OPERATIONS AND SUPPLY CHAIN MANAGEMENT

thirteenth

edition

F.

ROBERT JACOBS

Indiana University
RICHARD B. CHASE

University of Southern California

McGraw-Hill Irwin

CONTENTS

STRATEGY AND SUSTAINABILITY

1. OPERATIONS AND SUPPLY C H A I N MANAGEMENT 2

Quick Supply Chains Enable Retailers to Get Fashions to Market Quickly 3 What Is Operations and Supply Chain Management? 4 Operations and Supply Chain Processes 7 Differences between Services and Goods 8
The Goods-Services Continuum Servitization Strategies 10 Growth of Services 10 9

A Framework for Operations and Supply Chain Strategy 29 Productivity Measurement 30 How Does Wall Street Evaluate Operations Performance 32 Summary 33 Key Terms 33 Solved Problem 34 Review and Discussion Questions 34 Problems 34 Case: The Tao of Timbuk2 36 Super Quiz 37 Selected Bibliography 37 Footnote 37
PRODUCT AND SERVICE DESIGN 38

Efficiency, Effectiveness, and Value 11 Careers in Operations and Supply Chain Management 12
Chief Operating Officer 14

IDEO, A Design and Innovation Firm 39 The Product Design Process 40 The Product Development Process 42 Economic Analysis of Product Development Projects 46
Build a Base-Case Financial Model 47 Sensitivity Analysis to Understand Project Trade-Offs 49

Historical Development of Operations and Supply Chain Management 14 Current Issues in Operations and Supply Chain Management 16 Key Terms 17 Review and Discussion Questions 17 Internet Exercise: Harley-Davidson Motorcycles 18 Case: Fast-Food Feast 18 Super Quiz 18 Selected Bibliography 19 Footnotes 19
2 STRATEGY AND SUSTAINABILITY 20

Designing for the Customer 50

Quality Function Deployment 51 Value Analysis/Value Engineering 52

Designing Products for Manufacture and Assembly 53

How Does Design for Manufacturing Assembly (DFMA) Work? 54 and

How IKEA Designs Its Sexy Prices 21 A Sustainable Strategy 22 What Is Operations and Supply Chain Strategy? 23
Competitive Dimensions 25 The Notion of Trade-Offs 27 Order Winners and Order Qualifiers: The Marketing-Operations Link 27

Strategic Fit: Fitting Operational Activities to Strategy 28

XXX

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

CONTENTS

XXXI

JBECT i o N

Two

MANUFACTURING, SERVICE, AND HEALTH CARE PROCESSES

4 STRATEGIC CAPACITY MANAGEMENT 70

Production Process Mapping and Little's Law 118 Process Analysis Examples 121
A Bread-Making Operation 121 A Restaurant Operation 122 Planning a Transit Bus Operation 124

Shouldice Hospital: Hernia Surgery Innovation 70 Capacity Management in Operations 72 Capacity Planning Concepts 73
Economies and Diseconomies of Scale 73 Capacity Focus 74 Capacity Flexibility 74

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

Planning Service Capacity 81

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

Process Flow Time Reduction 126 Summary 128 Key Terms 129 Formula Review 129 Solved Problems 129 Review and Discussion Questions 131 Problems 131 Advanced Problem 134 Case: Analyzing Casino Money-Handling Processes 135 Case: Kristen's Cookie Company (A) 13S Super Quiz 137 Selected Bibliography 137 Footnotes 137
S A J O B DESIGN AND WORK MEASUREMENT 138

Summary 83 Key Terms 84 Formula Review 84 Solved Problem 84 Review and Discussion Questions 85 Problems 86 Case: Shouldice HospitalA Cut Above 87 Super Quiz 89 Selected Bibliography 89
4A LEARNING CURVES 90

Job Design Decisions 139 Behavioral Considerations in Job Design 140

Degree of Labor Specialization Job Enrichment 141 Sociotechnical Systems 141 140

Work Measurement and Standards 142

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

Application of Learning Curves 91 Plotting Learning Curves 92

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

General Guidelines for Learning 97

Individual Learning 97 Organizational Learning 98 6

Summary 152 Key Terms 153 Formula Review 153 Solved Problems 153 Review and Discussion Questions 154 Problems 155 Super Quiz 156 Selected Bibliography 157 Footnotes 157
PRODUCTION PROCESSES 158

Learning Curves Applied to Heart Transplant Mortality 99 Key Terms 101 Formula Review 101 Solved Problems 101 Review and Discussion Questions 102 Problems 102 Super Quiz 105 Selected Bibliography 105 Footnotes 105
PROCESS ANALYSIS Self-Ordering 106

Toshiba: Producer of the First Notebook Computer 159 Production Processes 160 How Production Processes Are Organized 162 Break-Even Analysis 164 Designing a Production System 165
Project Layout 166 Workcenters 166 Manufacturing Cell 166 Assembly Line and Continuous Process Layouts 166

Customer-Driven Service for McDonald's 107

Kiosks 107

Process Analysis 108

Analyzing a Las Vegas Slot Machine 108

Process Flowcharting 110 Types of Processes 112

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

Measuring Process Performance 116

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

XXXII

CONTENTS

Selected Bibliography 179 Footnotes 179

6A FACILITY LAYOUT 180

Basic Production Layout Formats 182 Workcenters 182

Systematic Layout Planning 186

Case: Contact Centers Should Take a Lesson from Local Businesses 236 Super Quiz 237 Selected Bibliography 237 Footnotes 237
7A W A I T I N G LINE ANALYSIS 238

Assembly Lines 186

Assembly-Line Balancing 188 Splitting Tasks 191 Flexible and U-Shaped Line Layouts 192

Economics of the Waiting Line Problem 239

The Practical View of Waiting Lines 239

Mixed-Model Line Balancing 192

Current Thoughts on Assembly Lines 194

The Queuing System 240

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

Cells 194
Developing a Manufacturing Cell 194 Virtual Manufacturing Cells 196

Project Layouts 196 Retail Service Layout 196

Servicescapes 197 Signs, Symbols, and Artifacts 199

Office Layout 199 Summary 200 Key Terms 200 Formula Review 201 Solved Problems 201 Review and Discussion Questions 205 Problems 205 Advanced Problem 210 Case: Soteriou's Souvlaki 211 Case: Designing Toshiba's Notebook Computer Assembly Line 212 Super Quiz 214 Selected Bibliography 215 Footnotes 215
7 SERVICE PROCESSES 216

Waiting Line Models 247 Approximating Customer Waiting Time 256 Computer Simulation of Waiting Lines 258 Summary 258 Key Terms 258 Formula Review 259 Solved Problems 260 Review and Discussion Questions 262 Problems 262 Case: Community Hospital Evening Operating Room 266 Super Quiz 267 Selected Bibliography 267 Footnotes 267
8 HEALTH CARE PROCESSES 268

A Prescription for Innovation 269

The Mayo Clinic's New SPARC Lab Is Driving Experimentation at the Frontier of Health Care. How? By Getting Physicians to Think More Like Designers 269

My Week as a Room-Service Waiter at the Ritz 217 The Nature of Services 218 An Operational Classification of Services 219 Designing Service Organizations 221 Structuring the Service Encounter: ServiceSystem Design Matrix 221
Strategic Uses of the Matrix 223 Virtual Service: The New Role of the Customer 223

The Nature of Health Care Operations 270

Classification of Hospitals 271 Hospital Layout and Care Chains 272 Capacity Planning 274 Workforce Scheduling 274 Quality Management and Process Improvement 274 Health Care Supply Chains 276 Inventory Management 278

Service Blueprinting and Fail-Safing 224 Three Contrasting Service Designs 226
The Production-Line Approach 226 The Self-Service Approach 227 The Personal-Attention Approach 227

Managing Customer-Introduced Variability 230 Applying Behavioral Science to Service Encounters 232 Service Guarantees as Design Drivers 233 Summary 234 Key Terms 234 Review and Discussion Questions 234 Problems 235 Case: Pizza USA: An Exercise in Translating Customer Requirements into Process Design Requirements 235

Performance Measures 279 Trends in Health Care 279 Summary 281 Key Terms 281 Review and Discussion Questions 282 Case: Venice Family Clinic: Managing Patient Wait Times 282 Super Quiz 283 Selected Bibliography 283 Footnotes 283
9 S I X - S I G M A QUALITY 284

Total Quality Management 286 Quality Specification and Quality Costs 288
Developing Quality Specifications 288 Cost of Quality 289 Functions of the QC Department 290

CONTENTS

XXXIII

Six-Sigma Quality 291

Six-Sigma Methodology 292 Analytical Tools for Six Sigma and Continuous

Network-Planning Models 347

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

Improvement 293
Six-Sigma Roles and Responsibilities 296

Managing Resources 358

Tracking Progress 359

The Shingo System: Fail-Safe Design 297 ISO 9000 and ISO 14000 298 External Benchmarking for Quality Improvement 300 Summary 300 Key Terms 300 Review and Discussion Questions 301 Problems 301 Internet Enrichment Exercises 302 Case: Hank Kolb, Director of Quality Assurance 302 Case: Appreciative InquiryA Different Kind of Fishbone 303 Super Quiz 305 Selected Bibliography 305 Footnotes 305
9A PROCESS CAPABILITY AND SPC 306

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

SUPPLY CHAIN PROCESSES

11 GLOBAL SOURCING AND PROCUREMENT 374

Variation Around Us 308 Process Capability 309

Capability Index (Cplc) 311

The World Is Flat 375

Flattener 5: Outsourcing 375 Flattener 6: Offshoring 375

Process Control Procedures 314

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

Strategic Sourcing 376

The Bullwhip Effect 377

Acceptance Sampling 322

Design of a Single Sampling Plan

for Attributes 322

Operating Characteristic Curves 323

Summary 325 Key Terms 325 Formula Review 325 Solved Problems 326 Review and Discussion Questions 327 Problems 327 Advanced Problem 332 Case: Hot Shot Plastics Company 332 Super Quiz 333 Selected Bibliography 333 Footnotes 333
10 PROJECTS 334

Outsourcing 381 Green Sourcing 385 Total Cost of Ownership 387 Measuring Sourcing Performance 389 Summary 391 Key Terms 391 Formula Review 392 Review and Discussion Questions 392 Problems 392 Case: Pepe Jeans 394 Super Quiz 395 Selected Bibliography 395 Footnotes 395
12 LOCATION, LOGISTICS, AND DISTRIBUTION 396

FedEx: A Leading Global Logistics Company 397 Logistics 398 Decisions Related to Logistics 399
Cross-Docking 400

National Aeronautics and Space Administration's Constellation Program May Land Men on the Moon by 2020 335 What Is Project Management? 337 Structuring Projects 337
Pure Project 338 Functional Project 338 Matrix Project 338

Issues in Facility Location 400 Plant Location Methods 403

Factor-Rating Systems 403 Transportation Method of Linear Programming 403 Centroid Method 406

Work Breakdown Structure 340 Project Control Charts 342

Earned Value Management (EVM) 344

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

XXXIV

CONTENTS

Problems 411 Case: ApplichemThe Transportation Problem 414 Super Quiz 415 Selected Bibliography 415 Footnote 415
13 LEAN AND SUSTAINABLE SUPPLY CHAINS 416

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

Green Is the New Black 417

Survey Suggests that Enviro-Conscious Manufacturers Are the Best Risk for Investors 417

SUPPLY AND DEMAND PLANNING

14 ENTERPRISE RESOURCE PLANNING SYSTEMS 470 Information CrisisThe Missing Desk 471 SAP 473 SAP A p p l i c a t i o n Modules 474 Financials 475 Human Capital Management 476 Operations 476 Corporate Services 477

Lean Production 418 Lean Logic 419 The Toyota Production System 420
Elimination of Waste 420 Respect for People 420 ' Lean Supply Chains 421 Value Stream Mapping 423 Lean Supply Chain Design Principles Lean Layouts 427

426

Lean Production Schedules 429

Lean Supply Chains 433

Lean Services 434 Summary 435 Key Terms 435 Formula Review 436 Solved Problems 436 Review and Discussion Questions 440 Problems 440 Case: Quality Parts Company 441 Case: Value Stream Mapping 441 Case: Pro Fishing BoatsA Value Stream Mapping Exercise 444 Super Quiz 444 Selected Bibliography 445 Footnotes 445
13A OPERATIONS CONSULTING AND REENGINEERING 446

mySAP.com and SAP NetWeaverIntegrated E-Business Applications 477 Implementing ERP Systems 479 Summary 480 Key Term 481 Review and Discussion Questions 481 Super Quiz 481 Selected Bibliography 481 Footnote 481
15 DEMAND MANAGEMENT AND FORECASTING 482

Walmart's Data Warehouse 483 Demand Management 485 Types of Forecasting 486 Components of Demand 486 Time Series Analysis 488
Linear Regression Analysis 489 Decomposition of a Time Series 492 Simple Moving Average 498 Weighted Moving Average 499 Exponential Smoothing 500 Forecast Errors 504 Sources of Error 504 Measurement of Error 504

Pittiglio Rabin Todd & McGrath (PRTM)A Leading Operations Consulting Company 447 What Is Operations Consulting? 448 The Management Consulting Industry 448 Economics of Consulting Firms 449 When Operations Consulting Is Needed 450
When Are Operations Consultants Needed? 451

Causal Relationship Forecasting 507

Multiple Regression Analysis 508

Qualitative Techniques in Forecasting 509

Market Research 509 Panel Consensus 509 Historical Analogy 509 Delphi Method 510

The Operations Consulting Process 452 Operations Consulting Tool Kit 453
Problem Definition Tools 453 Data Gathering 456 Data Analysis and Solution Development Cost Impact and Payoff Analysis 460 Implementation 461

459

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

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

CONTENTS

XXXV

Super Quiz 527 Selected Bibliography 527 Footnotes 527

16 SALES AND OPERATIONS PLANNING 528

Super Quiz 594 Selected Bibliography 594 Footnotes 595

18 MATERIAL REQUIREMENTS PLANNING 596

What Is Sales and Operations Planning? 530 Overview of Sales and Operations Planning Activities 530 The Aggregate Operations Plan 532
Production Planning Environment 532 Relevant Costs 534

From Push to Pull 597 Master Production Scheduling 598

Time Fences 600

Where MRP Can Be Used 601 Material Requirements Planning System Structure 601
Demand for Products 602 Bill of Materials 602 Inventory Records 604 MRP Computer Program 604

Aggregate Planning Techniques 536

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

An Example Using MRP 606

Forecasting Demand 606 Developing a Master Production Schedule 606 Bill of Materials (Product Structure) 607 Inventory Records 608 Performing the MRP Calculations 608 Lot Sizing in MRP Systems 611 Lot-for-Lot 612 Economic Order Quantity 612 Least Total Cost 613 Least Unit Cost 614 Choosing the Best Lot Size 614

Level Scheduling 543 Yield Management 544

Operating Yield Management Systems 545

Summary 546 Key Terms 546 Solved Problem 547 Review and Discussion Questions 549 Problems 549 Case: Bradford ManufacturingPlanning Plant Production 552 Super Quiz 553 Selected Bibliography 553 Footnotes 553
17 INVENTORY CONTROL 554

Direct to StoreThe UPS Vision 555

The UPS Direct Approach 556

Definition of Inventory 558 Purposes of Inventory 559 Inventory Costs 559 Independent versus Dependent Demand 561 Inventory Systems 562
A Single-Period Inventory Model 562 Multiperiod Inventory Systems 565

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

E CT I O N

F IV

SCHEDULING
19 SCHEDULING 626

Fixed-Order Quantity Models 566

Establishing Safety Stock Levels 569 Fixed-Order Quantity Model with Safety Stock 570

Fixed-Time Period Models 573

Fixed-Time Period Model with Safety Stock 573

Inventory Control and Supply Chain Management 575 Price-Break Models 576 ABC Inventory Planning 578
ABC Classification 579

Hospitals Cut E R WaitsNew "Fast Track" Units, High-Tech IDs Speed Visits; See a Doctor in 17 Minutes 627 Manufacturing Execution Systems 628 The Nature and Importance of Work Centers 628
Typical Scheduling and Control Functions 629 Objectives of Work-Center Scheduling 630 Job Sequencing 631 Priority Rules and Techniques 632 Scheduling n Jobs on One Machine 632 Scheduling n Jobs on Two Machines 634 Scheduling a Set Number of Jobs on the Same Number of Machines 636 Scheduling n Jobs on m Machines 638

Inventory Accuracy and Cycle Counting 580 Summary 582 Key Terms 582 Formula Review 582 Solved Problems 584 Review and Discussion Questions 585 Problems 586 Case: Hewlett-PackardSupplying the DeskJet Printer in Europe 591

Shop-Floor Control 638

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

XXXVI

CONTENTS

Personnel Scheduling in Services 642

Scheduling Daily Work Times 643 Scheduling Hourly Work Times 643

Methods for Control 689

Time Components 690 Finding the Bottleneck 691 Saving Time 691 Avoid Changing a Nonbottleneck

Summary 644 Key Terms 644 Solved Problems 645 Review and Discussion Questions 646 Problems 646 Case: Keep Patients Waiting? Not in My Office 650 Super Quiz 652 Selected Bibliography 653 Footnotes 653
19A SIMULATION 654

into a

Bottleneck 692 Drum, Buffer, Rope 692 Importance of Quality 695 Batch Sizes 696
How to Treat Inventory 697

Comparing Synchronous Manufacturing to MRP and JIT 699 Relationship with Other Functional Areas 699
Accounting's Influence 699 Marketing and Production 700

Definition of Simulation 655 Simulation Methodology 655

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

Simulating Waiting Lines 660

Example: A Two-Stage Assembly Line 660

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

Spreadsheet Simulation 663 Simulation Programs and Languages 666

Desirable Features of Simulation Software 668

APPENDICES A Linear Programming Using the Excel Solver 716 B Operations Technology 736 C Financial Analysis 743 D Answers to Selected Problems 760 E Present Value Table 763 F Negative Exponential Distribution: Values of e" 764 G Areas of the Cumulative Standard Normal Distribution 765 H Uniformly Distributed Random Digits 766 I Interest Tables 767
PHOTO CREDITS NAME INDEX SUBJECT INDEX 771

Advantages and Disadvantages of Simulation 668 Summary 669 Key Terms 669 Solved Problems 670 Review and Discussion Questions 671 Problems 671 Advanced Case: Understanding the Impact of Variability on the Capacity of a Production System 678 Super Quiz 679 Selected Bibliography 679 Footnotes 679
20 CONSTRAINT MANAGEMENT 680

Goal of the Firm 684 Performance Measurements 684

Financial Measurements 684 Operational Measurements 684 Productivity 685

Unbalanced Capacity 686

Dependent Events and Statistical Fluctuations 686

Bottlenecks and Capacity-Constrained Resources 688 Basic Manufacturing Building Blocks 688

773 777