OPERATIONS ANDSUPPLY CHAIN MANAGEMENT

thirteenth edition

F. ROBERT JACOBSIndiana University

RICHARD B. CHASEUniversity of Southern California

McGraw-HillIrwin

CONTENTS

STRATEGY AND SUSTAINABILITY

1. OPERATIONS AND SUPPLY CHAINMANAGEMENT 2Quick Supply Chains Enable Retailers toGet Fashions to Market Quickly 3What Is Operations and Supply ChainManagement? 4Operations and Supply ChainProcesses 7Differences between Servicesand Goods 8

The Goods-Services Continuum 9Servitization Strategies 10Growth of Services 10

Efficiency, Effectiveness, andValue 11Careers in Operations and Supply ChainManagement 12

Chief Operating Officer 14Historical Development ofOperations and Supply ChainManagement 14Current Issues in Operations and SupplyChain Management 16Key Terms 17Review and Discussion Questions 17Internet Exercise: Harley-DavidsonMotorcycles 18Case: Fast-Food Feast 18Super Quiz 18Selected Bibliography 19Footnotes 19

2 STRATEGY AND SUSTAINABILITY 20How IKEA Designs Its Sexy Prices 21A Sustainable Strategy 22What Is Operations and Supply ChainStrategy? 23

Competitive Dimensions 25The Notion of Trade-Offs 27Order Winners and Order Qualifiers: TheMarketing-Operations Link 27

Strategic Fit: Fitting Operational Activitiesto Strategy 28

A Framework for Operations and SupplyChain Strategy 29Productivity Measurement 30How Does Wall Street Evaluate OperationsPerformance 32Summary 33Key Terms 33Solved Problem 34Review and Discussion Questions 34Problems 34Case: The Tao of Timbuk2 36Super Quiz 37Selected Bibliography 37Footnote 37

PRODUCT AND SERVICE DESIGN 38IDEO, A Design and InnovationFirm 39The Product Design Process 40The Product Development Process 42Economic Analysis of ProductDevelopment Projects 46

Build a Base-Case Financial Model 47Sensitivity Analysis to Understand ProjectTrade-Offs 49

Designing for the Customer 50Quality Function Deployment 51Value Analysis/Value Engineering 52

Designing Products for Manufacture andAssembly 53

How Does Design for Manufacturing andAssembly (DFMA) Work? 54

Designing Service Products 56Ecodesign 58Measuring Product DevelopmentPerformance 58Summary 59Key Terms 60Solved Problem 60Review and Discussion Questions 62Internet Enrichment Exercise 63Problems 63Case: IKEA: Design and Pricing 65Case: Dental Spa 67Super Quiz 67Selected Bibliography 67Footnotes 67

XXX

CONTENTS XXXI

JBECT i o N T w oMANUFACTURING, SERVICE, ANDHEALTH CARE PROCESSES

4 STRATEGIC CAPACITY MANAGEMENT 70Shouldice Hospital: Hernia SurgeryInnovation 70Capacity Management in Operations 72Capacity Planning Concepts 73

Economies and Diseconomies of Scale 73Capacity Focus 74Capacity Flexibility 74

Capacity Planning 75Considerations in Changing Capacity 75Determining Capacity Requirements 77Using Decision Trees to Evaluate CapacityAlternatives 78

Planning Service Capacity 81Capacity Planning in Serviceversus Manufacturing 81Capacity Utilization and Service Quality 82

Summary 83Key Terms 84Formula Review 84Solved Problem 84Review and Discussion Questions 85Problems 86Case: Shouldice HospitalA Cut Above 87Super Quiz 89Selected Bibliography 89

4A LEARNING CURVES 90Application of Learning Curves 91Plotting Learning Curves 92

Logarithmic Analysis 93Learning Curve Tables 93Estimating the Learning Percentage 96How Long Does Learning Go On? 97

General Guidelines for Learning 97Individual Learning 97Organizational Learning 98

Learning Curves Applied to HeartTransplant Mortality 99Key Terms 101Formula Review 101Solved Problems 101Review and Discussion Questions 102Problems 102Super Quiz 105Selected Bibliography 105Footnotes 105

PROCESS ANALYSIS 106Customer-Driven Service for McDonald's

Self-Ordering Kiosks 107Process Analysis 108

Analyzing a Las Vegas Slot Machine 108Process Flowcharting 110Types of Processes 112

Buffering, Blocking, and Starving 112Make-to-Stock versus Make-to-Order 113

Measuring Process Performance 116

107

Production Process Mappingand Little's Law 118Process Analysis Examples 121

A Bread-Making Operation 121A Restaurant Operation 122Planning a Transit Bus Operation 124

Process Flow Time Reduction 126Summary 128Key Terms 129Formula Review 129Solved Problems 129Review and Discussion Questions 131Problems 131Advanced Problem 134Case: Analyzing Casino Money-HandlingProcesses 135Case: Kristen's Cookie Company (A) 13SSuper Quiz 137Selected Bibliography 137Footnotes 137

SAJOB DESIGN AND WORK MEASUREMENT 138Job Design Decisions 139Behavioral Considerations in Job Design 140

Degree of Labor Specialization 140Job Enrichment 141Sociotechnical Systems 141

Work Measurement and Standards 142Work Measurement Techniques 143Time Study 144Work Sampling 146Work Sampling Compared to Time Study 151

Summary 152Key Terms 153Formula Review 153Solved Problems 153Review and Discussion Questions 154Problems 155Super Quiz 156Selected Bibliography 157Footnotes 157

6 PRODUCTION PROCESSES 158Toshiba: Producer of the First NotebookComputer 159Production Processes 160How Production Processes AreOrganized 162Break-Even Analysis 164Designing a Production System 165

Project Layout 166Workcenters 166Manufacturing Cell 166Assembly Line and Continuous ProcessLayouts 166

Manufacturing Process Flow Design 167Summary 172Key Terms 172Solved Problems 173Review and Discussion Questions 174Problems 174Case: Circuit Board Fabricators, Inc. 177Super Quiz 178

XXXII CONTENTS

Selected Bibliography 179Footnotes 179

6A FACILITY LAYOUT 180Basic Production Layout Formats 182Workcenters 182

Systematic Layout Planning 186Assembly Lines 186

Assembly-Line Balancing 188Splitting Tasks 191Flexible and U-Shaped Line Layouts 192Mixed-Model Line Balancing 192Current Thoughts on Assembly Lines 194

Cells 194Developing a Manufacturing Cell 194Virtual Manufacturing Cells 196

Project Layouts 196Retail Service Layout 196

Servicescapes 197Signs, Symbols, and Artifacts 199

Office Layout 199Summary 200Key Terms 200Formula Review 201Solved Problems 201Review and Discussion Questions 205Problems 205Advanced Problem 210Case: Soteriou's Souvlaki 211Case: Designing Toshiba's NotebookComputer Assembly Line 212Super Quiz 214Selected Bibliography 215Footnotes 215

7 SERVICE PROCESSES 216My Week as a Room-Service Waiterat the Ritz 217The Nature of Services 218An Operational Classification of Services 219Designing Service Organizations 221Structuring the Service Encounter: Service-System Design Matrix 221

Strategic Uses of the Matrix 223Virtual Service: The New Role of theCustomer 223

Service Blueprinting and Fail-Safing 224Three Contrasting Service Designs 226

The Production-Line Approach 226The Self-Service Approach 227The Personal-Attention Approach 227

Managing Customer-IntroducedVariability 230Applying Behavioral Science to ServiceEncounters 232Service Guarantees as Design Drivers 233Summary 234Key Terms 234Review and Discussion Questions 234Problems 235Case: Pizza USA: An Exercise in TranslatingCustomer Requirements into ProcessDesign Requirements 235

Case: Contact Centers Should Take aLesson from Local Businesses 236Super Quiz 237Selected Bibliography 237Footnotes 237

7A W A I T I N G LINE ANALYSIS 238Economics of the Waiting LineProblem 239

The Practical View of Waiting Lines 239The Queuing System 240

Customer Arrivals 241Distribution of Arrivals 242The Queuing System: Factors 244Exiting the Queuing System 247

Waiting Line Models 247Approximating Customer Waiting Time 256Computer Simulation of Waiting Lines 258Summary 258Key Terms 258Formula Review 259Solved Problems 260Review and Discussion Questions 262Problems 262Case: Community Hospital EveningOperating Room 266Super Quiz 267Selected Bibliography 267Footnotes 267

8 HEALTH CARE PROCESSES 268A Prescription for Innovation 269

The Mayo Clinic's New SPARC Lab Is DrivingExperimentation at the Frontier of HealthCare. How? By Getting Physicians to ThinkMore Like Designers 269

The Nature of Health Care Operations 270Classification of Hospitals 271Hospital Layout and Care Chains 272Capacity Planning 274Workforce Scheduling 274Quality Management and ProcessImprovement 274Health Care Supply Chains 276Inventory Management 278

Performance Measures 279Trends in Health Care 279Summary 281Key Terms 281Review and Discussion Questions 282Case: Venice Family Clinic: ManagingPatient Wait Times 282Super Quiz 283Selected Bibliography 283Footnotes 283

9 SIX-SIGMA QUALITY 284Total Quality Management 286Quality Specification and QualityCosts 288

Developing Quality Specifications 288Cost of Quality 289Functions of the QC Department 290

CONTENTS XXXIII

Six-Sigma Quality 291Six-Sigma Methodology 292Analytical Tools for Six Sigma and ContinuousImprovement 293Six-Sigma Roles and Responsibilities 296

The Shingo System: Fail-Safe Design 297ISO 9000 and ISO 14000 298External Benchmarking for QualityImprovement 300Summary 300Key Terms 300Review and Discussion Questions 301Problems 301Internet Enrichment Exercises 302Case: Hank Kolb, Director of QualityAssurance 302Case: Appreciative InquiryA DifferentKind of Fishbone 303Super Quiz 305Selected Bibliography 305Footnotes 305

9A PROCESS CAPABILITY AND SPC 306Variation Around Us 308Process Capability 309

Capability Index (Cplc) 311Process Control Procedures 314

Process Control with Attribute Measurements:Using p Charts 514Process Control with Attribute Measurements:Using c Charts 317Process Control with Variable Measurements:Using X and R Charts 317How to Construct X and R Charts 319

Acceptance Sampling 322Design of a Single Sampling Planfor Attributes 322Operating Characteristic Curves 323

Summary 325Key Terms 325Formula Review 325Solved Problems 326Review and Discussion Questions 327Problems 327Advanced Problem 332Case: Hot Shot Plastics Company 332Super Quiz 333Selected Bibliography 333Footnotes 333

10 PROJECTS 334National Aeronautics and SpaceAdministration's ConstellationProgram May Land Men on the Moonby 2020 335What Is Project Management? 337Structuring Projects 337

Pure Project 338Functional Project 338Matrix Project 338

Work Breakdown Structure 340Project Control Charts 342

Earned Value Management (EVM) 344

Network-Planning Models 347Critical Path Method (CPM) 347CPM with Three Activity Time Estimates 351Time-Cost Models and Project Crashing 354

Managing Resources 358Tracking Progress 359

Summary 359Key Terms 359Formula Review 360Solved Problems 360Review and Discussion Questions 364Problems 364Advanced Problem 369Case: Cell Phone Design Project 370Case: The Campus Wedding (A) 371Case: The Campus Wedding (B) 372Super Quiz 372Selected Bibliography 372

SUPPLY CHAIN PROCESSES

11 GLOBAL SOURCING AND PROCUREMENT 374The World Is Flat 375

Flattener 5: Outsourcing 375Flattener 6: Offshoring 375

Strategic Sourcing 376The Bullwhip Effect 377

Outsourcing 381Green Sourcing 385Total Cost of Ownership 387Measuring Sourcing Performance 389Summary 391Key Terms 391Formula Review 392Review and Discussion Questions 392Problems 392Case: Pepe Jeans 394Super Quiz 395Selected Bibliography 395Footnotes 395

12 LOCATION, LOGISTICS,AND DISTRIBUTION 396FedEx: A Leading Global LogisticsCompany 397Logistics 398Decisions Related to Logistics 399

Cross-Docking 400Issues in Facility Location 400Plant Location Methods 403

Factor-Rating Systems 403Transportation Method of LinearProgramming 403Centroid Method 406

Locating Service Facilities 408Summary 410Key Terms 410Formula Review 410Solved Problem 410Review and Discussion Questions 411

XXXIV CONTENTS

Problems 411Case: ApplichemThe TransportationProblem 414Super Quiz 415Selected Bibliography 415Footnote 415

Review and Discussion Questions 464Problems 464Super Quiz 467Selected Bibliography 467Footnotes 467

13 LEAN AND SUSTAINABLE SUPPLY CHAINS 416Green Is the New Black 417

Survey Suggests that Enviro-ConsciousManufacturers Are the Best Risk forInvestors 417

Lean Production 418Lean Logic 419The Toyota Production System 420

Elimination of Waste 420Respect for People 420 '

Lean Supply Chains 421Value Stream Mapping 423Lean Supply Chain Design Principles 426

Lean Layouts 427Lean Production Schedules 429Lean Supply Chains 433

Lean Services 434Summary 435Key Terms 435Formula Review 436Solved Problems 436Review and Discussion Questions 440Problems 440Case: Quality Parts Company 441Case: Value Stream Mapping 441Case: Pro Fishing BoatsA Value StreamMapping Exercise 444Super Quiz 444Selected Bibliography 445Footnotes 445

13A OPERATIONS CONSULTINGAND REENGINEERING 446Pittiglio Rabin Todd & McGrath(PRTM)A Leading Operations ConsultingCompany 447What Is Operations Consulting? 448The Management Consulting Industry 448Economics of Consulting Firms 449When Operations Consulting IsNeeded 450

When Are OperationsConsultants Needed? 451

The Operations Consulting Process 452Operations Consulting Tool Kit 453

Problem Definition Tools 453Data Gathering 456Data Analysis and Solution Development 459Cost Impact and Payoff Analysis 460Implementation 461

Business Process Reengineering (BPR) 461Principles of Reengineering 462Guidelines for Implementation 463Summary 464Key Terms 464

SUPPLY AND DEMAND PLANNING

14 ENTERPRISE RESOURCE PLANNINGSYSTEMS 470Informat ion CrisisThe MissingDesk 471SAP 473SAP Appl icat ion Modules 474

Financials 475Human Capital Management 476Operations 476Corporate Services 477

mySAP.com and SAP NetWeaverIntegratedE-Business Applications 477Implementing ERP Systems 479Summary 480Key Term 481Review and Discussion Questions 481Super Quiz 481Selected Bibliography 481Footnote 481

15 DEMAND MANAGEMENTAND FORECASTING 482Walmart's Data Warehouse 483Demand Management 485Types of Forecasting 486Components of Demand 486Time Series Analysis 488

Linear Regression Analysis 489Decomposition of a Time Series 492Simple Moving Average 498Weighted Moving Average 499Exponential Smoothing 500Forecast Errors 504Sources of Error 504Measurement of Error 504

Causal Relationship Forecasting 507Multiple Regression Analysis 508

Qualitative Techniques in Forecasting 509Market Research 509Panel Consensus 509Historical Analogy 509Delphi Method 510

Web-Based Forecasting: CollaborativePlanning, Forecasting, and Replenishment(CPFR) 510Summary 512Key Terms 512Formula Review 513Solved Problems 514Review and Discussion Questions 518Problems 518Case: Altavox Electronics 526

CONTENTS XXXV

Super Quiz 527Selected Bibliography 527Footnotes 527

16 SALES AND OPERATIONS PLANNING 528What Is Sales and OperationsPlanning? 530Overview of Sales and Operations PlanningActivities 530The Aggregate Operations Plan 532

Production Planning Environment 532Relevant Costs 534

Aggregate Planning Techniques 536A Cut-and-Try Example: The JC Company 536Aggregate Planning Applied to Services:Tucson Parks and RecreationDepartment 541

Level Scheduling 543Yield Management 544

Operating Yield Management Systems 545Summary 546Key Terms 546Solved Problem 547Review and Discussion Questions 549Problems 549Case: Bradford ManufacturingPlanningPlant Production 552Super Quiz 553Selected Bibliography 553Footnotes 553

17 INVENTORY CONTROL 554Direct to StoreThe UPS Vision 555

The UPS Direct Approach 556Definition of Inventory 558Purposes of Inventory 559Inventory Costs 559Independent versus Dependent Demand 561Inventory Systems 562

A Single-Period Inventory Model 562Multiperiod Inventory Systems 565

Fixed-Order Quantity Models 566Establishing Safety Stock Levels 569Fixed-Order Quantity Model withSafety Stock 570

Fixed-Time Period Models 573Fixed-Time Period Model with Safety Stock 573

Inventory Control and Supply ChainManagement 575Price-Break Models 576ABC Inventory Planning 578

ABC Classification 579Inventory Accuracy and CycleCounting 580Summary 582Key Terms 582Formula Review 582Solved Problems 584Review and Discussion Questions 585Problems 586Case: Hewlett-PackardSupplyingthe DeskJet Printer in Europe 591

Super Quiz 594Selected Bibliography 594Footnotes 595

18 MATERIAL REQUIREMENTS PLANNING 596From Push to Pull 597Master Production Scheduling 598

Time Fences 600Where MRP Can Be Used 601Material Requirements Planning SystemStructure 601

Demand for Products 602Bill of Materials 602Inventory Records 604MRP Computer Program 604

An Example Using MRP 606Forecasting Demand 606Developing a Master Production Schedule 606Bill of Materials (Product Structure) 607Inventory Records 608Performing the MRP Calculations 608

Lot Sizing in MRP Systems 611Lot-for-Lot 612Economic Order Quantity 612Least Total Cost 613Least Unit Cost 614Choosing the Best Lot Size 614

Summary 615Key Terms 616Solved Problems 616Review and Discussion Questions 617Problems 618Case: Brunswick Motors, Inc.AnIntroductory Case for MRP 621Super Quiz 622Selected Bibliography 623

E C T I O N F I VSCHEDULING

19 SCHEDULING 626Hospitals Cut ER WaitsNew "Fast Track"Units, High-Tech IDs Speed Visits; See aDoctor in 17 Minutes 627Manufacturing Execution Systems 628The Nature and Importance of WorkCenters 628

Typical Scheduling and Control Functions 629Objectives of Work-Center Scheduling 630Job Sequencing 631

Priority Rules and Techniques 632Scheduling n Jobs on One Machine 632Scheduling n Jobs on Two Machines 634Scheduling a Set Number of Jobs on the SameNumber of Machines 636Scheduling n Jobs on m Machines 638

Shop-Floor Control 638Gantt Charts 638Tools of Shop-Floor Control 639Input/Output Control 639Data Integrity 639Principles of Work-Center Scheduling 641

XXXVI CONTENTS

Personnel Scheduling in Services 642Scheduling Daily Work Times 643Scheduling Hourly Work Times 643

Summary 644Key Terms 644Solved Problems 645Review and Discussion Questions 646Problems 646Case: Keep Patients Waiting? Not in MyOffice 650Super Quiz 652Selected Bibliography 653Footnotes 653

19A SIMULATION 654Definition of Simulation 655Simulation Methodology 655

Problem Definition 655Constructing a Simulation Model 656Specifying Values of Variablesand Parameters 658Evaluating Results 659Validation 659Proposing a New Experiment 659Computerization 660

Simulating Waiting Lines 660Example: A Two-Stage Assembly Line 660

Spreadsheet Simulation 663Simulation Programs and Languages 666

Desirable Features of SimulationSoftware 668

Advantages and Disadvantagesof Simulation 668Summary 669Key Terms 669Solved Problems 670Review and Discussion Questions 671Problems 671Advanced Case: Understanding theImpact of Variability on the Capacityof a Production System 678Super Quiz 679Selected Bibliography 679Footnotes 679

20 CONSTRAINT MANAGEMENT 680Goal of the Firm 684Performance Measurements 684

Financial Measurements 684Operational Measurements 684Productivity 685

Unbalanced Capacity 686Dependent Events and StatisticalFluctuations 686

Bottlenecks and Capacity-ConstrainedResources 688Basic Manufacturing Building Blocks 688

Methods for Control 689Time Components 690Finding the Bottleneck 691Saving Time 691Avoid Changing a Nonbottleneck into aBottleneck 692Drum, Buffer, Rope 692Importance of Quality 695Batch Sizes 696How to Treat Inventory 697

Comparing Synchronous Manufacturingto MRP and JIT 699Relationship with Other FunctionalAreas 699

Accounting's Influence 699Marketing and Production 700

Summary 707Key Terms 708Solved Problem 708Review and Discussion Questions 709Problems 710Case: Solve the OPT QuizA Challengein Scheduling 714Super Quiz 714Selected Bibliography 714Footnotes 715

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APPENDICES

Linear Programming Using the ExcelSolver 716

Operations Technology 736

Financial Analysis 743

Answers to Selected Problems 760

Present Value Table 763

Negative Exponential Distribution:Values of e" 764

Areas of the Cumulative StandardNormal Distribution 765

Uniformly Distributed RandomDigits 766

I Interest Tables 767

PHOTO CREDITS 771

NAME INDEX 773

SUBJECT INDEX 777