CONTENTS

Chapter 1 Operations As a Competitive WeaponWhat Is Operations Management? 3Differences and Similarities BetweenManufacturing and Services 4

Differences 4Similarities 6

Trends in Operations Management 7Service Sector Growth 7Productivity Changes 8Global Competition 11

Managerial Practice 1.1Successful ]apanese-Owned Facilities in the United States 12

Competition Based on Quality, Time, and Technology 12Continuous Improvement 13Environmental, Ethical, and Work-Force

Diversity Issues 14Operations Management and the Organization 15

Operations Management As a Functional Area 15Operations Management As an

Interfunctional Concern 16Operations Management As a Competitive Weapon 19

Managerial Practice 1.2Meeting the Competitive Challenge 20

C A SE: Chad's Creative Concepts 25

Part One STRATEGIC CHOICES

Chapter 2 Operations Strategy 27Corporate Strategy 30

Strategic Choices 30Global Strategies 32

Managerial Practice 2.1Strategic Alliances Are Risky 33

Market Analysis 34Market Segmentation 34Needs Assessment 35

Competitive Priorities 36

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xuut Contents

Managerial Practice 2.2Linking Corporate Strategy to OperationsThrough Competi tive Priorities 37

Cost 36Quality 36Time 38

Managerial Practice 2.3Time-Based Competition 39

Flexibility 40

Managerial Practice 2.4Competitive Priorities of Various Firms 41

Trade-Offs 41Shifts in Competitive Priorities 42

Product or Service Life Cycles 42Entrance-Exit Strategies 45

Positioning Strategy 46A Continuum of Strategies 48Manufacturing Strategies Based on

Positioning Strategy 50Positioning Strategy and Competitive Priorities 51

Touring a Process-Focused Facility: LowerFlorida Keys Health System 52

Service Plans, Competitive Priorities, and Quality 52Process Management, Technology, and Job Design 52Capacity and Location 53

The Big Picture: Layout and Flow at LFKHS 53

Materiais Management, Staffing Plans, Inventory, andScheduling 56

Touring a Product-Focused Facility: Chaparral Steel 57Product Plans, Competitive Priorities, and Quality 57Process Management 58Technology and [ob Design 59Capacity and Location 60

The Big Picture: Layout and F/ow at Chaparral Steel 60

MateriaIs Management, Production Plans,Scheduling, and Inventory 61

Differences Between LFKHS and Chaparral Steel 64

CASE: BSB, Inc.: The Pizza Wars Come to Campus 69

Supplement A Decision Making 72Break-Even Analysis 72

Evaluating Products or Services 72Evaluating Processes 75

Preference Matrix 76Decision Theory 77

Decision Making Under Certainty 77Decision Making Under Uncertainty 78Decision Making Under Risk 80Value of Perfect Information 80

Decision Trees 81

Chapter 3 Process Management 93What Is Process Management? 95

Managerial Practice 3.1Process Management: Ethics and the Environment 96

Major Process Decisions 95Process Choice 96

The Big Picture: Process Choice at King Soopers Bakery 98

Verticallntegration 99

Managerial Practice 3.2Choosing the Right Amount of Vertical Integration 99

Resource Flexibility 104Customer Involvement 105Capital Intensity 107Relationships Between Decisions 108Economies of Scope 109

Managing Technological Change 110

Managerial Practice 3.3

Technology at the New York Stock Exchange 111

Linking Technology with Strategy 112Finding a Competitive Advantage 112Some Cuidelines 112

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Designing Processes 114Process Reengineering 114Process Improvement 116

CASE: Custom Molds, Ine. 128

Supplement B Cornputer-Integrated Manufacturing 131Computer-Aided Manufacturing 131Computer-Aided Design 131Numerically Controlled Machines 132Industrial Robots 132Automated Materials Handling 133

AGVs 134AS/RS 134

Plexible Manufacturing Systems 134

Cbapter 4 Total Quality Management 139Quality: A Management Philosophy 140

Customer- Driven Definitions of Quality 141Quality As a Competitive Weapon 143

Managerial Practice 4.1High Quality Pays Off for Alaska Airlines 144

Employee Involvement 143Cultural Change 144Individual Development 145Awards and Incentives 146Teamwork 146

Managerial Practice 4.2Huffy Bicycles Increases Production Flexibility with theHelp of a Self-Managed Work Team 150

Continuous Improvement 151Getting Started with Continuous Improvement 151Problem-Solving Process 152

Managerial Practice 4.3Continuous Improvement at the Timken Company 154

The Costs of Poor Quality 153Prevention 153Appraisal 154Internal Failure 154External Failure 155

Improving Quality Through TQM 156Benchmarking 156Product and Service Design 157Process Design 158Quality Function Deployment 159

Contents XXI

Purchasing Considerations 161Tools for Improving Quality 162

Prescriptions for Excellence in Quality 166w: Edwards Deming: Quality Is Management's

Responsibility 166Joseph M. Juran: A Quality Trilogy 167Phillip B. Crasby: Quality Is Free 168

Malcolm Baldrige National Quality Award 168International Quality Standards 169

What Is ISO 9000? 169Benefits of ISO 9000 Certification 170

C A SE: Cranston Nissan 176

Chapter 5 Statistical Process Control 179Sources of Variation 181

Common Causes 181Assignable Causes 183

The Inspection Process 184Quality Measurements 184Sampling 184Inspection Station Location 189

Statistical Process Control Methods 190Contrai Charts for Variables 190Control Charts for Attributes 194

Sarnple Size Considerations 197Economic Implications 197Degree of Control 198Homogeneity 198

Process Capability 198Defining Process Capability 198

Managerial Practice 5.1Motorola's Six-Sigma Quality Program 200

Determining the Capability of a Pracess UsingContinuous Impravement 202

Managerial Practice 5.2Process Capability Study at Ross Products 203

Quality Engineering 204

Supplement C Acceptance Sarnpling 217Acceptance Plan Decisions 217

Quality and Risk Decisions 217Sampling Plans 218

Opera ting Characteristic Curves 219Drawing the OC Curve 220Explaining Changes in the OC Curve 221

XXlt Contents

Average Outgoing Quality 224

Managerial Practice C.1Computerized SQC at Hay & Forage Industries 226

Computers and Statistical Quality Control Procedures 227

Part Two DESIGN DECISIONS

Chapter 6 Work-Force Management 231Organizational Restructuring 233

Horizontal Organizations 233Incentive Plans 234Training Programs 236

Job Design 237Job Specialization 238Alternatives to Specialization 238

Work Standards 239Work Standards As a Management Tool 240Areas of Controversy 240

Managerial Practice 6.1Allowing Workers to Define TheirOwn Work Standards 241

Methods of Work Measurement 241Time Study Method 242Elemental Standard Data Approach 246Predetermined Data Approach 246Work Sampling Method 248Managerial Considerations in Work Measurement 253

CASE: The Facilities Maintenance Problemat Midwest University 262

Supplement D Learning Curves 263The Learning Effect 263

Managerial Practice 0.1The Learning Curve Effect at Samsung 264

Background 264Learning Curves and Competitive Strategy 265

Developing Learning Curves 265Using Learning Curves 267

Bid Preparation 267Financial Planning 267Labor Requirement Estimation 267

Managerial Considerations in theUse of Learning Curves 269

Contents xxut

Cbapter 7 Capacity 274Capacity Planning 276

Managerial Practice 7.1The Agony of Too Much-and Too Little-Capacity 277

Measures af Capacity 276Economies of Scale 279

Managerial Practice 7.2Economies of Scale at Work 281

Diseconamies o] Scale 281Focused Factaries 282Capacity Strategies 284

A Systematic Approach to Capacity Decisions 288Step 1: Estimate Capacity Requirements 288Step 2: ldentify Gaps 289Step 3: Deuelop Alternatives 290Step 4: Evaluate the Alternatives 290

Tools for Capacity Planning 292Waiting Line Madels 292Decision Trees 292

CASE: Fitness Plus 301

Supplement E Waiting Line Models 303Why Waiting Lines Form 303Uses of Waiting Line Theory 304

XXlV Contents

Structure of Waiting Line Problems 304Customer Population 304The Service System 305Priority Rule 307

Probability Distributions 307Arrival Distribution 307Service Time Distribution 308

Using Waiting Line Models to Analyze Operations 309Single-Server Model 310Multiple-Server Model 313Finite-Source Model 314

Decision Areas for Management 316

Supplement F Simulation Analysis 323Reasons for Using Simulation 323The Simulation Process 324

Data Collection 324Random-Number Assignment 326Model Formulation 326Analysis 328

Chapter 8 Location 336The Globalization and GeographicDispersion of Operations 338

Reasons for Globa/ization 338Disadvantages to Globalization 339Hot Spots of Global Economic Activity 340Managing Global Operations 343

Managerial Practice 8.1

Managerial Challenges with Global Operations 344

Factors Affecting Location Decisions 346

Managerial Practice 8.2GM's Saturn Plant in Tennessee 347

Dominant Factors in Manufacturing 346Dominant Factors in Services 348

Locating a Single Facility 349Selecting On-Site Expansion, New

Location, ar Relocation 349Comparing Several Sites 350

Managerial Practice 8.3

Data Collection with the Tiger File 351

Applying the Load-Distance Method 351Using Break-Even Analysis 357

Contents xxv

Locating Within a Network of Facilities 358The Transportation Method 359Other Methods of Location Analysis 362

CASE: Imaginative Toys 375

Supplement G Transportation Method 377Solving Transportation Problems 377

The lnitial Tableau 377Generating an lnitial Solution 379lmproving the Solution, lteration by lteration 383ldentifying and Evaluating the Final Solution 386

Degeneracy 387

Chapter 9 Layout 397What Is Layout Planning? 398Strategic Issues 399

Managerial Practice 9.1

Retailers Match Layouts to Strategies 401

Layout Types 400Performance Criteria 404

Managerial Practice 9.2

Layout Flexibility at Work 405

Creating Hybrid Layouts 406One Worker, Multiple Machines 406Group Technology 407

Managerial Practice 9.3

Cummins Engine Uses Group Technology 409

Designing Process Layouts 409Step 1: Gather lnformation 409Step 2: Develop a Block Plan 412Step 3: Design a Detailed Layout 414Aids for Process Layout Decisions 414Warehouse Layouts 415

The Big Picture: Layout of Addison-WesleyDistribution Center 417

Office Layouts 422

Managerial Practice 9.4

Telecommuting at Pacific Bell 423

Designing Product Layouts 424Line Balancing 424Other Considerations 430

C A SE: Hightec, Inc. 447

CASE: The Pizza Connection 449

XXVI Contents

Part Three OPERATING DECISIONS

Chapter 10 Forecasting 452Demand Characteristics 454

Components of Demand 454Factors Affecting Demand 455

Designing the Forecasting System 457Deciding What to Forecast 457Choosing the Type of Forecasting Technique 457Forecasting with Computers 459

Managerial Practice 10.1Computerized Forecasting at john H. Harland Company 460

Judgment Methods 461Sales Force Estimates 461Executive Opinion 461Market Research 462Delphi Method 463

Causal Methods: Linear Regression 464Time Series Methods 468

Naive Forecast 468Estimating the Average 469lncluding a Trend 474Seasonal Iniluences 477

Choosing a Time Series Method 480Forecast Errar 480Criteria for Selecting Time Series Methods 484

CASE: Yankee Fork and Hoe Company 502

Chapter 11 Materiais Management 505Importance of Materiais Management 506

Central Role of Materiais in the Economy 507lmpact of lnuentory on Prafitability 508

Function of Materiais Management 509Purchasing 510

Managerial Practice 11.1Competitive Versus Cooperative Orientations 514

Distribution 516

Managerial Practice 11.2International Distribution Systems 517

Inventory Concepts 519Accounting Categories 519Pressures for Low lnuentories 520Pressures for High Inuentories 521Types of lnuentory 522

Contents xxuu

Inventory Management 524Inventory Measures 525Inventory Placement 526Inventory Reduction 526ABC Analysis 528Links to Operations Strategy 529

CASE: Wolf Motors 537

Chapter 12 Independent Demand Inventory Systems 539Inventory Records 541

Tracking Methods 542Computer Support 542

Managerial Practice 12.1

Computerized Inventory Control for aCompetitive Advantage 544

Economic Order Quantity 544Calculating the EOQ 545Understanding the Effect of Changes 548

Inventory Control Systems 549Continuous Review (Q) System 549

Managerial Practice 12.2

Inventory Control at Jordan Marsh and Kmart 551

Periodic Review (P) System 556Comparative Advantages of the Q and P Systems 559Hybrid Systems 560

CASE: Parts Emporium 570

Supplement H Special Inventory Models 573Noninstantaneous Replenishment 573Quantity Discounts 575One-Period Decisions 579

Chapter 13 Aggregate Planning 588The Purpose of Aggregate Plans 590

Aggregation 590

Managerial Practice 13.1

Typical Aggregate Planning Problems 591

Relationship to Other Plans 592Managerial Importance of Aggregate Plans 593

Manageriallnputs 594Typical Objectives 594Reactive Alternatives 595

XXVl11 Contents

Aggressive Alternatives 597Planning Strategies 597

Managerial Practice 13.2Hallmark's Levei Strategy 599

The Planning Process 598Determining Demand Requirements 599ldentifying Alternatives, Constraints, and Costs 600Preparing an Acceptable Plan 601lmplementing and Updating the Plan 601

Aggregate Planning for Services 601Levei Strategy for Services 601Chase Strategy for Services 604Cost Calculations and Mixed Strategies 604

Mathematical Methods for Aggregate Planning 606Tableau Method for Production Planning 606Linear Programming for Production Planning 613Managerial Considerations 614

CASE: Memorial Hospital 624

Supplement I Linear Programming 627Basic Concepts 627

Formulating a Problem 629Graphic Analysis 631

Plot the Constraints 631ldentify the Feasible Region 633Plot an Objective Function Line 635Find the Visual Solution 635Find the AIgebraic Solution 636Slack and Surplus Variables 637

Sensitivity Analysis 638Objective Function Coefficients 639Right-Hand-Side Parameters 642

Computer Solution 645Simplex Method 645Computer Output 646Other Applications 648

Chapter 14 Material Requirements Planning 662Dependent Demand 663Benefits of Material Requirements Planning 665Inputs to Material Requirements Planning 665

Bill of Materiais 666Master Production Schedule 668

Managerial Practice 14.1

Master Production Scheduling atHyundai Motor Company 672

Contents XXIX

Inventory Record 679Planning Factors 683

Lead Time 683Lot-Sizing Rules 684Safety Stock 687

Outputs from Material Requirements Planning 687Material Requirements Planning Explosion 688Action Notices 691Capacity Reports 692

MRP II: A Comprehensive Information System 694

Managerial Practice 14.2

MRP II Implementation at Kloehn 695

Implementation Issues 694Prerequisites 696Favorable Environments for Material

Requirements Planning 696Distribution Requirements Planning 697

CA SE: King Man ufacturing 719

Cbapter 15 Just-in-Time Systems 721Characteristics of Just-in-Time Systems 722

Pull Methods of Material Flow 723Consistently High Quality 724Small Lot Sizes 725Short Setup Times 725Uniform Workstation Loads 726Standardized Components and Work Methods 727Close Supplier Ties 727Flexible Work Force 728Product Focus 728Automated Production 728Preventive Maintenance 729

Continuous Improvement with Just-in-Time Systems 729

Managerial Practice 15.1

Continuous Improvement at Northern Telecom 731

The Kanban System 732General Operating Rules 733Determining the Number of Containers

(Kanban Card Sets) 734Other Kanban Signals 735

JIT II 736Just-in-Time Systems in Services 737

Managerial Practice 15.2

Implementing a JIT System at Security Pacific 738

Strategic Implications of Just-in-Time Systems 740

xxx Contents

Competitive Priorities 740Positioning Strategy 740Operational Benefits 740

Implementa tion Issues 741Organizational Considerations 741Process Considerations 742Inventory and Scheduling 742

Choice of a Production and InventoryManagement System 743

Reorder Point Versus Material RequirementsPlanning Systems 744

Material Requirements Planning VersusJust-in- Time Systems 744

The Manufacturing Environment 744

CASE: Copper Kettle Catering 749

Chapter 16 Scheduling 751Scheduling in Manufacturing 753

Gantt Charts 753Performance Measures 754Job Shop Dispatching 756

Managerial Practice 16.1Lockheed Aeronautical Systems' ComputerizedScheduling System 760

Sequencing Operations for One Machine 757Multiple- Workstation Scheduling 763Sequencing Operations for a Two-Machine

Flow Shop 763

Contents XXXl

Labor-Limited Environments 765Scheduling in Services 765

Scheduling Customer Demand 766Scheduling the Work Force 767

Managerial Practice 16.2Scheduling Police Officers in the San FranciscoPolice Department 771

CASE: Food King 783

Chapter 17 Managing Complex Projects 786Managing Projects 787Network Methods 789

Describing the Project 789Diagramming the Network 789Estimating Time of Completion 793Monitoring Project Progress 799

Probabilistic Time Estimates 799

The Big Picture: Coors Field Baseball Stadium Project 800

Calculating Time Statistics 804Analyzing Probabilities 806

Cost Considerations 808Resource Limitations 812Benefits and Limitations of PERT/CPM Systems 814

Benefits 814Limitations 815

Computerized Project Scheduling and Control 815

Managerial Practice 17.1Integrated Project Control at M. W. Kellogg Company 816

CASE: ThePertStudebaker 833

Appendix 1 Financial Analysis 836

Appendix 2 Normal Distribution 847

Appendix 3 Cumulative Poisson Probabilities 848

Appendix 4 Table of Random Numbers 851

Answers to Selected Problems 852

Photo Credits 856

Name lndex 857

Company lndex 862

Subject lndex 866