Production Supply Chain

September 26, 2025 Claire B 0 Comments

Pareto Analysis sets priorities for action based on the assumption that roughly 80 percent of problems typically result from 20

percent of the possible causes. Thus, not all possible causes of problems are equally important. Pareto analysis identifies the

most critical causes of problems so that improvement efforts can be focused where the investment of time, effort, and money will

yield the largest return.

1. How would you identify categories about which to collect information from your customers. For example, specify, categories

that describe possible causes or types of defects?

2. How will you gather data and calculate the frequency of observations in each category for an appropriate time period?

3. How will you sort your categories in descending order based on your percentages?

4. Present your data graphically and identify the vital few categories that account for most of the variation.

5. 8 – 10 slides excluding cover and reference page

6. Two outside sources

7. MLA format

*I WANT TO USE THE BEATS ARTICLE DATA IF POSSIBLE.

Beats Studio Buds Review: WORTH IT in 2025?

prior written consent of McGraw-Hill Education.

Chapter 6

Managing Quality

prior written consent of McGraw-Hill Education.6-2

Learning Objectives

6-1 Explain what the concepts of product quality and quality management entail.

6-2 Explain the roles that operations and other functional managers play in determining product quality.

6-3 Apply the core values and typical practices associated with quality management.

6-4 Perform a cost of quality analysis.

6-5 Apply the Six Sigma DMAIC approach to quality improvement.

6-6 Compare and contrast various quality standards and certification programs.

prior written consent of McGraw-Hill Education.6-3

Learning Objective 6-1

Brand Turnaround at Hyundai—What Hyundai Did

1. Increased the number of workers on the quality control team from 100 to more than 850.

2. Instituted mandatory seminars for all workers on the importance of quality.

3. Invoked the direct involvement of its CEO in twice- monthly meetings comparing Hyundai quality with that of its rivals.

4. Made capital investments in problem areas, including $30 million invested in a computer center to test electronic systems.

prior written consent of McGraw-Hill Education.6-4

Learning Objective 6-1

Brand Turnaround at Hyundai—Results of Changes

1. Brand loyalty for Hyundai surpassed that of Honda and Toyota to take the No. 1 spot.

2. Five Hyundai cars among Cars.com’s “Best Bets” for safety, reliability, and fuel efficiency.

3. Sonata and Genesis models made Hyundai a strong competitor in the luxury market, where excellent quality is imperative.

4. In 2018 Hyundai and its sister company Kia averaged 122 and 124 problems per 100 vehicles, which placed them in the top 10 for car quality.

prior written consent of McGraw-Hill Education.6-5

Learning Objective 6-1

Quality Definitions

• Product Quality: fitness for consumption in meeting customers’ needs and desires

• Design Quality: match between designed features and customer requirements

• Conformance Quality: meeting design specifications

• Quality Management: organizationwide quality focus

prior written consent of McGraw-Hill Education.6-6

Learning Objective 6-1

Dimensions of Quality for Goods and Services

• Quality

– Performance

– Features

– Reliability

– Durability

– Conformance

– Aesthetics

– Support/responsiveness

– Perceived quality

prior written consent of McGraw-Hill Education.6-7

Learning Objective 6-2

Functional Influences on Product Quality (1 of 3)

Table 6-2 Functional Influences on Product Quality

Functional Personnel Decisions and Activities with Potential Impact on Product

Quality

Marketing managers

Choices of market to pursue and product features to offer

Design of advertising and other programs that communicate product attribute to customers

Development of new product testing programs

Sales managers

Setting of sales targets

Interactions with customers

Interpretations of customers’ needs and desires

Product engineers

Design of product specifications, service elements, dimensional tolerances, etc.

Design of product prototyping procedures

Process engineers

Design of manufacturing and service processes

Choices of technology and associated capabilities and capacity limits

Design of quality assurance tests and procedures

prior written consent of McGraw-Hill Education.6-8

Learning Objective 6-2

Functional Influences on Product Quality (2 of 3)

Table 6-2 Functional Influences on Product Quality

Functional Personnel Decisions and Activities with Potential Impact on Product

Quality

Finance and accounting managers

Setting of restrictions for equipment purchases

Establishing goals for utilization of facilities and working capital

Design of measures used to assess efficiency and productivity

Human resources managers

Design of hiring criteria and training and development programs

Setting of compensation schemes and incentives

Manufacturing and service operations managers

Design and execution of processing procedures

Design of work policies

Interactions with customers

Management of facilities and equipment

Scheduling of work

prior written consent of McGraw-Hill Education.6-9

Learning Objective 6-2

Functional Influences on Product Quality (3 of 3)

Table 6-2 Functional Influences on Product Quality

Functional Personnel Decisions and Activities with Potential Impact on

Product Quality

Supply managers

Description of purchase requirements

Selection of suppliers

Establishment of contracts and associated incentives and penalties

Management of and interactions with suppliers

Logistics managers

Selection of transportation providers

Development of tracking and other information systems

Design of packaging, storage, and material handling processes

Management of and interaction with transportation providers

prior written consent of McGraw-Hill Education.6-10

Learning Objective 6-2

Student Activity (1 of 3)

Ask a marketing professor, a supply chain operations professor, a finance professor, and an engineering professor to give you their definitions of product quality. Compare and contrast the definitions you receive.

prior written consent of McGraw-Hill Education.6-11

Learning Objective 6-3

Quality Thought Leaders (1 of 2)

• Deming

– Holistic view of responsibility for quality

– Variability as source of most problems

– Importance of customer

• Juran

– Broadened definition of quality

– Focus on change management

– Cost of quality analysis

prior written consent of McGraw-Hill Education.6-12

Learning Objective 6-3

Quality Thought Leaders (2 of 2)

• Crosby

– Quality is free

– Zero defects

– Focus on incremental change

• Imai

– Kaizen system of continuous improvement

– Intense process-oriented view

– Heavy dependence on frontline worker insights

– Emphasis on worker training and development

prior written consent of McGraw-Hill Education.6-13

TQM: A “Total” View of Quality

Total Quality Management (TQM): an integrated business management strategy aimed at embedding awareness of quality. The word total has important connotations:

1. A product’s quality is determined by customer’s acceptance and use

2. Quality management is a total, organizationwide activity, rather than a technical task

3. Quality improvement requires a total commitment from all employees

Learning Objective 6-3

prior written consent of McGraw-Hill Education.6-14

Learning Objective 6-4

Cost of Quality (COQ)

• Prevention Costs

– Costs associated with preventing defects and limiting failure and appraisal costs (e.g., training, improvement projects, data gathering, analysis)

• Appraisal Costs

– Costs associated with inspection to assess quality levels (e.g., staff, tools, training, etc.)

• Internal Failure Costs

– Costs from defects found before delivery to the customer (e.g., rework, scrap, etc.)

• External Failure Costs

– Costs associated with defects found after delivery to customer (e.g., warranty, recall, etc.)

prior written consent of McGraw-Hill Education.6-15

Learning Objective 6-4

Inverted View of Management

Figure 6-1 Traditional versus Quality Management View of Organizational Structure

prior written consent of McGraw-Hill Education.6-16

Learning Objective 6-4

TQM Values and Success Factors

Table 6-4 TQM Values and Success Factors

Values that Characterize TQM Factors Affecting the Success of TQM

Holistic view of product quality and its impacts Strong, charismatic leadership

Emphasis on customer requirements

Trust between labor and management

Extended process view of operations

Crisis situation or compelling reason for change

Emphasis on prevention rather than inspection

Adequate resourcing of training and improvement projects

Disdain for variability Clear, well communicated, uncomplicated change process

Data-based decision making (not opinion-based)

Unquestionable success of early efforts

Employee empowerment

Top management support

Supplier involvement

Continuous improvement

prior written consent of McGraw-Hill Education.6-17

Quality Goes Digital

• Walmart is using the Internet of Things and blockchain to provide visibility of food quality

• Digital developments are changing the cost of quality by raising the cost of external failures

• Using social media, one can post experiences to be read by many viewers

Learning Objective 6-4

prior written consent of McGraw-Hill Education.6-18

Student Activity (2 of 3)

Search various social media sites and see if you can find posts that address the four different costs included in the cost of quality framework. What is interesting about these postings? How would these postings affect you as a potential customer?

Learning Objective 6-4

prior written consent of McGraw-Hill Education.6-19

Learning Objective 6-5

Guiding Methodologies: PDCA

Figure 6-2 PDCA in Action

Plan: identify problem and actions for improvement

Do: implement formulated plan

Check: monitor results

Act: take corrective action and institutionalize changes

prior written consent of McGraw-Hill Education.6-20

Learning Objective 6-5

Guiding Methodologies: Six Sigma (1 of 3)

• Six Sigma: quality improvement through elimination of defects and variation

• Standard Deviation: statistical measure of variation

prior written consent of McGraw-Hill Education.6-21

Learning Objective 6-5

Guiding Methodologies: Six Sigma (2 of 3)

Table 6-5 How Quality Relates to Sigma

Sigma Level Defects per Million

Units

2σ 308,770

3σ 66,810

4σ 6,209

5σ 233

6σ 3.4

prior written consent of McGraw-Hill Education.6-22

Learning Objective 6-5

Guiding Methodologies: Six Sigma (3 of 3)

prior written consent of McGraw-Hill Education.6-23

Student Activity (3 of 3)

For a candy such as M&Ms, identify the important critical-to-quality characteristics. How would you measure these characteristics objectively? Which of these measures pertain to the physical product itself? Which of these measures relate to the packaging or the services surrounding the good?

Learning Objective 6-5

prior written consent of McGraw-Hill Education.6-24

Learning Objective 6-5

Guiding Methodologies: DMAIC

DMAIC example: See the cough drop production DMAIC example in your text

• Define: determine critical-to-quality (CTQ) characteristics from customer’s perspective

• Measure: gather data on CTQ processes

• Analyze: determine cause of defects

• Improve: modify processes

• Control: ensure improvements are maintained

prior written consent of McGraw-Hill Education.6-25

Learning Objective 6-6

Guiding Methodologies: ISO 9000

• ISO 9000: internationally accepted standards for business quality management systems

• ISO 9000 requires:

– fulfilling the customer’s quality requirements, and

– meeting applicable regulatory requirements, while

– enhancing customer satisfaction, and

– achieving continuous improvement of its performance in pursuit of these objectives

http://www.iso.org

prior written consent of McGraw-Hill Education.6-26

Learning Objective 6-6

The ISO 9001: 2015 Certification Structure (1 of 3)

Table 6-6 The ISO 9001: 2015 Certification Structure

Section Focus/Description

4 Context of the organization

4.1 Understanding the organization and its context.

4.2 Understanding the needs and expectations of interested parties.

4.3 Determining the scope of the quality management system.

4.4 Quality management system and its processes.

5 Leadership

5.1 Leadership and commitment.

5.2 Policy.

5.3 Organizational roles, responsibilities, and opportunities.

6 Planning

6.1 Actions to address risks and opportunities.

6.2 Quality objectives and planning to achieve them.

6.3 Planning of changes.

prior written consent of McGraw-Hill Education.6-27

Learning Objective 6-6

The ISO 9001: 2015 Certification Structure (2 of 3)

Table 6-6 The ISO 9001: 2015 Certification Structure

Section Focus/Description

7 Support

7.1 Resources.

7.2 Competence.

7.3 Awareness.

7.4 Communication.

7.5 Documented information.

8 Operation

8.1 Operational planning and control.

8.2 Requirements for products and services.

8.3 Design and development of products and services.

8.4 Control of externally provided processes, products, and services.

8.5 Production and service provision.

8.6 Release of products and services.

8.7 Control nonconforming outputs.

prior written consent of McGraw-Hill Education.6-28

Learning Objective 6-6

The ISO 9001: 2015 Certification Structure (3 of 3)

Table 6-6 The ISO 9001: 2015 Certification Structure

Section Focus/Description

9 Performance evaluation

9.1 Monitoring, measurement analysis, and evaluation.

9.2 Internal audit.

9.3 Management review.

10 Improvement

10.1 General

10.2 Nonconformity and corrective action.

10.3 Continual improvement.

prior written consent of McGraw-Hill Education.6-29

Managing Quality Summary

1. Quality management strives to achieve superior quality.

2. It is important to integrate quality management into the firm’s strategic activities.

3. Formal certifications confirm that a firm’s major processes have been documented and followed.

4. Many firms use award guidelines to assess the performance of their quality management systems.

5. Service quality management must take into consideration the interpersonal interactions of service providers and customers.

6. Core TQM values are the critical aspects to make quality improvement a success.

prior written consent of McGraw-Hill Education.

Chapter 7

Managing Inventories

prior written consent of McGraw-Hill Education.7-2

Learning Objectives

7-1 Define the different types and roles of inventory in the supply chain.

7-2 Explain the financial impact of inventory on firm performance.

7-3 Explain and compute asset productivity and customer service–related measures of inventory performance.

7-4 Calculate inventory policy parameters to minimize total acquisition cost in continuous review, periodic review, and single period models.

7-5 Determine the cost of a company’s service level policy.

7-6 Explain the advantages and disadvantages of different inventory location strategies.

7-7 Describe practical techniques for inventory planning and management.

prior written consent of McGraw-Hill Education.7-3

Learning Objective 7-1

Inventory at PolyCorp

Inventory:

• When do I order?

• How much do I order?

• Where do I deploy the inventory?

prior written consent of McGraw-Hill Education.7-4

Learning Objective 7-1

Types of Inventory

• Raw materials and component parts: items that are bought from suppliers to use in the production of a product

• Work in process inventory: inventory that is in the production process

• Finished goods inventory: items that are ready for sale to customers

• MRO inventory: maintenance, repair, and operating supplies

prior written consent of McGraw-Hill Education.7-5

Learning Objective 7-1

Roles of Inventory

• Balancing supply and demand: decouples differences in supply and demand requirements

• Buffers against uncertainties: variation in supply and demand are managed with buffer (safety) stock

• Enabling economies of buying: price discounts or reduced shipping costs

• Enabling geographic specialization: supply and demand locations vary

prior written consent of McGraw-Hill Education.7-6

Types of Stock

• Cycle Stocks: inventory repeatedly produced/ordered and used to fill demand

• Seasonal Stocks: additional inventories produced in advance of seasonal peak demands or held after seasonal peak supplies

• Buffer (or Safety) Stock: extra inventory held to guard against uncertainty in demand or supply

• Speculative Stock: stock purchased or produced to hedge against future price increases or shortages

Learning Objective 7-1

prior written consent of McGraw-Hill Education.7-7

Learning Objective 7-1

Student Activity (1 of 6)

Each of the uses of inventory described has a particular cause. For example, safety stock is needed because managers are uncertain about demand or supply. For each inventory type, list the cause(s) and how each cause could be reduced or eliminated, thereby reducing the need for inventory.

prior written consent of McGraw-Hill Education.7-8

Learning Objective 7-2

Financial Impact of Inventory

Carrying (Holding) Costs Ordering and Setup

Costs Stockout Costs

• Opportunity cost (including cost of capital)

• Storage and warehouse management

• Taxes and insurance • Obsolescence, spoilage, and

shrinkage • Materials handling, tracking,

and management

• Purchased items: placing and receiving orders

• Made items: change- over between items

• Lost sales or customer loyalty

• Expediting • Schedule disruption

prior written consent of McGraw-Hill Education.7-9

Learning Objective 7-2

Student Activity (2 of 6)

Using your library’s electronic databases or a Web browser, find three articles that describe specific companies and their efforts to reduce inventory. Summarize the different reasons given for the desire to reduce inventory.

prior written consent of McGraw-Hill Education.7-10

Measures of Inventory Performance: Inventory Turnover (1 of 2)

Inventory Turnover: ratio between average inventory on hand and level of sales

= Cost of goods sold/Average inventory at cost

= Net sales/Average inventory at selling price

= Unit sales/Average inventory in units

Learning Objective 7-3

prior written consent of McGraw-Hill Education.7-11

Learning Objective 7-3

Measures of Inventory Performance: Inventory Turnover (2 of 2)

Advantages of high turnover:

• “Fresh” inventory from high sales

• Reduced risk of obsolescence or need to mark down

• Reduced total carrying costs

• Lower asset investment and higher productivity

Dangers of high turnover:

• Stockouts may mean lower sales

• Increased costs from missing quantity requirements

• Increased purchasing, ordering, and receiving time, effort, and cost

prior written consent of McGraw-Hill Education.7-12

Learning Objective 7-3

Measures of Inventory Performance: Inventory Turnover—Example 7-2

Suppose a firm has an annual cost of goods sold of $500 million and its average inventory level during the year is $80 million at cost. What is the firm’s inventory turnover?

Inventory turnover =

= Cost of goods sold/Average inventory level

= $500/$80

= 6.25 turns

Or, in terms of days

= 365 days/6.25 times

= 58.4 days

prior written consent of McGraw-Hill Education.7-13

Learning Objective 7-3

Measures of Inventory Performance: Days of Supply, Service Level, Stockouts

• Days of Supply: length of time operations can be supported with inventory on hand

• Service Level: ability to meet customer demand without a stockout

• Stockout: no inventory is available

prior written consent of McGraw-Hill Education.7-14

Measures of Inventory Performance: Days of Supply—Example 7-3

Suppose there are currently 2,000,000 finished automobiles sitting in dealer or manufacturing facility lots. If expected sales of automobiles are 25,000 units per day, how many days of supply are there?

= Current inventory/Expected daily sales

= 2,000,000/25,000

= 80 days

Learning Objective 7-3

prior written consent of McGraw-Hill Education.7-15

Student Activity (3 of 6)

Choose three companies that are competitors in an industry of interest to you. Find their most recent annual reports and compute and compare their inventory turnover ratios. Explain the financial and marketing implications of the differences in inventory turnover rates for each of the three companies.

Learning Objective 7-3

prior written consent of McGraw-Hill Education.7-16

Learning Objective 7-4

Inventory Management Systems (1 of 2)

• Independent Demand: demand for an item is beyond control of the organization

• Dependent Demand: demand for an item is driven by demand for another item

prior written consent of McGraw-Hill Education.7-17

Learning Objective 7-4

Inventory Management Systems (2 of 2)

• Continuous Review Model: inventory is constantly monitored to decide when a replenishment order needs to be placed

• Periodic Review Model: management system built around checking and ordering inventory at some regular interval

prior written consent of McGraw-Hill Education.7-18

Total Acquisition Costs (1 of 2)

• Total Acquisition Cost: sum of all relevant annual inventory costs

– Holding Costs: associated with storing and assuming risk of having inventory

– Ordering Costs: associated with placing orders and receiving supply

Learning Objective 7-4

prior written consent of McGraw-Hill Education.7-19

Total Acquisition Costs (2 of 2)

TAC = annual ordering cost + annual carrying cost

TAC = Co (D/Q) + UCi * Q/2

N = D/Q

I = Q/2

Where:

N = orders per year I = average inventory level

D = annual demand Co= order cost

Q = order quantity U = unit cost

Ci = % carrying cost per year

Learning Objective 7-4

prior written consent of McGraw-Hill Education.7-20

Total Acquisition Costs—Example 7.4

If we need 3,000 units per year at a unit price of $20 and we order 500 each time, at a cost of $500 per order, with a carrying cost of 20 percent, what is the TAC?

N = D/Q = 3000/500 = 6 orders per year

I = Q/2 = 500/2 = 250 average inventory

TAC = ordering cost + carrying cost

= Co (D/Q) + (UCi )(Q/2)

= $50 (3000/500) + ($20 × 20%) × (500/2)

= $1,300

Where:

N = D/Q Q = 500 I = Q/2

U = $20 D = 3,000 Co = $50 Ci = 20%

Learning Objective 7-4

prior written consent of McGraw-Hill Education.7-21

Total Acquisition Costs—Example 7.5

If we need 3,000 units per year at a unit price of $20 and we order 200 each time, at a cost of $500 per order, with a carrying cost of 20 percent, what is the TAC?

N = D/Q = 3000/200 = 15 orders per year

I = Q/2 = 200/2 = 100 average inventory

TAC = ordering cost + carrying cost

= Co(D/Q) + (UCi)(Q/2)

= $50(3000/200) + ($20 × 20%) × (200/2)

= $1,150

Where:

N = D/Q Q = 200 I = Q/2

U = $20 D = 3,000 Co = $50 Ci = 20%

Learning Objective 7-4

prior written consent of McGraw-Hill Education.7-22

Total Acquisition Costs Comparison

Figure 7-1 Trexoid Inventory Saw-Tooth Diagram: Order Quantity 500

Figure 7-2 Trexoid Inventory Saw-Tooth Diagram: Order Quantity 200

Learning Objective 7-4

prior written consent of McGraw-Hill Education.7-23

Learning Objective 7-4

Economic Order Quantity (EOQ) (1 of 4)

• Economic Order Quantity (EOQ): minimizes total acquisition costs; points at which ordering costs and carrying costs are equal

EOQ = 2DC

UC i

D = Annual Demand

C 0

= Ordering cost

U =Unit cost

C i =Holding cost

prior written consent of McGraw-Hill Education.7-24

Learning Objective 7-4

Economic Order Quantity (EOQ) (2 of 4)

Example 7-6

If we need 3,000 units per year at a unit price of $20, at a cost of $50 per order with a carrying cost of 20 percent, what is lowest TAC order quantity?

EOQ = 2DC

UC i

= 2´3000´50

20´20%

=273.86 =274

D = 3,000

C 0

= $50

U = $20

C i = 20%

prior written consent of McGraw-Hill Education.7-25

Learning Objective 7-4

Economic Order Quantity (EOQ) (3 of 4)

Example 7-6

If we need 3,000 units per year at a unit price of $20, at a cost of $50 per order with a carrying cost of 20 percent, what is lowest TAC order quantity?

3000/274 = 10.948, rounded to 11. Average inventory will be 137 units.

TAC = Order cost + Inventory carrying cost = 11($50) + 137($20)(.2) = $550 + $548 = $1,098

prior written consent of McGraw-Hill Education.7-26

Learning Objective 7-4

Economic Order Quantity (EOQ) (4 of 4)

Figure 7-3 EOQ Cost Trade-Offs

prior written consent of McGraw-Hill Education.7-27

Learning Objective 7-4

Reorder Point (1 of 2)

• Reorder Point: minimum level of inventory that triggers a replenishment

• When to order:

ROP = d( ) t d = average demand per time period

t = average supplier lead time

prior written consent of McGraw-Hill Education.7-28

Reorder Point (2 of 2)

Example 7-7 If you use 10 units per day, and the lead time for resupply is 9 days, how low can your inventory get before placing a new order?

ROP = d( ) t = 9´10

= 90

d =10

t = 9

Learning Objective 7-4

prior written consent of McGraw-Hill Education.7-29

EOQ Extensions

Assumptions underlying EOQ:

• No quantity discounts

• No lot size restrictions

• No partial deliveries

• No variability

• No product interactions

Learning Objective 7-4

prior written consent of McGraw-Hill Education.7-30

Quantity Discounts

Determining best price break quantity:

• Identify price breaks/lot size restrictions

• Calculate EOQ for each price/lot size

• Evaluate viability of each option

• Calculate TAC for each option

• Select best TAC option

Learning Objective 7-4

prior written consent of McGraw-Hill Education.7-31

Learning Objective 7-4

Total Acquisition Costs

TAC+C 0

è ç

ø ÷+UC

è ç

ø ÷+UD

C 0

= Ordering cost

D = Annual demand

Q = Order quantity

U =Unit cost

C i =Holding cost

prior written consent of McGraw-Hill Education.7-32

Total Acquisition Costs—Without Price Discount

Example 7-8

If we need 3,000 units per year at a unit price of $20, at a cost of $50 per order with a carrying cost of 20 percent, what is TAC with a Q=1,000?

Where:

C 0

= $50 D = 3,000 Q =1,000

U = $20 C i = 20%

TAC =C o

è ç

ø ÷+UC

è ç

ø ÷+UD

= $50 3,000

274

è ç

ø ÷+$20´ 20%

274

è ç

ø ÷+$20´3,000

= $61,095.45

Learning Objective 7-4

prior written consent of McGraw-Hill Education.7-33

Learning Objective 7-4

Total Acquisition Costs—With Price Discount

Example 7-8

If we need 3,000 units per year at a unit price of $19, at a cost of $50 per order with a carrying cost of 20 percent, what is TAC with a Q=1,000?

Where: C 0

= $50 D = 3,000 Q =1,000

U = $19 C i = 20%

TAC =C o

è ç

ø ÷+UC

è ç

ø ÷+UD

= $50 3,000

1,000

è ç

ø ÷+$19´ 20%

1,000

è ç

ø ÷+$19´3,000

= $59,050

TAC at unit cost $20= $61,095.45, new price saves

$2,045.45

prior written consent of McGraw-Hill Education.7-34

Student Activity (4 of 6)

Think about several instances where you have bought a larger quantity of an item than you would normally buy. What factors influenced you to do so? Explain how those factors relate to the discussion of EOQ and TAC.

Learning Objective 7-4

prior written consent of McGraw-Hill Education.7-35

Learning Objective 7-4

Production Order Quantity (1 of 2)

Production Order Quantity: most economical order quantity when units become available at rate produced

 

  

 −

d UC

DC Q

2 0

D = Annual demand

C o

= Ordering cost

C i =Holding cost

U =Unit cost

d = daily rate of demand

p = daily rate of production

prior written consent of McGraw-Hill Education.7-36

Learning Objective 7-4

Production Order Quantity (2 of 2)

Example 7-9

Q p

= EOQ

D = 500,000

C 0

= $2,000

C i = 25%

U = $10

d = 2,000

p = 5,000

Economic Production Size:

Q p

= 2DC

C i U 1-

è ç

ø ÷

= 2´500,000´$2,000

25%´$10 1- 2,000

5,000

è ç

ø ÷

= 36,514.84

= 36,515

Length of Production Days:

=Q p

= 36,515 5,000 =7.3 days

prior written consent of McGraw-Hill Education.7-37

Production Order Quantity—Example 7-9

Consider the manufacturer of the Trexoid video games you have been ordering for your store. The manufacturer expects annual demand from all retailers to be 500,000 units of Trexoid games. It receives orders from retailers for, on average, 2,000 units per day (250 days per year). To change from production of another game to production of Trexoid requires a setup cost of $2,000. Once production of Trexoid units begins, it can produce 5,000 units per day. The cost to produce a unit of Trexoid is $10. Finally, the manufacturer has determined that its inventory carrying cost is 25 percent annually. The fundamental question to answer is how many units of Trexoid should be ordered in each production run? It is also useful to know the length of the production run in days.

Qp= production order quantity (the same concept as EOQ)

D = annual demand = 500,000

Co= setup cost (the same concept as ordering cost in EOQ) = $2,000

Ci = annual inventory carrying cost percentage = 25%

U = unit cost = $10

d = daily rate of customer demand = 2,000

p = daily rate of production = 5,000

Learning Objective 7-4

prior written consent of McGraw-Hill Education.7-38

Student Activity (5 of 6)

Verify the difference between the Qp quantity and the EOQ. You can do that by using the standard EOQ formula and assuming that all items produced arrive simultaneously.

Learning Objective 7-4

prior written consent of McGraw-Hill Education.7-39

Standard Deviation of Demand During Lead Time (1 of 2)

Variation can occur in both demand rates and lead times

s ddlt

= ts 2

d + d 2s

s ddlt

= standard deviation of demand during lead time

t = average lead time

s d

= standard deviation of demand

d = average demand

s t = standard deviation of lead time

Learning Objective 7-4

prior written consent of McGraw-Hill Education.7-40

Standard Deviation of Demand During Lead Time (2 of 2)

Example 7-10 Average demand is 10 units per day with standard deviation of 1.5, and lead time of 10 days with standard deviation of 2.5 days.

days 2.5

dayper 10

units 1.5

days 10



( ) ( ) units 25.4=

222

5.2105.19

22  d

d tddlt

Learning Objective 7-4

prior written consent of McGraw-Hill Education.7-41

Determining Service Levels (1 of 2)

Service Level Policy: determining the acceptable stockout risk level

SS =s ddlt

SS = safety stock

z = standard deviations needed for service level

s ddlt

= standard deviation of demand during lead time

Learning Objective 7-5

prior written consent of McGraw-Hill Education.7-42

Learning Objective 7-5

Determining Service Levels (2 of 2)

Example 7-11 Standard deviation of demand during lead time is 25.4 units, and acceptable stockout level is 5 percent (95 percent service level). From the z table = 1.65

SS = zs ddlt

=1.65´ 25.4

= 42 units

Safety stock carrying cost:

$19´42 units´20%=$159.60 year

prior written consent of McGraw-Hill Education.7-43

Learning Objective 7-5

Standard Deviations and Probabilities

Table 7-2 Standard Deviations and Probabilities

Number of Deviations Required

Probability of Being in Stock

Probability of Stockout

1 84.13% 15.77%

1.04 85 15

1.28 90 10

1.65 95 5

1.96 97.5 2.5

2.0 97.72 2.28

2.33 99 1

3.0 99.86 0.14

prior written consent of McGraw-Hill Education.7-44

Learning Objective 7-5

Cost Related to Service Levels

Table 7-3 Cost Related to Trexoid Service Levels

Std. Deviations of Safety Stock

Probability of in Stock

Probability of Stockout

Safety Stock Required

Safety Stock Inventory Carrying

Cost

1 84.13% 15.77% 25 $ 95.0

1.04 85 15 26 98.8

1.28 90 10 33 125.4

1.65 95 5 42 159.6

1.96 97.5 2.5 50 190.0

2.0 97.72 2.28 51 193.8

2.33 99 1 59 224.2

3.0 99.86 0.14 76 288.8

prior written consent of McGraw-Hill Education.7-45

Learning Objective 7-5

Relationship between Inventory Investment and Product Availability

Figure 7-4 Relationship between Inventory Investment and Product Availability

prior written consent of McGraw-Hill Education.7-46

Learning Objective 7-5

Revisiting ROP and Average Inventory

Example 7-12 Considering uncertainty

ROP = reorder point

d = average lead time

t = average demand

SS = safety stock

Q = order quantity

ROP = d ´ t( ) + SS

average inventory = Q

2 + SS

ROP = 10´9( ) +42 =132 units

average inventory = 1000

è ç

ø ÷+42=542

prior written consent of McGraw-Hill Education.7-47

Periodic Review Model (1 of 3)

Order Interval: fixed time between inventory review; on-hand level is unknown during this uncertainty period

UP =Uncertainty period

OI = Order interval

t = lead time

d = average daily demand

z = standard deviations of safety stock desired

s ddup

= standard deviation of demand during

the uncertainty period

A= inventory on hand

UP =OI + t

Q = d UP( ) + zs ddup

– A

Learning Objective 7-5

prior written consent of McGraw-Hill Education.7-48

Learning Objective 7-5

Periodic Review Model (2 of 3)

Example 7-13 Orders are placed every 30 days and average lead time is 9 days. Standard deviation of demand is 1.5 units.

UP =Uncertainty period

OI =30 days

t = 9 days

s d

=1.5 units

UP =OI + t

= 30+9 =39 days

s ddup

= UP( )s d

= 39( ) 1.52( ) = 9.37

prior written consent of McGraw-Hill Education.7-49

Learning Objective 7-5

Periodic Review Model (3 of 3)

Example 7-14 There are currently 105 units in stock.

UP =39 days

OI =30 days

t = 9 days

d =10 units

z = 95%=1.65

s ddup

= 9.37

A =105

( )

( ) ( )

units 301=

−+=

10516390

10537.965.13910

AzUPdQ ddup

prior written consent of McGraw-Hill Education.7-50

Learning Objective 7-5

Single Period Inventory Model (1 of 2)

Single Period Inventory Model: items are ordered once, and have little leftover value (newsvendor problem)

Target Service Level: probability of meeting all demand for an item

C stockout

=Unit selling price -Unit cost

C overstock

=Unit cost +Disposal cost -Salvage value

1- TSL( ) Cstockout( ) = TSL C overstock( )

TSL = C stockout

C stockout

+C overstock

prior written consent of McGraw-Hill Education.7-51

Learning Objective 7-5

Single Period Inventory Model (2 of 2)

Example 7-15

Units cost $10 and sell for $30, unsold units have no value, and there is no disposal or salvage value.

C stockout

=Unit selling price -Unit cost

C overstock

=Unit cost +Disposal cost -Salvage value

TSL = C stockout

C stockout

+C overstock

C so

= $30-$10 = $20

C os

= $10+0-0 = $10

TSL = $20

$20+$10 = .667

prior written consent of McGraw-Hill Education.7-52

Impact of Location on Inventory Requirements (1 of 2)

Square Root Rule: estimate of impact of changing the number of locations on quantity of inventory held

SS n

= N n

N e

´ SS e

SS n

= system safety stock for the new number of locations

N n

= total number of new locations

N e =number of existing locations

SS e = system safety stock for the number of existing locations

Learning Objective 7-6

prior written consent of McGraw-Hill Education.7-53

Impact of Location on Inventory Requirements (2 of 2)

Example 7-16 A single warehouse currently has 1,000 units of safety stock. How much is needed if a second warehouse is added?

410,1

1000 1

1000

=

SS N

N SS

locations ofnumber

new the ofstock safety

Learning Objective 7-6

prior written consent of McGraw-Hill Education.7-54

Inventory Related to Number of Locations

Figure 7-5 Inventory Related to Number of Locations

Learning Objective 7-6

prior written consent of McGraw-Hill Education.7-55

Learning Objective 7-6

Managing Inventory

• Managing Cycle Stock: reducing lot sizes

• Managing Safety Stock: using ABC analysis and reducing lead time

• Managing Locations: balance inventory, lead time, and service levels

• Implementing Inventory Models: matching management system to specific items

prior written consent of McGraw-Hill Education.7-56

Managing Inventory: ABC Analysis

• ABC Analysis: ranking inventory by importance

• Pareto’s Law: small percentage of items have a large impact on sales, profit, or importance to a company

Figure 7-6 ABC Classification of Inventory

Learning Objective 7-6

prior written consent of McGraw-Hill Education.7-57

Learning Objective 7-7

Inventory Information Systems and Accuracy

• Inventory Record Accuracy

– Cycle Counting: inventory is physically counted on

a routine schedule

prior written consent of McGraw-Hill Education.7-58

Managing Inventory Across the Supply Chain (1 of 2)

Bullwhip Effect: variation increases upstream in the supply chain (from consumer to manufacturers)

Figure 7-7 The Bullwhip Effect: An Example

Learning Objective 7-7

prior written consent of McGraw-Hill Education.7-59

Managing Inventory Across the Supply Chain (2 of 2)

• Supplier-Managed Inventory (SMI): the vendor is responsible for managing inventory for the customer

– Vendor monitors and replenishes inventory balances

– Customer saves holding costs

– Vendor has higher visibility of inventory usage

• Collaborative Planning, Forecasting, and Replenishment (CPFR): supply chain partners sharing information

Learning Objective 7-7

prior written consent of McGraw-Hill Education.7-60

Blockchain

• Blockchain: a decentralized, distributed, and public digital ledger used to record transactions across many computers

– Provides visibility and prevents distortion of data

Learning Objective 7-7

prior written consent of McGraw-Hill Education.7-61

Student Activity (6 of 6)

Find a YouTube video (there are many) that describes blockchain and gives an example of its use.

Learning Objective 7-7

prior written consent of McGraw-Hill Education.7-62

Managing Inventories Summary

1. There are multiple types of inventory.

2. Inventory fulfills multiple roles.

3. Inventory is an asset, and has multiple costs.

4. An inventory policy determines how much and when to order.

5. Continuous systems monitor on-hand inventory levels.

6. Safety stock levels are linked with service levels.

7. Periodic review systems count inventory at specific intervals.

8. Number of storage locations impacts inventory levels.

9. Managers should work to reduce inventory requirements.

10. Each item must have a unique identification and accuracy.

11. Bullwhip effect occurs when a small change in demand results in a large change up the supply chain.

12. Vendor-managed inventory may reduce bullwhip effect and overall inventory levels.

swi39462_fm_i-xxviii.indd i 01/07/19 03:26 PM

Managing Operations Across the Supply Chain Fourth Edition

Morgan Swink Texas Christian University

Steven A. Melnyk Michigan State University University of Newcastle (Australia)

Janet L. Hartley Bowling Green State University

Final PDF to printer

MANAGING OPERATIONS ACROSS THE SUPPLY CHAIN, FOURTH EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2020 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2017, 2014, and 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.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 LWI 21 20 19

ISBN 978-1-260-23946-1 MHID 1-260-23946-2

Portfolio Manager: Noelle Bathurst Product Developer: Tobi Philips Executive Marketing Manager: Harper Christopher Content Project Managers: Fran Simon, Jamie Koch Buyer: Sandy Ludovissy Design: Egzon Shaqiri Content Licensing Specialist: Ann Marie Jannette Cover Image: Abstract Triangles Planet Earth with Ring of Binary – ©Pitju/GettyImages; Earth globe vector icon – ©Npeter/Shutterstock Compositor: SPi Global

All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

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, University of Newcastle (Australia), Janet L. Hartley, Bowling Green State University.

Description: Fourth Edition. | Dubuque, IA : McGraw-Hill Education, [2019] |

Revised edition of the authors’ Managing operations across the supply chain, [2017]

Identifiers: LCCN 2018052789| ISBN 9781260239461 (bound edition : alk. paper) | ISBN 1260239462 (bound edition : alk. paper) | ISBN 9781260442892 (loose-leaf edition) | ISBN 1260442896 (loose-leaf edition)

Subjects: LCSH: Business logistics. | Production management. | Industrial management.

Classification: LCC HD38.5 .S95 2019 | DDC 658.5—dc23 LC record available at https://lccn.loc.gov/2018052789

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.

mheducation.com/highered

swi39462_fm_i-xxviii.indd ii 01/07/19 03:26 PM

iii

swi39462_fm_i-xxviii.indd iii 01/07/19 03:26 PM

The McGraw-Hill Education Series Operations and Decision Sciences

Supply Chain Management Benton Purchasing and Supply Chain Management Third Edition

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

Burt, Petcavage, and Pinkerton Supply Management Eighth Edition

Johnson Purchasing and Supply Management Sixteenth Edition

Simchi-Levi, Kaminsky, and Simchi-Levi Fundamentals of Supply Chain Management Third Edition

Stock and Manrodt Supply Chain Management

Project Management Brown and Hyer Managing Projects: A Team-Based Approach

Larson and Gray Project Management: The Managerial Process Seventh Edition

Service Operations Management Bordoloi, Fitzsimmons, and Fitzsimmons Service Management Ninth Edition

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

Business Research Methods Schindler Business Research Methods Thirteenth Edition

Business Forecasting Keating and Wilson Forecasting and Predictive Analytics Seventh Edition

Linear Statistics and Regression Kutner, Nachtsheim, and Neter Applied Linear Regression Models Fourth Edition

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

Operations Management Cachon and Terwiesch Operations Management Second Edition

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

Jacobs and Chase Operations and Supply Chain Management Fifteenth Edition

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

Schroeder and Goldstein Operations Management in the Supply Chain: Decisions and Cases Seventh Edition

Stevenson Operations Management Thirteenth Edition

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

Business Math Slater and Wittry Practical Business Math Procedures Thirteenth Edition

Slater and Wittry Math for Business and Finance: An Algebraic Approach Second Edition

Business Statistics Bowerman, et al. Business Statistics and Analytics in Practice Ninth Edition

Doane and Seward Applied Statistics in Business and Economics Sixth Edition

Doane and Seward Essential Statistics in Business and Economics Third Edition

Jaggia and Kelly Business Statistics: Communicating with Numbers Third Edition

Jaggia and Kelly Essentials of Business Statistics: Communicating with Numbers Second Edition

Lind, Marchal, and Wathen Basic Statistics for Business and Economics Ninth Edition

Lind, Marchal, and Wathen Statistical Techniques in Business and Economics Seventeenth Edition

McGuckian Connect Master: Business Statistics

Final PDF to printer

swi39462_fm_i-xxviii.indd iv 01/07/19 03:26 PM

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 my colleagues in the United States (Dave Frayer, Randall Schaefer, Nick Little)

and in Australia (Jim Jose, Suzanne Ryan, Will Rifkin, Kevin Lyons).

To these people, this book is dedicated.

Steven A. Melnyk

To Glenn and Caleb, for their love and support.

Janet Hartley

Final PDF to printer

swi39462_fm_i-xxviii.indd v 01/07/19 03:26 PM

About the Authors

Courtesy of Morgan Swink

Morgan Swink

is Professor, Eunice and James L. West Chair of Supply Chain Management, and Executive Director of the Center for Supply Chain Innovation at the Nee- ley School of Business, Texas Chr istian University. He holds a BS in Mechanical Engineering from Southern Methodist University, an MBA from the University of Dallas, and a PhD in Operations Man- agement from Indiana University. Before becoming a professor, Dr. Swink worked for 10 years in a variety of manufactur- ing 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-Edit or in Chief for the Journal of Operations Manag ement and past president of the Decision Sciences Institute.

Courtesy of Steven A. Melnyk

Steven A. Melnyk

is Professor of Operations Management at Michigan State University. Dr. Melnyk obtained his undergraduate degree from the University of Windsor and his doctor- ate from the Ivey School of Business, the University of Western Ontario. He has co- authored 21 books focusing on operations and the supply chain and has published over 90 refereed articles in numerous international and national journals. He is Associate Editor for the Journal of Busi- ness Logistics. He also is a member of sev- eral editorial advisory boards, including the International Journal of Production Research and the International Journal of Operations and Production Manage- ment. Dr. Melnyk has consulted with over 60 companies. He has also served as a member of the APICS Board of Direc- tors (2014–2016) and the APICS leader- ship team (2015). In 2017, Dr. Melnyk accepted a joint appointment as the Global Innovation Chair in Supply Chain Man- agement at the University of Newcastle, New South Wales, Australia.

Courtesy of Janet L. Hartley

Janet L. Hartley

is Professor at the Department of Manage- ment at Bowling Green State University. She received her BS in Chemical Engi- neering 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 pub- lished over 30 articles on suppl y man- agement and supply chain management. She serves as an Associate Editor for the Journal of Operations Management, Journal of Business Logistics, Journal of Supply Chain Management, International Journal of Operations and Production Management, and Journal of Purchas- ing and Supply Management. Dr. Hartley is president-elect of the Decision Science Institute.

Final PDF to printer

swi39462_fm_i-xxviii.indd vi 01/07/19 03:26 PM

Preface

We continue to live in dynamic and exciting times. Recent years have seen many changes that have affected nearly every aspect of business, including operations management. In this fourth 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.

• From a static to a dynamic treatment of oper- ations and supply chain management. We have revised each new edition to keep pace with changes taking place in the field. In recent years, very evident changes include the emergence of millennials as key

consumers and the rapid developments taking place in digital technologies. Consequently, in this edition, we introduce a new theme: digital. While the basics remain the same, the context in which operations are managed continues to change rapidly.

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 Vision 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 operations management, but we provide a “supply chain” per- spective. Operations management cuts across a firm’s boundaries, bringing together its internal activities with the operations of customers, suppliers, and other partners around the world. We clarify the functional 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 (supply-side) and downstream (demand-side) aspects of the supply chain, including a discussion of marketing and cus- tomer 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 support decision making. However, we also address the important managerial issues such as systems, people, and processes that are critical in a supply chain context.

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

Final PDF to printer

Preface vii

swi39462_fm_i-xxviii.indd vii 01/07/19 03:26 PM

• Integrative Frameworks The book introduces and develops various topics in supply chain operations management using five integrative frameworks:

1. An operations strategy framework that brings together three critical elements: (1) the key cus- tomer, (2) the value proposition, and (3) capabili- ties, introducing students to a broad supply chain perspective of operations management.

2. A foundations framework that covers process fundamentals, innovation, quality, inventory, and lean thinking.

3. A relational framework that highlights func- tional, supplier, and customer management aspects of operations management.

4. A planning framework that covers demand and supply planning at multiple levels.

5. A change management framework that illustrates how projects and future developments can be used to drive innovation in operations management.

• Use of Integrating Themes Four key themes are highlighted throughout the book: digital transforma- tion, global issues, relationships, and sustainability.

• Digital technologies such as the Internet and other communication networks, automation, and artificial intelligence are rapidly and radically changing supply chain operations management. The book

highlights numerous examples of these changes, explaining how technologies are enabling faster, better, cheaper, and richer customer experiences.

• Because most organizations have supply chains that reach beyond a home country, we examine the dynamic global environment influ- encing supply chain operations man-

agement, taking care to represent business norms and cultures in many different parts of the world.

• Operations managers must collabo- rate with other functional person- nel, with suppliers, and with customers to accomplish most

operations activities. The book showcases how to build, maintain, and benefit from cross- functional and interorganizational relationships.

• To reduce costs and be competi- tive, organizations today must adopt sustainable business prac- tices. Sustainability is increasingly becoming a key metric for opera-

tions managers, and an important expectation of customers. Accordingly, we have dedicated an

Final PDF to printer

entire chapter to sustainability, while also incor- porating it throughout the book.

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

Managing Operations Across the Supply Chain, fourth edition, 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 orga- nized 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 princi- ples that govern all operational activities. This section examines concepts such as product/process innova- tion, 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 relation- ship 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 opera- tions 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.

CHAPTER-BY-CHAPTER REVISIONS FOR THE FOURTH EDITION In this major revision of Managing Operations Across the Supply Chain, our key objective has been to integrate and highlight the role of digital technologies throughout

viii Preface

swi39462_fm_i-xxviii.indd viii 01/07/19 03:26 PM

all aspects of supply chain operations management. We also strove to make all of the content more concise and crisp. We have updated or replaced many of the opening vignettes and Get Real stories throughout the book, along with other changes, which are summarized below.

Chapter 1: Introduction to Managing Operations Across the Supply Chain • Introduced digital theme with examples illustrating

how technologies are changing operational processes. • Replaced example (now a restaurant supply chain) of

functional relationships across the supply chain. • Added new Cemex Digital Transformation case.

Chapter 2: Operations and Supply Chain Strategy • New opening vignette on Redbubble. • Added a case on Lil’ Me, a manufacturer of custom-

ized dolls that look like their owner. • Additional discussion questions and problems.

Chapter 3 and 3S: Managing Processes and Capacity • Included a better focus on the notion of process

thinking. • Additional discussion questions and problems. • Expanded alternative process mapping approaches

with the expanded coverage of techniques such as service blueprinting.

Chapter 4: Product/Process Innovation • Introduced new concepts including product service

platforms, servitization, and augmented/virtual reality (VR).

• Added new example for modular design. • New Get Real describing Lockheed’s application of VR.

Chapter 5: Manufacturing and Service Process Structures • Revised Table 5-1 to show inputs, transformation,

outputs, and examples. • New Get Real explaining how Adidas uses digital

technologies to customize shoes. • Moved service blueprinting to Chapter 3S. • Added figure to illustrate market orientation. • Updated the section Capability Enabling Technolo-

gies to reflect advances in digital technologies. • New Get Real on Amazon Go explaining how digital

technologies are changing retailing. • Updated and added a discussion question.

Chapter 6: Managing Quality • Updated the Hyundai story to include awards and

changes within the last 3 years. • Updated Get Real on food safety. • Dropped discussion of Malcolm Baldrige award. • Additional problems.

Final PDF to printer

Chapter 6 Supplement: Quality Improvement Tools • Additional discussion questions and problems.

Chapter 7: Managing Inventories • Added discussion of customization and customer

service aspects of inventory location decisions. • Additional problems applying square root law. • Added discussion of Internet of Things (IoT) and

inventory visibility in the supply chain. • Added fuller discussion of choice between using

P and Q inventory models. • New Case: Dexter’s Chicken.

Chapter 8: Lean Systems • Additional discussion questions and problems.

Chapter 9: Customer Service Management • New opening vignette on the “Amazon Effect.” • New discussion of digital enhancement of customer

service including omnichannel service, product platforms, and crowdsourcing service.

• New discussion of social (millennials) and global impacts on customers’ service expectations.

• New Get Real on service delivery failures. • New section on service information.

Chapter 10: Sourcing and Supply Management • Updated the opening vignette on sourcing and supply

management at Chipotle to reflect challenges with food safety.

• New Get Real on Resilinc and supply chain risk management.

• Updated the Get Real box on Takata airbags. • New Get Real showing how Boeing is doing more

insourcing. • Added a section on Supply Category Management. • Revised the Examining the Sourcing Process. • New Get Real showing the importance of supplier

innovation in self-driving vehicles. • Updated the discussion of information shar-

ing to reflect new digital technologies such as blockchain.

• Additional discussion questions. • Added new sourcing case.

Chapter 11: Logistics Management • Updated opening vignette about Amazon’s innova-

tions in delivery. • Moved cost management discussion to Logistics

Network Design. • Changed Warehouse Management to Distribution and

Fulfillment Management. • New Get Real on Walmart’s delivery policy.

Preface ix

swi39462_fm_i-xxviii.indd ix 01/07/19 03:26 PM

• Added discussion of electronic logging devices (ELDS).

• Added discussion of last mile delivery. • New Get Real explaining how logistics network

design caused a chicken shortage for KFC. • Updated and added discussion questions.

Chapter 12: Demand Planning: Forecasting and Demand Management • New opening vignette on how Walmart uses weather,

social media, and other data to forecast sales. • Get Real on how Lennox uses artificial intelligence

to improve demand planning. • Enhanced discussion of artificial intelligence. • New discussions of social media and dynamic pricing

in demand management.

Chapter 13: Sales and Operations Planning • Additional discussion questions and problems.

Chapter 14: Materials and Resource Requirements Planning • Updated opening vignette on Blue Apron, a home

meal delivery service. • Updated the Advances in Planning Systems to reflect

digital technologies. • New Get Real showing how MOD Pizza is using a

cloud-based ERP system for planning.

Final PDF to printer

Chapter 15 and 15S: Project Management • Updated opening Pixar vignette. • More in-depth discussion of stages in project

life cycle. • New discussion of agile project management. • New Get Real on Spray-N-Wash project. • Deeper discussion of project management software. • New example of a business case for a proposed

project.

Chapter 16: Sustainable Operations Management— Preparing for the Future • Updated Unilever vignette with achievements of zero

landfill waste. • New Get Real on Patagonia’s sustainability efforts. • Discussion of Starbucks Reserve, a new experiential

coffee store in Seattle aimed at making the experi- ence of brewing and enjoying a unique cup of coffee critical and attractive.

• Discussion of how the Internet of Things (IoT) is affecting not only the supply chain but also the busi- ness model.

• New case: “Sourcing Outside the Cage.” • Expanded discussion of the changes in customer

(specifically the advent of millennials) is changing how firms compete and how operations and supply chain management is carried out.

swi39462_fm_i-xxviii.indd x 01/07/19 03:26 PM

Acknowledgments

Final PDF to printer

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:

Andrew Borchers, Lipscomb University Bertie Greer, Wayne State University Brian Jacobs, Michigan State University Bruce A. Meyer, Bowling Green State University David Dobrzykowski, Bowling Green State University Dennis McCahon, Northeastern University Edward D. Walker, Valdosta State University Helen Eckmann, Brandman University Iddrisu Awudu, Quinnipiac University Jeanetta Chrystie, Southwest Minnesota State University Jeff Brand, Marquette University Jiayi Kate Li, Suffolk University John Edward Carroll, Wesleyan University John R. Grandzol, Bloomsburg University Karen Eboch, Bowling Green State University Kelwyn DSouza, Hampton University Madeleine Pullman, Portland State University Narendra K. Rustagi, Howard University Nicoleta Maghear, Hampton University Richard Parrish, Liberty University Rick Bonsall, McKendree University Rosa Oppenheim, Rutgers University Samuel Chinnis, Guilford Technical Community College Sandra Obilade, Brescia University Stephen Hill, University of North Carolina, Wilmington

William Sawaya, Bowling Green State University Xiaowen Huang, Miami University, Ohio Yao Jin, Miami University

We also want to express our sincere thanks to the following individuals for their exceptional contributions: Katherine Eboch, Bowling Green State University; William Berry, Professor Emeritus, Queens College; David Weltman, Texas Christian University; Frank Novakowski, Davenport University; and Jody Wolfe, Clarke University.

We want to thank the outstanding McGraw-Hill Edu- cation production and marketing team who made this book possible, including Harper Christopher, executive market- ing manager; Chuck Synovec, director; Tim Vertovec, man- aging director; Fran Simon and Jamie Koch, content project managers; Sandy Ludovissy, buyer; Kevin Moran, digital content development director; Egzon Shaqiri, designer; and Ann Marie Jannette, content licensing specialist.

A special thanks to our outstanding editorial team. We greatly appreciate the support, encouragement, and patience shown by Tobi Philips, our product developer. Thanks for keeping us on track! Our portfolio manager, Noelle Bathurst, provided excellent guidance and leadership throughout the process. We truly appreciate it!

Morgan Swink Steven A. Melynk Janet L. Hartley

swi39462_fm_i-xxviii.indd xi 01/07/19 03:26 PM

Walkthrough

Confirming Pages

swi39462_ch01_001-025.indd 2 09/19/18 01:02 PM

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.

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:

Introduction to Managing Operations Across the Supply Chain1

LEARNING OBJECTIVES

The following section highlights the key features of Managing Operations Across the Sup- ply Chain and the text’s 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.

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. Learning objectives provide a quick introduction to the important operations topics that will be covered in the chapter.

Confirming Pages

swi39462_ch01_001-025.indd 3 09/19/18 01:02 PM

©PriceM/Shutterstock

Apple 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 operations across its supply chain. This is the world of manu- facturing, 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 manufacturers, helping to tweak the industrial

processes and tools that translate prototypes into mass-produced devices.

• Focus on a few product lines, with little customization. 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.

It Takes More than Cool

Products to Make Apple

Great

Final PDF to printer

xii Walkthrough

swi39462_fm_i-xxviii.indd xii 01/07/19 03:26 PM

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 At appropriate moments 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.

Confirming Pages

16 chapter 1 Introduction to Managing Operations Across the Supply Chain

swi39462_ch01_001-025.indd 16 09/19/18 01:02 PM

inputs to the centralized kitchen and directly to restaurant locations.

Downstream stages of the sup- ply chain are made up of layers of partners and customers 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 product. These

distributors can be thought of as suppliers of distribution services to a manufacturer. The downstream supply chain can also be broken into different channels of distribution. For example, catering, dine-in, take-out, and home delivery represent different channels of delivery to a restaurant’s customers (see Figure 1-3). Note that some of these channels are operated by the restaurant itself, while others depend on partners for delivery.

Many different types of operations managers are needed to run a restaurant chain. Supply managers help to identify and negotiate contracts with suppliers of food items, packaging materials, equipment, facilities, and so on. Internal production managers are needed to schedule and manage all activities within a given restaurant location. Distribu- tion and logistics managers identify and negotiate terms with distributors and delivery partners for inbound and outbound deliveries of raw materials and finished products.

Similar roles are filled by operations managers at all kinds of firms. The following Get Real box provides some examples of operations management job descriptions for under- graduate and graduate students. Operations managers’ responsibilities can be quite excit- ing, as they are absolutely integral to the success of any organization.

echelon A downstream stage of supply or consumption.

Explore the information on restaurant supply chains provided at Sup- plychainscene.org. From the articles you find there, learn about ways that technologies and changing customer demands are changing restaurant operations. Which of the stages and organizations depicted in Figure 1-3 are likely to be most affected by a shift to more digital processes? How will the structure of the overall supply chain be changed?

st ud

en tactivity

Jobs in Operations Management

GET REAL

The following job descriptions provide examples of typical responsibilities of operations managers located in internal operations, customer management, supply management, and logistics management functions.

Typical job titles: Customer Program Manager, Enter- prise Integration Leader, Commodity Manager, Procure- ment Specialist, Senior Global Commodity Specialist, Strategic Sourcing Commodity Leader, Project Manager for Supply Chain Information Systems, Production Team Leader, Materials Planning Manager, Logistics Specialist.

Typical job responsibilities:

• Choosing and developing suppliers. • Designing and implementing systems and pro-

cesses for improving the customer interface, reducing transaction costs, reducing inventories, and improving service levels.

• Sourcing materials, components, technologies, and services.

• Monitoring and managing inventory at all steps of the supply chain.

• Managing logistics, warehouses, distribution inventories, and service parts.

• Managing internal operations or service functions.

• Managing quality and Six Sigma projects through- out the supply chain.

• Strategically analyzing the supply chain to increase revenues, improve service, reduce cost, and ulti- mately improve profit.

Excerpts from actual job descriptions: At a computer manufacturer: As part of the Ameri-

cas Services Logistics team, Supply Chain Consultants design, develop, and improve processes throughout the company’s industry leading logistics network as well as manage projects across multinational teams for the Americas region. The Supply Chain Consultant works on developing new concepts and strategies for the com- pany’s third-party logistics providers (3PLs) that enable greater product availability at lower costs and greater customer satisfaction. In addition to partnering with 3PLs, Supply Chain Consultants work closely with the company’s world-renowned Enterprise Command Cen- ter in order to provide 24/7 critical logistics support and crisis resolution to millions of customers throughout the

Numbered Examples Numbered examples are integrated into chapters where analytic techniques are introduced. Students learn how to solve specific problems step-by-step and gain insight into general principles by seeing how they are applied.

Confirming Pages

44 chapter 2 Operations and Supply Chain Strategy

swi39462_ch02_026-056.indd 44 10/04/18 06:48 PM

EXAMPLE 2-1 Suppose that the director of marketing has approached you, as a member of the top management team, with a suggestion that appears very attractive. The pro- posal begins by noting that because demand is down, the firm (and its supply chain) has much unused capacity. Happily, the marketing group has identified a new potential customer segment. Unlike existing customers (who are price sensitive and who buy large quantities of fairly standard products), these new customers will likely order smaller quantities more frequently. The new customers are also likely to want to make last-minute changes to order sizes, due dates, and product mix. Your current operating system is not really set up to accommodate such changes. However, the marketing director feels that the prices these customers are willing to pay will provide gross margins (30 percent, as compared to the 10–15 percent currently being given by existing customers) that should be high enough to offset any operational problems. The chief financial officer has stated that, in order to enter any new market, it must be expected to generate at least a 25 percent return on assets (ROA).

Given the information provided below, would you recommend accepting the marketing director’s proposal?

The strategic profit model is well suited for this type of analysis. A gross margin of 30 percent seems attractive. However, to make a good decision we need to fac- tor in other required changes. By entering the data into the SPM (as can be seen in Figure 2-4), we find that expected ROA is 12.2 percent—less than the 25 percent hurdle rate. Consequently, we would recommend that the marketing request be rejected.

Category Estimated First

Year Impact Comments

Sales $ 420,000

Cost of Goods Sold $ 294,000 30% gross margin

Variable Expenses $ 45,000 Need more for small batch shipping and expediting

Fixed Expenses $ 40,000 More inspections needed

Inventory $ 200,000 Need safety stock to ensure timely delivery

Accounts Receivable $ 120,000 Customers tend to pay on longer cycles

Other Current Assets $ 0 No change

Fixed Assets $ 15,000 Need special fixtures and tooling

the SPM. The calculations in the SPM then reflect the impacts of these changes on finan- cial measures shown on the left side of the SPM (which are of interest to top managers). Consider this type of analysis in Example 2-1.

The SPM model is relatively simple and straightforward to use. The data required for the model are readily available in most firms with well-developed financial and

Confirming Pages

4 chapter 1 Introduction to Managing Operations Across the Supply Chain

swi39462_ch01_001-025.indd 4 09/19/18 01:02 PM

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-

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. Increas- ingly, digital sensors, systems, devices, and software are connecting, enhancing, and auto- mating operational processes. Operations located around the globe are becoming more tightly interconnected all the time. The supply chain concept can be used to describe con- nections 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 organi- zations 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 pro- cesses used to design, supply, produce, and deliver valu- able goods and services to customers.

digital

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

LO1-1

Explain what operations management is and why it is important.

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

Final PDF to printer

Walkthrough xiii

swi39462_fm_i-xxviii.indd xiii 01/07/19 03:26 PM

Get Real Boxes Throughout the chapters, readings highlight important real-world applications. They pro- vide examples of operations issues and offer a picture of the concepts in practice. These also provide a basis for classroom discussion and generate interest in the subject matter.

Confirming Pages

Think about a recent purchase you made. What were the order-winning traits that influenced your decision? What traits were necessary for you to even consider buying one product over another?

st ud

en tactivity

chapter 2 Operations and Supply Chain Strategy 33

swi39462_ch02_026-056.indd 33 10/04/18 06:48 PM

winner may be another customer’s order qualifier. Also, an order win- ner at one time may become only an order qualifier at another time. The Get Real box about the Bosch CS20 circular saw illustrates how developing new order winners can offer a critical strategic advantage.

Value Propositions and Competitive Priorities A business gains key customers by offering a compelling value proposition, a statement of product and service features. A value proposition needs to be both attractive to customers and different from competitors’ offerings. For example, Walmart’s value proposition has been to offer everyday low prices on a wide variety of products. The value proposition defines how the business competes as well as the types of products that it will (and will not) offer.

A well-designed value proposition has five characteristics: 1. It offers a combination of product features that customers find attractive and are will-

ing to pay for. 2. It differentiates the firm from its competition in a way that is difficult to imitate. 3. It satisfies the financial and strategic objectives of the business. 4. It can be reliably delivered given the operational capabilities of the business and its

supporting supply chain. 5. It is consistent with the firm’s social and core values.

Because the value proposition defines how a business wins orders, it should determine competitive priorities for operations managers across the supply chain. Operations manag- ers need to clearly specify what each partner in the supply chain must do better than its rivals, what it must do at least as well as its rivals, and what it must avoid doing (because it will jeopardize customer satisfaction and orders). Competitive priorities, along with asso- ciated performance measures and targeted objectives, provide a language for managers to communicate the value proposition in operational terms.

Bosch CS20: Finding a New Order Winner by Changing the Way Customers Cut Straight Lines

GET REAL

Managers at Bosch Power Tools faced a challenging problem—how to design and deliver a better circular saw. Such saws are found in nearly every handyman’s workshop, and over the years their designs had become fairly standard. Consequently, there were few features except price to differentiate competing products. Bosch managers looked at circular saws from an outcome per- spective. They saw that many of the circular saws on the market did a poor job of helping users attain a simple but critical outcome—cutting straight lines. Customers were frustrated because the lines were inevitably cov- ered up by either sawdust or by the footplate of the saw itself. Bosch’s solution? First, it installed a powerful fan to vacuum dust off the cut line. Second, it replaced the steel footplate with an acrylic one that allowed users to see the line as they cut. The result: an award-winning product that customers want to buy.2

2 For more information about this innovative product, see: www.newwood worker.com/reviews/bcs20rvu.html.

©picture alliance/Getty Images

Icons Instructive icons throughout the text point out relevant applications of our central themes of global issues, relationships, sustainability, and digital technologies.

Since most organizations have supply chains that reach beyond a home country, we examine global issues associated with operations and supply chain management.

global

Operations managers must collaborate with other functional personnel, with custom- ers, and with suppliers to accomplish many operations activities. The book showcases how to build, maintain, and benefit from cross-functional and interorganizational relationships.

relationships

To reduce costs and be competitive, organizations today must adopt sustainable busi- ness practices. In fact, sustainability is a key metric for operations managers and an impor- tant expectation of customers.

sustainability

Final PDF to printer

xiv Walkthrough

swi39462_fm_i-xxviii.indd xiv

Digital technologies such as the Internet and other communication networks, automa- tion, and artificial intelligence are rapidly and radically changing supply chain operations management. The book highlights numerous examples of these changes, explaining how technologies are enabling faster, better, cheaper, and richer customer experiences.

01/07/19 03:26 PM

Confirming Pages

20 chapter 1 Introduction to Managing Operations Across the Supply Chain

swi39462_ch01_001-025.indd 20 09/19/18 01:02 PM

Resource and Technology Suppliers

Customers and Partners

Product and Service

Suppliers

The Business Enterprise

OM’s internal functional partners at technology supply chain interfaces: – Product engineering – Process / facilities engineering – Human resources management – Supply management – Finance – Marketing

OM’s internal functional partners at upstream product supply chain interfaces: – Supply management – Finance – Logistics management – Warehousing/raw materials planning

OM’s internal functional partners at downstream product supply chain interfaces: – Marketing – Sales and distribution – Customer service/relationship management – Logistics management – Warehousing/finished goods materials planning

Logistics Mgmt (Chapter 11)

Sourcing and Supply Mgmt

Supply Mgmt

(Chapter 10)

Internal Operations

Mgmt

Customer Service Mgmt

(Chapter 9)

Supply

St ra

te gi

c Pl

an ni

ng Ta

ct ic

al Pl

an ni

ng O

pe ra

tio na

l Pl

an ni

Production Order/Service Fulfillment

Product/Process Innovation

Operations and Supply Chain Strategy

Aggregate Sales & Operations Planning (SOP)

Materials and Resource Requirements Planning

Materials Production/Capacity Distribution

Operations Management Projects Accomplish Change

Government regulations

Customer markets

Supplier markets

Economic conditions

Product technologies

Process technologies

Social concerns

Sustainable Operations Management in a Changing World

Managing Lean Systems

Managing Managing Quality

Managing Processes and Capacity

Product/Process Innovation

Manufacturing and Service

Process Structures

Resource and Technology Suppliers

Customers and Partners

Product and Service

Suppliers

The Business Enterprise

Logistics Mgmt

Sourcing and Supply Mgmt

Supply Mgmt

Internal Operations

Mgmt

Customer Service Mgmt

Supply

St ra

te gi

c Pl

an ni

ng Ta

ct ic

al Pl

an ni

ng O

pe ra

tio na

l Pl

an ni

Production Order/Service Fulfillment

Forecasting and Dem and Planning

Product/Process Innovation

Operations and Supply Chain Strategy

Aggregate Sales & Operations Planning (SOP)

Materials and Resource Requirements Planning

Materials Production/Capacity Distribution

OM’s internal functional partners at upstream product supply chain interfaces: – Supply management – Finance – Logistics management – Warehousing/raw materials planning

5. Manufacturing and Service Process Structures

X X X

6. Managing Quality X X X

7. Managing Inventories X X X

8. Lean Systems X X

Part 3 Integrating Relationships Across the Supply Chain

9. Customer Service Management X

10. Sourcing and Supply Management

X X X

11. Logistics Management X X X

Part 4 Planning for Integrated Operations Across the Supply Chain

12. Demand Planning: Forecasting and Demand Management

X X

13. Sales and Operations Planning X X

14. Materials and Resource Requirements Planning

X X

Part 5 Managing Change in Supply Chain Operations

15. Project Management X X X

16. Sustainable Operations Management—Preparing for the Future

X X X

(continued)

This chapter provides a broad overview and introduction to operations management. In discussing the scope and complexity of operations management, we have made the follow- ing points:

1. The goal of the modern firm is to develop and run an operations management system able to deliver superior product value to the firm’s targeted consumers.

2. Operations management deals with the effective and efficient management of trans- formation processes. These processes include not only the making of products but also the design of products and related processes; sourcing of required materials and ser- vices; and delivery and management of relationships among customers, suppliers, and functions within the firm. As a system, operations management involves four major functional activities and their interactions: (1) customer relationships management, (2) internal operations (manufacturing and services) management, (3) supply manage- ment, and (4) logistics management.

3. The operations management system involves three major sets of partners outside the firm: (1) customers, (2) suppliers, and (3) stakeholders. Operations managers also work closely with other business functions within the firm.

CHAPTER SUMMARY

Confirming Pages

swi39462_ch01_001-025.indd 21 09/19/18 01:02 PM

4. The collective decisions made in areas of operations management determine the capa- bilities and success of the firm. In addition, the capabilities of a firm are heavily influ- enced by the capabilities of its suppliers.

5. For a number of reasons, the supply chain has grown to become a dominant way to look at operations management. Operations activities take place in various functional and geographic locations across a supply chain network. Whereas operations manage- ment is mainly about managing processes, supply chain management is mainly about managing flows and relationships.

6. Operations management is fundamentally dynamic; it is ever changing.

KEY TERMS

core capability 11 customer management 14 customers 12 dematerialization 7 echelon 16 lean operation 9 logistics management 14

operational planning 19 operations

management 4 process 8 stakeholders 14 strategic planning 18 suppliers 12

supply chain 4 supply chain

management 12 supply management 14 tactical planning 19 tier 15 total product experience 7

DISCUSSION QUESTIONS

1. Review Fortune magazine’s “Most Admired” American companies for 1959, 1979, 1999, and the most current year. (The issue normally appears in August each year.) Which companies have remained on the top throughout this period? Which ones have disappeared? What do you think led to the survival or demise of these companies?

2. Select two products that you have recently purchased; one should be a service and the other a manufactured good. Think about the process that you used to make the deci- sion to purchase each item. What product characteristics were most important to you? What operational activities determine these characteristics?

3. What are the primary operations management decisions in each of the following corporations?

a. Marriott Hotels and Resorts b. A private golf and tennis club c. Ben & Jerry’s d. ExxonMobil Corporation 4. Consider the following processes that you frequently encounter as a college student: a. Enrolling in classes b. Taking a class c. Buying a ticket for a play, concert, or basketball game Describe each process and its inputs, activities, and outputs. What is being converted

or transformed in each process? Who are the customers, suppliers, and stakeholders for each process?

5. Recall the last time you went to a fast-food restaurant such as McDonald’s. Describe all of the goods and services that made up your total product experience.

digital

Final PDF to printer

END-OF-CHAPTER RESOURCES For student study and review, the following features are provided at the end of each chapter:

Chapter Summary Chapter summaries provide an overview of the material covered.

Key Terms Key terms are highlighted in the text, and then repeated at the end of the chapter with page references.

Walkthrough xv

swi39462_fm_i-xxviii.indd xv 01/07/19 03:26 PM

Discussion Questions Each chapter has a list of discussion questions. These are intended to serve as a student self-review or as class discussion starters.

Confirming Pages

swi39462_ch01_001-025.indd 21 09/19/18 01:02 PM

6. Operations management is fundamentally dynamic; it is ever changing.

KEY TERMS

core capability 11 customer management 14 customers 12 dematerialization 7 echelon 16 lean operation 9 logistics management 14

operational planning 19 operations

management 4 process 8 stakeholders 14 strategic planning 18 suppliers 12

supply chain 4 supply chain

management 12 supply management 14 tactical planning 19 tier 15 total product experience 7

DISCUSSION QUESTIONS

3. What are the primary operations management decisions in each of the following corporations?

or transformed in each process? Who are the customers, suppliers, and stakeholders for each process?

5. Recall the last time you went to a fast-food restaurant such as McDonald’s. Describe all of the goods and services that made up your total product experience.

Confirming Pages

swi39462_ch02_026-056.indd 48 10/04/18 06:48 PM

13. In this chapter, you were introduced to Huffy Bicycles. You were also told that the key customers were store managers and purchasing managers. Now, assume that Huffy decided to target first parents and then children as its critical customers (using the information provided below). What impact would this shift in critical customer have on you—that is, how would you design the resulting operations management system (including the supplier base)?

SOLVED PROBLEM

Suppose you have been asked to determine the return on net worth for Great Northwest Canoe and Kayak, a small manufacturer of kayaks and canoes, located near Seattle, Washington. For this task, you have been given the following information:

Categories Values

Sales $32,000,000

Cost of goods sold $20,000,000

Variable expenses $ 4,000,000

Fixed expenses $ 6,000,000

Inventory $ 8,000,000

Accounts receivable $ 4,000,000

Other current assets $ 3,000,000

Fixed assets $ 6,000,000

1. What is the return on assets for Great Northwest Canoe and Kayak?

Solution:

To address this question, we must first calculate net profit margin and the asset turnover. This can be done using the structure for the SPM found in Figure 2-3.

Critical Customer Order Winners Order Qualifiers

Parent Acquisition price Durability (has to be passed down) Ease of maintenance (does not cost much to maintain over the summer)

Safety Availability

Child Style (colors) Can be easily customized Newness (I have the first one on the block) Imitation (it is what I see others having on television)

Availability Maintenance

14. Using a SWOT analysis, can the operations management system be a strength? Can the operations management system be a weakness? Provide examples.

15. How would you convince a manager of the value of improved cyber security? As you develop your arguments, do a google search for examples of how cyber breaches have affected companies and their performance.

16. Why is cyber security a supply chain rather than corporate concern? Again, consider doing a google search for data about this question.

Solved Problems Solved problems illustrate problem solving and the main concepts in the chapter. These have been carefully prepared to enhance student understanding as well as to provide additional examples of problem solving.

Problems Each chapter includes a set of problems for assignment. The problems are intended to be challenging but doable for students.

Confirming Pages

swi39462_ch02_026-056.indd 49 10/04/18 06:48 PM

PROBLEMS

1. Given the following information:

Categories Values

Sales $32,000,000

Cost of goods sold $20,000,000

Variable expenses $ 4,000,000

Fixed expenses $ 6,000,000

Inventory $ 8,000,000

Accounts receivable $ 4,000,000

Other current assets $ 3,000,000

Fixed assets $ 6,000,000

a. What is the net profit margin for this firm? b. What is the asset turnover? c. What is the return on assets? d. What is the size of the total assets used by the firm? 2. For the prior problem, management wants to double the return on assets, without

affecting sales, cost of goods sold, variable expenses, fixed expenses, or fixed assets. Rather it wants to focus on either inventory or accounts receivable.

a. Can management focus on either inventory reductions or accounts receivable reductions alone?

b. How can it achieve this objective? c. Do you see any downsides in pursuing this objective through a focus on inven-

tory/accounts receivable reductions? 3. You are the operations manager for a small kayak and canoe manufacturer (Valley

Kayaks) located on the Pacific Northwest (Oregon). Lately your company has expe- rienced product quality problems. Simply put, the kayaks that you produce occasion- ally have defects and require rework. Consequently, you have decided to assess the

Gross Margin = $32,000,000 − $20,000,000 = $12,000,000 Total Expenses = $6,000,000 + $4,000,000 = $10,000,000 Net Profit = Gross Margin − Total Expenses = $2,000,000 Net Profit Margin = Net Profit / Sales 6.25% Current Assets = Inventory + Accounts Receivable + Other Current Assets = $15,000,000 Total Assets = Current Assets + Fixed Assets = $21,000,000 Asset Turnover = Sales / Total Assets = 1.52

Return on Assets = Net Profit Margin × Asset Turnover = 6.25 × 1.52 = 9.5

2. What areas should we as operations managers focus on if our goal is to improve ROA?

Solution:

We can see that the largest asset under our control is inventory. By reducing inventory we can improve the ROA. (It is left up to the student to prove this. One way of doing this is to examine the impact on ROA of a $1 million reduction in inventory or a $1 million increase in inventory.)

Final PDF to printer

xvi Walkthrough

swi39462_fm_i-xxviii.indd xvi 01/07/19 03:26 PM

Cases The text includes short cases for most chapters. The cases were selected to provide a broader, more integrated thinking opportunity for students without taking a “full case” approach.

Confirming Pages

swi39462_ch01_001-025.indd 22 09/19/18 01:02 PM

6. The following firms have long been seen as having strong competitive advantages: a. IBM b. Coca-Cola c. Google d. Walmart Read about one of these companies. Also draw from your experience as a customer to

identify that company’s competitive advantage. Discuss how operations management relates to the company’s competitive advantage.

7. Why should a firm consider the position of stakeholders when evaluating operational alternatives? Consider the role of government and its impact. (Hint: Consider working conditions and pollution.)

8. Most people have worked as “operations managers” at some time. Describe a job or experience that you had that involved the management of a process.

Dave Eisenhart, senior editor for Mountain Publishing, Inc., looked out his window as he considered the oper- ational implications of the changes he had just heard discussed in the company’s annual strategic planning meeting. The future looked to be both exciting and scary. As an editor for Mountain’s business textbook division, Dave had witnessed major changes in his primary mar- ket. First, the body of knowledge in business school cur- ricula had exploded over the past decade. It was getting harder and harder to cover all the content that any pro- fessor might want in a single textbook, while keeping the size of the book manageable. Second, Dave had noted that more and more schools were moving to modular course structures, including many shorter courses, sometimes as short as a week long. Third, a growing number of students preferred to buy their books from sources other than tradi- tional bookstores, such as Amazon.com and other online sources.

At the same time, new technologies were changing the way that textbook content could be produced and delivered. Print technologies were improving the speed and quality of printing, so that it was easy to envision a day when books could be printed one copy at a time, “on demand.” Most companies had already started to offer custom published books for professors who wanted to combine chapters and

cases from several different publishers into a single read- ings packet for their students. While the quality of these “books” (packets) did not match that of traditional hard- bound texts, many professors and students valued the flex- ibility associated with this option.

Finally, the demand for e-books was growing rapidly. While the percentage of books purchased in electronic form was currently small, the potential seemed to be very large. In addition, e-books provided a platform for many new ancillary and “interactive” learning tools. For exam- ple, students using an e-book could immediately link to other, external sources of related material (including videos and Internet links); access online learning and assessment tools; and be provided with navigation links throughout the book. Dave thought about these possibilities, along with the implications that e-books would have for distribution, book re-use, revisions, and other existing strategies.

Dave began to think about the operational activities dis- persed across Mountain’s supply chain for textbooks. On the upstream (input) side, Mountain worked with authors (usually professors), text editors, graphic artists, commer- cial printers, and other suppliers to edit, design, and pro- duce books. After typically large print runs (up to three years of forecasted demand) were produced, transportation suppliers delivered the books to Mountain’s distribution

Business Textbook Supply Chain

CASE

INSTRUCTOR RESOURCES The Connect Instructor Library provides complete materials for study and review. Instruc- tors have access to teaching supports such as electronic files of the ancillary materials: Solutions Manual, PowerPoint Lecture Slides, Digital Image Library, and Test Bank.

Solutions Manual Prepared by the authors, this manual contains solutions to all the end- of-chapter problems and cases.

Test Bank Prepared by the authors, the Test Bank includes true/false, multiple-choice, and discussion questions/problems at varying levels of difficulty. The Test Bank ques- tions are assignable within Connect or through the TestGen online platform and are also available as Word files. Each Test Bank question is tagged with the level of difficulty, chapter learning objective met, Bloom’s taxonomy question type, and the AACSB knowl- edge category.

PowerPoint Lecture Slides The PowerPoint slides draw on the highlights of each chap- ter and provide an opportunity for the instructor to emphasize the key concepts in class discussions.

Digital Image Library All the figures in the book are included for insertion in Power- Point slides or for class discussion.

STUDENT RESOURCES Student resources are available within the Connect Library or as tools within the Connect assignments.

Integration of Excel Data Sets A convenient feature is the inclusion of an Excel data file link in many problems using data files in their calculation. The link allows students to easily launch into Excel, work the problem, and return to Connect to key in the answer.

Guided Examples These narrated video walkthroughs provide students with step-by-step guidelines for solving problems similar to those contained in the text. The student is given

Final PDF to printer

Walkthrough xvii

swi39462_fm_i-xxviii.indd xvii 01/07/19 03:26 PM

personalized instruction on how to solve a problem by applying the concepts presented in the chapter. The narrated voiceover shows the steps to take to work through an exercise. Students can go through each example multiple times if needed.

Student Reporting Connect Operations Management keeps instructors informed about how each student, section, and class is performing, allowing for more productive use of lecture and office hours. The progress-tracking function enables you to:

• View scored work immediately (Add Assignment Results Screen) and track indi- vidual or group performance with assignment and grade reports.

• Access an instant view of student or class performance relative to learning objectives. • Collect data and generate reports required by many accreditation organizations, such

as AACSB.

Tegrity Campus: Lectures 24/7 Tegrity Campus is a service that makes class time available 24/7 by automatically cap- turing every lecture in a searchable format for students to review when they study and complete assignments. With a simple one-click start-and-stop process, you capture all computer screens and corresponding audio. Students can replay any part of any class with easy-to-use browser-based viewing on a PC or Mac.

Educators know that the more students can see, hear, and experience class resources, the better they learn. In fact, studies prove it. With Tegrity Campus, students quickly recall key moments by using Tegrity Campus’s unique search feature. This search helps stu- dents efficiently find what they need, when they need it, across an entire semester of class recordings. Help turn all your students’ study time into learning moments immediately supported by your lecture. To learn more about Tegrity, watch a two-minute Flash demo at http://tegritycampus.mhhe.com.

Final PDF to printer

McGraw-Hill Customer Experience Contact Information At McGraw-Hill, we understand that getting the most from new technology can be chal- lenging. That’s why our services don’t stop after you purchase our products. You can e-mail our Product Specialists 24 hours a day to get product training online. Or you can search our knowledge bank of Frequently Asked Questions on our support Web site. For Customer Support, call 800-331-5094, or visit www.mhhe.com/support. One of our Cus- tomer Experience Team members will be able to assist you in a timely fashion.

xviii

swi39462_fm_i-xxviii.indd xviii 01/07/19 03:26 PM

Brief Contents

Part 1 SUPPLY CHAIN: A PERSPECTIVE FOR OPERATIONS MANAGEMENT 1

1 Introduction to Managing Operations Across the Supply Chain 2

2 Operations and Supply Chain Strategy 26

Part 2 FOUNDATIONS OF OPERATIONS MANAGEMENT 57

3 Managing Processes and Capacity 58

3 Chapter Supplement: Process Mapping and Analysis 92

4 Product/Process Innovation 114

5 Manufacturing and Service Process Structures 142

6 Managing Quality 170

6 Chapter Supplement: Quality Improvement Tools 200

7 Managing Inventories 240

8 Lean Systems 288

Part 3 INTEGRATING RELATIONSHIPS ACROSS THE SUPPLY CHAIN 317

9 Customer Service Management 318

10 Sourcing and Supply Management 340

11 Logistics Management 370

Part 4 PLANNING FOR INTEGRATED OPERATIONS ACROSS THE SUPPLY CHAIN 403

12 Demand Planning: Forecasting and Demand Management 404

13 Sales and Operations Planning 452

14 Materials and Resource Requirements Planning 482

Final PDF to printer

Brief Contents xix

swi39462_fm_i-xxviii.indd xix 01/07/19 03:26 PM

Part 5 MANAGING CHANGE IN SUPPLY CHAIN OPERATIONS 517

15 Project Management 518

15 Chapter Supplement: Advanced Methods for Project Scheduling 554

16 Sustainable Operations Management—Preparing for the Future 568

Appendix A 598 Appendix B 599 Key Themes 612 Indexes 618

Final PDF to printer

swi39462_fm_i-xxviii.indd xx 01/07/19 03:26 PM

Part 1 SUPPLY CHAIN: A PERSPECTIVE FOR OPERATIONS MANAGEMENT 1

CHAPTER 1 Introduction to Managing Operations Across the Supply Chain 2

A Broad Definition of Supply Chain Operations Management 4 Get Real: Why You Need to Study Operations

Management 5 Important Decisions in Supply Chain Operations

Management 6 Differences in Goods and Services Operations 6 Processes and Process Thinking 8

Operations Management Yesterday and Today: Growth of the Supply Chain Management Perspective 9 Advances in Technology and Infrastructure 11 Reduction in Governmental Barriers to Trade 11 Focus on Core Capabilities 11 Collaborative Networks 11

Viewing Operations Management from a Supply Chain Management Perspective 12 Operations Management Partners Across the Supply

Chain 12 Cross-Functional Relationships in Operations

Management 14 Get Real: Jobs in Operations Management 16 The Changing Nature of Supply Chains 18 Levels of Operational Planning Across the Supply

Chain 18

How This Book Is Structured 19 Chapter Summary 20 Key Terms 21 Discussion Questions 21 Case: Business Textbook Supply Chain 22 Case: Cemex’s Digital Transformation 23 Selected Readings & Internet Sites 25

CHAPTER 2 Operations and Supply Chain Strategy 26

Levels of Strategic Planning 28 Corporate Strategic Planning 28 Business Unit Strategic Planning 29 Functional Strategic Planning 30

Developing Operations Strategy: Creating Value Through Strategic Choices 31 Key Customers 31 Get Real: Huffy Bikes Targets Its Key

Customers 32

Assessing Customer Wants and Needs 32 Value Propositions and Competitive Priorities 33 Get Real: Bosch CS20: Finding a New Order

Winner by Changing the Way Customers Cut Straight Lines 33

Product-Related Competitive Priorities 34 Process-Related Competitive Priorities 35 Get Real: IKEA: Growth through Supply Chain

Innovation 36 Capabilities: Strengths and Limitations of Supply

Chain Operations 38 Get Real: Seven Cycles: Building a Bicycle Your

Way 39 Get Real: Don’t Expect a Salad at Five Guys Burgers

and Fries 40 Maintaining the Fit between Customer Outcomes,

Value Propositions, and Capabilities 40

Deploying Operations Strategy: Creating Value Through Execution 40 Feedback/Measurement: Communicating and

Assessing Operations Strategy 42 The Strategic Profit Model 42 Chapter Summary 46 Key Terms 46 Discussion Questions 47 Solved Problem 48 Problems 49 Case: Otis Toy Trains Explores the Supply

Chain 51 Case: Steinway & Sons Piano 52

Contents

Final PDF to printer

Contents xxi

swi39462_fm_i-xxviii.indd xxi 01/07/19 03:26 PM

Case: Trail Frames Chassis 53 Case: Lil’ Me Dolls Deals with the Millions of Toys

(MOT) Proposal 54 Selected Readings & Internet Sites 56 Additional Photo Credits 56

Part 2 FOUNDATIONS OF OPERATIONS MANAGEMENT 57

CHAPTER 3 Managing Processes and Capacity 58

Cleaning Up Dry Cleaners 59

Processes and Process Thinking 61

Anatomy of a Process 62 Activities of a Process 62 Inputs, Outputs, and Flows 62 Get Real: States Reduce Waiting Times for Car

License Renewals and Registrations 63 Structure 63 Management Policies 64

Capacity Planning 64 Get Real: Capacity Planning Contributes to iPad’s®

Success 64 Economies and Diseconomies of Scale 65

Process Capacity and Utilization 66

Principles of Process Performance: The Theory of Constraints 69 Principle 1: Every Process Has a Constraint 69 Estimating Capacity Requirements 72 Principle 2: Every Process Contains Variance That

Consumes Capacity 73 Get Real: Storyboarding: The Key to Success at

Pixar 75 Principle 3: Every Process Must Be Managed as a

System 76 Principle 4: Performance Measures Are Crucial to the

Process’s Success 76 Principle 5: Every Process Must Continuously Improve 77 Chapter Summary 78 Key Terms 78 Discussion Questions 79 Solved Problems 79 Problems 84 Case: Evergreen Products 88 Case: Midas Gold Juice Company 89 Case: American Vinyl Products 90 Selected Readings 91

CHAPTER 3 Chapter Supplement: Process Mapping and Analysis 92

The “Process” of Process Mapping and Analysis 93

American Health and Medical Products (AHMP) 93 Step 1: Identify the Desired Outcomes in Advance 94 Step 2: Identify and Bound the Critical Process 95 Step 3: Document the Existing Process (the “Current

State” Map) 96 Step 4: Analyze the Process and Identify Opportuni-

ties for Improvement 99 Step 5: Recommend Appropriate Changes to the

Process (the “Future State” Map) 103 Step 6: Implement the Changes and Monitor

Improvements 104

Other Process Mapping Tools 105 Supplement Summary 108 Key Terms 109 Problems 109 Case: Midwestern Lighting 111 Selected Readings 113

CHAPTER 4 Product/Process Innovation 114

The Role of Product/Process Innovation in Supply Chain Operations Management 116 The Product Life Cycle 117 How Product/Process Innovation Affects Firm

Performance 118

Innovation Competencies 119 Idea and Opportunity Development 120 Get Real: LEGO: Crowdsourcing for Product

Ideas and Customer Engagement 120 Innovation Portfolio Planning 121 Innovation Project Management 122 New Product/Process Launch and Learning 122 Codevelopment 122 Get Real: Codeveloping with a Competitor:

Clorox Aligns Its Business Model with P&G 123

Product/Process Design and Development 124 The Stage-Gate Process 124 Integrated Product/Process Design and Development:

Concurrent Engineering 125 Design for the Customer 128 Design for Supply Chain Operations 132

Enabling Technologies for Product/Process Innovation 134

Final PDF to printer

xxii Contents

swi39462_fm_i-xxviii.indd xxii 01/07/19 03:26 PM

Get Real: Lockheed Martin Makes the Most of VR in Product Development 135

Chapter Summary 136 Key Terms 136 Discussion Questions 137 Problems 137 Case: The ALPHA Timer Development Project (A) 139 Case: The ALPHA Timer Development Project (B) 140 Case: The ALPHA Timer Development Project (C) 140 Selected Readings & Internet Sites 141

CHAPTER 5 Manufacturing and Service Process Structures 142

Process Structures 144 Product-Process Matrix 144 Processes within a Supply Chain 147 Get Real: Adidas Reinvents Athletic Shoe

Manufacturing 148 Aligning Process Structure and Market Orientation 148

Unique Aspects of Service Processes 149 Service Process Matrix 149 Managing Front-Office and Back-Office

Processes 150

Operations Layout 151 Fixed-Position Layout 151 Functional Layout 152 Product Layout 153 Line Balancing in Product Layouts 153 Cellular Layout 156

Capability Enabling Technologies 157 Get Real: Shopping Goes Hi-Tech 158 Information Processing and Sharing 158 Process Automation 159 Challenges to Digital Transformation 160 Chapter Summary 160 Key Terms 161 Discussion Questions 161 Solved Problems 162 Problems 163 Case: Coffee Roasters 167 Case: Sonnie’s Gourmet Sandwich Café 168 Selected Readings & Internet Sites 168

CHAPTER 6 Managing Quality 170 Defining the Dimensions of Quality 172 Get Real: Ritz-Carlton: Where Quality Is First and

Foremost 173 Functional Roles in Quality Management 174 Core Values and Concepts of Quality Management 174

Get Real: Food Safety in Global Supply Chains—A Real Challenge 177

TQM: A “Total” View of Quality 177 Recognizing the Total Impacts of Quality

Performance 178 Get Real: Cost of Quality Analysis Applies to Both

Services and Manufacturing 179 An Inverted View of Management 180 Process-Oriented Focus on Prevention and Problem

Solving 181 Viewing Quality Management as a Never-Ending

Quest 182 Building an Organizational Culture around Quality 182 Quality Goes Digital 182 Get Real: Social Media Are Making Big Impacts on

Quality 183

Guiding Methodologies for Quality Management 184 Plan-Do-Check-Act Cycles (Deming Wheel) 184 Six Sigma: A Systematic Approach to Quality

Management 184 DMAIC: The Six Sigma Process 186 Design for Six Sigma 187 Get Real: Applying DMAIC to Cough Drops 188 Implementing Six Sigma 188

Certifying Progress in Quality Management 189 ISO 9000: An International Quality Standard 189 Attaining ISO 9000 Certification 189 Industry Interpretations of ISO 9000 191 Chapter Summary 191 Key Terms 192 Discussion Questions 192 Problems 193 Case: Aqua-Fun 194 Case: A Comment on Management Attitude 197 Selected Readings & Internet Sites 199

CHAPTER 6 Chapter Supplement: Quality Improvement Tools 200

Overview 201

Standard Problem Solving Approach 201

Quality Improvement Tools 201 Pear Computers: Using Quality Tools to Improve

Performance 201 Histograms 202 Cause-and-Effect Diagrams 204 Check Sheets 205 Pareto Analysis 206 Scatter Diagram 207

Final PDF to printer

Contents xxiii

swi39462_fm_i-xxviii.indd xxiii 01/07/19 03:26 PM

Process Flow Diagram 208 Process Capability Analysis: Cp and Cpk 208 Process Control Charts 212 Taguchi Methods/Design of Experiments 219 Moments of Truth Analysis 220 Other Quality Control Tools 220 Supplement Summary 221 Key Terms 221 Solved Problems 221 Problems 226 Case: The Tragedy of RMS Titanic 236 Case: The Bully Boy Bagging Line 238 Selected Readings & Internet Sites 239

CHAPTER 7 Managing Inventories 240 Types and Roles of Inventory 242 Types of Inventory 242 The Roles of Inventory 242

The Financial Impact of Inventory 243 Balance Sheet Considerations 243 Costs Related to Inventory 243

Measures of Inventory Performance 245 Asset Productivity: Inventory Turnover and Days of

Supply 246 Service Level 248

Inventory Management Systems 248

The Continuous Review Model 249 The Case of No Variability 249 How Much to Order: Economic Order Quantity 250 When to Order: The Reorder Point 252 EOQ Extensions 253 Enter Variability and Uncertainty 256 Determining the Standard Deviation of Demand

During Lead Time 256 Determining a Service Level Policy 257 Revisiting ROP and Average Inventory 259

The Periodic Review Model 260

Single Period Inventory Model 261

Impact of Location on Inventory Requirements 262 Location and Inventory/Service Trade-offs 264

Managing Inventory 264 Managing Cycle Stocks 264 Managing Safety Stocks 265 Managing Locations 267 Inventory Information Systems and Accuracy 268 Get Real: Robots and Drones: Automating Inventory

Control 268 Implementing Inventory Models 269

Managing Inventory Across the Supply Chain 269 Inventory Value in the Supply Chain 269 The Bullwhip Effect 269 Integrated Supply Chain Inventory Management 270 Get Real: Supplier-Managed Inventory at Stryker

Instruments 271 Chapter Summary 272 Key Terms 273 Discussion Questions 274 Solved Problems 274 Problems 278 Case: Inventory at Champion Electric 284 Case: Tasty Treats 285 Case: Dexter’s Chicken 286 Selected Readings & Internet Sites 287

CHAPTER 8 Lean Systems 288 Lean Systems Defined 290 Origins of Lean Systems and Just-in-Time

Production 291 Strategic Benefit of Lean Systems 292 Lean Systems Objectives, Culture, and Guiding

Principles 293 Get Real: “Picturing” Waste and Value: A Process

Mapping Story 296

Implementing Lean Systems: Tools and Techniques 297 Total Productive Maintenance (TPM) 298 Group Technology—Cellular Manufacturing 298 Focused Factories 298 TAKT Time Flow Balancing 298 Get Real: Applying the Focused Factory Idea to an

Insurance Firm 298 Kanban (Pull) Scheduling 299 Get Real: Using Kanbans to Schedule a Steel

Mill 299 Level, Mixed-Model Scheduling 300 Setup Reduction 300 Statistical Process Control 301 Visual Control 301 Quality at the Source 301 Get Real: Visual Control in Action: An Andon

Board 302 Kaizen Events 302 Get Real: Delta Faucet Uses a Kaizen Event to

Improve Quality and Reduce Scrap 303 Process Analysis/Value Stream Mapping 304 Poka-Yoke 304 Get Real: Eliminating Forgetting Cards at

ATMs 305

Final PDF to printer

xxiv Contents

swi39462_fm_i-xxviii.indd xxiv 01/07/19 03:26 PM

Solved Problem 335 Problems 336 Case: Tiler Industries 337 Case: Johnson Snacks 338 Selected Readings & Internet Sites 339

CHAPTER 10 Sourcing and Supply Management 340

Supply Management’s Impact on Firm and Supply Chain Performance 342 Supply Management Goals 342 Get Real: Resilinc Uses Machine Learning to Increase

Supply Chain Resilience 344 Get Real: Airbag Supplier Responsible for Largest

Recall in U.S. History 345 Get Real: Sourcing Increases Sustainability for

Caribou Coffee 347

Making an Insourcing/Outsourcing Decision 347 Get Real: Boeing Reverses Course on

Outsourcing 348

Supply Category Management 350 Identify Purchase Categories 350 Develop Strategies Using Portfolio Analysis 350 Get Real: K’Nex® Reshoring Toy Production 352 Get Real: Self-Driving Cars Are Reshaping

Buyer-Supplier Relationships 354

Examining the Sourcing Process 354 Identify Need and Develop Specifications 354 Identify Potential Suppliers 355 Assess and Select Suppliers 355 Manage Ongoing Supplier Relationships 357 Chapter Summary 359 Key Terms 360 Discussion Questions 360 Solved Problems 361 Problems 362 Case: Category Management at Best Banks 365 Case: Trail Frames Chassis: Insourcing/Outsourcing

Decision 366 Case: Dining Services Sourcing at Midwest

University 367 Selected Readings & Internet Sites 368

CHAPTER 11 Logistics Management 370

The Role of Logistics in Supply Chain Management 372

Order Processing 372

Inventory Management 373

5-S Program 305 Simplification/Standardization 306

Lean Systems: Range of Application 306 Applying Lean Systems within the Firm 306 Applying Lean Systems to Services 307 Applying Lean Systems Across the Supply Chain 307 Applying Lean Systems to Product Innovation 309 Chapter Summary 310 Key Terms 310 Discussion Questions 311 Case: Good Guy Hospital Supply 312 Case: Purchasing at Midwestern State

University 312 Case: Western Telephone Manufacturing 313 Selected Readings 315

Part 3 INTEGRATING RELATIONSHIPS ACROSS THE SUPPLY CHAIN 317

CHAPTER 9 Customer Service Management 318

Basic Service 321 Product Availability 321 Order-to-Delivery Lead Time 322 Service Reliability 323 Service Information 323 Get Real: JJ’s Dishwasher Delivery Travails 323 The Perfect Order 324 Technology Enablement of Basic Service 325 Limitations of Basic Service 326

Customer Satisfaction 326 Customer Expectations 327 Customer Satisfaction Model 327 Limitations of Customer Satisfaction 329 Get Real: Overpromising Leads to Dissatisfied

Customers 329

Customer Success 330 Achieving Customer Success 330 Get Real: Procter & Gamble’s Service Program 330 Customer Relationship Management 331 Get Real: Tesco’s Virtual Store 331 Get Real: Amazon’s Automated CRM Technology 332

Customer Service Strategy 332 Chapter Summary 334 Key Terms 334 Discussion Questions 335

Final PDF to printer

Contents xxv

swi39462_fm_i-xxviii.indd xxv 01/07/19 03:26 PM

Demand Forecasting 407 Components of Demand 407 Designing a Forecasting Process 409 Judgment-Based Forecasting 410 Get Real: Two Examples of Grassroots

Forecasting 411 Statistical Model–Based Forecasting 412 Estimating Trends 417 Adjusting Forecasts for Seasonality 420 Causal Models 423 Simulation Models 425 Artificial Intelligence 425 Get Real: Lennox Uses Artificial Intelligence to

Improve Demand Planning 426

Assessing the Performance of the Forecasting Process 426 Tracking Forecast Error Acceptability 429 Situational Drivers of Forecast Accuracy 430

Demand Management 431

Improving the Constraints on Demand Planning 433 Improving Information Breadth, Accuracy, and

Timeliness 433 Get Real: Destination Maternity Corporation 434 Reducing Lead Time 435 Redesigning the Product 435 Get Real: Calyx and Corolla Delivers Freshness by

Redesigning the Supply Chain 435 Get Real: HP Improves the Constraints on Forecasting

through Postponement 436 Collaborating and Sharing Information 436 Chapter Summary 438 Key Terms 438 Discussion Questions 439 Solved Problems 440 Problems 444 Case: Rachel’s Breakfast Café 449 Case: C&F Apparel, Inc. 450 Selected Readings & Internet Sites 451

CHAPTER 13 Sales and Operations Planning 452

Sales and Operations Planning 454 S&OP Benefits 456 Get Real: One-Number Forecasting at Heinz 456 The S&OP Process 457 Get Real: Whirlpool and Lowe’s Integrate Their

Planning 458 S&OP: Recent Trends and Developments 458

Get Real: Walmart Turns to Suppliers to Reduce Inventory 374

Transportation Management 374 Government’s Role in Transportation 374 Transportation Economics 375 Consolidation 375 Transportation Modes 376 Get Real: Mobile Apps Are Transforming the Trucking

Industry 378 Last Mile Delivery 380 Get Real: Tuesday Morning Shifts Modes 380 Transportation Service Selection 381

Distribution/Fulfillment Management 382 Primary Functions of Distribution Centers (DCs) 382 DC/FC Operations 384 Get Real: GameStop Depends upon Reverse

Logistics 385

Materials Handling and Packaging 385

Logistics Network Design 386 Number of Facilities 387 Facility Location 388 Get Real: Logistics Change Leaves KFC without

Chicken 389 Center-of-Gravity Method 390

Third-Party Logistics Service Providers 391 Chapter Summary 392 Key Terms 392 Discussion Questions 393 Solved Problems 394 Problems 395 Case: Spartan Plastics 398 Case: Lear Corporation 400 Selected Readings & Internet Sites 400

Part 4 PLANNING FOR INTEGRATED OPERATIONS ACROSS THE SUPPLY CHAIN 403

CHAPTER 12 Demand Planning: Forecasting and Demand Management 404

Demand Planning: An Overview 406 The Role That Demand Planning Plays in Operations

Management 406 Planning Activities 406

Final PDF to printer

xxvi Contents

swi39462_fm_i-xxviii.indd xxvi 01/07/19 03:26 PM

Aggregate Production Planning 458 Relevant Aggregate Planning Costs 459 Aggregate Production Strategies 460 Get Real: Nintendo Ramps Up Production of the

Switch 462

Creating an Aggregate Production Plan 462 Level Production Plan 463 Chase Plan 464 Hybrid Plan 466 Comparing Aggregate Production Plans 467

Aggregate Planning for Service Industries 468 Yield Management 468 Get Real: Yield Management in the Hotel

Industry 469 An Example of a Service Aggregate Plan 469 Chapter Summary 471 Key Terms 472 Discussion Questions 472 Solved Problem 473 Problems 474 Case: Med-Chem Products: Hospital Division 479 Case: Fitch and Hughes, P.C. 480 Selected Readings & Internet Sites 481

CHAPTER 14 Materials and Resource Requirements Planning 482

Materials Requirements Planning (MRP) 484 Get Real: MRP in Services: Using MRP for Surgical

Kits 485

MRP Inputs 486 Master Production Schedule (MPS) 486 Bill of Materials (BOM) 488 Inventory Records 489

MRP Process 490

MRP Outputs and Use 496

Distribution Requirements Planning (DRP) 496 DRP Planning Process 497

Capacity Requirements Planning (CRP) 497

Advances in Planning Systems 498 Enterprise Resource Planning (ERP) 499 Get Real: ERP Supports Growth at MOD Pizza 499 Advanced Planning and Scheduling (APS) 500 Extending Planning across the Supply Chain 500 Chapter Summary 500 Key Terms 501 Discussion Questions 501 Solved Problems 502 Problems 506

Case: QP Industries—The Challenges of Integration 513

Case: The Casual Furniture Company 514 Selected Readings & Internet Sites 515

Part 5 MANAGING CHANGE IN SUPPLY CHAIN OPERATIONS 517

CHAPTER 15 Project Management 518 Projects and Project Management 520 How Projects Succeed 521 Stages in the Life of a Project 522

Project Definition 523 Organizing the Project: Pure, Functional, and Matrix

Projects 523 Selecting a Project Manager 524 Organizing Project Teams 526 Get Real: The Case of Mistaken Spray-N-Wash 527 Establishing a Project Charter 528

Project Planning 528 Budgeting for Time and Cost 529 Detailed Scheduling Using the Critical Path Method 530 Get Real: Project Management Software Helps Get

the Job Done 534 Analyzing Resources and Trade-Offs 534 Making Time-Cost-Scope Trade-Offs 535 Planning for Uncertainty 535

Project Execution 538 When to Kill a Project 539

Project Completion 540

Managing a Portfolio of Projects 540 Chapter Summary 542 Key Terms 543 Discussion Questions 543 Solved Problem 544 Problems 546 Case: Derek’s European Tour 551 Case: Monolith Productions 552 Selected Readings & Internet Sites 553

CHAPTER 15 Chapter Supplement: Advanced Methods for Project Scheduling 554

Project Crashing: Making Time-Cost Trade-Offs 555

Scheduling a Project with Probabilistic Task Duration Estimates 558

Final PDF to printer

Contents xxvii

swi39462_fm_i-xxviii.indd xxvii 01/07/19 03:26 PM

Supplement Summary 562 Key Terms 562 Discussion Questions 562 Solved Problem 562 Problems 565 Selected Readings & Internet Sites 567

CHAPTER 16 Sustainable Operations Management—Preparing for the Future 568

The Triple Bottom Line 570

The First P—Planet 571 Get Real: Disney Sustainability 572 Implications for Operations Management: A Broader

View of Waste 573 Get Real: Tesco Drops Its Carbon Label Pledge 575 Get Real: Paper or Plastic? 576 ISO 14000—The Standard for Environmental

Management Systems 577 Challenges of Being Environmentally

Sustainable 577

The Second P—People 578 Get Real: Starbucks and “Fair Trade” 579 Organizational Culture 580 Get Real: Zappos Culture Sows Spirit 580 National Culture 581 Get Real: Dabbawallahs—Managing the Lunchtime

Food Supply Chain in Bombay, India 582

The Third P—Profit and Long-Term Competitive Advantage 582 Changes in Key Customers 583 Changes in Value Propositions 584 Changes in Operational Capabilities 584 Get Real: Starbucks Reserve 584 Balancing the 3 Ps 585 Get Real: Patagonia Outdoor Sportswear 586 Measuring and Reporting Sustainability through the

Triple Bottom Line 586 Chapter Summary 589 Key Terms 589 Discussion Questions 590 Case: EuroConstellation Electronics 591 Case: The Problem with Plastics 592 Case: The Hypercar 593 Case: Sourcing Outside the Cage 594 Selected Readings & Internet Sites 597

APPENDIX A 598

APPENDIX B 599

KEY THEMES 612

INDEXES NAME INDEX 618 SUBJECT INDEX 620

Final PDF to printer

swi39462_fm_i-xxviii.indd xxviii 01/07/19 03:26 PM

Final PDF to printer

5 Manufacturing and Service Process Structures

LEARNING OBJECTIVES After studying this chapter, you should be able to:

LO5-1 Compare and contrast the seven process structures: project, job shop, batch, repetitive process, continuous process, mass customization, and cellular manufacturing.

LO5-2 Compare and contrast the goals and challenges associated with a service

factory, a mass service, a service shop, and a professional service.

LO5-3 Describe how each of the operations layouts—fixed-position, functional, product, and cellular—is designed to meet the demands placed upon it.

LO5-4 Analyze a product layout using line balancing.

LO5-5 Explain how technology is used in the supply chain and the benefits and challenges of digital transformation.

10/04/18 12:52 PMswi39462_ch05_142-169.indd 142

142

Final PDF to printer

swi39462_ch05_142-169.indd 143 10/04/18 12:52 PM

Process design and new process technologies are enabling companies to make customized products quickly and cost effectively, some-

times dramatically changing an industry. One exam- ple of how process design created radical change is in the field of orthodontics. If you had metal bracket and wire braces you may recall frequent trips to the orthodontist for wire tightening, giving up foods such as popcorn and apples, and feeling self-conscious when smiling.

This all changed when Align Technology, Inc., developed and introduced the Invisalign® system. This system uses a series of factory-produced clear plastic, removable “aligners” that are custom designed for each patient’s needs. The Invisalign® system, made possible by advances in information

technology and manu- facturing technologies such as digital scan- ning, 3D printing and robotics, may make metal braces a thing of the past.

The Invisalign® process begins when the dentist takes a digital scan of the patient’s teeth. The scan is then electronically transmitted to Align Technol- ogy’s technicians who use proprietary software to create an individualized treatment plan. After the dentist approves the plan, the digital scans are used to “3D print” molds that are used to form the cor- rect shapes for the plastic aligners. Up to 80,000 custom designed aligners are made per day using a highly automated assembly line. Robots complete tasks with precision and accuracy. Radio frequency

Process Design and Process Technologies Are the Key

to Success for Invisalign.®

Final PDF to printer

144 chapter 5 Manufacturing and Service Process Structures

swi39462_ch05_142-169.indd 144 10/04/18 12:52 PM

identification (RFID) tracking ensures that each patient receives the correct aligners. Even the packaging pro- cess is totally automated. The design of each step from the dentist’s office through manufacturing guarantees that each patient receives a high quality, cost-effective treatment to create a perfect smile.

This chapter focuses on three process structure decision areas—process selection, operations layout, and technology selection—that affect operations and supply chain capabilities. For example, the Invisalign® process structure and digital technologies create the capabilities for high quality, flexibility, and efficiency.

PROCESS STRUCTURES Process structure determines how inputs, activities, and outputs of a process are organized. The physical positioning, sequencing, and connections among activities create the process structure. Different process structures provide different capabilities and support different competitive priorities and marketing strategies.Within a supply chain, each organization must select the process structures that fit its unique competitive priorities.

Product-Process Matrix To link competitive priorities with operations capabilities, Hayes and Wheelwright developed the product-process matrix. Although developed for manufacturing, the product-process matrix also describes many services. The product-process matrix shows five process structures along the diagonal based on output volume and variety: project, job shop, batch, repetitive process, and continuous process (see Figure 5-1). When the product-process matrix was developed in the 1970s, the processes on the diagonal were thought to lead to the best performance. More recently, cellular manufacturing and mass customization have emerged as effective process structures. First, let’s examine the five original process structures, as summarized in Table 5-1.

LO5-1

Compare and contrast the seven process structures: proj- ect, job shop, batch, repetitive process, continuous process, mass customization, and cel- lular manufacturing.

product-process matrix Categorizes processes into structures based on output volume and variety.

FIGURE 5-1 Product-Process Matrix Source: Adapted from R. Hayes and S. Wheelwright, Restoring Our Competitive Edge: Compet- ing Through Manufacturing (New York: John Wiley & Sons, 1984).

Project

(Software Installation)

Job Shop (Beauty Shop)

Cellular Manufacturing

High

Variety

Flexibility

Cost

Low

Low HighVolume

Mass Customization

Batch (Local Bakery)

Repetitive Process (Cell Phone

Assembly)

Continuous Process

(Oil Refinery)

Final PDF to printer

Manufacturing and Service Process Structures 145

swi39462_ch05_142-169.indd 145 10/04/18 12:52 PM

TABLE 5-1 Characteristics of Process Types

Process Type Inputs Transformation Output Example

Project Flexible employees and equipment

Unique flow patterns

High complexity

Unique, one of a kind

Custom home

Designing a video gameActivities are often out-

sourced to specialists

Job shop Highly skilled, flexible workers

Challenging to determine schedules

Customized, low volume

Auto repair

Beauty salon General-purpose

equipment Many different flow

patterns

High variety of materials High work-in-process inventory

Batch Moderately flex- ible employees and equipment

Dominant flow patterns Moderate volume and variety

Bakery

Automotive parts

Cinema

Time needed to set up between batches

Some common materials

Repetitive process

Low-skilled workers specialize in complet- ing a limited number of activities

All products have the same flow pattern

Standard products with a range of options such as colors

Appliances

Automobiles

Buffet restaurant

Many common materials

Continuous process

Low-skilled operators All products have the same flow pattern

Commodities with high volume, little variety

Aluminum cans

Laundry detergent

Gasoline

Highly skilled process engineers Operations often

run 24/7Highly specialized equipment Line stoppages are very

costlyProducts use the same materials

Project

A project produces a unique, “one of a kind” output. Examples of projects include build- ing a custom home, designing a video game, or planning a wedding. Because the outputs are customized, the customer is highly involved in the design process. The type, sequenc- ing, and complexity of activities change from project to project, so employees and equip- ment must be flexible. To maximize flexibility, a project manager plans and organizes the project, and activities are often outsourced to suppliers. For example, a wedding planner consults with a bride and groom to determine their preferences for flowers, music, photog- raphy, and food. The planner then hires and manages the florist, musicians, photographers, and caterers.

Job Shop

Automobile dealers’ service shops, beauty salons, and department stores use job shop process structures, in which outputs are customized and produced in low volumes. Prod- ucts are typically made to order for a specific customer. Each order or “job” has different inputs and a different sequencing of activities and thus different flows through the process. Because of the high variety of inputs and activities, planning and scheduling jobs can be challenging. Products can spend a lot of time waiting to be worked on, resulting in high work-in-process inventory and the need for expediting.

project A one-time or infre- quently occurring set of activi- ties that create outputs within prespecified time and cost schedules.

relationships

job shop A flexible process structure for products that require different inputs and have different flows through the process.

chapter 5

Final PDF to printer

146 chapter 5 Manufacturing and Service Process Structures

swi39462_ch05_142-169.indd 146 10/04/18 12:52 PM

Because of the differences from order to order, the equipment used in a job shop is general purpose, and employees must be skilled and flexible enough to do many different tasks. Job shops are typically more labor- than capital-intensive. Equipment and employees capable of doing similar activities are typically located together in departments or groups. For example, in a beauty salon, the manicure stations are located together.

batch process A process in which goods or services are produced in groups (batches) and not in a continuous stream.

Batch Process

A batch process structure works well when products have moderate levels of volume and variety. A batch structure is a good choice for products that have basic models with several different options. Many interior parts for automobiles such as the seats are made using batch processes. Cinemas offer movies to batches of people.

Although there may be some differences between the flow patterns of each batch, there are dominant flow patterns. Equipment and employee flexibility are important, but the range of flexibility needed is less than with projects or job shops. Cleaning and setup are usually required before each batch, taking time, reducing capacity, and increasing costs. However, some companies have found creative ways to eliminate cleaning and setup. The “mystery” flavor of Spangler Candy Co.’s Dum Dum Pops is created by eliminating clean-up and allowing flavors to mix together between batches.

repetitive process A pro- cess in which discrete prod- ucts flow through the same sequence of activities.

Repetitive Process

When there are many customers who want a similar product, such as automobiles, appli- ances, cell phones, or lunch at a buffet restaurant, a repetitive process structure is used. Some standard options such as a range of colors, features, or menu items are offered, but the range of choices is limited and determined by marketing in advance of the customer’s order.

Discrete products flow through the same sequence of activities, and equipment can be specialized to each specific task. Standard methods and procedures are used to ensure con- sistent quality and low costs. Employees who work on the line may not be highly skilled, but they become very efficient in completing one small task. For example, in assembling a car, one employee may install the front seats. Job rotation is often used to lessen boredom and the risk of injury from repetitive tasks.

continuous process A single-flow process used for high-volume nondiscrete, standardized products.

Continuous Process

Standard products such as gasoline, chemicals, laundry detergent, aluminum cans, and cereal are produced using continuous processes, in which products always flow through the same sequence of activities. These made-to-stock products offer customers very little variety and are considered as commodities. Differentiation typically occurs at the end of the production process. For example, laundry detergent comes in different sizes or alumi- num cans are printed with different labels.

Continuous processes use highly specialized, automated equipment, which often runs 24 hours a day, seven days a week. Economies of scale reduce unit cost, but it is very costly to stop or change the product because the specialized equipment is expensive. Low-skilled employ- ees monitor equipment while

highly skilled engineers and maintenance employees work to minimize downtime and improve processes.

Cellular Manufacturing

Often implemented as part of “lean” systems (see Chapter 8), operations managers use cellular manufacturing to increase flexibility while also lowering lead time and costs. They first identify products with similar processing needs, called “product families.” They

cellular manufacturing The production of products with simi- lar process characteristics on small assembly lines called cells.

Companies focusing on different competitive priorities can use different process structures for the same type of product. For example, a com- pany that produces off-the-rack clothing uses a different process struc- ture than a company that produces custom-tailored clothing. Identify a product and competitors who are using different competitive priorities. What position on the product-process matrix would you expect for each?

st ud

en tactivity

Final PDF to printer

chapter 5 Manufacturing and Service Process Structures 147

swi39462_ch05_142-169.indd 147 10/04/18 12:52 PM

then arrange machines and workstations to form small assembly lines or fabrication groups referred to as cells to make each product family. Many manufacturing indus- tries have changed from job shops, batch, and repetitive processes to cellular manufacturing. Automobile parts, appliances, and furniture are made using cellular manu- facturing. The La-Z-Boy furniture plant in Dayton, Ten- nessee, implemented cellular manufacturing and other lean practices to drastically reduce the time needed to produce and deliver a custom order.

Service operations also use cells when information or customers can be grouped by their similar processing needs. Insurance firms and banks have increased efficien- cies by grouping together workers and activities that were formerly isolated into different departments.The cellular process structure will be discussed later in this chapter, in the section titled “Operations Layout.”

Mass Customization

Advances in technology allow customized products to be made faster and at a lower cost than with traditional processes using mass customization. For example, digital imaging, software with machine learning, 3-D printing, and robotics are key to Invisalign®’s mass customization process which has changed orthodontics. With mass customization, product configurations are based on actual customer orders. For example, using the NIKEiD and mi adidas Web sites, customers can choose the style, color, and material for athletic shoes with delivery in three weeks or less.

The flexibility needed for mass customization is created in two ways:

1. Products are assembled from standard modules that are stored in inventory, reducing the time from order to delivery.

2. Advanced technologies such as 3D printing (or additive manufacturing), robotics, or flexible manufacturing systems (FMS) make a wider range of products in a wider range of volumes faster and at a lower cost than using conventional equipment. Explore how Adidas is transforming athletic shoe design and manufacturing in Get Real: “Adidas Reinvents Athletic Shoe Manufacturing.”

3D printing has the potential to increase the use of mass customiza- tion and radically change what we know about process structures. 3D printing creates objects by laying down successive thin layers of a material to build the product based on 3D modeling software. Objects can be made from a wide range of materials, including plastics, metals, ceramics, and even chocolate. Products such as jet engine parts, hearing aids, and pasta are being made using 3D printing. Advances in technology, especially in the types of materials that can be printed, will expand use of this technology.

Processes within a Supply Chain When considering a product’s entire supply chain, typically, several of the process struc- tures are used. Upstream in the supply chain, raw materials such as plastic, steel, and alu- minum are made using continuous processes. Parts and components are often made using cellular or batch manufacturing. Finished good are often assembled in repetitive processes. For example, the glass for a car’s windshield is made using a continuous process, seats

mass customization Uses advanced technologies to customize products quickly and at a low cost.

3D printing Also called additive manufacturing, this process makes products by putting down successive layers of thin material such as plastic, metal, ceramics, or food. flexible manufacturing systems (FMS) Combine automated machines, robots, and material handling systems that are all controlled by a single computer.

activity

st ud

en t

Do some research to identify a product that is made using 3D printing. How have operations and supply chain processes changed as a result of moving to the new manufacturing process?

Final PDF to printer

148 chapter 5 Manufacturing and Service Process Structures

swi39462_ch05_142-169.indd 148 10/04/18 12:52 PM

GET REAL

Adidas Reinvents Athletic Shoe Manufacturing

Looking for a running shoe designed and made just for you? Adidas and its technology partner Carbon Inc. are teaming up to mass customize athletic shoes. The design of the Futurecraft 4D shoe starts with a 3D foot scan. Then, you run in specially designed shoes with sensors that record information about torque and load. Finally, the environment where you normally run is considered. Based on these data, specialized software creates individual shoe designs. The custom-designed

shoes are made using industrial robots and incorporate Carbon’s 3D printed midsole.

Traditionally, athletic shoes are made using a high- volume, low-variety repetitive assembly line process. Because the process is very labor intensive, athletic shoes are made in large supplier-owned factories in Southeast Asia to take advantage of low labor costs. With the new mass customization process, Adidas has built highly auto- mated “Speedfactories” in Germany and the U.S.

are made using a batch process, bumpers are made using cellular manufacturing, and the car is assembled using a repetitive process.

Aligning Process Structure and Market Orientation Market orientation determines if a product should be designed, produced, or assembled before a cus- tomer order is placed or after the order is placed. The timing of the order determines the level of customization and order to delivery lead time. As shown in Figure 5-2, there are four different marketing orientations; (1) engineer to order (ETO), (2) make to order (MTO), (3) assemble to order (ATO), and (4) make to stock (MTS). To be effective, an organization’s process struc- ture must fit with its marketing orientation.

Engineer to order (ETO) products are designed for individual customers and gener- ally have long order to delivery lead times. Because each ETO product requires an entirely new design, a customer places an order before work begins. Examples include a custom- built house, a cruise ship, specialized industrial equipment, and a customized employee training program. Firms that anticipate orders often carry raw materials inventory to reduce lead times. Products that are ETO typically use either project or job shop process structures.

Make to order (MTO) products meet the needs of broad customer groups but allow for some customization during production. Design is completed before the order but pro- duction does not begin until an order is received. Thus, the order to delivery lead time for MTO is less than for ETO. A jet airplane, a meal at an elegant restaurant, a haircut, and a trip to the emergency room are examples of MTO operations. MTO products typically use job shop, batch, and cellular process structures.

Products that are assemble to order (ATO) use standardized components and do not change with customer orders. These components can be assembled in different ways for dif- ferent customers. Raw materials and components are stored in inventory, but final assem- bly begins after an order is received. For example, paint stores mix coloring agents with a white base paint after the customer places an order, to provide many color options. Subway Restaurants assemble sandwiches to order from prepared ingredients, including freshly baked bread. Repetitive processes and mass customization are used for ATO products.

engineer to order (ETO) Unique, customized products.

make to order (MTO) Products that have similar designs but are customized during production.

assemble to order (ATO) Products that are produced from standard components and modules.

Repetitive

Continuous

Batch

Cellular

Repetitive

Final PDF to printer

chapter 5 Manufacturing and Service Process Structures 149

swi39462_ch05_142-169.indd 149 10/04/18 12:52 PM

Order ETO

Product Design

Part Production

Product Assembly

Distribution Retail

Order MTO

Order MTS

Order ATO

High Low Customization

Order to Delivery Lead Time

FIGURE 5-2 Market Orientation and Order Timing

Groceries, retail clothing, electronics, and cars are examples of make to stock (MTS) products. So that products are immediately available, finished products are made in advance of customer orders based on forecasts, and held in inventory. Repetitive assembly lines and continuous processes are typically used for MTS products.

make to stock (MTS) Finished goods that are held in inven- tory in advance of customer orders.

UNIQUE ASPECTS OF SERVICE PROCESSES Although the product-process matrix can be used to describe services, it does not address the fact that customers often participate in service processes. Customer contact refers to the presence of the customer in a service process. Services range from those with high customer contact, such as a haircut, to those with low customer contact, such as package delivery. Contact with the customer creates unique challenges in designing, controlling, and operating service processes. Thinking back to the opening vignette, customer contact occurs at the dentist’s office and is a critical step in the Invisalign® process. However, because Invisalign® aligners are made at a factory, customer contact is lower than for tra- ditional braces, which are fitted and adjusted at the dentist’s office.

customer contact The pres- ence of the customer in a process.

Compare and contrast the goals and challenges associ- ated with a service factory, a mass service, a service shop, and a professional service.Service Process Matrix

Building on the concept of the product-process matrix, Schmenner developed the service process matrix shown in Figure 5-3 that categorizes services based upon the degree of customization/customer interaction and labor/capital intensity involved. Services in the same industry can compete in different ways by adopting process structures specified in this matrix.

service process matrix Categorizes service processes based upon the degree of customization/ customer interaction and labor/capital intensity.

High

Service Factory

Service Shop

Low High

Low

Mass Service

Professional Service

Customer Interaction Customization/

La bo

r In

te ns

ity La

bo r

In te

ns ity

FIGURE 5-3 Service Process Matrix Source: Adapted from R. W. Schmenner, “How Can Service Businesses Survive and Prosper?” Sloan Management Review 27, no. 3 (1986), pp. 21–32.

Final PDF to printer

LO5-2

150 chapter 5 Manufacturing and Service Process Structures

swi39462_ch05_142-169.indd 150 10/04/18 12:52 PM

Professional Services

Lawyers, doctors, consultants, and accountants interact closely with clients to deliver cus- tomized services. Professional services tend to be time-consuming and costly because pro- viders are highly skilled and educated. However, by reducing the degree of customization, some firms have reduced time and costs. Retailers such as Target, Walmart, and CVS have in-store medical clinics staffed with nurse practitioners. These clinics treat minor ailments quickly and at a much lower cost than a traditional family doctor.

Service Factory

Trucking companies, airlines, and hotels are examples of service factories. Customer con- tact, customization, and labor intensity are low while investment in facilities and equip- ment is high. A range of standard services is offered to customers who tend to value low price above all else. Operations managers in service factories are mainly concerned with utilizing equipment and facilities to a maximum extent, because these fixed assets account for the majority of operating costs. Matching capacity and demand to keep equipment and facilities busy is important to profitability.

Service Shops

Automobile repair shops and hospitals are examples of service shops, which have a high degree of capital intensity and high customer interaction/customization. Keeping up-to- date on new technology and scheduling to ensure effective utilization of technology are key operations issues. For example, auto repair shop operations typically have large spikes in demand on Mondays, making scheduling a challenge. Some organizations have reduced the variety of services offered, thus moving from service shops to mass services (described next). For example, companies that specialize in muffler replacement or oil changes are mass services.

digital

Mass Services

Mass services, such as retail banks, gas stations, and other retail outlets, meet the stan- dard needs of a large volume of customers. These services have low customer interac- tion/customization and high labor intensity. Through automation, some mass services have reduced costs and improved customer service availability. Many mass services have been automated through the use of technology. Using ATMs, the Internet, or mobile apps,

customers can do banking activi- ties 24/7. Using the self-checkout at a grocery or superstore reduces the wait time for customers and requires fewer cashiers. The tech- nology being tested by Amazon Go may eliminate the need for cashiers altogether.st

ud en

tactivity Think of the last service you purchased. What category of service was it? Can you suggest changes in product features or delivery technolo- gies that would move the service to another category? What could be the advantages of such a change?

Managing Front-Office and Back-Office Processes

front-office processes Processes that have contact with the customer. back-office processes Processes that are not seen by the customer.

Although some processes within a company require customer involvement and interac- tion, others do not. Processes involving customer contact are referred to as the front-office processes. Those that are behind the scenes are called back-office processes. In a formal restaurant, the front office is the dining room where the greeter and servers interact with the customer, and the back office is the kitchen. Front-office and back-office processes require different employee skills, equipment, and physical layouts.

Depending upon the nature of the service, front-office and back-office processes can be decoupled or separated from each other. With decoupling, each process can be man- aged separately, creating opportunities for efficiency gains. For example, consistent quality and economies of scale occur when back-office operations from different locations are combined. Fast-food chains prepare ingredients and food at a centralized location, with

Final PDF to printer

chapter 5 Manufacturing and Service Process Structures 151

swi39462_ch05_142-169.indd 151 10/04/18 12:52 PM

final preparation taking place in each individual restaurant location. The decision of what and how to decouple service operations should be driven by competitive priorities and customer needs.

The ability to decouple services allows different processes to be done by different supply chain members who are dispersed globally. Decoupling through use of the Inter- net allows a physician in India to analyze an MRI to diagnose the illness of a patient in the United States. These approaches do not always work out as planned, however. For example, the perceived quality of customer service may decrease when services are outsourced.

OPERATIONS LAYOUT Process structure influences the physical layout of the operation, including arrangement of the equipment, employees, inventory, and aisles for movement. When managers decide to build a new facility, develop a new product, implement new process technology, or change processes, they must make layout decisions. Layout affects performance, espe- cially cost, time, and flexibility. There are four basic types of layouts: fixed-position, functional, product, and cellular. The characteristics of these layouts is summarized in Table 5-2.

Fixed-Position Layout When a product cannot be moved during its production, operations managers use a fixed-position layout. Fixed-position layouts are typically used for projects involving large products such as homes, buildings, bridges, large ships, airplanes, and spacecraft. All of the resources and inputs must come together at the product’s location. During a visit to your family physician, a fixed-position layout is used because the nurse, doctor, and any needed treatments are brought to you. One of the supply chain challenges associated with a fixed-position layout is ensuring that the right people, equipment, and materials all arrive at the work site at the right time. Scheduling is very complex, and project management software tools are often used to manage the process.

global

fixed-position layout The layout used when the prod- uct cannot be moved during production.

LO5-3

Describe how each of the operations layouts— fixed-position, functional, product, and cellular—is designed to meet the demands placed upon it.

Description Operations/Challenges Examples

Fixed Position Product does not move. All resources must come to the product’s location.

Resource scheduling Buildings

Ships

Functional Similar resources are grouped together. Products or customers move taking unique routes through the process.

Planning, scheduling, and control

Arranging departments to minimize movement

Department store

Hospitals

Distribution centers

Product Resources are arranged by the order that they are used. All prod- ucts or customers use the same route through the process.

Minimizing line stoppages

Creating smooth work flow without bottlenecks

Cell phones

Quick casual resturant

Cellular Workstations are arranged into small assembly lines to make families of products with similar processing needs.

Identifying product families. Automobile parts

Insurance claims

TABLE 5-2 Operations Layout Characteristics

Final PDF to printer

152 chapter 5 Manufacturing and Service Process Structures

swi39462_ch05_142-169.indd 152 10/04/18 12:52 PM

In a functional layout, workers weld parts on a door frame at the Volvo truck assembly line in Dublin, Virginia. © Steve Helber/AP Images

functional layout A layout that groups together similar resources.

Functional Layout Multiple copies of similar resources are grouped together in a functional layout (some- times called a departmental layout). Distribution centers, fitness centers, and salons use a functional layout. Department stores use a functional layout with different departments for shoes, jewelry, women’s clothing, men’s clothing, and cosmetics. In manufacturing, one area of a plant may do stamping, another welding, and a third assembly. Job shops and low- volume batch processes often use a functional layout.

There are several benefits to using a functional layout.

• Grouping general-purpose equipment together offers many different routes for a given job or customer so each has a unique flow through the process.

• A problem occurring at a single workstation does not usually stop production, because other similar workstations are located nearby.

• Learning and collaboration increases because employees with similar skills work together.

The functional layout also has several drawbacks.

• Because each job or customer takes a unique route through the process, scheduling, planning, and control are difficult.

• Processing times and work-in-process inventory tend to be high as jobs or customers wait to be processed in different departments.

• Also, a significant amount of time is usually needed to clean and set up workstations when changing from one job or customer to another.

• Materials handling costs are high when products are moved from department to department.

The goal in designing functional layouts is to arrange the departments so that the time and cost of moving materials and people are minimized. Facility layout software compares the estimated number and cost of interdepartmental movements for all possible layouts and identifies the lowest cost layout.

Final PDF to printer

chapter 5 Manufacturing and Service Process Structures 153

swi39462_ch05_142-169.indd 153 10/04/18 12:52 PM

In retail layouts, an additional goal is usually to increase sales. Some retailers such as Target have rear- ranged merchandise by purchase type rather than by item type. For example, all the key items that new parents might need, such as baby clothes, diapers, and strollers, are located in the same department.

Product Layout A product layout arranges resources according to the sequence of activities in the process. All customers or products follow the same route through the process. An automotive assembly line, Invisalign®, a Taco Bell kitchen, a buffet line, and an insurance claims office all use product layouts. Repetitive processes and continuous processes typically use a product layout.

The benefits to a product layout are:

• Processing times are minimized. • The flow of products and customers is all the same, simplifying planning, schedul-

ing, and control. • Simple signals called kanbans can be used to pull material from one activity to the

next just when needed, minimizing work-in-process inventory. • Automated materials handling systems such as robots and conveyors can be used.

There are several drawbacks to a product layout.

• The process is not flexible and thus customization is limited. • A problem at any single workstation can cause the entire line to stop. • Line stoppages are costly, often costing tens of thousands of dollars per minute. • Employees can be bored because of the lack of variety.

product layout A layout where resources are arranged according to a regularly occur- ring sequence of activities.

Line Balancing in Product Layouts In designing a product layout, the goal is to have smooth, continuous flow. Designing a product layout involves assigning all of the activities or tasks needed to make a product to a small number of workstations. The time required to complete all the tasks at each work- station should be roughly equal, or “balanced.” Line balancing assigns individual tasks to workstations for a desired output rate to meet customer demand. There are five steps in line balancing.

1. Identify the time required to complete each task and the precedence relationships, the order in which the tasks must be done. Show the relationships graphically in a precedence diagram.

2. Determine the maximum time at each workstation based on customer demand, referred to as takt time.

3. Determine the theoretical minimum number of workstations. 4. Assign as many tasks as possible to each workstation until the sum of the task times

adds up to, but is not greater than, the takt time. Workstations may have idle time if the sum of the tasks does not equal the takt time.

5. Determine the efficiency of the balanced line.

Example 1 shows line balancing for assembling a sausage and pepperoni pizza. Most line balancing problems are much more complex than this example.

line balancing Used to assign tasks so that idle time and the number of workstations are minimized.

precedence relationships Presents the order in which tasks must be completed.

takt time The maximum allowable cycle time at each workstation, based on cus- tomer demand.

LO5-4

Analyze a product layout using line balancing.

Final PDF to printer

154 chapter 5 Manufacturing and Service Process Structures

swi39462_ch05_142-169.indd 154 10/04/18 12:52 PM

EXAMPLE 1

Assembling a Sausage and Pepperoni Pizza

Table 5-3 shows the tasks, the time for each task, and the precedence relation- ships among the tasks. Some tasks physically cannot be done until others are com- pleted. For example, the dough must be formed into the crust before it is topped with sauce. The sauce must be added before the cheese. Other tasks can be done

TABLE 5-3 Precedence Relationships for Sausage and Pepperoni Pizza Assembly

Task Predecessors Time (minutes)

A Shape the dough to form the crust None 2

B Add the pizza sauce A 1

C Add the cheese B 2

D Add the sausage C 0.75

E Add the pepperoni C 1

F Package the pizza D, E 1.5

G Label the package F 0.5

Total Time 8.75

in any order. In this example, either sausage or pepperoni can be added after the cheese. Both sausage and pepperoni must be added before the pizza is packaged. Figure 5-4 shows the precedence relationships.

FIGURE 5-4 Precedence Diagram for Sausage and Pepperoni Pizza Assembly

A B C F

Next, calculate the takt time based on customer demand. The takt time should be in the same units as the task times. If customer demand changes, the takt time should be recalculated and the assembly line rebalanced as necessary.

Takt time (T) = (Available production time in a time period)/(Output needed in that time period to meet customer demand) (5.1)

In our example, the time period is one 8-hour shift per day, so 480 minutes of production time are available. The customer demand for sausage and pepperoni pizzas is 200 pizzas per day. Thus, the takt time is 2.4 minutes.

Takt time (T) = (8 hours/shift × 60 minutes/hour)/200 pizzas = 2.4 minutes per workstation

Use the takt time to determine the theoretical minimum number of workstations. This is the minimum number of stations possible; the actual balanced line may have

Final PDF to printer

chapter 5 Manufacturing and Service Process Structures 155

swi39462_ch05_142-169.indd 155 10/04/18 12:52 PM

more stations. Always round up to the next whole number of stations, otherwise there will not be enough time to make all the products to meet customer demand.

Theoretical number of stations (N) = (Total of all task times)/(Takt time) (5.2)

For the pizza example:

N = (2 min. + 1 min. + 2 min. + .75 min. + 1 min. + 1.5 min. + .5 min.)/(2.4 min. per station)

= 3.7, so round up to 4 workstations

Assign as many tasks as possible to each workstation such that the sum of the task times is not greater than the takt time, which is 2.4 minutes in our example. The actual time that it takes to process a unit at a workstation is the workstation’s cycle time. To ensure that a process can meet customer demand, the cycle time at each workstation in a process cannot exceed the takt time.

When assigning tasks to workstations, you must follow the precedence relation- ships. For example, A must be completed before you can begin work on B. Some- times tasks have the same predecessors, so you must decide which task to assign first. For example, after the pizza is topped with cheese, you can next add either sausage or pepperoni. To make this decision, you can use rules or guidelines that lead to a good, but not necessarily the best, solution. Two commonly used rules are to assign first :

1. The task with the longest operating (task) time. 2. The task with the most number of followers.

In this example, we use the longest operating time rule to assign tasks. Tasks D and E have the same predecessor, Task C. You must choose which to assign first. Using the longest operating time rule, add the pepperoni first (Task E) because it takes longer than adding the sausage (see Table 5-4). If one rule results in a tie between two tasks, the other rule is typically used to decide which task to assign.

TABLE 5-4 Workstation Assignments for Pizza: Balanced Using the Longest Task Time

Workstation Tasks in Order Workstation

Time (minutes) Idle Time (minutes)

1 A 2 0.4

2 B 1 1.4

3 C 2 0.4

4 E, D 1.75 0.65

5 F, G 2 .4

With a complex process there may be several different ways to balance the line, so select the alternative that provides the highest efficiency. Increasing the number of work stations reduces efficiency.

Efficiency = [Sum of all task times/(Actual work stations × takt time)] × 100 (5.3)

Efficiency = [(2 min. + 1 min. + 2 min. + .75 min. + 1 min. + 1.5 min. + .5 min.)/ (5 stations × 2.4 min./station)] × 100 = 73%

Bottlenecks, as described in Chapter 3, are constraints that have lower out- put than other workstations on the line, slow the process, and reduce efficiency.

cycle time The time that it takes to process one unit at an operation in the overall process.

(continued)

Final PDF to printer

156 chapter 5 Manufacturing and Service Process Structures

swi39462_ch05_142-169.indd 156 10/04/18 12:52 PM

To improve efficiency, reduce time at the bottleneck workstation. For example, per- haps split tasks into smaller work elements, change technology to reduce the time required, or deploy more workers at the bottleneck.

Cellular Layout In situations with mid-range volume and variety, a cellular layout combines the flexibil- ity of a small, focused job shop with the efficiency of a repetitive line. A cellular layout arranges workstations to form a number of small assembly lines called work cells. There are several benefits with a cellular layout.

• Workers are typically dedicated to a cell, work as a team, and are trained in all of the activities within a cell, increasing process flexibility.

• Work teams identify opportunities for improvement and take on larger roles, includ- ing planning, maintenance, and quality inspection.

• Processing time, inventory, material flow distance, and setup times are reduced, and scheduling is less complex than with functional layouts.

• Converting a product layout into cells creates more options in how products might be routed from cell to cell, increasing flexibility.

product families Groups of products that have similar processing requirements.

The first step in designing a cellular layout is to use group technology to identify prod- ucts that have similar processing requirements, called product families. Product families may have similar shapes, sizes, process flows, or demand. Each work cell can be dedicated to make a product family.

Workstations within each individual work cell are arranged using product layout prin- ciples. When converting a product layout to a cellular layout, managers must determine where customization will be added to the product line. This indicates where the line should be broken, what activities should be included in each cell, and how the cells should relate to each other. Product, functional, and cellular layouts are shown in Figure 5-5. Each shape represents a different type of activity.

FIGURE 5-5 Product, Functional, and Cellular Layouts

(continued)

Final PDF to printer

Functional Layout

Cellular Layout

Product Layout

chapter 5 Manufacturing and Service Process Structures 157

swi39462_ch05_142-169.indd 157 10/04/18 12:52 PM

CAPABILITY ENABLING TECHNOLOGIES Technology has a major impact on operations and supply chains. Advances in information technology and communications have dramatically improved operational processing, data management, decision making, visibility, and coordination across global supply chain net- works. Other technologies such as robotics have reduced costs and improved quality. Tech- nology can create new capabilities that increase customer satisfaction or enable entirely new business models. For example, Convoy applies the on-demand concept of Uber and Lyft to trucks and Flexe applies the sharing concept of Airbnb to warehousing.

Table 5-5 shows some of the technologies that are used in operations and supply chain management. An in-depth discussion of each technology is beyond what can be covered

digital

LO5-5

Explain how technology is used in the supply chain and the benefits and challenges of digital transformation.

TABLE 5-5 Types of Supply Chain Operational Technologies

Type of Technology Capabilities Examples

Decision support systems

Provide computing power and data management to make higher-quality decisions faster.

• Advanced planning systems

• Supply chain network design and risk management

• Transportation management systems (TMS)

• Warehouse management systems (WMS)

• Manufacturing execution systems (MES)

• Advanced analytics and machine learning

Processing technologies

Automate material and data processing to provide 24/7 resource availability, faster pro- cessing, greater consis- tency, and lower cost.

• Computer-aided design

• 3D printing

• Industrial robots and software robots (robotic process automation, RPA)

• Drones and autonomous vehicles

• Flexible manufacturing systems (FMS)

• Automated storage and retrieval systems (AS/RS)

• E-procurement

Communications technologies

Create greater con- nectivity and speed flow of richer forms of information.

• The Internet

• Sensors, scanners (e.g., point of sale, POS)

• Communication satellites

• Fiber optic cables

•

Radio frequency data communications (RFDC)

Electronic data interchange (EDI)

Integrative technologies

Combine data manage- ment, communications, decision support, and processing capabilities.

• Cloud computing

• Mobile devices and wearables

• Internet of Things (IoT)

• Global position systems (GPS)

• Augmented and virtual reality

• Blockchain and smart contracts

• Enterprise resource planning (ERP)

• Product life cycle management (PLM)

• Customer relationship management (CRM)

• Supplier relationship management (SRM)

• Collaborative planning, forecasting, and replenishment (CPFR)

Final PDF to printer

158 chapter 5 Manufacturing and Service Process Structures

swi39462_ch05_142-169.indd 158 10/04/18 12:52 PM

GET REAL

Shopping Goes Hi-Tech

The technology used in self-driving vehicles is making retail stores more efficient. Walmart has been using robots to scan store shelves to maintain inventory. Robots are reported to be 50% faster than humans with bar-code scanners. However, robots do not currently have the ability to restock shelves so that task is still done by employees.

Amazon Go takes the technology one step further. Using its Amazon Go mobile app and “computer vision,”

a system of cameras and sensors, Amazon Go conve- nience stores allow customers to shop and go. When the customer leaves the store, the app automatically charges for the items selected so there are no cashiers. The system automatically manages inventory. Employ- ees are still available to answer questions and restock shelves.

in this chapter. However, we briefly describe how some technologies improve information sharing within the supply chain and how others are used to automate processes.

Information Processing and Sharing Quickly and accurately processing and sharing information within the supply chain is essential for making good business decisions. It is important to have the right products available when and where customers want them. With the availability of data from many different sources, companies are using software with machine learning that applies algo- rithms to develop better insights, forecasts, and plans. Companies also work with key cus- tomers and suppliers using collaborative planning, forecasting, and replenishment (CPFR) software (discussed in Chapter 12).

As sales are made in retail stores, sales and inventory data are automatically captured by point of sale (POS) bar codes, RFID scanners, or sensors. Amazon Go’s system goes further by automatically updating inventory and processing payment via its mobile app (see Get Real: Shopping Goes Hi-Tech). Sales data from in-store or online purchases enter a retailer’s enterprise resource planning system (ERP, discussed in Chapter 13), which may be hosted in the cloud, that is, residing on servers and systems operated by a service provider. The system might update inventory records automatically and place replenish- ment orders with suppliers when needed. Software-based, smart contracts place orders automatically to approved suppliers based on predetermined rules.

Manufacturing companies and their suppliers may use manufacturing execution sys- tems (MES) to schedule and control their internal operations. Inventory replenishment shipments that are sent from warehouses to retail stores are scheduled and monitored using

warehouse management systems (WMS) and transportation management systems (TMS). Overall, decision support sys- tems such as these optimize the sequencing and routing of material flows throughout the distribution network.

One challenge faced in many supply chains is that the focal firm often does not know which suppliers are used far upstream in the supply chain. Knowing who all the suppli- ers are is especially important for tracing issues with product safety for example food safety and sustainability.

Blockchain, a digital ledger in which information is stored on multiple computers and updated simultaneously, can increase the visibility of transactions in a supply chain. An important feature is that after being recorded to the block, information cannot be altered, reducing fraud. Although in its ©Stephen Brashear/Stringer/Getty Images

Final PDF to printer

chapter 5 Manufacturing and Service Process Structures 159

swi39462_ch05_142-169.indd 159 10/04/18 12:52 PM

early stages, companies such as IBM, Walmart, and Maersk (the world’s largest shipping container company) have successfully used blockchain in supply chain applications.

Process Automation More and more, operations managers are using technology to automate processes in ways that increase productivity, reduce direct labor costs, improve quality, increase worker safety, and improve customer service. Technologies that are used to automate processes include mobility, robots (including autonomous vehicles), and the Internet of Things (IoT).

Internet of Things (IoT) The network of physical devices (such as phones, vehicles, machines, and appliances) that are embedded with sen- sors, software, and connectiv- ity that enable data exchange and analysis.

Mobility

Mobile apps increase convenience for customers and automate customer contact for many services. When you use an app to order a pizza, schedule a service appointment for your car, or check in for a flight, you do not have to wait for a person to assist you. This increases flexibility for you and reduces the number of customer service employees needed by the company. In some cases, mobile apps are changing and replacing entire processes. For example, MTailor uses a mobile app to take measurements for custom men’s clothing that are more accurate than a tailor.

Augmented reality can be embedded in mobile apps to layer digital components onto real-world scenes. Companies such as IKEA and Wayfair have apps that allow customers to see how furniture will look in their homes. Sephora has developed an app so customers can “try on” beauty products at home. In the supply chain, augmented reality is being used for instructions to help employees with product assembly, order picking, and shipment loading.

Robots

For many years industrial robots have helped manufacturing plants to be safer, more effi- cient, and produce higher quality products. For example, Ford Motor Company has over 20,000 robots in its factories worldwide doing everything from hazardous jobs like weld- ing and painting, to lifting and moving heavy parts, installing windshields, and even per- forming quality inspections.

Distribution centers use robots extensively to pick and move products. Advances in technology are allowing “collaborative” robots to safely work side-by-side with humans. As the technology improves and the costs of robots decrease, we are likely to see more applications across a range of industries.

Drones, or unmanned autonomous vehicles (UAV), are used in applications such as inspection of equipment and surveying operations, and are being tested for small package delivery. The flexibility and low cost of drone delivery make it attractive to postal services and carriers such as UPS, FedEx, and DHL. However, there are still regulatory, safety, and technical hurdles to overcome prior to full commercialization of drone delivery.

Business processes are being automated using robotic process automation (RPA). Routine transactions with purchasing, accounts payable, and inventory management are being done by RPA. Chatbots that address frequently asked questions are an example of RPA.

Internet of Things (IoT)

The Internet of Things (IoT) allows products and machines with software and sensors to connect to the Internet and share data with other devices. A simple example is a washing machine that sends a text to your phone when clothes are ready for the dryer. A more com- plex example is a self-driving car.

From improving preventative maintenance to tracking shipping conditions, the use of IoT in the supply chain is rapidly expanding. Data can be used to optimize current products and processes, design new products, and improve customer service. For example, self- driving trucks have been in the development stage for years. Uber is testing self-driving vehicles with a vision for using them for long hauls. However, because of complexity, in the near future, drivers will still be used in urban areas.

Final PDF to printer

160 chapter 5 Manufacturing and Service Process Structures

swi39462_ch05_142-169.indd 160 10/04/18 12:52 PM

Challenges to Digital Transformation There are a number of challenges created by the adoption of technology in the supply chain.

• Cybersecurity: As more and more products are connected in the supply chain, the risk of criminals accessing systems to cause damage, steal data, or hold data for ran- som is dramatically increasing. This is especially a concern for smaller suppliers that may lack security expertise. Hacks can often happen in one part of the supply chain and spread to other supply chain members.

• Data Privacy: As companies gather more and more data about customers, they must protect the data and not misuse it.

• Supply Chain Talent: Supply chain professionals will face greater challenges in understanding how to effectively adopt and implement the appropriate technologies, especially given the rapid pace of change.

• Technical Talent: Implementing, managing, and maintaining technology requires highly skilled IT professionals, process engineers, and maintenance employees.

• Investment Costs: Purchasing and installing technology for physical processes usu- ally requires capital investment, increasing an organization’s fixed costs. Limits on an organization’s ability to obtain credit to finance these investments may impact its ability to automate processes.

• Perceived Quality: In some cases, customers may have concerns with the quality of a more highly automated process. For example, consider when you have to talk to an automated call center system rather than a person.

• Societal Issues: Some jobs will be eliminated as has happened with the use of robots in manufacturing and distribution. Robotic process automation may reduce the off- shoring of business processes however.

Despite the challenges, technology will continue to change supply chain processes. Thus, organizations must be proactive and develop a strategy for digital transformation of their supply chains.

This chapter describes some of the key decisions relating to manufacturing and service process structures and how they impact an organization’s capabilities.

CHAPTER SUMMARY

The product-process matrix classifies processes based on output volume and variety. The process types are: project, job shop, batch, repetitive process, and continuous process. Two contemporary process structures are mass customization and cellular manufacturing.

2. Services can be categorized based on customization/customer interaction and labor/ capital intensity. A framework shows four classifications: professional service, service factory, service shop, and mass service.

3. The front office of a service process that is in contact with the customer has differ- ent requirements than the back office of a process that is not visible to the customer. Decoupling often increases efficiency in both the front-office and the back-office processes.

4. Layout is the physical arrangement of resources in a process. The type of layout is closely related to the type of process. Layout types are product, functional, cellular, and fixed-position.

5. Advances in technologies have enabled new business models and supply chain improvements through improved information sharing and process automation.

Final PDF to printer

161

161swi39462_ch05_142-169.indd 10/04/18 12:52 PM

KEY TERMS

assemble to order (ATO) 148

back-office processes 150

batch process 146 cellular manufacturing 146 continuous process 146 customer contact 149 cycle time 155 engineer to order

(ETO) 148 fixed-position layout 151

flexible manufacturing system (FMS) 147

front-office processes 150 functional layout 152 Internet of Things

(IoT) 159 job shop 145 line balancing 153 make to order

(MTO) 148 make to stock (MTS) 148 mass customization 147

precedence relationships 153

product families 156 product layout 153 product-process matrix 144 project 145 repetitive process 146 service process

matrix 149 takt time 153 3D printing (additive

manufacturing) 147

DISCUSSION QUESTIONS

1. Airlines allow customers to purchase tickets, select seats, and check in using mobile apps. How does this process differ from a check-in process at an airline ticket counter?

2. Think of two companies in the same industry that use different process structures. Why is this the case? Is one process structure a better choice than the other? Why, or why not?

3. Consider several members of the supply chain of a company that makes plastic toy cars and trucks. Which of the processes described in the product-process matrix is likely to be used by the following supply chain members? Why?

a. The company that assembles the toys. b. The company that produces the parts that go into the toys. c. The company that produces the plastic. 4. Provide an example of how technology has made it possible to use processes that are

not on the diagonal of the product-process matrix. 5. Are some process structures inherently safer or more environmentally friendly than others? 6. In which of the service categories would you put a large state university? Why? Would

a small private university be in the same category? Why, or why not? 7. Some upscale restaurants have their kitchens visible to their customers, changing the

traditional view of front-office and back-office processes. What are the benefits and drawbacks to this approach?

8. Think about three of your favorite fast-food restaurants. What type of layout is used in the food preparation area of each? Are these layouts a good fit with the organization? Why, or why not? Should the layout be changed and, if so, how?

9. Provide an example of a type of technology that enhances customer service and a type of technology that reduces customer service. Why is this the case?

10. Postal services and logistics companies are experimenting with delivery using drones. What are the benefits and drawbacks of this application of technology?

11. One concern with the adoption of process automation such as self-driving vehicles and robots is the impact on society. What are the societal challenges with process automation? How might these be addressed?

Final PDF to printer

SOLVED PROBLEMS

1. Using the information in Table 5-6, balance the assembly line for the Tourist T-Shirt Company. The operations run continuously for eight hours per day. Each day, 80 T-shirts must be produced to meet customer demand.

a. Draw the precedence diagram. b. What is the takt time? c. What are the theoretical number of workstations? d. Assign tasks to workstations using the longest operating time rule. e. What is the efficiency of the balanced line?

TABLE 5-6 Precedence Relationships for Making a T-Shirt

Task Predecessors Time (minutes)

Put the pattern on the material

Cut out the pattern

Hem the neck slit opening

Sew the sleeve seams

None

E Hem the sleeves D 2

F Sew the side seams of the tunic C 3

Sew the sleeves to the tunic

Hem the bottom of the shirt

E, F

Total Time 25

Solution:

a. Precedence diagram.

A B

b. Takt time (T) = Production time per day/Output needed per day Takt time (T) = (8 hours/shift × 60 minutes/hour)/(80 T-shirts/day) = 6 minutes/ workstation

c. Theoretical minimum number of stations (N) = Total of all task times/Takt time. N = (25 minutes)/(6 min./station) = 4.2, so 5 stations

d. The tasks are assigned to each station in order of precedence, assigning as many tasks as possible to each station. When you can choose among multiple tasks, for example, C or D, choose the task with the longest operating time.

162

swi39462_ch05_142-169.indd 162 10/04/18 12:52 PM

Final PDF to printer

163

swi39462_ch05_142-169.indd 163 10/04/18 12:52 PM

Workstation Tasks in Order

Workstation Time (Min.)

Idle Time (Min.)

1 A 5 1 2 B, C, D 6 0 3 F, E 5 1 4 H 5 1 5 G 4 2

e. Efficiency = [Sum of all task times/(Actual workstations × Takt time)] × 100 Efficiency = [(25 minutes)/(5 stations × 6 min./station)] × 100 = 83%

1. An assembly line currently has five workstations, and the time required for each is shown below.

PROBLEMS

a. What is the current cycle time? b. What is the efficiency of the process? c. Customer demand is 80 units per hour. What is the hourly production rate of the

current process? d. What does the cycle time need to be to be able to meet demand (i.e., what is the

takt time)? e. What changes to the process are needed? 2. An insurance company uses the following tasks to process paperwork. Forty claims

need to be processed in an eight-hour workday.

a. What is the takt time? b. What is the theoretical number of workstations? c. Assign the tasks to the workstations to balance the line using the longest operat-

ing time rule. d. What is the efficiency of the balanced line? 3. Swoosh Snowboard Company must set up an assembly line for snowboards. Forecasts

show that 600 units per day should be produced. The plant operates two 8-hour shifts

Final PDF to printer

164

swi39462_ch05_142-169.indd 164 10/04/18 12:52 PM

each day and runs the line continuously during both shifts. The tasks required, task times, and precedence relationships are as follows:

Task Time (seconds) Predecessors A 40 – B 27 A C 30 A D 35 – E 30 B F 40 D G 55 C, E, F H 39 G

a. Draw the precedence diagram. b. What is the takt time? c. What is the theoretical number of workstations? d. Assign the tasks to the workstations to balance the line using the longest operat-

ing time rule. e. What is the efficiency of the balanced line? 4. The Carry-on Luggage Company must set up an assembly line for a wheeled carry-on

bag. Forecasts show that 60 units per hour should be produced. The tasks required, task times, and precedence relationships are as follows:

Task Time (seconds) Predecessors A 30 – B 50 A C 25 A D 10 B E 25 B F 15 B G 10 C, E, F H 30 D, G

a. Draw the precedence diagram. b. What is the takt time? c. What is the theoretical number of workstations? d. Assign the tasks to the workstations to balance the line using the longest operat-

ing time rule. e. What is the efficiency of the balanced line? 5. Wild Widget must set up an assembly line for widgets. Forecasts show that 50 units

per hour should be produced. The tasks required, task times, and precedence relation- ships are as follows:

Task Time (seconds) Predecessors A 10 – B 30 A C 15 A D 35 C, B E 25 D F 10 D G 35 E, F

Final PDF to printer

165

swi39462_ch05_142-169.indd 165 10/04/18 12:52 PM

a. Draw the precedence diagram. b. What is the takt time? c. What is the theoretical number of workstations? d. Assign the tasks to the workstations to balance the line using the longest operat-

ing time rule. e. What is the efficiency of the balanced line? f. If demand decreased to 40 units per day, what changes would be needed, if any? 6. Golf Carts Inc. must set up an assembly line for golf carts. Forecasts show that 10 units

per day should be produced. The plant operates one 8-hour shift each day and runs the line continuously during the shift. The tasks required, task times, and precedence relationships are as follows:

Task Time (minutes) Predecessors A 12 – B 10 – C 16 – D 24 A, B E 14 C F 30 D G 15 E, F

a. Draw the precedence diagram. b. What is the takt time? c. What is the theoretical number of workstations? d. Assign the tasks to the workstations to balance the line using the longest operat-

ing time rule. e. What is the efficiency of the balanced line? f. If demand increased to 12 units per day, what changes would be needed, if any? 7. Williams Motor Manufacturing assembles small motors for sale to major appli-

ance manufacturers around the world. Average demand for its best-selling motor is 600 units per day. The assembly line operates continuously during a single 8-hour shift. The tasks required, task times, and precedence relationships are:

a. Draw the precedence diagram. b. What is the takt time? c. What is the theoretical number of workstations? d. Assign the tasks to the workstations to balance the line using the longest operat-

ing time rule. e. What is the efficiency of the balanced line? f. If demand increased to 650 motors per day, what changes would be needed,

if any?

Task Time (seconds) Predecessor A 12 – B 22 – C 20 – D 20 A E 18 C F 30 B, D G 17 E H 25 F, G I 20 H

Final PDF to printer

166

swi39462_ch05_142-169.indd 166 10/04/18 12:52 PM

8. A company that assembles high fidelity headphones needs to design an assembly line for one of its new products. The tasks needed and their relationships are shown in the following figure. To meet demand, the company must produce 80 headphones an hour.

A 10 sec.

B 18 sec.

C 8 sec.

D 22 sec.

E 12 sec.

F 20 sec.

G 15 sec.

H 16 sec.

a. What is the takt time? b. Design the line by assigning the tasks to the workstations to balance the line

using the longest operating time rule. c. Redesign the assembly line by assigning the tasks to the workstations to balance

the line using the most number of followers rule. If a tie is encountered, use the longest operating time rule to decide which task to enter.

d. Which approach to line balancing results in the most efficient assembly line? 9. The Office Interiors Company has developed a new, modern office chair. Initial sales

forecasts are for 50 chairs per day. The assembly operations will run for two 8-hour shifts. The process engineer and operations manager are working together to balance the line to make the new chair as efficiently as possible. The process engineer suggests using the longest operating time rule while the operations manager suggests using the most number of followers rule to design the line. If there is a tie, use the other rule to break the tie. Based on the processing information, which approach do you recom- mend? Why?

Task Time (Minutes) Predecessor A 7 – B 12 A C 6 B D 13 – E 8 C, D F 10 – G 4 F H 10 E, G

Final PDF to printer

167

swi39462_ch05_142-169.indd 10/04/18 12:52 PM

CASE

Coffee Roasters

Once considered a commodity product, many small bou- tique coffee companies are luring customers with promises of high quality and unique flavors. How do the processes used by the small companies compare with those of the major coffee processors? Coffee producers purchase green coffee beans, which have been processed through several steps. At the manufacturer, green coffee beans are screened to remove debris, and then roasted. A roaster is typically a rotating drum in which the beans are heated. The length of time spent in the roaster impacts coffee flavor. The longer the time spent in the roaster, the richer the coffee flavor. Following roasting, beans are sprayed with water, cooled, and screened to remove any remaining debris. Once roasted, coffee is ground to the size required for the brew- ing process and packaged.

Ohori’s Coffee is an example of a boutique coffee company. Established in 1984, Ohori’s Coffee is located in Santa Fe, New Mexico. This privately owned business microroasts 32 types of coffee from Africa, the Saudi pen- insula, Indonesia, the Pacific Rim, and North and South America. In batch sizes of 30 pounds or less, coffee beans are roasted in natural gas-fired rotating drum roasters care- fully monitored by highly skilled “master roasters.” To maintain quality, Ohori’s depends on humans, not com- puter controls in the roasting process. Online and in its Santa Fe location, Ohori’s sells whole beans and 10 dif- ferent grinds ranging from Percolator to Turkish style. (Source: http://ohoriscoffee.com.)

Founded in 1850, Folgers coffee, produced by the J.M. Smucker Company, has 55% of the U.S. market share in the mainstream retail coffee market. In 2017, Folgers had over $2.1 billion in sales. According the 2017 annual report, innovation is essential to Folgers’ success.

Coffee is roasted and packaged in the highly automated J.M. Smucker New Orleans plant which is over 200,000 sq. ft. in size. Green coffee is stored in a large silo at the Port of New Orleans and its only distribution center is in nearby Lacombe, LA.

Folgers coffee is produced in four roasts from mild to dark, five types, and seven different packaging forms includ- ing the regular canister, instant, and single serve. It also offers multiple flavors. For more information about Folgers products see its Web site (https://www.folgerscoffee.com/).

Questions

1. Using the product-process matrix, which processes are likely to be used by Ohori’s and Folgers? Why?

2. Explain how the choice of process supports each orga- nization’s competitive priorities.

3. Is the operations layout likely to be the same or differ- ent at Ohori’s and Folgers? Why?

4. What changes would Folgers need to make to compete directly with Ohori’s? Why?

5. What are the benefits and drawback from the lack of automation in Ohori’s coffee roasting process?

Final PDF to printer

swi39462_ch05_142-169.indd 168 10/04/18 12:52 PM

CASE

Sonnie’s Gourmet Sandwich Café

Sonnie’s Gourmet Sandwich Café, a popular new fast casual restaurant, serves high-quality, made-to-order sand- wiches. Located in a local outdoor shopping center, park- ing in front of Sonnie’s is limited. However, there are many parking spaces available behind the café within a five- minute walk. The café has an inviting, bright, and open interior with deli cases, blackboards listing specials, and oak tables and chairs.

The café’s popularity at lunch is a concern for Son- nie. During the prime lunch time between 11:30 a.m. and 1:30 p.m. Monday through Friday, the waiting line is often out the door. On average Sonnie would like to serve 40 customers per hour at lunch. Working professionals, who typically spend more than other customers at lunch, are on busy schedules and do not have time to wait in line. Sonnie estimates that currently some customers go to other restau- rants because of the line.

The menu at Sonnie’s includes nine standard sand- wiches such as roast beef, pastrami and rye, and a BLT. Many customers choose to build their own sandwiches, selecting from eight types of bread, 25 meats, 12 cheeses, and 20 different vegetables. Sandwiches are served with chips or a choice of four types of salad.

Order Placement

When customers enter the café, they walk past a large deli counter displaying meats and cheese on their left and stop in front of a counter to place their orders. An employee greets the customer, asks for each customer’s name, then takes his or her order by filling out a two-part paper form. Because of the number of choices, customers take, on aver- age, 1 minute and 20 seconds to place their orders. How- ever, those ordering standard sandwiches complete the order in about 1 minute. The employee gives the top part

of the order form to the customer (10 seconds) to take to the cashier and the other is handed to the next employee in line, who starts working on the order. The employee who took the order then fills the customer’s beverage order and hands it to the customer (30 seconds). The customer then walks about 15 feet to the cashier and pays, which on average takes 1 minute and 30 seconds. Then the customer selects a table and waits for his or her name to be called when the order is complete.

Order Fulfillment Process

Three employees work in the food preparation area, which uses a product layout. The first employee in the food prepa- ration line puts the choice of side on a plate (35 seconds) and then assembles the sandwich from presliced bread, meat, and cheese, a task that takes about 1 minute and 20 sec- onds. The sandwich is handed off to the next employee, who adds toppings and sauces (45 seconds) and slices the sandwich (10 seconds). The last employee checks the order for accuracy (15 seconds), moves the sandwich to the pick- up area, and calls the customer by name (20 seconds).

Questions

1. Compared to a fast-food restaurant such as McDon- ald’s, where would Sonnie’s sandwich shop be placed on the service process matrix? What challenges and opportunities does this position create relative to McDonald’s? Why?

2. How many customers is the current process able to accommodate per hour?

3. Use line balancing and service blueprinting to rede- sign the process at Sonnie’s. What changes do you rec- ommend? Why?

SELECTED READINGS & INTERNET SITES

Berman, B. “Should Your Firm Adopt a Mass Customization Strategy?” Business Horizons 45, no. 4 (2002), pp. 51–61. Chase, R. B., and D. A. Tansik. “The Customer Contact Model for Organizational Design.” Management Science 29, no. 9 (1983), pp. 1037–50. D’Aveni, R. “The 3D Printing Revolution.” Harvard Busi- ness Review 93, no. 5 (2015), pp. 40-48. 168

Flower, I. “Is Mass Customization the Future of Footwear?” Wall Street Journal, October 24, 2017. https://www.wsj.com/articles/is-mass-customization-the- future-of-footwear-1508850000

Hayes, R., and S. Wheelwright. “Link Manufacturing Pro- cess and Product Life Cycles.” Harvard Business Review 57, no. 1 (1979), pp. 133–40.

Final PDF to printer

169

swi39462_ch05_142-169.indd 169 10/04/18 12:52 PM

Hayes, R., and S. Wheelwright. Restoring Our Competi- tive Edge: Competing Through Manufacturing. New York: John Wiley & Sons, 1984. J.M. Smucker. 2017 Annual Report. http://www.jmsmucker .com/company-news/corporate-publications Lummus, R.; R. Vokurka; and L. Duclos. “The Product- Process Matrix Revisited: Integrating Supply Chain Trade-offs.” SAM Advanced Management Journal 71, no. 2 (2006), pp. 4–10, 20, 45. Marsh, R. “Amazon Drone Patent Application That Comes to You with One Click.” CNN Politics, May 12, 2015. http://www.cnn.com/2015/05/12/politics/ amazon-patent-drone-delivery/ McKenzie, S. “Rise of Robots: The Evolution of Ford’s Assembly Line.” 2015. http://money.cnn.com/gallery/ technology/2015/04/29/ford-factory-assembly-line-robots/ index.html Minter, S. “2012 IW Best Plants Winners: La-Z-Boy Never Rests on Continuous Improvement.” IndustryWeek, January 17, 2013. http://www.industryweek.com/iw-best- plants/2012-iw-best-plants-winner-la-z-boy-never-rests- continuous-improvement

Newman, D. “How IoT Will Impact the Supply Chain.” Fortune, January 9, 2018. https://www.forbes.com/sites/ danielnewman/2018/01/09/how-iot-will-impact-the- supply-chain/#41041e4d3e37 Popper, N., and S. Lohr. “Blockchain: A Better Way to Track Pork Chops, Bonds, Bad Peanut Butter?” New York Times, March 4, 2017. https://www.nytimes.com/2017/03/04/ business/dealbook/blockchain-ibm-bitcoin.html Porter, M. E., and J. E. Heppelmann. “How Smart, Con- nected Products Are Transforming Competition.” Harvard Business Review 92, no. 11 (2014), pp. 64–88. Safizadeh, M., and L. Ritzman. “An Empirical Analysis of the Product-Process Matrix.” Management Science 42, no. 11 (1996), pp. 1576–95. Sampson, S., and C. Froehle. “Foundations and Implica- tions of a Proposed Unified Services Theory.” Production and Operations Management 15, no. 2 (2006), pp. 329–43. Schmenner, R. “How Can Service Business Survive and Prosper?” Sloan Management Review 27, no. 3 (1986), pp. 21–32.

Schmenner, R. “Service Businesses and Productivity.” Decision Sciences 35, no. 3 (2004), pp. 333–47. Scott, M., “The Best Part of Waking Up? The Bridge Smell.” NOLA Times-Picayune, November 22, 2017. http://www.nola.com/300/2017/11/bridge_smell_new_ orleans_east_11222017.html Selladurai, R. “Mass Customization in Operations Man- agement: Oxymoron or Reality?” Omega 32, no. 4 (2004), pp. 295–301. Simon, M. “Please Do Not Assault the Towering Robot That Roams Walmart.” Wired, January 12, 2018. https:// www.wired.com/story/please-do-not-assault-the-towering- robot-that-roams-walmart/ Sohel, A., and R. Schroeder. “Refining the Product- Process Matrix.” International Journal of Operations and Production Management 22, no. 1 (2002), pp. 103–25. Verma, R. “An Empirical Analysis of Management Chal- lenges in Service Factories, Service Shops, Mass Ser- vices, and Professional Services.” International Journal of Service Industry Management 11, no. 1 (2000), pp. 8–25. Verma, R., and K. Boyer. “Service Classification and Management Challenges.” Journal of Business Strategies 17, no. 1 (2000), pp. 5–24. Wingfield, N. “Inside Amazon Go, a Store of the Future,” New York Times, January 21, 2018. https://www.nytimes. com/2018/01/21/technology/inside-amazon-go-a-store-of- the-future.html Amazon Go https://www.amazon.com/b?node=16008589011 Convoy www.convoy.com Flexe www.flexe.com Folgers https://www.folgerscoffee.com/ IBM Blockchain https://www.ibm.com/ blockchain/?lnk=mpr_bubk&lnk2=learn Invisalign® www.invisalign.com Ohori’s Coffee http://ohoriscoffee.com/

Design Icons: (digital): ©Alexey Boldin/Shutterstock; (relationships): ©Barbara Penoyar/Getty Images; (global): ©Steve Hix/Somos Image/SuperStock; (sustainability): ©Siede Preis/Getty Images

Final PDF to printer

Managing Operations Across the Supply Chain
Chapter 5: Manufacturing and ServiceProcess Structures

Process Structures
Unique Aspects Of Service Processes
Operations Layout
Capability Enabling Technologies
Chapter Summary
Key Terms
Discussion Questions
Solved Problems
Problems

Slide 1: Introduction to Beats Studio Buds

· Overview:

· Introduce the Beats Studio Buds product and their position in the market.

· Mention that this review focuses on identifying customer feedback regarding product defects and performance.

· Objective: To analyze customer feedback, categorize defects, and present insights for improvement.

Slide 2: Identifying Categories of Defects

· Categories Based on the Review:

· Battery Life Issues: Customers report shorter battery life than advertised.

· Connectivity Problems: Issues with Bluetooth connection dropping or lagging.

· Fit and Comfort: Complaints about discomfort or earbuds not staying in place.

· Sound Quality: Reports of inconsistent or subpar audio quality compared to competitors.

· Durability: Customers experience physical damage or wear after a few months of use.

Slide 3: Data Gathering and Customer Feedback

· Sources of Data:

· Customer reviews from platforms like Amazon and specialized blogs.

· Example: The blog review on RecordingNow.com highlights common customer issues with the product.

· Analyze reviews over a 3-month period (e.g., based on sales and returns data).

· Data Collection Methods:

· Collect feedback from product reviews, returns, and warranty claims.

Slide 4: Calculating Frequency of Observations

· Example Breakdown of Complaints (based on hypothetical data from the review):

· Battery Life Issues: 50 complaints out of 200 = 25%

· Connectivity Problems: 40 complaints out of 200 = 20%

· Fit and Comfort: 30 complaints out of 200 = 15%

· Sound Quality: 50 complaints out of 200 = 25%

· Durability: 30 complaints out of 200 = 15%

· Formula:

· Frequency (%) = (Number of complaints in category / Total complaints) × 100.

Slide 5: Sorting Categories by Frequency

· Ranking Defects in Descending Order:

1. Battery Life Issues: 25%

2. Sound Quality: 25%

3. Connectivity Problems: 20%

4. Fit and Comfort: 15%

5. Durability: 15%

· Key Insight: Battery life and sound quality are the most frequent issues and should be the focus of improvements.

Slide 6: Graphical Presentation – Pareto Chart

· Pareto Chart:

· X-Axis: Categories (Battery Life, Sound Quality, etc.)

· Y-Axis: Percentage of Complaints

· Cumulative line to show the 80/20 rule, with the top two categories contributing to 50% of complaints.

· Observation: Battery Life and Sound Quality account for the majority of customer issues.

Slide 7: Identifying the Vital Few Defects

· Pareto Principle (80/20 rule):

· Battery life and sound quality represent the "vital few" that account for most of the issues (50%).

· Focusing on these areas could significantly improve overall customer satisfaction.

Slide 8: Conclusion and Recommendations

· Summary of Key Insights:

· Most common complaints are related to battery life and sound quality.

· Addressing these key issues could enhance the overall user experience.

· Recommendations for Improvement:

· Battery Life: Optimize battery performance to match advertised specs.

· Sound Quality: Enhance audio consistency and compete with high-end alternatives.

· Fit and Comfort: Introduce adjustable tips or additional sizes to address comfort issues.

Slide 9: References

· Sources:

1. “Beats Studio Buds Review” RecordingNow.com, [Link to the article].

2. Swink, M., et al. Managing Operations Across the Supply Chain, 4th ed., McGraw-Hill, 2020.

Share:

Categories:

Homework Answsers / Business & Finance / Management

Queen Essays

Production Supply Chain

Order a similar assignment, and have writers from our team of experts write it for you, guaranteeing you an A