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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

www.pearsonhighered.com

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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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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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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

Process Capability 260 Process Capability Ratio ( C p ) 260

Process Capability Index ( C pk ) 261

Acceptance Sampling 262 Operating Characteristic Curve 263

Average Outgoing Quality 264

Summary 265 Key Terms 265 Discussion Questions 265 Using Software for SPC 266 Solved Problems 267 Problems 269 CASE STUDIES 274

Bayfi eld Mud Company 274

Frito-Lay’s Quality-Controlled Potato Chips Video Case 275

Farm to Fork: Quality at Darden Restaurants Video Case 276

Endnotes 276 Rapid Review 277 Self Test 278

Chapter 7 Process Strategy 279

GLOBAL COMPANY PROFILE: HARLEY-DAVIDSON 280 Four Process Strategies 282

Process Focus 282

Repetitive Focus 283

Product Focus 284

Mass Customization Focus 284

Process Comparison 286

Selection of Equipment 288 Process Analysis and Design 288

Flowchart 289

Time-Function Mapping 289

Process Charts 289

Value-Stream Mapping 290

Service Blueprinting 292

Special Considerations for Service Process Design 293

Production Technology 294 Machine Technology 294

Automatic Identifi cation Systems (AISs) and RFID 295

Process Control 295

Vision Systems 296

Robots 296

Automated Storage and Retrieval Systems (ASRSs) 296

Automated Guided Vehicles (AGVs) 296

Flexible Manufacturing Systems (FMSs) 297

Computer-Integrated Manufacturing (CIM) 297

Technology in Services 298 Process Redesign 298 Summary 299 Key Terms 299 Ethical Dilemma 300 Discussion Questions 300 Solved Problem 300 Problems 301 CASE STUDIES 302

Rochester Manufacturing’s Process Decision 302

Process Strategy at Wheeled Coach Video Case 302

Alaska Airlines: 20-Minute Baggage Process— Guaranteed! Video Case 303

Process Analysis at Arnold Palmer Hospital Video Case 304

Endnotes 304 Rapid Review 305 Self Test 306

Supplement 7 Capacity and Constraint Management 307

Capacity 308 Design and Eff ective Capacity 309

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TABLE OF CONTENTS xv

Capacity and Strategy 311

Capacity Considerations 311

Managing Demand 312

Service-Sector Demand and Capacity Management 313

Bottleneck Analysis and the Theory of Constraints 314 Theory of Constraints 317

Bottleneck Management 317

Break-Even Analysis 318 Single-Product Case 319

Multiproduct Case 320

Reducing Risk with Incremental Changes 322 Applying Expected Monetary Value (EMV)

to Capacity Decisions 323 Applying Investment Analysis to Strategy-Driven

Investments 324 Investment, Variable Cost, and Cash Flow 324

Net Present Value 324

Summary 326 Key Terms 327 Discussion Questions 327 Using Software for Break-Even Analysis 327 Solved Problems 328 Problems 330 CASE STUDY 333

Capacity Planning at Arnold Palmer Hospital Video Case 333

Endnote 334 Rapid Review 335 Self Test 336

Chapter 8 Location Strategies 337

GLOBAL COMPANY PROFILE: FEDEX 338 The Strategic Importance of Location 340 Factors That Aff ect Location Decisions 341

Labor Productivity 342

Exchange Rates and Currency Risk 342

Costs 342

Political Risk, Values, and Culture 343

Proximity to Markets 343

Proximity to Suppliers 344

Proximity to Competitors (Clustering) 344

Methods of Evaluating Location Alternatives 344 The Factor-Rating Method 345

Locational Cost–Volume Analysis 346

Center-of-Gravity Method 348

Transportation Model 349

Service Location Strategy 350 Geographic Information Systems 351 Summary 353

Key Terms 353 Ethical Dilemma 354 Discussion Questions 354 Using Software to Solve Location Problems 354 Solved Problems 355 Problems 357 CASE STUDIES 362

Southern Recreational Vehicle Company 362

Locating the Next Red Lobster Restaurant Video Case 362

Where to Place the Hard Rock Cafe Video Case 363

Endnote 364 Rapid Review 365 Self Test 366

Chapter 9 Layout Strategies 367

GLOBAL COMPANY PROFILE: McDONALD’S 368 The Strategic Importance of Layout Decisions 370 Types of Layout 370 Offi ce Layout 371 Retail Layout 372

Servicescapes 375

Warehouse and Storage Layouts 375 Cross-Docking 376

Random Stocking 377

Customizing 377

Fixed-Position Layout 377 Process-Oriented Layout 378

Computer Software for Process-Oriented Layouts 382

Work Cells 383 Requirements of Work Cells 383

Staffi ng and Balancing Work Cells 384

The Focused Work Center and the Focused Factory 386

Repetitive and Product-Oriented Layout 386 Assembly-Line Balancing 387

Summary 392 Key Terms 392 Ethical Dilemma 392 Discussion Questions 392 Using Software to Solve Layout Problems 393 Solved Problems 394 Problems 396 CASE STUDIES 402

State Automobile License Renewals 402

Laying Out Arnold Palmer Hospital’s New Facility Video Case 402

Facility Layout at Wheeled Coach Video Case 404

Endnotes 404 Rapid Review 405 Self Test 406

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xvi TABLE OF CONTENTS

Chapter 10 Human Resources, Job Design, and Work Measurement 407

GLOBAL COMPANY PROFILE: RUSTY WALLACE’S NASCAR RACING TEAM 408

Human Resource Strategy for Competitive Advantage 410 Constraints on Human Resource Strategy 410

Labor Planning 411 Employment-Stability Policies 411

Work Schedules 411

Job Classifi cations and Work Rules 412

Job Design 412 Labor Specialization 412

Job Expansion 413

Psychological Components of Job Design 413

Self-Directed Teams 414

Motivation and Incentive Systems 415

Ergonomics and the Work Environment 415 Methods Analysis 417 The Visual Workplace 420 Labor Standards 420

Historical Experience 421

Time Studies 421

Predetermined Time Standards 425

Work Sampling 427

Ethics 430 Summary 430 Key Terms 430 Ethical Dilemma 431 Discussion Questions 431 Solved Problems 432 Problems 434 CASE STUDIES 437

Jackson Manufacturing Company 437

The “People” Focus: Human Resources at Alaska Airlines Video Case 437

Hard Rock’s Human Resource Strategy Video Case 438

Endnotes 438 Rapid Review 439 Self Test 440

PART THREE Managing Operations 441

Chapter 11 Supply Chain Management 441

GLOBAL COMPANY PROFILE: DARDEN RESTAURANTS 442 The Supply Chain’s Strategic Importance 444 Sourcing Issues: Make-or-Buy and

Outsourcing 446 Make-or-Buy Decisions 447

Outsourcing 447

Six Sourcing Strategies 447 Many Suppliers 447

Few Suppliers 447

Vertical Integration 448

Joint Ventures 448

Keiretsu Networks 448

Virtual Companies 449

Supply Chain Risk 449 Risks and Mitigation Tactics 450

Security and JIT 451

Managing the Integrated Supply Chain 451 Issues in Managing the Integrated Supply Chain 451

Opportunities in Managing the Integrated Supply Chain 452

Building the Supply Base 454 Supplier Evaluation 454

Supplier Development 454

Negotiations 455

Contracting 455

Centralized Purchasing 455

E-Procurement 456

Logistics Management 456 Shipping Systems 456

Warehousing 457

Third-Party Logistics (3PL) 458

Distribution Management 459 Ethics and Sustainable Supply Chain

Management 460 Supply Chain Management Ethics 460

Establishing Sustainability in Supply Chains 460

Measuring Supply Chain Performance 461 Assets Committed to Inventory 461

Benchmarking the Supply Chain 463

The SCOR Model 463

Summary 464 Key Terms 465 Ethical Dilemma 465 Discussion Questions 465 Solved Problems 465 Problems 466 CASE STUDIES 467

Darden’s Global Supply Chains Video Case 467

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Supply Chain Management at Regal Marine Video Case 467

Arnold Palmer Hospital’s Supply Chain Video Case 468

Endnote 468 Rapid Review 469 Self Test 470

Supplement 11 Supply Chain Management Analytics 471

Techniques for Evaluating Supply Chains 472 Evaluating Disaster Risk in the Supply Chain 472 Managing the Bullwhip Eff ect 474

A Bullwhip Eff ect Measure 475

Supplier Selection Analysis 476 Transportation Mode Analysis 477 Warehouse Storage 478 Summary 479 Discussion Questions 480 Solved Problems 480 Problems 482 Rapid Review 485 Self Test 486

Chapter 12 Inventory Management 487

GLOBAL COMPANY PROFILE: AMAZON.COM 488 The Importance of Inventory 490

Functions of Inventory 490

Types of Inventory 490

Managing Inventory 491 ABC Analysis 491

Record Accuracy 493

Cycle Counting 493

Control of Service Inventories 494

Inventory Models 495 Independent vs. Dependent Demand 495

Holding, Ordering, and Setup Costs 495

Inventory Models for Independent Demand 496 The Basic Economic Order Quantity (EOQ) Model 496

Minimizing Costs 497

Reorder Points 501

Production Order Quantity Model 502

Quantity Discount Models 505

Probabilistic Models and Safety Stock 508 Other Probabilistic Models 511

Single-Period Model 513 Fixed-Period (P) Systems 514 Summary 515 Key Terms 515 Ethical Dilemma 515

Discussion Questions 515 Using Software to Solve Inventory Problems 516 Solved Problems 517 Problems 520 CASE STUDIES 524

Zhou Bicycle Company 524

Parker Hi-Fi Systems 525

Managing Inventory at Frito-Lay Video Case 525

Inventory Control at Wheeled Coach Video Case 526

Endnotes 526 Rapid Review 527 Self Test 528

Chapter 13 Aggregate Planning and S&OP 529

GLOBAL COMPANY PROFILE: FRITO-LAY 530 The Planning Process 532 Sales and Operations Planning 533 The Nature of Aggregate Planning 534 Aggregate Planning Strategies 535

Capacity Options 535

Demand Options 536

Mixing Options to Develop a Plan 537

Methods for Aggregate Planning 538 Graphical Methods 538

Mathematical Approaches 543

Aggregate Planning in Services 545 Restaurants 546

Hospitals 546

National Chains of Small Service Firms 546

Miscellaneous Services 546

Airline Industry 547

Revenue Management 547 Summary 550 Key Terms 550 Ethical Dilemma 551 Discussion Questions 551 Using Software for Aggregate Planning 552 Solved Problems 554 Problems 555 CASE STUDIES 559

Andrew-Carter, Inc. 559

Using Revenue Management to Set Orlando Magic Ticket Prices Video Case 560

Endnote 560 Rapid Review 561 Self Test 562

Chapter 14 Material Requirements Planning (MRP) and ERP 563

GLOBAL COMPANY PROFILE: WHEELED COACH 564 Dependent Demand 566

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xviii TABLE OF CONTENTS

Dependent Inventory Model Requirements 566 Master Production Schedule 567

Bills of Material 568

Accurate Inventory Records 570

Purchase Orders Outstanding 570

Lead Times for Components 570

MRP Structure 571 MRP Management 575

MRP Dynamics 575

MRP Limitations 575

Lot-Sizing Techniques 576 Extensions of MRP 580

Material Requirements Planning II (MRP II) 580

Closed-Loop MRP 581

Capacity Planning 581

MRP in Services 583 Distribution Resource Planning (DRP) 584

Enterprise Resource Planning (ERP) 584 ERP in the Service Sector 587

Summary 587 Key Terms 587 Ethical Dilemma 587 Discussion Questions 588 Using Software to Solve MRP Problems 588 Solved Problems 589 Problems 592 CASE STUDIES 595

When 18,500 Orlando Magic Fans Come to Dinner Video Case 595

MRP at Wheeled Coach Video Case 596

Endnotes 596 Rapid Review 597 Self Test 598

Chapter 15 Short-Term Scheduling 599

GLOBAL COMPANY PROFILE: ALASKA AIRLINES 600 The Importance of Short-Term Scheduling 602 Scheduling Issues 602

Forward and Backward Scheduling 603

Finite and Infi nite Loading 604

Scheduling Criteria 604

Scheduling Process-Focused Facilities 605 Loading Jobs 605

Input–Output Control 606

Gantt Charts 607

Assignment Method 608

Sequencing Jobs 611 Priority Rules for Sequencing Jobs 611

Critical Ratio 614

Sequencing N Jobs on Two Machines: Johnson’s Rule 615

Limitations of Rule-Based Sequencing Systems 616

Finite Capacity Scheduling (FCS) 617 Scheduling Services 618

Scheduling Service Employees with Cyclical Scheduling 620

Summary 621 Key Terms 621 Ethical Dilemma 621 Discussion Questions 622 Using Software for Short-Term Scheduling 622 Solved Problems 624 Problems 627 CASE STUDIES 630

Old Oregon Wood Store 630

From the Eagles to the Magic: Converting the Amway Center Video Case 631

Scheduling at Hard Rock Cafe Video Case 632

Endnotes 632 Rapid Review 633 Self Test 634

Chapter 16 Lean Operations 635

GLOBAL COMPANY PROFILE: TOYOTA MOTOR CORPORATION 636

Lean Operations 638 Eliminate Waste 638

Remove Variability 639

Improve Throughput 640

Lean and Just-in-Time 640 Supplier Partnerships 640

Lean Layout 642

Lean Inventory 643

Lean Scheduling 646

Lean Quality 649

Lean and the Toyota Production System 649 Continuous Improvement 649

Respect for People 649

Processes and Standard Work Practice 650

Lean Organizations 650 Building a Lean Organization 650

Lean Sustainability 652

Lean in Services 652 Summary 653 Key Terms 653 Ethical Dilemma 653 Discussion Questions 653 Solved Problem 653 Problems 654

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TABLE OF CONTENTS xix

CASE STUDIES 655 Lean Operations at Alaska Airlines Video Case 655

JIT at Arnold Palmer Hospital Video Case 656

Endnote 656 Rapid Review 657 Self Test 658

Chapter 17 Maintenance and Reliability 659

GLOBAL COMPANY PROFILE: ORLANDO UTILITIES COMMISSION 660

The Strategic Importance of Maintenance and Reliability 662

Reliability 663 System Reliability 663

Providing Redundancy 665

Maintenance 667

Implementing Preventive Maintenance 667

Increasing Repair Capabilities 670

Autonomous Maintenance 670

Total Productive Maintenance 671 Summary 671 Key Terms 671 Ethical Dilemma 671 Discussion Questions 671 Using Software to Solve Reliability Problems 672 Solved Problems 672 Problems 672 CASE STUDY 674

Maintenance Drives Profi ts at Frito-Lay Video Case 674

Rapid Review 675 Self Test 676

PART FOUR Business Analytics Modules 677

Module A Decision-Making Tools 677

The Decision Process in Operations 678 Fundamentals of Decision Making 679 Decision Tables 680 Types of Decision-Making Environments 681

Decision Making Under Uncertainty 681

Decision Making Under Risk 682

Decision Making Under Certainty 683

Expected Value of Perfect Information (EVPI) 683

Decision Trees 684 A More Complex Decision Tree 686

The Poker Decision Process 688

Summary 689 Key Terms 689 Discussion Questions 689 Using Software for Decision Models 689 Solved Problems 691 Problems 692 CASE STUDY 696

Warehouse Tenting at the Port of Miami 696

Endnote 696 Rapid Review 697 Self Test 698

Module B Linear Programming 699

Why Use Linear Programming? 700 Requirements of a Linear Programming

Problem 701 Formulating Linear Programming Problems 701

Glickman Electronics Example 701

Graphical Solution to a Linear Programming Problem 702

Graphical Representation of Constraints 702

Iso-Profi t Line Solution Method 703

Corner-Point Solution Method 705

Sensitivity Analysis 705 Sensitivity Report 706

Changes in the Resources or Right-Hand-Side Values 706

Changes in the Objective Function Coeffi cient 707

Solving Minimization Problems 708 Linear Programming Applications 710

Production-Mix Example 710

Diet Problem Example 711

Labor Scheduling Example 712

The Simplex Method of LP 713 Integer and Binary Variables 713

Creating Integer and Binary Variables 713

Linear Programming Applications with Binary Variables 714

A Fixed-Charge Integer Programming Problem 715

Summary 716 Key Terms 716 Discussion Questions 716 Using Software to Solve LP Problems 716 Solved Problems 718 Problems 720 CASE STUDIES 725

Quain Lawn and Garden, Inc. 725

Scheduling Challenges at Alaska Airlines Video Case 726

Endnotes 726 Rapid Review 727 Self Test 728

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xx TABLE OF CONTENTS

Module C Transportation Models 729

Transportation Modeling 730 Developing an Initial Solution 732

The Northwest-Corner Rule 732

The Intuitive Lowest-Cost Method 733

The Stepping-Stone Method 734 Special Issues in Modeling 737

Demand Not Equal to Supply 737

Degeneracy 737

Summary 738 Key Terms 738 Discussion Questions 738 Using Software to Solve Transportation

Problems 738 Solved Problems 740 Problems 741 CASE STUDY 743

Custom Vans, Inc. 743

Rapid Review 745 Self Test 746

Module D Waiting-Line Models 747

Queuing Theory 748 Characteristics of a Waiting-Line System 749

Arrival Characteristics 749

Waiting-Line Characteristics 750

Service Characteristics 751

Measuring a Queue’s Performance 752

Queuing Costs 753 The Variety of Queuing Models 754

Model A (M/M/1): Single-Server Queuing Model with Poisson Arrivals and Exponential Service Times 754

Model B (M/M/S): Multiple-Server Queuing Model 757

Model C (M/D/1): Constant-Service-Time Model 762

Little’s Law 763

Model D (M/M/1 with Finite Source): Finite-Population Model 763

Other Queuing Approaches 765 Summary 765 Key Terms 765 Discussion Questions 765 Using Software to Solve Queuing Problems 766 Solved Problems 766 Problems 768 CASE STUDIES 771

New England Foundry 771

The Winter Park Hotel 772

Endnotes 772 Rapid Review 773 Self Test 774

Module E Learning Curves 775

What Is a Learning Curve? 776 Learning Curves in Services and

Manufacturing 777 Applying the Learning Curve 778

Doubling Approach 778

Formula Approach 779

Learning-Curve Table Approach 779

Strategic Implications of Learning Curves 782 Limitations of Learning Curves 783 Summary 783 Key Term 783 Discussion Questions 783 Using Software for Learning Curves 784 Solved Problems 784 Problems 785 CASE STUDY 787

SMT’s Negotiation with IBM 787

Endnote 788 Rapid Review 789 Self Test 790

Module F Simulation 791

What Is Simulation? 792 Advantages and Disadvantages of Simulation 793 Monte Carlo Simulation 794 Simulation with Two Decision Variables:

An Inventory Example 797 Summary 799 Key Terms 799 Discussion Questions 799 Using Software in Simulation 800 Solved Problems 801 Problems 802 CASE STUDY 805

Alabama Airlines’ Call Center 805

Endnote 806 Rapid Review 807 Self Test 808

Appendix A1 Bibliography B1 Name Index I1 General Index I7

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TABLE OF CONTENTS xxi

ONLINE TUTORIALS

1. Statistical Tools for Managers T1-1

Discrete Probability Distributions T1-2 Expected Value of a Discrete Probability Distribution T1-3

Variance of a Discrete Probability Distribution T1-3

Continuous Probability Distributions T1-4 The Normal Distribution T1-4

Summary T1-7 Key Terms T1-7 Discussion Questions T1-7 Problems T1-7 Bibliography T1-7

2. Acceptance Sampling T2-1

Sampling Plans T2-2 Single Sampling T2-2

Double Sampling T2-2

Sequential Sampling T2-2

Operating Characteristic (OC) Curves T2-2 Producer’s and Consumer’s Risk T2-3 Average Outgoing Quality T2-5 Summary T2-6 Key Terms T2-6 Solved Problem T2-7 Discussion Questions T2-7 Problems T2-7

3. The Simplex Method of Linear Programming T3-1

Converting the Constraints to Equations T3-2 Setting Up the First Simplex Tableau T3-2 Simplex Solution Procedures T3-4 Summary of Simplex Steps for Maximization

Problems T3-6 Artifi cial and Surplus Variables T3-7 Solving Minimization Problems T3-7 Summary T3-8 Key Terms T3-8 Solved Problem T3-8

Discussion Questions T3-8 Problems T3-9

4. The MODI and VAM Methods of Solving Transportation Problems T4-1

MODI Method T4-2 How to Use the MODI Method T4-2 Solving the Arizona Plumbing Problem with MODI T4-2

Vogel’s Approximation Method: Another Way to Find an Initial Solution T4-4

Discussion Questions T4-8 Problems T4-8

5. Vehicle Routing and Scheduling T5-1

Introduction T5-2 Service Delivery Example: Meals-for-ME T5-2

Objectives of Routing and Scheduling Problems T5-2

Characteristics of Routing and Scheduling Problems T5-3 Classifying Routing and Scheduling Problems T5-3 Solving Routing and Scheduling Problems T5-4

Routing Service Vehicles T5-5 The Traveling Salesman Problem T5-5 Multiple Traveling Salesman Problem T5-8 The Vehicle Routing Problem T5-9 Cluster First, Route Second Approach T5-10

Scheduling Service Vehicles T5-11 The Concurrent Scheduler Approach T5-13

Other Routing and Scheduling Problems T5-13 Summary T5-14 Key Terms T5-15 Discussion Questions T5-15 Problems T5-15 Case Study: Routing and Scheduling of

Phlebotomists T5-17 Bibliography T5-17

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Welcome to your operations management (OM) course. In this book, we present a state-of-the- art view of the operations function. Operations is an exciting area of management that has a profound effect on productivity. Indeed, few other activities have as much impact on the quality of our lives. The goal of this text is to present a broad introduction to the field of operations in a realistic, practical manner. Even if you are not planning on a career in the operations area, you will likely be working with people in operations. Therefore, having a solid understanding of the role of operations in an organization will be of substantial benefit to you. This book will also help you understand how OM affects society and your life. Certainly, you will better understand what goes on behind the scenes when you attend a concert or major sports event; purchase a bag of Frito-Lay potato chips; buy a meal at an Olive Garden or a Hard Rock Cafe; place an order through Amazon.com; board a flight on Alaska Airlines; or enter a hospital for medical care. More than one and a half million readers of our earlier editions seem to have endorsed this premise.

We welcome comments by email from our North American readers and from students using the International edition, the Indian edition, the Arabic edition, and our editions in Portuguese, Spanish, Turkish, Indonesian, and Chinese. Hopefully, you will find this material useful, interest- ing, and even exciting.

New to This Edition We’ve made significant revisions to this edition, and want to share some of the changes with you.

Five New Video Case Studies Featuring Alaska Airlines In this edition, we take you behind the scenes of Alaska Airlines, consistently rated as one of the top carriers in the country. This fascinating organization opened its doors—and planes— so we could examine leading edge OM in the airlines industry. We observe: the quality pro- gram at Alaska Air (Chapter 6); the process analysis behind the airline’s 20-minute baggage retrieval guarantee (Chapter 7); how Alaska empowers its employees (Chapter 10); the air- line’s use of Lean, 5s, kaizen, and Gemba walks (Chapter 16); and the complexities of sched- uling (Module B).

Our prior editions focused on integrated Video Case Studies for the Orlando Magic basketball team, Frito-Lay, Darden Restaurants, Hard Rock Cafe, Arnold Palmer Hospital, Wheeled Coach Ambulances, and Regal Marine. These Video Case Studies appear in this edition as well, along with the five new ones for Alaska Airlines. All of our videos are created by the authors, with the outstanding coauthorship of Beverly Amer at Northern Arizona University, to explicitly match with text content and terminology.

Preface

xxiii

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www.Amazon.com
xxiv PREFACE

Creating Your Own Excel Spreadsheets We continue to provide two free decision support software programs, Excel OM for Windows and Mac and POM for Windows, to help you and your students solve homework problems and case studies. These excellent packages are found in MyOMLab and at our text’s Student Download Page.

Many instructors also encourage students to develop their own Excel spreadsheet models to tackle OM issues. With this edition, we provide numerous examples at chapter end on how to do so. “Creating Your Own Excel Spreadsheets” examples now appear in Chapters 1, 2, 4, 8, 12, and 13, Supplement 6, Supplement 7, and Modules A, B, and F. We hope these eleven samples will help expand students’ spreadsheet capabilities.

Video Case Alaska Airlines: 20-Minute Baggage Process—Guaranteed! Alaska Airlines is unique among the nine major U.S. carriers not only for its extensive flight coverage of remote towns throughout Alaska (it also covers the U.S., Hawaii, and Mexico from its pri- mary hub in Seattle). It is also one of the smallest independent airlines, with 10,300 employees, including 3,000 flight attendants and 1,500 pilots. What makes it really unique, though, is its abil- ity to build state-of-the-art processes, using the latest technology, that yield high customer satisfaction. Indeed, J. D. Power and Associates has ranked Alaska Airlines highest in North America for seven years in a row for customer satisfaction.

Alaska Airlines was the first to sell tickets via the Internet, first to offer Web check-in and print boarding passes online, and first with kiosk check-in. As Wayne Newton, Director of System Operation Control, states, “We are passionate about our pro- cesses. If it’s not measured, it’s not managed.”

One of the processes Alaska is most proud of is its baggage han- dling system. Passengers can check in at kiosks, tag their own bags with bar code stickers, and deliver them to a customer service agent at the carousel, which carries the bags through the vast under- ground system that eventually delivers the bags to a baggage han- dler. En route, each bag passes through TSA automated screening and is manually opened or inspected if it appears suspicious. With the help of bar code readers, conveyer belts automatically sort and transfer bags to their location (called a “pier”) at the tarmac level. A baggage handler then loads the bags onto a cart and takes it to Al

as ka

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in es

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Using Software for Productivity Analysis

This section presents three ways to solve productivity problems with computer software. First, you can create your own Excel spreadsheets to conduct productivity analysis. Second, you can use the Excel OM software that comes with this text. Third, POM for Windows is another program that is available with this text .

Program 1.1

Actions Copy C7 to B7, Copy B14 to C14, Copy C15 to B15, and Copy D14 to D15

Create a row for each of the inputs used for the productivity measure. Put the output in the last row.

=C5*C6

=B10/B7

Enter the values for the old system in column B and the new system in Column C.

Productivity = Output/Input

=(C14-B14)/B14=C10/(C8+C9)

X USING EXCEL OM Excel OM is an Excel “add-in” with 24 Operations Management decision support “Templates.” To access the templates, double- click on the Excel OM tab at the top of the page, then in the menu bar choose the appropriate chapter (in this case Chapter 1 ), from either the “Chapter” or “Alphabetic” tab on the left. Each of Excel OM’s 24 modules includes instructions for that particular module. The instructions can be turned on or off via the “instruction” tab in the menu bar.

P USING POM FOR WINDOWS POM for Windows is decision support software that includes 24 Operations Management modules. The modules are accessed by double-clicking on Module in the menu bar, and then double-clicking on the appropriate (in this case Productivity ) item. Instructions are provided for each module just below the menu bar.

CREATING YOUR OWN EXCEL SPREADSHEETS Program 1.1 illustrates how to build an Excel spreadsheet for the data in Example 2.

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PREFACE xxv

Expanding and Reordering Our Set of Homework Problems We believe that a vast selection of quality homework problems, ranging from easy to challeng- ing (denoted by one to four dots), is critical for both instructors and students. Instructors need a broad selection of problems to choose from for homework, quizzes, and exams—without reus- ing the same set from semester to semester. We take pride in having more problems—by far, with 807—than any other OM text. We added dozens of new problems this edition. The following table illustrates the selection by chapter.

Further, with the majority of our adopters now using the MyOMLab learning system in their classes, we have reorganized all the homework problems—both those appearing in the printed text, as well as the Additional Homework Problems that are available in MyOMLab—by topic heading. We are identifying all problems by topic (see the following example).

The list of all problems by topic also appears at the end of each boxed example, as well as in the Rapid Review that closes each chapter. These handy references should make it easier to assign problems for homework, quizzes, and exams. A rich set of assignable problems and cases makes the learning experience more complete and pedagogically sound.

CHAPTER 5 | DESIGN OF GOODS AND SERVICES 187

Problems 5.4–5.8 relate to Product Development

• • 5.4 Construct a house of quality matrix for a wrist- watch. Be sure to indicate specific customer wants that you think the general public desires. Then complete the matrix to show how an operations manager might identify specific attributes that can be measured and controlled to meet those customer desires.

• • 5.5 Using the house of quality, pick a real product (a good or service) and analyze how an existing organization satis- fies customer requirements.

• • 5.6 Prepare a house of quality for a mousetrap.

• • 5.7 Conduct an interview with a prospective purchaser of a new bicycle and translate the customer’s wants into the specific hows of the firm.

• • • • 5.8 Using the house of quality sequence, as described in Figure 5.4 on page 169, determine how you might deploy resources to achieve the desired quality for a product or service whose production process you understand.

Problems 5.9–5.17 relate to Defining a Product

• • 5.9 Prepare a bill of material for (a) a pair of eyeglasses and its case or (b) a fast-food sandwich (visit a local sandwich

Problems 5.21–5.28 relate to the Application of Decision Trees to Product Design

• • 5.21 The product design group of Iyengar Electric Supplies, Inc., has determined that it needs to design a new series of switches. It must decide on one of three design strategies. The market forecast is for 200,000 units. The better and more sophisticated the design strategy and the more time spent on value engineering, the less will be the variable cost. The chief of engineering design, Dr. W. L. Berry, has decided that the following costs are a good estimate of the initial and variable costs connected with each of the three strategies: a) Low-tech: A low-technology, low-cost process consisting of

hiring several new junior engineers. This option has a fixed cost of $45,000 and variable-cost probabilities of .3 for $.55 each, .4 for $.50, and .3 for $.45.

b) Subcontract: A medium-cost approach using a good outside design staff. This approach would have a fixed cost of $65,000 and variable-cost probabilities of .7 of $.45, .2 of $.40, and .1 of $.35.

c) High-tech: A high-technology approach using the very best of the inside staff and the latest computer-aided design technol- ogy. This approach has a fixed cost of $75,000 and variable- cost probabilities of .9 of $.40 and .1 of $.35.

What is the best decision based on an expected monetary value (EMV) criterion? ( Note: We want the lowest EMV, as we are dealing with costs in this problem.) PX

• • 5.22 MacDonald Products, Inc., of Clarkson, New York, has the option of (a) proceeding immediately with production of

Problem 5.3 is available in MyOMLab.

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Chapter Number of Problems

15 27

16 12

17 24

Module A 32

Module B 42

Module C 18

Module D 39

Module E 33

Module F 25

Chapter Number of Problems

Supplement 7 45

8 34

9 27

10 46

11 8

Supplement 11 20

12 53

13 26

14 32

Chapter Number of Problems

1 18

2 12

3 33

4 59

5 28

Supplement 5 19

6 21

Supplement 6 55

7 17

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Jay, Barry, and Chuck’s OM Blog As a complement to this text, we have created a companion blog, with coordinated features to help teach the OM course. There are teaching tips, highlights of OM items in the news (along with class discussion questions and links), video tips, guest posts by instructors using our text, sample OM syllabi from dozens of colleges, and much more—all arranged by chapter. To learn more about any chapter topics, visit www.heizerrenderOM.wordpress.com . As you prepare your lectures and syllabus, scan our blog for discussion ideas, teaching tips, and classroom exercises.

Lean Operations In previous editions, we sought to explicitly differentiate the concepts of just-in-time, Lean, and Toyota Production System in Chapter 16. However, there is significant overlap and interchangea- bility among those three concepts, so we have revised Chapter 16 to incorporate the three concepts into an overall concept of “Lean.” The chapter suggests that students view Lean as a comprehen- sive integrated operations strategy that sustains competitive advantage and results in increased returns to all stakeholders.

Chapter-by-Chapter Changes To highlight the extent of the revisions in this edition, here are a few of the changes, on a chapter- by-chapter basis.

Chapter 1 : Operations and Productivity We updated Table 1.4 to reflect employment in various sectors and expanded our discussion of Lean operations. Our new case, Uber Technologies, introduces productivity by discussing the dis- ruptive nature of the Uber business model. In addition, there is a new “Creating Your Own Excel Spreadsheets” example for both labor productivity and multifactor productivity.

Chapter 2 : Operations Strategy in a Global Environment We have updated Figure 2.1 to better reflect changes in the growth of world trade and Figure 2.5 to reflect product life cycle changes. The Minute Lube case has been revised as Rapid Lube. Example 1 (National Architects) has been expanded to clarify factor rating calculations and is also demonstrated with a “Creating Your Own Excel Spreadsheets” presentation.

Chapter 3 : Project Management We rewrote and updated the Bechtel Global Company Profile and added a new section on well- defined projects with the “agile” and “waterfall” approaches. There are two new OM in Action boxes: “Agile Project Management at Mastek,” and “Behind the Tour de France.”

Chapter 4 : Forecasting We created a new table comparing the MAD, MSE, and MAPE forecasting error measures. There is also a new OM in Action box called “NYC’s Potholes and Regression Analysis.”

Chapter 5 : Design of Goods and Services We expanded our treatment of concurrent engineering and added two new discussion questions. Solved Problem 5.1 has been revised.

Supplement 5: Sustainability in the Supply Chain We wrote a new introductory section on Corporate Social Responsibility. There is also a new OM in Action box called “Blue Jeans and Sustainability” and 10 new homework problems.

Chapter 6 : Managing Quality We added new material to expand our discussion of Taguchi’s quality loss function. There is a new sec- tion on SERVQUAL, and a new video case study, “Quality Counts at Alaska Airlines,” appears here.

xxvi PREFACE

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Supplement 6: Statistical Process Control We added a figure on the relationship between sample size and sampling distribution. We also added raw data to Examples S2 and S3 to illustrate how ranges are computed. There is a new Excel spreadsheet to show students how to make their own c -chart, and we have added three new homework problems.

Chapter 7 : Process Strategy We wrote a new section on machine technology and additive manufacturing. There are two new discussion questions and three new homework problems. Our second new video case study is called “Alaska Airlines: 20-Minute Baggage Process—Guaranteed!”

Supplement 7: Capacity and Constraint Management We added a new Table S7.1, which compares and clarifies three capacity measurements, with an example of each. There is a new treatment of expected output and actual output in Example S2. The discussion of bottleneck time versus throughput time has also been expanded. Example S3, capacity analysis with parallel processes, has been revised. We have also added a new “Creating Your Own Excel Spreadsheets” example for a break-even model. Finally, we updated the Arnold Palmer Hospital capacity planning case with recent data.

Chapter 8 : Location Strategies We added two new OM in Action boxes: “Iowa—Home of Corn and Facebook” and “Denmark’s Meat Cluster.” We changed the notation for the center-of-gravity model to simplify the equa- tion and provided a new “Creating Your Own Excel Spreadsheets” presentation for the center-of- gravity example.

Chapter 9 : Layout Strategies We created a new Muther grid for office relationship charting and added a spread of five layouts showing how offices have evolved over time. There is a new OM in Action box called “Amazon Lets Loose the Robots,” and there is a new graphic example of Proplanner’s Flow Path Calculator. We have included a formula for idle time as a second measure of balance assignment efficiency and added new technology issues to the Arnold Palmer Hospital video case.

Chapter 10 : Human Resources, Job Design, and Work Measurement We added a new OM in Action box, “The Missing Perfect Chair,” and revised the Operations Chart as a service example. Our third new video case study is “The ‘People’ Focus: Human Resources at Alaska Airlines.”

Chapter 11 : Supply Chain Management We added “outsourcing” as a supply chain risk in Table 11.3.

Supplement 11: Supply Chain Management Analytics We added a major section on the topic of Warehouse Storage, with a new model for allocating inven- tory to storage locations. There is a new discussion question and three new homework problems.

Chapter 12 : Inventory Management New Programs 12.1 and 12.2 illustrate “Creating Your Own Excel Spreadsheets” for both the production run model and the single-period inventory model. The Excel function NORMSINV is introduced throughout the chapter. The Quantity Discount Model section is totally rewritten to illustrate the feasible solution shortcut. Solved Problem 12.5 is likewise redone with the new approach.

Chapter 13 : Aggregate Planning and S&OP We added a new OM in Action box, “Revenue Management Makes Disney the ‘King’ of the Broadway Jungle.” We also provided a new “Creating Your Own Excel Spreadsheets” example for the transportation method for aggregate planning, using the Solver approach.

PREFACE xxvii

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Chapter 14 : Material Requirements Planning (MRP) and ERP The MRP II example now includes greenhouse gasses.

Chapter 15 : Short-Term Scheduling We begin this chapter with a new Global Company Profile featuring Alaska Airlines and the scheduling issues it faces in its northern climate. We have added two new graphics to help illus- trate Forward and Backward Scheduling. There is also a new section called Performance Criteria, detailing how the choice of priority rule depends on four quantifiable criteria. We now explicitly define the performance criteria for sequencing jobs as separate numbered equations. Also, we provide an explicit formula for job lateness. There is a new OM in Action box called “Starbucks’ Controversial Scheduling Software.”

Chapter 16 : Lean Operations This chapter saw a major reorganization and rewrite with an enhanced focus on Lean operations. There is more material on supplier partnerships and building lean organizations. A new OM in Action box describes the use of kaizen at San Francisco General Hospital, and we have added a new video case study called “Lean Operations at Alaska Airlines.”

Chapter 17 : Maintenance and Reliability There are no major changes in this chapter.

Module A: Decision-Making Tools We added a discussion of “big data” and a new “Creating Your Own Excel Spreadsheets” example on how to evaluate a decision table.

Module B: Linear Programming There is a new section on integer and binary programming, two new homework problems, and a new video case study called “Using LP to Meet Scheduling Challenges at Alaska Airlines.” The corner point method is now covered before the iso-profit line approach.

Module C: Transportation Models There are no major changes to Module C.

Module D: Waiting-Line Models The limited population model (Model D) has been replaced by the finite population model, M/M/1 with finite source. This standardizes the queuing notation to match the M/M/1, M/M/s, and M/D/1. We have also expanded the coverage of Little’s Law and added six new homework problems.

Module E: Learning Curves There are no major changes to Module E.

Module F: Simulation We added a new “Creating Your Own Excel Spreadsheets” example for a simulation problem.

Student Resources To liven up the course and help students learn the content material, we have made available the following resources:

◆ Forty-one exciting Video Case Studies (videos located at MyOMLab ): These Video Case Studies feature real companies (Alaska Airlines, The Orlando Magic, Frito-Lay, Darden Restaurants, Regal Marine, Hard Rock Cafe, Ritz-Carlton, Wheeled Coach, and Arnold Palmer Hospital) and

xxviii PREFACE

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allow students to watch short videos, read about the key topics, and answer questions. These case studies can also be assigned without using class time to show the videos. Each of them was developed and written by the text authors to specifi cally supplement the book’s content. Instruc- tors who wish to use these in class, and who don’t have access to MyOMLab, should contact their Pearson Publishing Representative for access to the MyOMLab materials.

◆ POM for Windows software (located at MyOMLab and at the Student Download Page, www .pearsonhighered.com/heizer): POM for Windows is a powerful tool for easily solving OM problems. Its 24 modules can be used to solve most of the homework problems in the text.

◆ Excel OM problem-solving software (located at MyOMLab and at the Student Download Page, www.pearsonhighered.com/heizer): Excel OM is our exclusive user-friendly Excel add-in. Excel OM automatically creates worksheets to model and solve problems. Users select a topic from the pull-down menu and fi ll in the data, and then Excel will display and graph (where appropri- ate) the results. This software is great for student homework, what-if analysis, and classroom demonstrations. This edition includes a new version of Excel OM that is compatible with Microsoft Excel 2013 for Windows, Excel 2011 and 2016 for Mac, and earlier versions of Excel. Professor Howard Weiss, Temple University, developed both Excel OM for Windows and Mac, and POM for Windows to accompany our text and its problem set.

◆ Excel OM data fi les (located at MyOMLab and at the Student Download Page, www .pearsonhighered.com/heizer): These data fi les are prepared for specifi c examples and allow users to solve all the marked text examples without reentering any data.

◆ Active Models (located at MyOMLab and at the Student Download Page, www.pearsonhighered .com/heizer): These 28 Active Models are Excel-based OM simulations, designed to help students understand the quantitative methods shown in the textbook examples. Students may change the data in order to see how the changes aff ect the answers.

◆ Virtual tours (located at MyOMLab): These company tours provide direct links to companies— ranging from a hospital to an auto manufacturer—that practice key OM concepts. After touring each Web site, students are asked questions directly related to the concepts discussed in the chapter.

◆ Online Tutorial Chapters (located at MyOMLab and at the Student Download Page, www .pearsonhighered.com/heizer ): “Statistical Tools for Managers,” “Acceptance Sampling,” “The Simplex Method of Linear Programming,” “The MODI and VAM Methods of Solving Trans- portation Problems,” and “Vehicle Routing and Scheduling” are provided as additional material.

◆ Additional practice problems (located at MyOMLab): These problems provide problem-solving experience. They supplement the examples and solved problems found in each chapter.

◆ Additional case studies (located at MyOMLab and at the Student Download Page, www .pearsonhighered.com/heizer ): Over two dozen additional case studies supplement the ones in the text. Detailed solutions appear in the Solutions Manual.

◆ Virtual offi ce hours (located at MyOMLab): Professors Heizer, Render, and Munson walk stu- dents through all 89 Solved Problems in a series of 5- to 20-minute explanations. These have been updated with this new edition.

Instructor Resources At the Instructor Resource Center, www.pearsonhighered.com/irc , instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. If assistance is needed, our dedicated technical support team is ready to help with the media sup- plements that accompany this text. Visit http://247.pearsoned.com for answers to frequently asked questions and toll-free user support phone numbers.

The following supplements are available with this text:

Instructor’s Resource Manual The Instructor’s Resource Manual, updated by co-author Chuck Munson, contains many useful resources for instructors—PowerPoint presentations with annotated notes, course outlines, video notes, blog highlights, learning techniques, Internet exercises and sample answers, case analysis ideas, additional teaching resources, and faculty notes.

PREFACE xxix

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http://www.pearsonhighered.com/heizer
http://www.pearsonhighered.com/irc
http://247.pearsoned.com
www.pearsonhighered.com/heizer
www.pearsonhighered.com/heizer
www.pearsonhighered.com/heizer
www.pearsonhighered.com/heizer
www.pearsonhighered.com/heizer
www.pearsonhighered.com/heizer
www.pearsonhighered.com/heizer
www.pearsonhighered.com/heizer
www.pearsonhighered.com/heizer
www.pearsonhighered.com/heizer
Instructor’s Solutions Manual The Instructor’s Solutions Manual, written by the authors, contains the answers to all of the dis- cussion questions, Ethical Dilemmas , Active Models, and cases in the text, as well as worked-out solutions to all the end-of-chapter problems, additional homework problems, and additional case studies.

PowerPoint Presentations An extensive set of PowerPoint presentations, created by Professor Jeff Heyl of Lincoln University, is available for each chapter. With well over 2,000 slides, this set has excellent color and clarity.

Test Bank / TestGen® Computerized Test Bank The test bank, updated by James Roh, contains a variety of true/false, multiple-choice, short-answer, and essay questions, along with a selection of written problems, for each chapter. Test questions are annotated with the following information:

◆ Diffi culty level ◆ Type: multiple-choice, true/false, short-answer, essay, problem ◆ Learning objective ◆ AACSB (see the description that follows)

TestGen®, Pearson Education’s test-generating software, is PC/MAC compatible and preloaded with all the test bank questions. The test program permits instructors to edit, add, and delete ques- tions from the test bank to create customized tests.

The Association to Advance Collegiate Schools of Business (AACSB)

The test bank has connected select questions to the general knowledge and skill guidelines found in the AACSB Assurance of Learning standards.

AACSB is a not-for-profit corporation of educational institutions, corporations, and other organizations devoted to the promotion and improvement of higher education in business admin- istration and accounting. A collegiate institution offering degrees in business administration or accounting may volunteer for AACSB accreditation review. The AACSB makes initial accredi- tation decisions and conducts periodic reviews to promote continuous quality improvement in management education. Pearson Education is a proud member of the AACSB and is pleased to provide advice to help you apply AACSB assurance of learning standards.

What are AACSB assurance of learning standards? One of the criteria for AACSB accredita- tion is quality of the curricula. Although no specific courses are required, the AACSB expects a curriculum to include learning experiences in the following areas:

◆ Written and oral communication ◆ Ethical understanding and reasoning ◆ Analytical thinking ◆ Information technology ◆ Interpersonal relations and teamwork ◆ Diverse and multicultural work environments ◆ Refl ective thinking ◆ Application of knowledge

Questions that test skills relevant to these guidelines are appropriately tagged. For example, a question regarding clothing manufactured for U.S. firms by 10-year olds in Asia would receive the Ethical understanding and reasoning tag.

Tagged questions help you measure whether students are grasping the course content that aligns with the AACSB guidelines noted. In addition, the tagged questions may help instructors identify potential applications of these skills. This in turn may suggest enrichment activities or other educational experiences to help students achieve these skills.

xxx PREFACE

AACSB

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Video Package Designed and created by the authors specifically for their Heizer/Render/Munson texts, the video package contains the following 41 videos:

◆ Frito-Lay: Operations Management in Manufacturing ( Chapter 1 ) ◆ Hard Rock Cafe: Operations Management in Services ( Chapter 1 ) ◆ Strategy at Regal Marine ( Chapter 2 ) ◆ Hard Rock Cafe’s Global Strategy ( Chapter 2 ) ◆ Outsourcing Off shore at Darden ( Chapter 2 ) ◆ Project Management at Arnold Palmer Hospital ( Chapter 3 ) ◆ Managing Hard Rock’s Rockfest ( Chapter 3 ) ◆ Forecasting Ticket Revenue for Orlando Magic Basketball Games ( Chapter 4 ) ◆ Forecasting at Hard Rock Cafe ( Chapter 4 ) ◆ Product Design at Regal Marine ( Chapter 5 ) ◆ Building Sustainability at the Orlando Magic’s Amway Center ( Supplement 5 ) ◆ Green Manufacturing and Sustainability at Frito-Lay ( Supplement 5 ) ◆ Quality Counts at Alaska Airlines ( Chapter 6 ) ◆ The Culture of Quality at Arnold Palmer Hospital ( Chapter 6 ) ◆ Quality at the Ritz-Carlton Hotel Company ( Chapter 6 ) ◆ Frito-Lay’s Quality-Controlled Potato Chips ( Supplement 6 ) ◆ Farm to Fork: Quality at Darden Restaurants ( Supplement 6 ) ◆ Alaska Airlines: 20-Minute Baggage Process—Guaranteed! ( Chapter 7 ) ◆ Process Strategy at Wheeled Coach ( Chapter 7 ) ◆ Process Analysis at Arnold Palmer Hospital ( Chapter 7 ) ◆ Capacity Planning at Arnold Palmer Hospital ( Supplement 7 ) ◆ Locating the Next Red Lobster Restaurant ( Chapter 8 ) ◆ Where to Place the Hard Rock Cafe ( Chapter 8 ) ◆ Facility Layout at Wheeled Coach ( Chapter 9 ) ◆ Laying Out Arnold Palmer Hospital’s New Facility ( Chapter 9 ) ◆ The “People” Focus: Human Resources at Alaska Airlines ( Chapter 10 ) ◆ Hard Rock’s Human Resource Strategy ( Chapter 10 ) ◆ Darden’s Global Supply Chains ( Chapter 11 ) ◆ Supply Chain Management at Regal Marine ( Chapter 11 ) ◆ Arnold Palmer Hospital’s Supply Chain ( Chapter 11 ) ◆ Managing Inventory at Frito-Lay ( Chapter 12 ) ◆ Inventory Control at Wheeled Coach ( Chapter 12 ) ◆ Using Revenue Management to Set Orlando Magic Ticket Prices ( Chapter 13 ) ◆ When 18,500 Orlando Magic Fans Come to Dinner ( Chapter 14 ) ◆ MRP at Wheeled Coach ( Chapter 14 ) ◆ From the Eagles to the Magic: Converting the Amway Center ( Chapter 15 ) ◆ Scheduling at Hard Rock Cafe ( Chapter 15 ) ◆ Lean Operations at Alaska Airlines ( Chapter 16 ) ◆ JIT at Arnold Palmer Hospital ( Chapter 16 ) ◆ Maintenance Drives Profi ts at Frito-Lay ( Chapter 17 ) ◆ Scheduling Challenges at Alaska Airlines (Module B)

PREFACE xxxi

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ALABAMA John Mittenthal University of Alabama Philip F. Musa University of Alabama at Birmingham William Petty University of Alabama Doug Turner Auburn University

ALASKA Paul Jordan University of Alaska

ARIZONA Susan K. Norman Northern Arizona University Scott Roberts Northern Arizona University Vicki L. Smith-Daniels Arizona State University Susan K. Williams Northern Arizona University

CALIFORNIA Jean-Pierre Amor University of San Diego Moshen Attaran California State University–Bakersfi eld Ali Behnezhad California State University–Northridge Joe Biggs California Polytechnic State University Lesley Buehler Ohlone College Rick Hesse Pepperdine Ravi Kathuria Chapman University Richard Martin California State University–Long Beach Ozgur Ozluk San Francisco State University Zinovy Radovilsky California State University–Hayward Robert J. Schlesinger San Diego State University

V. Udayabhanu San Francisco State University Rick Wing San Francisco State University

COLORADO Peter Billington Colorado State University–Pueblo Gregory Stock University of Colorado at Colorado Springs

CONNECTICUT David Cadden Quinnipiac University Larry A. Flick Norwalk Community Technical College

FLORIDA Joseph P. Geunes University of Florida Rita Gibson Embry-Riddle Aeronautical University Jim Gilbert Rollins College Donald Hammond University of South Florida Wende Huehn-Brown St. Petersburg College Adam Munson University of Florida Ronald K. Satterfi eld University of South Florida Theresa A. Shotwell Florida A&M University Jeff Smith Florida State University

GEORGIA John H. Blackstone University of Georgia Johnny Ho Columbus State University John Hoft Columbus State University John Miller Mercer University

Nikolay Osadchiy Emory University Spyros Reveliotis Georgia Institute of Technology

ILLINOIS Suad Alwan Chicago State University Lori Cook DePaul University Matt Liontine University of Illinois–Chicago Zafar Malik Governors State University

INDIANA Barbara Flynn Indiana University B.P. Lingeraj Indiana University Frank Pianki Anderson University Stan Stockton Indiana University Jerry Wei University of Notre Dame Jianghua Wu Purdue University Xin Zhai Purdue University

IOWA Debra Bishop Drake University Kevin Watson Iowa State University Lifang Wu University of Iowa

KANSAS William Barnes Emporia State University George Heinrich Wichita State University Sue Helms Wichita State University Hugh Leach Washburn University

xxxii PREFACE

Acknowledgments We thank the many individuals who were kind enough to assist us in this endeavor. The following professors provided insights that guided us in this edition (their names are in bold) and in prior editions:

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M.J. Riley Kansas State University Teresita S. Salinas Washburn University Avanti P. Sethi Wichita State University

KENTUCKY Wade Ferguson Western Kentucky University Kambiz Tabibzadeh Eastern Kentucky University

LOUISIANA Roy Clinton University of Louisiana at Monroe L. Wayne Shell (retired) Nicholls State University

MARYLAND Eugene Hahn Salisbury University Samuel Y. Smith, Jr. University of Baltimore

MASSACHUSETTS Peter Ittig University of Massachusetts Jean Pierre Kuilboer University of Massachusetts–Boston Dave Lewis University of Massachusetts–Lowell Mike Maggard (retired) Northeastern University Peter Rourke Wentworth Institute of Technology Daniel Shimshak University of Massachusetts–Boston Ernest Silver Curry College Yu Amy Xia Northeastern University

MICHIGAN Darlene Burk Western Michigan University Damodar Golhar Western Michigan University Dana Johnson Michigan Technological University Doug Moodie Michigan Technological University

MINNESOTA Rick Carlson Metropolitan State University John Nicolay University of Minnesota Michael Pesch St. Cloud State University Manus Rungtusanatham University of Minnesota Kingshuk Sinha University of Minnesota Peter Southard University of St. Thomas

MISSOURI Shahid Ali Rockhurst University Stephen Allen Truman State University Sema Alptekin University of Missouri–Rolla Gregory L. Bier University of Missouri–Columbia James Campbell University of Missouri–St. Louis Wooseung Jang University of Missouri–Columbia Mary Marrs University of Missouri–Columbia A. Lawrence Summers University of Missouri

NEBRASKA Zialu Hug University of Nebraska–Omaha

NEVADA Joel D. Wisner University of Nevada, Las Vegas

NEW JERSEY Daniel Ball Monmouth University Leon Bazil Stevens Institute of Technology Mark Berenson Montclair State University Grace Greenberg Rider University Joao Neves The College of New Jersey Leonard Presby William Paterson University

Faye Zhu Rowan University

NEW MEXICO William Kime University of New Mexico

NEW YORK Theodore Boreki Hofstra University John Drabouski DeVry University Richard E. Dulski Daemen College Jonatan Jelen Baruch College Beate Klingenberg Marist College Donna Mosier SUNY Potsdam Elizabeth Perry SUNY Binghamton William Reisel St. John’s University Kaushik Sengupta Hofstra University Girish Shambu Canisius College Rajendra Tibrewala New York Institute of Technology

NORTH CAROLINA Coleman R. Rich Elon University Ray Walters Fayetteville Technical Community College

OHIO Victor Berardi Kent State University Andrew R. Thomas University of Akron

OKLAHOMA Wen-Chyuan Chiang University of Tulsa

OREGON Anne Deidrich Warner Pacifi c College Gordon Miller Portland State University

PREFACE xxxiii

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xxxiv PREFACE

John Sloan Oregon State University

PENNSYLVANIA Henry Crouch Pittsburgh State University Jeff rey D. Heim Pennsylvania State University James F. Kimpel University of Pittsburgh Ian M. Langella Shippensburg University Prafulla Oglekar LaSalle University David Pentico Duquesne University Stanford Rosenberg LaRoche College Edward Rosenthal Temple University Susan Sherer Lehigh University Howard Weiss Temple University

RHODE ISLAND Laurie E. Macdonald Bryant College John Swearingen Bryant College Susan Sweeney Providence College

SOUTH CAROLINA Jerry K. Bilbrey Anderson University Larry LaForge Clemson University Emma Jane Riddle Winthrop University

TENNESSEE Joseph Blackburn Vanderbilt University Hugh Daniel Lipscomb University

Cliff Welborn Middle Tennessee State University

TEXAS Warren W. Fisher Stephen F. Austin State University Garland Hunnicutt Texas State University Gregg Lattier Lee College Henry S. Maddux III Sam Houston State University Arunachalam Narayanan Texas A&M University Ranga V. Ramasesh Texas Christian University Victor Sower San Houston State University Cecelia Temponi Texas State University John Visich-Disc University of Houston Dwayne Whitten Texas A&M University Bruce M. Woodworth University of Texas–El Paso

UTAH William Christensen Dixie State College of Utah Shane J. Schvaneveldt Weber State University Madeline Thimmes (retired) Utah State University

VIRGINIA Andy Litteral University of Richmond Arthur C. Meiners, Jr. Marymount University Michael Plumb Tidewater Community College

WASHINGTON Mark McKay University of Washington

Chris Sandvig Western Washington University John Stec Oregon Institute of Technology

WASHINGTON, DC Narendrea K. Rustagi Howard University

WEST VIRGINIA Charles Englehardt Salem International University Daesung Ha Marshall University John Harpell West Virginia University James S. Hawkes University of Charleston

WISCONSIN James R. Gross University of Wisconsin–Oshkosh Marilyn K. Hart (retired) University of Wisconsin–Oshkosh Niranjan Pati University of Wisconsin–La Crosse X. M. Saff ord Milwaukee Area Technical College Rao J. Taikonda University of Wisconsin–Oshkosh

WYOMING Cliff Asay University of Wyoming

INTERNATIONAL Steven Harrod Technical University of Denmark Robert D. Klassen University of Western Ontario Ronald Lau Hong Kong University of Science and Technology

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PREFACE xxxv

In addition, we appreciate the wonderful people at Pearson Education who provided both help and advice: Stephanie Wall, our superb editor-in-chief; Lenny Ann Kucenski, our dynamo mar- keting manager; Linda Albelli, our editorial assistant; Courtney Kamauf and Andra Skaalrud for their fantastic and dedicated work on MyOMLab; Jeff Holcomb, our project manager team lead; Claudia Fernandes, our program manager; Jacqueline Martin, our senior project manager; and Heidi Allgair, our project manager at Cenveo® Publisher Services. We are truly blessed to have such a fantastic team of experts directing, guiding, and assisting us.

In this edition, we were thrilled to be able to include one of the country’s premier airlines, Alaska Airlines, in our ongoing Video Case Study series. This was possible because of the wonderful efforts of COO/EVP-Operations Ben Minicucci, and his superb management team. This included John Ladner (Managing Director, Seattle Station Operations), Wayne Newton (Managing Director, Station Operations Control), Mike McQueen (Director, Schedule Planning), Chad Koehnke (Director, Planning and Resource Allocation), Cheryl Schulz (Executive Assistant to EVP Minicucci), Jeffrey Butler (V.P. Airport Operations & Customer Service), Dan Audette (Manager of Operations Research and Analysis), Allison Fletcher (Process Improvement Manager), Carlos Zendejas (Manager Line-Flying Operations, Pilots), Robyn Garner (Flight Attendant Trainer), and Nikki Meier and Sara Starbuck (Process Improvement Facilitators). We are grateful to all of these fine people, as well as the many others that participated in the develop- ment of the videos and cases during our trips to the Seattle headquarters.

We also appreciate the efforts of colleagues who have helped to shape the entire learning pack- age that accompanies this text. Professor Howard Weiss (Temple University) developed the Active Models, Excel OM, and POM for Windows software; Professor Jeff Heyl (Lincoln University) created the PowerPoint presentations; and Professor James Roh (Rowan University) updated the test bank. Beverly Amer (Northern Arizona University) produced and directed the video series; Professors Keith Willoughby (Bucknell University) and Ken Klassen (Brock University) contrib- uted the two Excel-based simulation games; and Professor Gary LaPoint (Syracuse University) developed the Microsoft Project crashing exercise and the dice game for SPC. We have been fortu- nate to have been able to work with all these people.

We wish you a pleasant and productive introduction to operations management.

JAY HEIZER Texas Lutheran University 1000 W. Court Street Seguin, TX 78155 Email: jheizer@tlu.edu

BARRY RENDER Graduate School of Business Rollins College Winter Park, FL 32789 Email: brender@rollins.edu

CHUCK MUNSON Carson College of Business Washington State University Pullman, WA 99164-4746 Email: munson@wsu.edu

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mailto:jheizer@tlu.edu
mailto:brender@rollins.edu
mailto:munson@wsu.edu
xxxvi PREFACE

OPERATIONS MANAGEMENT, 12TH EDITION ISBN: 0-13-413042-1

PART I INTRODUCTION TO OPERATIONS MANAGEMENT 1. Operations and Productivity 2. Operations Strategy in a Global

Environment 3. Project Management 4. Forecasting

PART II DESIGNING OPERATIONS 5. Design of Goods and Services S5. Sustainability in the Supply Chain 6. Managing Quality S6. Statistical Process Control 7. Process Strategy S7. Capacity and Constraint Management 8. Location Strategies 9. Layout Strategies 10. Human Resources, Job Design, and

Work Measurement

PART III MANAGING OPERATIONS 11. Supply Chain Management S11. Supply Chain Management Analytics 12. Inventory Management 13. Aggregate Planning and S&OP 14. Material Requirements Planning (MRP)

and ERP 15. Short-Term Scheduling 16. Lean Operations 17. Maintenance and Reliability

PART IV BUSINESS ANALYTICS MODULES A. Decision-Making Tools B. Linear Programming C. Transportation Models D. Waiting-Line Models E. Learning Curves F. Simulation

ONLINE TUTORIALS 1. Statistical Tools for Managers 2. Acceptance Sampling 3. The Simplex Method of Linear

Programming 4. The MODI and VAM Methods of

Solving Transportation Problems 5. Vehicle Routing and Scheduling

PRINCIPLES OF OPERATIONS MANAGEMENT, 10TH EDITION ISBN: 0-13-418198-0

PART I INTRODUCTION TO OPERATIONS MANAGEMENT 1. Operations and Productivity 2. Operations Strategy in a Global

Environment 3. Project Management 4. Forecasting

PART II DESIGNING OPERATIONS 5. Design of Goods and Services S5. Sustainability in the Supply Chain 6. Managing Quality S6. Statistical Process Control 7. Process Strategy S7. Capacity and Constraint Management 8. Location Strategies 9. Layout Strategies 10. Human Resources, Job Design, and

Work Measurement

PART III MANAGING OPERATIONS 11. Supply Chain Management S11. Supply Chain Management Analytics 12. Inventory Management 13. Aggregate Planning and S&OP 14. Material Requirements Planning (MRP)

and ERP 15. Short-Term Scheduling 16. Lean Operations 17. Maintenance and Reliability

ONLINE TUTORIALS 1. Statistical Tools for Managers 2. Acceptance Sampling 3. The Simplex Method of Linear

Programming 4. The MODI and VAM Methods of

Solving Transportation Problems 5. Vehicle Routing and Scheduling

TWO VERSIONS ARE AVAILABLE This text is available in two versions: Operations Management , 12th edition, a hardcover, and Principles of Operations Management , 10th edition, a paperback. Both books include the identi- cal core Chapters 1 – 17 . However, Operations Management , 12th edition also includes six business analytics modules in Part IV .

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

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11

CHAPTER O U T L I N E

1 ◆ 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 ◆ The Productivity Challenge 13 ◆ Current Challenges in Operations

Management 18 ◆ Ethics, Social Responsibility, and

Sustainability 19

GLOBAL COMPANY PROFILE: Hard Rock Cafe

C H

A P

T E

R

PART ONE Introduction to Operations Management

Operations and Productivity

1010 OMOM STRATEGY DECISIONS

• • Design of Goods and Services • • Managing Quality • • Process Strategy • • Location Strategies • • Layout Strategies

• • Human Resources • • Supply-Chain Management • • Inventory Management • • Scheduling • • Maintenance

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Operations managers throughout the world are producing products every day to provide for the well-being of society. These products take on a multitude of forms. They may be washing machines at Whirlpool, motion pictures at DreamWorks, rides at Disney World, or food at Hard Rock Cafe. These firms produce thousands of complex products every day—to be

delivered as the customer ordered them, when the customer wants them, and where the cus-

tomer wants them. Hard Rock does this for over 35 million guests worldwide every year. This is a

challenging task, and the operations manager’s job, whether at Whirlpool, DreamWorks, Disney,

or Hard Rock, is demanding.

Operations Management at Hard Rock Cafe

GLOBAL COMPANY PROFILE Hard Rock Cafe

C H A P T E R 1

2

Hard Rock Cafe in Orlando, Florida, prepares over 3,500 meals each day. Seating more than 1,500 people, it is one of the largest restaurants in the world. But Hard Rock’s operations managers serve the hot food hot and the cold food cold.

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Operations managers are interested in the attractiveness of the layout, but they must be sure that the facility contributes to the efficient movement of people and material with the necessary controls to ensure that proper portions are served.

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3

Orlando-based Hard Rock Cafe opened its first restau-

rant in London in 1971, making it over 45 years old and the

granddaddy of theme restaurants. Although other theme

restaurants have come and gone, Hard Rock is still going

strong, with 150 restaurants in more than 53 countries—and

new restaurants opening each year. Hard Rock made its

name with rock music memorabilia, having started when Eric

Clapton, a regular customer, marked his favorite bar stool

by hanging his guitar on the wall in the London cafe. Now

Hard Rock has 70,000 items and millions of dollars invested

in memorabilia. To keep customers coming back time and

again, Hard Rock creates value in the form of good food and

entertainment.

The operations managers at Hard Rock Cafe at Uni-

versal Studios in Orlando provide more than 3,500 custom

products—in this case meals—every day. These products

are designed, tested, and then analyzed for cost of

Lots of work goes into designing, testing, and costing meals. Then suppliers deliver quality products on time, every time, for well-trained cooks to prepare quality meals. But none of that matters unless an enthusiastic waitstaff, such as the one shown here, holding guitars previously owned by members of U2, is doing its job.

Efficient kitchen layouts, motivated personnel, tight schedules, and the right ingredients at the right place at the right time are required to delight the customer.

Lots of work goes into designing testing and costing

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ingredients, labor requirements, and customer satisfaction.

On approval, menu items are put into production—and then

only if the ingredients are available from qualified suppliers.

The production process, from receiving, to cold storage,

to grilling or baking or frying, and a dozen other steps, is

designed and maintained to yield a quality meal. Operations

managers, using the best people they can recruit and train,

also prepare effective employee schedules and design

efficient layouts.

Managers who successfully design and deliver goods

and services throughout the world understand operations.

In this text, we look not only at how Hard Rock’s manag-

ers create value but also how operations managers in other

services, as well as in manufacturing, do so. Operations

management is demanding, challenging, and exciting. It

affects our lives every day. Ultimately, operations managers

determine how well we live.

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4

What Is Operations Management? Operations management (OM) is a discipline that applies to restaurants like Hard Rock Cafe as well as to factories like Ford and Whirlpool. The techniques of OM apply throughout the world to virtually all productive enterprises. It doesn’t matter if the application is in an office, a hospital, a restaurant, a department store, or a factory—the production of goods and ser- vices requires operations management. And the efficient production of goods and services requires effective applications of the concepts, tools, and techniques of OM that we introduce in this book.

As we progress through this text, we will discover how to manage operations in an economy in which both customers and suppliers are located throughout the world. An array of informa- tive examples, charts, text discussions, and pictures illustrates concepts and provides informa- tion. We will see how operations managers create the goods and services that enrich our lives.

In this chapter, we first define operations management , explaining its heritage and exploring the exciting role operations managers play in a huge variety of organizations. Then we discuss production and productivity in both goods- and service-producing firms. This is followed by a discussion of operations in the service sector and the challenge of managing an effective and efficient production system.

Production is the creation of goods and services. Operations management (OM) is the set of activi- ties that creates value in the form of goods and services by transforming inputs into outputs. Activities creating goods and services take place in all organizations. In manufacturing firms, the production activities that create goods are usually quite obvious. In them, we can see the creation of a tangible product such as a Sony TV or a Harley-Davidson motorcycle.

In an organization that does not create a tangible good or product, the production func- tion may be less obvious. We often call these activities services . The services may be “hidden” from the public and even from the customer. The product may take such forms as the transfer of funds from a savings account to a checking account, the transplant of a liver, the filling of an empty seat on an airplane, or the education of a student. Regardless of whether the end product is a good or service, the production activities that go on in the organization are often referred to as operations, or operations management .

Organizing to Produce Goods and Services To create goods and services, all organizations perform three functions (see Figure 1.1 ). These functions are the necessary ingredients not only for production but also for an organization’s survival. They are:

1. Marketing , which generates the demand, or at least takes the order for a product or ser- vice (nothing happens until there is a sale).

2. Production/operations , which creates, produces, and delivers the product. 3. Finance/accounting , which tracks how well the organization is doing, pays the bills, and

collects the money.

Universities, churches or synagogues, and businesses all perform these functions. Even a vol- unteer group such as the Boy Scouts of America is organized to perform these three basic

L E A R N I N G OBJECTIVES

LO 1.1 Defi ne operations management 4

LO 1.2 Explain the distinction between goods and services 11

LO 1.3 Explain the diff erence between production and productivity 13

LO 1.4 Compute single-factor productivity 14

LO 1.5 Compute multifactor productivity 15

LO 1.6 Identify the critical variables in enhancing productivity 16

STUDENT TIP Let’s begin by defining what

this course is about.

LO 1.1 Define operations management

VIDEO 1.1 Operations Management

at Hard Rock

VIDEO 1.2 Operations Management at

Frito-Lay

Production The creation of goods and services.

Operations management (OM) Activities that relate to the creation of goods and services through the transformation of inputs to outputs.

STUDENT TIP Operations is one of the

three functions that every organization performs.

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CHAPTER 1 | OPERATIONS AND PRODUCTIVITY 5

Figure 1.1 Organization Charts for Two Service Organizations and One Manufacturing Organization

(A) a bank, (B) an airline, and (C) a manufacturing organization. The blue areas are OM activities.

Manufacturing

Operations

Facilities Construction; maintenance

Production and inventory control Scheduling; materials control

Quality assurance and control

Manufacturing Tooling; fabrication; assembly

Supply-chain management

Design Product development and design Detailed product specifications

Industrial engineering Efficient use of machines, space, and personnel

Process analysis Development and installation of production tools and equipment

Finance/accounting

Disbursements/credits Accounts receivable Accounts payable General ledger

Funds management Money market International exchange

Capital requirements Stock issue Bond issue and recall

Marketing

Sales promotion

Market research Sales Advertising

(C)

Airline

Operations

Ground support equipment

Maintenance

Ground operations Facility maintenance Catering

Flight operations Crew scheduling Flying Communications Dispatching

Management science

Finance/accounting

Accounting Accounts payable Accounts receivable General ledger

Finance Cash control International

exchange

Marketing

Traffic administration Reservations Schedules Tariffs (pricing)

Advertising

Sales

(B)

Operations

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(A)

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STUDENT TIP The areas in blue indicate the significant role that OM plays in both manufacturing and service firms.

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6 PART 1 | INTRODUCTION TO OPERATIONS MANAGEMENT

functions. Figure 1.1 shows how a bank, an airline, and a manufacturing firm organize them- selves to perform these functions. The blue-shaded areas show the operations functions in these firms.

The Supply Chain Through the three functions—marketing, operations, and finance—value for the customer is created. However, firms seldom create this value by themselves. Instead, they rely on a variety of suppliers who provide everything from raw materials to accounting services. These suppli- ers, when taken together, can be thought of as a supply chain. A supply chain (see Figure 1.2 ) is a global network of organizations and activities that supply a firm with goods and services.

As our society becomes more technologically oriented, we see increasing specialization. Specialized expert knowledge, instant communication, and cheaper transportation also foster specialization and worldwide supply chains. It just does not pay for a firm to try to do every- thing itself. The expertise that comes with specialization exists up and down the supply chain, adding value at each step. When members of the supply chain collaborate to achieve high levels of customer satisfaction, we have a tremendous force for efficiency and competitive advantage. Competition in the 21st century is not between companies; it is between supply chains.

Why Study OM? We study OM for four reasons:

1. OM is one of the three major functions of any organization, and it is integrally related to all the other business functions. All organizations market (sell), finance (account), and produce (operate), and it is important to know how the OM activity functions. Therefore, we study how people organize themselves for productive enterprise .

2. We study OM because we want to know how goods and services are produced . The produc- tion function is the segment of our society that creates the products and services we use.

3. We study OM to understand what operations managers do . Regardless of your job in an organization, you can perform better if you understand what operations managers do. In addition, understanding OM will help you explore the numerous and lucrative career opportunities in the field.

4. We study OM because it is such a costly part of an organization . A large percentage of the revenue of most firms is spent in the OM function. Indeed, OM provides a major oppor- tunity for an organization to improve its profitability and enhance its service to society. Example 1 considers how a firm might increase its profitability via the production function.

Figure 1.2 Soft Drink Supply Chain

A supply chain for a bottle of Coke requires a beet or sugar cane farmer, a syrup producer, a bottler, a distributor, and a retailer, each adding value to satisfy a customer. Only with collaborations between all members of the supply chain can efficiency and customer satisfaction be maximized. The supply chain, in general, starts with the provider of basic raw materials and continues all the way to the final customer at the retail store.

Farmer Syrup producer

Bottler Distributor Retailer

Supply chain A global network of organizations and activities that supplies a firm with goods and services.

STUDENT TIP Good OM managers are scarce and, as a result,

career opportunities and pay are excellent.

Example 1 EXAMINING THE OPTIONS FOR INCREASING CONTRIBUTION Fisher Technologies is a small firm that must double its dollar contribution to fixed cost and profit in order to be profitable enough to purchase the next generation of production equipment. Management has determined that if the firm fails to increase contribution, its bank will not make the loan and the equipment cannot be purchased. If the firm cannot purchase the equipment, the limitations of the old equipment will force Fisher to go out of business and, in doing so, put its employees out of work and discontinue producing goods and services for its customers.

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CHAPTER 1 | OPERATIONS AND PRODUCTIVITY 7

Example 1 underscores the importance of the effective operations activity of a firm. Devel- opment of increasingly effective operations is the approach taken by many companies as they face growing global competition.

What Operations Managers Do All good managers perform the basic functions of the management process. The management process consists of planning , organizing , staffing , leading , and controlling . Operations manag- ers apply this management process to the decisions they make in the OM function. The 10 strategic OM decisions are introduced in Table 1.2 . Successfully addressing each of these decisions requires planning, organizing, staffing, leading, and controlling.

Where Are the OM Jobs? How does one get started on a career in operations? The 10 strategic OM decisions identified in Table 1.2 are made by individuals who work in the dis- ciplines shown in the blue areas of Figure 1.1 . Business students who know their accounting,

APPROACH c Table 1.1 shows a simple profit-and-loss statement and three strategic options (mar- keting, finance/accounting, and operations) for the firm. The first option is a marketing option , where excellent marketing management may increase sales by 50%. By increasing sales by 50%, contribution will in turn increase 71%. But increasing sales 50% may be difficult; it may even be impossible.

TABLE 1.1 Options for Increasing Contribution

MARKETING OPTION a

FINANCE/ ACCOUNTING

OPTION b OM

OPTION c

CURRENT INCREASE SALES REVENUE 50%

REDUCE FINANCE COSTS 50%

REDUCE PRODUCTION COSTS 20%

Sales $100,000 $150,000 $100,000 $100,000

Costs of goods −80,000 −120,000 −80,000 −64,000

Gross margin 20,000 30,000 20,000 36,000

Finance costs −6,000 −6,000 −3,000 −6,000

Subtotal 14,000 24,000 17,000 30,000

Taxes at 25% −3,500 −6,000 −4,250 −7,500

Contribution d $ 10,500 $ 18,000 $ 12,750 $ 22,500

a Increasing sales 50% increases contribution by $7,500, or 71% (7,500/10,500).

b Reducing fi nance costs 50% increases contribution by $2,250, or 21% (2,250/10,500).

c Reducing production costs 20% increases contribution by $12,000, or 114% (12,000/10,500).

d Contribution to fi xed cost (excluding fi nance costs) and profi t.

The second option is a finance/accounting option , where finance costs are cut in half through good financial management. But even a reduction of 50% is still inadequate for generating the necessary increase in contribution. Contribution is increased by only 21%.

The third option is an OM option , where management reduces production costs by 20% and increases contribution by 114%.

SOLUTION c Given the conditions of our brief example, Fisher Technologies has increased contribu- tion from $10,500 to $22,500. It may now have a bank willing to lend it additional funds.

INSIGHT c The OM option not only yields the greatest improvement in contribution but also may be the only feasible option. Increasing sales by 50% and decreasing finance cost by 50% may both be virtu- ally impossible. Reducing operations cost by 20% may be difficult but feasible.

LEARNING EXERCISE c What is the impact of only a 15% decrease in costs in the OM option? [Answer: A $19,500 contribution; an 86% increase.]

10 Strategic OM Decisions Design of goods and services Managing quality Process strategy Location strategies Layout strategies Human resources Supply-chain management Inventory management Scheduling Maintenance

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8 PART 1 | INTRODUCTION TO OPERATIONS MANAGEMENT

statistics, finance, and OM have an opportunity to assume entry-level positions in all of these areas. As you read this text, identify disciplines that can assist you in making these decisions. Then take courses in those areas. The more background an OM student has in accounting, statistics, information systems, and mathematics, the more job opportunities will be available. About 40% of all jobs are in OM.

The following professional organizations provide various certifications that may enhance your education and be of help in your career:

◆ APICS, the Association for Operations Management ( www.apics.org ) ◆ American Society for Quality (ASQ) ( www.asq.org ) ◆ Institute for Supply Management (ISM) ( www.ism.ws ) ◆ Project Management Institute (PMI) ( www.pmi.org ) ◆ Council of Supply Chain Management Professionals ( www.cscmp.org )

Figure 1.3 shows some recent job opportunities.

The Heritage of Operations Management The field of OM is relatively young, but its history is rich and interesting. Our lives and the OM discipline have been enhanced by the innovations and contributions of numerous indi- viduals. We now introduce a few of these people, and we provide a summary of significant events in operations management in Figure 1.4 .

STUDENT TIP An operations manager must successfully address the 10

decisions around which this text is organized.

TABLE 1.2 Ten Strategic Operations Management Decisions

DECISION CHAPTER(S)

1. Design of goods and services: Defi nes much of what is required of operations in each of the other OM decisions. For instance, product design usually determines the lower limits of cost and the upper limits of quality, as well as major implications for sustainability and the human resources required.

5, Supplement 5

2. Managing quality: Determines the customer’s quality expectations and establishes policies and procedures to identify and achieve that quality.

6, Supplement 6

3. Process and capacity strategy: Determines how a good or service is produced (i.e., the process for production) and commits management to specifi c technology, quality, human resources, and capital investments that determine much of the fi rm’s basic cost structure.

7, Supplement 7

4. Location strategy: Requires judgments regarding nearness to customers, suppliers, and talent, while considering costs, infrastructure, logistics, and government.

8

5. Layout strategy: Requires integrating capacity needs, personnel levels, technology, and inventory requirements to determine the effi cient fl ow of materials, people, and information.

9

6. Human resources and job design: Determines how to recruit, motivate, and retain personnel with the required talent and skills. People are an integral and expensive part of the total system design.

10

7. Supply chain management: Decides how to integrate the supply chain into the fi rm’s strategy, including decisions that determine what is to be purchased, from whom, and under what conditions.

11, Supplement 11

8. Inventory management: Considers inventory ordering and holding decisions and how to optimize them as customer satisfaction, supplier capability, and production schedules are considered.

12, 14, 16

9. Scheduling: Determines and implements intermediate- and short-term schedules that effectively and effi ciently utilize both personnel and facilities while meeting customer demands.

13, 15

10. Maintenance: Requires decisions that consider facility capacity, production demands, and personnel necessary to maintain a reliable and stable process.

17

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http://www.apics.org
http://www.asq.org
http://www.ism.ws
http://www.pmi.org
http://www.cscmp.org
CHAPTER 1 | OPERATIONS AND PRODUCTIVITY 9

1/15 Plant Manager Division of Fortune 1000 company seeks plant manager for plant located in the upper Hudson Valley area. This plant manufactures loading dock equipment for commercial markets. The candidate must be experienced in plant management including expertise in production planning, purchasing, and inventory management. Good written and oral communication skills are a must, along with excellent application of skills in managing people.

2/23 Operations Analyst Expanding national coffee shop: top 10 “Best Places to Work” wants junior level systems analyst to join our excellent store improvement team. Business or I.E. degree, work methods, labor standards, ergonomics, cost accounting knowledge a plus. This is a hands-on job and excellent opportunity for a team player with good people skills. West Coast location. Some travel required.

3/18 Quality Manager Several openings exist in our small package processing facilities in the Northeast, Florida, and Southern California for quality managers. These highly visible positions require extensive use of statistical tools to monitor all aspects of service, timeliness, and workload measurement. The work involves (1) a combination of hands-on applications and detailed analysis using databases and spreadsheets, (2) processing of audits to identify areas for improvement, and (3) management of implementation of changes. Positions involve night hours and weekends.

4/6 Supply-Chain Manager and Planner Responsibilities entail negotiating contracts and establishing long-term relationships with suppliers. We will rely on the selected candidate to maintain accuracy in the purchasing system, invoices, and product returns. A bachelor's degree and up to 2 years related experience are required. Working knowledge of MRP, ability to use feedback to master scheduling and suppliers and consolidate orders for best price and delivery are necessary. Proficiency in all PC Windows applications, particularly Excel and Word, is essential. Effective verbal and written communication skills are essential.

5/14 Process Improvement Consultants An expanding consulting firm is seeking consultants to design and implement lean production and cycle time reduction plans in both service and manufacturing processes. Our firm is currently working with an international bank to improve its back office operations, as well as with several manufacturing firms. A business degree required; APICS certification a plus.

Eli Whitney (1800) is credited for the early popularization of interchangeable parts, which was achieved through standardization and quality control. Through a contract he signed with the U.S. government for 10,000 muskets, he was able to command a premium price because of their interchangeable parts.

Frederick W. Taylor (1881), known as the father of scientific management, contributed to personnel selection, planning and scheduling, motion study, and the now popular field of ergo- nomics. One of his major contributions was his belief that management should be much more resourceful and aggressive in the improvement of work methods. Taylor and his colleagues, Henry L. Gantt and Frank and Lillian Gilbreth, were among the first to systematically seek the best way to produce.

Another of Taylor’s contributions was the belief that management should assume more responsibility for:

1. Matching employees to the right job. 2. Providing the proper training. 3. Providing proper work methods and tools. 4. Establishing legitimate incentives for work to be accomplished.

Figure 1.3 Many Opportunities Exist for Operations Managers

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10 PART 1 | INTRODUCTION TO OPERATIONS MANAGEMENT

By 1913, Henry Ford and Charles Sorensen combined what they knew about standardized parts with the quasi-assembly lines of the meatpacking and mail-order industries and added the revolutionary concept of the assembly line, where men stood still and material moved.

Quality control is another historically significant contribution to the field of OM. Walter Shewhart (1924) combined his knowledge of statistics with the need for quality control and provided the foundations for statistical sampling in quality control. W. Edwards Deming (1950) believed, as did Frederick Taylor, that management must do more to improve the work environ- ment and processes so that quality can be improved.

Operations management will continue to progress as contributions from other disciplines, including industrial engineering, statistics, management, and economics , improve decision making.

Innovations from the physical sciences (biology, anatomy, chemistry, physics) have also contributed to advances in OM. These innovations include new adhesives, faster integrated circuits, gamma rays to sanitize food products, and specialized glass for iPhones and plasma TVs. Innovation in products and processes often depends on advances in the physical sciences.

Especially important contributions to OM have come from information technology , which we define as the systematic processing of data to yield information. Information technology—with wireless links, Internet, and e-commerce—is reducing costs and accelerating communication.

Decisions in operations management require individuals who are well versed in analyti- cal tools, in information technology, and often in one of the biological or physical sciences. In this textbook, we look at the diverse ways a student can prepare for a career in operations management.

Figure 1.4 Significant Events in Operations Management

Ev er

et t C

ol le

ct io

n/ Ne

ws co

m

Early Concepts 1776–1880 Labor Specialization (Smith, Babbage) Standardized Parts (Whitney)

Scientific Management Era 1880–1910 Gantt Charts (Gantt) Motion & Time Studies (Gilbreth) Process Analysis (Taylor) Queuing Theory (Erlang)

Mass Production Era 1910–1980 Moving Assembly Line (Ford/Sorensen) Statistical Sampling (Shewhart) Economic Order Quantity (Harris) Linear Programming PERT/CPM (DuPont) Material Requirements Planning (MRP)

Mass Customization Era 1995–2005 Internet/E-Commerce Enterprise Resource Planning International Quality Standards (ISO) Finite Scheduling Supply Chain Management Mass Customization Build-to-Order Radio Frequency Identification (RFID)

Globalization Era 2005–2020 Global Supply Chains Growth of Transnational Organizations Instant Communications Sustainability Ethics in a Global Workforce Logistics

Lean Production Era 1980–1995 Just-in-Time (JIT) Computer-Aided Design (CAD) Electronic Data Interchange (EDI) Total Quality Management (TQM) Baldrige Award Empowerment Kanbans

Globalization FocusCustomization FocusQuality FocusCost Focus

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CHAPTER 1 | OPERATIONS AND PRODUCTIVITY 11

Operations for Goods and Services Manufacturers produce a tangible product, while service products are often intangible. But many products are a combination of a good and a service, which complicates the definition of a service. Even the U.S. government has trouble generating a consistent definition. Because definitions vary, much of the data and statistics generated about the service sector are incon- sistent. However, we define services as including repair and maintenance, government, food and lodging, transportation, insurance, trade, financial, real estate, education, legal, medical, entertainment, and other professional occupations.

The operation activities for both goods and services are often very similar. For instance, both have quality standards, are designed and produced on a schedule that meets customer de- mand, and are made in a facility where people are employed. However, some major differences do exist between goods and services. These are presented in Table 1.3 .

We should point out that in many cases, the distinction between goods and services is not clear-cut. In reality, almost all services and almost all goods are a mixture of a service and a tangible product. Even services such as consulting may require a tangible report. Similarly, the sale of most goods includes a service. For instance, many products have the service components of financing and delivery (e.g., automobile sales). Many also require after-sale training and maintenance (e.g., office copiers and machinery). “Service” activities may also be an integral part of production. Human resource activities, logistics, accounting, training, field service, and repair are all service activities, but they take place within a manufacturing organization. Very few services are “pure,” meaning they have no tangible component. Counseling may be one of the exceptions.

Growth of Services Services constitute the largest economic sector in postindustrial societies. Until about 1900, most Americans were employed in agriculture. Increased agricultural productivity allowed people to leave the farm and seek employment in the city. Similarly, manufactur- ing employment has decreased for the past 60 years. The changes in agriculture, manufac- turing, and service employment as a percentage of the workforce are shown in Figure 1.5 . Although the number of people employed in manufacturing has decreased since 1950, each person is now producing almost 20 times more than in 1950. Services became the dominant

STUDENT TIP Services are especially important because almost 80% of all jobs are in service firms.

Services Economic activities that typically produce an intangible product (such as education, entertainment, lodging, government, financial, and health services).

LO 1.2 Explain the distinction between goods and services

TABLE 1.3 Differences Between Goods and Services

CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS

Intangible: Ride in an airline seat Tangible: The seat itself

Produced and consumed simultaneously: Beauty salon produces a haircut that is consumed as it is produced

Product can usually be kept in inventory (beauty care products)

Unique: Your investments and medical care are unique

Similar products produced (iPods)

High customer interaction: Often what the customer is paying for (consulting, education)

Limited customer involvement in production

Inconsistent product defi nition: Auto insurance changes with age and type of car

Product standardized (iPhone)

Often knowledge based: Legal, education, and medical services are hard to automate

Standard tangible product tends to make automation feasible

Services dispersed: Service may occur at retail store, local offi ce, house call, or via Internet.

Product typically produced at a fi xed facility

Quality may be hard to evaluate: Consulting, education, and medical services

Many aspects of quality for tangible products are easy to evaluate (strength of a bolt)

Reselling is unusual: Musical concert or medical care Product often has some residual value

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12 PART 1 | INTRODUCTION TO OPERATIONS MANAGEMENT

employer in the early 1920s, with manufacturing employment peaking at about 32% in 1950. The huge productivity increases in agriculture and manufacturing have allowed more of our economic resources to be devoted to services. Consequently, much of the world can now enjoy the pleasures of education, health services, entertainment, and myriad other things that we call services. Examples of firms and percentage of employment in the U.S. service sector are shown in Table 1.4 . Table 1.4 also provides employment percentages for the nonservice sectors of manufacturing, construction, agriculture, and mining on the bottom four lines.

Service Pay Although there is a common perception that service industries are low paying, in fact, many service jobs pay very well. Operations managers in the maintenance facility of an airline are very well paid, as are the operations managers who supervise computer services to the finan- cial community. About 42% of all service workers receive wages above the national average. However, the service-sector average is driven down because 14 of the U.S. Department of

Figure 1.5 U.S. Agriculture, Manufacturing, and Service Employment Source: U.S. Bureau of Labor Statistics.

1800

0

20

40

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60

80

100

1825 1850

1875

U.S. Agriculture, Manufacturing, and Service Employment

1900 1925

1950 1975

2000 2025 (est.)

Agriculture

Services

Manufacturing

Service sector The segment of the economy that includes trade, financial, lodging, education, legal, medical, and other professional occupations.

TABLE 1.4 Examples of Organizations in Each Sector

SECTOR EXAMPLE PERCENT OF

ALL JOBS

Service Sector

Education, Medical, Other San Diego State University, Arnold Palmer Hospital

15.3

Trade (retail, wholesale), Transportation

Walgreen’s, Walmart, Nordstrom, Alaska Airlines

15.8

Information, Publishers, Broadcast IBM, Bloomberg, Pearson, ESPN 1.9

Professional, Legal, Business Services, Associations

Snelling and Snelling, Waste Management, American Medical Association, Ernst & Young

13.6 85.2

Finance, Insurance, Real Estate Citicorp, American Express, Prudential, Aetna 9.6

Leisure, Lodging, Entertainment Olive Garden, Motel 6, Walt Disney 10.4

Government (Fed, State, Local) U.S., State of Alabama, Cook County 15.6

Manufacturing Sector General Electric, Ford, U.S. Steel, Intel 8.6

Construction Sector Bechtel, McDermott 4.3

Agriculture King Ranch 1.4

Mining Sector Homestake Mining .5

Grand Total 100.0

Source: Bureau of Labor Statistics, 2015.

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CHAPTER 1 | OPERATIONS AND PRODUCTIVITY 13

Commerce categories of the 33 service industries do indeed pay below the all-private industry average. Of these, retail trade, which pays only 61% of the national private industry average, is large. But even considering the retail sector, the average wage of all service workers is about 96% of the average of all private industries.

The Productivity Challenge The creation of goods and services requires changing resources into goods and services. The more efficiently we make this change, the more productive we are and the more value is added to the good or service provided. Productivity is the ratio of outputs (goods and services) divided by the inputs (resources, such as labor and capital) (see Figure 1.6 ). The operations manager’s job is to enhance (improve) this ratio of outputs to inputs. Improving productivity means improving efficiency. 1

This improvement can be achieved in two ways: reducing inputs while keeping output constant or increasing output while keeping inputs constant. Both represent an improvement in productivity. In an economic sense, inputs are labor, capital, and management, which are integrated into a production system. Management creates this production system, which provides the conversion of inputs to outputs. Outputs are goods and services, including such diverse items as guns, butter, education, improved judicial systems, and ski resorts. Production is the making of goods and services. High production may imply only that more people are working and that employment levels are high (low unemployment), but it does not imply high productivity .

Measurement of productivity is an excellent way to evaluate a country’s ability to provide an improving standard of living for its people. Only through increases in productivity can the standard of living improve. Moreover, only through increases in productivity can labor, capital, and management receive additional payments. If returns to labor, capital, or management are increased without increased productivity, prices rise. On the other hand, downward pressure is placed on prices when productivity increases because more is being produced with the same resources.

The benefits of increased productivity are illustrated in the OM in Action box “Improving Productivity at Starbucks.”

For well over a century (from about 1869), the U.S. has been able to increase productiv- ity at an average rate of almost 2.5% per year. Such growth has doubled U.S. wealth every 30 years. The manufacturing sector, although a decreasing portion of the U.S. economy, has on occasion seen annual productivity increases exceeding 4%, and service sector increases of almost 1%. However, U.S. annual productivity growth in the early part of the 21st century is slightly below the 2.5% range for the economy as a whole and in recent years has been trending down. 2

In this text, we examine how to improve productivity through operations management. Productivity is a significant issue for the world and one that the operations manager is uniquely qualified to address.

STUDENT TIP Why is productivity important? Because it determines our standard of living.

Productivity The ratio of outputs (goods and services) divided by one or more inputs (such as labor, capital, or management).

Figure 1.6 The Economic System Adds Value by Transforming Inputs to Outputs

An effective feedback loop evaluates performance against a strategy or standard. It also evaluates customer satisfaction and sends signals to managers controlling the inputs and transformation process.

LO 1.3 Explain the difference between production and productivity

Inputs Transformation Outputs

Feedback loop

Goods and services

The U.S. economic system transforms inputs

to outputs at about an annual 2.5% increase in

productivity per year. The productivity increase is

the result of a mix of capital (38% of 2.5%), labor (10% of 2.5%),

and management (52% of 2.5%).

Labor, capital,

management

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14 PART 1 | INTRODUCTION TO OPERATIONS MANAGEMENT

Productivity Measurement The measurement of productivity can be quite direct. Such is the case when productivity is measured by labor-hours per ton of a specific type of steel. Although labor-hours is a common measure of input, other measures such as capital (dollars invested), materials (tons of ore), or energy (kilowatts of electricity) can be used. 3 An example of this can be summarized in the following equation:

Productivity = Units produced

Input used (1-1)

For example, if units produced = 1,000 and labor-hours used is 250, then:

Single@factor productivity = Units produced

Labor@hours used =

1,000 250

= 4 units per labor@hour

The use of just one resource input to measure productivity, as shown in Equation (1-1) , is known as single-factor productivity . However, a broader view of productivity is multifactor productivity , which includes all inputs (e.g., capital, labor, material, energy). Multifactor productivity is also known as total factor productivity . Multifactor productivity is calculated by combining the input units as shown here:

Multifactor productivity = Output

Labor + Material + Energy + Capital + Miscellaneous (1-2)

To aid in the computation of multifactor productivity, the individual inputs (the denominator) can be expressed in dollars and summed as shown in Example 2 .

OM in Action Improving Productivity at Starbucks “This is a game of seconds …” says Silva Peterson, whom Starbucks has put in charge of saving seconds. Her team of 10 analysts is constantly asking themselves: “How can we shave time off this?”

Peterson’s analysis suggested that there were some obvious opportunities. First, stop requiring signatures on credit-card purchases under $25. This sliced 8 seconds off the transaction time at the cash register.

Then analysts noticed that Starbucks’ largest cold beverage, the Venti size, required two bending and digging motions to scoop up enough ice. The scoop was too small. Redesign of the scoop provided the proper amount in one mo- tion and cut 14 seconds off the average time of 1 minute.

Third were new espresso machines; with the push of a button, the machines grind coffee beans and brew. This allowed the server, called a “barista” in Starbucks’s vocabulary, to do other things. The savings: about 12 seconds per espresso shot.

As a result, operations improve- ments at Starbucks outlets have increased the average transactions per hour to 11.7—a 46% increase— and yearly volume by $250,000, to about $1 million. The result: a 27% improvement in overall productivity— about 4.5% per year. In the service industry, a 4.5% per year increase is very tasty.

Sources: BusinessWeek (August 23–30, 2012) and The Wall Street Journal (October 13, 2010 and August 4, 2009).

LO 1.4 Compute single-factor productivity

Single-factor productivity Indicates the ratio of goods and services produced (outputs) to one resource (input).

Multifactor productivity Indicates the ratio of goods and services produced (outputs) to many or all resources (inputs).

Example 2 COMPUTING SINGLE-FACTOR AND MULTIFACTOR GAINS IN PRODUCTIVITY Collins Title Insurance Ltd. wants to evaluate its labor and multifactor productivity with a new comput- erized title-search system. The company has a staff of four, each working 8 hours per day (for a payroll cost of $640/day) and overhead expenses of $400 per day. Collins processes and closes on 8 titles each day. The new computerized title-search system will allow the processing of 14 titles per day. Although the staff, their work hours, and pay are the same, the overhead expenses are now $800 per day.

APPROACH c Collins uses Equation (1-1) to compute labor productivity and Equation (1-2) to com- pute multifactor productivity.

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CHAPTER 1 | OPERATIONS AND PRODUCTIVITY 15

Use of productivity measures aids managers in determining how well they are doing. But results from the two measures can be expected to vary. If labor productivity growth is entirely the result of capital spending, measuring just labor distorts the results. Multifactor productivity is usually better, but more complicated. Labor productivity is the more popular measure. The multifactor-productivity measures provide better information about the trade-offs among fac- tors, but substantial measurement problems remain. Some of these measurement problems are:

1. Quality may change while the quantity of inputs and outputs remains constant. Compare an HDTV of this decade with a black-and-white TV of the 1950s. Both are TVs, but few people would deny that the quality has improved. The unit of measure—a TV—is the same, but the quality has changed.

2. External elements may cause an increase or a decrease in productivity for which the sys- tem under study may not be directly responsible. A more reliable electric power service may greatly improve production, thereby improving the firm’s productivity because of this support system rather than because of managerial decisions made within the firm.

3. Precise units of measure may be lacking. Not all automobiles require the same inputs: Some cars are subcompacts, others are 911 Turbo Porsches.

Productivity measurement is particularly difficult in the service sector, where the end product can be hard to define. For example, economic statistics ignore the quality of your haircut, the outcome of a court case, or the service at a retail store. In some cases, adjustments are made for the quality of the product sold but not the quality of the sales presentation or the advantage of a broader product selection. Productivity measurements require specific inputs and out- puts, but a free economy is producing worth—what people want—which includes convenience, speed, and safety. Traditional measures of outputs may be a very poor measure of these other measures of worth. Note the quality-measurement problems in a law office, where each case is different, altering the accuracy of the measure “cases per labor-hour” or “cases per employee.”

Productivity Variables As we saw in Figure 1.6 , productivity increases are dependent on three productivity variables : 1. Labor, which contributes about 10% of the annual increase. 2. Capital, which contributes about 38% of the annual increase. 3. Management, which contributes about 52% of the annual increase. These three factors are critical to improved productivity. They represent the broad areas in which managers can take action to improve productivity.

SOLUTION c

Labor productivity with the old system: 8 titles per day 32 labor@hours

= .25 titles per labor@hour

Labor productivity with the new system: 14 titles per day 32 labor@hours

= .4375 titles per labor@hour

Multifactor productivity with the old system: 8 titles per day

$640 + 400 = .0077 titles per dollar

Multifactor productivity with the new system: 14 titles per day

$640 + 800 = .0097 titles per dollar

Labor productivity has increased from .25 to .4375. The change is (.4375 - .25) >.25 = 0.75, or a 75% increase in labor productivity. Multifactor productivity has increased from .0077 to .0097. This change is (.0097 - .0077) >.0077 = 0.26, or a 26% increase in multifactor productivity.

INSIGHT c Both the labor (single-factor) and multifactor productivity measures show an increase in productivity. However, the multifactor measure provides a better picture of the increase because it includes all the costs connected with the increase in output.

LEARNING EXERCISE c If the overhead goes to $960 (rather than $800), what is the multifactor productivity? [Answer: .00875.]

RELATED PROBLEMS c 1.1, 1.2, 1.4, 1.5, 1.6, 1.7, 1.8, 1.9, 1.10, 1.11, 1.13, 1.14, 1.17

LO 1.5 Compute multifactor productivity

Productivity variables The three factors critical to productivity improvement—labor, capital, and the art and science of management.

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16 PART 1 | INTRODUCTION TO OPERATIONS MANAGEMENT

Which of the following is true about 84% of 100?

It is greater than 100

It is less than 100

It is equal to 100

What is the area of this rectangle?

6 yds

4 yds

4 square yds

6 square yds

10 square yds

20 square yds

24 square yds

If 9y + 3 = 6y + 15 then y =

1

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6

Labor Improvement in the contribution of labor to productivity is the result of a healthier, better- educated, and better-nourished labor force. Some increase may also be attributed to a shorter workweek. Historically, about 10% of the annual improvement in productivity is attributed to improvement in the quality of labor. Three key variables for improved labor productivity are:

1. Basic education appropriate for an effective labor force. 2. Diet of the labor force. 3. Social overhead that makes labor available, such as transportation and sanitation.

Illiteracy and poor diets are a major impediment to productivity, costing countries up to 20% of their productivity. Infrastructure that yields clean drinking water and sanitation is also an opportunity for improved productivity, as well as an opportunity for better health, in much of the world.

In developed nations, the challenge becomes maintaining and enhancing the skills of labor in the midst of rapidly expanding technology and knowledge. Recent data suggest that the average American 17-year-old knows significantly less mathematics than the average Japanese at the same age, and about half cannot answer the questions in Figure 1.7 . Moreover, about one-third of American job applicants tested for basic skills were deficient in reading, writing, or math.

Overcoming shortcomings in the quality of labor while other countries have a better labor force is a major challenge. Perhaps improvements can be found not only through increasing competence of labor but also via better utilized labor with a stronger commitment . Training, motivation, team building, and the human resource strategies discussed in Chapter 10 , as well as improved education, may be among the many techniques that will contribute to increased labor productivity. Improvements in labor productivity are possible; however, they can be expected to be increasingly difficult and expensive.

Capital Human beings are tool-using animals. Capital investment provides those tools. Capital investment has increased in the U.S. every year except during a few very severe reces- sion periods. Annual capital investment in the U.S. has increased at an annual rate of 1.5% after allowances for depreciation.

Inflation and taxes increase the cost of capital, making capital investment increasingly ex- pensive. When the capital invested per employee drops, we can expect a drop in productivity. Using labor rather than capital may reduce unemployment in the short run, but it also makes economies less productive and therefore lowers wages in the long run. Capital investment is often a necessary, but seldom a sufficient, ingredient in the battle for increased productivity.

The trade-off between capital and labor is continually in flux. The higher the cost of capital or perceived risk, the more projects requiring capital are “squeezed out”: they are not pursued because the potential return on investment for a given risk has been reduced. Managers adjust their investment plans to changes in capital cost and risk.

Management Management is a factor of production and an economic resource. Manage- ment is responsible for ensuring that labor and capital are effectively used to increase produc- tivity. Management accounts for over half of the annual increase in productivity. This increase includes improvements made through the use of knowledge and the application of technology.

Using knowledge and technology is critical in postindustrial societies. Consequently, post- industrial societies are also known as knowledge societies . Knowledge societies are those in which much of the labor force has migrated from manual work to technical and information-processing

LO 1.6 Identify the critical variables in enhancing productivity

Figure 1.7 About Half of the 17-Year-Olds in the U.S. Cannot Correctly Answer Questions of This Type

Knowledge society A society in which much of the labor force has migrated from manual work to work based on knowledge.

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CHAPTER 1 | OPERATIONS AND PRODUCTIVITY 17

tasks requiring ongoing education. The required education and training are important high- cost items that are the responsibility of operations managers as they build organizations and workforces. The expanding knowledge base of contemporary society requires that managers use technology and knowledge effectively.

More effective use of capital also contributes to productivity. It falls to the operations man- ager, as a productivity catalyst, to select the best new capital investments as well as to improve the productivity of existing investments.

The productivity challenge is difficult. A country cannot be a world-class competitor with second-class inputs. Poorly educated labor, inadequate capital, and dated technology are second-class inputs. High productivity and high-quality outputs require high-quality inputs, including good operations managers.

Productivity and the Service Sector The service sector provides a special challenge to the accurate measurement of productivity and productivity improvement. The traditional analytical framework of economic theory is based primarily on goods-producing activities. Consequently, most published economic data relate to goods production. But the data do indicate that, as our contemporary service econ- omy has increased in size, we have had slower growth in productivity.

The effective use of capital often means finding the proper trade-off between investment in capital assets (automation, left) and human assets (a manual process, right). While there are risks connected with any investment, the cost of capital and physical investments is fairly clear-cut, but the cost of employees has many hidden costs including fringe benefits, social insurance, and legal constraints on hiring, employment, and termination.

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18 PART 1 | INTRODUCTION TO OPERATIONS MANAGEMENT

Productivity of the service sector has proven difficult to improve because service-sector work is:

1. Typically labor intensive (e.g., counseling, teaching). 2. Frequently focused on unique individual attributes or desires (e.g., investment advice). 3. Often an intellectual task performed by professionals (e.g., medical diagnosis). 4. Often difficult to mechanize and automate (e.g., a haircut). 5. Often difficult to evaluate for quality (e.g., performance of a law firm).

The more intellectual and personal the task, the more difficult it is to achieve increases in pro- ductivity. Low-productivity improvement in the service sector is also attributable to the growth of low-productivity activities in the service sector. These include activities not previously a part of the measured economy, such as child care, food preparation, house cleaning, and laundry service. These activities have moved out of the home and into the measured economy as more and more women have joined the workforce. Inclusion of these activities has probably resulted in lower measured productivity for the service sector, although, in fact, actual productivity has probably increased because these activities are now more efficiently produced than previously.

However, despite the difficulty of improving productivity in the service sector, improve- ments are being made. And this text presents a multitude of ways to make these improvements. Indeed, what can be done when management pays attention to how work actually gets done is astonishing!

Although the evidence indicates that all industrialized countries have the same problem with service productivity, the U.S. remains the world leader in overall productivity and service productivity. Retailing is twice as productive in the U.S. as in Japan, where laws protect shop- keepers from discount chains. The U.S. telephone industry is at least twice as productive as Germany’s. The U.S. banking system is also 33% more efficient than Germany’s banking oli- gopolies. However, because productivity is central to the operations manager’s job and because the service sector is so large, we take special note in this text of how to improve productivity in the service sector. (See, for instance, the OM in Action box “Taco Bell Improves Productivity and Goes Green to Lower Costs.”)

Current Challenges in Operations Management Operations managers work in an exciting and dynamic environment. This environment is the result of a variety of challenging forces, from globalization of world trade to the transfer of ideas, products, and money at electronic speeds. Let’s look at some of these challenges:

OM in Action Taco Bell Improves Productivity and Goes Green to Lower Costs Founded in 1962 by Glenn Bell, Taco Bell seeks competitive advantage via low cost. Like many other services, Taco Bell relies on its operations management to improve productivity and reduce cost.

Its menu and meals are designed to be easy to prepare. Taco Bell has shifted a substantial portion of food preparation to suppliers who could perform food processing more efficiently than a stand-alone restaurant. Ground beef is precooked prior to arrival and then reheated, as are many dishes that arrive in plastic boil bags for easy sanitary reheating. Similarly, tortillas arrive already fried and onions prediced. Efficient layout and automation has cut to 8 seconds the time needed to prepare tacos and burritos and has cut time in the drive- through lines by 1 minute. These advances have been combined with training and empowerment to increase the span of management from one supervisor for 5 restaurants to one supervisor for 30 or more.

Operations managers at Taco Bell have cut in-store labor by 15 hours per day and reduced floor space by more than 50%. The result is a store that can average 164 seconds for each customer, from drive-up to pull-out.

In 2010, Taco Bell completed the rollout of its new Grill-to-Order kitchens by install- ing water- and energy-saving grills that conserve 300 million gallons of water and 200 million kilowatt hours of electricity each year. This “green”-inspired cooking method also saves the company’s 5,800 restaurants $17 million per year.

Effective operations management has resulted in productivity increases that sup- port Taco Bell’s low-cost strategy. Taco Bell is now the fast-food low-cost leader with a 58% share of the Mexican fast-food market. Bo

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Sources: Business Week (May 5, 2011); Harvard Business Review (July/August 2008); and J. Hueter and W. Swart, Interfaces (Vol. 28; issue 1).

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CHAPTER 1 | OPERATIONS AND PRODUCTIVITY 19

◆ Globalization: The rapid decline in the cost of communication and transportation has made markets global. Similarly, resources in the form of capital, materials, talent, and labor are also now global. As a result, countries throughout the world are contributing to globaliza- tion as they vie for economic growth. Operations managers are rapidly seeking creative designs, efficient production, and high-quality goods via international collaboration.

◆ Supply-chain partnering: Shorter product life cycles, demanding customers, and fast changes in technology, materials, and processes require supply-chain partners to be in tune with the needs of end users. And because suppliers may be able to contribute unique expertise, operations managers are outsourcing and building long-term partnerships with critical players in the supply chain.

◆ Sustainability: Operations managers’ continuing battle to improve productivity is con- cerned with designing products and processes that are ecologically sustainable. This means designing green products and packaging that minimize resource use, can be recycled or re- used, and are generally environmentally friendly.

◆ Rapid product development: Technology combined with rapid international communica- tion of news, entertainment, and lifestyles is dramatically chopping away at the life span of products. OM is answering with new management structures, enhanced collaboration, digi- tal technology, and creative alliances that are more responsive and effective.

◆ Mass customization: Once managers recognize the world as the marketplace, the cultural and individual differences become quite obvious. In a world where consumers are increas- ingly aware of innovation and options, substantial pressure is placed on firms to respond in a creative way. And OM must rapidly respond with product designs and flexible production processes that cater to the individual whims of consumers. The goal is to produce custom- ized products, whenever and wherever needed.

◆ Lean operations: Lean is the management model sweeping the world and providing the standard against which operations managers must compete. Lean can be thought of as the driving force in a well-run operation, where the customer is satisfied, employees are respected, and waste does not exist. The theme of this text is to build organizations that are more efficient, where management creates enriched jobs that help employees engage in continuous improvement, and where goods and services are produced and delivered when and where the customer desires them. These ideas are also captured in the phrase Lean .

These challenges must be successfully addressed by today’s operations managers. This text will provide you with the foundations necessary to meet those challenges.

Ethics, Social Responsibility, and Sustainability The systems that operations managers build to convert resources into goods and services are complex. And they function in a world where the physical and social environment is evolving, as are laws and values. These dynamics present a variety of challenges that come from the con- flicting perspectives of stakeholders , such as customers, distributors, suppliers, owners, lenders, employees, and community. Stakeholders, as well as government agencies at various levels, require constant monitoring and thoughtful responses.

Identifying ethical and socially responsible responses while developing sustainable processes that are also effective and efficient productive systems is not easy. Managers are also challenged to: ◆ Develop and produce safe, high-quality green products ◆ Train, retain, and motivate employees in a safe workplace ◆ Honor stakeholder commitments Managers must do all this while meeting the demands of a very competitive and dynamic world marketplace. If operations managers have a moral awareness and focus on increasing productivity in this system , then many of the ethical challenges will be successfully addressed. The organiza- tion will use fewer resources, the employees will be committed, the market will be satisfied, and the ethical climate will be enhanced. Throughout this text, we note ways in which operations managers can take ethical and socially responsible actions while successfully addressing these challenges of the market. We also conclude each chapter with an Ethical Dilemma exercise.

STUDENT TIP One of the reasons OM is such an exciting discipline is that an operations manager is confronted with ever-changing issues, from technology, to global supply chains, to sustainability.

Stakeholders Those with a vested interest in an organization, including customers, distributors, suppliers, owners, lenders, employees, and com- munity members.

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20 PART 1 | INTRODUCTION TO OPERATIONS MANAGEMENT

Summary Operations, marketing, and finance/accounting are the three functions basic to all organizations. The operations function creates goods and services. Much of the progress of opera- tions management has been made in the twentieth century, but since the beginning of time, humankind has been attempt- ing to improve its material well-being. Operations managers are key players in the battle to improve productivity.

As societies become increasingly affluent, more of their resources are devoted to services. In the U.S., more than 85% of the workforce is employed in the service sector. Productivity improvements and a sustainable environment are difficult to achieve, but operations managers are the primary vehicle for making improvements.

Key Terms

Production (p. 4 ) Operations management (OM) (p. 4 ) Supply chain (p. 6 ) 10 strategic OM decisions (p. 7 )

Services (p. 11 ) Service sector (p. 12 ) Productivity (p. 13 ) Single-factor productivity (p. 14 )

Multifactor productivity (p. 14 ) Productivity variables (p. 15 ) Knowledge society (p. 16 ) Stakeholders (p. 19 )

Ethical Dilemma The American car battery industry boasts that its recycling rate now exceeds 95%, the highest rate for any commodity. However, with changes brought about by specialization and globalization, parts of the recycling system are moving offshore. This is particularly true of automobile batteries, which contain lead. The Environmental Protection Agency (EPA) is contributing to the offshore fl ow with newly implemented standards that make domestic battery recycling increasingly difficult and expensive. The result is a major increase in used batteries going to Mexico, where environmental standards and control are less demanding than they are in the U.S. One in fi ve batteries is now exported to Mexico. There is seldom diffi culty fi nding buyers because lead is expensive and in worldwide demand. While U.S.

recyclers operate in sealed, mechanized plants, with smokestacks equipped with scrubbers and plant surroundings monitored for traces of lead, this is not the case in most Mexican plants. The harm from lead is legendary, with long-run residual effects. Health issues include high blood pressure, kidney damage, detrimental effects on fetuses during pregnancy, neurological problems, and arrested development in children.

Given the two scenarios below, what action do you take?

a) You own an independent auto repair shop and are trying to safely dispose of a few old batteries each week. (Your battery supplier is an auto parts supplier who refuses to take your old batteries.)

b) You are manager of a large retailer responsible for disposal of thousands of used batteries each day.

Discussion Questions

1. Why should one study operations management? 2. Identify four people who have contributed to the theory and

techniques of operations management. 3. Briefly describe the contributions of the four individuals

identified in the preceding question. 4. Figure 1.1 outlines the operations, finance/accounting, and

marketing functions of three organizations. Prepare a chart similar to Figure 1.1 outlining the same functions for one of the following:

a. a newspaper b. a drugstore c. a college library d. a summer camp e. a small costume-jewelry factory 5. Answer Question 4 for some other organization, perhaps an

organization where you have worked. 6. What are the three basic functions of a firm? 7. Identify the 10 strategic operations management decisions. 8. Name four areas that are significant to improving labor

productivity.

9. The U.S., and indeed much of the rest of the world, has been described as a “knowledge society.” How does this affect pro- ductivity measurement and the comparison of productivity between the U.S. and other countries?

10. What are the measurement problems that occur when one attempts to measure productivity?

11. Mass customization and rapid product development were identified as challenges to modern manufacturing operations. What is the relationship, if any, between these challenges? Can you cite any examples?

12. What are the five reasons productivity is difficult to improve in the service sector?

13. Describe some of the actions taken by Taco Bell to increase productivity that have resulted in Taco Bell’s ability to serve “twice the volume with half the labor.”

14. As a library or Internet assignment, find the U.S. produc- tivity rate (increase) last year for the (a) national economy, (b) manufacturing sector, and (c) service sector.

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CHAPTER 1 | OPERATIONS AND PRODUCTIVITY 21

Using Software for Productivity Analysis

This section presents three ways to solve productivity problems with computer software. First, you can create your own Excel spreadsheets to conduct productivity analysis. Second, you can use the Excel OM software that comes with this text. Third, POM for Windows is another program that is available with this text .

Program 1.1

Actions Copy C7 to B7, Copy B14 to C14, Copy C15 to B15, and Copy D14 to D15

Create a row for each of the inputs used for the productivity measure. Put the output in the last row.

=C5*C6

=B10/B7

Enter the values for the old system in column B and the new system in Column C.

Productivity = Output/Input

=(C14-B14)/B14=C10/(C8+C9)

X USING EXCEL OM Excel OM is an Excel “add-in” with 24 Operations Management decision support “Templates.” To access the templates, double- click on the Excel OM tab at the top of the page, then in the menu bar choose the appropriate chapter (in this case Chapter 1 ), from either the “Chapter” or “Alphabetic” tab on the left. Each of Excel OM’s 24 modules includes instructions for that particular module. The instructions can be turned on or off via the “instruction” tab in the menu bar.

P USING POM FOR WINDOWS POM for Windows is decision support software that includes 24 Operations Management modules. The modules are accessed by double-clicking on Module in the menu bar, and then double-clicking on the appropriate (in this case Productivity ) item. Instructions are provided for each module just below the menu bar.

Solved Problems Virtual Office Hours help is available in MyOMLab .

SOLVED PROBLEM 1.1 Productivity can be measured in a variety of ways, such as by labor, capital, energy, material usage, and so on. At Modern Lumber, Inc., Art Binley, president and producer of apple crates sold to growers, has been able, with his current equip- ment, to produce 240 crates per 100 logs. He currently pur- chases 100 logs per day, and each log requires 3 labor-hours to process. He believes that he can hire a professional buyer who can buy a better-quality log at the same cost. If this is the case, he can increase his production to 260 crates per 100 logs. His labor-hours will increase by 8 hours per day.

What will be the impact on productivity (measured in crates per labor-hour) if the buyer is hired?

SOLUTION

(a) Current labor productivity = 240 crates

100 logs * 3 hours>log

= 240 300

= .8 crates per labor@hour (b) Labor productivitywith buyer =

260 crates (100 logs * 3 hours>log) + 8 hours

= 260 308

= .844 crates per labor@hour Using current productivity (.80 from [a]) as a base, the

increase will be 5.5% (.844/.8 = 1.055, or a 5.5% increase).

CREATING YOUR OWN EXCEL SPREADSHEETS Program 1.1 illustrates how to build an Excel spreadsheet for the data in Example 2.

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22 PART 1 | INTRODUCTION TO OPERATIONS MANAGEMENT

Problems Note: PX means the problem may be solved with POM for Windows and/or Excel OM.

SOLVED PROBLEM 1.2 Art Binley has decided to look at his productivity from a multi- factor (total factor productivity) perspective (refer to Solved Problem 1.1). To do so, he has determined his labor, capital, energy, and material usage and decided to use dollars as the common denominator. His total labor-hours are now 300 per

day and will increase to 308 per day. His capital and energy costs will remain constant at $350 and $150 per day, respec- tively. Material costs for the 100 logs per day are $1,000 and will remain the same. Because he pays an average of $10 per hour (with fringes), Binley determines his productivity increase as follows:

SOLUTION

CURRENT SYSTEM

Labor: 300 hrs. @10 = 3,000

Material: 100 logs/day 1,000

Capital: 350

Energy: 150

Total Cost: $4,500

Multifactor productivity of current system: = 240 crates>$4,500 = .0533 crates/dollar

SYSTEM WITH PROFESSIONAL BUYER

308 hrs. @10 = $3,080

1,000

350

150

$4,580

Multifactor productivity of proposed system: = 260 crates>$4,580 = .0568 crates/dollar

Using current productivity (.0533) as a base, the increase will be .066. That is, .0568>.0533 = 1.066, or a 6.6% increase.

Problems 1.1 to 1.17 relate to The Productivity Challenge

• 1.1 Chuck Sox makes wooden boxes in which to ship motorcycles. Chuck and his three employees invest a total of 40 hours per day making the 120 boxes. a) What is their productivity? b) Chuck and his employees have discussed redesigning the pro-

cess to improve efficiency. If they can increase the rate to 125 per day, what will be their new productivity?

c) What will be their unit increase in productivity per hour? d) What will be their percentage change in productivity? PX