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OPERATIONS MANAGEMENT

THIRD CANADIAN EDITION

JAY HEIZER Texas Lutheran University

BARRY RENDER Graduate School of Business, Rollins College

CHUCK MUNSON Carson College of Business, Washington State University

PAUL GRIFFIN Humber Institute of Technology and Advanced Learning

SUSTAINABILITY AND SUPPLY CHAIN MANAGEMENT

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To Kathryn Ann Heizer —JH

To Donna, Charlie, Jesse, and Reva and to Howard G. Kornacki, the teacher who taught

me to love math —BR

To Suzanne, Alexandra, Kenna, Ryan, and Robert Kathleen

—PG

Pearson Canada Inc., 26 Prince Andrew Place, North York, Ontario M3C 2H4.

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ISBN 978-0-13-483807-6

1 20

Library and Archives Canada Cataloguing in Publication

Heizer, Jay, author Operations management : sustainability and supply chain management / Jay Heizer, Barry Render, Chuck Munson, Paul Griffin. -- Third Canadian edition.

Includes bibliographical references and indexes. ISBN 978-0-13-483807-6 (softcover)

1. Production management--Textbooks. 2. Textbooks. I. Render, Barry, author II. Munson, Chuck, author III. Griffin, Paul, 1961-, author IV. Title.

TS155.H3726 2018 658.5 C2018-904040-8

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About the Authors

iii

Jay Heizer 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 manage- ment 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, including 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 five books and has published more than 30 articles 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.

Barry Render 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 industry for General Electric, McDonnell Douglas, and NASA.

Professor Render has co-authored 10 textbooks for Prentice Hall, 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 11th 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 honoured 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. From 1984 to 1993, Dr. Render was President of Management Service Associates of Virginia, Inc., whose technology clients included the FBI, the U.S. Navy, Fairfax County, Virginia, and C&P Telephone. He is currently Consulting Editor to Financial Times Press.

Dr. Render has taught operations management courses in Rollins College’s MBA and Executive MBA programs. He has received that school’s Welsh Award as leading Professor and was selected by Roosevelt University as the 1996 recipient of the St. Claire Drake Award for Outstanding Scholarship. In 2005, Dr. Render received the Rollins College MBA Student Award for Best Overall Course, and in 2009 was named Professor of the Year by full-time MBA students.

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iv About the Authors

Chuck Munson 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).

Paul Griffin Associate Dean, Business Degrees, Humber Institute of Technology & Advanced Learning, Toronto, Ontario, Canada. He received his Ph.D. in Management from the University of Bradford in the United Kingdom and has also achieved 18 professional designations, including Chartered Professional Accountant (CPA), Certified Management Accountant (CMA), Certified General Accountant (CGA), Certified Financial Planner (CFP), Fellow of the Canadian Securities Institute (FCSI), and several others.

Before joining academia, Dr. Griffin was engaged in the financial services sector for over 20 years and was most recently the National Director of Operations and Compliance at ING Canada. He remains an active member of several boards and committees, most notably the Insurance Institute of Canada’s Ethics Advisory Board and the Financial Services Commission of Ontario’s Advisory Board, and he serves as Chair of the Education Committee and Board of Directors for the Canadian Institute of Financial Planning. Before becoming Associate Dean at Humber, Dr. Griffin was a Professor and taught operations management, accounting, finance, and marketing. During that time, he received the Award of Excellence for Outstanding Academic Contribution.

Dr. Griffin continues to write for practitioner-targeted publications and develops a continuous stream of technical manuals, materials, and courses for both the academic and industrial sectors. He remains an active member of the Editorial Advisory Board for the Journal of Financial Planning.

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Brief Table of Contents

v

PART ONE Introduction to Operations Management 1 1 Operations and Productivity 1 2 Operations Strategy in a Global

Environment 26

3 Project Management 58 4 Forecasting 103

PART TWO Designing Operations 151 5 Design of Goods and Services 151 Supplement 5: Sustainability in the

Supply Chain 183

6 Managing Quality 203 Supplement 6: Statistical

Process Control 233

7 Process Strategy 264 Supplement 7: Capacity and

Constraint Management 293

8 Location Strategies 322 9 Layout Strategies 349 10 Human Resources, Job Design,

and Work Measurement 387

PART THREE Managing Operations 421 11 Supply Chain Management 421 Supplement 11: Supply Chain

Management Analytics 453

12 Inventory Management 468

13 Aggregate Planning and Sales and Operations Planning 512

14 Material Requirements Planning (MRP) and ERP 543

15 Short-Term Scheduling 580 16 Lean Operations 617 17 Maintenance and Reliability 643

PART FOUR Business Analytics Modules 661 A Decision-Making Tools 661 B Linear Programming 681 C Transportation Models 711 D Waiting-Line Models 731 E Learning Curves 761 F Simulation 775 Appendix A1

Bibliography B1

Indices I1

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

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About the Authors

vi

About the Authors iii Preface xvi

PART ONE Introduction to Operations Management 1

1 Operations and Productivity 1 What Is Operations Management? 2 Organizing to Produce Goods and Services 3

The Supply Chain 4 Why Study Operations Management? 4 What Operations Managers Do 5

Where Are the OM Jobs? 6 The Heritage of Operations Management 6 Operations in the Service Sector 9

Differences Between Goods and Services 9 Growth of Services 9 Service Pay 10

New Challenges in Operations Management 11 The Productivity Challenge 11

Productivity Measurement 12 Productivity Variables 14 Productivity and the Service Sector 16

Ethics, Social Responsibility, and Sustainability 17 Chapter Summary 18 • Ethical Dilemma 18 • Discussion Questions 19 • Solved Problems 19 • Problems 20 • Case Studies: National Air Express 21 • Video Case Studies: Frito- Lay: Operations Management in Manufacturing 22 • Hard Rock Cafe: Operations Management in Services 22 • Rapid Review 23 • Self-Test 25

2 Operations Strategy in a Global Environment 26 A Global View of Operations and Supply Chains 28

Reduce Costs 29 Improve the Supply Chain 30 Provide Better Goods and Services 30 Understand Markets 30 Learn to Improve Operations 31 Attract and Retain Global Talent 31

Cultural and Ethical Issues 31 Developing Missions and Strategies 32

Mission 32 Strategy 32

Achieving Competitive Advantage Through Operations 33

Competing on Differentiation 34 Competing on Cost 34 Competing on Response 35

10 Strategic OM Decisions 36 Issues in Operations Strategy 39 Strategy Development and Implementation 40

Key Success Factors and Core Competencies 41 Build and Staff the Organization 42 Integrate OM with Other Activities 42

Strategic Planning, Core Competencies, and Outsourcing 43

The Theory of Comparative Advantage 44 Risks of Outsourcing 44 Rating Outsource Providers 45

Global Operations Strategy Options 47 International Strategy 47 Multidomestic Strategy 48 Global Strategy 48 Transnational Strategy 48 Chapter Summary 49 • Ethical Dilemma 49 • Discussion Questions 50 • Solved Problems 50 • Problems 51 • Case Studies: Mr. Lube 53 • Video Case Studies: Operations Strategy at Regal Marine 53 • Hard Rock Cafe’s Global Strategy 53 • Rapid Review 54 • Self-Test 56

3 Project Management 58 The Importance of Project Management 59 Project Planning 60

The Project Manager 61 Work Breakdown Structure 61

Project Scheduling 62 Project Controlling 64 Project Management Techniques: PERT and CPM 65

The Framework of PERT and CPM 65 Network Diagrams and Approaches 66 Activity-on-Node Example 67 Activity-on-Arrow Example 69

Determining the Project Schedule 70 Forward Pass 70 Backward Pass 72

Table of Contents

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Table of Contents vii

Calculating Slack Time and Identifying the Critical Path(s) 73

Variability in Activity Times 75 Three Time Estimates in PERT 76 Probability of Project Completion 77

Cost–Time Trade-Offs and Project Crashing 81 A Critique of PERT and CPM 83

Advantages 83 Limitations 84

Using Microsoft Project to Manage Projects 84 Entering Data 84 Viewing the Project Schedule 85 PERT Analysis 86 Tracking the Time Status of a Project 86 Chapter Summary 87 • Ethical Dilemma 87 • Discussion Questions 87 • Using Software to Solve Project Management Problems 88 • Solved Problems 88 • Problems 91 • Case Studies: Fast Creek Lightning: (A) 96 • Video Case Studies: Project Management at Arnold Palmer Hospital 97 • Managing Hard Rock’s Rockfest 98 • Rapid Review 100 • Self-Test 102

4 Forecasting 103 What Is Forecasting? 104

Forecasting Time Horizons 105 The Influence of Product Life Cycle 105 Types of Forecasts 106

The Strategic Importance of Forecasting 106 Supply Chain Management 106 Human Resources 106 Capacity 106

Seven Steps in the Forecasting System 107 Forecasting Approaches 107

Overview of Qualitative Methods 107 Overview of Quantitative Methods 108

Time-Series Forecasting 108 Decomposition of a Time Series 108 Naive Approach 109 Moving Averages 109 Exponential Smoothing 112 Measuring Forecast Error 113 Exponential Smoothing with Trend Adjustment 116 Trend Projections 119 Seasonal Variations in Data 122 Cyclical Variations in Data 126