior Fulbright Scholar. He was Vice President of the Decision Science Institute Southeast Region and served as Software Review Editor for Decision Line for six years and as Editor of the New York Times Operations Management special issues for five years. For nine years, Dr. Render was President of Management Service Associates of Virginia, Inc., whose technology clients included the FBI, NASA, the U.S. Navy, Fairfax County, Virginia, and C&P Telephone. He is currently Consulting Editor to Pearson Press .

Dr. Render has received Rollins College’s Welsh Award as leading Professor and was selected by Roosevelt University as the recipient of the St. Claire Drake Award for Outstanding Scholarship. Dr. Render also received the Rollins College MBA Student Award for Best Overall Course, and was named Professor of the Year by full-time MBA students.

vi

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Professor of Operations Management, Carson College of Business, Washington State University, Pullman, Washington. He received his BSBA summa cum laude in finance, along with his MSBA and Ph.D. in operations management, from Washington University in St. Louis. For two years, he served as Associate Dean for Graduate Programs in Business at Washington State. He also worked for three years as a financial analyst for Contel Telephone Corporation.

Professor Munson serves as a senior editor for Production and Operations Management , and he serves on the editorial review board of four other journals . He has published more than 25 articles in such journals as Production and Operations Management , IIE Transactions, Decision Sciences , Naval Research Logistics , European Journal of Operational Research , Journal of the Operational Research Society , and Annals of Operations Research. He is editor of the book The Supply Chain Management Casebook: Comprehensive Coverage and Best Practices in SCM , and he has co-authored the research monograph Quantity Discounts: An Overview and Practical Guide for Buyers and Sellers . He is also coauthor of Managerial Decision Modeling with Spreadsheets (4th edition), published by Pearson.

Dr. Munson has taught operations management core and elective courses at the undergraduate, MBA, and Ph.D. levels at Washington State University. He has also conducted several teaching workshops at international conferences and for Ph.D. students at Washington State University. His major awards include being a Founding Board Member of the Washington State University President’s Teaching Academy (2004); winning the WSU College of Business Outstanding Teaching Award (2001 and 2015), Research Award (2004), and Service Award (2009 and 2013); and being named the WSU MBA Professor of the Year (2000 and 2008).

CHUCK MUNSON

ABOUT THE AUTHORS vii

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PART ONE Introduction to Operations Management 1

Chapter 1 Operations and Productivity 1 Chapter 2 Operations Strategy in a Global Environment 29 Chapter 3 Project Management 59 Chapter 4 Forecasting 105

PART TWO Designing Operations 159

Chapter 5 Design of Goods and Services 159 ◆ Supplement 5 Sustainability in the Supply Chain 193

Chapter 6 Managing Quality 213 ◆ Supplement 6 Statistical Process Control 245

Chapter 7 Process Strategy 279 ◆ Supplement 7 Capacity and Constraint Management 307

Chapter 8 Location Strategies 337 Chapter 9 Layout Strategies 367 Chapter 10 Human Resources, Job Design, and Work Measurement 407

PART THREE Managing Operations 441

Chapter 11 Supply Chain Management 441 ◆ Supplement 11 Supply Chain Management Analytics 471

Chapter 12 Inventory Management 487 Chapter 13 Aggregate Planning and S&OP 529 Chapter 14 Material Requirements Planning (MRP) and ERP 563 Chapter 15 Short-Term Scheduling 599 Chapter 16 Lean Operations 635 Chapter 17 Maintenance and Reliability 659

PART FOUR Business Analytics Modules 677

Module A Decision-Making Tools 677 Module B Linear Programming 699 Module C Transportation Models 729 Module D Waiting-Line Models 747 Module E Learning Curves 775 Module F Simulation 791

ONLINE TUTORIALS

1. Statistical Tools for Managers T1-1 2. Acceptance Sampling T2-1 3. The Simplex Method of Linear Programming T3-1 4. The MODI and VAM Methods of Solving Transportation Problems T4-1 5. Vehicle Routing and Scheduling T5-1

Brief Table of Contents

ix

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Table of Contents

About the Authors vi Preface xxiii

Chapter 1 Operations and Productivity 1

GLOBAL COMPANY PROFILE: HARD ROCK CAFE 2 What Is Operations Management? 4 Organizing to Produce Goods and Services 4 The Supply Chain 6 Why Study OM? 6 What Operations Managers Do 7 The Heritage of Operations Management 8 Operations for Goods and Services 11

Growth of Services 11

Service Pay 12

The Productivity Challenge 13 Productivity Measurement 14

Productivity Variables 15

Productivity and the Service Sector 17

Current Challenges in Operations Management 18 Ethics, Social Responsibility, and Sustainability 19 Summary 20 Key Terms 20 Ethical Dilemma 20 Discussion Questions 20 Using Software for Productivity Analysis 21 Solved Problems 21 Problems 22 CASE STUDIES 24

Uber Technologies, Inc. 24

Frito-Lay: Operations Management in Manufacturing Video Case 25

Hard Rock Cafe: Operations Management in Services Video Case 25

Endnotes 26 Rapid Review 27 Self Test 28

Chapter 2 Operations Strategy in a Global Environment 29

GLOBAL COMPANY PROFILE: BOEING 30 A Global View of Operations and Supply

Chains 32 Cultural and Ethical Issues 35

Developing Missions and Strategies 35 Mission 36

Strategy 36

Achieving Competitive Advantage Through Operations 36 Competing on Diff erentiation 37

Competing on Cost 38

Competing on Response 39

Issues in Operations Strategy 40 Strategy Development and Implementation 41

Key Success Factors and Core Competencies 41

Integrating OM with Other Activities 43

Building and Staffi ng the Organization 43

Implementing the 10 Strategic OM Decisions 44

Strategic Planning, Core Competencies, and Outsourcing 44 The Theory of Comparative Advantage 46

Risks of Outsourcing 46

Rating Outsource Providers 47

Global Operations Strategy Options 49 Summary 50 Key Terms 50 Ethical Dilemma 51 Discussion Questions 51 Using Software to Solve Outsourcing

Problems 51 Solved Problems 52 Problems 53 CASE STUDIES 55

Rapid-Lube 55

Strategy at Regal Marine Video Case 55

Hard Rock Cafe’s Global Strategy Video Case 55

Outsourcing Off shore at Darden Video Case 56

Endnotes 56 Rapid Review 57 Self Test 58

Chapter 3 Project Management 59

GLOBAL COMPANY PROFILE: BECHTEL GROUP 60 The Importance of Project Management 62

PART ONE Introduction to Operations Management 1

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xii TABLE OF CONTENTS

Project Planning 62 The Project Manager 63

Work Breakdown Structure 64

Project Scheduling 65 Project Controlling 66 Project Management Techniques: PERT and CPM 67

The Framework of PERT and CPM 67

Network Diagrams and Approaches 68

Activity-on-Node Example 69

Activity-on-Arrow Example 71

Determining the Project Schedule 71 Forward Pass 72

Backward Pass 74

Calculating Slack Time and Identifying the Critical Path(s) 75

Variability in Activity Times 77 Three Time Estimates in PERT 77

Probability of Project Completion 79

Cost-Time Trade-Off s and Project Crashing 82 A Critique of PERT and CPM 85 Using Microsoft Project to Manage Projects 86 Summary 88 Key Terms 88 Ethical Dilemma 89 Discussion Questions 89 Using Software to Solve Project Management

Problems 89 Solved Problems 90 Problems 93 CASE STUDIES 98

Southwestern University: (A) 98

Project Management at Arnold Palmer Hospital Video Case 99

Managing Hard Rock’s Rockfest Video Case 100

Endnotes 102 Rapid Review 103 Self Test 104

Chapter 4 Forecasting 105

GLOBAL COMPANY PROFILE: WALT DISNEY PARKS & RESORTS 106

What is Forecasting? 108 Forecasting Time Horizons 108

Types of Forecasts 109

The Strategic Importance of Forecasting 109 Supply-Chain Management 109

Human Resources 110

Capacity 110

Seven Steps in the Forecasting System 110 Forecasting Approaches 111

Overview of Qualitative Method 111

Overview of Quantitative Methods 112

Time-Series Forecasting 112 Decomposition of a Time Series 112

Naive Approach 113

Moving Averages 114

Exponential Smoothing 116

Measuring Forecast Error 117

Exponential Smoothing with Trend Adjustment 120

Trend Projections 124

Seasonal Variations in Data 126

Cyclical Variations in Data 131

Associative Forecasting Methods: Regression and Correlation Analysis 131 Using Regression Analysis for Forecasting 131

Standard Error of the Estimate 133

Correlation Coeffi cients for Regression Lines 134

Multiple-Regression Analysis 136

Monitoring and Controlling Forecasts 138 Adaptive Smoothing 139

Focus Forecasting 139

Forecasting in the Service Sector 140 Summary 141 Key Terms 141 Ethical Dilemma 141 Discussion Questions 142 Using Software in Forecasting 142 Solved Problems 144 Problems 146 CASE STUDIES 153

Southwestern University: (B) 153

Forecasting Ticket Revenue for Orlando Magic Basketball Games Video Case 154

Forecasting at Hard Rock Cafe Video Case 155

Endnotes 156 Rapid Review 157 Self Test 158

PART TWO Designing Operations 159

Chapter 5 Design of Goods and Services 159

GLOBAL COMPANY PROFILE: REGAL MARINE 160 Goods and Services Selection 162

Product Strategy Options Support Competitive Advantage 163

Product Life Cycles 164

Life Cycle and Strategy 164

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TABLE OF CONTENTS xiii

Product-by-Value Analysis 165

Generating New Products 165 Product Development 166

Product Development System 166

Quality Function Deployment (QFD) 166

Organizing for Product Development 169

Manufacturability and Value Engineering 170

Issues for Product Design 171 Robust Design 171

Modular Design 171

Computer-Aided Design (CAD) and Computer-Aided Manufacturing (CAM) 171

Virtual Reality Technology 172

Value Analysis 173

Sustainability and Life Cycle Assessment (LCA) 173

Product Development Continuum 173 Purchasing Technology by Acquiring a Firm 174

Joint Ventures 174

Alliances 175

Defi ning a Product 175 Make-or-Buy Decisions 176

Group Technology 177

Documents for Production 178 Product Life-Cycle Management (PLM) 178

Service Design 179 Process–Chain–Network (PCN) Analysis 179

Adding Service Effi ciency 181

Documents for Services 181

Application of Decision Trees to Product Design 182

Transition to Production 184 Summary 184 Key Terms 185 Ethical Dilemma 185 Discussion Questions 185 Solved Problem 186 Problems 186 CASE STUDIES 189

De Mar’s Product Strategy 189

Product Design at Regal Marine Video Case 189

Endnotes 190 Rapid Review 191 Self Test 192

Supplement 5 Sustainability in the Supply Chain 193

Corporate Social Responsibility 194 Sustainability 195

Systems View 195

Commons 195

Triple Bottom Line 195

Design and Production for Sustainability 198 Product Design 198

Production Process 200

Logistics 200

End-of-Life Phase 203

Regulations and Industry Standards 203 International Environmental Policies and Standards 204

Summary 205 Key Terms 205 Discussion Questions 205 Solved Problems 206 Problems 207 CASE STUDIES 208

Building Sustainability at the Orlando Magic’s Amway Center Video Case 208

Green Manufacturing and Sustainability at Frito-Lay Video Case 209

Endnotes 210 Rapid Review 211 Self Test 212

Chapter 6 Managing Quality 213

GLOBAL COMPANY PROFILE: ARNOLD PALMER HOSPITAL 214

Quality and Strategy 216 Defi ning Quality 217

Implications of Quality 217

Malcolm Baldrige National Quality Award 218

ISO 9000 International Quality Standards 218

Cost of Quality (COQ) 218

Ethics and Quality Management 219

Total Quality Management 219 Continuous Improvement 220

Six Sigma 221

Employee Empowerment 222

Benchmarking 222

Just-in-Time (JIT) 224

Taguchi Concepts 224

Knowledge of TQM Tools 225

Tools of TQM 226 Check Sheets 226

Scatter Diagrams 227

Cause-and-Eff ect Diagrams 227

Pareto Charts 227

Flowcharts 228

Histograms 229

Statistical Process Control (SPC) 229

The Role of Inspection 230 When and Where to Inspect 230

Source Inspection 231

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xiv TABLE OF CONTENTS

Service Industry Inspection 232

Inspection of Attributes versus Variables 233

TQM in Services 233 Summary 235 Key Terms 235 Ethical Dilemma 235 Discussion Questions 236 Solved Problems 236 Problems 237 CASE STUDIES 239

Southwestern University: (C) 239

The Culture of Quality at Arnold Palmer Hospital Video Case 240

Quality Counts at Alaska Airlines Video Case 240

Quality at the Ritz-Carlton Hotel Company Video Case 242

Endnotes 242 Rapid Review 243 Self Test 244

Supplement 6 Statistical Process Control 245

Statistical Process Control (SPC) 246 Control Charts for Variables 248

The Central Limit Theorem 248

Setting Mean Chart Limits ( x -Charts) 250

Setting Range Chart Limits ( R-Charts) 253

Using Mean and Range Charts 254

Control Charts for Attributes 256

Managerial Issues and Control Charts 259