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Operations Management
An Integrated Approach ^
INTERNATIONAL STUDENT VERSION
R. Dan Reid
Nada R. Sanders
WILEY
C 0 N T E NT S
CHAPTER 1 CHAPTER 2
Basics of Operations Management l Strategy and Productivity 27
WHAT IS OPERATIONS MANAGEMENT? 2 THE ROLE OF OPERATIONS STRATEGY 29
Links to Practice: The E-tailers 4 The Importance of Operations Strategy 29
DIFFERENCES BETWEEN MANUFACTURING AND SERVICE DEVELOPING A BUSINESS STRATEGY 3 0
ORGANIZATIONS 5 Mission 30
Links to Practice: U.S. Postal Service 6 Environmental Scanning 31
OPERATIONS MANAGEMENT DECISIONS 7 Core Competencies 33
Links to Practice: Texas Instruments Incorporated 9 Putting It Together 34
PLAN OF THIS BOOK 10 Links to Practice: Dell Computer Corporation 34
HISTORICAL DEVELOPMENT 1 1 DEVELOPING AN OPERATIONS STRATEGY 35
WhyOM? 11 Competitive Priorities 35
Historical Milestones 11 Links to Practice: Southwest Airlines Company 36
The Industrial Revolution 12 Links to Practice: FedEx Corporation 38
Scientific Management 13 The Need for Trade-Offs 38
The Human Relations Movement 14 Order Winners and Qualifiers 39
Management Science 14 Translating Competitive Priorities into Production
The Computer Age 15 Requirements 40
Just-in-Time 15 STRATEGIC ROLE OF TECHNOLOGY 4 1
Total Quality Management 15 Types of Technologies 41
Business Process Reengineering 16 Technology as a Tool for Competitive Advantage 42
Flexibility 16 PRODUCTIVITY 4 2
Time-Based Competition 16 Measuring Productivity 42
Supply Chain Management 16 Interpreting Productivity Measures 45
Links to Practice: The Publishing Industry 17 Productivity and Competitiveness 45
Global Marketplace 18 Productivity and the Service Sector 46
Sustainability and Green Operations 18 OPERATIONS STRATEGY WITHIN OM:
Electronic Commerce 18 HOW IT ALL FITS TOGETHER 46
Outsourcing and Flattening of the World 19 OPERATIONS STRATEGY ACROSS
TODAY'S OM ENVIRONMENT 2 0 THE ORGANIZATION 4 7
OPERATIONS MANAGEMENT IN PRACTICE 2 1 THE SUPPLY CHAIN LINK 4 7
WITHIN OM: HOW IT ALL FITS TOGETHER 2 1 THE SUSTAINABILITY LINK 4 8
OM ACROSS THE ORGANIZATION 2 2 Chapter Highlights 48
THE SUPPLY CHAIN LINK 2 4 Key Terms 49
THE SUSTAINABILITY LINK 2 4 Formula Review 49
Chapter Highlights 25 Solved Problems 49
Key Terms 25 Discussion Questions 50
Discussion Questions 25 Problems 50
Selected Bibliography 26 Selected Bibliography 51
XV
xvi • CONTENTS
Links to Practice: Motorola, Inc. 2 0 8 Small Lot Sizes and Quick Setups 242
ACCEPTANCE SAMPLING 209 Uniform Plant Loading 243
Sampling Plans 209 Flexible Resources 244
Operating Characteristic (OC) Curves 210 Facility Layout 245
Developing OC Curves 212 Links to Practice: Ryder Integrated Logistics 245
Average Outgoing Quality 213 TOTAL QUALITY MANAGEMENT 2 4 6
IMPLICATIONS FOR MANAGERS 215 Product versus Process 247
How Much and How Often to Inspect 215 Quality at the Source 247
Where to Inspect 215 Preventive Maintenance 248
W h i c h Tools to Use 216 Work Environment 248
STATISTICAL QUALITY CONTROL IN SERVICES 216 RESPECT FOR PEOPLE 249
Links to Practice: The Ritz-Carlton Hotel Company, L.L.C./ The Role of Production Employees 249
Nordstrom, Inc. 217 Lifetime Employment 250
Links to Practice: Marriott International, Inc. 217 The Role of Management 251
STATISTICAL QUALITY CONTROL (SQC) WITHIN OM: Supplier Relationships 252
HOW IT ALL FITS TOGETHER 218 BENEFITS OF JIT 253
STATISTICAL QUALITY CONTROL (SQC) ACROSS THE Links to Practice: Alcoa, Inc. 253
ORGANIZATION 218 IMPLEMENTING JIT 2 5 4
THE SUPPLY CHAIN LINK 219 JIT IN SERVICES 255
THE SUSTAINABILITY LINK 219
Improved Quality 255
Chapter Highlights 220
Uniform Facility Loading 255
Key Terms 220
Use of Multifunction Workers 256
Formula Review 221
Reductions in Cycle Time 256
Solved Problems 221
Minimizing Setup Times and Parallel Processing 256
Discussion Questions 226
Workplace Organization 256
Problems 226
JIT AND LEAN SYSTEMS WITHIN 0 M : HOW IT ALL FITS
Selected Bibliography 229
TOGETHER 256
JIT AND LEAN SYSTEMS ACROSS THE
CHAPTER 7
ORGANIZATION 256
Lean Systems 230 THE SUPPLY CHAIN LINK 257
THE PHILOSOPHY OF JIT 232 THE SUSTAINABILITY LINK 258
Eliminate Waste 233 Chapter Highlights 258
A Broad View of Operations 233 Key Terms 259
Simplicity 233 Formula Review 259
Continuous Improvement 234 Solved Problems 259
Visibility 234 Discussion Questions 260
Flexibility 234 Problems 260 ' . c-v '
ELEMENTS OF JIT 235 Selected Bibliography 260 ^
Just-in-Time Manufacturing 235 CHAPTER 8
Total Quality Management (TQM) 237
Forecasting and Demand Planning 262
Respect for People 237
Links to Practice: Texas Instruments 238 PRINCIPLES OF FORECASTING 263
JUST-IN-TIME MANUFACTURING 238 STEPS IN THE FORECASTING PROCESS 2 6 4
The Pull System 238 Links to Practice: Intel Corporation 265
Kanban Production 239 TYPES OF FORECASTING METHODS 265
Variations of Kanban Production 242 Links to Practice: Improving Sales Forecasting 266
CONTENTS • XIX
Step 1: Identify Tasks and Their Immediate Predetermined Time Data 403
Predecessors 367 Work Sampling 405
Step 2: Determine Output Rate 369 Links to Practice: Pace Productivity 407
Step 3: Determine Cycle Time 369 COMPENSATION 4 0 7
Step 4: Compute the Theoretical Minimum Number of Time-Based Systems 407
Stations 371 Output-Based Systems 407
Step 5: Assign Tasks to Workstations (Balance the Group Incentive Plans 408
Line) 371 Links to Practice: Accountable Care
Step 6: Compute Efficiency, Idle Time, and Balance Organizations (ACO) 4 0 8
Delay 372 Incentive Plan Trends 409
Other Considerations 373 LEARNING CURVES 4 0 9
GROUP TECHNOLOGY (CELL) LAYOUTS 3 7 4
WORK SYSTEM DESIGN WITHIN OM: HOW IT ALL FITS
FACILITY LAYOUT WITHIN OM: HOW IT ALL FITS
TOGETHER 4 1 2
TOGETHER 375
WORK SYSTEM DESIGN ACROSS THE ORGANIZATION 4 1 2
FACILITY LAYOUT ACROSS THE ORGANIZATION 3 7 5 THE SUPPLY CHAIN LINK 4 1 3
THE SUPPLY CHAIN LINK 3 7 6 THE SUSTAINABILITY LINK 4 1 3
THE SUSTAINABILITY LINK 3 7 6 Chapter Highlights 414
Chapter Highlights 377 Key Terms 414
Key Terms 377 Formula Review 415
Formula Review 377 Solved Problems 415
Solved Problems 378 Discussion Questions 418
Discussion Questions 380 Problems 418
Problems 380 Selected Bibliography 421
Selected Bibliography 384
CHAPTER 12
Inventory Management Policies 423
CHAPTER 11
Job Design and Work Measurement 385 TYPES OF INVENTORY 4 2 4
HOW COMPANIES USE THEIR INVENTORY 4 2 5
DESIGNING A WORK SYSTEM 3 8 6
OBJECTIVES OF INVENTORY MANAGEMENT 4 2 7
JOB DESIGN 387
Customer Service 427
Designing a Job 387
Cost-Efficient Operations 428
Links to Practice: Google 3 8 7
Minimum Inventory Investment 429
Machines or People? 388
RELEVANT INVENTORY COSTS 4 3 1
Level of Labor Specialization 389
Item Costs 431
Eliminating Employee Boredom 390
Holding Costs 431
Team Approaches to Job Design 390
Ordering Costs 433
Links to Practice: The SCO Group 3 9 1
Shortage Costs 433
The Alternative Workplace 391
ABC INVENTORY CLASSIFICATION 433
Links to Practice: AT&T 392
Procedure for an ABC Inventory Analysis 435
METHODS ANALYSIS 393
Inventory Control Using ABC Classification 435
THE WORK ENVIRONMENT 395
INVENTORY RECORD ACCURACY 4 3 6
WORK MEASUREMENT 396
Links to Practice: Cisco Systems^ Inc. 4 3 6
Costing 396
INVENTORY IN SERVICE ORGANIZATIONS 4 3 8
Performance 397
DETERMINING ORDER QUANTITIES 4 3 9
Planning 397
MATHEMATICAL MODELS FOR DETERMINING ORDER
SETTING STANDARD TIMES 397
QUANTITY 4 4 0
How to Do a Time Study 397
Economic Order Quantity (EOQ) 440
Elemental Time Data 403
Calculating the EOQ 443
CONTENTS • XXI
Economic Production Quantity (EPQ) 445 AGGREGATE PLANS FOR SERVICE COMPANIES WITH
Quantity Discount Model 449 NONTANGIBLE PRODUCTS 4 8 8
WHY COMPANIES DON'T ALWAYS USE THE OPTIMAL AGGREGATE PLANNING WITHIN OM: HOW IT ALL FITS
ORDER QUANTITY 453 TOGETHER 4 9 2
JUSTIFYING SMALLER ORDER QUANTITIES 453 AGGREGATE PLANNING ACROSS THE
Links to Practice: Kenworth Trucks 453 ORGANIZATION 4 9 3
Understanding the EPQ Factors 454 THE SUPPLY CHAIN LINK 4 9 3
DETERMINING SAFETY STOCK LEVELS 4 5 5 THE SUSTAINABILITY LINK 4 9 4
How Much Safety Stock? 455 Chapter Highlights 494
PERIODIC REVIEW SYSTEM 4 5 7 Key Terms 494
Comparison of Continuous Review Systems and c Solved Problems 495
Periodic Review Systems 4 5 9 Discussion Questions 501
THE SINGLE-PERIOD INVENTORY MODEL 4 6 0 Problems 502
INVENTORY MANAGEMENT WITHIN OM: HOW IT ALL Selected Bibliography 504
FITS TOGETHER 462
INVENTORY MANAGEMENT ACROSS THE CHAPTER 14
ORGANIZATION 4 6 3 Materials Planning 505
THE SUPPLY CHAIN LINK 4 6 3 ENTERPRISE RESOURCE PLANNING 507
THE SUSTAINABILITY LINK 4 6 4 ERP Modules 508
Chapter Highlights 464
THE EVOLUTION OF ERP 5 0 8
Key Terms 465
First-Generation ERP 508
Formula Review 465 x
Second-Generation ERP 509
Solved Problems 466
Links to Practice: Arapahoe County Government 5 1 0
Discussion Questions 469
THE BENEFITS OF ERP 5 1 1
Problems 470
Links to Practice: i2 Technologies 5 1 1
Selected Bibliography 4 7 2 ' ~~ f
Links to Practice: SAP AG 512
THE COST OF ERP SYSTEMS 512
CHAPTER 13
MATERIAL PLANNING SYSTEMS 513
Sales and Operations Planning 473 AN OVERVIEW OF MRP 513
THE ROLE OF AGGREGATE PLANNING 4 7 5 TYPES OF DEMAND 5 1 4
Marketing Plan 475 OBJECTIVES OF MRP 516
Aggregate or Production Plan 475 MRP INPUTS 5 1 6
Financial and Engineering Plans 476 Authorized MPS 516
Master Production Schedule 476 Inventory Records 516
Links to Practice: Coca-Cola Midi (CCM) 4 7 7 Bills of Material 518
TYPES OF AGGREGATE PLANS 4 7 7 THE MRP EXPLOSION PROCESS 5 2 1
Level Aggregate Plan 477 ACTION NOTICES 525
Chase Aggregate Plan 478 COMPARISON OF LOT SIZE RULES 5 2 5
Hybrid Aggregate Plan 479 THE ROLE OF CAPACITY REQUIREMENTS
AGGREGATE PLANNING OPTIONS 4 7 9 PLANNING (CRP) 5 2 6
Demand-Based Options 480 RESOURCE PLANNING WITHIN OM: HOW IT ALL FITS
Capacity-Based Options 480 TOGETHER 5 2 8
EVALUATING THE CURRENT SITUATION 4 8 2 RESOURCE PLANNING ACROSS THE ORGANIZATION 5 2 9
Links to Practice: UPS Hires Seasonal Workers 483 THE SUPPLY CHAIN LINK 5 3 0
DEVELOPING THE AGGREGATE PLAN 483 THE SUSTAINABILITY LINK 5 3 0
AGGREGATE PLANS FOR COMPANIES WITH TANGIBLE Chapter Highlights 531
PRODUCTS 485 Key Terms 531
Formula Review 532
XXii • CONTENTS