Operations management in the supply chain decisions and cases

OPERATIONS MANAGEMENTBeckman and Rosenfield Operations Strategy: Competing in the Bowersox, Closs, and Cooper Supply Chain Logistics Management Fifth Edition Brown and Hyer Managing Pro

Operations Management

Operations

Management in the Supply Chain

Decisions and Cases

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Introduction to Operations Management

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Finch

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First Edition

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Service Management: Operations,

Strategy, Information Technology

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Operations and Supply Chain Management: The Core

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Designing and Managing the Supply Chain: Concepts, Strategies, Case Studies

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Business Dynamics: Systems Thinking and Modeling for a Complex World

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Product Design and Development

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Foundations of Inventory Management

First Edition

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

Fifth Edition

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Introduction to Management Science with Spreadsheets

First Edition

Operations

Management in the Supply Chain

Roger G Schroeder Susan Meyer Goldstein

Carlson School of Management University of Minnesota

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121 Copyright © 2018 by McGraw-Hill Education All rights reserved Printed in the United States of America Previous editions © 2013, 2011, and 2008 No part of this publication may be reproduced or distributed in any form or by any means, or stored in

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Library of Congress Cataloging-in-Publication Data

Schroeder, Roger G., author | Goldstein, Susan Meyer, author |

Operations management in the supply chain : decisions and cases /

Roger G Schroeder, Susan Meyer Goldstein, Carlson School of Management,

University of Minnesota.

Operations management

Seventh edition | Dubuque : McGraw-Hill Education, 2016.

LCCN 2016043564 | ISBN 9780077835439 (alk paper) |

ISBN 0077835433 (alk paper)

LCSH: Production management | Production management—Case studies |

Decision making.

LCC TS155 S334 2016 | DDC 658.5—dc23 LC record available at https://lccn.loc.gov/2016043564

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 Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.

mheducation.com/highered

To our families, whose encouragement and love we appreciate

—Roger G Schroeder

—Susan Meyer Goldstein

About the Authors

Roger G Schroeder

is the Frank A Donaldson Chair in Operations Management Emeritus at the Curtis L Carlson School of Management, University of Minnesota He received a B.S degree in Industrial Engineering with high distinction and a MSIE degree from the University of Minnesota, and a Ph.D from Northwestern University He held positions in the Carlson School of Management as Director of the Ph.D program, Chair of the Operations and Management Science Department, and Co-Director of the Joseph M Juran Center for Leadership in Quality Professor Schroeder has obtained research grants from the National Science Foundation, the Ford Foundation, and the American Production and Inventory Control Society His research is in the areas of quality management, operations strategy, and high-performance manufacturing, and he is among the most widely published and cited researchers in the field of operations management He has been selected as a member

of the University of Minnesota Academy of Distinguished Teachers and is a recipient of the Morse Award for outstanding teaching Professor Schroeder received the lifetime achievement award in operations management from the Academy of Management, and he

is a Fellow of the Decision Sciences Institute and a Fellow of the Production and tions Management Society Professor Schroeder has consulted widely with numerous orga-nizations, including 3M, Honeywell, General Mills, Motorola, Golden Valley Foods, and Prudential Life Insurance Company

Opera-Susan Meyer Goldstein

is Associate Professor in the Supply Chain and Operations Department at the Curtis L Carlson School of Management, University of Minnesota She earned a B.S degree in Genetics and Cell Biology and an M.B.A at the University of Minnesota and worked in the health care industry for several years She later obtained a Ph.D in operations management from Fisher College of Business at The Ohio State University She has served on the faculty at the University of Minnesota since 1998 and was a Visiting Professor at the Olin Business School at Washington University in St Louis for two years Her current research investigates the link between service process design and process performance, and she is currently working with a Minnesota hospital that has been achieving one of the lowest heart attack mortality rates in the United States She is also interested in issues related to aging service workers, operations strategy, and service quality Her research has been pub-

lished in Decision Sciences, Journal of Operations Management, and Production and Operations Management, among others She is Associate Editor at Decision Science Journal, Quality Management Journal, and Service Industries Journal and serves on the

editorial boards of many operations and service journals She is the recipient of several research awards and research grants, and received the 2011 Carlson School of Management Teaching Award

vi

This textbook on operations management in the supply chain emphasizes decision ing in operations with a supply chain orientation The text provides materials of interest to general business students and operations and supply chain management majors By stress-ing cross-functional decision making, the text provides a unique and current business per-spective for all students This is the first text to incorporate cross-functional decision making in every chapter.

A unique decision framework organizes the material by grouping decisions into five major categories: process, quality, capacity, inventory, and supply chain This framework is intended to make it easy for students to understand the decision role and responsibilities of operations and supply chain management in relation to functions such as marketing and finance See the illustration below The text also provides a balanced treatment of both service and manufacturing firms We continue to emphasize operations in the supply chain with new chapters on sourcing and logistics

The most current knowledge is incorporated, including global operations, supply chain management, e-operations, service blueprinting, competency-based strategy, Six Sigma, lean systems, 3D printing, sustainability, supply chain risk, and mass customization Complete coverage is also provided on traditional topics, including process design, service systems, quality management, ERP, inventory control, and scheduling

While covering the concepts of operations and supply chain management in 18 chapters, the book also provides 18 case studies The cases are intended to strengthen problem for-mulation skills and illustrate the concepts presented in the text Long and short case studies are included The cases are not just large problems or examples; rather, they are substantial management case studies, including some from the Northwestern, Sheffield, Cranfield, and The Case Centre collections

The softcover edition with fewer pages than most introductory books covers all the essentials students need to know about operations management in the supply chain, leaving out only superfluous and tangential topics By limiting the size of the book, we have condensed the material to the basics The book is also available for the first time in digital formats in Connect and LearnSmart versions

Inventory

Supply Chain Decisions

This book is ideal for regular operations management courses and also case courses and modular courses It is particularly useful for those who desire a cross-functional and decision-making perspective that reaches across the supply chain Instructors can easily supplement the text with their own cases, readings, or course materials as desired.

The Connect Library and Instructor Resources contain 20 Excel templates designed to assist in solving problems at the end of chapters and the case studies These resources also contain technical chapters on linear programming, simulation, transportation method, and queuing, which can be assigned by the instructor, if desired The resources have Power-Point slides, solutions manual, the test bank, and web links to companies cited in the Stu-dent Internet Exercises in the text Access to these web resources can be obtained from your McGraw-Hill sales representative or directly in the Connect Library

A number of pedagogical features are contained in this book

∙ Operations Leader boxes are included in each chapter to illustrate current practices being implemented by leading firms

∙ Each chapter contains at least three Student Internet Exercises These exercises allow for extended learning about concepts discussed in the chapter

∙ Points of cross-functional emphasis are noted in each chapter by a special symbol—a handshake This highlights the locations of cross-functional aspects of operations decisions

∙ Solved problems are included at the end of quantitative chapters to provide tional examples for students

addi-∙ Excel spreadsheets are keyed to specific problems at the end of chapters

KEY CHANGES IN THE SEVENTH EDITION

This book is known for its decision orientation and case studies We have strengthened the decision-making framework by addressing new decisions in sourcing, logistics, sustain-ability, and global supply chains We also added new cases to address these decisions

1 Supply Chain Management This edition added a new section on Supply

Chain It contains two new chapters on Sourcing and Global Logistics The Sourcing chapter contains material on sourcing goals, outsourcing, offshoring, reshoring, supply base optimization, the purchasing cycle, and scorecard weighting The Global Logis-tics chapter contains material on the role of logistics, transportation modes, distribu-tion centers, logistics networks, location, third-party logistics, and logistics strategy In addition, the Supply Chain Management chapter was moved to this section and up-dated to add a new section on supply chain risk and another new section on supply chain sustainability This edition now has the latest and best supply chain material available

2 Sustainability More emphasis is given to sustainability It is now covered in the chapters

on The Operations Function, Operations and Supply Chain Strategy, Process Selection, and Supply Chain Management A new case study is added on Murphy Warehouse: Sustainable Logistics

3 Global More material is provided on global operations and supply chains With the

addition of the Sourcing and Global Logistics chapters, global emphasis now moves beyond operations to the entire supply chain New material on outsourcing, offshoring, and managing global supply chains has been added New cases on global sourcing, global plant location, and global logistics are added

e cel x

Preface ix

4 Other Additions We have added materials on lean Six Sigma, 3D Printing, big

data, analytics, ethics in sourcing, and disaster logistics

5 Digital Versions Digital versions of the text in McGraw-Hill’s Connect and

LearnSmart have been developed The Connect version provides a complete course agement system for the instructor and pdf content for students It can be used to customize the course by selecting learning objectives for course coverage, using the test bank for multiple choice questions, automatic grading for selected quantitative problems, and access

man-to all instrucman-tor support materials The LearnSmart version provides feedback man-to students via multiple choice probes for each learning objective The student is directed to return to readings where retention is weak

6 Cases Eighteen case studies are provided including cases from The Case Centre,

and Northwestern, Sheffield, and Cranfield Universities Existing cases have been revised

to add current information Ten new cases are added:

Altimus Brands: Managing Procurement Risk;

Murphy Warehouse Company: Sustainable Logistics;

Polaris Industries Inc.—Global Plant Location;

Shelter Box: A Decade of Disaster Relief;

The Westerfield Physician Practice: Value Stream Mapping;

Journey to Perfect: Mayo Clinic and the Path to Quality;

The Evolution to Lean Six Sigma in 3M, Inc.;

Sage Hill Above Onion Creek: Focusing on Service Process and Qualilty;

Toledo Custom Manufacturing: Quality Control;

Best Homes: Forecasting

INSTRUCTOR RESOURCES

Instructor Resource Center www.mhhe.com/schroeder7e

The Instructor Resource Center provides complete materials for study and review At this book’s website, instructors have access to teaching support such as electronic files of the ancillary materials: Solutions Manual, Technical Chapters, Excel Spreadsheets, Power-Point 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 The Test Bank includes true/false, multiple-choice, and discussion questions/problems at varying levels of difficulty

EZ Test Online All test bank questions are available in EZ Test Online, a flexible tronic testing program The answers to all questions are given, along with a rating of the level of difficulty, chapter learning objective met, Bloom’s taxonomy question type, and the AACSB knowledge category

elec-PowerPoint Lecture Slides The PowerPoint slides draw on the highlights of each chapter 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 Point slides or for class discussion

Power-Excel Spreadsheets Twenty Excel Spreadsheets are provided for students to solve ignated problems at the end of chapters.

des-Technical Chapters Four technical chapters are provided for additional technical rial on linear programming, transportation method, simulation and waiting lines

mate-Operations Management Video Series

The operations management video series, free to text adopters, includes professionally veloped videos to help students fully understand the content and terminology within Operations and Supply Chain Management These videos will be both relevant and up-to-date in order to be effectively utilized Each video will come with a series of questions to assess the students’ knowledge of the material

de-TECHNOLOGY

McGraw-Hill Connect® Operations Management

McGraw-Hill Connect® Operations Management is an online assignment and assessment

solution that connects students with the tools and resources they’ll need to achieve success through faster learning, higher retention, and more efficient studying It provides instructors with tools to quickly pick content and assignments according to the topics they want to emphasize

Online Assignments Connect Operations Management helps students learn more efficiently

by providing practice material and feedback when they are needed Connect grades homework

automatically and provides feedback on any questions that students may have missed

LearnSmart LearnSmart adaptive self-study technology with Connect Operations Management helps students make the best use of their study time LearnSmart provides

a seamless combination of practice, assessment, and remediation for every concept in the textbook LearnSmart’s intelligent software adapts to students by supplying questions on a new concept when students are ready to learn it With LearnSmart students will spend less time on topics they understand and instead focus on the topics they need to master

Simple Assignment Management and Smart Grading When it comes to studying,

time is precious Connect Operations Management helps students learn more efficiently by

providing feedback and practice material when they need it, where they need it When it comes to teaching, your time also is precious The grading function enables you to:

∙ Have assignments scored automatically, giving students immediate feedback on their work and side-by-side comparisons with correct answers

∙ Access and review each response; manually change grades or leave comments for dents to review

stu-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 individual

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

Instructor Library The Connect Operations Management Instructor Library is your

repository for additional resources to improve student engagement in and out of class

You can select and use any asset that enhances your lecture The Connect Operations Management Instructor Library includes:

∙ eBook

∙ PowerPoint presentations

∙ Test Bank

∙ Instructor’s Solutions Manual

∙ Digital Image Library

∙ Excel Spreadsheets

∙ Technical Chapters

Integrated Media-Rich eBook An integrated media-rich eBook allows students to access media in context with each chapter Students can highlight, take notes, and access shared instructor highlights/notes to learn the course material

Dynamic Links Dynamic links between the problems or questions you assign to your students and the location in the eBook where that problem or question is covered

Tegrity Campus: Lectures 24/7

Tegrity Campus is a service that makes class time available 24/7 by automatically 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

Online Course Management

No matter what online course management system you use (WebCT, BlackBoard, or eCollege),

we have a course content ePack available for your course Our new ePacks are specifically designed to make it easy for students to navigate and access content online For help, our online Digital Learning Consultants are ready to assist you with your online course needs They pro-vide training and will answer any questions you have throughout the life of your adoption McGraw-Hill Higher Education and Blackboard have teamed up What does this mean for you?

1 Single sign-on Now you and your students can access McGraw-Hill’s Connect and

Create right from within your Blackboard course-all with one single sign-on

2 Deep integration of content and tools You get a single sign-on with Connect and Create,

and you also get integration of McGraw-Hill content and content engines right into board Whether you’re choosing a book for your course or building Connect assignments, all the tools you need are right where you want them-inside of Blackboard

Black-3 One gradebook Keeping several gradebooks and manually synchronizing grades into

Blackboard is no longer necessary When a student completes an integrated Connect

Preface xi

assignment, the grade for that assignment automatically (and instantly) feeds your Blackboard grade center.

4 A solution for everyone Whether your institution is already using Blackboard or you

just want to try Blackboard on your own, we have a solution for you McGraw-Hill and Blackboard can now offer you easy access to industry-leading technology and content, whether your campus hosts it, or we do Be sure to ask your local McGraw-Hill repre-sentative for details

ASSURANCE OF LEARNING READY

Many educational institutions today are focused on the notion of assurance of learning, an

important element of some accreditation standards Operations Management in the Supply Chain, 7e is designed specifically to support your assurance of learning in initiatives with

a simple yet powerful solution

Instructors can use Connect to easily query for learning outcomes/objectives that

di-rectly relate to the learning objectives of the course You can then use the reporting

fea-tures of Connect to aggregate student results in similar fashion, making the collection and

presentation of assurance of learning data simple and easy

AACSB STATEMENT

McGraw-Hill Global Education is a proud corporate member of AACSB International

Understanding the importance and value of AACSB accreditation, the authors of tions Management in the Supply Chain, 7e have sought to recognize the curricula guide-lines detailed in the AACSB standards for business accreditation By connecting questions

Opera-in the test bank and end-of-chapter material to the general knowledge and skill guidelOpera-ines found in the AACSB standards

It is important to note that the statements contained in Operations Management in the Supply Chain, 7e are provided only as a guide for the users of this textbook The AACSB leaves content coverage and assessment within the purview of individual schools, the mis-

sion of the school, and the faculty While Operations Management in the Supply Chain, 7e

and the teaching package make no claim of any specific AACSB qualification or

evalua-tion, we have within Operations Management in the Supply Chain, 7e labeled selected

questions according to the general knowledge and skills areas

MCGRAW-HILL CUSTOMER CARE CONTACT INFORMATION

At McGraw-Hill, we understand that getting the most from new technology can be 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 website For

chal-Customer Support, call 800-331-5094, e-mail hmsupport@mcgraw-hill.com, or visit www.

mhhe.com/support One of our Technical Support Analysts will be able to assist you in a timely fashion

The authors would also like to thank the staff at McGraw-Hill Education who had a direct hand in the editing and production of the text.

We would like to thank our colleagues at the University of Minnesota who listened to our ideas and provided suggestions for book improvement Additional thanks go to Doug and Letty Chard, who diligently and carefully prepared the index We would also like to thank Tom Buchner of the University of Minnesota who carefully prepared the test bank ques-tions Our thanks to Ed Pappanastos of Troy University for constructing the Connect solu-tions to problems Finally, we thank our families for their patience and perseverance during the many months of writing and editing Without their support and encouragement this textbook would not have been possible

Roger G Schroeder Susan Meyer Goldstein

Tobias Stapleton

University of Massachusetts—Dartmouth

Richard C Yokeley

Forsyth Technical Community College

Ralph James Rich

Charles Vincent Nemer

Metropolitan State University

Learn Without Limits

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platform that is proven to deliver better

results for students and instructors

Connect empowers students by

continually adapting to deliver precisely

what they need, when they need it, and

how they need it, so your class

time is more engaging and effective.

Connect Insight®

Connect Insight is Connect’s new one-of-a-kind

visual analytics dashboard—now available for both

instructors and students—that provides at-a-glance

information regarding student performance, which is

immediately actionable By presenting assignment,

assessment, and topical performance results together with

a time metric that is easily visible for aggregate or individual

results, Connect Insight gives the user the ability to take a

just-in-time approach to teaching and learning, which was

never before available Connect Insight presents data that

empowers students and helps instructors improve class

performance in a way that is efficient and effective

73% of instructors who use

Connect require it; instructor

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Proven to help students improve grades and study

more efficiently, SmartBook contains the same

content within the print book, but actively tailors

that content to the needs of the individual

SmartBook’s adaptive technology provides

precise, personalized instruction on what the

student should do next, guiding the student to

master and remember key concepts, targeting

gaps in knowledge and offering customized

feedback, and driving the student toward

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Brief Table of Contents

About the Authors vi

Preface vii

PART ONE

Introduction 1

1 The Operations Function 2

2 Operations and Supply Chain

14 Independent Demand Inventory 286

Supplement: Advanced Models 314

15 Materials Requirements Planning and ERP 317

PART SIX Supply Chain Decisions 341

16 Supply Chain Management 342

17 Sourcing 367

18 Global Logistics 386

PART SEVEN Case Studies 409 APPENDIXES 485 INDEX 487

ACRONYMNS 501

Technical Chapters available in the Instructor’s Resource Library in Connect

Waiting Lines Simulation Transportation Method Linear Programming

The Operations Function 2

1.1 Why Study Operations Management? 3

1.2 Definition of Operations Management

and Supply Chains 4

1.3 Decisions at Pizza U.S.A 7

1.4 Operations Decisions in the Supply

Chain—A Framework 9

1.5 Cross-Functional Decision Making 10

1.6 Operations as a Process 11

1.7 Challenges Facing Operations

and Supply Chain Managers 13

and the Supply Chain 15

1.8 Key Points and Terms 15

Student Internet Exercises 16

Discussion Questions 17

Chapter 2

Operations and Supply Chain

Strategy 18

2.1 Operations Strategy Model 20

Corporate and Business Strategy 21

2.6 Supply Chain Strategy 30

2.7 Environment and Sustainable

Operations 32

2.8 Key Points and Terms 33

Student Internet Exercises 34

3.3 Cross-Functional Product Design 40

3.4 Supply Chain Collaboration 42

3.5 Quality Function Deployment 43

Customer Attributes 44

Engineering Characteristics 45

3.6 Modular Design 47

3.7 Key Points and Terms 48

Student Internet Exercises 49

Discussion Questions 49

PART TWO PROCESS DESIGN 51

Chapter 4

Process Selection 52

4.1 Product-Flow Characteristics 53

4.2 Approaches to Order Fulfillment 58

4.3 Process Selection Decisions 61

4.9 Cross-Functional Decision Making 69

4.10 Key Points and Terms 70

Student Internet Exercises 71

5.5 Service Recovery and Guarantees 82

5.6 Technology and Globalization

of Services 84

5.7 Service Profitability and Employees 87

5.8 Key Points and Terms 89

Student Internet Exercises 90

6.5 Measuring Process Flows 101

6.6 Measuring Process Flows at Pizza

U.S.A 103

6.7 Process Redesign 104

6.8 Key Points and Terms 107

Student Internet Exercises 108

Strive for Perfection 119

Lean Thinking Techniques 119

7.3 Stabilizing the Master

Schedule 120

7.4 Controlling Flow with the Kanban

System 121

7.5 Reducing Setup Time and Lot Sizes 124

7.6 Changing Layout and Maintaining

7.11 Key Points and Terms 132

Student Internet Exercises 133 Solved Problems 133

Discussion Questions 134 Problems 135

PART THREE QUALITY 137

8.6 Ensuring Quality in the Supply Chain 146

8.7 Quality, Cost of Quality, and Financial

Performance 147

8.8 Quality Pioneers 150

W Edwards Deming 150 Joseph Juran 150

8.9 ISO 9000 Standards 152

8.10 Malcolm Baldrige Award 154

8.11 Why Some Quality Improvement

Efforts Fail 156

8.12 Key Points and Terms 157

Student Internet Exercises 158 Discussion Questions 158

Chapter 9

Quality Control and Improvement 159

9.1 Design of Quality Control Systems 160

9.2 Process Quality Control 163

9.3 Attribute Control Chart 165

9.4 Variables Control Chart 166

9.5 Using Control Charts 167

9.6 Process Capability 168

9.7 Continuous Improvement 170

9.8 Six Sigma 174

9.9 Lean and Six Sigma 176

9.10 Key Points and Terms 177

Student Internet Exercises 178

10.1 Forecasting for Decision Making 188

10.2 Qualitative Forecasting Methods 189

10.8 Causal Forecasting Methods 200

10.9 Selecting a Forecasting Method 202

10.10 Collaborative Planning, Forecasting, and

Replenishment 203

10.11 Key Points and Terms 205

Student Internet Exercises 206

11.7 Aggregate Planning Costs 230

11.8 Aggregate Planning Example 231

11.9 Key Points and Terms 236

Student Internet Exercises 237 Solved Problems 237

Discussion Questions 242 Problems 242

12.5 Priority Dispatching Rules 254

12.6 Planning and Control Systems 256

12.7 Key Points and Terms 258

Student Internet Exercises 259 Solved Problems 259

Discussion Questions 261 Problems 261

Chapter 13

Project Planning and Scheduling 263

13.1 Objectives and Trade-Offs 264

13.2 Planning and Control in Projects 265

13.7 Key Points and Terms 278

Student Internet Exercises 279 Solved Problems 279

Discussion Questions 282 Problems 283

PART FIVE INVENTORY 285

14.4 Independent versus Dependent

Demand 291

14.5 Economic Order Quantity 292

14.6 Continuous Review System 296

14.7 Periodic Review System 301

14.8 Using P and Q Systems in Practice 304

14.9 Vendor Managed Inventory 306

14.10 ABC Classification of Inventory 306

14.11 Key Points and Terms 308

Student Internet Exercises 309

15.2 MRP versus Order-Point Systems 320

15.3 Parts Explosion: How an MRP

15.6 The Successful MRP System 330

15.7 Enterprise Resource Planning

Systems 331

15.8 Key Points and Terms 334

Student Internet Exercises 335

Supply Chain Management 342

16.1 Supply Chain and Supply Chain

16.4 Improving Supply Chain Performance 352

16.5 Supply Chain Structural

Improvements 352

16.6 Supply Chain System Improvements 354

16.7 Technology and Supply Chain

Management 356

16.8 Supply Chain Risk and Resilience 358

Analysis of Supply Chain Risk 359

16.9 Sustainability of the Supply Chain 361

16.10 Key Points and Terms 364

Student Internet Exercises 365 Discussion Questions 366

17.6 The Purchasing Cycle 377

Internal User-Buyer Interface 378 Sourcing and Make-Buy Decision 378 Find Suppliers 378

Supplier Selection 378 Supplier Relationship Management 379

17.7 Challenges Facing Purchasing 380

17.8 Key Points and Terms 381

Student Internet Exercises 382 Solved Problems 382

Discussion Questions 384 Problems 384

Chapter 18

Global Logistics 386

18.1 Role of Logistics in Supply Chain

Management 387

18.2 Transportation 389

Transportation Economics 389

Modes of Transportation 390

Selecting the Transportation Mode 392

18.3 Distribution Centers and

18.7 Key Points and Terms 405

Student Internet Exercises 405

Operations Strategy at BYD of China,

Electrifying the World’s Automotive

Market 410

Early Supplier Integration in the Design of

the Skid-Steer Loader 415

Process Design

Eastern Gear, Inc.: Job Shop 417

Sage Hill Inn Above Onion Creek: Focusing

on Service Process and Quality 420

U.S Stroller: Lean 424

The Westerville Physician Practice:

Capacity and Scheduling

Best Homes, Inc.: Forecasting 447Polaris Industries Inc.: Global Plant Location 449

Lawn King, Inc.: Sales and Operations Planning 454

Sustainable Logistics 477Shelterbox: A Decade of Disaster Relief 481

Technical Chapters available in the Instructor’s Resource Library in Connect

Waiting LinesSimulationTransportation MethodLinear Programming

Contents xxi

Part i

1. The Operations Function

2. Operations and Supply Chain Strategy

3. Product Design

The introductory part of this text provides an overview of the operations function, operations and supply chain strategy, and product design After reading this part, students should have an appreciation for the importance to the firm of decisions made in the operations function and its associated supply chain Also, the need for strategy to guide all decision making is emphasized New-product design is treated

as a cross-functional decision responsibility that precedes the production and delivery of goods or services

LEARNING OBJECTIVES

After reading this chapter, you should be able to:

LO1.1 Define operations management.

LO1.2 Describe the five main decisions made by operations and supply chain managers.

LO1.3 Explain the nature of cross-functional decision making with operations.

LO1.4 Define typical inputs and outputs of an operations transformation system.

LO1.5 Identify contemporary challenges facing operations and supply chain managers.

1

c h a p t e r

Operations management, as a field, deals with the production of goods and services Every day we come in contact with an abundant array of goods or services, all of which are pro-duced under the leadership of operations managers Nonprofit and government services are also managed by operations managers Without effective management of operations, a modern industrialized society cannot exist The operations function is the engine that cre-ates goods and services for the enterprise and underpins the global economy

Operations managers have important positions in every organization One example is the plant manager who is in charge of a factory Other managers who work in the factory— including production and inventory control managers, quality managers, and line supervisors—are also operations managers Collectively, this group of managers is respon-sible for producing the supply of goods in a manufacturing business We should also include

in the group of operations managers all manufacturing managers at the corporate or sional level These managers might include a corporate vice president of operations (or manufacturing) and a group of corporate staff operations managers concerned with quality, production and inventory control, facilities, and equipment

Operations managers have important responsibilities in service industries as well In the private sector, operations managers take leadership roles in hotels, restaurants, airlines,

The Operations

Function

Chapter 1 The Operations Function 3

banks, and retail stores In each of these organizations, operations managers are responsible for producing and delivering the supply of services In government offices, there are operations managers in the post office, police department, and housing department, to name only a few Anyone who is responsible for producing or delivering the service is an operations manager

At first glance, it may appear that service operations have little in common with manufacturing operations However, the unifying feature of these operations is that both can be viewed as transformation processes inside organizations that are themselves embedded within supply chains In manufacturing, inputs of raw materials, energy, labor, and capital are transformed into finished goods In service operations, the same types of inputs are transformed into services Managing the transformation process in an efficient and effective manner is the task of the operations manager in any type of organization.Most Western economies have shifted dramatically from the production of goods to the production of services It may come as a surprise that today more than

80 percent of the U.S workforce is employed in service industries.1 Even though the preponderance of employ-ment is in the service sector, manufacturing remains important to provide the goods needed for export and internal consumption Because of the importance of both service and manufacturing operations, they are treated on an equal basis in this text

In the past when the field was related primarily

to manufacturing, operations management was called production management Later, the name was expanded

to “production and operations management,” or, more simply, “operations management,” to include the service industries as well The term

“operations management” as used in this text refers to both manufacturing and vice industries

ser-Today, individuals who work in operations and associated supply chains can belong to a number of professional societies These societies provide opportunities to become certi-fied, network with other professionals, and learn about and share best practices See the Operations Leader box titled “Professional Societies Affiliated with Operations and Sup-ply Chain Management.” The Operations Leader boxes throughout this book highlight best practices and useful professional knowledge in a variety of industries

All businesses want to hire bright people who can make the best decisions for the business

as a whole, not the best marketing, finance, or operations decisions They want employees who can see the big picture of how these functional areas interact You will severely limit your career if you take a narrow functional perspective

Operations managers make important decisions in both

manufacturing and service organizations

© McGraw-Hill Education/Jill Braaten

1 U.S Census Bureau, Statistical Abstract of the United States, Washington, DC, 2016 ed.

Every decision is cross-functional in nature.2 You will be working with operations and need

to understand operations no matter what career path you choose Operations is a major tion in every organization, and regardless of the function in which you work, you will interact with the operations function that produces goods or services (or both) The organization in which someone works only with people from his or her own function does not exist That is why we take a cross-functional perspective in this text so that the content is useful to all majors

As you study operations management, you will find that many of the ideas, techniques, and principles can be applied across the business, not just in operations For example, all work is accomplished through a process (or sequence of steps) The principles of process thinking found in this text can be applied to all functions After graduating, many students find that the ideas learned in operations management are among the most useful, regardless

of the industry or career they enter

Operations management is an exciting and challenging field of study The material is both qualitative and quantitative, and both are essential to good management practices You are embarking on a journey that is interesting and useful no matter what career you choose!

1.2 DEFINITION OF OPERATIONS MANAGEMENT

AND SUPPLY CHAINS

All organizations (for-profit and nonprofit) thrive by producing and delivering a good or a

service deemed to be of value to customers Value is the tangible and intangible benefits

that customers derive from consuming a good or service at a price they are willing to pay

LO1.1 Define

opera-tions management.

INSTITUTE FOR SUPPLY MANAGEMENT

The largest and one of the most respected supply management associations in the world, whose mission is to lead the supply management and sourcing profession through its standards of excellence, research, promotional activities, and education (see www ism.ws for more information).

COUNCIL OF SUPPLY CHAIN MANAGEMENT PROFESSIONALS

The preeminent worldwide professional association for supply chain management professionals, whose vision is to lead the evolving supply chain management profes- sion by developing, advancing, and dis- seminating supply chain knowledge and research (see http://cscmp.org for more information).

Operations Leader Professional Societies Affiliated with Operations and

Supply Chain Management

ASSOCIATION FOR OPERATIONS

MANAGEMENT

The global leader and premier source of the body of knowledge in operations management, including production, inventory, the supply chain, materials management, sourcing and logistics

(see www.apics.org for more information).

AMERICAN SOCIETY FOR QUALITY

The world’s leading organization devoted

to advancing learning, quality improvement,

and knowledge exchange to improve

busi-ness results and create better workplaces

and communities worldwide (see www.asq.

org for more information).

2 The “hand shake” symbol in the margin identifies a point of cross-functional emphasis and is designed

to illustrate that the various functions must work together for an organization to be successful and thrive.

Chapter 1 The Operations Function 5

For example, value in a pair of shoes may be shoes that are good looking and comfortable and will last a long time at a price you can afford What is of value to one customer (or set

of customers) may not be of value to another Flying in first class may be of value to business travelers, but for leisure travelers flying in first class may not be of value because

of the price of first-class seats Value, thus, is always defined in the eyes of the customer (or set of customers) relative to the price paid See the Operations Leader box for Dell Computer Inc for a company that creates value for its customers

Organizations that are successful strive to identify the value inherent in the goods or services being offered to customers They then deploy this understanding to guide the deci-sions that affect the production and delivery of those goods and services These decisions have an impact on the design, execution, and performance of operations and should be coordinated with decisions made by managers of the sourcing and the logistics functions The sourcing function (also called purchasing or procurement) is responsible for finding

other organizations to serve as sources and then buying the material and service inputs for

the transformation process of the organization The logistics function, in contrast, is

typi-cally responsible for the actual movement of goods and/or services across organizations Collectively, the operations, sourcing, and logistics functions manage the production of the goods or services that are moved through the production process and delivered to customers

Most organizations exist as part of a larger supply chain The supply chain is the

net-work of manufacturing and service operations (often multiple organizations) that supply one another from raw materials through production to the ultimate customer The supply chain consists of the physical flow of materials, money, and information along the entire chain of sourcing production, and distribution For example, the food supply chain reaches

2007, through select retail outlets Orders for products, once taken, are assembled in one of Dell’s factories and often shipped to customers or retail stores within days, with the factories carrying very little finished goods inventory.

In addition to the importance of the operations tion at Dell, sourcing and logistics activities are critical Sourcing managers source the many components required to manufacture Dell products, and logistics managers handle the global movement of components and finished goods to satisfy customer demand Manag- ing Dell’s fast and rapidly changing supply chain is a chal- lenging task that they perform well.

Dell today is pursuing environmentally friendly best practices: Its global headquarters campus is now powered

by 100 percent green energy; its desk computer systems have been designed to reduce carbon dioxide emissions; Dell was the first computer manufacturer to offer free computer recycling to customers worldwide; and its “Plant

a Tree for Me” and “Plant a Forest for Me” programs have planted over 600,000 trees.

Source: Adapted from www.dell.com, 2015.

Operations Leader Dell Delivers Products and Value

In 1984 Michael Dell founded Dell Computer

Corpora-tion with $1000 in start-up capital and a business model

to sell custom-configured personal computers directly to

customers while passing along cost ings to customers by cutting out the mid- dlemen The company offers a range of products beyond personal desktop and mobile computing products; servers, storage, and networking products; print- ing and imaging products; electronics and accessories;

sav-enhanced business and consumer services; and

busi-ness solutions Nearly half of Dell’s revenue comes from

outside of the United States.

In 2013 Dell was taken private in a stock buyout by

Michael Dell and investors In 2015 Dell bought EDS

ser-vices to expand its offerings to serser-vices, and the cloud.

A key to Dell’s strategy is its customer-driven

approach to innovation This approach signals a

com-mitment to delivering new products and services that

are valued by customers and that address customer

needs This approach explains how Dell pioneered the

direct-selling system to allow customer orders to be

placed over the Internet or over the phone and, since

from the farm to the food processor to the wholesaler and then the retailer The supply chain links together the work and output of many different organizations.

In this book we discuss operations management in the supply chain This means we deal with operations in the larger context of its supply chain, including external suppliers and customers Before discussing the larger supply chain implications, we define operations management as follows:

Operations management focuses on decisions for the production and delivery of the firm’s

products and services.

There are three aspects of operations management that require elaboration:

1 Decisions The above definition refers to decision making as an important element of

operations management Since all managers make decisions, it is natural to focus on decision making as a central theme in operations Within the broader context of supply chain, this decision focus provides a basis for identifying major decision types In this text, we specify the five major decision responsibilities of operations and supply chain

management as process, quality, capacity, inventory, and supply chain These

deci-sions provide the framework for organizing the text and describing what operations and supply chain managers do We will discuss these decisions in greater detail in subse-quent chapters

2 Function Operations is a major function in any organization, along with marketing

and finance In a manufacturing company, the operations function typically is called the manufacturing or production department In service organizations, the opera-tions function may be called the operations department or some name peculiar to the particular industry (e.g., the policy service department in insurance companies)

In general, the generic term “operations” refers to the function that produces and delivers goods or services While separating operations out in this manner is useful for analyzing decision making and assigning responsibilities, we must also integrate the business by considering the cross-functional nature of decision making in the firm

3 Process Operations managers plan and control the transformation process and its terfaces in organizations as well as across the supply chain This process view pro-

in-vides common ground for defining service and manufacturing operations as transformation processes and is a powerful basis for the design and analysis of opera-tions in an organization and across the supply chain Using the process view, we con-sider operations managers as managers of the conversion process in the firm But the process view also provides important insights for the management of productive pro-cesses in functional areas outside the operations function For example, a sales office may be viewed as a production process with inputs, transformation, and outputs The same is true for an accounts payable office and for a loan office in a bank In terms of the process view, operations management concepts have applicability beyond the functional area of operations Toyota, for example, uses lean thinking to improve pro-cesses throughout the firm, including processes in human resources, accounting, fi-nance, information systems, and even the legal department Process improvement is not restricted to operations

Since the field of operations and supply chain management can be defined by decisions, function, and processes, we will expand on these three elements in detail in this chapter But first we provide an example of the decisions that would be made by operations and supply chain management in a typical company that makes and markets pizzas

Chapter 1 The Operations Function 7

1.3 DECISIONS AT PIZZA U.S.A.

Pizza U.S.A., Inc., produces and markets pizzas on a national basis The firm consists of 85 company-owned and franchised outlets (each called a store) in the United States The oper-ations function in this company exists at two levels: the corporate level and the level of the individual store

The major operations and supply chain decisions made by Pizza U.S.A can be described

as follows:

Process

Corporate staff makes some of the process decisions, since uniformity across different stores is desirable They have developed a standard facility design that is sized to fit a particular location Each store incorporates a limited menu with equipment that is designed to produce high volumes of pizza As pizzas are made, customers can watch the process through a glass window; this provides entertainment for both children and adults as they wait for their orders to be filled Because this is a service facility, special care is taken to make the layout attractive and convenient for the customers

Within the design parameters established by the corporate operations staff, the store managers seek to improve the process continually over time This is done both by addi-tional investment in the process and by the use of better methods and procedures, which often are developed by the employees themselves For example, a store might re-arrange its layout to speed up the process of producing pizzas

Quality

Certain standards for quality that all stores must follow have been set by the corporate staff The standards include procedures to maintain service quality and ensure the quality and food safety of the pizzas served While perceptions of service quality may differ by customer, the quality of the pizzas can be specified more exactly by using criteria such as temperature at serving time and the amount of raw materials used in relation to standards, among others Service-quality measures include courtesy, cleanliness, speed of service, and a friendly atmosphere Service quality is monitored by store manager observation, comment cards, and occasional random surveys Each Pizza U.S.A store manager must

carefully monitor quality internally and with suppliers

to make sure that it meets company standards All employees are responsible for the quality of their work

to ensure that service quality and food quality are ing the standards of the company

meet-Capacity

Decisions about capacity determine the maximum level of output of pizzas The capacity available at any point in time is determined by the availability of equipment and labor inputs for the pizza-making pro-cess at that time First, when the initial location and process decisions are made, the corporate staff deter-mines the physical capacity of each facility Individual store managers then plan for annual, monthly, and daily fluctuations in capacity within the available physical facility During peak periods, they may employ part-time help, and advertising is used in an

LO1.2 Describe the five

main decisions made by

operations and supply

chain managers.

Pizza U.S.A satisfies its customers by carefully managing the

four key decision areas in operations

© Steve Mason/Getty Images

attempt to raise demand during slack periods In the short run, individual personnel are scheduled in shifts to meet demand during store hours.

Inventory

Each store manager buys the ingredients required to make the recipes provided by rate staff The store managers decide how much flour, tomato paste, sausage, and other ingredients to order and when to place orders Store operators must carefully integrate sourcing and inventory decisions to control the flow of materials in relation to capacity For example, they do not want to purchase ingredients for more pizzas than they have the capacity to bake They also do not want to run out of food during peak periods or waste food when demand is low

corpo-Supply Chain

The supply chain decisions consist of sourcing and logistics Sourcing is done by the rate office They select the specific suppliers for all inputs, negotiate prices, write contracts, and issue blanket purchase orders that stores use to order individual ingredients and items as

corpo-central operations This individual will participate in the development of strategic implementation plans and related objectives Candidates must have strong commu- nication skills and acknowledge the important relation- ship with customer members in supporting the credit union’s vision and mission.

CONTINUOUS IMPROVEMENT PLANT LEAD

ConAgra Foods seeks a partner to roll out a system establishing a zero-loss manufacturing culture Coordi- nating with the Plant Manager, this Plant Lead executes plans for sustainability, develops and maintains training and tracking standards, and coaches sites on improve- ment methodologies This position serves as a key devel- opment role for a future Plant Manager.

MATERIALS SOURCING MANAGER

Herbalife, a direct-sales nutrition company, is hiring a senior-level sourcing manager for global spending of

$200 million on raw materials Responsibilities include reducing raw materials costs yearly, analyzing market intelligence for trends in commodity markets, and making strategic recommendations to senior management for each category of raw materials This job also requires maintaining appropriate inventory levels and developing strategic supplier relationships.

Source: Abstracted from www.monster.com, April 2012.

Operations Leader Careers in Operations and Supply Chain

from Monster.com

SUPPLY CHAIN ANALYST

PayPal, owned by online shopping site eBay, is hiring a

supply chain management professional responsible for

end-to-end support for PayPal’s new Here product The

job requires international travel to manufacturing and distribution sites Responsibilities include prod- uct and distribution management, on time and on bud-

get; reviewing inventory reports with supply partners;

arranging freight shipments globally; and coordinating

and collaborating with internal groups within PayPal and

eBay The job description also requests “maniacal

atten-tion to detail.”

BUSINESS METRICS/ANALYTICS

SUPPLY CHAIN ANALYST

Cardinal Health is seeking an analyst to develop,

quan-tify, and evaluate the transformation of internal and

exter-nal information into business intelligence Qualified

can-didates will demonstrate knowledge of concepts and

principles of business metrics and analytical techniques/

tools The position requires listening to internal/external

customers’ needs and proactively providing them a

qual-ity experience through effective communication.

VICE PRESIDENT OF OPERATIONS

Envista Credit Union is seeking an executive whose

responsibilities include organizing, planning, and

direct-ing all operations functions associated with branches and

Chapter 1 The Operations Function 9

they need them The orders are then fulfilled by the suppliers, and a logistics provider ensures the orders are delivered on time Logistics is handled by a third-party provider who secures transportation and uses its distribution centers to make deliveries to Pizza U.S.A stores Because Pizza U.S.A is only one example of an operation, students often ask: What do operations managers do in more general terms? The Monster.com Operations Leader box provides examples of five typical operations management and supply chain positions and describes the associated decision-making responsibilities The descriptions have been greatly simplified for purposes of illustration

As the Operations Leader box indicates, there is a great variety of management positions

in operations and the supply chain These range from entry-level supervisory positions to middle- and top-management positions with considerable responsibility These positions also show the breadth of operations and apply to both manufacturing and service operations There are many opportunities for international employment in operations management since operations are located around the world Many operations in other countries are seek-ing to implement world-class best practices, and so what is learned in this course can be applied globally

1.4 OPERATIONS DECISIONS IN THE SUPPLY CHAIN—A FRAMEWORK

The five decision groupings showcased in the Pizza U.S.A example provide a framework for understanding the various decisions made by operations and supply chain managers Although many different frameworks are possible, the primary one used here is a conceptual scheme for grouping decisions according to decision responsibilities The five key decision areas—pro-cess, quality, capacity, inventory, and supply chain—encompass what operations and supply chain managers do This novel and useful decision framework is shown in Figure 1.1 and summarized in Table 1.1 In the table, examples are given of key decisions in each area Careful attention to the five decision areas in the framework is the key to the successful management of operations and the associated supply chain Indeed, well-managed opera-tions and its supply chain can be defined in terms of this decision framework If decisions

in each of the five groupings support the strategy of the firm, provide value, and are well integrated with the other functions of the organization, the operations function and its asso-ciated supply chain can be considered well managed

Each major section of this text is devoted to one of the five decision categories.3 The framework thus provides an integrating mechanism for the text that covers both the deci-sions faced by operations and supply chain managers as well as the cross-functional issues that must be considered

Inventory

Supply Chain Decisions

3 Students have called these five categories QPICS, pronounced “Q-PICS.”

Analytics is the analysis of data to make better decisions Analytics uses many

tech-niques for the analysis including those from operations research, statistics, data sciences, and computer science The analysis can use either big data from massive databases or small data depending on the application Analytics can be descriptive, predictive, or prescriptive

in nature A descriptive analysis typically summarizes the present situation from data The data can be used to go one step further and predict what will happen in the future Prescrip-tive analytics typically uses mathematical models to find an optimal or best decision Ana-lytics are used in operations and supply chains for a variety of decisions, including quality control, forecasting, capacity, scheduling, inventory, logistics, and sourcing

Throughout the text, best practices are presented Additionally, discussion and examples

of firms in which the best practice is not the best for their particular situation are included These contingencies, situations, or conditions that require different solutions offer a more nuanced view of operations decision making For example, successful implementation of a new method such as lean or Six Sigma is contingent on top management support Simi-larly, the “best” forecasting tools and concepts depend on the availability of data If there was a single best practice that works for all firms, then operations would not be the chal-lenging function to manage that it is Therefore, by offering insight into specific conditions

in which best practices may not be best, the text addresses the various contingencies or prerequisites or situaitons that need to be considered

The operations function is a critical element in every business No business can survive without good decisions being made by operations managers The operations function is one of the three primary functions in an organization, along with marketing and finance In addition, an organization has supporting functions that include human resources, informa-tion systems, and accounting Some organizations also have separate sourcing and logistics

1 Process • What type of process should be selected?

• How should the service delivery system be designed?

• How should material and customer flows be managed?

• What principles of lean systems should be deployed?

• How should environmental and global goals be met?

2 Quality • What should the quality standards be?

• How can quality be controlled and improved?

• What statistical approaches should be used (e.g., control charts and Six Sigma)?

• How should the suppliers and customers be involved in quality?

3 Capacity • What is the facility strategy for size, location, and timing?

• How should Sales and Operations Planning be implemented?

• How should variable demand be handled with capacity adjustments?

• What priority rule should be used for scheduling?

4 Inventory • How much inventory should be held?

• What should the order size and reorder frequency be?

• Who should hold the inventory?

• How can the inventories of suppliers and customers be coordinated?

5 Supply Chain • What suppliers should be used for products and services?

• How should sourcing be conducted and evaluated?

• What form of transportation should be used?

• How should warehouses be used to allow economic flow of materials?

Chapter 1 The Operations Function 11

functions that support operations In others, the operations, ing and logistics functions are joined together to become the supply chain function

sourc-Functional areas are concerned with a particular focus of sibility or decision making in an organization The marketing func-tion is typically responsible for creating demand and generating sales revenue; the operations function is responsible for the produc-tion and distribution of goods or services (generating supply); and finance is responsible for the acquisition and allocation of capital Within for-profit businesses, functional areas tend to be closely associated with organizational departments because businesses typ-ically are organized on a functional basis Supporting functions are essential to provide staff support to the three primary functions.Every function must be concerned not only with its own decision responsibilities but also with integrating decisions with other functions The five areas of operations and supply chain decisions, for example, cannot be made separately; they must be carefully integrated with one another and, equally important, with decisions made in marketing, finance, and other parts of the organization In the Pizza U.S.A exam-ple, if marketing decides to change the price of pizza, this is likely to affect sales and change the capacity needs of operations as well as the amount of ingredients (materials) used Also, if finance cannot raise the necessary capital, operations may have to redesign the process to require less capital or manage pizza-related inventories more efficiently This in turn may affect the response time to serve customers, costs, and so on

Decision making is therefore highly interactive and systemic in nature Unfortunately,

functional silos have developed in many organizations and impede cross-functional sion making As a result, the overall organization suffers due to an emphasis on functional

deci-prerogatives

But some companies are different Texas Instruments, for example, has been a leader in fostering cross-functional integration They do this by forming cross-functional manage-ment teams for new-product introductions and for day-to-day improvement Each member

of the team is trained in common methodologies, and the team is given responsibility for achieving its own goals Some of the key cross-functional decision-making relationships are shown in Table 1.2

1.6 OPERATIONS AS A PROCESS

Operations can be defined as a transformation system (or process) that converts inputs

into outputs Inputs to the system include energy, materials, labor, capital, and information (see Figure 1.2) Process technology is then used to convert inputs into outputs The pro-cess technology is the methods, procedures, and equipment used to transform materials or inputs into products or services

Viewing operations as a process is very useful in unifying seemingly different tions from different industries For example, the transformation process in manufacturing

opera-is one of material conversion from raw materials into finopera-ished products When an bile is produced, steel, plastics, aluminum, cloth, and many other materials are transformed into parts that are then assembled into the finished automobile Labor is required to operate and maintain the equipment, and energy and information are also required to produce the finished automobile

In service industries a transformation process is also used to transform inputs into vice outputs For example, airlines use capital inputs of aircraft and equipment and human

ser-LO1.4 Define typical

inputs and outputs of

New-product introduction Cross-functional teams

Finance and Accounting

Availability of capital Inventory levels, degree of automation, process type

selected, and capacity Efficiency of conversion process Process type selection, process flows, value-added

determination and sourcing Net present value and cash flow Automation, inventory, and capacity Process costing or job costing Type of process selected

Measurement of operations Costing systems used

NATURAL ENVIRONMENT

Transformation (conversion) process

Energy Materials Labor Capital Information

Goods or services

Feedback information for control of process inputs and process technology

Chapter 1 The Operations Function 13

inputs of pilots, flight attendants, and support personnel to produce safe, reliable, fast, and efficient transportation Transformations of many different types occur in all industries, as indicated in Table 1.3 By studying these different types of transformation processes, you can learn a great deal about how to analyze and manage any operation

Operations as a process provides a basis for seeing an entire business as a system of interconnected processes This makes it possible to analyze an organization and improve it from a process point of view All work, whether in finance, marketing, accounting, or other functions, is accomplished by processes For example, financial analysis of a stock, closing the books at the end of the year, or conducting market research are each conducted by car-rying out an appropriate process Thus, process principles and tools can be applied in every function in a business

All of these processes and systems interact with their internal and external ments We have indicated the nature of internal interaction through cross-functional decision

environ-making Interaction with the external environment occurs through the economic, physical, social, and political environment of operations Examples include economic changes such as rising labor costs, social changes such as customer preference for “green” products, and polit-ical changes such as regulations Each of these can mean that the operations function and associated supply chain will have to change the way it was producing products and services Operations is surrounded by both internal and external environments and constantly interacts with them The interactive nature of these relationships makes it necessary to constantly monitor the environment and make decisions related to corresponding changes

in operations and the supply chain when needed In the fast-changing world of today’s global business, constant change has become essential as a means of survival Viewing operations as a process or a constantly updating transformation system helps us understand how operations and the supply chain cannot be insulated from changes in the environment but rather must adapt to them

1.7 CHALLENGES FACING OPERATIONS

AND SUPPLY CHAIN MANAGERS

Several challenges are important for operations and supply chain managers today and will

be addressed repeatedly throughout this text These challenges make operations and supply chain management an exciting and interesting place for aspiring managers and those who want the challenge of leadership in a fast-moving career

Bank Tellers, staff, computer equipment,

facilities, and energy

Financial services (loans, deposits, safekeeping, etc.)

Restaurant Cooks, waiters, food, equipment,

facilities, and energy

Meals, entertainment, and satisfied customers

Hospital Doctors, nurses, staff, equipment,

facilities, and energy

Health services and healthy patients

University Faculty, staff, equipment, facilities,

energy, and knowledge

Educated students, research, and public service

Manufacturing plant Equipment, facilities, labor, energy, and

raw materials

Finished goods Airline Planes, facilities, pilots, flight atten-

dants, maintenance people, labor, and energy

Transportation from one location

Operations concepts and ideas have been applied in service operations for years Yet, service operations lag behind manufacturing in applying the latest ideas in supply chain management, lean operations, and quality improvement This represents a challenge and tremendous oppor-tunity to apply what is learned in this course Also, service-specific ideas such as service recovery, web-enabled service and globalization of service still represent implementation challenges Nevertheless, some leading service businesses do excel in operations including Walmart, Nordstrom, Starbucks, Amazon.com, FedEx, and Delta Airlines, to name only a few They excel by applying many of the operations concepts that are presented in this text.Every operation should be externally directed to meet customer requirements based on the

“voice of the customer.” This concept is often taught in marketing courses and is being

integrated into operations and supply chain courses as well A key point is that operations efficiency need not be sacrificed in the pursuit of meeting customer needs Rather, the customer can be a powerful driver for reducing waste and improving the efficiency of all processes as firms reduce or eliminate activities that customers do not value This is an ongoing challenge for operations and supply chain managers to put the customer first, and

we provide tools and concepts for doing so

One of the most difficult challenges facing all managers is cross-functional integration within the organization Some organizations are managing functions as separate depart-ments with little integration across them The best operations are now seeking increased integration through the use of cross-functional teams, information systems, management coordination, rotation of employees and other methods of integration Most of the imple-mentation problems of new systems or new approaches can be traced to lack of cross-func-tional internal cooperation The same thing can be said about interorganizational change in supply chains Even when companies partner with their suppliers or customers the partner-ships are often not successful Adequate information systems may also be lacking for supply chain integration

The focus on sustainability of the natural environment has been heightened in recent years

with concerns over global warming, water contamination, air pollution, and so on tions are increasingly being asked to produce and deliver products or services while minimiz-ing the negative impact on the global ecosystem and not endangering the ability to meet the needs of future generations See the Operations Leader box titled “Sustainability in Interface Inc.’s Operations Transformation Process” for an example of one firm’s success in facing these issues Operations and

Organiza-supply chain partners have made tremendous strides in reducing pollution of the envi-ronment from air to ground to water, but there is still a long way to go Operations and their supply chains are finding they can reduce pollution, conserve resources, recycle products and

be socially responsible to provide a sustainable world for future generations Sustainabil-ity is a challenge that progres-sive operations and supply chain organizations are accepting

Chapter 1 The Operations Function 15

Finally, the globalization of operations and supply chains is a pervasive theme in business

today One can hardly avoid information on the accelerating nature of global business Strategies for operations and its supply chain partners should be formulated with global effects in mind and not only consider narrow national interests Even many small busi-nesses compete globally, sourcing or selling goods and services in markets with global competitors Facility location must be considered in view of its global implications Tech-nology can be transferred rapidly across national borders All decisions in operations and its associated supply chains are affected by the global nature of business

1.8 KEY POINTS AND TERMS

This text provides a broad overview of the challenging and dynamic field of operations management and the supply chain It stresses decision making in operations, its associated supply chain, and the relationship of these decisions to other functions The five major decision categories—process, quality, capacity, inventory and supply chain are the organiz-ing framework for the text

car-With production on four nents and offices in more than

conti-100 countries, Interface Inc is the global leader in the design, pro- duction, and sales of modular car- pet squares Since undertaking the goal of sustainability, Inter- face Inc reports more than 133 million pounds of post- consumer waste has been diverted from landfills to serve as raw materials for new carpet squares They have achieved a series of major milestones at the European man- ufacturing facility in The Nether- lands As of 2015, the plant is operating with 100 percent renewable energy, using virtually zero water in manufactur- ing processes and has attained zero waste to landfill.

Source: Adapted from Dave Gustashaw and Robert W Hall,

“From Lean to Green: Interface, Inc.” Target 24, no 5 (2008), pp 6–14 and interfaceglobal.com 2015.

Operations Leader Sustainability in Interface Inc.’s Operations

Transformation Process

Interest in sustainability

contin-ues to grow, and the operations

function of most organizations is

deeply involved in such efforts

The philosophy of sustainability

is “meeting the needs of the

present without compromising

the ability of future generations

to meet their own needs.” Over

the past 15 years, carpet

manu-facturer Interface Inc has shifted

its operations toward this

phi-losophy and three bottom-line

impacts: social, environmental,

and financial Or, in their words:

People, Planet, and Profit.

A typical operations

transfor-mation process requires a

con-tinuous supply of new raw

mate-rial input “In most instances,

extraction of raw material

[from  the natural environment]

exceeds its natural rate of

regen-eration.” Following production, customers use and then

dispose of products Interface Inc set out to change this

typical supply chain with its environmental costs at both

ends They found that the most benign materials to use in

manufacturing new products are their own used products

Creating a closed-loop supply chain, they use their own

© Arcaid Images/Alamy Stock Photo

Key points emphasized in the chapter are these:

∙ Operations and its associated supply chain produces and delivers goods or services deemed to be of value to customers in a global economy The operations function is es-sential for both for-profit and nonprofit organizations

∙ Operations management focuses on decisions for the production and delivery of the firm’s products and services These decisions are intended to maximize the value inher-ent in goods or services delivered to customers throughout the entire supply chain

∙ The supply chain is the network of manufacturing and service operations that supply each other from raw materials through manufacturing to the ultimate customer The supply chain consists of the physical flow of materials, money, and information along the entire chain of sourcing production, and distribution The supply chain connects many different organizations

∙ There are five key groupings of decisions in operations: process, quality, capacity, inventory, and supply chain These decisions need to utilize analytics when appropriate and account for contingencies, or special situations, because a best practice may not be best in all circumstances

∙ Operations decisions are often cross-functional in nature Decisions may impact or be impacted by activities in other functions such as marketing and finance Often, cross-functional teams are formed to undertake complex decisions

∙ We identify several challenges facing operations and supply chain managers that are emerging and will be important in the future These challenges are services, customer-directed operations, integration of decisions internally and externally, environmental sustainability, and globalization of operations and the supply chain

Key Terms Value 4

Sourcing function 5 Logistics function 5 Supply chain 5 Operations management 6 Decision making 6 Process 6

Transformation system 11 Internal and external environments 13 Voice of the customer 14 Sustainability 14 Globalization 15

Quality 6 Capacity 6 Inventory 6 Process view 6 Analytics 10 Cross-functional decision making 11

STUDENT

INTERNET

EXERCISES

1 Search the Internet for “Wikipedia Operations Management.”

Read about the Wiki definition of Operations Management and prepare a short synopsis

of the History of Operations Management

2 Search the Internet for “How everyday things are made.”

Find a site (e.g., manufacturing.stanford.edu) that shows everything from motorcycles to jelly beans to denim Create a presentation that explains the five operations and supply chain decisions relevant to the sourcing, production and delivery of a product of your choosing

3 Monster.com

www.monster.com

Check the monster.com website for positions and career opportunities in operations agement Come to class prepared to discuss one or two jobs in operations that you found interesting (not necessarily an entry-level job)

man-Discussion Questions

1 Why study operations management in the supply chain?

2 What is the difference between the terms “production

management” and “operations management”?

3 What is the difference between operations management

and supply chain management?

4 What are the key decisions made by sourcing and

logis-tics managers?

5 How does the work of an operations manager differ

from the work of a marketing manager or a finance

manager? How are these functions similar?

6 How is the operations management function related to

activities in human resources, information systems, and

accounting?

7 Describe the nature of operations management in the

following organizations In doing this, first identify the

outputs of the organization and then use the five

deci-sion types to identify important operations decideci-sions

and responsibilities.

a A college library

b A hotel

c A small manufacturing firm

8 For the organizations listed in question 7, describe the inputs, transformation process, and outputs of the production system.

9 Describe the decision-making view and the view of operations as a process Why are both views useful in studying the field of operations management?

10 Write a short paper on some of the challenges facing operations management in the future Use newspapers, business magazines, or the Internet as your sources.

11 Review job postings from various sources for management positions that are available for operations management graduates Summarize the responsibilities

of these positions.

12 Describe how the view of operations as a process can

be applied to the following types of work:

a Acquisition of another company.

b Closing the books at the end of the year.

c Marketing research for a new product.

d Design of an information system.

e Hiring a new employee.

Chapter 1 The Operations Function 17