Managing operations across the supply chain 4th edition pdf

MANAGING OPERATIONS ACROSS THE SUPPLY CHAIN, THIRD EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2017 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2014, 2011. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

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ISBN 978-1-259-54430-9 MHID 1-259-54430-3

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Library of Congress Cataloging-in-Publication Data

Names: Swink, Morgan, 1959- author. Title: Managing operations across the supply chain / Morgan Swink, Texas Christian University, Steven A. Melnyk Michigan State University, Janet L. Hartley, Bowling Green State University, M. Bixby Cooper, Michigan State University. Description: Third Edition. | Dubuque, IA : McGraw-Hill Education, 2016. | Revised edition of Identifiers: LCCN 2016021249 | ISBN 9781259544309 (alk. paper) Subjects: LCSH: Business logistics. | Production management. | Industrial management. Classification: LCC HD38.5 .S95 2016 | DDC 658.5--dc23 LC record available at https://lccn.loc.gov/2016021249

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill, and McGraw-Hill does not guarantee the accuracy of the information presented at these sites.

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The McGraw-Hill Education Series Operations and Decision Sciences

Operations Management

Beckman and Rosenfield Operations Strategy: Competing in the 21st Century First Edition

Benton Purchasing and Supply Chain Management Third Edition

Bowersox, Closs, and Cooper Supply Chain Logistics Management Fifth Edition

Brown and Hyer Managing Projects: A Team-Based Approach Second Edition

Burt, Petcavage, and Pinkerton Supply Management Ninth Edition

Cachon and Terwiesch Operations Management First Edition

Cachon and Terwiesch Matching Supply with Demand: An Introduction to Operations Management Fourth Edition

Finch Interactive Models for Operations and Supply Chain Management First Edition

Fitzsimmons and Fitzsimmons Service Management: Operations, Strategy, Information Technology Eighth Edition

Gehrlein Operations Management Cases First Edition

Harrison and Samson Technology Management First Edition

Hayen SAP R/3 Enterprise Software: An Introduction First Edition

Hill Manufacturing Strategy: Text & Cases Third Edition

Hopp Supply Chain Science First Edition

Hopp and Spearman Factory Physics Third Edition

Jacobs, Berry, Whybark, and Vollmann Manufacturing Planning & Control for Supply Chain Management Sixth Edition

Jacobs and Chase Operations and Supply Chain Management Fourteenth Edition

Jacobs and Chase Operations and Supply Chain Management: The Core Fourth Edition

Jacobs and Whybark Why ERP? First Edition

Johnson, Leenders, and Flynn Purchasing and Supply Management Fifteenth Edition

Larson and Gray Project Management: The Managerial Process Sixth Edition

Schroeder, Goldstein, and Rungtusanatham Operations Management: Contemporary Concepts and Cases Sixth Edition

Simchi-Levi, Kaminsky, and Simchi-Levi Designing and Managing the Supply Chain:

Concepts, Strategies, Case Studies Third Edition

Sterman Business Dynamics: Systems Thinking and Modeling for a Complex World First Edition

Stevenson Operations Management Twelfth Edition

Swink, Melnyk, Cooper, and Hartley Managing Operations Across the Supply Chain Third Edition

Thomke Managing Product and Service Development: Text and Cases First Edition

Ulrich and Eppinger Product Design and Development Sixth Edition

Zipkin Foundations of Inventory Management First Edition

Quantitative Methods and Management Science

Hillier and Hillier Introduction to Management Science: A Modeling and Case Studies Approach with Spreadsheets Fifth Edition

Stevenson and Ozgur Introduction to Management Science with Spreadsheets First Edition

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Dedication

To Jenni, Derek, Rachel, and Sarah, who make my life so full!

Morgan Swink

To my wife and children-Christine, Charles and Beth-for their support and patience.

To four great friends who have been “teachers” to me in my continual quest for more

knowledge-Alan Dunn, Abe Eshkenazi (CEO of APICS), and Colin Seftel (my South African friend).

To these people, this book is dedicated.

Steven A. Melnyk

To my children who make my life complete.

Bix Cooper

To Glenn and Caleb, for their love and support.

Janet Hartley

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Morgan Swink

is Professor, Eunice and James L. West Chair of Supply Chain Management, and Executive Director of the Center for Sup- ply Chain Innovation at the Neeley School of Business, Texas Christian University. He holds a BS in Mechanical Engineering from Southern Methodist University, an MBA from the University of Dallas, and a PhD in Operations Management from Indiana University. Before becoming a professor, Dr. Swink worked for 10 years in a variety of manufacturing and product development positions at Texas Instruments Incorporated. He has co-authored three books and published over 75 articles in a variety of academic and managerial journals. Dr. Swink is formerly the Co-Editor in Chief for the Journal of Oper- ations Management and past president of the Decision Sci- ences Institute.

Steven A. Melnyk

is Professor of Operations Man - agement at Michigan State University. Dr. Melnyk obtained his undergraduate degree from the University of Windsor and his doctorate from the Ivey School of Business, the Uni- versity of Western Ontario. He has co-authored 17 books focusing on operations and the supply chain and has published 90 refereed articles in numerous international and national jour- nals. He is Associate Editor for the Journal of Business Logis- tics. He also is a member of the editorial advisory board for the Production and Inventory Man- agement Journal, the Journal of Supply Chain Management, and the International Journal of Pro- duction Research. Dr. Melnyk is co-editor (North America) for the Journal of Humanitar- ian Logistics and Supply Chain Management. Dr. Melynk has consulted with over 60 com- panies. He has also served as a member of the APICS Board of Directors (2014–2016) and the APICS leadership team (2015).

Janet L. Hartley

is Professor and Director of the Supply Chain Management Institute of the Department of Management at Bowling Green State University. She received her BS in Chemical Engineer- ing from the University of Missouri-Rolla, and the MBA and PhD degrees in Business Administration from the Uni- versity of Cincinnati. Prior to graduate school, she developed new products and designed new manufacturing processes for the Clorox Company. She has published over 28 articles on supply management and supply chain management. She serves as an associate editor for the Journal of Operations Man- agement, Journal of Business Logistics, and Journal of Sup- ply Chain Management.

M. Bixby Cooper

is Associate Professor in the Department of Supply Chain Management at Michigan State University. He received his BS in Business Adminis- tration from the University of North Carolina, MBA from the University of Virginia, and PhD from the University of Alabama. Prior to joining Michigan State, he served on the faculty of Winthrop University and Louisiana State University. He is an active researcher and co-author of several books on distribution and logistics. Dr. Cooper has consulted with numerous organizations including Kellogg, Johnson and Johnson, Mead Johnson, Westinghouse, Novartis, Dayton Hudson (Target), Kerr-McGee, VF Industries, and Siemens.

About the Authors

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We continue to live in dynamic and exciting times. The recent 20 years have seen many changes that have affected nearly every aspect of business-including operations man- agement. In this third edition of our book, we continue to reflect key shifts in operations management, including transitions:

• From a focus on the internal system to a focus on the supply chain In today’s highly competitive busi- ness environment, organizations must leverage the capabilities of their suppliers and customers. Opera- tions managers must look beyond the “four walls” of the firm and take an integrated supply chain perspec- tive of operations.

• From a local focus to a global focus As Thomas L. Friedman pointed out,1 the world is indeed flat. Business solutions generated in Argentina are used to meet needs in the United States, and parts built by suppliers located in China are used to assemble cars in Canada. Commercial needs have overcome, to a large part, national borders, presenting new opportu- nities and challenges for operations managers.

• From an emphasis on tools and techniques to an emphasis on systems, people, and processes To be successful, operations managers must think more broadly than just the application of analyti- cal tools and techniques. They must take a systems view to address important managerial issues such as designing processes, working with people, managing information flows, and building interorganizational relationships.

• From myopic pursuit of profit to a holistic pursuit of sustainability. Pressures on businesses have risen to the point that they can no longer ignore or give only lipservice to social and environmental issues. Operations managers have to balance the profit motive with the need to protect and even strengthen both people and the planet.

Managing Operations Across the Supply Chain pro- vides a global, supply chain perspective of operations man- agement for students in introductory courses in operations management and in supply chain management courses that do not require an operations management prerequisite. While the book is primarily written for undergraduates,

it also can be used effectively in MBA courses. There are several features that help to differentiate this book in its view of operations management:

• Broader Treatment of Operations Management While many operations management textbooks have revised or added a chapter to address supply chain issues, we developed our book from the ground up to effectively integrate operations management and the supply chain. The primary focus of the book is opera- tions management, but we provide a “supply chain” perspective. Operations management cuts across a firm’s boundaries, bringing together its internal activ- ities with the operations of customers, suppliers, and other partners around the world. We clarify the func- tional roles of operations, supply management, and logistics while examining the integrative processes that make up the supply chain. One unique aspect of the book is that we examine both the upstream (sup- ply-side) and downstream (demand-side) aspects of the supply chain, including a discussion of marketing and customer relationships.

• Balanced Treatment The book balances the quanti- tative and qualitative coverage needed to equip opera- tions and supply chain managers for the challenges and opportunities they face. It describes and applies analytical tools that operations managers use to sup- port decision making. However, we also address the important managerial issues such as systems, people, and processes that are critical in a supply chain context.

• Use of Integrative Frameworks The various ele- ments of operations management are introduced and developed using an operations strategy framework that brings together three critical elements: (1) the key customer, (2) the value proposition, and (3) capabilities. Furthermore, the students are introduced to operations management in a structured way that begins with the “big” picture of operations strategy, proceeds to the foundations of operations manage- ment, integrating relationships, planning for inte- grated supply chain operations, and then ending with a discussion of how to manage the system looking to the future.

Preface

1Thomas L. Friedman, The World Is Flat: A Brief History of the Twenty-First Century (New York: Farrar, Straus, and Giroux, 2006).

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Preface vii

• Use of Integrating Themes Three key themes are highlighted throughout the book: global issues, relationships, and sustainability. Because most organizations have supply chains that reach beyond a single country, we examine global issues associated with operations and supply chain management. Organizations must collaborate with customers and suppliers to accomplish many operations activities. Thus, the book show-cases how to build, maintain, and benefit from cross-functional and interorganizational relationships. To reduce costs and be competitive, organizations today must adapt sustainable business practices. We expect sustainability to increasingly become a key metric for operations and supply chain management performance. Accordingly, we have dedicated an entire chapter to sustainability, while also incorporating it throughout the book.

• Real, Integrated Examples The book brings operations and supply chain management to life through opening vignettes, Get Real highlights, and rich examples throughout the book.

Managing Operations Across the Supply Chain offers a new, global, supply chain perspective of operations management-a treatment that embraces the foundations of operations management but includes new frameworks, concepts, and tools to address the demands of today and changing needs of the future. The book is organized into five major sections:

• Part 1 Supply Chain: A Perspective for Operations Management provides an overview of operations management as a field, and describes the strategic role operations has in business from the perspective of supply chain management.

• Part 2 Foundations of Operations Management discusses foundational process concepts and principles that govern all operational activities. This section examines concepts such as product/process innovation, quality, lean, and inventory fundamentals.

• Part 3 Integrating Relationships Across the Supply Chain deals with the primary functional relationships between internal operations management activities and other operational functions both inside and outside the firm. This section describes customer relationship management, supply management, and logistics management.

• Part 4 Planning for Integrated Operations Across the Supply Chain discusses planning approaches and technologies used at different levels of operations decision making. Key topics such as demand planning, forecasting, sales and operations planning, inventory management, and materials requirements planning are examined.

• Part 5 Managing Change in Supply Chain Operations discusses how operations managers use projects, change programs, and technologies to shape a sustainable future for operations and supply chain management.

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We would like to express our appreciation to the people who have provided assistance in the development of this textbook. We express our sincere thanks to the following individuals for their thoughtful reviews and suggestions:

Samuel Chinnis, Guilford Technical Community College Madeleine Pullman, Portland State University John R. Grandzol, Bloomsburg University Dennis McCahon, Northeastern University Edward D. Walker, Valdosta State University Brian Jacobs, Michigan State University Narendra K. Rustagi, Howard University Andrew Borchers, Lipscomb University Sandra Obilade, Brescia University Rick Bonsall, McKendree University Helen Eckmann, Brandman University Nicoleta Maghear, Hampton University Kelwyn D’Souza, Hampton University Bruce A. Meyer, Bowling Green State University Jeanetta Chrystie, Southwest Minnesota State University Jeff Brand, Marquette University

We also want to express our sincere thanks to the follow- ing individuals for their exceptional contributions: William

Acknowledgments

Berry, Professor Emeritus, Queens College, and David Weltman, Texas Christian University, for accuracy check- ing; Frank Novakowski, Davenport University, and Jody Wolfe, Clarke University, for developing learning resource videos; and Rene Ordonez, for updating the instructor powerpoints and developing guided examples.

We want to thank the outstanding McGraw-Hill/ Irwin production and marketing team who made this book possible-including Britney Hermsen, marketing manager; James Heine, managing director; Harvey Yep and Kristin Bradley, content project managers; Sandy Ludovissy, buyer; Doug Ruby, digital content development director; Egzon Shaqiri, designer; and Ann Marie Jannette and Beth Thole, content licensing specialists.

A special thanks to our outstanding editorial team. We greatly appreciate the support, encouragement, and patience shown by Camille Corum, our product developer. Thanks for keeping us on track! Our brand manager, Dolly Womack, provided excellent guidance and leadership throughout the process. We truly appreciate it!

Morgan Swink Steven A. Melynk Janet L. Hartley

M. Bixby Cooper

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The following section highlights the key features of the text and accompanying resources, which have been developed to help you learn, understand, and apply operations concepts.

CHAPTER ELEMENTS Within each chapter, of the text, you will find the following elements. All of these have been developed to facilitate study and learning.

Chapter Opener Each chapter begins with an opening vignette to help set the tone for the material that fol- lows. Learning objectives provide a quick introduction to the material students will learn and should understand before moving to the next chapter.

Opening Vignette Each chapter opens with an introduction to the important operations topics covered in the chapter. Students need to see the relevance of operations management in order to actively engage in learning the material.

Walkthrough

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LO1-1 Explain what operations management is and why it is important.

LO1-2 Describe the major decisions that operations managers typically make.

LO1-3 Explain the role of processes and “process thinking” in operations management.

1 Introduction to Managing Operations Across the Supply Chain

LEARNING OBJECTIVES

LO1-4 Explain what the supply chain is and what it means to view operations management using a “supply chain perspective.”

LO1-5 Identify the partners and functional groups that work together in operations management.

LO1-6 Define the planning activities associated with managing operations across the supply chain.

After studying this chapter, you should be able to:

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A pple often receives praise for its user-friendly and aesthetically pleasing product designs. But a less well-known contributor to Apple’s success is its prowess in managing oper- ations across its supply chain. This is the world of manufacturing, procurement, and logistics in which the chief executive officer, Tim Cook, excelled, earning him the trust of Steve Jobs. Apple has built a closed ecosystem where it exerts control over nearly every piece of the supply chain, from design to retail store.

This operational edge is what enables Apple to handle massive product launches without having to maintain large, profit-sapping inventories. It has allowed a company often criticized for high prices to sell its iPad at a price that very few rivals can beat, while still earning a 25 percent margin on the device. Some of the basic elements of Apple’s operational strategy include:

• Capitalize on volume. Because of its buying power, Apple gets big discounts on parts, manu- facturing capacity, and air freight.

• Work closely with suppliers. Apple engineers sometimes spend months living out of hotel rooms in order to be close to suppliers and

It Takes More than Cool Products to Make

Apple Great manufacturers, helping to tweak the indus- trial processes and tools that translate prototypes into mass- produced devices.

• Focus on a few product lines, with little cus- tomization. Apple’s unified strategy allows it to eliminate complexity and cost, while maximizing volume-based economies in its supply chain.

• Ensure supply availability and low prices. Apple makes big upfront payments to suppliers to lock in their capacity and to limit options for competitors.

• Keep a close eye on demand. By selling through its own retail stores, Apple can track demand by specific store and by the hour; then it adjusts sales forecasts and production plans daily to respond quickly to demand changes.

Apple designs cool products. But its enormous profit margins—two to four times the profit mar- gins of most other hardware companies—come in large part from its priority and focus on operations management.

© Paul Faith/Press Association via AP Images

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x Walkthrough

Key Terms Key terms are presented in bold and defined in the margin as they are introduced. A list of chapter key terms is also available at the end of the chapter.

Student Activity Students are asked to do a personal activity that illustrates the concept being presented or covered, thereby helping them learn to apply the concepts and understand them more deeply.

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This book, Managing Operations Across the Supply Chain, will help you to study “opera- tions management” using a “supply chain” perspective. This perspective means that we will examine operational activities that take place within firms as well those that cross firms’ boundaries, involving suppliers and customers of all types. This larger network of organizations makes up a firm’s supply chain.

The Apple story illustrates the value of this broad perspective of operations manage- ment. The combination of excellence in both internal product design operations and exter- nal supply chain operations management makes Apple a dominant player in its industry. Operations management by definition spans a large number of activities that take place both inside and outside the business firm.

A BROAD DEFINITION OF SUPPLY CHAIN OPERATIONS MANAGEMENT Operations management is the management of processes used to design, supply, pro- duce, and deliver valuable goods and services to customers.

Operations management includes the planning and execution of tasks that may be long-term (yearly) or short-term (daily) in nature. An operations manager interacts with managers in other business functions, both inside and outside the operations manager’s own company. Operations management thus spans the boundaries of any single firm, bringing together the activities of internal operations (i.e., internal to a given company) with the operations of customers, suppliers, and other partners around the world. Opera- tions located around the globe are becoming more tightly interconnected all the time. The supply chain concept can be used to describe connections among business partners.

A supply chain is the global network of organizations and activities involved in (1) designing a set of goods and services and their related processes, (2) transforming inputs into goods and services, (3) consuming these goods and services, and (4) disposing of these goods and services.

Think about all the different organizations located in different companies that are involved in converting raw materials into a delivered finished product. Dozens of organiza- tions are involved in producing and delivering even a simple product like bottled water. Together, supply chain organizations perform all the value-creating activities required to innovate, plan, source, make, deliver, and return or dispose of a given set of products and services.1 Other terms sometimes substituted for supply chain include demand chain, extended enterprise, supply network, or supply web. All of these terms reflect the idea that a supply chain involves connections and relationships among organizations that play vari- ous roles for a given set of products.

Operations management activities located throughout a supply chain create and enhance the value of goods and services by increasing their economic value (e.g., low- ering delivered cost), functional value (e.g., improving product quality or convenience), and psychosocial value (e.g., improving product aesthetics and desirability). The following statements help define and describe operations management:

• Operations management is mainly concerned with how resources will be developed and used to accomplish business goals.

• Operations management is about designing, executing, and improving business processes.

• Operations management deals with processes that transform inputs, including materi- als, information, energy, money, and even people, into goods and services.

• Within a supply chain context, operations management brings together four major sets of players: the firm, customers, suppliers, and stakeholders.

operations management The management of processes used to design, supply, produce, and deliver valuable goods and ser- vices to customers.

supply chain The global network of organizations and activities involved in designing, transform- ing, consuming, and disposing of goods and services.

1Supply Chain Council, Integrated Supply Chain Performance Measurement: A Multi-Industry Consortium Recommendation, Supply Chain Council Report #5566, p. 1.

LO1-1 Explain what operations management is and why it is important.

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to the movie production company. A second-tier supplier provides inputs to the first-tier supplier, and so on. Each tier of the upstream supply chain could involve multiple suppli- ers for the same items or services. Also, a single supplier might pro- vide inputs for multiple tiers of the supply chain. For example, the director in Figure 1-3 provides inputs to both the casting company and the movie production company.

Downstream stages of the supply chain are made up of layers of partners and custom- ers commonly referred to as echelons. A single echelon might contain partners in locations all over the world. For example, there are usually many distributors for a given movie. These distributors can be thought of as suppliers of distribution services to the movie production company. The downstream supply chain can also be broken into different chan- nels of distribution; theaters, direct/home delivery, and retail DVD/Blu-Ray sales are three channels shown in Figure 1-3.

Many different types of operations managers are needed in a movie production com- pany. Supply managers help to identify and negotiate contracts with supply sources such as casting companies, directors, producers, equipment suppliers, film suppliers and so on.

echelon A downstream stage of supply or consumption.