OPERATIONS THREE BASIC FUNCTIONAL delivering a product or

AREAS: service.
responsible for producing
goods and/or services FUNCTIONS AND ACTIVITIES

GOODS 1.FINANCE -include forecasting,

purchasing, inventory
physical items that include -responsible for securing
management, information
raw materials, parts, financial resources at
management, quality
subassemblies such as favorable prices and
assurance, scheduling,
motherboards that go into allocating those resources
production, distribution,
computers, and final products throughout the organization,
delivery, and customer
such as cell phones and as well as budgeting,
service.
automobiles. analyzing investment
proposals, and providing *Supply chains are both
SERVICES
funds for operations. external and internal to the
activities that provide some organization.
2.MARKETING
combination of time,
*creation of goods or services
location, form, or -responsible for assessing
involves transforming or
psychological value consumer wants and needs,
converting inputs into
and selling and promoting the
*collective success or failure outputs.
organization’s goods or
of companies’ operations
services VARIOUS INPUTS
functions has an impact on
the ability of a nation to 3. OPERATIONS -capital, labor, and
compete with other nations, information are used to
-responsible for producing
and on the nation’s economy create goods or services using
the goods or providing the
one or more transformation
*ideal situation for a business services offered by the
processes
organization is to achieve an organization.
economic match of supply FEEDBACK
*operations is the core of
and demand
what the organization does -ensure that the desired
*Having excess supply or outputs are obtained, an
OPERATIONS MANAGEMENT
excess capacity is wasteful organization takes
and costly; having too little -responsible for managing measurements at various
means lost opportunity and that core points in the transformation
possible customer process
dissatisfaction -management of systems or
processes that create goods CONTROL
KEY FUNCTIONS: and/or provide services.
-compares them with
*Supply side are operations *Operations and supply previously established
and supply chains chains are intrinsically linked standards to determine
whether corrective action is
*Sales and marketing on the SUPPLY CHAIN needed
demand side
-sequence of organizations
involved in producing and
*goods and services often
occur jointly
*goods–service combination
is a continuum (can range
from primarily goods, with
little service, to primarily
service, with few goods)
VALUE-ADDED
-difference between the cost
of inputs and the value or
price of outputs
-essence of the operations
function is to add value
during the transformation
process
*Value can also be
psychological, as in branding
FACTORS AFFECT THE DESIGN
AND MANAGEMENT OF
OPERATIONS SYSTEMS
-degree of involvement of
customers in the process and
the degree to which
technology is used to produce
and/or deliver a product or
service
*greater the degree of
customer involvement, the
more challenging it can be to
design and manage the
operation.
*Technology choices can
have a major impact on
productivity, costs, flexibility,
and quality and customer
satisfaction.
PRODUCTION OF GOODS
VERSUS PROVIDING SERVICES
*Production of goods
-tangible output,
*SERVICES
-nonmanufactured goods
*Manufacturing and service
are often different in terms of
what is done but quite similar
in terms of how it is done
POINTS OF COMPARISON:
DEGREE OF CUSTOMER
CONTACT
Services
-high degree of customer
contact, although services
such as Internet providers,
utilities, and mail service do
not
LABOR CONTENT OF JOBS
Services
- often have a higher degree
of labor content than manu
facturing jobs do
* automated services are an
exception
UNIFORMITY OF INPUTS
Services
- often subject to a higher
degree of vari ability of inputs
Manufacturing
- often have a greater ability
to control the variability of
inputs, which leads to more-
uniform job requirements
MEASUREMENT OF
PRODUCTIVITY
Services
-more difficult due largely to
the high variations of inputs
QUALITY ASSURANCE
Services
- more challenging for
services due to the higher
variation in input, and
because delivery and
consumption occur at the
same time
Manufacturing
- which typically occurs away
from the customer and allows
mistakes that are identified to
be corrected, services have
less opportunity to avoid
exposing the customer to
mistakes
INVENTORY
Services
- involve less use of inventory
than manufacturing
operations, so the costs of
having inventory on hand are
lower than they are for
manufacturing
- services cannot be stored.
Instead, they must be
provided “on demand.”
WAGES
Manufacturing
- often well paid, and have
less wage variation than
service
ABILITY TO PATENT
Services
- often easier to patent than * Working together finance people. 3.
service designs, and some successfully means that Provision of funds.
services cannot be patented, all members of the The necessary
making them easier for organization understand funding of operations
competitors to copy not only their own role, and the amount and
but they also understand timing of funding can
SIMILARITIES BETWEEN
the roles of others. In be important and
MANAGING THE
practice, there is even critical when
PRODUCTION OF PRODUCTS
significant interfacing and funds are tight.
AND MANAGING SERVICES:
collaboration among the Careful planning can
a. Forecasting and various functional areas, help avoid cash-flow
capacity planning to involving exchange of problems.
match supply and information and
*Marketing’s focus is on
demand b cooperative decision
selling and/or promoting
b. . Process making
the goods or services of
management
FINANCE AND an organization.
c. c. Managing
OPERATIONS Marketing is also
variations
MANAGEMENT responsible for assessing
d. d. Monitoring and
PERSONNEL COOPERATE customer wants and
controlling costs and
BY EXCHANGING needs, and for
productivity
INFORMATION AND communicating those to
e. e. Supply chain
EXPERTISE IN SUCH operations people (short
management f
ACTIVITIES AS THE term) and to design
f. . Location planning,
FOLLOWING: people (long term).
inventory
management, quality 1. Budgeting. Budgets * Marketing, design, and
control, and must be periodically produc tion must work
scheduling prepared to plan closely together to
financial successfully implement
* many service activities
requirements. design changes and to
are essential in goods-
Budgets must develop and produce
producing companies
sometimes be new products.
OPERATIONS AND SALES adjusted, and
* Marketing can provide
performance relative
- two line functions in a valuable insight on what
to a budget must be
business organization competitors are doing.
evaluated. 2.
Marketing also can
SUPPORT THE TWO LINE Economic analysis of
supply information on
FUNCTIONS: investment
consumer preferences so
proposals. Evaluation
Accounting that design will know the
of alternative
kinds of products and
Finance investments in plant
features needed;
and equipment
Marketing operations can supply
requires inputs from
information about
both operations and
IT capacities and judge the
manufacturability of resources, and public the health and safety of
designs. relations, as depicted in. employees. Public
The legal department relations is responsible
*Operations will also
must be consulted on for building and
have advance warning if
contracts with maintaining a positive
new equipment or skills
employees, customers, public image of the
will be needed for new
suppliers, and organization. Good public
products or services.
transporters, as well as relations provides many
Finance people should be
on liability and potential benefits. An
included in these
environmental issues. obvious one is in the
exchanges in order to
Accounting supplies marketplace. Other
provide information on
information to potential benefits include
what funds might be
management on costs of public awareness of the
available (short term) and
labor, materials, and organization as a good
to learn what funds might
overhead, and may place to work (labor
be needed for new
provide reports on items supply), improved
products or services
such as scrap, downtime, chances of approval of
(intermediate to long
and inventories zoning change requests,
term).
community acceptance of
MANAGEMENT
LEAD TIME expansion plans, and
INFORMATION SYSTEMS
instilling a positive
- to give customers (MIS) is concerned with
attitude among
realistic estimates of how providing management
employees
long it will take to fill their with the information it
orders needs to effectively CAREER OPPORTUNITIES
manage. This occurs AND PROFESSIONAL
* marketing, operations, mainly through designing SOCIETIES
and finance must systems to capture
interface on product and There are many career
relevant information and
process design, opportunities in the
designing reports. MIS is
forecasting, setting operations management
also important for
realistic schedules, and supply chain fields.
managing the control and
quality and quantity Among the numerous job
decision-making tools
decisions, and keeping titles are operations
used in operations
each other informed on manager, production
management. The
the other’s strengths and analyst, production
personnel or human
weaknesses. manager, inventory
resources department is
manager, purchasing
Operations also interacts concerned with
manager, schedule
with other functional recruitment and training
coordinator, distribution
areas of the organization, of personnel, labor
manager, supply chain
including legal, relations, contract
manager, quality analyst,
management negotiations, wage and
and quality manager.
information systems salary administration,
Other titles include office
(MIS), accounting, assisting in manpower
manager, store manager,
personnel/human projections, and ensuring
and service manager. govern the operation having its own goals that
People who work in the of the entire contribute to the goals of
operations field should organization. the overall process.
have a skill set that Examples include Business organizations
includes both people organizational and supply chains have
skills and knowledge governance and many such processes and
skills. People skills include organizational subprocesses, and they
political awareness; strategy. benefit greatly when
mentoring ability; and 2. Operational management is using a
collaboration, processes. These are process perspective.
negotiation, and the core processes Business process
communication skills. that make up the management (BPM)
Knowledge skills, value stream. activities include process
necessary for credibility Examples include design, process
and good decision purchasing, execution, and process
making, include product production and/or monitoring. Two basic
and/or service service, marketing, aspects of this for
knowledge, process and sales. operations and supply
knowledge, industry and 3. Supporting chain management are
global knowledge, processes. These managing processes to
financial and accounting support the core meet demand and
skills, and project processes. Examples dealing with process
management skills. include accounting, variability
human resources,
PROCESS MANAGEMENT MANAGING A PROCESS
and IT (information
TO MEET DEMAND
* A key aspect of technology).
operations management * Excess capacity is
* Business processes,
is process management. wasteful and costly; too
large and small, are
A process consists of one little capacity means
composed of a series of
or more actions that dissatisfied customers
supplier–customer
transform inputs into and lost revenue. Having
relationships, where
outputs. In essence, the the right capacity
every business
central role of all requires having accurate
organization, every
management is process forecasts of demand, the
department, and every
management. ability to translate
individual operation is
forecasts into capacity
Businesses are composed both a customer of the
requirements, and a
of many interrelated previous step in the
process in place capable
processes. Generally process and a supplier to
of meeting expected
speaking, there are three the next step in the
demand. Even so, process
categories of business process.
variation and demand
processes:
* A major process can variability can make the
1. Upper-management consist of many achievement of a match
processes. These subprocesses, each between process output
and demand difficult. variability is present you will learn about some
Therefore, to be to some extent in all of the tools managers use
effective, it is also processes, as well as to deal with variation. An
necessary for managers in demand for important aspect of being
to be able to deal with services and able to deal with
variation. products, and it variation is to use metrics
cannot generally be to describe it. Two widely
PROCESS VARIATION
influenced by used metrics are the
*Variation occurs in all managers. 4. mean (average) and the
business processes. It can Assignable variation. standard deviation. The
be due to variety or These variations are standard deviation
variability. For example, caused by defective quantifies variation
random variability is inputs, incorrect around the mean. The
inherent in every process; work methods, out- mean and standard
it is always present. In of-adjustment deviation are used
addition, variation can equipment, and so throughout this book in
occur as the result of on. This type of conjunction with
deliberate management variation can be variation. So, too, is the
choices to offer reduced or normal distribution.
customers variety. eliminated by Because you will come
analysis and across many examples of
fOUR BASIC SOURCES corrective action how the normal
OF VARIATION: distribution is used, you
Variations can be
may find the overview on
1. The variety of goods disruptive to operations
working with the normal
or services being and supply chain
distribution in the
offered. The greater processes, interfering
appendix at the end of
the variety of goods with optimal functioning.
the book helpful.
and services, the Variations result in
greater the variation additional cost, delays THE SCOPE OF
in production or and shortages, poor OPERATIONS
service quality, and inefficient MANAGEMENT
requirements. 2. work systems. Poor
Structural variation in quality and product * The operations function
demand. These shortages or service includes many
variations, which delays can lead to interrelated activities,
include trends and dissatisfied customers such as forecasting,
seasonal variations, and can damage an capacity planning,
are generally organization’s reputation scheduling, managing
predictable. They are and image. It is not inventories, assuring
particularly surprising, then, that the quality, motivating
important for ability to deal with employees, deciding
capacity planning. 3. variability is absolutely where to locate facilities,
Random variation. necessary for managers. and more.
This natural Throughout this book,
FORECASTING
-such things as weather
and landing conditions,
seat demand for flights,
and the growth in air
travel. CAPACITY
PLANNING,
-essential for the airline
to maintain cash flow and
make a reasonable profit.
(Too few or too many
planes, or even the right
number of planes but in
the wrong places, will
hurt profits.)
Locating facilities
according to managers’
decisions on which cities
to provide service for,
where to locate
maintenance facilities,
and where to locate
major and minor hubs.
Facilities and layout,
important in achieving
effective use of workers
and equipment.
Scheduling of planes for
flights and for routine
maintenance; scheduling
of pilots and flight
attendants; and
scheduling of ground
crews, counter staff, and
baggage handlers.
Managing inventories of
such items as foods and
beverages, first-aid
equipment, inflight
magazines, pillows and
blankets, and life
preservers. Assuring
quality, essential in flying
and maintenance
operations, where the
emphasis is on safety,
and important in dealing
with customers at ticket
counters, check-in,
telephone and electronic
reservations, and curb
service, where the
emphasis is on efficiency
and courtesy. Motivating
and training employees in
all phases of operations.
MANAGING THE SUPPLY
CHAIN TO ACHIEVE
SCHEDULE, COST, AND
QUALITY GOALS
* Among the key
management tasks in
either case are
scheduling production,
deciding which
components to make and
which to buy, ordering
parts and materials,
deciding on the style of
bicycle to produce and
how many, purchasing
new equipment to
replace old or worn-out
equipment, maintaining
equipment, motivating
workers, and ensuring
that quality standards are
met.
* A primary function of an
operations manager is to
guide the system by
decision making. Certain
decisions affect the
design of the system, and
others affect the
operation of the system.
System design involves
decisions that relate to
system capacity, the
geographic location of
facilities, arrangement of
departments and
placement of equipment
within physical
structures, product and
service planning, and
acquisition of equipment.
These decisions usually,
but not always, require
long-term commitments.
Moreover, they are
typically strategic
decisions. System
operation involves
management of
personnel, inventory
planning and control,
scheduling, project
management, and quality
assurance. These are
generally tactical and
operational decisions.
Feedback on these
decisions involves
measurement and
control. In many
instances, the operations
manager is more involved
in day-to-day operating
decisions than with
decisions relating to
system design. However,
the operations manager
has a vital stake in system
design because system
design essentially
determines many of the
parameters of system
operation. For example,
costs, space, capacities,
and quality are directly
affected by design
decisions. Even though
the operations manager
is not responsible for
making all design
decisions, he or she can
provide those decision
makers with a wide range
of information that will
have a bearing on their
decisions.
PURCHASING
- has responsibility for
procurement of
materials, supplies, and
equipment. Close contact
with operations is
necessary to ensure
correct quantities and
timing of purchases. The
purchasing department is
often called on to
evaluate vendors for
quality, reliability,
service, price, and ability
to adjust to changing
demand. Purchasing is
also involved in receiving
and inspecting the
purchased goods.
INDUSTRIAL
ENGINEERING
- often concerned with
scheduling, performance
standards, work
methods, quality control,
and material handling.
DISTRIBUTION
- involves the shipping of tremendously from
goods to warehouses, organization to
retail outlets, or final organization largely
customers. because of the different
products or services
MAINTENANCE
involved. Thus, managing
- responsible for general a banking operation
upkeep and repair of obviously requires a
equipment, buildings and different kind of
grounds, heating and air- expertise than managing
conditioning; removing a steelmaking operation.
toxic wastes; parking; and However, in a very
perhaps security. important respect, the
jobs are the same: They
* There are two main are both essentially
reasons for the decline: managerial. The same
increases in productivity, thing can be said for the
which means fewer job of any operations
workers are needed to manager regardless of
maintain manufacturing the kinds of goods or
output; and outsourcing, services being created.
especially to countries
that have much lower * The service sector and
wages, an attractive the manufacturing sector
option for companies are both important to the
seeking to maintain their economy. The service
competitiveness and sector now accounts for
boost their bottom lines more than 70 percent of
jobs in the United States,
* From a national and it is growing in other
perspective, not only is countries as well.
work transferred to a Moreover, the number of
foreign country, people working in
intellectual knowledge is services is increasing,
transferred while the number of
* The operations people working in
manager is the key figure manufacturing is not. The
reason for the decline in
in the system: He or she
manufacturing jobs is
has the ultimate
twofold: As the
responsibility for the
operations function in
creation of goods or
manufacturing
provision of services. The
kinds of jobs that companies finds more
operations managers productive ways of
oversee vary producing goods, the
companies are able to
maintain or even increase
their output using fewer
workers. Furthermore,
some manufacturing
work has been
outsourced to more
productive companies,
many in other countries,
that are able to produce
goods at lower costs.
Outsourcing and
productivity will be
discussed in more detail
in this and other
chapters.
OPERATIONS
MANAGEMENT AND
DECISION MAKING
- The chief role of an
operations manager is
that of planner and
decision maker. In this
capacity, the operations
manager exerts
considerable influence
over the degree to which
the goals and objectives
of the organization are
realized. Most decisions
involve many possible
alternatives that can have
quite different impacts
on costs or profits.
Consequently, it is
important to make
informed decisions.
* An operations
manager’s daily concerns
include costs (budget),
quality, and schedules
(time). Throughout this
book, you will encounter
the broad range of
decisions that operations
managers must make,
and you will be
introduced to the tools
necessary to handle
those decisions. This
section describes general
approaches to decision
making, including the use
of models, quantitative
methods, analysis of
trade-offs, establishing
priorities, ethics, and the
systems approach.
Models are often a key
tool used by all decision
makers
MODELS
- abstraction of reality, a
simplified representation
of something
* Common statistical
models include
descriptive statistics such
as the mean, median,
mode, range, and
standard deviation, as
well as random sampling,
the normal distribution,
and regression equations.
Models are sometimes
classified as physical,
schematic, or
mathematical
Physical models look like
their real-life
counterparts. Examples
include miniature cars,
trucks, airplanes, toy
animals and trains, and
scale-model buildings.
The advantage of these
models is their visual
correspondence with
reality. Schematic models
are more abstract than
their physical
counterparts; that is, they
have less resemblance to
the physical reality.
Examples include graphs
and charts, blueprints,
pictures, and drawings.
The advantage of
schematic models is that
they are often relatively
simple to construct and
change. Moreover, they
have some degree of
visual correspondence.
Mathematical models are
the most abstract: They
do not look at all like their
real-life counterparts.
Examples include
numbers, formulas, and
symbols. These models
are usually the easiest to
manipulate, and they are
important forms of inputs
for computers and
calculators
* The variety of models in
use is enormous.
Nonetheless, all have
certain common
features: They are all
decision-making aids and
simplifications of more
complex real-life
phenomena. Real life
involves an
overwhelming amount of
detail, much of which is
irrelevant for any understanding of the may be
particular problem. problem. 4. Enable placed in
Models omit managers to analyze the hands of
unimportant details so what-if questions. 5. users who
that attention can be Serve as a consistent are not
concentrated on the tool for evaluation sufficiently
most important aspects and provide a knowledgea
of a situation. standardized format ble to
for analyzing a appreciate
* The last point is
problem. 6. Enable the
particularly important
users to bring the subtleties of
because virtually every
power of a particular
model has an associated
mathematics to bear model; thus,
set of assumptions or
on a problem. they are
conditions under which
unable to
the model is valid. Failure THREE OF THE MORE
fully
to satisfy all of the IMPORTANT
comprehen
assumptions will make LIMITATIONS.
d the
the results suspect.
1. Quantitativ circumstanc
Attempts to apply the
e es under
results to a problem
information which the
under such
may be model can
circumstances can lead to
emphasized be
disastrous consequences.
at the successfully
MANAGERS USE MODELS expense of employed.
IN A VARIETY OF WAYS qualitative 3. The use of
AND FOR A VARIETY OF information models does
REASONS. MODELS ARE . not
BENEFICIAL BECAUSE 2. Models guarantee
THEY: may be good
incorrectly decisions.
1. Are generally easy to
applied and
use and less QUANTITATIVE
the results
expensive than APPROACHES
misinterpret
dealing directly with
ed. The - Quantitative
the actual situation.
widespread approaches to problem
2. Require users to
use of solving often embody an
organize and
computeriz attempt to obtain
sometimes quantify
ed models mathematically optimal
information and, in
adds to this solutions to managerial
the process, often
risk because problems. Quantitative
indicate areas where
highly approaches to decision
additional
sophisticate making in operations
information is
d models management (and in
needed. 3. Increase
other functional business
areas) have been
accepted because of
calculators and
computers capable of
handling the required
calculations. Computers
have had a major impact
on operations
management. Moreover,
the growing availability of
software packages for
quantitative techniques
has greatly increased
management’s use of
those techniques.
Although quantitative
approaches are widely
used in operations
management decision
making, it is important to
note that managers
typically use a with these decisions by
combination of
qualitative and
quantitative approaches,
and many important
decisions are based on
qualitative approaches.
PERFORMANCE METRICS
- Managers use metrics to
manage and control
operations. There are
many metrics in use,
including those related to
profits, costs, quality,
productivity, flexibility,
assets, inventories,
schedules, and forecast
accuracy. As you read
each chapter, note the
metrics being used and
how they are applied to
manage operations.
ANALYSIS OF TRADE-
OFFS
- Operations personnel
frequently encounter
decisions that can be
described as trade-off
decisions. For example, in
deciding on the amount
of inventory to stock, the
decision maker must take
into account the trade-off
between the increased
level of customer service
that the additional
inventory would yield and
the increased costs
required to stock that
inventory. Decision
makers sometimes deal
listing the advantages
and disadvantages—the
pros and cons—of a
course of action to better
understand the
consequences of the
decisions they must
make. In some instances,
decision makers add
weights to the items on
their list that reflect the
relative importance of
various factors. This can
help them “net out” the
potential impacts of the
trade-offs on their
decision.
* Analytics uses
descriptive and predictive
models to obtain insight
from data and then uses
that insight to
recommend action or to
guide decision making.
Commercial analytics
software is available for
the challenges of
analyzing very large,
dynamic data sets,
referred to as big data.
DEGREE OF
CUSTOMIZATION
A major influence on the
entire organization is the
degree of customization
of products or services
being offered to its
customers. Providing
highly customized
products or services such
as home remodeling,
plastic surgery, and legal
counseling tends to be
more labor intensive than
providing standardized
products such as those
you would buy “off the
shelf” at a mall store or a
supermarket or
standardized services
such as public utilities
and Internet services.
Furthermore, production
of customized products
or provision of
customized services is
generally more time
consuming, requires
more highly skilled
people, and involves
more flexible equipment
than what is needed for
standardized products or
services. Customized
processes tend to have a
much lower volume of
output than standardized
processes, and
customized output
carries a higher price tag.
The degree of
customization has
important implications
for process selection and
job requirements. The
impact goes beyond
operations and supply
chains. It affects
marketing, sales,
accounting, finance, and
information systems.
A SYSTEMS APPROACH
- A systems viewpoint is
almost always beneficial
in decision making. Think
of it as a “big picture”
view. A system can be
defined as a set of
interrelated parts that
must work together. In a
business organization,
the organization can be
thought of as a system
composed of subsystems
(e.g., marketing
subsystem, operations
subsystem, finance
subsystem), which in turn
are composed of lower
subsystems. The systems
approach emphasizes
interrelationships among
subsystems, but its main
theme is that the whole is
greater than the sum of
its individual parts.
Hence, from a systems ESTABLISHING
viewpoint, the output PRIORITIES
and objectives of the
In virtually every
organization as a whole
situation, managers
take precedence over
discover that certain
those of any one
issues or items are more
subsystem. A systems
important than others.
approach is essential
Recognizing this enables
whenever something is
the managers to direct
being designed,
their efforts to where
redesigned,
they will do the most
implemented, improved,
good. Typically, a
or otherwise changed. It
relatively few issues or
is important to take into
items are very important,
account the impact on all
so that dealing with those
parts of the system. For
factors will generally
example, if the upcoming
have a disproportionately
model of an automobile
large impact on the
will add antilock brakes, a
results achieved. This
designer must take into
well-known effect is
account how customers
referred to as the Pareto
will view the change,
phenomenon. This is one
instructions for using the
of the most important
brakes, chances for
and pervasive concepts in
misuse, the cost of
operations management.
producing the new
In fact, this concept can
brakes, installation
be applied at all levels of
procedures, recycling
management and to
worn-out brakes, and
every aspect of decision
repair procedures. In
making, both
addition, workers will
professional and
need training to make
personal.
and/or assemble the
brakes, production THE HISTORICAL
scheduling may change, EVOLUTION OF
inventory procedures OPERATIONS
may have to change, MANAGEMENT
quality standards will
have to be established, THE INDUSTRIAL
advertising must be REVOLUTION
informed of the new
features, and parts - The Industrial
suppliers must be Revolution began in the
selected. 1770s in England and
spread to the rest of
Europe and to the United
States during the 19th
century. Prior to that
time, goods were
produced in small shops
by craftsmen and their
apprentices. Under that
system, it was common
for one person to be
responsible for making a
product, such as a horse-
drawn wagon or a piece
of furniture, from start to
finish. Only simple tools
were available; the
machines in use today
had not been invented.
Then, a number of
innovations in the 18th
century changed the face
of production forever by
substituting machine
power for human power.
Perhaps the most
significant of these was
the steam engine,
because it provided a
source of power to
operate machines in
factories. Ample supplies
of coal and iron ore
provided materials for
generating power and
making machinery. The
new machines, made of
iron, were much stronger
and more durable than
the simple wooden
machines they replaced.
In the earliest days of
manufacturing, goods
were produced using
craft production: highly
skilled workers using theory and practice had
simple, flexible tools not progressed much
produced goods from early days. What
according to customer was needed was an
specifications. Craft enlightened and more
production had major systematic approach to
shortcomings. Because management.
products were made by
skilled craftsmen who SCIENTIFIC
custom-fitted parts, MANAGEMENT
production was slow and
costly. And when parts The scientific
failed, the replacements management era brought
also had to be custom widespread changes to
made, which was also the management of
slow and costly. Another factories. The movement
shortcoming was that was spearheaded by the
production costs did not efficiency engineer and
decrease as volume inventor Frederick
increased; there were no Winslow Taylor, who is
economies of scale, often referred to as the
which would have father of scientific
provided a major management. Taylor
incentive for companies believed in a “science of
to expand. Instead, many management” based on
small companies observation,
emerged, each with its measurement, analysis
own set of standards. A and improvement of
major change occurred work methods, and
that gave the Industrial economic incentives. He
Revolution a boost: the studied work methods in
development of standard great detail to identify
gauging systems. This the best method for
greatly reduced the need doing each job. Taylor
for custom-made goods. also believed that
Factories began to spring management should be
up and grow rapidly, responsible for planning,
providing jobs for carefully selecting and
countless people who training workers, finding
were attracted in large the best way to perform
numbers from rural each job, achieving
cooperation between
areas. Despite the major
management and
changes that were taking
workers, and separating
place, management
management activities
from work activities. recognized the value of
Taylor’s methods nonmonetary rewards to
emphasized maximizing motivate workers, and
output. They were not developed a widely used
always popular with system for scheduling,
workers, who sometimes called Gantt charts.
thought the methods Harrington Emerson
were used to unfairly applied Taylor’s ideas to
increase output without a organization structure
corresponding increase in and encouraged the use
compensation. Certainly of experts to improve
some companies did organizational efficiency.
abuse workers in their He testified in a equipment. Ford was able
quest for efficiency. congressional hearing
Eventually, the public that railroads could save
outcry reached the halls a million dollars a day by
of Congress, and hearings applying principles of
were held on the matter. scientific management.
Taylor himself was called Henry Ford, the great
to testify in 1911, the industrialist, employed
same year in which his scientific management
classic book, The techniques in his
Principles of Scientific factories.
Management, was
During the early part of
published. The publicity
the 20th century,
from those hearings
automobiles were just
actually helped scientific
coming into vogue in the
management principles
United States. Ford’s
to achieve wide
Model T was such a
acceptance in industry
success that the company
NUMBER OF OTHER had trouble keeping up
PIONEERS ALSO with orders for the cars.
CONTRIBUTED HEAVILY In an effort to improve
TO THIS MOVEMENT the efficiency of
operations, Ford adopted
Frank Gilbreth was an the scientific
industrial engineer who is management principles
often referred to as the espoused by Frederick
father of motion study. Winslow Taylor. He also
He developed principles introduced the moving
of motion economy that assembly line, which had
could be applied to a tremendous impact on
incredibly small portions production methods in
of a task. Henry Gantt many industries. Among
Ford’s many
contributions was the
introduction of mass
production to the
automotive industry, a
system of production in
which large volumes of
standardized goods are
produced by low-skilled
or semiskilled workers
using highly specialized,
and often costly,
to do this by taking
advantage of a number of
important concepts.
Perhaps the key concept
that launched mass
production was
interchangeable parts,
sometimes attributed to
Eli Whitney, an American
inventor who applied the
concept to assembling
muskets in the late 1700s.
The basis for
interchangeable parts
was to standardize parts
so that any part in a batch
of parts would fit any
automobile coming down
the assembly line. This
meant that parts did not
have to be custom fitted,
as they were in craft
production. The
standardized parts could
also be used for
replacement parts. The
result was a tremendous
decrease in assembly
time and cost. Ford
accomplished this by
standardizing the gauges
used to measure parts scientific management workers do not like to
during production and by movement heavily work, and have to be
using newly developed emphasized the technical controlled—rewarded
processes to produce aspects of work design, and punished—to get
uniform parts the human relations them to do good work.
movement emphasized This attitude was quite
A second concept used by
the importance of the common in the
Ford was the division of
human element in job automobile industry and
labor, which Adam Smith
design. Lillian Gilbreth, a in some other industries,
wrote about in The
psychologist and the wife until the threat of global
Wealth of Nations (1776).
of Frank Gilbreth, worked competition forced them
Division of labor means
with her husband, to rethink that approach.
that an operation, such as
focusing on the human Theory Y, on the other
assembling an
factor in work. (The end of the spectrum,
automobile, is divided up
Gilbreths were the assumed that workers
into a series of many
subject of a classic film, enjoy the physical and
small tasks, and
Cheaper by the Dozen.) mental aspects of work
individual workers are
Many of her studies dealt and become committed
assigned to one of those
with worker fatigue. In to work. The Theory X
tasks. Unlike craft
the following decades, approach resulted in an
production, where each
there was much adversarial environment,
worker was responsible
emphasis on motivation. whereas the Theory Y
for doing many tasks, and
Elton Mayo conducted approach resulted in
thus required skill, with
studies at the Hawthorne empowered workers and
division of labor the tasks
division of Western a more cooperative spirit.
were so narrow that
Electric. His studies William Ouchi added
virtually no skill was
revealed that in addition Theory Z, which
required. Together, these
to the physical and combined the Japanese
concepts enabled Ford to
technical aspects of work, approach with such
tremendously increase
worker motivation is features as lifetime
the production rate at his
critical for improving employment, employee
factories using readily
productivity. Abraham problem solving, and
available inexpensive
Maslow developed consensus building, and
labor. Both Taylor and
motivational theories, the traditional Western
Ford were despised by
which Frederick approach that features
many workers, because
Hertzberg refined. short-term employment,
they held workers in such
Douglas McGregor added specialists, and individual
low regard, expecting
Theory X and Theory Y. decision making and
them to perform like
These theories responsibility.
robots. This paved the
represented the two ends
way for the human DECISION MODELS
of the spectrum of how
relations movement.
employees view work. AND
The Human Relations Theory X, on the negative MANAGEMENT
Movement Whereas the end, assumed that
SCIENCE
The factory movement
was accompanied by the
development of several
quantitative techniques.
F. W. Harris developed
one of the first models in
1915: a mathematical
model for inventory
order size. In the 1930s,
three coworkers at Bell
Telephone Labs—H. F.
Dodge, H. G. Romig, and
W. Shewhart—developed
statistical procedures for
sampling and quality
control. In 1935, L.H.C.
Tippett conducted
studies that provided the
groundwork for statistical
sampling theory. At first,
these quantitative
models were not widely
used in industry.
However, the onset of
World War II changed
that. The war generated
tremendous pressures on
manufacturing output,
and specialists from many
disciplines combined
efforts to achieve
advancements in the
military and in
manufacturing. After the
war, efforts to develop
and refine quantitative
tools for decision making
continued, resulting in
decision models for
forecasting, inventory
management, project
management, and other
areas of operations
management. During the
1960s and 1970s, occurred in industrialized
management science countries, and with
techniques were highly generating widespread
regarded; in the 1980s, interest in lean
they lost some favor. production. The influence
However, the widespread of the Japanese on U.S.
use of personal manufacturing and
computers and user- service companies has
friendly software in the been enormous and
workplace contributed to promises to continue for
a resurgence in the the foreseeable future.
popularity of these Because of that influence,
techniques. this book will provide
considerable information
THE INFLUENCE OF about Japanese methods
JAPANESE and successes. Table 1.5
MANUFACTURERS provides a chronological
summary of some of the
- A number of Japanese key developments in the
manufacturers evolution of operations
developed or refined management.
management practices
that increased the OPERATIONS
productivity of their TODAY
operations and the
quality of their products, Advances in information
due in part to the technology and global
influence of Americans competition have had a
W. Edwards Deming and major influence on
Joseph Juran. This made operations management.
them very competitive, While the Internet offers
sparking interest in their great potential for
approaches by business organizations,
companies outside Japan. the potential as well as
Their approaches the risks must be clearly
emphasized quality and understood in order to
continual improvement, determine if and how to
worker teams and exploit this potential. In
empowerment, and many cases, the Internet
achieving customer has altered the way
satisfaction. The companies compete in
Japanese can be credited the marketplace.
with spawning the Electronic business, or e-
“quality revolution” that business, involves the use
of the Internet to transact technology, process transmission, the
business. E-business is technology, and Internet, e-commerce, e-
changing the way information technology mail, and more
business organizations (IT). All three can have a
Management of
interact with their major impact on costs,
technology is high on the
customers and their productivity, and
list of major trends, and it
suppliers. Most familiar competitiveness
promises to be high well
to the general public is e-
Product and service into the future. For
commerce, consumer–
technology refers to the example, computers have
business transactions
discovery and had a tremendous impact
such as buying online or
development of new on businesses in many
requesting information.
products and services. ways, including new
However, business-to-
This is done mainly by product and service
business transactions
researchers and features, process
such as e-procurement
engineers, who use the management, medical
represent an increasing
scientific approach to diagnosis, production
share of e-business. E-
develop new knowledge planning and scheduling,
business is receiving
and translate that into data processing, and
increased attention from
commercial applications. communication.
business owners and
Process technology refers Advances in materials,
managers in developing
to methods, procedures, methods, and equipment
strategies, planning, and
and equipment used to also have had an impact
decision making. The
produce goods and on competition and
word technology has
provide services. They productivity. Advances in
several definitions,
include not only information technology
depending on the
processes within an also have had a major
context. Generally,
organization but also impact on businesses.
technology refers to the
supply chain processes. Obviously there have
application of scientific
Information technology been—and will continue
knowledge to the
(IT) refers to the science to be—many benefits
development and
and use of computers and from technological
improvement of goods
other electronic advances. However,
and services. It can
equipment to store, technological advance
involve knowledge,
process, and send also places a burden on
materials, methods, and
information. Information management. For
equipment. The term
technology is heavily example, management
high technology refers to
ingrained in today’s must keep abreast of
the most advanced and
business operations. This changes and quickly
developed machines and
includes electronic data assess both their benefits
methods. Operations
processing, the use of bar and risks. Predicting
management is primarily
codes to identify and advances can be tricky at
concerned with three
track goods, obtaining best, and new
kinds of technology:
point-of-sale technologies often carry
product and service
information, data a high price tag and
usually a high cost to Globalization and the corporate downsizing,
operate or repair. And in need for global supply and general cost cutting is
the case of computer chains have broadened forcing managers to
operating systems, as the scope of supply chain make trade-off decisions
new systems are management. However, on resource allocation,
introduced, support for tightened border security and to place increased
older versions is in certain instances has emphasis on cost control
discontinued, making slowed some movement and productivity
periodic upgrades of goods and people. improvement.
necessary. Conflicting Moreover, in some cases,
Revenue management is
technologies can exist organizations are
a method used by some
that make technological reassessing their use of
companies to maximize
choices even more offshore outsourcing.
the revenue they receive
difficult. Technological Competitive pressures
from fixed operating
innovations in both and changing economic
capacity by influencing
products and processes conditions have caused
demand through price
will continue to change business organizations to
manipulation. Also
the way businesses put more emphasis on
known as yield
operate, and hence operations strategy,
management, it has been
require continuing working with fewer
successfully used in the
attention. The North resources, revenue
travel and tourism
American Free Trade management, process
industries by airlines,
Agreement (NAFTA) analysis and
cruise lines, hotels,
opened borders for trade improvement, quality
amusement parks, and
between the United improvement, agility, and
rental car companies, and
States and Canada and lean production. During
in other industries such
Mexico. The General the latter part of the
as trucking and public
Agreement on Tariffs and 1900s, many companies
utilities. Process analysis
Trade (GATT) of 1994 neglected to include
and improvement
reduced tariffs and operations strategy in
includes cost and time
subsidies in many their corporate strategy.
reduction, productivity
countries, expanding Some of them paid dearly
improvement, process
world trade. The resulting for that neglect. Now
yield improvement, and
global competition and more and more
quality improvement and
global markets have had companies are
increasing customer
an impact on the recognizing the
satisfaction. This is
strategies and operations importance of operations
sometimes referred to as
of businesses large and strategy on the overall
a Six Sigma process.
small around the world. success of their business
Given a boost by the
One effect is the as well as the necessity
“quality revolution” of
importance business for relating it to their
the 1980s and 1990s,
organizations are giving overall business strategy.
quality is now ingrained
to management of their Working with fewer
in business. Some
supply chains. resources due to layoffs,
businesses use the term
total quality
management (TQM) to
describe their quality
efforts. A quality focus
emphasizes customer
satisfaction and often
involves teamwork.
Process improvement can
result in improved
quality, cost reduction,
and time reduction. Time
relates to costs and to
competitive advantage,
and businesses seek ways
to reduce the time to
bring new products and
services to the
marketplace to gain a
competitive edge. If two
companies can provide
the same product at the
same price and quality,
but one can deliver it four
weeks earlier than the
other, the quicker
company will invariably
get the sale. Time
reductions are being
achieved in many
companies now. Union
Carbide was able to cut
$400 million of fixed
expenses, and Bell
Atlantic was able to cut
the time needed to hook
up long-distance carriers
from 15 days to less than
1, at a savings of $82
million. Agility refers to
the ability of an
organization to respond
quickly to demands or
opportunities. It is a
strategy that involves
maintaining a flexible
system that can quickly
respond to changes in
either the volume of
demand or changes in
product/service
offerings. This is
particularly important as
organizations scramble to
remain competitive and
cope with increasingly
shorter product life cycles
and strive to achieve
shorter development
times for new or
improved products and
services. Lean
production, a new
approach to production,
emerged in the 1990s. It
incorporates a number of
the recent trends listed
here, with an emphasis
on quality, flexibility, time
reduction, and
teamwork. This has led to
a flattening of the
organizational structure,
with fewer levels of
management. Lean
systems are so named
because they use much
less of certain resources
than typical mass
production systems
use—space, inventory,
and workers—to produce
a comparable amount of
output. Lean systems use
a highly skilled workforce
and flexible equipment.
In effect, they
incorporate advantages
of both mass production
(high volume, low unit
cost) and craft
production (variety and
flexibility). And quality is
higher than in mass
production. This
approach has now spread
to services, including
health care, offices, and
shipping and delivery.
The skilled workers in
lean production systems
are more involved in
maintaining and
improving the system
than their mass
production counterparts.
They are taught to stop
an operation if they
discover a defect, and to
work with other
employees to find and
correct the cause of the
defect so that it won’t
recur. This results in an
increasing level of quality
over time and eliminates
the need to inspect and
rework at the end of the
line. Because lean
production systems
operate with lower
amounts of inventory,
additional emphasis is
placed on anticipating
when problems might
occur before they arise
and avoiding Revenue
management is a method
used by some companies
to maximize the revenue
they receive from fixed
operating capacity by
influencing demand
through price bring new products and improved products and
manipulation. Also services to the services. Lean
known as yield marketplace to gain a production, a new
management, it has been competitive edge. If two approach to production,
successfully used in the companies can provide emerged in the 1990s. It
travel and tourism the same product at the incorporates a number of
industries by airlines, same price and quality, the recent trends listed
cruise lines, hotels, but one can deliver it four here, with an emphasis
amusement parks, and weeks earlier than the on quality, flexibility, time
rental car companies, and other, the quicker reduction, and
in other industries such company will invariably teamwork. This has led to
as trucking and public get the sale. Time a flattening of the
utilities. Process analysis reductions are being organizational structure,
and improvement achieved in many with fewer levels of
includes cost and time companies now. Union management. Lean
reduction, productivity Carbide was able to cut systems are so named
improvement, process $400 million of fixed because they use much
yield improvement, and expenses, and Bell less of certain resources
quality improvement and Atlantic was able to cut than typical mass
increasing customer the time needed to hook production systems
satisfaction. This is up long-distance carriers use—space, inventory,
sometimes referred to as from 15 days to less than and workers—to produce
a Six Sigma process. 1, at a savings of $82 a comparable amount of
Given a boost by the million. Agility refers to output. Lean systems use
“quality revolution” of the ability of an a highly skilled workforce
the 1980s and 1990s, organization to respond and flexible equipment.
quality is now ingrained quickly to demands or In effect, they
in business. Some opportunities. It is a incorporate advantages
businesses use the term strategy that involves of both mass production
total quality maintaining a flexible (high volume, low unit
management (TQM) to system that can quickly cost) and craft
describe their quality respond to changes in production (variety and
efforts. A quality focus either the volume of flexibility). And quality is
emphasizes customer demand or changes in higher than in mass
satisfaction and often product/service production. This
involves teamwork. offerings. This is approach has now spread
Process improvement can particularly important as to services, including
result in improved organizations scramble to health care, offices, and
quality, cost reduction, remain competitive and shipping and delivery.
and time reduction. Time cope with increasingly The skilled workers in
relates to costs and to shorter product life cycles lean production systems
competitive advantage, and strive to achieve are more involved in
and businesses seek ways shorter development maintaining and
to reduce the time to times for new or improving the system
than their mass
production counterparts.
They are taught to stop
an operation if they
discover a defect, and to
work with other
employees to find and
correct the cause of the
defect so that it won’t
recur. This results in an
increasing level of quality
over time and eliminates
the need to inspect and
rework at the end of the
line. Because lean
production systems
operate with lower
amounts of inventory,
additional emphasis is
placed on anticipating
when problems might
occur before they arise
and avoiding hose
problems through
planning. Even so,
problems can still occur
at times, and quick
resolution is important.
Workers participate in
both the planning and
correction stages.
Compared to workers in
traditional systems, much
more is expected of
workers in lean
production systems. They
must be able to function
in teams, playing active
roles in operating and
improving the system.
Individual creativity is
much less important than
team success.
Responsibilities also are
much greater, which can operations failures
lead to pressure and mentioned at the
anxiety not present in beginning of the chapter
traditional systems. underscore the need to
Moreover, a flatter improve the way
organizational structure operations are managed.
means career paths are That relates to product
not as steep in lean design and testing,
production organizations. oversight of suppliers,
Workers tend to become risk assessment, and
generalists rather than timely response to
specialists, another potential problems. Risk
contrast to more management. The need
traditional organizations. for managing risk is
underscored by recent
KEY ISSUES FOR events that include
TODAY’S BUSINESS financial crises, product
OPERATIONS recalls, accidents, natural
and man-made disasters,
Economic conditions. The and economic ups and
lingering recession and downs. Managing risks
slow recovery in various starts with identifying
sectors of the economy risks, assessing
has made managers vulnerability and
cautious about potential damage
investment and rehiring (liability costs,
workers who had been reputation, demand), and
laid off during the taking steps to reduce or
recession. Innovating. share risks. Cyber-
Finding new or improved security. The need to
products or services are guard against intrusions
only two of the many from hackers whose goal
possibilities that can is to steal personal
provide value to an information of
organization. Innovations employees and
can be made in customers is becoming
processes, the use of the increasingly necessary.
Internet, or the supply Moreover,
chain that reduce costs, interconnected systems
increase productivity, increase intrusion risks in
expand markets, or the form of industrial
improve customer espionage. Competing in
service. Quality a global economy. Low
problems. The numerous labor costs in third-world
countries have increased processes that use
pressure to reduce labor resources in ways that do
costs. Companies must not harm ecological
carefully weigh their systems that support
options, which include both current and future
outsourcing some or all of human existence.
their operations to low- Sustainability measures
wage areas, reducing often go beyond
costs internally, changing traditional environmental
designs, and working to and economic measures
improve productivity. to include measures that
Three other key areas incorporate social criteria
require more in-depth in decision making. All
discussion: areas of business will be
environmental concerns, affected by this. Areas
ethical conduct, and that will be most affected
managing the supply include product and
chain. service design, consumer
education programs,
ENVIRONMENTA disaster preparation and
L CONCERNS response, supply chain
waste management, and
Concern about global outsourcing decisions.
warming and pollution Note that outsourcing of
has had an increasing goods production
effect on how businesses increases not only
operate. Stricter transportation costs, but
environmental also fuel consumption
regulations, particularly and carbon released into
in developed nations, are the atmosphere.
being imposed. Consequently,
Furthermore, business sustainability thinking
organizations are coming may have implications for
under increasing outsourcing decisions.
pressure to reduce their Because they all fall
carbon footprint (the within the realm of
amount of carbon dioxide operations, operations
generated by their management is central to
operations and their dealing with these issues.
supply chains) and to Sometimes referred to as
generally operate “green initiatives,” the
sustainable processes. possibilities include
Sustainability refers to reducing packaging,
service and production materials, water and
energy use, and the
environmental impact of
the supply chain,
including buying locally.
Other possibilities include
reconditioning used
equipment (e.g., printers
and copiers) for resale,
and recycling. The
following reading
suggests that even our
choice of diet can affect
the environment.
ETHICAL CONDUCT
The need for ethical
conduct in business is
becoming increasingly
obvious, given numerous
examples of questionable
actions in recent history.
In making decisions,
managers must consider
how their decisions will
affect shareholders,
management,
employees, customers,
the community at large,
and the environment.
Finding solutions that will
be in the best interests of
all of these stakeholders
is not always easy, but it
is a goal that all managers
should strive to achieve.
Furthermore, even
managers with the best
intentions will sometimes
make mistakes. If
mistakes do occur,
managers should act
responsibly to correct
those mistakes as quickly
as possible, and to
address any negative
consequences. Many
organizations have
developed codes of ethics
to guide employees’ or
members’ conduct. Ethics
is a standard of behavior
that guides how one
should act in various
situations. The Markula
Center for Applied Ethics
at Santa Clara University
identifies five principles
for thinking ethically:
• The Utilitarian
Principle: The good done
by an action or inaction
should outweigh any
harm it causes or might
cause. An example is not
allowing a person who
has had too much to drink
to drive. • The Rights
Principle: Actions should
respect and protect the
moral rights of others. An
example is not taking
advantage of a vulnerable
person. • The Fairness
Principle: Equals should
be held to, or evaluated
by, the same standards.
An example is equal pay
for equal work.
The Common Good
Principle: Actions should
contribute to the
common good of the
community. An example
is an ordinance on noise
abatement. • The Virtue
Principle: Actions should
be consistent with certain
ideal virtues. Examples the responsibility to make
include honesty, ethical decisions. Ethical
compassion, generosity, issues arise in many
tolerance, fidelity, aspects of operations
integrity, and self- management, including:
control. • Financial statements:
accurately representing
An ethical framework is a
the organization’s
sequence of steps
financial condition. •
intended to guide
Worker safety: providing
thinking and subsequent
adequate training,
decisions or actions. Here
maintaining equipment in
is the one developed by
good working condition,
the Markula Center for
maintaining a safe
Applied Ethics: 1.
working environment. •
Recognize an ethical issue
Product safety: providing
by asking if an action
products that minimize
could be damaging to a
the risk of injury to users
group or an individual. Is
or damage to property or
there more to it than just
the environment. •
what is legal? 2. Make
Quality: honoring
sure the pertinent facts
warranties, avoiding
are known, such as who
hidden defects. • The
will be impacted, and
environment: not doing
what options are
things that will harm the
available. 3. Evaluate the
environment. • The
options by referring to
community: being a good
the appropriate
neighbor. • Hiring and
preceding ethical
firing workers: avoiding
principle. 4. Identify the
false pretenses (e.g.,
“best” option and then
promising a long-term job
further examine it by
when that is not what is
asking how someone you
intended). • Closing
respect would view it. 5.
facilities: taking into
In retrospect, consider
account the impact on a
the effect your decision
community, and
had and what you can
honoring commitments
learn from it. More detail
that have been made. •
is available at the
Workers’ rights:
Center’s website:
respecting workers’
http://www.scu.edu/ethi
rights, dealing with
cs/practicing/decision/fr
workers’ problems
amework.html.
quickly and fairly. The
Operations managers,
Ethisphere Institute
like all managers, have
recognizes companies immediate suppliers. increasing their levels
worldwide for their Moreover, the planning, of outsourcing,
ethical leadership. Here marketing, production buying goods or
are some samples from and inventory services instead of
their list: Apparel: Gap management functions in producing or
Automotive: Ford Motor organizations in supply providing them
Company Business chains have often themselves. As
services: Paychex Café: operated independently outsourcing
Starbucks Computer of each other. As a result, increases,
hardware: Intel supply chains organizations are
Computer software: experienced a range of spending increasing
Adobe Systems, problems that were amounts on supply-
Microsoft Consumer seemingly beyond the related activities
electronics: Texas control of individual (wrapping,
Instruments, Xerox E- organizations. The packaging, moving,
commerce: eBay General problems included large loading and
retail: Costco, Target oscillations of unloading, and
Groceries: Safeway, inventories, inventory sorting). A significant
Wegmans, Whole Foods stockouts, late deliveries, amount of the cost
Health and beauty: and quality problems. and time spent on
L’Oreal Logistics: UPS You These and other issues these and other
can see a complete list of now make it clear that related activities may
recent recipients and the management of supply be unnecessary.
selection criteria at chains is essential to Issues with imported
Ethisphere.com. business success. The products, including
other issues include the tainted food
THE NEED TO following: products, toothpaste,
MANAGE THE and pet foods, as well
1. The need to improve
SUPPLY CHAIN as unsafe tires and
operations. Efforts on
toys, have led to
Supply chain cost and time
questions of liability
management is being reduction, and
and the need for
given increasing productivity and
companies to take
attention as business quality improvement,
responsibility for
organizations face have expanded in
monitoring the safety
mounting pressure to recent years to
of outsourced goods.
improve management of include the supply
3. Increasing
their supply chains. In the chain. Opportunity
transportation costs.
past, most organizations now lies largely with
Transportation costs
did little to manage their procurement,
are increasing, and
supply chains. Instead, distribution, and
they need to be more
they tended to logistics—the supply
carefully managed. 4.
concentrate on their o chain. 2. Increasing
Competitive
operations and on their levels of outsourcing.
pressures.
Organizations are
Competitive differences. Also, impacts, while excess
pressures have led to tightened border inventories add
an increasing number security in some unnecessary costs. It
of new products, instances has slowed would not be unusual
shorter product shipments of goods. to find inventory
development cycles, 6. Increasing shortages in some
and increased importance of e- parts of a supply
demand for business. The chain and excess
customization. And in increasing inventories in other
some industries, importance of e- parts of the same
most notably business has added supply chain.
consumer new dimensions to
Elements of Supply Chain
electronics, product business buying and
Management Supply
life cycles are selling and has
chain management
relatively short. presented new
involves coordinating
Added to this are challenges. 7. The
activities across the
adoption of quick- complexity of supply
supply chain. Central to
response strategies chains. Supply chains
this is taking customer
and efforts to reduce are complex; they are
demand and translating it
lead times. 5. dynamic, and they
into corresponding
Increasing have many inherent
activities at each level of
globalization. uncertainties that
the supply chain. The key
Increasing can adversely affect
elements of supply chain
globalization has them, such as
management are listed in
expanded the inaccurate forecasts,
Table 1.6. The first
physical length of late deliveries,
element, customers, is
supply chains. A substandard quality,
the driving element.
global supply chain equipment
Typically, marketing is
increases the breakdowns, and
responsible for
challenges of canceled or changed
determining what
managing a supply orders. 8. The need to
customers want as well as
chain. Having far- manage inventories.
forecasting the quantities
flung customers Inventories play a
and timing of customer
and/or suppliers major role in the
demand. Product and
means longer lead success or failure of a
service design must
times and greater supply chain, so it is
match customer wants
opportunities for important to
with operations
disruption of coordinate inventory
capabilities. Processing
deliveries. Often levels throughout a
occurs in each
currency differences supply chain.
component of the supply
and monetary Shortages can
chain: it is the core of
fluctuations are severely disrupt the
each organization. The
factors, as well as timely flow of work
major portion of
language and cultural and have far-reaching
processing occurs in the
organization that
produces the product or
service for the final
customer (the
organization that
assembles the computer,
services the car, etc.). A
major aspect of this for
both the internal and
external portions of a
supply chain is
scheduling. Inventory is a
staple in most supply
chains. Balance is the
main objective; too little
causes delays and
disrupts schedules, but
too much adds
unnecessary costs and
limits flexibility.
Purchasing is the link
between an organization
and its suppliers. It is
responsible for obtaining
goods and/or services
that will be used to
produce products or
provide services for the
organization’s customers.
Purchasing selects
suppliers, negotiates
contracts, establishes
alliances, and acts as
liaison between suppliers
and various internal
departments. The supply
portion of a value chain is
made up of one or more
suppliers, all links in the
chain, and each one
capable of having an
impact on the
effectiveness—or the
ineffectiveness— of the
supply chain. Moreover,
it is essential that the
planning and execution
be carefully coordinated
between suppliers and all
members of the demand
portion of their chains.
Location can be a factor
in a number of ways.
Where suppliers are
located can be important,
as can location of
processing facilities.
Nearness to market,
nearness to sources of
supply, or nearness to
both may be critical. Also,
delivery time and cost are
usually affected by
location. Two types of
decisions are relevant to
supply chain
management—strategic
and operational. The
strategic decisions are
the design and policy
decisions. The
operational decisions
relate to day-to-day
activities: managing the
flow of material and
product and other
aspects of the supply
chain in accordance with
strategic decisions. The
major decision areas in
supply chain
management are
location, production,
distribution, and
inventory. The location
decision relates to the
choice of locations for
both production and
distribution facilities.
Production and
transportation costs and
delivery lead times are
important. Production
and distribution decisions
focus on what customers
want, when they want it,
and how much is needed.
Outsourcing can be a
consideration.
Distribution decisions are
strongly influenced by
transportation cost and
delivery times, because
transportation costs
often represent a
significant portion of
total cost. Moreover,
shipping alternatives are
closely tied to production
and inventory decisions.
For example, using air
transport means higher
costs but faster deliveries
and less inventory in
transit than sea, rail, or
trucking options.
Distribution decisions
must also take into
account capacity and
quality issues.
Operational decisions
focus on scheduling,
maintaining equipment,
and meeting customer
demand. Quality control
and workload balancing
are also important
considerations. Inventory
decisions relate to
determining inventory
needs and coordinating
production and stocking
decisions throughout the
supply chain. Logistics
management plays the
key role in inventory
decisions. Enterprise
Resource Planning (ERP)
is being increasingly used
to provide information
sharing in real time
among organizations and
their major supply chain
partners. This important
topic is discussed in more
detail in Chapter 12.
OPERATIONS
TOURS
- Throughout the book
you will discover
operations tours that
describe operations in all
sorts of companies. The
tour you are about to
read is Wegmans Food
Markets, a major regional
supermarket chain.
Wegmans has been
consistently ranked high
on Fortune magazine’s
list of the 100 Best
Companies to Work For
since the inception of the
survey a decade ago.
Produce Department The
company prides itself on
fresh produce. Produce is
replenished as often as
12 times a day. The larger
stores have produce
sections that are four to
five times the size of a
produce section in an
average supermarket.
Wegmans offers locally
grown produce in season.
Wegmans uses a “farm to
market” system whereby
some local growers
deliver their produce
directly to individual
stores, bypassing the
main warehouse. That
reduces the company’s
inventory holding costs
and gets the produce into
the stores as quickly as
possible. Growers may
use specially designed
containers that go right
onto the store floor
instead of large bins. This
avoids the bruising that
often occurs when fruits
and vegetables are
transferred from bins to
display shelves and the
need to devote labor to
transfer the produce to
shelves.
Meat Department In
addition to large display
cases of both fresh and
frozen meat products,
many stores have a full-
service butcher shop that
offers a variety of fresh
meat products and where
butchers are available to
provide customized cuts
of meat for customers.
Meat department
employees attend
Wegmans’ “Meat
University,” where they
learn about different cuts
of meat and how to best
prepare them. They also
learn about other items
to pair with various
meats, and suggest side
dishes, breads, and wine.
This helps instill a “selling
culture” among
employees, who often
spend 75 percent of their
time talking with
customers. Wegmans
continually analyzes store
operations to improve
processes. In the meat
department, a change
from in-store cutting and
traditional packaging to
using a centralized meat
processing facility and
vacuum packaging
extended the shelf life of
meats
Ordering Each
department handles its
own ordering. Although
sales records are
available from records of
items scanned at the
checkouts, they are not
used directly for
replenishing stock. Other
factors—such as pricing,
special promotions, and
local circumstances (e.g.,
festivals, weather
conditions)—must all be
taken into account.
However, for seasonal
periods, such as holidays,
managers often check
scanner records to learn
what past demand was
during a comparable
period. The superstores
typically receive one sales and dissatisfied encouraged to report
truckload of goods per customers. problems to their
day from the main managers. If a customer
Employees The company
warehouse. During peak is dissatisfied with an
recognizes the value of
periods, a store may item, and returns it, or
good employees. It
receive two truckloads even a portion of the
typically invests an
from the main item, the customer is
average of $7,000 to train
warehouse. The short offered a choice of a
each new employee. In
lead time greatly reduces replacement or a refund.
addition to learning
the length of time an item If the item is a Wegmans
about store operations,
might be out of stock, brand food item, it is then
new employees learn the
unless the main sent to the test kitchen to
importance of good
warehouse is also out of determine the cause of
customer service and
stock. The company the problem. If the cause
how to provide it. The
exercises strict control can be determined,
employees are helpful,
over suppliers, insisting corrective action is taken.
cheerfully answering
on product quality and
customer questions or Technology Wegmans
on-time deliveries
handling complaints. continues to adopt new
Inventory Management Employees are motivated technologies to maintain
Some stores carry as through a combination of its competitive edge,
many as 70,000 individual compensation, profit including new
units. Wegmans uses a sharing, and benefits. approaches to tracking
companywide system to Employee turnover for inventory and managing
keep track of inventory. full-time workers is about its supply chain, and new
Departments take a 6 percent, compared to ways to maintain
monthly inventory count the industry average of freshness in the meat and
to verify the amount about 20 percent produce departments.
shown in the Sustainability Wegmans
Quality and customer
companywide system. began replacing
satisfaction are utmost in
Departments receive a incandescent light bulbs
the minds of Wegmans’
periodic report indicating with compact fluorescent
management and its
how many days of bulbs back in 2007,
employees. Private-label
inventory the generating 3,000 fewer
food items as well as
department has on hand. tons of carbon dioxide
name brands are
Having an appropriate each year. Also the
regularly evaluated in
amount on hand is company installed
test kitchens, along with
important to department sensors in its dairy cases
potential new products.
managers: If they have that reduced the time the
Managers are responsible
too much inventory on cooling systems run by 50
for checking and
hand, that will add to pe
maintaining product and
their department’s costs,
service quality in their
whereas having too little
departments. Moreover,
inventory will result in
employees are
shortages and thus lost
CHAPTER 2