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

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OPER ATIONS MANAGEMENT Sustainability and Supply Chain Management

TWELFTH EDITION

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TWELFTH EDITION

JAY HEIZER | BARRY RENDER | CHUCK MUNSON

HEIZER RENDER MUNSON

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

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

HEIZER J A Y

RENDER B A R R Y

Jesse H. Jones Professor of Business Administration Texas Lutheran University

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

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

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

C H U C K

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

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Library of Congress Cataloging-in-Publication Data

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

10 9 8 7 6 5 4 3 2 1

ISBN 10: 0-13-413042-1

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

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http://www.pearsoned.com/permissions/

To Karen Heizer Herrmann, all a sister could ever be

To Donna, Charlie, and Jesse

J.H.

B.R.

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

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

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ABOUT THE A U T H O R S

JAY HEIZER

BARRY RENDER

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

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

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

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

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

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

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

vi

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

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

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

CHUCK MUNSON

ABOUT THE AUTHORS vii

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PART ONE Introduction to Operations Management 1

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

PART TWO Designing Operations 159

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

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

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

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

PART THREE Managing Operations 441

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

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

PART FOUR Business Analytics Modules 677

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

ONLINE TUTORIALS

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

Brief Table of Contents

ix

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Table of Contents

About the Authors vi Preface xxiii

Chapter 1 Operations and Productivity 1

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

Growth of Services 11

Service Pay 12

The Productivity Challenge 13 Productivity Measurement 14

Productivity Variables 15

Productivity and the Service Sector 17

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

Uber Technologies, Inc. 24

Frito-Lay: Operations Management in Manufacturing Video Case 25

Hard Rock Cafe: Operations Management in Services Video Case 25

Endnotes 26 Rapid Review 27 Self Test 28

Chapter 2 Operations Strategy in a Global Environment 29

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

Chains 32 Cultural and Ethical Issues 35

Developing Missions and Strategies 35 Mission 36

Strategy 36

Achieving Competitive Advantage Through Operations 36 Competing on Diff erentiation 37

Competing on Cost 38

Competing on Response 39

Issues in Operations Strategy 40 Strategy Development and Implementation 41

Key Success Factors and Core Competencies 41

Integrating OM with Other Activities 43

Building and Staffi ng the Organization 43

Implementing the 10 Strategic OM Decisions 44

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

Risks of Outsourcing 46

Rating Outsource Providers 47

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

Problems 51 Solved Problems 52 Problems 53 CASE STUDIES 55

Rapid-Lube 55

Strategy at Regal Marine Video Case 55

Hard Rock Cafe’s Global Strategy Video Case 55

Outsourcing Off shore at Darden Video Case 56

Endnotes 56 Rapid Review 57 Self Test 58

Chapter 3 Project Management 59

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

PART ONE Introduction to Operations Management 1

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xii TABLE OF CONTENTS

Project Planning 62 The Project Manager 63

Work Breakdown Structure 64

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

The Framework of PERT and CPM 67

Network Diagrams and Approaches 68

Activity-on-Node Example 69

Activity-on-Arrow Example 71

Determining the Project Schedule 71 Forward Pass 72

Backward Pass 74

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

Variability in Activity Times 77 Three Time Estimates in PERT 77

Probability of Project Completion 79

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

Problems 89 Solved Problems 90 Problems 93 CASE STUDIES 98

Southwestern University: (A) 98

Project Management at Arnold Palmer Hospital Video Case 99

Managing Hard Rock’s Rockfest Video Case 100

Endnotes 102 Rapid Review 103 Self Test 104

Chapter 4 Forecasting 105

GLOBAL COMPANY PROFILE: WALT DISNEY PARKS & RESORTS 106

What is Forecasting? 108 Forecasting Time Horizons 108

Types of Forecasts 109

The Strategic Importance of Forecasting 109 Supply-Chain Management 109

Human Resources 110

Capacity 110

Seven Steps in the Forecasting System 110 Forecasting Approaches 111

Overview of Qualitative Method 111

Overview of Quantitative Methods 112

Time-Series Forecasting 112 Decomposition of a Time Series 112

Naive Approach 113

Moving Averages 114

Exponential Smoothing 116

Measuring Forecast Error 117

Exponential Smoothing with Trend Adjustment 120

Trend Projections 124

Seasonal Variations in Data 126

Cyclical Variations in Data 131

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

Standard Error of the Estimate 133

Correlation Coeffi cients for Regression Lines 134

Multiple-Regression Analysis 136

Monitoring and Controlling Forecasts 138 Adaptive Smoothing 139

Focus Forecasting 139

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

Southwestern University: (B) 153

Forecasting Ticket Revenue for Orlando Magic Basketball Games Video Case 154

Forecasting at Hard Rock Cafe Video Case 155

Endnotes 156 Rapid Review 157 Self Test 158

PART TWO Designing Operations 159

Chapter 5 Design of Goods and Services 159

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

Product Strategy Options Support Competitive Advantage 163

Product Life Cycles 164

Life Cycle and Strategy 164

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Product-by-Value Analysis 165

Generating New Products 165 Product Development 166

Product Development System 166

Quality Function Deployment (QFD) 166

Organizing for Product Development 169

Manufacturability and Value Engineering 170

Issues for Product Design 171 Robust Design 171

Modular Design 171

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

Virtual Reality Technology 172

Value Analysis 173

Sustainability and Life Cycle Assessment (LCA) 173

Product Development Continuum 173 Purchasing Technology by Acquiring a Firm 174

Joint Ventures 174

Alliances 175

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

Group Technology 177

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

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

Adding Service Effi ciency 181

Documents for Services 181

Application of Decision Trees to Product Design 182

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

De Mar’s Product Strategy 189

Product Design at Regal Marine Video Case 189

Endnotes 190 Rapid Review 191 Self Test 192

Supplement 5 Sustainability in the Supply Chain 193

Corporate Social Responsibility 194 Sustainability 195

Systems View 195

Commons 195

Triple Bottom Line 195

Design and Production for Sustainability 198 Product Design 198

Production Process 200

Logistics 200

End-of-Life Phase 203

Regulations and Industry Standards 203 International Environmental Policies and Standards 204

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

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

Green Manufacturing and Sustainability at Frito-Lay Video Case 209

Endnotes 210 Rapid Review 211 Self Test 212

Chapter 6 Managing Quality 213

GLOBAL COMPANY PROFILE: ARNOLD PALMER HOSPITAL 214

Quality and Strategy 216 Defi ning Quality 217

Implications of Quality 217

Malcolm Baldrige National Quality Award 218

ISO 9000 International Quality Standards 218

Cost of Quality (COQ) 218

Ethics and Quality Management 219

Total Quality Management 219 Continuous Improvement 220

Six Sigma 221

Employee Empowerment 222

Benchmarking 222

Just-in-Time (JIT) 224

Taguchi Concepts 224

Knowledge of TQM Tools 225

Tools of TQM 226 Check Sheets 226

Scatter Diagrams 227

Cause-and-Eff ect Diagrams 227

Pareto Charts 227

Flowcharts 228

Histograms 229

Statistical Process Control (SPC) 229

The Role of Inspection 230 When and Where to Inspect 230

Source Inspection 231

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xiv TABLE OF CONTENTS

Service Industry Inspection 232

Inspection of Attributes versus Variables 233

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

Southwestern University: (C) 239

The Culture of Quality at Arnold Palmer Hospital Video Case 240

Quality Counts at Alaska Airlines Video Case 240

Quality at the Ritz-Carlton Hotel Company Video Case 242

Endnotes 242 Rapid Review 243 Self Test 244

Supplement 6 Statistical Process Control 245

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

The Central Limit Theorem 248

Setting Mean Chart Limits ( x -Charts) 250

Setting Range Chart Limits ( R-Charts) 253

Using Mean and Range Charts 254

Control Charts for Attributes 256

Managerial Issues and Control Charts 259

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