Instructor Manual for Operations Management Sustainability and Supply Chain Management, 13th Edition

Solution Manual for

Operations Management Sustainability and Supply Chain Management, 13th

edition Heizer

Chapter 1-17

Chapter 1 Operations and Productivity

Background

Operations management has created industry giants. The Ritz-Carlton Hotel Company‘s mission is to provide an outstanding customer experience through a complete focus on quality management. UPS operates trucks that run for 20 years because their drivers care. Disney has made a science of accurate forecasts and queuing theory. Darden restaurants (Olive Garden and others) view operations as their strategy for success. Frito-Lay dominates the snack market by keeping fresh snacks on the shelves with a production process that converts raw materials into a bag of chips sitting in a grocery store in as little as a day or two.

The importance of operations management can be highlighted early in the course with humorous videos or stories about ―operations gone wrong.‖ Most people can share ―disaster‖ stories about poor experiences that they have had dealing with companies.

It can be useful as well to spend some class time right away on the job market for operations management majors, showing starting salaries and job titles compared to other business majors. It can also be helpful to find an MBA program with a strong operations focus and display the starting salaries of those graduates (Such data are available on many MBA program websites ) Instructors can also share research results showing that (1) more CEOs ―learn the ropes‖ by coming up through operations than any other functional area, and (2) Chief Operating Officer salaries tend to be approximately 10% higher than the salaries of the other ―Chiefs‖ (CFO, CMO, and CIO).

Videos from recent graduates who now work in some aspect of operations management are available in MyLab Operations Management. These 2- to 4-minute video clips feature young professionals talking about their jobs in the gamut of OM functions each tied to a specific chapter and accompanied by multiple-choice quizzes that may be assigned.

Class Discussion Ideas

1. Choose an organization the students will be familiar with and ask them to identify and describe the product of that organization. Direct the discussion to highlight the complex nature of the product offerings of most organizations today where product and service elements are found to some degree in almost all organizations.

2. Have the students choose a few different tasks or jobs and identify possible productivity measures for these. They should describe how they would go about making the necessary measurements. Student

and faculty productivity are easy examples that can generate quite a bit of discussion. One possible way to start the discussion is to ask whether grades or research output is an effective measure of student and faculty productivity, respectively Active

Classroom Learning Exercises

1. Labor productivity is sometimes perceived to be driven by employee motivation. Have the students split up into small groups to discuss effective ways to motivate hourly employees vs. salaried managers. If productivity of these workers is below expectation, what are good and poor ways to try to motivate them? What methods might work well with blue collar employees but not white collar employees, and vice versa? What methods might work well in the short run but not in the long run, and vice versa? Have each student group report its ideas to the whole class. (And if any group has little to say, ask them what could have been done to motivate them to do better!)

2. Companies often locate in other countries to take advantage of low wage rates. However, the difference in labor costs should be adjusted to account for productivity differences among the workers in the two locations. One way to do this is to compute a ―relative wage rate‖ R of operating in another country. Note that R is not the actual wage rate paid, but it is the hourly wage rate of operating in another country relative to the home country, after taking productivity differences into account. If the foreign country‘s workers are more productive, R will decrease, and vice versa. The formula is R = (W ÷ X)(U ÷ F), where W = the foreign wage rate (in foreign currency per hour), X = the exchange rate (in foreign currency per local currency), U = home country productivity (in units per hour), and F = foreign country productivity (in units per hour).

A problem could be described as follows. Suppose that workers in Britain earn ₤10/hour. The exchange rate with the U.S. is $1.5 per ₤1. American workers can produce 40 units per hour, while British workers at a similar facility can produce 50 units per hour. If the U.S. wage rate is $14 per hour, should the firm produce in the U.S. or in Britain?

Have the students try the exercise in class. They will probably analyze this problem by computing a labor cost per unit in each country (35 cents vs. 30 cents). Then introduce the concept and formula for relative wage rate (R = $12 in Britain). Both approaches are equally accurate, but using a relative wage rate has political advantages, i.e., it seems easier to talk about one wage rate vs. another ($14 vs. $12) as opposed to comparing costs per unit (35 cents vs. 30 cents).

3. A Class Exercise Relating Productivity and the Olympics (Guest Post by Howard Weiss)

https://heizerrenderom.wordpress.com/2014/02/17/guest-post-a-class-exercise-relating-productivity-andthe-olympics/

4. A First Day of Class OM Exercise (Guest Post by Steven Harrod)

https://heizerrenderom.wordpress.com/2013/07/11/guest-post-a-first-day-of-class-om-exercise/

Company Videos

1. Frito-Lay: Operations Management in Manufacturing (7:11)

Frito-Lay, a subsidiary of PepsiCo, has over 40 product lines, seven of which having sales exceeding $1 billion each. In this video, the textbook authors review the 10 OM strategy decisions and briefly describe how Frito-Lay addresses each one. For example, the company is constantly innovating with new products. For quality assurance, it uses multiple inspection points both within and outside the factory, and it utilizes statistical process control. The plant applies a product focus strategy, which is appropriate for a high-volume, low-variety producer. As raw materials are perishable and shelf life is relatively short, plant location decisions are driven by proximity to raw materials or markets. The

plant has low employee turnover, driven by good benefits, respect for people, and a strong concern for safety and ergonomics. Inventory levels are quite low, and inventory is turned over 200 times per year. Potatoes are delivered 10 times per day. Schedules are driven by demand forecasts and adjusted for local events, such as the annual Daytona 500 auto race. All of these practices, along with excellent layout, supply chain, and maintenance policies, have helped to make Frito-Lay the world‘s largest snack manufacturer.

If the video is shown before the 10 OM decisions are covered, prior to showing the video, the instructor could ask the students to list the major decisions that they think operations managers make. Afterwards, the 10 decisions from the book can be compared to the students‘ lists. Then the instructor can choose a different company, perhaps a service organization, with which students might be familiar. The class could try to identify ways in which that organization addresses the 10 decisions and perhaps compare those to some of Frito-Lay‘s tactics.

2. Hard Rock Cafe: Operations Management in Services (8:26) Hard Rock is interesting because it‘s so much more than just a restaurant. Management speaks about its ―experience strategy,‖ which, in addition to quality food, includes rock-and-roll memorabilia, music, lighting, jovial staff, and a retail store. The video is sprinkled with scenes of happy employees dancing around or volunteering in the community. Most of the video is spent covering how Hard Rock Cafe approaches some of the 10 operations management decisions. For example: (1) scheduling is driven by forecasts that are based on prior sales, seasonality, recent trends, and current local events; (2) cafe layout focuses on maximizing the customer experience and driving customers toward revenue-generating activities; and (3) inventory management goes well beyond the inventory of food and retail items Hard Rock has a $40 million inventory of rock-and-roll memorabilia to manage, and each restaurant goes through a complete changeover of memorabilia every 5-7 years.

As an entertaining piece and one that covers a variety of OM decisions, this is certainly a good video to show early in the course when discussing Chapter 1. Many students will have eaten at a Hard Rock Cafe themselves, and most should enjoy seeing memorabilia from rock stars such as Madonna and KISS. This is also a good way, early in the course, to show that operations management is just as important in services as it is in manufacturing. Prior to showing the video, the instructor might ask the students to think about the 10 OM decisions and how Hard Rock approaches them. Afterwards, discussion might revolve around aspects of those decisions that are unique to service businesses in general and then to Hard Rock Cafe in particular. Two clear differences about Hard Rock Cafe itself are: (1) because of and contributing to such successful branding, the cafe‘s retail sales (shirts, etc.) account for nearly the same amount of revenue as the main product (the food) itself; and (2) the management of the memorabilia around the world represents a unique and extremely important management effort on its own.

3. Celebrity Cruises: Operations Management at Sea (6:39)

A Celebrity Cruise ship is a floating ―city on the sea,‖ with a world-class hotel sitting on top of a power plant. This video describes how the 10 OM decisions affect the outcome of every voyage. Celebrity must manage both shoreline and marine operations. The design decision includes numerous features, including the physical ship itself, the food, and shore excursions. The floating city houses tens of thousands of SKUs, which must be loaded quickly when the ship is docked and meticulously managed to have everything in place when needed. The maintenance decision is especially important for a cruise ship because human lives are at stake and mechanical problems could ruin a voyage. Celebrity ships undergo complete dry-dock maintenance every 2–5 years. The international crews stay with the company for an impressive 5–7 years, which no doubt contributes heavily to Celebrity‘s quality image, including being named the Best Premium Cruise line for 9 consecutive years.

Prior to showing the video, instructors might ask students to list all of the different types of decisions that they think operations managers of a cruise line would need to make, both in the corporate office for all of their ships as well as for an individual cruise on a specific ship. Afterwards, it could be interesting to compare the aggregate student responses to the 10 OM decisions, placing special emphasis on the decisions that students didn‘t identify. As with most any service business, employees can make all the difference. Class discussion could revolve around Celebrity‘s impressively low turnover rate. How can the firm attract and retain the best talent? How can management ensure a constantly friendly staff? What types of general training should all staff undergo when first hired?

Cinematic Ticklers

1. Fawlty Towers: ―Waldorf Salad‖ (John Cleese and Prunella Scales), CBS/FOX VIDEO, 1986 (1979) This can actually be the first thing done in class all semester. The very start of the episode contains a funny scene about suppertime in the dining room of a bed and breakfast in England. The owners and staff make numerous errors. A class discussion can directly follow, listing what went well (almost nothing) and what didn‘t (many things). This clip can start a course off well because: (1) it‘s a very easy way to create an atmosphere of student participation right away in the course because identifying poor operations is easy in this clip, (2) it emphasizes right away that operations management applies to services, not just manufacturing, and (3) it‘s a fun way to begin a course.

2. The Simpsons, Season 7: ―King-Size Homer,‖ 20th Century Fox Video, 2006 (1995-1996) Homer gets so fat that he is allowed to work from home. He realizes that he can triple his productivity by just pressing ―Y‖ on his computer instead of typing ―YES. ‖

3. The Simpsons, Season 8: ―You Only Move Twice,‖ 20th Century Fox Video, 2006 (1996-1997) Homer gets a new job working for a James Bond-like villain. He is put in charge of a set of three workers. It‘s his job to motivate them. As they type along, Homer asks if they are working. ―Yes,‖ they reply. ―Can you work any faster than that?‖ he asks. ―Sure thing, Mr. Simpson,‖ they say, as they start typing faster. (If only motivation were that easy.)

4. Modern Times (Charlie Chaplin), CBS/FOX VIDEO, 1992 (1936)

The movie deals with worker alienation in an assembly line environment and offers an interesting historical perspective on early Taylorism. Interesting issues arise, including workers having to clock out to go to the bathroom, the automatic assembly line being sped up as the day wears on, sneezing or scratching being enough to make one behind on his or her work, and, most importantly, the dehumanization of early assembly line work.

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: Seven Jobs Robots Will Create

The newest generation of robots continues to replace human jobs, but the existence of robots also creates new job opportunities perhaps 20–50 million globally by 2030. Seven such new jobs include: AI builders, customer-robot liaisons, robot managers, data labelers, drone-performance artists, AI lab scientists, and safety & test drivers. https://heizerrenderom.wordpress.com/2018/05/07/om-in-the-news-seven-jobs-robots-will-create/

2. OM in the News: Machines are Making Your Sushi, and That‘s Good Services have lagged behind other sectors in spending on labor-saving equipment, but that is beginning to change. A sushi robot can churn out 200 precisely calibrated sushi rolls per hour compared to approximately 50 per human chef. Given the rising chef shortage, that‘s a good thing.

https://heizerrenderom.wordpress.com/2018/01/07/om-in-the-news-machines-are-making-your-sushi-andthats-good/

3. OM in the News: Robots Aren‘t Destroying Enough Jobs ―Too many sectors, such as health care or personal services, are so resistant to automation that they are holding back the entire country‘s standard of living.‖ (The Wall Street Journal, 5/11/17) By enabling society to produce more with the same workers, automation is a major driver of rising standards of living.

https://heizerrenderom.wordpress.com/2017/05/15/om-in-the-news-robots-arent-destroying-enough-jobs/

4. OM in the News: German Apprenticeships in South Carolina BMW‘s plant in Spartanburg, SC, trains 100 apprentices at any given time. This practice contributes to a skilled and motivated American workforce as an alternative to a college education. That approach in Germany has provided a solid return on companies‘ investment, helped them to innovate, and contributed to warm relations between employers and employees.

https://heizerrenderom.wordpress.com/2017/05/12/om-in-the-news-german-apprenticeships-in-southcarolina/

Presentation Slides

INTRODUCTION (1-1 through 1-6)

Slide 4: This Global Company Profile from the first chapter helps to illustrate the wide variety of decisions that an operations manager must face. In the case of Hard Rock Cafe, the ―product‖ includes more than tasty meals the layout, the memorabilia on display, and the service all encompass the dining package at Hard Rock that consumers now expect. The meals themselves are designed, tested, and then analyzed for the cost of ingredients, labor requirements, and customer satisfaction. Among other tasks, the operations manager must consider both the attractiveness and efficiency of restaurant layout, supplier quality and reliability, employee motivation and training, maintenance of tight schedules, and preparation of outstanding meals.

WHAT IS OPERATIONS MANAGEMENT? (1-7)

Slide 7: Starting with the Hard Rock Cafe example, it is important to stress from the very beginning of the course that operations management applies just as much to service businesses as to manufacturing businesses.

1-7

ORGANIZING TO PRODUCE GOODS AND SERVICES

(1-8 through 1-11)

Slide 8: To create goods and services, all organizations must perform the three functions identified on this slide. Firms must create demand, satisfy that demand, and manage and monitor the financial flows associated with creating and satisfying that demand. Slides 9-11: These slides (Figure 1.1) present example organization charts from three different companies. The areas in blue indicate the significant role that operations management plays in both manufacturing and service firms.

1-11

THE SUPPLY CHAIN (1-12)

Slide 12: The supply chain is described right at the beginning of the book to emphasize that competition is no longer between companies; it is between supply chains. Companies no longer try to do everything themselves. Rather, they outsource numerous functions and activities to specialized providers. Supply chains that have members who effectively collaborate foster an enormous competitive advantage. Chapter 11, Supplement 11, and part of Chapter 2 provide comprehensive coverage of this topic.

1-12

WHY STUDY OM? (1-13 through

1-14)

Slides 13-14: These slides can be used early on in the course to help ―sell‖ the usefulness and importance of the class. In most cases, a large percentage of revenue is spent on the OM function. Slide 14 (Example 1) shows a common circumstance, that is, often the best and easiest way to meet improved contribution targets is through finding efficiencies in operations. In this particular example, the hefty requirements for the marketing and finance options might make them infeasible anyway. 1-13

WHAT OPERATIONS MANAGERS DO (1-15 through

1-24)

Slide 15: All good managers, including operations managers, perform the basic management functions identified in this slide.

Slides 16-21: The 10 strategic OM decisions are useful to cover one by one, not only as a precursor to the rest of the text, but also to emphasize the wide array of responsibilities that are under an operation manager‘s jurisdiction. Slide 16 maps them to the rest of the text, while Slides 17-21 provide examples for each decision of issues that the operations manager must address.

Slides 22-24: Salary information pertaining to local students (perhaps with help from the university‘s career center) can be combined with Slides 22 through 24 to help sell the operations management field as a viable career option for students. A very common entry-level position for OM majors is in the purchasing area of organizations. Slide 23 (Figure 1.3) identifies several of the many types of career opportunities that exist for operations managers. The organizations identified in Slide 24 provide various certifications that may help forward students‘ careers. The Six Sigma Green Belt and Black Belt certifications offered through the American Society for Quality represent particularly highly sought-after acknowledgements of professional expertise.

THE HERITAGE OF OPERATIONS MANAGEMENT (1-25 through 1-32)

Slide 25: This slide (Figure 1.4) presents a nice summary of the past and future of OM. Videos showing historical footage (see Other Supplementary Material below), can fit in well here.

Slides 26-31: Presenting students with a good historical context of the field is important. There is a lot of important history there that is directly tied to the economic growth of nations. These slides provide information about some of the most important historical figures in the field.

Slide 32: Operations management continues to progress with innovations and contributions from other disciplines, particularly those identified on this slide.

OPERATIONS FOR GOODS AND SERVICES (1-33 through 1-38)

Slides 33-35: The manufacturing-service distinction is more like a continuum, as most manufacturing companies provide some services (e.g., financing from an auto manufacturer) and most service companies provide some goods (e.g., shampoo at a hair salon). Nevertheless, the two extremes differ in important ways, which may impact how operations managers approach decision making in one case vs. another. Slide 35 identifies the major differences.

Slides 36-37: These slides illustrate the tremendous growth of services over time. Slide 36 (Figure 1.5) shows that, after peaking around 1950, the percentage of U.S. workers in manufacturing has declined steadily while service employment continues to capture a larger and larger share of the jobs. The huge productivity increases in agriculture and manufacturing have allowed more of our economic resources to be devoted to services. Consequently, much of the world can now enjoy the pleasures of education, health services, entertainment, etc. Slide 37 (Table 1.4) provides examples of firms and percentages of employment in the U.S. in various sectors of the economy. Well more than half of the students taking this class will likely end up working for a firm in the service sector.

Slide 38: Salaries in services present a mixed bag. Some jobs, such as airline maintenance operations managers, pay very well, while others lag behind the national average. Not all jobs in services are low paying, but some can be.

THE PRODUCTIVITY CHALLENGE (1-39

through 1-58)

Slide 39: The basic formula for productivity is simple: outputs ÷ inputs. This sometimes varies as interest focuses on a specific output or input, or a set of outputs or inputs. At the firm level, productivity improvement usually leads to greater profits. At a macro level, productivity improvement in an economy usually leads to a higher standard of living. Productivity improvement means getting more ―bang for the buck‖ either (1) reducing inputs while keeping output constant, or (2) increasing output while keeping inputs constant.

Slide 40: This slide (Figure 1.6) describes how productivity in the U.S. economy grows at about 2.5% per year, comprised of capital factors (0.95%), labor factors (0.25%), and management factors (1.3%). The picture also suggests that an effective feedback loop is an important component for continuous improvement.

Slides 41-42: These slides (OM in Action) describe how some relatively simple management and equipment changes improved Starbuck‘s productivity significantly, which led to six-figure increases in revenue per outlet

Slides 43-45: The most common productivity formulas are presented in these slides. Slide 43 shows the basic formula. Slide 44 provides an example of a single-factor productivity measure, in this case, the common measure of labor productivity. Slide 45 is a multifactor productivity measure. Note that a multifactor measure only makes sense if all of the inputs are expressed in the same units (usually a monetary unit such as dollars).

Slides 46-49: These slides illustrate Example 2 from the text, calculating both single-factor and multifactor productivity measures. Here, as in most cases, the multifactor measure makes more sense because it includes all costs connected with the increase in output. In fact, a situation that replaces workers with more expensive robots may appear to improve labor productivity but may actually be decreasing multifactor productivity (and firm profits) overall.

Slide 50: These potential measurement problems with productivity should be emphasized. If evaluating performance of a plant, a manager, a division, etc., it is important to compare ―apples to apples‖ and to evaluate individuals on outcomes over which they have control.

Slide 51: The three factors identified in this slide are critical to achieving improved productivity. The percentages listed represent their respective historical contributions to productivity improvement.

Slide 52: As we see in this slide, sometimes training and education produce more productive workers, while in other cases, the workers‘ general health along with environmental factors may determine their respective capabilities.

Slide 53: As unbelievable as it seems, a large number of U.S. high school students cannot solve very simple math problems, such as those shown in this slide (Figure 1.7). It has been suggested that perhaps up to 25% of U.S. workers lack the basic skills needed for their current job. The situation may be even worse in some other countries, particularly in some of the lowwage countries.

Slide 54: Historically, annual capital investment in the U.S. has increased at an annual rate of 1.5% after allowances for depreciation. In general, higher investment levels lead to higher productivity gains.

Slide 55: At 52%, management provides the biggest contribution toward productivity gains. Effective management is challenging, especially now that much of the labor force in postindustrial countries has migrated from manual work to work based on knowledge (knowledge societies) and requires ongoing education.

Slide 56: The items identified in this slide all contribute to the difficulty in improving productivity in the service sector.

Slides 57-58: The service firm Taco Bell (OM in Action) implemented several innovative productivity improvement measures (Slide 57), which produced impressive results (Slide 58).

CURRENT CHALLENGES IN OPERATIONS MANAGEMENT (1-59)

Slide 59: Some traditional operations areas of emphasis are changing. New challenges based on these changes are identified on this slide. Each of these issues will be explored more fully later in the book.

1-59

ETHICS, SOCIAL RESPONSIBILITY, AND SUSTAINABILITY (1-60 through 1-61)

Slide 60: Managers must address the challenges identified in the slide, along with many other challenges, in an ethical and socially responsible way while meeting demands of the marketplace.

Additional Assignment Ideas

1. Search the Internet for organizations that offer productivity consulting services; there will be quite a few. Different organizations will offer different service packages and specialize in different areas. Pick two organizations that demonstrate differences and compare and contrast their services, their areas of specialization, and their approach to productivity. That is, explain how they are similar and how they are different. Make sure you include examples from their websites that support your analysis. (Two examples are Alexander Proudfoot at http://www.proudfoot.com/ and West Monroe Partners at http://www.westmonroepartners.com/.)

2. Labor productivity is by far the most commonly seen expression of productivity. Search the Internet for sites that offer labor productivity statistics. Certainly, the Bureau of Labor Statistics (www.bls.gov) is one, but there are others from around the world. Compare the labor productivity in the U.S. for the past decade to that of another country of your choosing. How and why are they different or similar?

3. Students can be assigned a paper that compares the service company Hard Rock Cafe to the manufacturing firm Frito-Lay, both of which have videos for Chapter 1. Specifically, the paper could compare and contrast how the two firms approach the 10 major OM decisions described in the text.

Internet Resources

American Productivity and Quality Center (APQC) www.apqc.org/ American Statistical Association (ASA) offers business and economics DataLinks, a searchable index of statistical data www.econ-datalinks.org/

National Bureau of Economic Research www.nber.org

U.S. Bureau of Labor Statistics www.bls.gov

U.S. Census Bureau www.census.gov

Other Supplementary Material

Videos

1. Modern Marvels, ―The Assembly Line‖ https://www.history.com/shows/modern-marvels/season-12/episode-26

The first part of this History Channel production shows Henry Ford and the Ford assembly line, with real historical footage. It describes the poor working conditions, as well as Ford‘s response, which was to pay a very high hourly rate for the time.

2. ―Loose Bolts?‖ (30:00), http://www.merrimack-films.com/loose.html

Offers a more modern perspective on assembly lines and highlights the difficulties of making changes in existing organizations when implementing productivity improvement programs.

3. Ford Historic Model T, CarDataVideo (5:16), http://www.youtube.com/watch?v=S4KrIMZpwCY

This narrated video is a very detailed look at the first assembly lines at the original Ford auto plant, plus some driving scenes with the Model T.

Chapter 2 Operations Strategy in a Global Environment

Background

Of all the chapters in the book, this one has the most references to global operations. Depending on the instructor‘s preferences, he or she could delve further into global issues and, for example, present some operations practices prevalent in different countries of the world. For the strategy sections of the chapter, it is important to emphasize that these are decisions that firms make that use operations to earn and keep business (as opposed to, say, an advertising campaign). Picking a strategy may seem trite to some students, but it important to emphasize that all 10 OM decisions will be geared toward the designated strategy.

Outsourcing is a growing trend in business with many success stories and many failures. It can be an emotional subject for some, so instructors need to be sensitive to potential student concerns and opinions about the subject. At the same time, the existence of strong opinions within the classroom can produce some lively class discussions. Instructors should try to present a balanced view of outsourcing, including the advantages, the risks and disadvantages, and the potential ethical dilemmas.

Class Discussion Ideas

1. When describing slide 2-43, showing the OM Strategy/Issues during different stages of the product life cycle, it can be a useful break to stop and ask students to identify examples from the past of when demand significantly outpaced production i.e., the existence of ―fad‖ items. Examples might include certain video games, hybrid vehicles, Furbies, Tickle Me Elmo dolls, Cabbage Patch dolls, or even pet rocks from the 1970s.

2. For instructors who want to expand treatment of global operations issues, Chapter 2 is probably the place. One way to do that is to have a discussion on aspects of operating in some of the largest or most impactful economies around the world, for example, Japan, Germany, China, India, and South Korea. Input from foreign students can be particularly useful here; in fact, instructors may want to ask foreign students to prepare a 5-minute talk on their respective countries (potentially for extra credit). Certain cultural differences, if tactfully presented, can add some humor here. As one of many examples, Frank Perdue‘s chicken slogan, ―It takes a strong man to make a tender chicken,‖ was translated into Spanish as, ―It takes an aroused man to make a chicken affectionate.‖

3. Some students may feel that outsourcing simply should not occur because it is unethical to lay off productive and loyal workers just to save some money. Instructors could explore varying student opinions about this issue and even ask the question, ―What if it was your job (or your parent‘s job) being outsourced?‖

Active Classroom Learning Exercises

1. Have the students split up into small groups to attempt to identify a company (different than ones listed in Figure 2.4 on page 39) that fits into each of the 10 different strategies listed. Have each group report some or all of its ideas to the whole class. They should support their position with references to specific actions, policies, or events that demonstrate why their opinion makes sense.

2. Have the students split up into small groups to conduct a SWOT analysis of their favorite restaurant or retail store. (Make sure that each group examines a different business.) Have each student group report its analysis to the whole class.

3. Pick an industry and ask the students to think about managing a brand new firm trying to join the industry. What strategy should their firm follow? Then ask the students to find someone else in the class with a different opinion each student should then try to convince the other why his or her strategy is best. Take a poll at the end to see which strategy seems to dominate.

4. Play The Outsourcing Game found at http://www.emeraldwise.com/og.html.

o The Scenario: Acme is a well-known company that sells its widgets through retailers across the United States. Acme currently offers two widget products: a high-end version, and a lowend version. Game participants are divided into five teams to play the roles of Acme, BuildIT (contract manufacturer), Design (outsourced design firm), Hi-N (supplier of high-end subassembly), and Loen (supplier of low-end subassembly).

o The Decision: Acme is interested in using a common subassembly for its widget product line. However, because of outsourcing, Acme must work with its supply chain partners to implement the decision. Participants, through a series of negotiations, determine how the scenario plays out.

Company Videos

1. Strategy at Regal Marine (5:27)

Some of the key mission statement features for this family-owned business are discussed, including: (1) creating best-in-class products with value, quality, and satisfaction; and (2) operating with integrity, honesty, and character. The firm employs a differentiation strategy, manufacturing distinctive and high-value luxury boats. One important means for implementing that strategy is to use very high-caliber dealers (120 of them in 40 countries) that will represent the products in a proper manner. Despite a primary strategy of differentiation, Regal Marine also continues to focus efforts on cost reduction to stay afloat in this highly competitive industry.

Prior to showing the video, the instructor might ask the students to think about ways that the 10 OM decisions for this firm support its differentiation strategy. A follow-up discussion might explore how some of those decisions might differ if the firm had pursued a cost leadership strategy. Finally, the instructor might ask students to identify the pros and cons for this size of a family-owned company to pursue a differentiation strategy in a highly competitive industry. For example, a lack of economies of scale compared to larger competitors might make cost leadership difficult; however, branding is key when pursuing a differentiation strategy, and that also takes a serious amount of effort and investment to establish in the marketplace presumably more challenging for smaller firms.

2. Hard Rock Cafe‘s Global Strategy (9:36)

At the time of the video, Hard Rock had 106 locations in 38 countries and was looking to expand further, particularly in Europe, Latin America, and parts of Asia. Hard Rock‘s branding has been a key reason why it can so easily enter new markets in new countries. Considerations when expanding into a new market include: political risk, currency risk, social norms, brand fit, social costs, and business practices. The second half of the video focuses on the idea of creating a service ―experience.‖ Seventy percent of Hard Rock‘s customers are tourists seeking a special memory. Not only is each restaurant full of rock-and-roll memorabilia, but each piece also comes with an associated story. Every restaurant has something from Elvis, the Rolling Stones, the Beatles, and Jimmy Hendrix. Restaurant designers try to link older generation musicians with newer ones. Restaurant layout also enhances the rock-and-roll experience, going beyond being a museum to include live and energetic features (e.g., audio-visual, staff members, and a bar) that produce significant sensory stimulation. Finally, a key strategy for merchandise sales is the use of locationspecific logos. Despite having an e-commerce presence, a shirt with a city name can only be purchased at that city‘s Hard Rock Cafe, so tourists will buy these otherwise common-looking logo shirts to advertise/reflect about their trip to that city.

Prior to showing the video, the instructor could ask the students to identify features that make Hard Rock Cafe different from other restaurants, even other themed restaurants. Afterwards, discussion could revolve around the operations decisions that support these features. A different discussion could focus on the international location decisions. What are important considerations for Hard Rock as compared to other businesses (say, manufacturing facilities)? For example, low-cost labor does not seem to even be a consideration for Hard Rock. A follow-up question might ask the students how they, if put in charge of new restaurant location decisions for Hard Rock, would find out if residents and tourists of a potential new city would be interested in that kind of restaurant.

3. Outsourcing Offshore at Darden (10:56)

Darden Restaurants imports millions of pounds of seafood annually. The firm achieves this via a complex outsourced network of vendors extending to 40 countries. Darden strives to ―source the best suppliers globally‖ by examining import data and even using its existing network of vendors for referrals. After interest is established, Darden conducts a plant visit to determine the quality of the facilities. If the supplier becomes part of the network, Darden trains the supplier on how to comply with Darden‘s ―cold chain‖ requirements, including the use of proper containers, gel packs, and temperature monitors. Darden seeks durable long-term relationships with suppliers, not necessarily choosing based on lowest cost. Darden‘s standards are higher than most U.S. government standards, and it rejects certain shipments that the government would not, based on things like poor color and misshaped product, or anything that might suggest that something in the integrity of the cold chain might have been compromised. Why does Darden outsource its seafood? A primary reason is that many countries will not even grant fishing licenses to non-native fishermen. Furthermore, Darden is not in the seafood production business it‘s in the restaurant business. But due to its massive scale, Darden can work directly with suppliers instead of middlemen, allowing the company to remove one layer of cost from the supply chain and in turn invest time and resources into ensuring the highest quality product possible.

Prior to showing the video, instructors might ask the students to guess from which (or how many) countries Darden Restaurants procures its seafood. (Seemingly most students will be surprised to learn that the seafood comes from so many different countries.) The decision to outsource seafood supplies seems to be clear-cut for Darden, so after showing the video, discussion might focus on the management of this outsourced network. What techniques beyond those discussed in the video can managers employ to select the appropriate partners and ensure their compliance with company standards? From another angle, the video did not discuss anything about the labor practices of these

suppliers, many of whom are from developing countries. Should Darden care about and investigate the labor practices (wage rates, working conditions, use of underage workers, etc.) of all of these suppliers? What might be the repercussions, if any, if Darden does not? Is the media less likely to investigate working conditions on a fishing boat than at a factory, and does that or should that affect Darden‘s level of interest? Should Darden have global principles of business conduct that it would impose on all of these outsourcing suppliers?

Cinematic Ticklers

1. Gung Ho (Michael Keaton and Gedde Watanabe), Paramount Pictures, 1986

At the beginning of the movie, Michael Keaton‘s character travels to Japan to meet with the executive board of a Japanese automotive factory. He presents as a typical American might, while the Japanese businessmen sit in silence. The American leaves the meeting thinking that he blew the presentation.

A second set of scenes can be clipped together to illustrate some of the differences in Japanese vs. American business practices. The scenes are exaggerated to create humor, but they contain some true differences (for example, company uniforms, morning exercises, zero defect policies, strict worker absentee policies, etc.).

2. The Simpsons Season 3: ―Burns Verkaufen Der Kraftwerk,‖ 20th Century Fox Video, 2003 (19911992)

A German company purchases the Springfield power plant, and Homer ends up being the only worker let go. There‘s a funny scene where Homer daydreams about living in Germany, ―The Land of Chocolate.‖

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: Auto Makers Plan to Shift More Manufacturing to North America

The new trade deal between the United States, Canada, and Mexico will raise the local content requirement from 62.5% to 75% of a car‘s value that must be built in North America to avoid a 2.5% tariff. Daimler and other foreign car makers are considering moving more of their manufacturing, especially engine and transmission production, to North America as a result.

https://heizerrenderom.wordpress.com/2018/10/14/om-in-the-news-auto-makers-plan-to-shift-moremanufacturing-to-north-america/

2. OM in the News: The Beetle‘s Life Cycle

Volkswagen has announced that it will end production of the venerable VW Beetle in 2019, seven decades after the tiny model was first designed for Adolf Hitler. The car was the best-selling U.S. import in the 1960s. Sales subsequently declined. After a reboot in 1997, sales topped 1.2 million, but annual sales were just 60,000 in 2017.

https://heizerrenderom.wordpress.com/2018/09/21/om-in-the-news-the-beetles-life-cycle/

3. OM in the News: Honda Learns to Outsource Honda once used staff technicians to design new technologies ranging from engines to the shape of the suspension arms. Today, Honda believes rapid shifts in technology mean it can no longer afford to keep pace working solely on its own.

https://heizerrenderom.wordpress.com/2018/08/17/om-in-the-news-honda-learns-to-outsource/

4. OM in the News: Amazon China Is Turning Ethiopia into a Giant Fashion Factory Ethiopia, a drought-afflicted, landlocked country of 100 million on the Horn of Africa, is transforming itself into the lowest rung on the supply chain that pours out fast fashion and five-for$12.99 tube socks. But Ethiopia hasn‘t equipped its citizens for the ―sweatshop‖ rigors of industry. https://heizerrenderom.wordpress.com/2018/03/09/om-in-the-news-china-is-turning-ethiopia-into-a-giantfashion-factory/

Presentation Slides

INTRODUCTION (2-1 through 2-8)

Slides 4-6: These Boeing slides (Global Company Profile) can be presented to emphasize the truly global nature of the company‘s supply network as a precursor to the discussion about global issues.

A GLOBAL VIEW OF OPERATIONS AND SUPPLY CHAINS (2-9 through 2-22)

Slides 9-10: These slides present five examples of companies that are hastily extending their operations globally with innovative strategies.

Slide 11: This slide (Figure 2.1) shows the steady growth of world trade over time.

Slides 12-18: The ―Reasons to Globalize‖ slide (Slide 12) seems particularly important to cover in this chapter, and it is followed by specific discussion on each of the six reasons in Slides 13-18. Slide 13: Low labor cost is often, but not always, the primary draw as firms sometimes

locate to areas containing particular expertise in whatever they are producing. Slide 14: A very common reason to globalize is to reduce costs, especially labor costs or tariff costs. The numbers can be hard to ignore: for example, saving $10 per hour per worker with 40hour workweeks (52 weeks per year) and 1000 workers represents a savings in excess of $20 million annually. The agreements and organizations identified in Slide 14 represent ways in which firms can receive preferential tariff treatment. Slide 15: Not all great ideas come from one place internationalization provides access to great ideas from around the world. Plus, locating overseas can provide better and quicker service to customers located in those countries. Slide 16: International firms inevitably learn about opportunities for new products and services; also, they may be able to sell maturing products longer in less developed countries. Slide 17: Firms can benefit by teaming up with a foreign partner to learn from each other and develop products and processes based on the unique knowledge of both firms. Slide 18: Great employees are attracted to firms that offer more worldwide employment opportunities, as well as better insulation from unemployment.

Slides 19-20: These slides are useful for discussing global location decisions. Slide 19 emphasizes that managers must become aware of cultural differences, and they should adjust their expectations and management styles accordingly. Slide 20 identifies some of the many factors that may need to be considered in global location decisions.

Slides 21-22: These slides represent a nice exercise in perhaps dispelling pre-conceived notions about parent companies and home countries of certain products. Student participation can be solicited here.

DEVELOPING MISSIONS AND STRATEGIES

(2-23 through 2-35)

Slides 23-24: An organization‘s mission is its purpose what it will contribute to society. Its strategy is more specific it represents an action plan to achieve the mission.

Slides 25-27: These slides (Figure 2.2) present examples of three corporate mission statements.

Slide 28: This slide suggests that several more considerations than profit maximization play a role in shaping a firm‘s mission.

Slide 29: Functional areas have their own missions and strategies, which usually are based on higherlevel missions and strategies in the organization.

Slides 30-33: These slides (Figure 2.3) present sample missions for a company, the operations function, and major OM departments.

Slide 34: A SWOT analysis can help managers identify strengths, weaknesses, opportunities, and threats to shape their strategies.

Slide 35: The three major strategies for competitive advantage are differentiation, cost leadership, and response. While it may be possible to compete on all three at once, most firms focus on one of these major strategies.

ACHIEVING COMPETITIVE ADVANTAGE THROUGH OPERATIONS (2-36 through 2-40)

Slides 36-40: The competitive strategies slides (36-40) are particularly important because an organization‘s chosen strategy very much shapes how it approaches the 10 OM decisions. Slides 36-39 provide some specific examples of firms implementing these strategies. Slide 40 (Figure 2.4) provides some additional examples, and it emphasizes that firms can achieve competitive advantage via their operations function, by applying the 10 OM decisions to implement one or more of the competitive strategies.

ISSUES IN OPERATIONS STRATEGY (2-41 through 2-43)

Slide 41: This slide identifies some alternative perspectives that may be helpful prior to establishing and attempting to implement a strategy. A resources view is a method that managers use to evaluate the resources at their disposal and manage or alter them to achieve competitive advantage. Value-chain analysis is a way to identify those elements in the production/service chain that uniquely add value. Porter‘s Five Forces model is a method of analyzing the five forces in the competitive environment: immediate rivals, potential entrants, customers, suppliers, and substitute products. Because the firm operates in a system with many external factors, constant scanning of the environment is required. Finally, strategies need to be dynamic to deal with constant internal and external change.

Slides 42-43: These slides (from Figure 2.5) are valuable, especially to emphasize that the point in the product life cycle helps to determine the areas of emphasis for operations management.

STRATEGY DEVELOPMENT AND IMPLEMENTATION (2-44 through 2-54)

Slide 44: A SWOT analysis is a formal review of the internal strengths and weaknesses and the external opportunities and threats. It represents an excellent model for evaluating a strategy.

Slide 45: This slide (Figure 2.6) illustrates the strategy development process, in which SWOT analysis plays a key role.

Slide 46: Key success factors are those activities that are necessary for a firm to achieve its goals. Once identified, the next step is to group the necessary activities into an organizational

structure. That structure then needs to be staffed with personnel who will get the job done right. The operations function is most likely to be successful when the operations strategy is integrated with other functional areas of the firm, such as marketing, finance, HR, IT, etc.

Slide 47: The 10 OM decisions typically include the key success factors. This slide (Figure 2.7) identifies potential key success factors for marketing, finance, and operations. The 10 OM decisions provide an excellent initial checklist for determining key success factors and identifying core competencies within the operations function.

Slides 48-54: These slides present Figure 2.8 from the text in an eye-appealing, dynamic manner. An activity map is a graphical link of competitive advantage, key success factors, and supporting activities. This figure presents an example activity mapping of Southwest Airlines‘ low-cost competitive advantage.

STRATEGIC PLANNING, CORE COMPETENCIES, AND OUTSOURCING

(2-55 through 2-62)

Slides 55-56: From Table 2.1 in the text, notice how the 10 OM decisions are altered to build two distinct strategies within the same industry.

Slides 57-59: These slides introduce the concept of outsourcing, which transfers certain activities to specialty providers, allowing firms to focus on their core competencies. We often assume that outsourcing always implies that jobs are sent to other countries, but that is not always the case. Processes are often outsourced to domestic suppliers, as occurs when firms use 3rd-party logistics providers (see Chapter 11). The concept of outsourcing is not new, but Slide 57 shows why the use of outsourcing has been increasing in recent years. Slide 58 describes how the outsourcing of manufacturing represents an extension of the longstanding practice of subcontracting. When performed on a continuing basis, this becomes contract manufacturing. In addition, these days numerous non-core internal service functions, such as payroll and legal, are being outsourced to specialists. Slide 59 describes the theory of comparative advantage from economics, which provides the impetus behind international outsourcing.

Slide 60: This slide (Table 2.2) identifies potential advantages and disadvantages of outsourcing. Risks can be significant; roughly half of all outsourcing agreements fail due to inadequate planning and analysis. The final disadvantage identified on the slide refers to the phenomenon that many of the risks that firms incur by outsourcing may not show up in profit statements until sometime in the future, encouraging short-run-thinking, fast-track managers to produce short-run profit increases that they can attribute to their outsourcing decisions.

Slides 61-62: The factor-rating method can be applied to outsourcing provider selection. Different factors are assigned different importance weights, so a weighted average must be computed. Slide 62 is based on Example 1 from the book. In other real applications, managers can add factors and assign different weights as they deem fit. To keep things simple, all factors should move in the same direction, that is, either low scores are good for all factors or high scores are good for all factors.

GLOBAL OPERATIONS STRATEGY OPTIONS

(2-63 through 2-71)

Slides 63-70: These slides present Figure 2.9 from the text in an eye-appealing, dynamic manner. The figure places the four international operations strategies on a graph with local responsiveness on the x-axis and cost reduction on the y-axis. A transnational strategy has the potential to pursue all three operations strategies (differentiation, low cost, and response). Such firms can be thought of as ―world companies,‖ whose country identity is not as important as its interdependent network of worldwide operations.

Slide 71: This slide is an interesting way to end the chapter discussion by presenting a ranking of the most corrupt countries.

Additional Assignment Ideas

1. Ask students to prepare for class by visiting several company websites and, for each company, locating the company mission and printing a copy of it to bring to class. The students should also be asked to, if possible, determine the strategy used by the company to achieve its published mission.

2. Look at the websites for two different companies and determine how they operate in the global business environment. Students should try to address the following questions:

o How is a global strategy in evidence from their websites?

o What sort of global operations strategy do they seem to be adopting international, multidomestic, global, or transnational?

o Do their facility locations reflect their global strategy?

o How much of their business is done globally?

o How do their work forces reflect their global strategy?

3. A number of opportunities and trends regarding outsourcing can be found at The Outsourcing Institute (www.outsourcing.com). Report on two outsourcing or offshoring opportunities/trends.

Internet Resources

Foreign Affairs (published by the Council on Foreign Relations) www.foreignaffairs.com European Union http://europa.eu/ The Outsourcing Institute www.outsourcing.com

World Bank www.worldbank.org

World Economic Forum www.weforum.org

World Trade Organization www.wto.org

Other Supplementary Material

Videos

1. Wall Street

This movie illustrates very different corporate missions between the established company and the one trying to take it over.

2. Films available from: Humanities and Sciences (P) 800-257-5126 (F) 609-275-1400 (E) custserv@films.com http://www.films.com

o Outsourcing: White Collar Exodus (Item# BVL34962)

o Toyota‘s Drive to the Top (Item# BVL37611)

o Product Design: A Hand-Made Stereo for a Hand-Made Car (Item# BVL33025)

Exercise

Steven S. Harrod provides a nice critical-thinking exercise below, ―Stents Versus Drug Therapy,‖ in which students can compare and contrast the strategies of two different doctors.

Stents Versus Drug Therapy

A critical thinking exercise on the topic of health care.

Copyright 2013, Steven S. Harrod

This is an introductory exercise suitable for the first lecture of a beginning course in Operations Management. No prior knowledge of Operations Management is required. A large component of Operations Management concerns quantitative decision‐making. However, quantitative analysis is only successful if the underlying measures or objective functions are aligned with the envisioned outcomes. Thus, a fundamental task before any quantitative methodology is applied (such as forecasting, statistical process control, or optimization) is selecting the measures or numerical quantities to monitor and evaluate.

This task immediately raises questions of mission, strategy, and global social welfare, because some performance measures will react counter cyclically to each other. For example, queue length and server utilization are fundamentally conflicted with one another. Choosing either of these measures as an objective for improvement will likely lead to opposing results in the other.

The discussion topic for this exercise is whether surgically implanted blood vessel stents are better for patients and the health care system than alternative therapy with clot reducing medication. The problem statement is obtained by listening to a National Public Radio news item, ―Doctors Disagree About Effectiveness, Cost Of Stents‖, August 26, 2009, by Chana Joffe‐Walt. The audio for the story may be found online at http://www.npr.org/templates/story/story.php?storyId=112264556 . A transcript of the story may be found at http://www.npr.org/templates/transcript/transcript.php?storyId=112264556

Instructions

Open your lecture by explaining that Operations Management frequently concerns quantitative analysis of data, but that analysis is only valuable if the data studied represents the objectives of the firm. A critical first step in problem solving and managerial analysis is then choosing which data measures to study. Emphasize to your class that ―measurements‖ are important factors to choose with care, and that much of Operations Management ultimately is about choosing and evaluating measurements.

Clarify to your class that measurements must be tangible, visible, and ―measureable‖. They cannot be feelings or vague desires. Also discuss how measurements must be defined so that there is mutual agreement, so that all parties agree on how the data is collected and what the data means.

Prepare your students to listen to the news story by asking them to answer fundamental questions from the news story:

1. What are the goals and objectives

a. Of the doctors

b. Of the patients

c. Of other interested parties (government, citizens, family members)

2. How should we measure progress to these goals and objectives?

3. What defines ―success‖?

Play the news story to the students (if presenting live in class).

Afterward, moderate a discussion to answer the questions above, as well as the following questions:

1. Are doctors recommending stents to increase their income?

2. Is one procedure better than the other? Ask your students to explain their decision.

As you question the students, consciously drill them, and analyze their answers. When students give vague answers like ―Improve the quality of health care‖, ask the student to modify their answer and give some measureable, tangible item. Force students to modify their answers so that they are thinking about real, quantitative measures that can be mutually verified.

A reasonable assertion, both from the story description and for the purposes of discussion, is that both treatments result in equal effectiveness outcomes at the end of their normal treatment time.

Assuming the doctors are unselfish, the goals and objectives are fairly universal for all: longer life expectancy (fewer cardiac deaths), better quality of life (return to work, return to recreation), and access to treatment for all (low cost, or cost within ability to pay).

What are the measures? Note and emphasize that these are all transparently measureable statistics.

 Cost of treatment

o Cost of labor

o Cost of materials

o Cost of lost work time by patient

 Cost of failure

o Cost of death

o Cost of disability

 Treatment outcome

o Time to complete treatment

o Dimensions of blockage in artery (verified by diagnostic scan)

o Pain, measured by survey or by brain scan

o Heart rate, blood pressure, other health statistics

What defines success?

 Treatment without errors or accidents

 Patient returns to work, normal life

 Discuss longer life versus quality of life

Final Answer

Ultimately this discussion hinges on the objectives of the two doctors in the story. Their disagreement is fundamentally driven by a lack of awareness of each other‘s primary objective. Dr. Teirstein‘s objective is speed of treatment. This is clear from the story‘s emphasis on the patient‘s instant relief after insertion of the stent. Dr. Topol‘s objective is low cost treatment. Neither doctor is ―correct‖ in their assessment, because they do not share the same objectives. Neither doctor is ―wrong‖ in their treatment, because both treatments will ultimately lead to a successful cure.

It is reasonable to claim that Dr. Teirstein is in fact NOT motivated by greed.

Discuss with the class how this is emblematic of the debate over health care nationally. Discuss how later topics in the Operations Management course will demonstrate a hard, quantitative tradeoff between speed and cost (specifically in queuing, but also in other topics). The health care debate is difficult because some parties seek lower cost, some parties seek responsive service, and some parties believe both may be achieved simultaneously. Discuss how currently national health systems like Canada focus on low cost, while the current U.S. health system is motivated more by responsiveness, and thus is more expensive.

This could be tied to Chapter 2 of Heizer/Render/Munson, Strategy, by including the topic of competitive advantage. Dr. Topol pursues a low cost competitive advantage, and Dr. Teirstein pursues a response advantage.

Chapter 3 Project Management

Background

This is the first chapter containing a significant amount of quantitative material. It also represents an opportunity for students to try out the popular Microsoft Project software. The concept of project crashing should be emphasized, because future managers need to know effective ways to speed up a project that has fallen behind. Note that if students will be learning about linear programming (Module B), the crashing problem can be effectively written as a linear program and solved in Excel.

Class Discussion Ideas

1. Ask the students to identify well-known projects that were considered failures and discuss reasons why the failures might have occurred. Examples could include certain military campaigns, engineering failures, new product introductions, etc

2. Ask the students to describe their own experiences managing projects. What was the scope? What problems were encountered? What types of management policies and techniques were used? Were any incentives offered to team members to complete their tasks effectively? Were there incentives attached to the project as a whole?

Active Classroom Learning Exercises

1. A good in-class exercise to introduce project management is to have the students plan a major social event or party (e.g., a Super Bowl party) and determine a WBS.

2. Developing time estimates for unfamiliar activities can be a challenge. One useful exercise might be to select a list of uncommon activities and ask students to develop the three time estimates a PERT approach would require. They should be asked to explain how and why they decided on particular estimates, and the range of estimates should be presented to the class to demonstrate the variability in this process.

3. Play the Project Simulation Game, Rock‘n Bands. See Other Supplementary Material below.

Company Videos

1. Project Management at Arnold Palmer Hospital (8:23)

The video describes the opening of a new hospital for women and babies in Florida, precipitated by an overflow of capacity at the hospital‘s current birthing facility. Planning took 13 months before construction even began. Importantly, the administration made a concerted effort to include as many voices as possible during the more than 1000 planning meetings. Managers heard from doctors, nurses, staff, patients, and community members. Three different room types were mocked up with physical models, where staff could walk in and comment about layout issues such as optimal location for electrical outlets. At the end of the video, we see a shot of MS Project, which was used extensively by the hospital for this application.

Prior to showing the video, the instructor might ask the students to focus on how the hospital generated ideas for the new facility. Follow-up discussion could revolve around the importance of staff and customer inclusion, particularly when building new facilities. Given that inclusion is important, students could brainstorm about what some of the best ways might be to gather that information in a timely and cost-effective manner. The discussion might end with some student input on features of this particular project (e.g., patient comfort, staff efficiency, hotel-like atmosphere, neo-natal facility) that complicated the design requirements beyond what might be required of, say, a typical office building or even a typical hotel.

2. Managing Hard Rock‘s

Rockfest (9:24)

The video highlights Rockfest, which is an annual concert put on by Hard Rock. The concert lasts for 13 hours and is attended by over 100,000 fans. Planning for the event begins nine months ahead of time. Microsoft Project is heavily featured in this video. This project includes all kinds of very different tasks, from booking and transporting bands to providing sufficient trash facilities to working with sponsors to providing food venues to building a massive stage. One way that the firm kept things coordinated was to have periodic calls with managers of these various tasks to provide updates to and coordination with the rest of the group. One concert even had a set of Midway rides available, creating a carnival (an event in itself) within the larger event of the concert. Such an undertaking would be virtually impossible without software such as Microsoft Project.

Prior to watching the video, the instructor might ask the students to make a list of all the different tasks that this project entails. Follow-up discussion could identify those and even brainstorm about other tasks that might not have been mentioned in the video. The instructor might ask the students what type of training or background a successful project manager would need (beyond Microsoft Project) to effectively handle all of these different tasks. What skills would a good project manager

need to employ? Have any of the students in the class managed a major project? What were some of the challenges that they faced?

See Other Supplementary Material below for a case that introduces the student to Microsoft Project and project crashing based on an expansion of this Hard Rock Cafe video.

Cinematic Ticklers

1. Star Wars Episode VI: Return of the Jedi (Mark Hamill, Harrison Ford, Carrie Fisher), 20th Century Fox, 1983

At the beginning of the movie, construction on the Death Star has fallen behind. Darth Vader arrives, surrounded in all his evil ambience, to get them ―back on schedule.‖

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: How to Make a Ship Bigger Cut it in Half First

Rather than spending $1 billion on a new cruise ship, Silversea Cruises is lengthening a current vessel by 49 feet by cutting it and adding to the middle. The massive expansion will require 500 workers who will spend approximately 450,000 hours on the job.

https://heizerrenderom.wordpress.com/2018/03/27/om-in-the-news-how-to-make-a-ship-bigger-cut-it-inhalf-first/

2. OM in the News: The Nuclear Waste Challenge at Fukushima 6 Years Later

Six years after the largest nuclear disaster of this century, Japanese officials have still not solved a basic problem: what to do with an ever-growing pile of radioactive waste. This $188 billion project includes 400 tons of contaminated water per day; 3,519 containers of radioactive sludge; 64,700 cubic meters of discarded clothes; branches from 220 acres of deforested land; 200,400 cubic meters of radioactive rubble; 3.5 billion gallons of bagged soil; and 1,573 nuclear fuel rods.

https://heizerrenderom.wordpress.com/2017/03/21/om-in-the-news-the-nuclear-waste-challenge-atfukushima-6-years-later/

3. OM in the News: How the Panama Canal Project Collided with Reality

Sacyr won the bid to construct new locks for the Panama Canal; however, major problems ensued including: disputes over how to divide responsibilities, a multicultural team whose members did not always see things the same way, work stoppages, porous concrete, and at least $3.4 billion in disputed costs (more than the budget for the whole project!).

https://heizerrenderom.wordpress.com/2016/06/26/om-in-the-news-how-the-panama-canal-projectcollided-with-reality/

4. OM in the News: Shell Oil‘s Arctic Project Gamble

All told, Arctic waters cover 13% of the world‘s undiscovered petroleum enough to supply the U.S. for more than a decade. Shell is assuming immense project management operational risks to drill in the Arctic.

https://heizerrenderom.wordpress.com/2015/08/22/om-in-the-news-shell-oils-artic-project-gamble/

Presentation Slides

INTRODUCTION (3-1 through 3-8)

Slides 5-6: From the Global Company Profile, the Bechtel Group is the world‘s premier manager of massive construction and engineering projects. The Bechtel projects are fascinating in their scope. The firm has clearly become a worldwide expert in successfully implementing project management concepts and techniques.

THE IMPORTANCE OF PROJECT MANAGEMENT (3-9 through 3-18)

Slide 9: This slide identifies important considerations involved when a company such as Bechtel tackles a large-scale project. Such efforts often require a significant amount of planning and control, and they are becoming more challenging due to growing project complexity and collapsing product/service life cycles. Techniques and concepts introduced in this chapter, along with software such as Microsoft Project, provide important assistance.

Slides 10-11: Slide 10 identifies typical characteristics that make up a project. These can be illustrated via the two examples in Slide 11.

Slides 12-18: Project management involves the three phases identified in Slide 12 and illustrated in Slides 13 and 14-18 (Figure 3.1). Slide 18 identifies some of the tools and reports applicable to each stage.

3-18

PROJECT PLANNING

(3-19 through 3-28)

Slide 19: This slide identifies typical steps involved in project planning. A work breakdown structure defines the project by dividing it into its major subcomponents (or tasks), which are then subdivided into more detailed components, and finally into a set of activities and their related costs.

Slides 20-23: Slide 20 identifies typical characteristics of a project organization, which is an organization formed to ensure that programs (projects) receive proper management and attention. A project organization often crosses departmental lines. The project manager‘s job is often high-profile, and project success or failure is usually, ultimately attributed to that person in a very public way (at least within the company). Firms managing multiple projects on a regular basis may set up a matrix organization. Slide 21 can be presented in reverse, that is,

failed projects often lack one or more of the characteristics identified in this slide. Slide 22 (Figure 3.2) provides an example of a project organization, and Slide 23 provides an example of a matrix organization.

Slides 24-26: Good project managers need a wide variety of people, organizational, and technical skills. Slide 24 highlights the major responsibilities of a project manager, and Slide 25 follows up by identifying some of the requisite skills. This might be a good place to refer students to the OM in Action, ―Behind the Tour de France.‖ Clearly, the project manager for this task must call on his or her many project management skills to build a world-class team. Slide 26 presents some of the important ethical issues that may arise in the course of a project. Research has shown that without good leadership and a strong organizational structure, most people follow their own set of ethical standards and values. The eight-page Code of Ethics and Professional Conduct from the Project Management Institute can be found at the institute‘s website: http://www.pmi.org/. This is a good reference for any future project manager.

Slides 27-28: The work breakdown structure typically decreases in size from top to bottom, as shown in Slide 27. Slide 28 (Figure 3.3) presents a work breakdown structure illustrating the development of Microsoft‘s operating system, Windows 10.

PROJECT

SCHEDULING (3-29 through 3-33)

Slide 29: Gantt charts are a low-cost means of helping managers make sure that the items identified on this slide are addressed.

Slide 30: Regardless of which approach is taken by a project manager, project scheduling serves the purposes identified on this slide.

Slides 31-33: While Gantt charts permit managers to observe the progress of each activity and to spot and tackle problem areas, they do not adequately illustrate the interrelationships between the activities and the resources. On the other hand, CPM and PERT do have the ability to consider precedence relationships and interdependency of activities. These techniques are widely used and are usually computerized. Slides 32 and 33 (Figure 3.4) present two different versions of a Gantt chart, the latter illustrating Delta‘s efforts (OM in Action) to reduce its turnaround time from 60 to 40 minutes.

PROJECT

CONTROLLING (3-34 through 3-38)

Slide 34: The control of projects involves close monitoring of resources, costs, quality, and budgets. Computerized software programs, such as Microsoft Project, produce a wide variety of reports, and information gleaned from them helps managers make adjustments.

Slide 35: This slide identifies several popular project management software packages.

Slide 36: This slide identifies several reports that typical software programs produce.

Slides 36-38: Management‘s approach to projects will differ depending upon whether they are waterfall projects (Slide 37) or agile projects (Slide 38) Waterfall projects are well-defined, and major revisions are typically unnecessary. On the other hand, agile projects are ill-defined; thus, managers should emphasize small activities to meet limited objectives. Regular review, feedback, and revision is typical with agile projects.

PROJECT MANAGEMENT TECHNIQUES: PERT AND CPM (3-39 through 3-51)

Slide 39: PERT and CPM were developed at around the same time, and most of their characteristics are the same. The major difference is that PERT incorporates uncertainty in task times by employing three time estimates for each activity (optimistic, pessimistic, and most likely). With PERT, project managers can estimate probabilities of completing the project within certain time frames.

Slides 40-41: These slides present the six basic steps of PERT/CPM. The critical path (Step 5) represents the expected time to complete the entire project. A delay in any activity on the critical path will delay the entire project.

Slides 42-43: Theses slides are nice because they identify eight questions that PERT and CPM can answer, even for projects with thousands of activities.

Slides 44-46: Activity-on-node is a network diagram in which nodes designate activities, while activityon-arrow is a network diagram in which arrows designate activities. These slides nicely illustrate how the two approaches compare under six different activity conditions. Many software packages use activity-on-node networks.

Slides 47-51: Slide 47 identifies the precedence relationships from Example 1 in the text. Slides 48-50 (Example 2) construct an activity-on-node diagram for those activities. Slide 51 (Example 3) presents an activity-on-arrow diagram for the same example.

DETERMINING THE PROJECT SCHEDULE (3-52 through 3-76)

Slide 52: This slide describes characteristics of critical path analysis.

Slide 53: This slide contains the time estimates for the Milwaukee Paper example that will be used to illustrate critical path analysis in Slides 58-76. Note that the project will take less than 25 weeks to complete because some of the activities will be performed simultaneously.

Slides 54-55: To find the critical path, we calculate two distinct starting and ending times for each activity, as defined in Slide 54. Notation used within nodes for the forward and backward passes is shown in Slide 55 (Figure 3.9).

Slides 56-57: These two slides present the calculations for the earliest start and earliest finish times, respectively.

Slides 58-64: For the Milwaukee Paper example, these slides (Example 4) take us through a forward pass, which computes all of the earliest start and earliest finish times.

Slides 65-66: These two slides present the calculations for the latest finish and latest start times, respectively.

Slides 67-70: For the Milwaukee Paper example, these slides (Example 5) take us through a backward pass, which computes all of the latest finish and latest start times.

Slide 71: This slide presents the calculation for slack time, i.e., the length of time an activity can be delayed without delaying the entire project. Activities with zero slack time are designated as critical and are on the critical path.

Slides 72-76: Slide 72 (Example 6) computes the slack for each activity in the ongoing Milwaukee Paper example. The activities with zero slack are marked as being on the critical path (Slide 73), and that path (Start-A-C-E-G-H) is identified on Slide 74. Slide 75 presents a Gantt chart for the earliest start and finish times (working on each step as soon as possible), while Slide 75 presents one for the latest start and finish times (more like a just-in-time approach).

VARIABILITY

IN ACTIVITY

TIMES

(3-77 through 3-91)

Slides 77-78: PERT introduces the common occurrence of activity time uncertainty, which may be particularly applicable for a new project incorporating new activities or personnel. The manager is asked to provide best-case, worst-case, and most likely time estimates for each activity.

Slides 79-80: We often assume that the PERT time estimates follow a beta probability distribution, as pictured in Slide 80 (Figure 3.11). Using the three time estimates, Slide 79 presents the calculations for the expected time and the variance of times. Note that the expected time will not equal the most likely time if the optimistic and pessimistic times are not equidistant from the most likely time. Slide 80 reminds us that the optimistic and pessimistic times should be chosen such that there should only be about a 1% chance of the activity actually taking shorter than or longer than those two times, respectively.

Slide 81: This slide (Example 8) applies PERT to the ongoing Milwaukee Paper example, computing an expected time and variance for each activity. Notice when the expected times are different from the most likely times and when they are the same. Also notice that the size of the variance is directly related to the spread between the optimistic and pessimistic times and has nothing to do with the most likely time.

Slides 82-83: Slide 82 presents the formula for the variance of the entire project. By assuming that the activities are independent, this value is simply the sum of the individual activities on the critical path. (In reality, the independence assumption may well not apply, and, importantly,

ignoring the variance of noncritical activities may underestimate the true project variance.) Slide 83 (Example 9) computes the project variance for the ongoing Milwaukee Paper example.

Slides 84-85: The assumptions identified in Slide 84 can be used to help answer questions regarding the probability of finishing the project on time. For example, the probability distribution for project completion times for the ongoing Milwaukee Paper example is drawn in Slide 85 (Figure 3.12).

Slides 86-88: These slides (Example 10) show how to determine the probability of completing the ongoing Milwaukee Paper example by the 16-week deadline. The Standard Normal Distribution Table (Appendix I) converts the computed Z-value into the desired probability.

Slide 89: The probability calculation can be applied in reverse to determine the due date necessary to provide a given probability of completing the project on time. This slide, from Example 11 in the text, illustrates that idea for a 99% probability of completing the ongoing Milwaukee Paper example. From the Normal Table, the Z-value needs to be 2.33. With that value, the due date needs to be set no earlier than expected completion time + (Z × σp) = 15 + (2.33 × 1.76) = 19.1 weeks.

Slide 90: This slide reminds us that, especially when noncritical activities have a small slack, the variability of noncritical activities should be considered as well. It may be useful to compute the variability in completion times of noncritical paths (which is done in the same way as the variability computation for the critical path).

Slide 91: This slide summarizes the major results from the ongoing Milwaukee Paper example up to this point in the presentation.

COST-TIME TRADE-OFFS AND PROJECT CRASHING (3-92 through 3-103)

Slide 92: Crashing involves finding ways to shorten project activity times in order to speed up the overall project completion time. Why is this important? Construction projects, in particular, often carry huge penalties for each day late (see the $10,000 penalty per day late in the Southwestern University: (A) case in MyLab Operations Management).

Slide 93: Managers are usually interested in speeding up a project at the least additional cost. Hence, when choosing which activities to crash and by how much, they need to consider the factors identified on this slide.

Slides 94-96: These slides describe the steps to take to crash a project. It should be noted that a new path might become critical during the solution algorithm. If so, it needs to be taken into consideration in future steps.

Slides 97-103: These slides (Example 12) show how to crash the ongoing Milwaukee Paper example by two weeks. Slide 97 presents the data. Slide 98 shows how to compute the crash time for Activity B. Slide 99 presents the original network for reference. In the example, Activity A should be crashed first at a cost of $750. Slide 100 prepares the audience to focus on Activity A, and three seconds later, Activity A is crashed by one week (Slide 101). This creates a second critical path: Start-B-D-G-H (noted by the red arrows in Slide 101). The second activity to be crashed by a week should be Activity G at a cost of $1,500. Even though its crash cost per period is larger than that of the smallest eligible activities on each

of the two critical paths, Activity G is chosen because it lies on both paths; thus, both path times are reduced by one week when Activity G is reduced by one week (Slides 102-103).

A

CRITIQUE OF PERT AND CPM (3-104 through 3-106)

Slides 104-106: Slides 104 and 105 identify advantages of PERT/CPM, while Slide 106 provides important limitations. Clearly, for projects involving hundreds or thousands of activities, it can be difficult to accurately identify the activities, their characteristics, and their precedence relationships.

USING

MICROSOFT PROJECT TO MANAGE PROJECTS (3-107 through 3-109)

Slides 107-109: These slides analyze the ongoing Milwaukee Paper example using Microsoft Project. Slide 107 (Program 3.1) shows a Gantt chart. Slide 108 (Program 3.2) shows the schedule as a project network, with the critical path identified in red. Clicking on an individual activity displays its details. Slide 109 (Program 3.3) shows the monitoring capabilities of the software. After about six weeks, three activities (A, B, and C) have been completed but three others (D, E, and F) are behind schedule.

Additional Assignment Ideas

1. If the students have a major term project for the class, they might try applying some of the tools from this chapter to help them manage the preparation and submission of their assignment. This activity would be especially useful if the project were team-based.

2. Search the Internet for consulting or engineering organizations (other than Bechtel) that offer project management skills and support to clients. Typically, these will have a description of a few of the firms‘ more outstanding success stories. Describe two of these examples. One possibility is Gardiner and Theobald (www.gardiner.com/).

3. Have the students complete the Project Management simulation found in MyLab Operations Management.

https://heizerrenderom.wordpress.com/2016/09/29/teaching-tip-our-new-project-management-classroomsimulation/

Internet Resources

eProjectCentral: Resources for project management www.eprojectcentral.com

Critical Tools Project Planning Software www.criticaltools.com

Project Management Institute, Inc. www.pmi.org

Journyx: Project time collection www.journyx.com

Other Supplementary Material

Additional Qualitative Content

Operations management research papers and books tend to focus on the quantitative aspects of project management, but the ―management‖ aspects of it are equally important. Text material could be supplemented with some of this type of material, if desired. For example, traits of successful project managers include: scheduling (PERT/CPM), budgeting, allocating human and material resources, contracting, measuring work performance, monitoring quality, performing risk analysis, negotiating, managing change, displaying political savvy, possessing a high tolerance for ambiguity, exhibiting cost consciousness, being results oriented and practical, showing commitment, having a good head for details, understanding project goals thoroughly, understanding staff needs, and being able to cope with setbacks and disappointments. Causes of failed projects might include: poor definition of the project and objectives, lack of relevant data, shortage of technical know-how, political factors, unproven design modifications, insufficient inspection and quality assurance, invisibility of project management, bad organization and personnel, imperfect information handling, inadequate risk management, no team spirit, and lack of maintenance and training. Finally, time management strategies could be discussed as well.

Case Teaching Note

Project Crashing Using MSProject Hard Rock Concert Case

Prepared by Gary LaPoint, School of Management, Syracuse University

Purpose: This case introduces the student to MS Project and project crashing via MS Project. It is an expansion (to 33 activities) of the video case study, ―Managing Hard Rock‘s Rock Fest,‖ at the end of Chapter 3. Using MS Project, students input the tasks, start date, identify the holidays, and determine which activities they are going to crash. Some prior instruction in navigating through MS Project will likely be required. A 45-minute lab session in a computer cluster may be appropriate prior to using this exercise.

The files that include the activities under normal conditions (Hardrock Before.Mpp) and the activities under crash conditions (and Hardrock After.Mpp) for MSProject are in MyLab Operations Management.

The Student Instructions, with a 33-activity network including normal times, crash times, and costs, is also in MyLab Operations Management.

Procedure: The case is presented using the Hard Rock theme. In this instance, we are staging a ―Rock Fest.‖ The case begins with a project starting date of 1/28/05 and a concert held on Saturday, Labor Day weekend, 9/3/05. Students set up MS Project with the proper start date, and the holidays outlined in the case. The case assumes no work on weekends, which is the MS Project default. The case also assumes an 8-hour day or 40 hours per week (initially). When students enter the tasks with their appropriate predecessors, they will discover that the project ends after 9/3. Specifically, the project ends on 9/16. Students must then determine which activities they will ―crash‖ in order to get the project completion date to some time less than or equal to 9/3. For this specific case, the closest they can get to the concert date is 9/2. This is because of the Labor Day holiday on Monday the 5th. Students must calculate the cost per day to crash and then begin crashing activities based on the cost per day.

Crashed activities include:

Determine Rqmts. for power/facilities 4 days @ $250/day

Develop Site Plan

Develop Traffic Plan

Hire Operations Manager

3 days @ $400/day

2 days @ $425/day

2 days @ $600/day

For a total additional crash cost of $4,250. Or, a total cost of $219,700.

Students are asked to provide a ―Before‖ and ―After‖ picture of what they did. They enter the activities and durations under normal times. Then they print the appropriate screens showing that they properly loaded the tasks. The finish date should read 9/16/05. Students are asked to provide the ―entry‖ screen, the ―slack table‖ screen, and the ―net work diagram‖ screen. After crashing, students are then asked to produce the same screens showing the results of their crashing activities. They are also required to provide the total crashed cost and the total cost of putting on this concert.

This case is easily modified so that a new critical path can be created each semester, eliminating the need to worry whether or not someone is going to submit a paper from the previous semester.

Project Crashing Using MSProject Hard Rock Concert Case

Prepared by Gary LaPoint, School of Management, Syracuse University

Student Instructions

Each year the Hard Rock organizes a huge concert called the ―Rock Fest.‖ Some 100,000 rock and roll fans attend the Rock Fest. Planning for the concert begins many months before the actual concert date. This year the concert will take place on the Saturday of Labor Day weekend, September 3rd , 2005. Planning for the concert begins on January 28th , 2005. As a recent operations management graduate, you have been hired to help schedule this year‘s concert. Hard Rock follows a normal workweek and observes all traditional holidays. Specifically, these holidays include Good Friday (March 25th), Memorial Day (May 30th), July 4th, and Labor Day (September 5th). All planning activities must be complete by September 3rd,2005.

Below is a table detailing the specific activities associated with staging Rock Fest. Included in the table are precedence activities, the normal amount of time and normal amount of cost associated with each task, as well as the number of days an activity can be shortened to and its total cost to crash to that time.

For this case, you are to:

1) Using Microsoft Project, enter the activities, durations, and predecessors under ―Normal‖ conditions. Print this entry screen. This is your “Before” entry screen.

2) Once these activities are entered, print Network Diagram. This will be your ―Before‖ Network Diagram.

3) Identify the Critical path in your initial diagram.

4) Print the Slack Table for your initial diagram.

5) Now, shorten this project so that the concert can take place as planned (September 3rd) Identify the tasks you will shorten to achieve this goal and adjust the durations of these activities so that the ―finish time‖ indicates the concert can take place as scheduled. This is your ―After‖ or ―Crashed‖ entry screen.

6) Print a new Network Diagram showing the new critical path. This will be your ―After‖ Network Diagram.

7) Print a new Slack Table.

8) What is the Total Cost of putting on this concert and how much Extra did you have to spend to get the concert on schedule?

Hard Rock Concert

Decision-Making Exercise

Project Simulation Game

Rock’n Bands

Purpose:

This simulation game has been used to provide an enjoyable and educational introduction to the topic of project management. It has also been used as a stand-alone exercise to teach about uncertainty. There is enough complexity that it is necessary to track each team‘s progress in the spreadsheet provided (ProjMgmtGame.xls). Playing the game is enhanced greatly if the spreadsheet is projected for the class to see.

Spreadsheet: (The spreadsheet, ProjMgntGame.xls, is located in MyLab Operations Management) The Excel spreadsheet is set up to accommodate 10 groups. The game is effective in its current form in classes of up to about 60 students. However, whatever the class size, it is recommended that 10 groups be used because with smaller groups, individual students are able to be more involved. For larger classes, more groups would be required and thus the game would need to be modified (possibly to include fewer decision points).

Procedure: (The Student Instructions are located in MyLab Operations Management) To start the game, students form groups and are given the handout to read. After they read it and have their questions answered, the instructor should give some time (5-10 minutes) for groups to formulate their entire project strategy and decide on initial allocations for the first week. The Employee / Task Assignment Reporting Sheet at the end of the student handout has proven quite helpful for the groups to record their decisions. Also, team numbers should be assigned to each group.

It is recommended that the groups physically send a representative to the instructor (instead of announcing decisions from their seats) so their decisions can be recorded in the spreadsheet. Also, it is recommended that group decisions be hidden from other groups until all have submitted decisions. This can be done by using the toggle switch on the laptop (or on the projector if a desktop is being used) to turn off the computer projection. Hiding decisions does slow the game down, and thus is only necessary for the first 2 to 3 weeks; after that, groups are quite obviously making their own decisions.

The game takes about 50 minutes in class. The first decision takes the teams awhile to put together, but after that, groups should be encouraged/forced to make decisions very quickly.

Group decisions are entered in the separate weekly decision portion of the spreadsheet (to the right of the ―Task Progress‖ portion). It should be possible to display the current weekly decisions and the Task Progress portion at once (by changing the amount of Zoom for the spreadsheet). In the spreadsheet, any task cell that has a number in it (including 0) can be worked on by that team. If the cell is blank, it cannot yet be worked on. For tasks that are complete, the cells change to green, and a zero appears in the antecedent task cells. The instructor MUST be careful that groups do not assign more than 2 workers to a task, that they do not assign more than 5 workers per week, and that they only put workers on tasks that are open to work on (students tend to forget these rules occasionally, and the spreadsheet cannot prevent entry errors such as these).

It is strongly recommended that the instructor play the game (a complete run-through) at least once before using it in class (it‘s fun). One thing to watch for is that, when entering groups‘ decisions, do not enter any until they have finalized all decisions for that week – because once even one employee allocation is

entered, it may change the initial grid which tracks groups‘ progress, possibly opening up more tasks to work on (which are actually not available until the next week). For instance, if a team puts 2 employees on task C in week 1, task B will open up immediately – but the team may not actually work on B until week 2.

Everything below row 14 in the spreadsheet is used only for calculating values in the Task Progress portion. It is recommended that this lower part of the spreadsheet be hidden from the students to reduce confusion (e.g., the height of row 15 can be increased until row 16 and below are not on the viewable screen).

Changes as the Game Progresses

In order to add uncertainty and realism to the game, it is strongly recommended that the instructor change a few things as the project moves along. Most of these involve changing the length of time tasks take, and one involves the project due date being moved up (the ―notice‖). Recommended changes are listed in the table to the right. These changes are implemented by simply changing the required task time in the cells B13:M13 as the game progresses. The instructor may want to accompany each change with a statement such as ―It has just been determined by the employees working on activity D that it will take them an extra week.‖ To put up the notice after week 5, simply switch to the sheet ―notice‖ in the spreadsheet file.

On occasion, a group will finish a task before the requirements of that task are reduced. If this occurs, simply allow that group to change the allocation of 1 worker in the prior week.

Hints and Learning Points

This game familiarizes students with the concepts of: task times, precedence relationships, the critical path, uncertainty, expediting (i.e., crashing), resource allocation, scarce resources, resource costs, project deadline, penalty for over-run, network diagrams, and the need to plan in the face of uncertainty. It is also quite enjoyable for the students.

At the beginning of the project, there are a total of 38 ―work weeks‖ required to complete the project, with paths ranging from 8 weeks to 12 weeks for the critical path. By the end of the project after all changes, there are 40 ―work weeks‖ required with paths ranging from 9 weeks to 16 weeks.

If students do not realize early on that the longest path needs the most attention, and that this path keeps getting longer with the ―unexpected‖ changes, they will run into difficulty later on. This is because of the maximum 2 employees per task; this restriction along with the added time to the longest path can make it quite difficult to finish within 9 weeks.

Thus far, every time the game has been used, 1 or 2 teams have finished in 9 weeks – most groups require 10 weeks, and 1 or 2 teams take 11 weeks. From a pedagogical standpoint, this is a desirable outcome. If at least one group finishes on time, this effectively demonstrates that it is possible to complete the game successfully, while the fact that most groups are not successful helps to highlight the difficulty inherent in project management and in decision-making with uncertainty.

Key learning point: At the end, show students the critical path as it existed at the beginning of the project and teach about what that means. Then, note that this path kept getting longer & point out the need to think ahead to what might happen, how this uncertainty can be managed. Also, it may be desirable to discuss how the project should be managed with the possibility that a different path (other than the critical path) may become longer. This is a good opportunity to teach about managing projects based on paths instead of just individual activities and also to manage the project based on the expected finishing time of EACH path – the best strategy is to allocate workers so that the finishing times of the paths are balanced. This is something that is often not apparent in the small projects that are used to demonstrate project management techniques in the classroom, and certainly, in actual projects it is not always possible to do this. However, in actual projects there are many portions of the work that can be managed this way. To explain, there are often a number of partial paths that need to be completed before a particular activity can be started. For instance, in a building construction project, the wiring, gas pipes, heating ducts and plumbing must all be completed before insulation is put in.

Designed by: Ken Klassen, Brock University

Keith Willoughby, Bucknell University

Note: This game has been developed for educational purposes. It may be used, disseminated, and modified for educational purposes, but it may not be sold. In all uses of the game, the original developers must be acknowledged (as has been done above).

© Ken Klassen & Keith Willoughby, 2003

Decision-Making Exercise Project Management Game

Rock’n Bands1

Student Instructions

―Around the world or around the block, Everywhere I go, the kids wanna rock‖2

Your company, Planners 'R Us, specializes in effectively managing projects. Previous experience has involved conference management systems, commercial construction, and software development projects.

A new, intriguing project offers another opportunity to apply your project management expertise. The university you just graduated from wishes to put together a music festival, ―Rock‘n Bands.‖ This will feature a number of top music groups, and should attract interest from students, local residents, and music fans throughout the region.

Your company has met with University officials to develop a list of activities required to make Rock‘n Bands a reality. The list on the next page includes twelve activities as well as their durations and immediate predecessors. The project plan is also described visually on the next page with a network diagram. The subscripts on each activity denote the number of weeks of work that activity is expected to require. Arrows denote the order of activities. For instance, activity E cannot be started until activity A is completed, and activity H cannot be started until both C and D are complete. The start and end nodes are dummy nodes and do not need to be worked on. Note that at the beginning of the project, activities A, C and D are available to start working on, as they have no predecessor activities. Be sure to understand the diagram before reading further.

Your job is to allocate workers to tasks each week during the project. Planners ‗R Us has agreed to complete the project in 10 weeks (finishing two weeks before the Festival), and wants to minimize the costs associated with the project. All tasks A-K must be completed in 10 weeks. You have four (4) workers, although you do not need to use all of them every week – there are other tasks they can do in your company.

For bookkeeping purposes, your company will charge $200 per week for each worker that you use. If you happen to need an additional worker, there is one (1) available, but that person would then not get their other work done; thus, you will be charged $300 per week for the additional worker. In addition, if the project is ―late,‖ there will be complications during the last two weeks before the Festival, costing Planners ‗R Us $2000 per week due to a serious loss of goodwill and plenty of negative publicity.

1 The events, activity durations and overall scenario represented in this game are purely fictional. No relationship to an upcoming music concert, real or implied, is suggested.

2 Bryan Adams, ―Kids Wanna Rock‖ from the album ―So Far So Good‖ (1993, A & M Records)

The final cost to consider involves expediting tasks. You can assign an extra worker to a task in any given week in order to finish it in less time. For instance, if a task requires 2 weeks but you assign two workers, it will be completed in one week. However, putting two workers on a task is not quite as efficient as having one worker complete it from start to finish. Doing this requires additional coordination (by you) and may require some overtime by the workers. These costs total an additional $100 per week. The most workers that can be assigned to any task in a week are two (since having 3 or more requires so much additional coordination that no reduction in time is achieved). To summarize, the most workers on any given task is two (2) per week, and the total number of workers you may employ for any week is at most five (5).

I Processing of travel visas (for international groups)

H J Hire parking staff, and make parking arrangements

K Distribute media passes and arrange for MTV recording

Being an experienced manager, you are aware that all projects involve various uncertainties (e.g., delays, additional requirements, or even improved efficiency) that can occur at any time. Since you do not want to lose your reputation for on-time delivery in Planners ‗R Us, you are determined to plan the project well and be as efficient as possible from the first week on.

For now, you want to develop a plan for the whole project, but the only decision that needs to be implemented is how to allocate workers for the first week. Report this decision to the instructor (the

reporting sheet on the next page may help with this). After all teams have reported their decisions for first week allocations, the instructor will let you know of any changes that may occur regarding the project. Then, you will make decisions for the 2nd week.

Designed

by:

Ken Klassen, Brock University

Keith Willoughby, Bucknell University

Note: This game has been developed for educational purposes. It may be used, disseminated, and modified for educational purposes, but it may not be sold. In all uses of the game, the original developers must be acknowledged (as has been done above).

© 2003, Ken Klassen & Keith Willoughby

Background

This chapter contains a lot of formulas and forecasting techniques. Depending on preferences, instructors would typically either cover the whole thing or just cover the ―basics.‖ The basics would likely consist of the qualitative techniques; the time series techniques of simple moving average, weighted moving average, and simple exponential smoothing; and the forecast error measurements of MAD, MSE, and possibly MAPE. Keep in mind that it is possible to present linear regression without worrying about the formulas. Excel not only can easily perform a regression analysis, but the Excel commands SLOPE, INTERCEPT, and FORECAST can be used to immediately calculate a single linear regression without even invoking the data analysis tool. Whichever set of techniques are presented, it is important to emphasize to the students the crucial need for accurate forecasts and how so many company decisions are driven by forecasted numbers.

Class Discussion Ideas

1. Forecasting drives many other OM decisions. Having the students create a list of decisions that require some sort of forecast can help make this point quite clear.

2. NCAA college football rankings represent, in some sense, a forecast of the relative likelihood of success of the top 25 teams in the country. Ask the students to identify the components that likely influence voter polls the most, as well as the actual components that make up computer-based rankings. Have the students discuss the pros and cons of the subjective voter rankings (forecasts) vs. the more objective computer rankings (forecasts). Instructors could even provide data for, say, the past five seasons, on how well the initial college football playoff rankings predicted the big bowl winners and national champion vs. the voter polls that came out during the same week.

3. Several research studies have suggested that, based on linear regression, the relationship between college entrance exam scores and grade point average in college is generally weak. (Similar claims can be made about GMAT scores and grade point averages in MBA schools.) Yet these exams are extensively used. Why? Discussion will likely generate several different reasons. (Note the related homework problem 4.53.)

Active Classroom Learning Exercises

1. One effective way to develop an appreciation for the causal nature of associative forecasting is to have the students split into small groups and develop a list of 10 or so associative relationships that specific businesses might use in their forecasting models and why these models would be preferred to time series models. Have each student group report its ideas to the whole class.

2. Banks and fast food outlets are among the richest sources of seasonality components. Demand varies by the hour, by the day of the week, by the day of the month, by the week of the month, and by the month of the year. Have the students split into small groups and assign a local business to each group. Ask the students to identify as many seasonality components as they can. Have each student group report its ideas to the whole class.

3. Beat the Instructor A Great Classroom Forecasting Exercise (Guest Post by Brent Snider) https://heizerrenderom.wordpress.com/2013/05/16/guest-post-beat-the-instructor-a-classroomforecasting-exercise/

Company Videos

1. Forecasting and Revenue Management at the Orlando Magic (9:50)

The Orlando Magic is the first team in the NBA to utilize dynamic pricing for basketball tickets. Each game is individually priced before the season begins. As the season marches on, prices are updated to reflect things such as an opponents‘ superstar being traded, interest in the game as perceived on websites and secondary ticket markets, and ticket sales for each section of the stadium. The Magic uses a regression model to forecast revenue, i.e., what price consumers are willing to pay for a ticket. The dependent variable of revenue is based on secondary market data (e.g., fans selling tickets to each other on the Internet). The three independent variables are: X1 = time of year (late in season or around holidays are best); X2 = day of week (Saturdays are best); and X3 = opponent‘s rating (based on highdraw teams or NBA superstars). The adjusted R-squared for their model with just these three variables is 0.85.

Prior to showing the video, instructors might ask students what they think drives ticket sales for NBA basketball in a particular city. Afterwards, this list could be compared to the three independent variables in the regression model. For ideas different than those three, discussion could focus on the ease of obtaining valid data to be able to include those other variables in the regression model. And what about the dependent variable? Would a different dependent variable make sense? The Magic‘s managers know that their model explains their dependent variable well, but does their dependent variable based on secondary market data from ticket exchanges accurately describe customer‘s willingness to pay? What type of model could be used to test that?

2. Forecasting at Hard Rock Cafe (8:08)

Hard Rock Cafe uses moving averages, weighted moving averages, exponential smoothing, and regression analysis for forecasting. Sales forecasts drive many short-term and long-term decisions within the company, including long-term purchasing commitments and cash flow forecasts for borrowing needs. Forecast variances are computed, and root causes of those variances are sought out whenever the variances are too high. Counting the number of people who come through the door, and knowing how many ordered menu items vs. other things, drives the sales forecast. Point-of-sale registers at each restaurant provide that information to the corporate office. The weighted moving average forecasting technique is used to set sales and bonus targets for store managers. The most interesting forecasting application discussed is the use of multiple regression analysis for menu items. Managers can estimate the price elasticity of demand for each menu item, and they can accurately estimate the impact of a price increase for one item on the demand for other items on the menu. This video nicely drives home the idea that forecasts drive most decisions in a company, implying that proper forecasting is crucial.

Prior to showing the video, the instructor might ask the students to identify the decisions at Hard Rock that are based on sales forecasts. Follow-up discussion could identify the ones mentioned in the video and brainstorm about others as well. An alternative discussion could have students identify driving factors that might cause forecasts to differ in different locations (for example, demographics, tourist traffic, economic health, local eating habits, etc.).

Cinematic Ticklers

1. The Simpsons, Season 13: ―Treehouse of Horror XII,‖ FOX, 2001

In the first segment of this Halloween special, the Simpsons visit a fortune teller, and Homer destroys her office. She asks, ―Why didn‘t I see this coming?‖ as she notices a fortune-telling card with a picture of Homer being destructive on it. She curses Homer, and Marge wakes up with a long beard the next morning.

2. Saturday Night Live, Season 32, Episode 16 (Guest Host: Peyton Manning): ―ESPN‘s NCAA Tournament Pool Party,‖ NBC, March 24, 2007

Peyton Manning plays a sports enthusiast who has performed well in the ESPN NCAA basketball tournament pool after opening weekend. He is losing, however, to Mandy (played by Amy Poehler), who knows absolutely nothing about sports. She picks winners based on their names, their mascots, and other crazy reasons. Peyton Manning‘s character gets increasingly flustered during the skit, particularly when the MC and Mandy make reference to ―pulling a Peyton Manning‖ (which refers to all the years when Manning had great statistics during the regular season but then his NFL team lost in the playoffs). (Epilogue: Manning got a bit of a last laugh by finally winning his second Super Bowl in February 2016 breaking the record for the all-time most wins at 200 in the process.)

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: Apple Suppliers Suffer with Uncertainty

Production cuts for Apple‘s iPhone have reignited frustration among suppliers and raised worries about Apple‘s ability to forecast demand since it started releasing 3 flagship models instead of 2 last year. Apple also continues to sell some older models in its stores, further complicating forecasting. https://heizerrenderom.wordpress.com/2018/11/26/om-in-the-news-apple-suppliers-suffer-withuncertainty/

2. OM in the News: UPS Forecasting Project Will Improve Logistics Planning

United Parcel Service is working on an ambitious analytics and machine learning project to gather and consolidate data from various applications within the company‘s logistics network to better predict package flow, volume, and delivery status. The predictive analytics tool will gather and analyze more than 1 billion data points per day at full scale.

https://heizerrenderom.wordpress.com/2018/07/23/om-in-the-news-ups-forecasting-project-will-improvelogistics-planning/

3. Teaching Tip: NYC‘s Potholes and Regression Analysis

New York is famous for many things, but one it does not like to be known for is its large and numerous potholes. This regression equation with only two independent variables has an r 2 of 91%: Potholes = 7801.5 + 80.6 × Resurfacing Gap + 930.1 × Inches of Snow https://heizerrenderom.wordpress.com/2014/06/26/teaching-tip-nycs-potholes-and-regression-analysis/

4. OM in the News: Lowe‘s Turns to Satellites to Forecast Customers

Lowe‘s has been using satellite imaging to monitor its parking lot density for every hour of the day at its nearly 1900 stores. The space snooping is a great way for Lowe‘s to manage its workforce, scheduling surges in floor staff when parking spaces are about to become hard to come by. https://heizerrenderom.wordpress.com/2014/03/05/om-in-the-news-lowes-turns-to-satellites-to-forecastcustomers/

Presentation Slides

INTRODUCTION (4-1 through 4-9)

Slides 4-7: The Global Company Profile for this chapter is Disney World, a place that many students will have visited or have wanted to visit. Disney has one of the more intricate forecasting systems in the world. The firm looks not only at historical data, but also a slew of inputs including vacation schedules of public schools, exchange rates, GDP data, and airline specials. The one-year forecasts are amazingly accurate. Such accuracy is crucial, as the

forecasts drive many different management decisions, including park hours, number of characters to distribute, amount of food to buy, number of shows to put on, etc.

WHAT IS FORECASTING?

(4-10 through 4-16)

Slide 10: Whether for gambling, deciding how thick of a coat to wear, or determining which career would be most interesting and lucrative, we all make or use forecasts regularly. All business decisions are ultimately driven by forecasts of the future Thus, a poor forecast will likely lead to a poor decision, even if the decision methodology is sound (like ―garbage-in, garbage-out‖ (GIGO) in computer programming).

Slides 11-12: These slides describe and differentiate the three categories of forecasting horizons. Clearly, forecasts from different horizons have different applications.

Slides 13-15: Students should be familiar with the product life cycle from Chapter 2. In fact, Slides 14 and 15 replicate Figure 2.5 from that chapter. Accurate forecasting for each stage is crucial for making quality decisions about the inevitable changes that must be made as a product moves through its life cycle.

Slide 16: Organizations use the three major types of forecasts identified in this slide for planning future operations. The operations manager typically focuses on demand forecasts.

THE STRATEGIC IMPORTANCE OF FORECASTING (4-17)

Slide 17: Demand forecasts drive decisions in many areas, including the three described in this slide. For example, firms typically do not hire more workers when demand is falling, and vice versa. 4-17

SEVEN STEPS IN THE FORECASTING SYSTEM

(4-18 through 4-19)

Slide 18: The seven steps in forecasting are presented in this slide. The text uses Disney World to illustrate each step. Instructors could use that firm or choose one of their own. They could even pick an organization (possibly on campus) and have students try to describe how the organization might implement each step.

Slide 19: Every company must contend with several realities about forecasting, including those described on this slide. Forecasts need to be closely monitored to identify, for example, unusual circumstances or major shifts from historical trends. Also, when decisions can be based on aggregated rather than individual product forecasts, the aggregated forecasts should be used.

4-18 4-19

FORECASTING APPROACHES

(4-20 through 4-28)

Slides 20-21: These slides compare when to use qualitative methods vs. quantitative methods. Sometimes a combination of both would be appropriate, particularly to incorporate new phenomena that were not part of the historical data.

Slides 22-27: Slides 22 and 23 identify the four primary qualitative forecasting methods, which are described further in the following four slides. Slide 25: An analogy that might help students understand the Delphi method is the college football coaches‘ poll. At the beginning of the season, each voting coach submits his rankings of the top 25 football teams in the nation (essentially a forecast for which teams will do the best). Most likely, however, he will be familiar with only a subset of teams: schools from his region and perhaps some nationally ranked schools from the previous season that did not graduate many seniors. After the first poll comes out, other schools may be ranked of which he was not aware. After studying those teams, the coach may be convinced during the following week‘s poll to vote for some of them. Over the season, the poll is dynamic as teams win and lose; nevertheless, information provided from other experts (other voting coaches) does add information that may alter a coach‘s forecast the next time around.

Slide 28: This slide identifies the quantitative forecasting methods described in this chapter.

TIME-SERIES FORECASTING (4-29 through 4-97)

Introductory Paragraph (4-29)

Slide 29: This slide describes the basic assumptions of time series forecasting.

4-29

Decomposition of a Time Series (4-30 through 4-35)

Slides 30-35: Slide 30 identifies the four components of time series forecasting. Slide 31 (Figure 4.1) illustrates trend, seasonality, and random variation as compared to the average demand over that four-year time period. Slides 32-35 describe each of the four components in more detail.

Naive Approach (4-36)

Slide 36: The naive approach is so simple that it could be considered to be a qualitative forecasting method. Numerous forecasts in the real world are made this way, especially for infrequent events. For example, with no additional information available, it would make sense to forecast attendance at this year‘s sorority spring dance to be the same as last year‘s.

4-36

Moving Averages (4-37 through 4-43)

Slides 37-38: Slide 37 provides information about, and the formula for, the simple moving average forecast. It is applicable if we can assume that market demands will stay fairly steady over time. It can help to smooth out random fluctuations. Slide 38 provides a snapshot from Example 1 in the text. Each month, demand from the oldest month is discarded and replaced with the newest actual demand.

Slides 39-41: Slide 39 provides information about, and the formula for, the weighted moving average forecast. While this method still lags behind trends, it does a better job of catching them sooner than the simple moving average method does. The weights often sum to 100%, effectively eliminating the denominator in the formula. In fact, even when the weights sum to something else, students often forget to divide by that number. If significant seasonality exists, the weighted moving average could be a crude way to incorporate it by applying the largest weight to demand from that season‘s last appearance. Slides 40 and 41 provide snapshots from Example 2 in the text. Like the simple moving average case, the oldest

piece of data is replaced with the newest each month. In addition, all of the old data are moved back a month and have potentially different weights applied to them (often becoming smaller, as in this example).

Slide 42: This slide identifies some potential downsides of using moving average forecasts.

Slide 43: This slide (Figure 4.2) illustrates how, if there are changes in demand, moving average forecasts will lag behind actual demand. Similar to a simple moving average, a weighted moving average forecast also lags behind actual sales when a trend exists, but it reacts slightly quicker.

Exponential Smoothing (4-44 through 4-52)

Slides 44-45: Slide 44 describes the characteristics of the exponential smoothing forecasting method. Even though it is a form of weighted moving average, the special recursive formula means that less record keeping is necessary than for a regular weighted moving average forecast. If the weights are plotted on a graph, the curve drawn over them will be exponential in shape (hence the name). All old data remain part of the forecast, but the weights applied to very old data are extremely small. Slide 45 provides the formula. The only data needed are last period‘s actual and forecasted demands. The method adjusts the forecast each period by a certain percentage (α) of the error in the previous period‘s forecast. For example, if the previous forecast was 40 units too high and α = 20%, then the new forecast will be 8 units (.20 × 40) lower.

Slides 46-48: These slides present Example 3 from the text. Here, the new forecast was slightly higher because the previous forecast underestimated the true demand.

Slides 49-52: These slides examine the effect of the smoothing constant α. Note that there is no ―optimal‖ value of α, and it should possibly be altered over time. Slide 49 shows that a high value of α places much more weight on the very recent periods, so the forecast can react much quicker to trends (displayed in Slide 50). In fact, when α = 1, exponential smoothing becomes the naive approach (this can be a good test question). In other words, the forecast is adjusted by the full error in the previous period‘s forecast. When α = 0, the forecast never changes (note that this is not the naive approach). A good way to choose α is to test different values on old data (Slide 52). Whichever value yields the smallest errors might be a good choice for the future. Nevertheless, future conditions might change; therefore, forecast accuracy should continue to be monitored, and alpha values should be adjusted as needed over time.

Measuring Forecast Error (4-53 through 4-65)

Slides 53-55: Slide 53 presents the formula for the mean absolute deviation (MAD). Note that ―mean error‖ (without taking the absolute values) would not be proper because positive errors would cancel out negative errors, suggesting better performance than actually occurred. Slides 54 and 55 display the calculations from Example 4.

Slides 56-57: Mean squared error (MSE) is appropriate for protecting against particularly poor forecasts in any period, if that is of concern. Slide 56 presents the formula for MSE. Slide 57 displays the calculations from Example 5.

Slides 58-59: Mean absolute percent error (MAPE) has the advantage of defining errors in percentage terms, which may have more intuitive meaning than the large numbers produced by MAD and MSE. Slide 58 presents the formula for MAPE. Slide 59 displays the calculations from Example 6.

Slide 60: Table 4.1 in the text mainly exists to have the formulas for the three forecasting methods all in one spot. There wasn‘t room for the formulas in this slide; nevertheless, it can still be used to summarize in words the three measures that have just been covered.

Slides 61-65: These slides (extending Examples 4, 5, and 6) compare forecasts using two different values of α by calculating MAD, MSE, and MAPE. For this example, the lower value of α (.10) performed best under all three measures. Note that the three measures of error do not always identify the same method as being the best.

4-65

Exponential Smoothing with Trend Adjustment (4-66 through 4-74)

Slides 66-68: Exponential smoothing with trend adjustment is also called ―double exponential smoothing‖ or ―Holt‘s method.‖ If it is known that a trend exists (for example, demand is rising or falling), this method can react more quickly than single exponential smoothing. Slide 66 demonstrates how poorly standard (single) exponential smoothing can perform because it significantly lags behind a steep trend. Slide 67 shows that the overall forecast in double exponential smoothing is based on two pieces, a level (underlying) forecast and a forecast of the trend. Note that the forecast for n periods in the future would be Ft + nTt Slide 67 also presents the formulas for the two pieces of the overall forecast, where β (a fraction) is applicable to the trend component of the model and is a separate smoothing constant from α. Slide 68 details the three steps in forecasting with double exponential smoothing, which are illustrated in slides 70-72, respectively.

Slides 69-74: These slides present Example 7 from the text. The graph in Slide 74 (Figure 4.3) shows that this method can pick up the trend in actual demand very quickly.

Trend Projections (4-75 through 4-82)

Slide 75: This slide presents the concept of a trend projection. The assumption is that the general trend seen in the past will continue into the future in a linear fashion. Least squares regression can be used to calculate the values for the equation.

Slides 76-77: Slide 76 (Figure 4.4) illustrates the concept behind the least squares method. Slide 77 provides the formulas for the slope and intercept terms.

Slides 78-81: These slides present Example 8 from the text. Alternatively, these calculations can be performed in Excel using the SLOPE and INTERCEPT functions. For example, put the numbers 1 through 7 in cells A1 through A7, respectively. Then insert the associated demands for those time periods in cells B1 through B7. The Excel formula =SLOPE(B1:B7,A1:A7) will compute the value of b, and the formula =INTERCEPT(B1:B7,A1:A7) will compute the value of a.

Slide 82: This slide identifies important requirements that must be met in order to effectively utilize the least squares trend projection method. In particular, the observations themselves should be rising or falling approximately linearly, and the deviations from the line should be approximately normally distributed, with most observations close to the line and only a small number farther out. And at some point in the future, this linear growth will change slope or shape, so forecasts should not be made too far ahead.

Seasonal Variations

in Data (4-83 through 4-97)

Slides 83-84: Seasonal demand is common in many industries, so the associated forecasts should be adjusted to account for this major impact. Slide 84 identifies the steps for the multiplicative seasonal model. (The steps are not so obvious at first glance, so the follow-up example should definitely be presented to students.) Instructors might note that an alternative method for incorporating seasonality is to include it within an exponential smoothing framework. This is called ―triple exponential smoothing,‖ or ―Winter‘s method,‖ and it introduces a third smoothing constant γ

Slides 85-90: These slides present Example 9 from the text. In Slide 85, the fifth column calculates an average demand for each season (month) over the previous three years. In Slide 86, the average monthly demand in the sixth column equals the total average annual demand (the sum of column 5) divided by 12 months. Slides 87 and 88 show how to calculate the seasonal index for each month. In Slide 89, we start with a forecast (of 1200) for Year 4. This annual forecast is divided among the months by converting it into an average monthly forecast and multiplying that by the applicable seasonal index for each month. Slide 90 graphs the three years of actual demands as well as the demand forecasts for Year 4.

Slides 91-95: These slides present Example 10 from the text, which shows a way to incorporate both trend and seasonality into the same forecast. A trend line (least squares) is first created (Slide 91). Then seasonal indices are computed based on the same data (Slides 92-93). Finally, the trend-adjusted forecasts are multiplied by the associated monthly seasonal indices to produce the combined forecasts (Slides 94-95).

Slide 96: This slide provides calculations from Example 11 another case of making seasonal adjustments to forecasts, this time for quarterly data.

Slide 97: This slide contains a few comments regarding cyclical variations in data. For specific cyclical forecasting techniques, the reader is directed to read advanced forecasting texts.

ASSOCIATIVE FORECASTING METHODS: REGRESSION AND CORRELATION ANALYSIS (4-98 through 4-116)

Slides 98-99: Instead of basing forecasts on patterns of historical data, associative forecasting estimates the impact of certain predictors (independent variables) on the outcome (dependent variable). Predictors could include items such as the gross domestic product of the country, the level of advertising applied to a certain product, the weather for an outdoor event, etc. Simple linear regression assumes one independent variable and is the exact same technique as that used for time series trend projections. Slide 99 presents the formula.

Slides 100-105: These slides present Example 12 from the text, which assumes that sales volume is highly dependent upon payroll levels in the area. Slide 100 presents the raw data, and Slides 101

and 102 present the calculations. Slides 103-105 plot the regression line and show how to make a forecast based on a particular independent variable value ($6 billion).

Slides 106-108: The standard error of the estimate is a measure of variability around the regression line its standard deviation. The formula in Slide 108 is the easier of the two to use.

Slide 109: This slide (Example 13) computes the standard error of the estimate for the regression line of Slide 105 (Example 12). The interpretation of the standard error of the estimate is similar to the standard deviation; namely,  1 standard deviation = .6827. So, in this example, there is a 68.27% chance of sales being within  $306,000 from the point estimate of $3,250,000.

Slides 110-113: Slide 110 describes the concept of correlation, and Slide 111 (Figure 4.10) presents a nice graphical demonstration of the concept of correlation. Slide 112 presents the formula for the correlation coefficient. Slide 113 presents the correlation coefficient calculations from Example 14.

Slide 114: This slide describes the concept of coefficient of determination (r 2). It is the common measure that most of us think of when describing results from regressions. For Example 14, we see that 81% of changes in sales (the dependent variable) are predicted by changes in payroll (the independent variable).

Slides 115-116: Slide 115 introduces the notion of multiple regression analysis (i.e., more than one independent variable). Slide 116 presents the results from Example 15 in the text (solved via computer). The explanatory power of the model is improved by adding a second independent variable.

MONITORING AND CONTROLLING FORECASTS

(4-117 through 4-122)

Slides 117-119: Slide 117 introduces the notion of a tracking signal, which is an effective way to make sure that the forecasting system is doing a good job. Slide 118 presents the formula. Slide 119 (Figure 4.11) illustrates the concept. If the tracking signal falls outside of the predetermined upper and lower control limits, the forecasting method should be examined for possible adjustment.

Slide 120: This slide presents Example 16 from the text. Management is using control limits of  4 MADs, so the variation is deemed acceptable.

Slides 121-122: These slides introduce the concepts of adaptive smoothing (Slide 121) and focus forecasting (Slide 122), both of which include an artificial intelligence component.

FORECASTING IN THE SERVICE SECTOR (4-123 through 4-125)

Slide 123: This slide identifies some of the unusual challenges faced when attempting to forecast in the service sector.

Slides 124-125: These slides (Figure 4.12) show the tremendous hourly variation in demand present in many typical services.

Additional Assignment Ideas

1. There are many different software products for forecasting. Find and visit a couple of websites and describe the different tools used. Provide a sample screen capture that illustrates the graphical user interface. (Hint: Search on the phrase ―operations forecast software‖.)

2. Interview an appropriate manager from a business in your home town. Describe the methods that he or she uses for forecasting. What factors drive most of his or her forecasts?

3. Responsive Learning Technologies (http://responsive.net/) produces several online simulation games that instructors can use in their classes to have teams compete against each other. Pricing is charged per student. Games that incorporate forecasting include Littlefield Technologies, The Supply Chain Game, and The Electronic Beer Game.

4. Have the students complete the Forecasting simulation found in MyLab Operations Management. https://heizerrenderom.wordpress.com/2016/09/23/teaching-tip-our-new-forecasting-classroomsimulation/

5. How I Teach Forecasting at Temple U. (Guest Post by Howard Weiss) https://heizerrenderom.wordpress.com/2012/08/28/guest-post-how-i-teach-forecasting-at-temple-u/

Internet Resources

American Statistical Association www.amstat.org

Journal of Time Series Analysis http://www.wiley.com/WileyCDA/WileyTitle/productCdJTSA.html

Royal Statistical Society www.rss.org.uk

Other Supplementary Material

Steven S. Harrod provides a nice ―Gas Data‖ forecasting exercise below in which students can examine a large data set in a spreadsheet or similar application.

―Gas Data‖ Forecast Exercise

Copyright 2013, Steven S. Harrod

This is a large data set forecasting exercise, suitable for an in class or computer lab activity. It typically requires about 40-50 minutes to present and supervise. The purpose of this exercise is to give students experience with larger data sets and applications in spreadsheets (or other tools). This exercise presumes that students have completed prior lectures and exercises on relevant forecasting methods.

Instructions

Provide the data to the students without explaining its origin. Ask the students to open the data in a new spreadsheet file. Direct the students to begin constructing a forecast for the data. You may ask the students to experiment with different forecast models, or you may create a more structured lesson and direct the students to implement specific models in sequence.

Give the students time to work independently (or at least in groups without you lecturing). One method would be to allow five minutes to work, and then pause to present your solution so far. In a typical lecture period, you should be able to progress through two or three forecast models, and then pick one of those for error statistics. Try to finish the lecture with a tracking signal chart for the data.

At the end of the class, ask the students to guess what the data is, and then reveal the data. This data is the recorded miles per gallon of a minivan at each fuel tank filling for a period of about two years.

These data provides an excellent opportunity to visual the significance of error statistics in more detail. In particular, this data provides a dramatic example of the tracking signal. The tracking signal fundamentally measures whether the underlying process of the series data is stable. When the tracking signal spikes, it is an indication that some fundamental change has occurred in the underlying process that the data is drawn from. Since a forecast is simply the generation of a trend from a series of data points, the methodology is dependent on the underlying process to be stable. If the underlying process is not stable, or experiencing a fundamental change in behavior, the forecast cannot accurately predict the trend.

The tracking signal graphed above is derived from an exponential trend model of this data, alpha=0.25 and beta=0.05. The peaks in the tracking signal correspond with vacation trips (all highway mileage).

15.773259 15.662021 16.267725 18.551724 16.087209 20.626521 16.931818 16.573781 15.326152 18.526119 0.000000 17.922454 14.632063 19.676994 16.211632 15.231672 16.545894 18.125683 16.308915 17.402453 16.530963 16.978022 15.565928 23.812089 8.702398 23.951890 17.459494 15.894331 20.147453 18.852127 15.681159 15.594306

15.876448 19.771198 16.241314 15.944233 20.194731 16.892193 19.659027 18.555490 21.658477 16.805556 20.036765 17.654742 16.533181 21.060695 16.672454 22.526920 17.066895 19.316290 20.611836 22.475904 18.825152 17.754386 22.829162 18.694158 19.205387 23.405535 21.848825 23.131774 19.709061 19.871279 22.000000 18.293255 19.797248

Note: This game has been developed by Steven S. Harrod for educational purposes. It may be used, disseminated, and modified for educational purposes, but it may not be sold. In all uses of the game, the original developer must be acknowledged (as has been done above).

Chapter 5

Design of Goods and Services

Background

New product development has a strong marketing component, so this chapter may pique the interest of the marketing majors in the class. An important theme to emphasize in this chapter is that, for most businesses, new product development is an ongoing exercise and crucial to long-term survival. It is not typically an activity that is pursued once per decade. Furthermore, as time passes, we will expect to see the topic of environmentally friendly designs take on more and more significance.

Class Discussion Ideas

1. Ask the students to brainstorm about potential principles of good design. The following list from the Bad Designs website (www.baddesigns.com) may be helpful to guide the discussion. The website provides some excellent visual examples of poor designs.

o Devices should follow a consistent rule.

o When simple things have signs, it is usually evidence that they are not well designed.

o Things that need to be distinguished from each other should differ by more than just a single feature.

o The shape of an object should reveal how it is to be used.

o A device should be designed so that it will not be confused with devices that operate under different operating principles. (Watch out, Sports Illustrated Football Phone )

o Make sure your design provides displays of everything a person needs to see.

o When you design a device, take the viewpoint of the user.

o When you design an object, you need to consider the environment in which it is used.

o Do not add an extra step to a task for the sake of aesthetics.

o Take a hint from people's behavior. If they find it convenient to walk in a particular place, put in a sidewalk, not a barrier. This is an example of ―natural‖ design.

o When you design something, you need to test it with a variety of people to make sure it does not have any annoying side effects.

o A well-designed object can be designed to both look good and be easy to use.

o When you design something, you need to think about the great differences in the capabilities of the people who will need to use it.

o When you have several similar displays close together and lined up, people will confuse them with each other.

o Place a control next to the device it controls.

2. Have students brainstorm about new products or services that they have thought about and would like to see on the market. Instructors should add that it is very difficult for new products to succeed in the marketplace. The data suggest that the probability of success is quite low. Whether in large innovative companies such as 3M or in an individual‘s garage, many products have made it all the way through research, patenting, design, and small production runs only to fail in the end. Think about books. If 400,000 are written annually in the U.S. alone, how many sell more than 100 copies? More than 1,000?

3. An Ethical Dilemma for Beauty Companies (Blog post by Barry Render) https://heizerrenderom.wordpress.com/2013/10/08/teaching-tip-an-ethical-dilemma-for-beautycompanies/

Active Classroom Learning Exercises

1. Using a product and service familiar to the students, ask them to split into small groups to discuss how customers are involved in the design of the product or service. For most products, of course, the level of involvement is quite low. Have the students describe how the design process for a product could be enhanced by the involvement of the customer and how that might be organized. Have each group report its ideas to the whole class.

2. Split the class into small groups. Have each group select a service business and then identify the ―moments of truth‖ (text, p. 181) for that company. How should operations be designed to meet or exceed customers‘ expectations during those moments? Have each group report its ideas to the whole class.

Company Videos

1. Product Design at Regal Marine (7:36)

Factors that affect product design for Regal Marine include: customer tastes, trends, competitive products, material innovations, government regulations, and taxes. The company looks for market niches and develops products that meet its company mission and can fit into the existing distribution network. Students should recognize that new product development is a way of life for Regal. Products only last for 3-7 years, and the firm introduces about four new products every year. In fact, they have a dedicated, cross-disciplinary, ongoing new product development team. Important features of the new product development process for Regal include: (1) designing for manufacturability so that production can easily be ramped up and investment can be recovered quickly, (2) using computeraided design (CAD), (3) involving suppliers in the design process, (4) testing new parts in a lab, (5) avoiding environmentally negative components, and (6) searching for common components that are already used in existing boats.

Prior to showing the video, instructors might ask the students to list key features of the new product development process for Regal. Follow-up discussion could flush out the importance of these issues, most of which are likely to be relevant for most manufacturing firms. An alternative discussion might explore the life cycles for Regal and compare them to perceived life cycles of other types of products. Yet another discussion might create a comparison between the new product development process for manufacturing vs. service industries. In particular, what might a service firm focus on that a manufacturing company like Regal might not?

2. Celebrity Cruises Designs a New Ship (6:10)

The design of a cruise involves the ship itself, but also the food, entertainment, activities, and destinations. Food and entertainment must keep passengers happy for 7–10 days and nights. The video focuses on the design of the $400 million ships. As the premium cruise industry leader, features must go above and beyond expectations. Celebrity strives to have the best of everything available in the industry. The virtual reality innovation lab in Miami allows designers and managers to experience a fully immersive virtual reality tour of a ship up to two years before being built. They can virtually walk around to experience corridor widths, ambience, etc. Celebrity uses designers in France, Turkey, Finland, and Miami. Designers benchmark other industries for new design ideas truly striving to become the first cruise line to introduce exotic features. Students should particularly enjoy this video because of the virtual reality content. As one manager states, ―It‘s really cool!‖

Prior to showing the video, instructors could ask students to guess how much it costs to build a large cruise ship (Answer: $400 million). After viewing the video, discussion could head in several different directions. Students could be asked to identify other businesses where virtual reality could be effectively used in product design. Alternatively, students could be asked to brainstorm how they would go about designing cruise features other than the ship itself. For example: (1) How should food menus be designed? (2) What entertainment should be provided? (3) To which destinations should the ships sail? Sometimes the opposite questions can lead to interesting responses: (1) What food options should not be offered? (2) Which entertainment options should be avoided? (3) Which ports of call should be avoided?

Cinematic Ticklers

1. The Hudsucker Proxy: A Comedy of Invention (Tim Robbins, Jennifer Jason Leigh, Paul Newman), Warner Brothers Home Video, 1994

Toward the middle of the movie, we see the new product development process of the Hula Hoop, from the sales pitch to the board of directors and through final acceptance by the market. It‘s a fastpaced sequence of scenes sprinkled with humor throughout.

2. The Simpsons, Season 2: ―Oh Brother, Where Art Thou?,‖ 20th Century Fox Video, 2002 (19901991)

Homer is put in charge of designing a new vehicle for his half-brother‘s car company. Needless to say, some of his ideas are far-fetched.

3. The Simpsons, Season 12: ―HOMR,‖ 20th Century Fox Video, 2009 (2000-2001)

This short scene shows new product testing, culminating with Homer ignoring the food after ingesting a hunger suppressant not because he wasn‘t hungry, but because the suppressant made him blind.

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: Honda to Invest $2.75 Billion in GM‘s Self-Driving Cars

Honda‘s decision to invest in GM‘s self-driving arm reflects a culture change underway at the Japanese car maker, which long prided itself on its engineering prowess, shunning technologies developed by outside companies. The large capital outlays required to develop the technology could lead to more collaboration among automotive competitors. https://heizerrenderom.wordpress.com/2018/10/11/om-in-the-news-honda-to-invest-2-75-billion-in-gmsself-driving-cars/

2. OM in the News: Product Life Cycle and the Boeing 747

The Boeing 747 became the most identifiable plane in the skies, and a symbol of American engineering and manufacturing prowess in the 1970s and 1980s. But its four engines led to the plane‘s descent from passenger airline service. Two-engine jets burn less fuel yet have grown to match the 747‘s carrying capacity. https://heizerrenderom.wordpress.com/2018/06/11/om-in-the-news-product-life-cycle-and-the-boeing747/

3. OM in the News: Product Design at McDonald‘s

McDonald‘s is dropping the Minute Maid apple juice box from its Happy Meals and replacing it with a watered-down organic juice with less sugar made by Honest Kids. The change is the latest step in

the evolution of the Happy Meal toward healthier options as parents are increasingly turning away from 100% fruit juice in favor of water and other drinks with less sugar.

https://heizerrenderom.wordpress.com/2017/09/25/om-in-the-news-product-design-at-mcdonalds/

4. OM in the News: IKEA‘s New Product Development and ―Open Sourcing‖ IKEA plans to roll out its first ―open source‖ sofa a piece of furniture designed to be easily customized to fit a space or change functions entirely over time. The design will allow third-party designers to create complementary products that can attach to the sofa or modify its use.

https://heizerrenderom.wordpress.com/2017/02/03/om-in-the-news-ikeas-new-product-development-andopen-sourcing/

Presentation Slides

INTRODUCTION (5-1 through 5-6)

Slide 4: From the Global Company Profile, Regal Marine is the third-largest boat manufacturer in the world. An important reason for this success is an aggressive emphasis on new product development, sparked by changing consumer tastes, material changes, and marine engineering improvements. Regal introduces as many as six new boat models each year. Computer-aided design (CAD) contributes significantly to speedy development of new models while encountering relatively few problems. Boats are produced on an assembly line, with parts being delivered on a just-in-time basis.

GOODS AND SERVICES SELECTION (5-7 through 5-19)

Slides 7-9: These slides introduce the importance of excellent selection of goods and services. It is very important to explain to students that firms must constantly be developing new products to become and remain industry leaders (Slide 9 Figure 5.1). Leading companies generate a substantial portion of their sales from new products (less than five years old).

Slide 10: The product decision is defined as the selection, definition, and design of products.

Slide 11: The corporate strategies of differentiation, low cost, and rapid response, first seen in Chapter 2, directly impact the product decisions that firms make.

Slides 12-18: First introduced in Chapter 2, product life cycles are revisited in these slides. Slide 13 (Figure 5.2) shows how sales, cost, and profit tend to evolve as a product progresses through its life cycle. The firm makes the most profit during the maturity and decline phases; however, as the decline phase is inevitable, new products must be developed continuously. Slides 14-17 provide characteristics of each of the four life cycle phases. Accordingly, R&D and innovation efforts tend to focus more on the product itself in the first two phases, while those efforts tend to focus more on the process (how to make the product or provide the service) in the last two phases.

Slide 19: Product-by-value analysis applies the Pareto principle (focus on the critical few, not the trivial many) to the product mix. By ranking products in decreasing order of their individual dollar contribution to the firm (selling price minus direct cost), and also examining their total annual dollar contribution, managers can determine which products should receive the most investment resources.

5-19

GENERATING NEW

PRODUCTS

(5-20)

Slide 20: This slide identifies ways in which new product opportunities may arise.

5-20

PRODUCT DEVELOPMENT (5-21 through 5-40)

Slide 21: This slide (Figure 5.3) shows the stages of product development. See how the product development team provides front-end and back-end functions to the output from the design and engineering teams.

Slides 22-24: Quality Function Deployment (QFD) is a process for determining customer requirements (customer ―wants‖) and translating them into the attributes (the ―hows‖) that each functional area can understand and act upon. Slide 23 identifies the seven basic steps for building a QFD house of quality, a graphical technique that utilizes a planning matrix to relate customers ―wants‖ to ―how‖ the firm is going to meet those ―wants.‖ Slide 24 displays the framework for a generic house of quality.

Slides 25-33: These slides present Example 1 from the text, which builds a full house of quality for a new camera design.

Slide 34: Another use of QFD is to show how the quality effort will be deployed. This slide (Figure 5.4) shows that the design characteristics of House 1 become the inputs to House 2, which are satisfied by specific components of the product. These are the inputs to House 3, which are satisfied through particular production processes. These become the inputs to House 4,

to be satisfied by a quality plan that will ensure conformance of those processes. The quality plan is a set of specific tolerances, procedures, methods, and sampling techniques that will ensure that the production process meets the customer requirements.

Slides 35-36: These slides describe four approaches to organizing for product development. Among these, conventional wisdom seems to suggest using the team approach.

Slides 37-38: Success of new products often occurs due to effective usage of cross-functional product development teams (Slide 37). Products can get to market faster via the use of concurrent engineering, i.e., various stages of development being performed simultaneously (Slide 38)

Slides 39-40: Manufacturability and value engineering activities are concerned with improvement of design and specifications at the research, development, design, and production stages of product development. In other words, design engineers should not just create a product that works, but they should also think about how the product will be made and try to design it so that it is as easy and cheap to manufacture as possible. Slide 39 identifies potential benefits in addition to cost reduction. Slide 40 (Figure 5.5) provides an example of applying value engineering to a bracket design. Each time the bracket is redesigned and simplified, the firm can produce it for less.

ISSUES FOR PRODUCT DESIGN

(5-41 through 5-52)

Slide 41: This slide identifies seven techniques that are important to the design of a product.

Slide 42: A robust design can be produced to requirements even with unfavorable conditions in the production process.

Slide 43: A modular design has parts or components of a product that are subdivided into modules that are easily interchanged or replaced. Combinations of a few modules can produce a wide variety of final product configurations. Modular design helps firms implement postponement (see Chapters 7 and 11).

Slides 44-45: Slide 44 describes computer-aided design (CAD). The use and variety of CAD software is extensive and is rapidly expanding. The speed and ease with which sophisticated designs

can be manipulated, analyzed, and modified with CAD makes review of numerous options possible before final commitments are made. Slide 45 identifies several extensions of CAD.

Slides 46-48: Slide 46: Computer-aided manufacturing (CAM) is the use of information technology to control machinery. When CAD information is translated into instructions for CAM, the result of these two technologies is called CAD/CAM. Additive manufacturing (i.e., 3D printing) uses CAD technology to produce products by adding material layer upon layer (Slide 47 Figure 5.5). As the technology continues to evolve and processing speeds increase, we can expect to see more mass production occurring via additive manufacturing in the future. Slide 48 identifies benefits of CAD and CAM. CAD/CAM removes substantial detail work, allowing designers to concentrate on the conceptual and imaginative aspects of their task.

Slide 49: This slide describes virtual reality, a visual form of communication in which images substitute for reality and typically allow the user to respond interactively. Virtual reality is especially useful for large-scale designs such as cruise ships.

Slide 50: Augmented reality superimposes digital information or images onto an exist image (e.g., yellow first-down lines in a televised American football game). Applications can be used in product design, for example, to indicate specification availability of parts.

Slide 51: This slide describes value analysis, which seeks improvements but takes place during (not before) the production process. Sometimes issues arise after production has begun that could not be anticipated ahead of time.

Slide 52: Sustainability and life cycle assessment (LCA) are two ways that managers can evaluate product options for product design. Consumers are increasingly spending dollars on products of companies that strive to be environmentally friendly. Supplement 5 explores these issues in depth.

PRODUCT DEVELOPMENT

CONTINUUM (5-53 through 5-56)

Slide 53: Time-based competition refers to developing products rapidly and moving them to market to gain competitive advantage.

Slide 54: Not all new products need to be produced from scratch. Particularly when fast development speed is crucial, other strategies may make more sense. This slide (Figure 5.6) shows a continuum that goes from new, internally developed products (on the lower left) to ―alliances‖ (on the upper right). The cost, speed, and risk of product development all vary depending on the strategy chosen.

Slides 55-56: These slides describe the three external development strategies.

DEFINING A PRODUCT (5-57 through 5-66)

Slides 57-62: Before anything can be produced, a product‘s functions and attributes must be defined. As an example of product specifications, Slide 58 (Figure 5.7) shows a portion of the general requirements for the U.S. grades of Monterey cheese. Two important product documents are the engineering drawing and the bill of material, as described in Slide 59. An engineering drawing shows how to make one item on the bill of material. Slide 60 (Figure 5.8) provides an example of an engineering drawing. Slide 61 (Figure 5.9(a)) displays a bill of material for a manufactured item. Subassemblies and components are indented. Slide 62 (Figure 5.9(b)) shows a bill of material for a restaurant.

Slide 63: The make-or-buy decision in some sense must be undertaken for any products that a firm sells, any of the components of those products, and the components of those components, etc. When a component fits some sort of industry standard, it often makes sense to purchase it from a supplier who has already gone through the full product development process. On the other hand, in-house production can be cheaper in some cases, and the firm can exert more control when producing a product itself. This decision is discussed further in Chapter 11.

Slides 64-66: The idea of group technology is to place products into families based on how they are manufactured, rather than perhaps on how they function or what they look like. Activities and machines can then be grouped around these families. Slide 65 (Figure 5.10) provides an example of grouping based on how those parts are made. Slide 66 identifies potential benefits of using group technology.

DOCUMENTS FOR PRODUCTION (5-67 through 5-74)

Slide 67-72: Once a product is selected, designed, and ready for production, that production is assisted by documents such as those identified in Slide 67. Slides 68-72 provide a description of each one, respectively.

Slide 73: Configuration management is put in place to keep the use of engineering change notices from getting out of hand or lost in the shuffle.

Slide 74: Product life-cycle management is an umbrella of software programs that attempts to bring together phases of product design and manufacture. The idea is that product design and manufacture decisions can be performed more creatively, faster, and more economically when the data are integrated and consistent.

SERVICE DESIGN (5-75

through 5-79)

Slide 75: In services, customers may participate in design, delivery, or both, but this tends to complicate product design and hinder productivity.

Slides 76-77: These slides identify several techniques that can be used to increase service efficiency. In a service business, a moment of truth exemplifies, enhances, or detracts from the customer‘s expectations (Slide 77). The operation manager‘s task is to identify moments of truth and design operations that meet or exceed the customer‘s expectations.

Slide 78: Because of the high customer interaction of most services, the documents for moving the product to production are different from those used in goods-producing operations.

Slide 79: From Example 2 in the text, this slide shows service documentation for a drive-up service teller window.

APPLICATION OF DECISION TREES TO PRODUCT DESIGN (5-80

through 5-85)

Slides 80-81: A decision tree is a great tool for thinking through a problem. It can be used to help make new-product decisions, especially when there are sequential decisions and outcomes. Slide 81 describes the procedure. More detailed information about decision trees can be found in Module A.

Slides 82-85: These slides illustrate Example 3 from the text. With this analysis, the best decision appears to be to produce the microprocessor and purchase the CAD system. Comparing the two options of purchasing the CAD system or hiring and training engineers, the revenue is the same under either option depending on the favorability of the market, but the costs will be different. A decision tree makes the analysis very clear.

TRANSITION TO PRODUCTION

(5-86 through 5-87)

Slides 86-87: As a firm can tinker indefinitely with a product in search of improvement, one of the arts of management is knowing when a product should move from development to production. These slides describe some of the issues involved. The operation manager‘s job is to make the transition from R&D to production seamless, or at least as smooth as possible.

Additional Assignment Ideas

1. Some companies are known for their new products and services resulting from superior research and development. Research some of the best-known corporate R&D labs, such as 3M and Intel, and read about some of their research activity. Also, be sure to visit the Post-it Note story (―Post-it Note notes‖) at 3M. Write a brief paragraph describing the design process at any site you select.

o 3M R&D: http://www.3m.com

o Post-it Note story: http://www.post-it.com/3M/en_US/post-it/contact-us/about-us/

o Moore's law is featured at http://www.intel.com/technology/mooreslaw/index.htm and also at http://www.intel.com/pressroom/archive/speeches/GEM93097.HTM

2. Browse through a local retail store such as Walmart and try to identify a product that seems to have a poor design. How might the design be improved?

Internet Resources

Consortium on Green Design and Manufacturing http://cgdm.berkeley.edu Capaccio Environmental Engineering, Inc. https://news.capaccio.com/ Examples of bad design www.baddesigns.com Green Design Institute at Carnegie Mellon University http://www.cmu.edu/gdi/ Design Safety Engineering Risk Assessment Software, Training, and Consulting www.designsafe.com

Other Supplementary Material

Videos

1. Disclosure, Michael Douglas. The organization‘s underlying problem is a failure to align manufacturing technologies and process choices with design requirements, leading to significant performance problems.

2. Apollo 13, Tom Hanks. Fabricating new carbon dioxide filters. Topics: component part commonality, disaster recovery, innovative problem solving.

3. The Best of Red Green Red adds gull wing doors to Ford with Duct tape. Topics: product design, quality.

4. Harvey Girls Judy Garland and colleagues demonstrate the Harvey way. Topics: service and operations design.

5. Films available from: Society of Manufacturing Engineers One SME Drive P.O. Box 930

Dearborn, Michigan 48121-0930 (P) 313-425-3000 (F) 313-425-3412 http://www.sme.org

o Concept Modeling: Examination of concept modeling machines and their growing impact on new product development. Order # Pl-VT665-3456.

o DFM-Design for Manufacturing: Storage Technology, Caterpillar, Inc. Xerox, and IBM use DFM. Order # P1-VT396-3456.

o Rapid Injection Mold Tooling: Learn how rapid tooling can save time and money. Order # P1VT670-3456.

o Solid Modeling: Explores the rapidly developing field of solids modeling. Order # PI-VT6563456.

Chapter 6 Managing Quality

Background

This chapter contains almost no quantitative material (most is reserved for Supplement 6). Nevertheless, any introductory operations management course absolutely must cover this content. Total quality management has become institutionalized in many firms around the world. If we quit teaching it, though, the perceived importance of the concepts will fade over time.

The evolution of quality management practices in business has a fascinating history. The ideas have been around since World War II, but Western firms did not pay any attention to them at the beginning. In fact, there‘s an old black and white British film called Right First Time that contains many of the concepts that still appear today in modern books about quality management. Having not had much luck with U.S. companies, W. Edwards Deming took his quality philosophies to Japan, which was devastated in the aftermath of World War II. Hungry for survival and growth, Japanese firms latched onto his ideas and added some of their own. By the 1970s, in relative obscurity, Japanese firms in numerous industries began producing products with higher quality than their Western counterparts. Finally, in the 1980s, Western firms woke up to the fact that they were in trouble and finally started to look at the Japanese philosophies and the work of Deming and others. Now, as we progress into the 21st century, high quality has become an order qualifier in many industries, and quality management programs have finally become ingrained in most top organizations around the world. The requirement of ISO 9000 certification to be even considered a supplier for numerous customers worldwide is one example of this quality evolution. Nowadays, buzzwords such as ―JIT,‖ ―lean operations,‖ ―six-sigma programs,‖ and ―Toyota production system‖ (see Chapter 16) have numerous similarities with, and roots derived from, the total quality management philosophies developed decades ago.

It seems important when discussing Chapter 6 to award due credit to the Japanese for essentially forcing the rest of the world to adopt total quality management programs to survive. There‘s an old story from the Toronto Sun that can be summarized as follows: ―IBM decided to have some parts manufactured in Japan as a trial project. In the specifications, they set the limit of defective parts at three units per 10,000. When the shipment arrived from Japan, it included this letter: ‗We Japanese have hard time understanding North American business practices. But the three defective parts per 10,000 have been included and are wrapped separately. Hope this pleases.‘‖ Clearly, this story gets to the heart of the ―zero defects‖ philosophy championed by the Japanese, as compared to an ―acceptable quality level,‖ which has been historically common in U.S. firms. Another very important concept attributable to the Japanese and Deming (which is easy to talk about but difficult to implement) is the idea that defects, when they do exist, represent an opportunity for problem solving as opposed to a mistake that should be hidden. Deming believed that 8085% of quality problems are caused by management, not the workers, so the identification of a defect is an opportunity for management to fool-proof that system in the future. A third concept attributable to the quality pioneers is the idea that it can be possible to have high quality and low cost at the same time. Spending more money on prevention is assumed to save even more than that on failure costs; therefore, ―quality is free‖ (Crosby), and firms should strive to make it ―right the first time.‖

Class Discussion Ideas

1. To many people, high quality is synonymous with high price or high cost. Pick two functionally similar products that compete in very different markets and have the students discuss the relative quality of each. One possible pair is a Toyota Corolla and a Rolls Royce. This is a good way to demonstrate that cost is often a function of the market requirements and high quality can be achieved at any cost point.

2. An effective way to begin this lecture can be to ask the simple question, ―What is quality?‖ Since quality means different things to different people for different products and services, within about 10 minutes students will usually develop a list that includes most or all of Garvin‘s eight dimensions of quality: Performance, Features, Reliability, Conformance, Durability, Serviceability, Aesthetics, and Perceived Quality (and later researchers added a 9th dimension, Safety).

3. The importance of effective service recovery cannot be overstated. Disney World finds that customers who had a negative experience (e.g., spilling ice cream on a new shirt) but were subsequently treated well by Disney staff rate their experiences at the park higher than do customers who never had a problem in the first place. Student experiences with service recovery (both good and bad) can generate excellent class discussions. Mistakes happen, but often it‘s how a firm deals with those mistakes that can really make the difference with consumers.

4. An effective way to end this lecture can be to ask the question, ―How can a university control the quality of its output (that is, its graduates)?‖ This exercise allows the students to vent a little bit. (Sometimes the instructor needs a thick skin if the comments hit too close to home.) Students typically bring up some interesting points, though, and blame gets spread around to faculty, staff, and the students themselves. Interestingly, most of the recommendations would create a financial burden (in the form of higher cost or lost revenue), which makes the choice of which ones to implement a difficult one for university administration. Improving quality at a university does not seem to be as straightforward as it might be for a manufacturing firm.

Active Classroom Learning Exercises

1. Five, five-station assembly lines using students could be created that produce, say, a product built out of Legos. The dreaded yellow Lego might represent a defective component. Inspection points could be set up at a different station on all five lines. The defective component is not detected until it reaches the inspector. Any product with a defect must be either scrapped or sent back to the first station for repair and replacement of the component. The metric to compare the assembly lines might be raw material costs (where fewer raw materials are wasted when inspection occurs after the first station) or productivity (where more final products make it through when inspection occurs after the first station). The phenomenon will be exacerbated if units are made in lots of 10 before passed on to the next station (particularly if the defect is introduced to each unit in the lot). Instructors can be creative with this exercise. The main point, of course, is that catching a defect at its source is much less costly than catching it later on, especially if it reaches the final customer without being noticed.

2. Split the class into small groups. Assign each group a company that is not the industry leader, with each group working on a different industry. The task is to improve quality for each company, and one of the tools to achieve that will be benchmarking. Have each group identify recommended items to benchmark and the companies or industries to obtain that information (It is important for students to recognize that benchmarking does not have to look only at other firms in the same industry.) How will all of the data be obtained? Have each group report its ideas to the whole class.

3. Have the students look at the OM in Action box, ―Richey International‘s Spies,‖ at the end of Chapter 6. Ask them to count the number of occurrences of the letter ―e‖ in the box this is a surrogate for 100% inspection. Offer $5.00 to the first student to provide the correct number (only one attempt per student), and produce a distribution on the board as each student yells out the answer. It is unlikely that anyone will get the correct answer. Even better, set up an Excel spreadsheet that is not shown to the students as the answers are called out. Have a bar chart already created that refers to each possible reasonable answer (You don‘t need to go much higher than the actual number of ‗e‘s in the passage ) Then, at the end, the chart can be shown without delay. In general, the students do a horrible job. Most will miss 10-30% of them. This exercise illustrates the fallacy of 100% human inspection. If we can‘t simply count the number of ‗e‘s in just a few minutes, how can we be expected to find all defects in a product when performing inspection tasks for 8 hours a day?

4. Show the following passage on the screen and ask students to count the number of F‘s:

FINISHED FILES ARE THE RESULT OF YEARS OF SCIENTIFIC STUDY COMBINED WITH THE EXPERIENCE OF YEARS

Most people will report seeing 3 F‘s. There are actually 6 in the passage. (They read the ‗F‘ in ‗OF‘ like a ‗V,‘ so they don‘t count it.) This exercise can be performed when discussing inspection and some of the challenges of using humans to do the inspections.

5. Christine M. Wright and Michael E. Smith developed a Deming ―Red Beads‖ exercise applied to services. See Wright, C.M., and M. E. Smith, ―Serving Up the Red Beads Experience,‖ Decision Sciences Journal of Innovative Education, 1(1), Spring 2003, 127-131.

Company Videos

1. The Culture of Quality at Arnold Palmer Hospital (10:18) Arnold Palmer Hospital emphasizes two quality tools in particular: Pareto charts and flow charts. The hospital has several process improvement teams in place, and it seems to take quality extremely seriously. A detailed questionnaire is mailed to every patient two weeks after her stay. The most important question for the hospital is, ―Would you recommend this hospital to family and friends?‖ Survey results drive new quality initiatives and process change, when indicated. The hospital consistently performs in the top 10% nationwide on patient satisfaction. And, as an obviously crucial measure of quality for any hospital, Arnold Palmer Hospital has one of the highest survival rates for at-risk babies. The hospital employs two rather unique quality initiatives. First, employees are empowered to offer gifts up to as much as $200 to patients that appear to have a legitimate concern about the quality of care that they have received, whether it be medical, food-related, custodial, etc. Second, patients have access to a 24-hour hotline that connects them to hospital staff specifically on call to address any type of patient concern.

Prior to showing the video, instructors might ask the students to write down any memorable service level experiences that they or their families or friends have had at hospitals. Discussion following the video could first cover some of these. For negative experiences, in particular, the instructor might ask if the hospital had any of the quality programs that Arnold Palmer Hospital does, or what else those hospitals might have done, if anything, to address the patient concerns. Two other discussion streams could emerge. First, what do students think of the $200 service recovery gift program? How closely should such a program be micro-managed? Is it a good idea to empower all staff members to award the gifts? Would training be necessary to help employees know what level of gift is appropriate? Second, why should such a large and high-demand hospital care so much about quality? Is high quality affecting its profit in the short run? In the long run? What might be some ramifications of focusing more on cost control and less on patient satisfaction?

2 Quality Counts at Alaska Airlines (6:06)

It‘s no secret why Alaska Airlines has won the JD Power and Associates Award for Highest Customer Satisfaction in the industry for many years in a row and the Flight Stats Award for Best OnTime Performance on multiple occasions. Alaska takes quality very seriously! The carrier collects many performance metrics every single day. In any given month, Alaska collects 60,000 data points some via automatic sensors, but many via manual tallies. Alaska‘s mantra is that if it isn‘t measured, it can‘t be managed. These scorecard metrics provide expectations of employee and vendor performance standards. The metrics are expressed in units that are easily understood by all

employees. Vendors receive financial rewards when they exceed standards, and they pay financial penalties when they don‘t. When things do go wrong with service, frontline employees are provided with a toolkit of options to give to inconvenienced customers. Options include frequent flyer miles and vouchers for meals, hotels, luggage fees, or tickets. Alaska recognizes that how it responds when things go wrong can make all the difference between a satisfied customer and one that‘s lost forever.

Prior to showing the video, instructors could ask students to guess how often Alaska collects and analyzes performance data for its flights (answer: every flight, every day). Afterwards, discussion might turn to the important issue of service recovery. Students could share negative experiences that they have had with companies (travel-related or otherwise). How did the company respond, if at all? How did the students feel about the company after the experience? Were they likely or unlikely to give that company their business again? Did they tell friends about their good/bad service recovery experience? Did they share their good/bad service recovery experience on social media? This could be a good place to point out that Disney World claims that customers who have had a negative experience in the park but received a service recovery gesture actually give Disney higher scores on customer feedback than the average customers who have had no negative experiences to begin with!

3. Celebrity Cruises: A Premium Experience (6:17)

Celebrity is committed to being the best in the industry in all that it does. The ships should feel like 5star hotels do on land. Everything revolves around Celebrity‘s five pillars: design, accommodations, culinary, service, and destination. Proper hiring and training are crucial to providing a quality experience. The ―Celebrity Cruises, The World at Your Service‖ mantra promises that ―We will deliver a personalized, knowledgeable, and genuine experience.‖ Celebrity conducts extensive marketing research using focus groups, monitoring social media postings, and conducting extensive customer surveys. The Net Promoter Score (NPS) is based on the survey question about how likely the guest is to recommend Celebrity to family and friends. On a 10-point scale, a response of 9 or 10 is a promoter, and a response of 6 or below is a detractor. The NPS equals the percentage of promoters minus the percentage of detractors. Celebrity strives to reach the world-class target of at least 65% NPS. Finally, food is the #1 reason guests return to cruise with Celebrity. Celebrity exerts tremendous effort on both the look and taste of all of its meals.

Prior to showing the video, instructors might ask students what type of customer feedback would constitute ―world-class.‖ What specific questions should be asked of customers, and what scores should be expected? Afterwards, the class could analyze the NPS metric used in the industry and discuss the feasibility of attaining a 65% score. (Many scores of 8/10 won‘t get it done, nor will having a segment of customers that feel even lukewarm about the experience with a score of 6/10.)

As another activity, instructors could focus on Celebrity‘s ―World at Your Service‖ program. Students could be asked to identify how employees should and should not be treating customers. Then the students‘ ideas could be compared to Celebrity‘s list of 10 ―Always‖ and 10 ―Never‖ behaviors. (The list is not printed in the case in the textbook; it can be found by pausing the video at 2:33.) For example, ―Always show them; never point,‖ and ―Always pass on their information; never cold transfer guests.‖

4 Quality at the Ritz-Carlton Hotel Company (7:34) (in MyLab Operations Management)

The Ritz-Carlton has a goal of 100% customer satisfaction. The company won the Malcolm Baldrige National Quality Award in 1992, and quality has been the center of everything that the hotel does ever since. The process improvements implemented during the time leading up to the Baldrige Award led to numerous positive ramifications. There are 20 Ritz-Carlton ―basics,‖ which are instilled in every employee. One of those basics is ―MRBIV,‖ which stands for mistakes, rework, breakdowns, inefficiencies, and variation. MRBIV visits each hotel in the chain from time to time, and employees strive to create programs that respond effectively to MRBIV and that keep MRBIV from arriving in

the first place. The company collects a large amount of data every day, emanating from customer surveys, employee reports, and financial measures. Lists of top defects are compiled from the daily quality production reports, and then initiatives are developed to keep those defects from occurring again. Hourly employees are trained in TQM tools, and the hotel uses a lot of self-directed work teams, which perform some traditional management tasks such as scheduling workers. The firm has found that the employee empowerment created by these self-directed teams has helped its quality efforts tremendously. Employee ideas are encouraged, and a cost-benefit analysis is employed to determine the viability of those ideas.

Prior to showing the video, instructors might ask the students to write down any memorable service level experiences that they or their families or friends have had at hotels or motels. Discussion following the video could first cover some of these. For the negative experiences, in particular, how did the staff respond? Did it seem that providing a high-quality service was the top priority of staff members at that hotel? Two different discussion streams about the Ritz-Carlton quality program might emerge. First, the instructor might ask the students about potential downsides of using selfdirected work teams. Will they work in every company or industry? If not, what might be some preconditions that would make them successful? Second, using cost-benefit analysis in a service business might be more difficult than it sounds. For example, if a new idea makes customers happier but costs $5 more per customer, how do we measure the benefit of ―happiness?‖

Cinematic Ticklers

1. Gung Ho (Michael Keaton and Gedde Watanabe), Paramount Pictures, 1986 If not shown with Chapter 2, scenes from this movie highlight the Japanese ―zero-defect‖ policy and other Japanese business practices.

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: Does Tesla Have a Quality Problem? In the rush to ramp up Model 3 production, Tesla has faced growing issues with vehicle quality. Some customers have complained that cars arrived with scratches, loose parts, and other manufacturing defects. And there are severe shortages of replacement parts owners have complained of waiting a month or longer for parts. https://heizerrenderom.wordpress.com/2018/10/07/om-in-the-news-does-tesla-have-a-quality-problem/

2. OM in the News: Japan‘s Manufacturing Crisis

Kobe Steel, Mitsubishi Materials, and Subaru have all just admitted to manipulating quality inspections. Indeed, Japanese brands have been bested by U.S. car makers in the past 2 years. https://heizerrenderom.wordpress.com/2018/02/07/om-in-the-news-japans-manufacturing-crisis/

3. OM in the News: Quality Control and the Boeing 787 Carriers such as American Airlines station their own engineers at Boeing factories to watch their flying machines get built and check parts as they arrive. Then they send flight attendants, mechanics, and pilots for what are called shakedown inspections.

https://heizerrenderom.wordpress.com/2017/09/09/om-in-the-news-quality-control-and-the-boeing-787/

4. OM in the News: Hospital Checklists and TQM

Hospitals in South Carolina that completed a statewide program to implement the WHO‘s Surgical Safety Checklist had a 22% reduction in post-surgical deaths. The 19-item checklist encourages surgical teams to discuss the surgical plan, risks, and concerns.

https://heizerrenderom.wordpress.com/2017/04/23/om-in-the-news-hospital-checklists-and-tqm/

Presentation Slides

INTRODUCTION (6-1 through 6-4)

Slide 3: Arnold Palmer Hospital does so much more than just ―going through the motions‖ with these quality tools. The hospital really ingrains a culture of quality in all of its employees. Patient satisfaction is truly the number one priority. The results clearly reflect this culture: (1) the hospital typically scores in the top 10% nationally in benchmark patient satisfaction surveys, and (2) it boasts one of the highest neonatal intensive care survival rates in the U.S.

QUALITY

AND STRATEGY (6-5 through 6-7)

Slide 5: Right away, the instructor can emphasize that ―high quality‖ is not an exclusive strategy unto itself. On the contrary, the pursuit of high quality can actually support other strategies discussed in Chapter 2 by satisfying customer needs or making things run more smoothly or cheaply. It is possible to have high quality and low cost at the same time! The third bullet on the slide is something that all of the quality gurus recognize. A successful quality management system must have top management support, and it involves so much more than implementing a tool or memorizing a list of concepts or Deming‘s 14 points.

Slide 6: Studies have shown that high quality products are positively correlated with profitability, so the impacts illustrated in this slide (Figure 6.1) are really happening.

Slide 7: The flow of activities shown in this slide (Figure 6.2) will go nowhere without top management support and an organization that emphasizes a true culture of quality. 6-5

DEFINING QUALITY

(6-8 through 6-21)

Slides 8-11: Quality means different things to different people for different products and services under different circumstances. It all begins with a good understanding of what the customers expect. Slide 11 is particularly important to emphasize. High quality does so much more than just reduce rework costs. The reputation implications can have a huge impact on profitability, and it is so difficult to recover from bad publicity about quality. Furthermore, several firms over the past few years have gone bankrupt due to liability stemming from product defects.

Slides 12-13: Instructors can spend several minutes on the Baldrige Award if they want to. Video clips of awards presentations can be shown, which usually include a U.S. President or Vice President. Also, the Baldrige website (http://www.nist.gov/baldrige/) contains a lot more information about the award, and it can be interesting to look at all the past winners some are well known while many others are not. It can be useful to emphasize that some firms apply for the award with no intention of winning it they are most interested in the comprehensive quality audit that identifies needed areas of improvement.

Slides 14-15: ISO 9000 continues to be an important standard around the world, and increasingly in the United States. Many overseas companies will not purchase from suppliers who are not ISO 9000 certified. It used to be easier to make jokes about ISO 9000, because the original standards focused on documentation and consistency, with little stated about quality itself. However, recent updates to the standards have emphasized more features similar to the Baldrige criteria. An important advantage of a certification such as ISO 9000 is that firms can rely on such a certification as an outside validation of quality this frees firms from having to audit each potential supplier for themselves.

Slides 16-17: Here‘s where the concept of making it ―right the first time‖ can be emphasized. Spending more on prevention usually leads to bigger savings in failure costs and potentially even appraisal costs. In particular, external failure costs may exceed the price of the final product itself and can be devastating in terms of company reputation. The old carpenter‘s quote applies here: ―Measure twice and cut once.‖

Slides 19-20: These slides describe some of the pioneers of quality management. Deming was probably the most influential. In fact, the Japanese honor Deming by naming their top national quality prize after him (an American). An interesting film about Deming was produced that shows him in action later in life. Both he and Juran were not particularly charismatic. Crosby, on the other hand, displayed his charisma like an infomercial professional (in a generally positive way). Crosby definitely focused less on the quantitative aspects of TQM than the other pioneers did. One important way that Juran differed was with the idea of choosing a defect level (which could be less than 1%) that minimized the ―cost of quality‖ (finding the balance between prevention and failure costs). Deming and Crosby, on the other hand, preached about striving for and attaining zero defects.

Slide 21: The point about responding to problems is particularly important. Mistakes happen, but how does an ethical company respond and make it right?

TOTAL QUALITY MANAGEMENT

(6-22 through 6-45)

Slide 22: It can be re-emphasized here that TQM programs are difficult to implement and represent a cultural change that must be supported in words and actions by top management.

Slides 23-24: Deming‘s points represent one framework to think about implementing a TQM program.

Slide 25: This slide identifies the seven major concepts of TQM.

Slides 26-28: Continuous improvement is like a race with no finish line. The runner can celebrate and take a break now and then, but then she needs to get back on that road and keep going further. The most important feature of the PDCA cycle (Slide 27 Figure 6.3) is the arrow on top showing that the cycle does not end with implementation but starts again with a new set of improvements.

Slides 29-34: In some ways, Six Sigma is modern rewording of old TQM concepts. The Six Sigma certification program (black belts and green belts) has become highly valued for those that attain the certification. In some ways, it is quality management‘s equivalent to the CPA in accounting or the CFA in finance. A nice feature of the certifications is that they involve not only passing exams, but also real-world experience in managing quality improvement projects.

Slides 35-36: Arguably, employee empowerment represents the most powerful means to improving quality in an organization. Often, the people closest to the actual work know best how to improve it. A key feature for success is to properly reward employees for helping to improve quality.

Slide 37: Note that benchmarking does not have to examine only other firms in the industry. Examining world-class organizations from other industries can lead to some great ideas and those companies might be more willing to share information.

Slide 38: This is a very nice slide (Table 6.3) to cover point-by-point. Proper complaint resolution has such a huge impact on company reputation.

Slide 39: Internal benchmarking can be more effective than external benchmarking when the organization is large enough to have multiple divisions or business units.

Slides 40-41: JIT receives much fuller treatment in Chapter 16. The issues here are that JIT in the form of ―procrastination‖ has two main benefits: less inventory and identification of errors early, before they are applied to many products.

Slides 42-43: Genichi Taguchi created systematic methods to design experiments that identify the variables affecting product variation (these are fractional factorial experiments). He also has provided us with the three important concepts identified in Slide 42. Slide 43 focuses on quality robustness, i.e., products whose quality is not hampered by variations in conditions. Taguchi suggests that focusing on removing the effects of variations can often be cheaper than attempting to eliminate the causes.

Slides 44-45: A study found that U.S. consumers preferred Sony TVs made in Japan to those made in the U.S. Both factories used the same designs and specifications. But the difference in quality goals led to the difference in consumer preferences. Specifically, the U.S. factory had output that was uniformly distributed between the upper and lower specification limits. The Japanese factory, however, had output centered around the target in the shape of a normal distribution. Thus, much more of its output was near the target (or the center of the upper and lower limits). Clearly, this target-oriented approach led to higher quality final products. Why? Imagine many slightly large bolts fitting into slightly small nuts (connections that are too tight) and other slightly small bolts fitting into slightly large nuts (connections that are too loose). Add all those up over many components in a TV, and more things will go wrong. The actual quality loss function is not stated in the text, but it‘s a simple quadratic function: L = TD2, where L is the cost, T is a slope parameter describing the degree of increase, and D is the deviation from target. If the cost of any deviation is known (for example, the cost of producing a unit out-of-spec), then the rest of the function can be imputed. With the quality loss function, it is important to emphasize that those are not actual costs. A component produced within specs may indeed cost nothing. However, the function is estimating the costs of not hitting the target exactly, using the important assumption that the costs increase according to a quadratic function, i.e., doubling the distance from the target will quadruple the estimated cost. One application of the quality loss function could be in determining whether or not to buy a new machine that produces output closer to the target. Even if both the new and old machines always produce within spec limits, presumably the accuracy provided by the new machine has some benefits, which can be quantified by using quality loss function estimates.

TOOLS OF TQM

(6-46 through 6-59)

Slides 46-47: The book provides nice graphics that illustrate the seven tools. The full set can be covered relatively quickly. The first six, at least, are among the easier quantitative methods that operations managers employ; nevertheless, they can provide powerful insights

Slide 48: A check sheet can have a variety of appearances. In many cases, patterns are easily seen while the data are being taken.

Slide 49: With a scatter diagram, if the two items are closely related, the data points will form a tight band. If a random pattern results, the items are unrelated.

Slide 50: The cause-and-effect diagram is also called a fishbone or Ishikawa diagram. The four Ms can be a good starting point for main causes. The lecture could break at this point with an example, having students fill in the diagram with ideas for causes of some outcome.

Slide 51: A Pareto chart exhibits the natural phenomenon that, in general, 80% of problems are a result of only 20% of causes. The lecture could break here by asking the students about their experience managing things. Did the Pareto rule apply?

Slide 52: A picture can truly be worth 1,000 words when attempting to analyze a process. A flowchart provides such a picture.

Slide 53: A histogram can help determine the potential actual underlying distribution of a variable. If it looks like a bell curve, the distribution might be Normal; if it looks like a rectangle, the distribution might be uniform, etc. More generally, a histogram provides a quick visual estimate of the mean, mode, skewness, etc.

Slide 54: SPC charts are the most ―scientific‖ of the quality tools. They are covered in detail in Supplement 6. They are used to monitor a process over time. When output falls outside of the control limits, the process should be investigated to search for an unnatural (assignable) cause.

Slides 55-59: These provide further examples of some of the seven tools. They can be placed after each respective tool, if desired.

THE ROLE OF INSPECTION (6-60 through 6-69)

Slides 60-65: In the old days, the only form of quality management implemented by companies was the inspection activity. Inspection itself may not catch all errors, and it may be costly (Slide 63). Ideally, suppliers are delivering perfect materials and products that are made right the first time, which would minimize the need for a lot of inspection. Source inspection (Slide 64) is the concept of controlling or monitoring at the point of production or purchase. This is consistent with the idea of employee empowerment, where individual employees selfcheck their own work. Slide 65 describes two useful tools for source inspection: poka-yoke (foolproof devices or techniques) and checklists (which are surprisingly effective see the book by Atul Gawande called The Checklist Manifesto: How to Get Things Right). If done

correctly, source inspection would eliminate the need for extra inspections anywhere else. If inspections are needed, Slide 61 provides the common places. Point 3 is probably the most important because sending a defective product through the bottleneck process reduces the throughput for the entire operation. Slide 62 (Table 6.4) illustrates several different ways that Samsung inspects is smartphones.

Slides 66-68: These slides provide service industry inspection examples from Table 6.5 in the text. Clearly, inspection can be as important in services as in manufacturing.

Slide 69: This slide describes the differences between attribute and variable inspection. The differences determine which statistical process control techniques to use (Supplement 6).

TQM IN SERVICES (6-70 through 6-76)

Slides 70-74: These slides focus on the special challenges and differences of attempting to implement TQM in services. In addition to the quality checkpoints described in the Alaska Airlines example in Slide 72, the company sets quality standards in areas such as courtesy and appearance. Such standards are common in many service businesses, where employee appearance matters because there is customer contact. Disney World has similar standards for its student workers. You won‘t find your ride operator sporting facial piercing and visible tattoos at Disney World. Slide 73 (Table 6.6) illustrates some of the different points of emphasis regarding quality to which service firms must adhere. Finally, Slide 74 shows that Marriott‘s LEARN routine is a nice way to think about service recovery. Each component is important, but the last one in particular notifies the system about the problem in the hopes that similar problems will not occur in the future.

Slides 75-76 The last two slides describe SERVQUAL, a popular measurement scale for service quality that compares service expectations with service performance, focusing on the gaps between them. Slide 76 shows how SERVQUAL collapses the 10 determinants of service quality from Table 6.6 (Slide 73) into five factors to be used with the measurement scale.

Additional Assignment Ideas

1. Use the QFD house of quality as a project. Students (usually as a team) choose a product (good or service) and do a house of quality analysis, including comparison and market research segments. Add as many aspects as you would like to make it a minor or major project. Have students explain the analysis to the class. This can be expanded to an implementation of the process to show how each subsequent phase would be accomplished.

2. Research the Six Sigma certifications from the American Society for Quality. Specifically, identify several specific items that appear on the exam that are not covered in Chapter 6 of the textbook. Write a paragraph or two describing each item.

3. Find out more about ISO 9000 from the Internet (http://www.iso.ch). What is ISO? What are the benefits of international standardization? How have the ISO 9000 standards been received worldwide?

4. Have the students complete the Quality Management simulation found in MyLab Operations Management. https://heizerrenderom.wordpress.com/2016/10/04/teaching-tip-our-new-quality-management-classroomsimulation/

5. Teaching Quality Control with Olive Garden Breadsticks (Guest Post by Bill Quain) https://heizerrenderom.wordpress.com/2010/11/30/guest-post-teaching-quality-control-with-olive-gardenbreadsticks/

Internet Resources

American Society for Quality

www.asq.org

International Organization for Standardization https://www.iso.org/home.html Juran www.juran.com

National Institute of Standards and Technology https://www.nist.gov/ QAI Global Institute www.qaiglobalinstitute.com

Quality Digest www.qualitydigest.com

Quality Progress http://asq.org/qualityprogress/index.html

Other Supplementary Material

Book

1. Gawande, Atul, The Checklist Manifesto, Metropolitan Books, Henry Holt and Company, New York: 2009. This provides powerful evidence of quality gains due to the use of simple checklists.

Videos

1. Big Night Italian immigrant chef maintains classic values of his cuisine, despite the voice of the customer. Topic: voice of the customer vs. voice of the designer

2. Brazil An argument with a bureaucrat. Topic: service quality

3. Falling Down Michael Douglas loses it as he orders breakfast in a fast food restaurant. Topics: service quality and customer service.

4. Five Easy Pieces Restaurant scene. Topic: service quality.

5. Films available from: Society of Manufacturing Engineers One SME Drive P.O. Box 930

Dearborn, Michigan 48121-0930 (P) 313-425-3000 (F) 313-425-3412 http://www.sme.org/

o Implementing QS-9000: Gain a powerful advantage in meetings demanding QS-9000 standards. Order # PI-VT569-3456.

o Mistake Proofing: Achieving Zero Defects: Exploring how poka-yoke is being implemented and in what direction it is leading manufacturing. Order # PI-VT616-3456.

o Total Quality Management: Creating a Culture of Continuous Improvement: Explore the ongoing development of TQM once a company has laid the critical groundwork. Order # PT-VT501-3456

Chapter 7 Process Strategy and Sustainability

Background

Figure 7.1 represents a modification of the product-process matrix, championed by Hayes and Wheelwright. The new entry in recent years was not thought possible in the past, that is, mass customization. We should see more movement toward mass customization in the coming years, copying firms that have successfully implemented this approach.

This chapter is mostly conceptual, incorporating discussion of the four basic process strategies, the primary tools of process design, service process design issues, along with several different examples of technology. Sustainability issues have been increasing in importance in the past few years and are highlighted in this chapter. The chapter lends itself to creativity in the classroom. Students can brainstorm or work on exercises involving things such as: (1) potential design of processes for products or services that have not even been invented yet, (2) redesign of processes that students think work poorly now, or (3) applying process analysis and design tools to any process that the instructor deems worthy.

Class Discussion Ideas

1. Have the students describe examples of organizations that are using each of the strategies for improving service productivity. They should be able to explain why this approach is expected to lead to a competitive advantage in the marketplace.

2. The instructor can describe a potential new product that has not been invented yet. Then students can be asked how they would produce this product. Various dimensions of process design could be explored, including the degree of capital intensity (manual vs. automated), desired resource flexibility (workforce and machines), degree of vertical integration, and degree of consumer involvement in the process (self-service or customization). Many other dimensions could be discussed as well.

Active Classroom Learning Exercises

1. Students can generally grasp the basic concepts of repetitive process through their familiarity with the assembly line concept. Choose a repetitive process they will relate to and briefly discuss its operating characteristics. Then split the students into small groups and, for each group, make a different change to one of the basic elements such as variability of demand, product customization, volumes, run lengths, or the like Have the groups explore why other process choices become advantageous and then report their findings to the rest of the class.

2. Most students will have worked in some sort of service business by the time they read this text. Split the class into small groups. Have each group choose one of the service businesses that a member has worked in. Then have each group create a service blueprint for that operation, not forgetting to identify points of potential failure. Each group can present its findings to the class. An extended exercise would ask each group (or the class as a whole) for ways to minimize the probabilities of failure. Examples might include training, dummy-proofing, inspecting, double-checking, changing the process, etc.

3. Split the class into small groups. Ask each group to develop ideas to improve the sustainability at hotels. Examples might include the Ritz-Carlton doing laundry at night when electricity is cheaper, or the Park Plaza eliminating shampoo bottles and replacing them with built-in dispensers in the shower areas. Many hotels also encourage guests to re-use towels and/or sheets when they are not too dirty. Everyone has stayed in a hotel, so hopefully this exercise can produce some creative ideas. Have each group share its findings with the class.

Company Videos

1. Alaska Airlines: 20-Minute Baggage Process Guaranteed! (4:24)

With the knowledge that one of the most frustrating experiences when traveling can be an interminable wait for luggage after a long flight, Alaska Airlines offers a 20-minute luggage guarantee. Specifically, the airline promises to deliver every bag on the luggage carousel within 20 minutes from the time that the doors open at the gate. Alaska uses the term Time to Carousel (TTC) to measure this. Automatic sensors start the clock as soon as the gate doors open. Any passenger who does not receive the service within 20 minutes is awarded either a $25 flight voucher or 2,500 frequent flyer miles. The company has an internal daily goal of 90% or better of bags meeting the requirement. The luggage-handling vendor knows that it can miss the target on no more than 13-15 flights per day. Even when they do miss the target, it's usually not by more than a minute or two. How is Alaska able to provide such fast service? It's a function of: (1) clear expectations understood by everyone involved, (2) preparation for the arriving flight ahead of time, and (3) everyone understanding their roles and performing to expectations consistently. Within one minute of landing, the luggage ramp should be open. Within 3 minutes, luggage should have started on the conveyor belt. All personnel must be in place ahead of time for the system to work like ―clockwork.‖ Because TTC is measured on every flight, every day, employees and vendors can be held accountable.

Prior to showing the video, instructors could ask the students how quickly they expect their bags to arrive in the luggage area after landing on a typical flight. Students could volunteer their favorite traveling horror stories at this juncture. Have any students heard about the 20-minute luggage guarantee from Alaska Airlines? As a consumer, is that an effective way to earn or keep their business? Instructors could then ask what steps an airline such as Alaska can take to ensure fast delivery of luggage. Clearly, using employees that are prepared and are working with a sense of urgency is the only way for this to work. Measuring the times and rewarding/punishing people for meeting/failing the goal is critical.

2. Process Analysis at Arnold Palmer Hospital (7:08)

Arnold Palmer Hospital uses flow charts for dozens of its operations, including vacated room turnaround time, admissions, inventory, and food service delivery. The bulk of the video describes and shows the process following maternity patients and their paperwork. A series of if-then scenarios determine the steps in the patient experience. Different scenes from these various steps are shown along with the descriptions. The hospital uses a series of bar codes and wristbands to ensure accuracy throughout the patients‘ stay. The hospital‘s commitment to continuous improvement is emphasized.

Prior to showing the video, instructors might ask the students to jot down as much of the maternity patient process flow as they can pick up with one viewing of the video. Perhaps small groups could then be formed to try to draw the appropriate flow chart. For discussion, students might be asked about the pre-registering function. What do they think might be involved in pre-registration? How does pre-registration streamline operations? Why is it particularly useful for expectant mothers?

3 Process Strategy at Wheeled Coach Ambulance (6:50)

The primary point of this video is that Wheeled Coach utilizes a repetitive process supported by work cells when producing its custom-build ambulances. Thus, the firm uses a hybrid approach of an assembly line supported by customization. The less skilled workers work on the assembly line, while the more skilled workers are in the work cells. The key work cells at Wheeled Coach include upholstery, electrical wiring, cabinetry, and aluminum fabrication. The video examines the electrical wiring work cell in particular. Each vehicle has an astounding 15 miles of electrical wiring, similar to an F-16 fighter jet. This wiring is delivered to the assembly line just-in-time to be put into the proper vehicle for which it was produced. The Plant Manager also emphasizes the usefulness of the computer-aided design (CAD) system, noting that it helps not only with design, but also with sales and manufacturing. Customer demand for ambulances continues to become more taxing, as users wish these vehicles to become almost mini-hospitals inside. Wheeled Coach‘s work cells allow the

flexibility for such customization, while the assembly line piece of the process keeps churning out the vehicles at a reasonable pace.

Prior to showing the video, instructors might ask the students to think about different industries that require customized products and how the processes might be designed to allow for such customization. Afterwards, students could be asked to compare and contrast a process such as the one utilized by Wheeled Coach with some of the others that they identified (perhaps flexible manufacturing systems and machines, or perhaps hand-made items or even service processes that have customers perform some of the customization themselves).

Cinematic Ticklers

1. The Big Bang Theory, ―The Work Song Nanocluster,‖ Season 2, Episode 18, March 16, 2009, Prod. Code 3T7368

Penny starts her own business and asks Sheldon for help. The other guys become involved, and they end up spending all night trying to ship an order for one thousand ―Penny Blossoms.‖

2. Modern Times (Charlie Chaplin), CBS/FOX VIDEO, 1992 (1936)

Also suggested as a possibility for Chapter 1, the movie deals with worker alienation in an assembly line environment and offers an interesting historical perspective on early Taylorism. Interesting issues arise, including workers having to clock out to go to the bathroom, the automatic assembly line being sped up as the day wears on, sneezing or scratching being enough to make one fall behind on his or her work, and, most importantly, the de-humanization of early assembly line work.

3. Pretty much any of the 190 Three Stooges (Columbia Pictures) shorts starts with the Stooges working on a job that is either poorly designed or that they cannot operate efficiently.

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: Farms, Robots, and Illegal Immigrants

A fleet of robots designed to replace humans has become one of the agriculture industry‘s latest answers to a diminishing supply of immigrant labor. Smart machines can assemble 60 to 80 salad bags per minute, double the output of a worker.

https://heizerrenderom.wordpress.com/2018/11/28/om-in-the-news-farms-robots-and-illegal-immigrants/

2. OM in the News: Computer Vision Systems and the Start Up Nation Israel has become a leader in computer vision. This area covers applications across dozens of industries that have one thing in common: the need for computers to figure out what their cameras are seeing, and the need for those computers to tell them what to do next.

https://heizerrenderom.wordpress.com/2018/11/21/om-in-the-news-computer-vision-systems-and-thestart-up-nation/

3. OM in the News: The Fourth Industrial Revolution Industry 4.0

An Industry Week survey found that manufacturers are having trouble joining the Fourth Industrial Revolution, called Industry 4.0. And the World Economic Forum found that 7 out of 10 manufacturers fail in pushing initiatives in big data analytics, A.I., and additive manufacturing. But some innovative firms have embraced the concepts and created factories with 20–50% higher performance.

https://heizerrenderom.wordpress.com/2018/11/12/om-in-the-news-the-fourth-industrial-revolutionindustry-4-0/

4. OM in the News: Where Did Your Steak Come From? In a world-first for the food sector, PwC has developed an electronic etching procedure that creates an invisible, trackable barcode for beef based on edible, non-toxic silicon dioxide. Soon, it will be possible to point your smart-phone at a cut of beef to reveal the meat‘s entire history including where it was raised, what it ate, and when and where it was processed. https://heizerrenderom.wordpress.com/2018/10/03/om-in-the-news-where-did-your-steak-come-from/

Presentation Slides

INTRODUCTION (7-1 through 7-6)

Slides 4-5: These two slides feature Harley Davidson, which remains one of the very few U.S. motorcycle manufacturers. The firm owes much of its success to its loyal customer base, but also to a lean production system. Parts that feed the main assembly line are manufactured in work cells (process focus). The assembly line is a repetitive process, but it actually contains features of mass customization because Harley can produce a wide variety of products at a rate of up to 600 units per day.

FOUR PROCESS STRATEGIES (7-7 through 7-28)

Slides 7-10: These slides identify the four basic strategies. Slide 9 reproduces Figure 7.1 from the text, showing where the four main process strategies fit along the matrix of product volume/product variety. Mass customization used to be thought of as unattainable, but technology and reduced changeover costs have opened the possibility for some firms.

Slides 11-12: These slides describe process focus and illustrate it with Arnold Palmer Hospital (Figure 7.2(a)). In general, the product or customer going through a process focus facility has no pre-defined flow. Any particular product or service may pass through a unique route through the system. Such systems, such as job shops or banks, end up with certain processes having long waiting lines, while other processes in the facility may be empty.

Slides 13-14: These slides describe repetitive focus and illustrate it with Harley Davidson (Figure 7.2(b)). A typical assembly line is a repetitive focus, as is a batch flow system. Repetitive processes

have some flexibility in creating output variety but are limited by the variety of subassemblies that reach the assembly line.

Slides 15-16: These slides describe product focus and illustrate it with Frito-Lay (Figure 7.2(c)). Productfocused operations are often called continuous flow systems, and they may run 24 hours per day, not stopping for changeovers for weeks at a time. Product focus is all about creating very high volume in the most efficient way possible.

Slides 17-20: These slides describe mass customization and illustrate it with the Dell Computer model. As Slide 18 suggests, the key to successful implementation of mass customization often rests in designing products and processes that incorporate common subassemblies. In this way, final customized assembly can occur very quickly to create a unique product, yet the firm does not have to produce and hold every product option in inventory. This technique is called postponement. Slide 19 (Table 7.1) provides some nice examples of how the number of choices for some products has skyrocketed in the past 30-40 years. Mass customization is designed to fulfill those increasingly varying customer needs while still producing large volumes at a reasonable cost. Slide 20 identifies typical necessary conditions for successful mass customization.

Slides 21-24: These slides replicate Table 7.2 from the text, which arguably contains the most important conceptual information in the chapter. It is probably worth spending several minutes covering those comparisons, point by point. Characteristics in the repetitive process column typically represent a compromise or intermediate position between the two extremes of process focus and product focus. To achieve mass customization, the firm would have to ask itself what investments or changes might be required to move from its current strategy in column 1, 2, or 3 to column 4.

Slides 25-27: Crossover charts represent the only real math in Chapter 7. Slides 25 and 26 present the data and calculations, respectively, from Example 1. Slide 27 reproduces Figure 7.3 from the text, which illustrates the concepts from the example. If the fixed and variable costs of different production strategies can be accurately estimated, crossover charts help to determine the ranges of volume for which each strategy is cheapest.

Slide 28: Focusing on processes implies a move toward specialization, limiting the number of activities, products, and/or technologies. ―Focus‖ is often a reason given why firms outsource so many activities. The concept of focused processes sounds like the opposite of the goal of mass customization. In fact, the instructor might want to ask the students why the book seems to be touting the benefits of both. Which is better to strive for? Is it possible to have ―focused mass customization?‖

7-28

SELECTION OF EQUIPMENT (7-29 through 7-30)

Slides 29-30: It is important to emphasize that the technology decision is not always obvious, and it may involve a large capital expenditure. Numerous factors may need to be considered, particularly those identified on Slide 29. In addition, equipment that is more accurate or breaks down less often may lead to more stable processes. Slide 30 emphasizes the potential competitive advantage stemming from flexibility. Flexible equipment provides the ability to respond to new orders/make different products with little penalty in time, cost, or customer value. Flexible equipment may allow managers to enlarge the scope of their processes. Since changing processes or equipment can be difficult and expensive, it is best to get this critical decision right the first time.

7-29 7-30

PROCESS ANALYSIS AND DESIGN (7-31 through 7-42)

Slide 31: These represent important questions to ask when analyzing and designing a process.

Slides 32-34: Flow charts and time-function mapping are introduced here the difference in the two being that time-function mapping is a flowchart with time included on the x-axis. Drawing a flow chart should typically be the first step in any design or analysis effort. The two charts in Slides 33 and 34 come from Figure 7.4 of the text, illustrating a before and after time-function map used in process improvement at American National Can Company. The firm was able to eliminate the significant waiting that had slowed things down before improvement was implemented.

Slide 35: A process chart, like the one shown in this slide (Figure 7.5), breaks down steps into detail and can provide a structured way to examine value-added vs. non-value-added activities.

Slides 36-39: These slides describe value-stream mapping, which can appear complicated because the full supply chain is included in the picture. The nine steps to creating a value-stream map are shown in Slides 37-38. Slide 39 (Figure 7.6) displays the value-stream map created in Example 2. From this example, we see what looks like a significant amount of inventory, as well as a large percentage of non-value added time. As the text suggests, one way to reduce raw materials inventory might be to have deliveries twice per week instead of once per week.

Slides 40-42: These slides illustrate service blueprinting, which is applicable for processes with a high amount of service content. Level 1 activities are under the control of the customer, level 2 activities represent interactions, and level 3 activities include activities not visible to the customer. The identification of potential failure points is particularly useful. Slide 42 describes several poka-yokes that can address potential failure points.

SPECIAL CONSIDERATIONS FOR SERVICE PROCESS DESIGN (7-43

through 7-48)

Slide 43: Customers are usually not involved in manufacturing operations. They often are involved in service operations, however, which is why service design can be particularly tricky.

Slides 44-46: These slides describe the service process matrix, where types of service are split into four quadrants based on degree of customization and degree of labor. The arrows in Slide 44 (Figure 7.8) represent how services in the rectangles can find a competitive opportunity by moving to the ovals.

Slides 47-48: These slides reproduce Table 7.3 from the text, which presents techniques for improving service productivity, including examples of each.

PRODUCTION TECHNOLOGY (7-49

through 7-59)

Slide 49: Slide 49 identifies nine types of production technology, which are then described in the next 10 slides.

Slide 50: This slide identifies the improvements that modern machine technology has introduced, especially when computer numerical control (CNC) machines are employed.

Slide 51: The AIS applications described in this slide refer to things such as bar codes and RFID anything that eliminates manual data entry. Bar codes allow warehouses to automatically sort hundreds of boxes per minute, and they significantly speed up the checkout process at retail stores, even allowing for the self-checkout stations that are becoming more and more

prevalent. RFID has unlimited potential. As the picture in Slide 51 implies, RFID may someday allow customers to have all items in their cart totaled in an instant, without any physical handling. It could also act as an effective security devise against shoplifting.

Slides 52-53: Slide 52 describes process control, which automatically monitors output, signaling when a discrepancy exists. Vision systems (Slide 53) are similar to process control, but they focus in particular on replacing human visual inspection with the aid of video cameras and computer technology.

Slide 54: We often think of robots when we think of the modern factory. Many robots have been around for decades, but they have hardly replaced all human manufacturing jobs. They are especially useful to replace monotonous or dangerous tasks. Preventive maintenance is crucial with robots, however, because a broken robot may shut down an entire assembly line, whereas a sick worker might more easily be replaced.

Slide 55: Interestingly, ASRSs have been employed for products as large as automobiles, using cranes that move in three dimensions. An additional advantage of ASRSs is that the warehouse, by not utilizing people, can remain in cold semi-darkness.

Slide 56: The army uses AGVs for particularly dangerous missions such as traversing across a minefield.

Slides 57-59: Flexible manufacturing systems (Slide 57) represent a possible way for firms to achieve mass customization. Computer-integrated manufacturing (CIM) (Slide 58) extends a flexible manufacturing system backward (into engineering and inventory control) and forward (into warehousing and shipping). There is not a single standard CIM application, but the idea is to have computer-aided communication and control to help manage an entire production process. Slide 59 (Figure 7.9) provides a nice example of the possibilities of CIM.

TECHNOLOGY IN SERVICES (7-60 through 7-62)

Slides 60-62: These slides reproduce Table 7.4 from the text. Here we see several examples of technology literally changing the way that service processes operate and the way in which customers obtain services. In some cases, such as online news outlets vs. physical newspapers, traditional service offerings have become endangered. In other cases, such as the ability to pre-order lunch at the ninth tee box on a golf course, technology may have opened new markets. Instructors can spend a fair amount of time on these two slides, even brainstorming with students about what might be coming next. For example, what else can be crammed into the next smartphone?

PROCESS REDESIGN (7-63)

Slide 63: Several years ago, the hot catchphrase for process redesign was ―business process reengineering.‖ Whatever the term, every once in a while, a process should be re-examined to see if it remains the appropriate vehicle for producing the product or providing the service. Such examination may be spurred by new products or product mixes, changes in competitive priorities of the company, changes in volume of demand, poor performance, new technology, changes in the cost or availability of inputs, or perhaps new legislation/regulation. As humans seem to get attached to the familiar, process redesign is often easier said than done. Sometimes a consultant or other objective set of eyes may be needed to break down certain assumptions that are presumed to be untouchable by the

current workforce. Nevertheless, as with any organizational change, success usually follows those change efforts that include all employees in the fact-finding and decisionmaking processes. 7-63

Additional Assignment Idea

1. Think about a process that you participate in as a customer (e.g., a bank, a restaurant, a doctor‘s office, the financial aid office, or an airport) that seems to operate inefficiently (i.e., that drives you crazy). Write up a short proposal that would suggest ways to improve the efficiency of the organization.

Internet Resources

American Council of Engineering Companies www.acec.org Association of Automatic Identification and Mobility www.aimglobal.org Association for Manufacturing Excellence www.ame.org

Prosci: The world leader in change management research www.prosci.com/ DARPA: U.S. Defense Dept., Innovative Prototype Systems www.DARPA.mil

Dassault Systems www.3ds.com

Graham Methodology: Business Process Improvement www.worksimp.com iGraphic‘s approach to value-stream mapping www.iGrafx.com Strategos Inc.‘s approach to value-stream mapping www.strategosinc.com

Other Supplementary Material

Videos Films available from: Society of Manufacturing Engineers One SME Drive P.O. Box 930

Dearborn, Michigan 48121-0930 (P) 313-425-3000 (F) 313-425-3412 http://www.sme.org

o Flexible Manufacturing Cells: See how Mazak, Badger Meter, and Agnew Machine use FMCs. Order # PI-VT256-3456.

o Business in society: The statue of responsibility

Hizook: ―High-Speed Robot Hand Demonstrates Dexterity and Skillful Manipulation‖ http://www.hizook.com/blog/2009/08/03/high-speed-robot-hand-demonstrates-dexterity-andskillful-manipulation

Equipment Choice with Imperfect Machines

Instructors interested in adding more quantitative material to Chapter 7 could introduce the concept of equipment choice with imperfect machines. Some machines are more accurate than others, but usually are also more expensive. Should the more accurate machine be purchased? Assuming that output is normally distributed with a known mean μ and standard deviation σ, students can calculate the expected yield loss of each machine (note that μ might be able to be set by the user). The probability of output exceed the upper spec limit (USL) = 1 – Φ(Zup), where Zup = (USL – μ) / σ. The probability of output falling below the lower spec limit (LSL) = Φ(Zdown), where Zdown = (LSL – μ) / σ (a negative value). Each probability can be multiplied by its cost of fixing output that is too high or too low. (These costs may be different. For example, fixing a wooden board that has been cut too long involves re-cutting the board, but one that has been cut too short might have to be completely scrapped.) For each machine, the expected cost per unit of fixing out-of-spec output can be multiplied by total volume produced to compute total fixing costs. The fixing cost differences can then be compared to the investment cost differences of the two machines.

Location Strategies

Background

Presenting location strategies can be fun because students have certain opinions and passions about geography. Being careful not to offend, the instructor can insert humor or quirky characteristics about locations (cities, states, countries) into the examples discussed. An easy target would be the home town of the rival sports team.

The two company videos associated with this chapter are particularly interesting when both are shown to the class because insightful comparisons can be drawn. The Red Lobster description of its graphical information system (GIS) might be especially eye-opening for students.

A lot of the location factors are interesting and potentially controversial. Discussion about any of those can carry on for some time.

Low labor costs often represent a major reason why companies (especially manufacturing firms) locate in particular countries. It may be useful to have a slide handy that compares hourly wage rates across certain countries, including the U.S., Germany, Japan, Mexico, and certain low-wage Asian countries.

Class Discussion Ideas

1. Prior to showing any presentation slides, instructors can solicit 5-20 minutes of student input by asking the simple question, ―Can you identify the factors that should be considered when making a global facility location decision?‖ There are literally dozens of possible contributions, which might be summarized into categories of: (1) Site Costs, (2) Environment/Economy, (3) Basic Services, (4) Labor and Staff Availability, (5) Accessibility, and (6) Government, Legal Issues, Taxes, and Incentives.

2. As the world‘s largest retailer, Walmart has plenty of fans as well as detractors. A Walmart discussion can begin by asking the students how the firm became so successful when it was a late mover in the discount retail market. Sam Walton made the (what now seems) simple realization that people living in rural areas need basic living products, too, and that such markets were being completely ignored by other retail chains. So rather than competing in big cities, almost all of Walmart‘s early expansion activities were in small- to medium-sized markets. Now the company is trying to do the same thing overseas. This could lead to the question of how small of a market is still ―big enough‖ to support a store such as Walmart. What about a grocery store? What about a fine dining restaurant? What about an oil change shop? Finally, there are areas of the country that have opposed Walmart‘s efforts to open a store. Why is there such opposition when Walmart provides jobs, tax revenue, lower prices, and significant local charitable giving? When faced with such opposition, how should Walmart react? For such a large firm, that has extremely loyal customers in some parts of the country, is it worth it for Walmart to fight legal battles in every small town that opposes its presence?

3. The Southern Recreational Vehicle Company case at the end of Chapter 8 provides an excellent discussion opportunity. The instructor can ask the students to read the case prior to coming to class. Then he or she can start class with an open question: ―Suppose your company makes women‘s

clothing and needs to add another factory to meet demand. You and your colleagues currently work at headquarters in Manhattan. Six of you will move to the new site for 2-3 years to get the plant up and running. List every factor the company should consider in picking the location.‖ (The personalization of forcing the student to hypothetically live there invites many quality-of-life factors to be considered.) The board should be filled with 20-30 observations after 10-15 minutes, most of which fall under the list from Figure 8.1. Instructors can even get into the sports team rating system (e.g., one star for each major league team in a city), which is why some cities try desperately to keep their pro teams from moving elsewhere.

After this discussion, the instructor can turn to the case for a discussion of the issues involved in leaving St. Louis for Mississippi. Are the incentives reasonable? Why did the firm REALLY leave? Why didn‘t any employees get an invitation to come along? How does a company find a small town and get married to it? What are the risks to the company and the risks to the town? This discussion generates lots of interaction with the class and tends to get everyone involved.

Active Classroom Learning Exercises

1. Exchange Rate and Political Risk Exercise: Exchange rates and political risk are identified in this chapter as important country decision factors. The concept of operational hedging is explained in the ―Other Supplementary Material‖ section for Supplement S7 of this manual. Instructors might divide the class into groups and set up an exercise where each group can choose to build plants in certain countries and choose the amount of excess capacity (if any) to have at each plant. Then a simulation of, say, five to ten time periods can be run in which the exchange rates change significantly each time (either generated randomly or pre-chosen by the instructor). After each exchange rate realization, profit for each group can be calculated. Then, before the next exchange rate realization, the groups have the option of reallocating production and distribution levels using their excess capacity or choosing the more expensive option of closing and opening new plants. If computers are available, this exercise can be automated and can incorporate the transportation model using pre-made Excel spreadsheets provided by the instructor. Extra credit points might be awarded to well-performing teams. In general, groups that apply smart operational hedging strategies should outperform those that do not employ any excess capacity, unless the latter groups get lucky with their exchange rate predictions. To spice things up, the instructor could even introduce a political risk component, whereby in each period certain countries have a chance to nationalize all of the firm‘s assets.

2. Choose several local and national organizations familiar to the students and have them choose a location decision methodology appropriate for each organization. This is a good way to illustrate differences between the methodologies and evaluate when each methodology might be most appropriate.

Company Videos

1. Locating the Next Red Lobster Restaurant (10:47) Red Lobster has 650 locations in the U.S. and Canada, and the firm is always asking ―where to grow next?‖ The firm examines trade area characteristics, site characteristics, and real estate characteristics. Trade area characteristics include a number of demographic factors, such as income, population density, racial composition, average age, competition, nearby hotels and freeways, and buying behavior. Site characteristics include items such as parking, signage, visibility, and ingress/egress. Technology has automated the trade area definitions to be provided in just minutes. The video shows several shots of computer screens utilizing this software. Darden has partnered with MapInfo‘s

Graphical Information System (GIS) to obtain demographic information down to the street level, providing psychographic profiles for potential locations. MapInfo defines households by clusters based on income and buying behavior. Red Lobster scores each cluster from 20 (representing 1/5 the value of a standard customer) to 200 (representing twice the value of a standard customer). The software allows Red Lobster to search by sales volume, maximum cannibalization of existing locations, and minimum distance from existing locations. It will also recognize the nearness of the competition. Even after approving a new restaurant location, two years typically pass before the restaurant is built and ready to open its doors.

Prior to showing the video, instructors might ask students to think about the last Red Lobster (or similar) restaurant in which they ate. Where was it located and why? Discussion following the video could go over some of these factors and compare with the factors that seemed to be important to Red Lobster. The discussion could then move to issues of using demographic data to choose locations. How can a chain like Red Lobster gather the information to know the sales impact for each of the cluster types? Does the organization need to interview actual customers, send out surveys, or perhaps conduct phone interviews? And is the firm sure that a cluster will have the same sales impact in one part of the country as it does in another? Finally, the video only glossed over the issue of competition, but competition can have both positive and negative effects on restaurant sales. Research has shown that when several restaurants locate near each other, total customer volume over all those restaurants is greater than it would be if the restaurants were located far apart. (In other words, customers want to go out to eat, so they drive to the location with many good choices the same concept applies with food courts in shopping malls.) So should Red Lobster be looking to locate near its competition? Why or why not? Also, what if the choice comes down to two cities with similar demographics? City A has, say, 6 similar restaurants while City B has, say, 3 similar restaurants. Is the answer definitely that Red Lobster should locate in City B? Do customers have a fixed number of times that they will eat out per month, or might that number vary if there are more choices?

2. Where to Place the Hard Rock Cafe (8:36)

As with Red Lobster restaurants, Hard Rock Cafes comprise a restaurant chain, but this video has a different feel from the Red Lobster location video. The Senior Director for Worldwide Cafe Development has a significant amount of personal authority to determine future locations, and the priorities for Hard Rock seem to be a bit different than for Red Lobster. Although the firm certainly performs a significant amount of analysis, the Hard Rock approach seems to be somewhat less scientific than Red Lobster‘s and based partly on a ―feeling‖ for the right city to go to and the right part of town in which to locate. The firm also carefully considers how the city is evolving and what it might look like in 10-15 years, because the leases are usually signed for that length of time. For Hard Rock, location begins with a global view of which country to go into (the U.S. market seems to be fairly well saturated from Hard Rock‘s point of view). Hard Rock considers country factors such as political risk, currency risk, social norms, brand fit, social costs, and business practices. After good potential countries are identified, Hard Rock then focuses on regions, followed by cities. Important city factors include population, disposable income, visitor income, and whether it would be good to locate in the city center (which Hard Rock usually prefers) or the suburbs. Once potential cities are identified, Hard Rock performs breakeven analysis to determine if purchase and construction or remodel will be profitable.

Prior to showing the video, instructors might ask the students if they have eaten at any Hard Rock Cafes, and, if so, in what part of the city were they located? Was the location chosen primarily to attract tourists or local residents? Following the video, discussion might try to compare the factors that are important for Hard Rock with the students‘ perception of another well-known international restaurant chain: McDonald‘s. Would a McDonald‘s typically be located next to a Hard Rock? If not, why not? A different discussion stream could focus on Hard Rock‘s list of country factors. Under

what circumstances do the students think that political risk might play a factor? Also, what did the Senior Director mean by ―social costs?‖

Cinematic Ticklers

1. Wayne‘s World (Mike Myers and Dana Carvey), Paramount Pictures, 1992

During their TV program, Wayne and Garth take a video tour of various locations, and when they stop at Delaware, they have nothing to say.

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: Amazon‘s HQ2 Spectacle Ends

Fourteen months ago, Amazon announced a beauty contest, in which cities could apply to win the honor of landing the 2nd headquarters. The prize: 50,000 employees. The cost? Just several billion dollars in tax incentives. Then last week, Amazon announced it would split the prize between Arlington, VA and Long Island, NY.

https://heizerrenderom.wordpress.com/2018/11/16/om-in-the-news-amazons-hq2-spectacle-ends/

2. OM in the News: When the Location Incentives Are in the Billions

The incentives offered by Wisconsin and its municipalities to Taiwan‘s Foxconn Technology Group since it announced a $10 billion megaplant in the state have gone up by nearly $1 billion. If all goes well, Wisconsin taxpayers would recoup the investment in 2042.

https://heizerrenderom.wordpress.com/2018/07/02/om-in-the-news-when-the-location-incentives-are-inthe-billions/

3. OM in the News: Bitcoin Goes to Where the Power Is Cheap

There are already at least 30 known cryptocurrency-mining operations in north central Washington. Why? Cheap electricity from hydroelectric dams. Comparative power usage rates (per sq. ft. per year) are: school–10, home–12, grocery store–40, computer data center–2100!

https://heizerrenderom.wordpress.com/2018/02/16/om-in-the-news-bitcoin-goes-to-where-the-power-ischeap/

4. OM in the News: Where to Locate the Next 1,000 Dollar General Stores

Dollar General plans to expand rapidly in poor, rural communities where it has come to represent not decline but economic resurgence. The company‘s map shows 13,000 green dots as ―remaining opportunities‖ for some new stores some in low-income urban neighborhoods, but most in small and very small towns.

https://heizerrenderom.wordpress.com/2017/10/23/om-in-the-news-where-to-locate-the-next-1000-dollargeneral-stores/

Presentation Slides

INTRODUCTION (8-1 through 8-5)

Slide 3: Federal Express certainly represents a true American success story, beginning with an idea about overnight package delivery that few people thought (1) would be feasible, and (2) customers would pay for. A key reason why it works is the use of a central hub system, and this slide describes its benefits. Instructors can expand on this slide in a couple of ways. First, why did FedEx choose Memphis instead of any other U.S. city? The firm was promising unprecedented speed, but that speed would be meaningless unless FedEx could deliver on its promise consistently. For speed, the firm needed a city in a central location in the U.S. For reliability, it needed a city with few weather delays, which eliminates other potential locations such as St. Louis, Chicago, Minneapolis, and Kansas City. Second, what are the alternatives to a central hub system? Presumably, the two most likely alternatives would be: (1) flying a separate plane from each source airport to each destination airport, or (2) flying one plane from each source airport but sending that plane to each destination airport. Assuming n sources and destinations, and keeping in mind that packages must arrive at the addressee‘s door the following day, compared to a central hub system option (1) would require n 2 planes vs. n planes, while option (2) would only require n planes; however, each would have to take off and land at all destinations before morning, and the packages would have to be handled very carefully so they weren‘t left at the wrong city. Such a discussion might be even more illuminating by picking, say, five real cities and drawing plane routes on the board.

THE STRATEGIC IMPORTANCE OF LOCATION (8-6

through 8-9)

Slide 6: Instructors can use this slide to emphasize the importance of a quality location decision. Globalization has added options, but with more options comes a more complicated decision process. Location decisions are typically long-term in nature and can have a huge impact on both revenue and cost.

Slides 7-8: Most location decisions induce a long-term resource commitment from the firm (Slide 7), so those decisions need to be made with great care. Slide 8 identifies the three major

location options. Each has certain pros and cons. For example, on-site expansion is generally cheapest and does not disperse the existing labor force; however, the layout may become de-optimized, and maintaining a single location maximizes disaster risk. Adding a new branch helps to diversify disaster risk, and the firm can design an optimal layout at the new facility; however, management now must deal with multi-site overhead, and any problems that exist at the current location will not be addressed. Relocating a facility may help to solve problems that exist at the current location, and the firm can design an optimal layout; however, there may be substantial moving and startup costs, the firm may lose good people who do not want to move, and maintaining a single location maximizes disaster risk.

Slide 9: Location-related costs, such as utility and local labor costs, are often out of the firm‘s direct control, so it is somewhat locked into dealing with these cost levels once the location decision is made.

FACTORS THAT AFFECT LOCATION DECISIONS (8-10 through 8-24)

Slide 10: Selecting a facility location is becoming much more complex with globalization. This slide identifies five developments that have led to increased globalization. One approach to selecting a country is to identify what the parent organization believes are key success factors needed to achieve competitive advantage.

Slides 11-13: As exemplified by the Hard Rock Cafe video associated with Chapter 8, firms often divide their location decisions into three levels: first choosing a country, then a region, then finally a specific site. Slides 11-13 (Figure 8.1) identify key factors that may arise for each of the levels.

Slide 14: Based on country success factors such as those identified in Slide 11, as well as certain negative factors such as crime, the World Economic Forum biannually ranks the global competitiveness of 137 countries.

Slide 15: Productivity differences among locations (which may be due to system or infrastructure factors, or possibly differences in the workers themselves) need to be considered when comparing costs. This slide provides a simple example of a higher wage rate location actually being cheaper overall due to productivity differences.

Slides 16-21: These slides cover some of the key success factors in more detail. Exchange rates are mentioned in Slide 16. Students understand that these vary over time, but they are often

mistaken in believing that exchange rate movements can be predicted with any accuracy. (If anyone could, then that person should be making millions of dollars speculating in the currency markets and not spending time reading this chapter.) For example, just because the dollar has been falling in value over the past several months compared to, say, the euro, that gives no indication of what will happen next. Thus, it‘s dangerous to make future cost predictions based on exchange rates that are any different than the current ones. Instructors could take time here to talk about managing exchange rate risk by using either financial hedging (options) or operational hedging (excess capacity in different locations that is called upon when exchange rates shift). Slide 17 is emphasizing, in particular, that when firms jump around the world chasing the lowest costs, they may create hardships on their most recent geographical ―tenants.‖ Also, some locations are low-cost because they have few environmental regulations, but should a firm intentionally go somewhere so that it can pollute more? When viewing Slide 18, instructors might mention that it is possible to purchase political risk insurance. Firms that wish to avoid the possibility of corruption might be interested in country corruption rankings such as those provided by Transparency International (Slide 19). Slides 20-21 illustrate that sometimes desired proximity (to markets, suppliers, or even competitors) drives the location decision. Access to a significant resource pool (labor, raw materials, etc.) often drives competitors to locate near one another (Slide 21). But competitors sometimes cluster for marketing purposes instead. For example, in the restaurant world, studies have shown that more total customers will visit restaurants that are located near each other than would if they are not. Presumably, all restaurants get a piece of this bigger customer pie.

Slides 22-24: These slides provide excellent examples of clustering of competitors, and they are clustered for some very different reasons.

METHODS OF EVALUATING LOCATION ALTERNATIVES (8-25

through 8-39)

Slides 25-26: These slides describe the factor-rating method, which is used by many companies. It represents an attempt to convert qualitative factors into numbers that can be analyzed. As the example (Example 1) in Slide 26 clearly shows, the method represents a simple weighted average approach. Instructors should point out some inherent dangers. While the approach appears to be objective in nature, it contains several subjective elements. For example, the weights themselves are subjectively chosen, and the actual location score for each factor may involve significant individual judgment as well. Raters should be careful for example, when one location has a score of 80 and a second location has a score of 40, is the second location really 50% worse on that factor than the first location? And does 50% worse on one factor mean the same thing as 50% worse on another factor? Manipulators can play tricks with such methods by, for example, only including factors that are favorable for their favorite location or by including a bogus site that is so much worse on a particular factor (say, one that the manipulator‘s favorite location performs poorly on) that the scores for all of the other locations end up being too close together in order to create the appropriate distance in score from the bogus location. Nevertheless, despite potential abuses and shortcomings, the factor-rating method can lead to thorough analysis and insight of many factors that should go into a proper location decision, and it can provide an objective-looking analysis to back up the final decision.

Slides 27-30: These slides describe and illustrate (Example 2) locational cost-volume analysis, which can be useful when comparing locations with clear fixed and linear variable production costs. The technique is the same idea as crossover analysis applied in Chapter 7 to process choice decisions.

Slides 31-37: These slides provide the formulas and a detailed example (Example 3) for the center-ofgravity method, used to find the weighted-average midpoint among a set of destinations to be served. Such methods are particularly useful for warehouses and distribution centers, or any locations either receiving from disperse sources or shipping to disperse customers. The method assumes Euclidean (straight-line) travel. Weights can be based on total volume shipped or shipping cost (total volume times each unit‘s shipping cost per mile). Note that the actual center of gravity could place the facility in an undesirable location such as a volcano or the ocean. Typically, once the center of gravity is determined, a follow-up loaddistance analysis of actual possible locations near the true center of gravity might be conducted. Two notes about the calculations: (1) the optimal x- and y-coordinates are computed separately, but they share the same denominator (the sum of the weights), and (2) calculations can be simplified by expressing weights, say, in thousands (for Slide 36) since the numerator and the denominator can both be divided by 1,000, the answers will be the same.

Slides 38-39: These slides examine the transportation model, which is described briefly in the text. This is also referred to as the allocation problem in the literature. Production-allocation decisions can change from period to period as production or transportation cost, plant capacity, and demand conditions change. The transportation model is one of the classic linear programming applications (see Module C). Relatively large problems can be solved using Excel‘s Solver add-in. Interested instructors could even create some n × m transportation model templates to provide to the students so all that the students would have to do is enter plant capacities, demands, and from-to costs, then invoke Solver to produce the optimal solution. Slide 39 (Figure 8.4) illustrates Volkswagen‘s complex supply network. The transportation model can often be used to optimize distribution networks such as this one.

SERVICE LOCATION STRATEGY

(8-40 through 8-44)

Slide 40: This slide identifies the eight major determinants of volume and revenue for the service firm.

Slides 41-42: These slides reproduce Table 8.6 from the text, which differentiates the location strategies and decisions between service and manufacturing firms. Almost every aspect of the decision is different.

Slides 43-44: This slide describes La Quinta‘s regression model for location analysis (OM in Action: How La Quinta Selects Profitable Hotel Sites). Most of the predictive power of profitability (the dependent variable) is contained in just four variables: (1) price of the inn, (2) median income levels, (3) state population per inn, and (4) location of nearby colleges (Slide 43) La Quinta then used the regression model to predict profitability and developed a cutoff that gave the best results for predicting success or failure of a site. The r 2 with just these four variables was an impressive 51% (Slide 44). A spreadsheet is now used to implement the model, which applies the decision rule and suggests ―build‖ or ―don‘t build.‖

GEOGRAPHIC INFORMATION SYSTEMS (8-45 through 8-46)

Slides 45-46: These two slides describe and illustrate geographic information systems (GIS), which are marvelously detailed informational tools of particular use for companies in a constant growth mode. The text provides several interesting GIS applications, and the Chapter 8 video, ―Locating the Next Red Lobster Restaurant,‖ provides an excellent description of how the firm makes regular use of GIS to aid its location decisions for new restaurants.

Additional Assignment Ideas

1. Visit the websites below and identify what services these firms and subsidiaries provide. How do the criteria they use compare with methods in the textbook?

www.conway.com www.sitelocationassistance.com

2. Visit the online magazine Site Selection. Read and summarize an article relating to this chapter. Provide a printout of the article with your summary. http://www.siteselection.com

Internet Resources

Economic Development Service

www.sitelocationassistance.com

National Association of Manufacturers www.nam.org

Site Selection Magazine http://www.siteselection.com

Transparency International, which maintains a bribe payers perception index (BPI) and a corruption perception index. www.transparency.org

Other Supplementary Material

Commercial Software

o ESRI, GIS and mapping software, and data sets.

ESRI

380 New York Street.

Redlands, CA 92373 8100 (P): 909-793-2853

Website: http://www.esri.com

Load-Distance Model

To supplement the center-of-gravity method material, instructors could introduce the load-distance method. It is a simple way to compare total distance-related costs among a choice of locations (Recall that the center-of-gravity method provides the unconstrained optimal location ) The method is quite simple. Calculate the load-distance score ldi for each candidate location i, and choose the location with the lowest score. The formula is ldi = Σi lijdij, where lij is the load between facility i and customer j, and dij is the distance between i and j

See also the guest blog by Howard Weiss: https://heizerrenderom.wordpress.com/2013/03/20/guest-post-another-way-to-teach-the-center-of-gravitymodel/

Chapter 9 Layout Strategies

Background

Layout can be a fun topic because students can easily relate to many of the concepts covered, particularly for retail and office layouts. Coverage of the job shop, work cell, and repetitive layouts, in particular, nicely ties back to previous sections of the book that touched on those as operations strategies. Layout also includes a significant human element (both employees and customers), which can lead to a host of creative and interesting design issues. The seven layout strategies covered in this chapter are all very different from each other, and they all have unique characteristics that should be unveiled during the lecture.

Class Discussion Ideas

1. Choose a local grocery store or large discount store with which most students should be familiar. Have the students identify features of the layout of that store. Does the store employ any of the five retail layout strategies identified in Slide 9-22? As consumers, do the students have any positive or negative impressions about the layout?

2. Instructors could ask students to identify three or so local restaurants and then comment on the respective layouts. Which layout features stand out? Which layout features seem to be in place for efficiency vs. aesthetics? Is there anything that is not appealing? Does something about the layout in particular cause the students to choose that restaurant over others?

3. Have the students comment on the layout of the student union building. Is it functional? Is it comfortable? Are students drawn to it and want to spend time there? Is there anything that should be changed?

Active Classroom Learning Exercises

1. Have the students split into seven groups, one for each of the seven basic layout types described in the text. Assign a local organization for each group that exhibits the associated layout. (The instructor may need to provide some photos or drawings if students are not familiar with their assigned company.) Have the groups formulate an explanation as to why their firm‘s layout choice is appropriate (or not) given their business and apparent strategy. Which layout features stand out? Have each group present its findings to the class.

2. Most universities have some area crying out for attention to the layout. Select such a spot and have the student groups prepare a proposed layout change based on the material presented in the chapter. Have each group present its findings to the class for comparison purposes.

3. An Experiential Learning Exercise for Teaching Line Balancing (Guest Blog by Brent Snider and Nancy Southin): https://heizerrenderom.wordpress.com/2017/09/21/guest-post-an-experiential-learning-exercise-forteaching-line-balancing/

Company Videos

1. Layout at Arnold Palmer Hospital‘s New Facility (9:30)

When Arnold Palmer Hospital built a brand new women and baby care facility across the street from its current location, the staff had the opportunity to design a fresh layout to optimize efficiency and patient comfort. Management conducted extensive customer surveys to determine what patients liked and did not like about the current facility. This was followed up with extensive employee involvement incorporating 35 user groups and over 1000 meetings. The resulting layout looks very much like a work cell in a manufacturing facility (a ―pod design‖). The pod design saved 20% of nurse walking time during the day. The neonatal unit was designed with reduced noise and light as compared to the old facility, with the astounding impact of babies spending fewer days on ventilators, growing faster, and needing shorter overall stays in the hospital. Here, layout truly made an impact on the health of customers.

Prior to showing the video, instructors might ask the students to think about layout considerations when they either stayed in or visited someone in the hospital. What was comfortable/efficient vs. uncomfortable/inefficient? Afterwards, discussion might cover some of these issues, and compare them to what Arnold Palmer Hospital has attempted. Other discussion avenues might explore, for example, what other types of service businesses might be well-served by switching to a pod design. Alternatively, students could be asked about layout features in other service businesses that were very customer-friendly (for example, comfortable waiting rooms with Internet access and nearby restrooms, lines at theme parks that have television monitors with interesting programming, etc.).

2. Facility Layout at Wheeled Coach Ambulance (7:03)

To manufacture ambulances, Wheeled Coach employs a combination of five parallel assembly lines fed by work cells. The work cells perform all of the pre-assembly work, such as painting, carpentry, and electrical wiring preparation. The key layout concept for management at Wheeled Coach is proximity. In other words, support items, support functions, and support materials should be placed as close as possible to the associated manufacturing processes. Management strives to eliminate distances and heighten communication by eliminating physical barriers. Vehicles spend eight days on the assembly lines themselves. Assembly line workers move from working on one line to the next as human resource needs dictate. Good layout strategies have helped the firm reduce its throughput times.

Prior to showing the video, instructors might ask students to think about everything that might be involved in manufacturing an ambulance. How might they set up such a production system? Afterwards, discussion might try to compare and contrast producing large-volume automobiles vs. producing very customized ambulances. Would an automobile assembly plant have use for as many (or any) work cells as Wheeled Coach has? How long do the students think task times might be in the ambulance factory (probably quite long) vs. an auto factory (maybe 60 seconds and pulled by a moving conveyor system)? Another discussion stream might focus on what assembly plants can do in terms of layout to make things as comfortable or efficient as possible for the workers. Have any students worked in a manufacturing plant? Which layout features were useful, and which might have been improved?

Cinematic Ticklers

1. The Crocodile Hunter, Episode 35: ―Graham‘s Revenge‖ (Steve Irwin), Animal Planet, Discovery Channel, May 13, 2001

This episode has several scenes in which the Australia Zoo staff is preparing crocodile ponds to host new tenants and where crocodiles are being transferred to new locations. One humorous scene shows two crocodiles slamming their heads together as they fight to take control of their new territory. Another scene shows a crocodile almost biting Steve‘s foot off as the staff tries to place the reptile in a box for transport. The set of clips can end where Steve is feeding Graham in his brand new living area in front of a big crowd Steve nearly slips right in front of the crocodile and states, ―The crowd loves it when I nearly die.‖ All of these scenes have some relationship to the construction issues involved in rearranging a facility, along with the personnel issues and attitudes that can arise. Personal space at the office is important to many people, and they often get stressed when asked to change.

2. Office Space (Ron Livingston and Jennifer Aniston), 20th Century Fox, 1999

A recurring theme in this comedy is the treatment of a particular employee that nobody seems to want to have around. The boss keeps moving him to worse and worse workspaces until he finally ends up in a closet far away from everyone.

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: How Robots will Change Retail Forever Amazon‘s robots signal a sea change in how the things we buy will be aggregated, stored, and delivered. The company requires 1 minute of human labor to get a package onto a truck, but that number is headed to zero. Autonomous warehouses will merge with autonomous manufacturing and delivery to form a fully automated supply chain.

https://heizerrenderom.wordpress.com/2018/10/18/om-in-the-news-how-robots-will-change-retailforever/

2. OM in the News: Tesla‘s Changing Assembly Line

Just outside Tesla‘s sprawling electric car plant in Fremont, CA, an unusual structure has taken shape in the past few weeks: a tent, about 50 feet high and several hundred feet long. The tent houses a 3rd assembly line part of a desperate effort to speed up production of the Model 3.

https://heizerrenderom.wordpress.com/2018/07/09/om-in-the-news-teslas-changing-assembly-line/

3. OM in the News: Is UPS Stuck in the 20th Century?

The local UPS package sorting facility in Mesquite, TX, and other similar UPS facilities, haven‘t automated much over decades despite a rush of new warehouse technology in many industries. Today, the company is paying a price.

https://heizerrenderom.wordpress.com/2018/06/21/om-in-the-news-is-ups-stuck-in-the-20th-century/

4. OM in the News: Kraft Foods Fixes Its Factories

Kraft recently moved production of its cold cuts to a new $225 million plant. Changing the open floor plan of the old plant to one with separated work rooms means less downtime from sanitizing the lines. The plant will be able to churn out 2.8 million pounds of sliced meat per week, about 17% more than the old factory, while employing 500 fewer people.

https://heizerrenderom.wordpress.com/2018/02/21/om-in-the-news-kraft-foods-fixes-its-factories/

Presentation Slides

INTRODUCTION (9-1 through 9-8)

Slides 4-6: McDonald‘s is a nice example to cover because most students are intimately familiar with the restaurant. Slides 4 and 5 cover the seven major innovations that McDonald‘s has implemented over the years, noting that six of these are layout decisions. The newest innovation (Slide 6) involves a hefty setup cost and, along with children‘s play areas, takes the restaurant beyond a simple ―grab food, eat quickly, and go‖ model. A short class discussion could gauge student reactions to, in particular, the ―linger zone‖ and the ―flexible zone.‖

THE STRATEGIC IMPORTANCE OF LAYOUT DECISIONS (9-9 through 9-10)

Slide 10: Layout design is interesting because it sometimes balances very different objectives of efficiency vs. making humans (workers and/or customers) happy. Outstanding layout features can change employee or customer attitudes and perceptions, potentially producing more productive workers and/or happier customers who may purchase more and remain loyal.

TYPES OF LAYOUT

(9-11 through 9-17)

Slide 11: The seven layout types identified in this slide are all covered in detail in this chapter. Slides 12-14: These slides provide a brief description of each type of layout. Slides 15-16: These slides reproduce Table 9.1 from the text. The objectives are very different, and they drive the respective solution approaches involved. A short class discussion could go through the list, identifying features of some of the examples listed or instructors‘/students‘ own examples of each layout type. It can be interesting to record what students have noticed about layout decisions based on their own experiences as workers or customers and then to see, as the lecture continues, which features were identified and which were perhaps not.

Slide 17: This can be a good place to point out that, while mathematical models and software applications do exist for the facility layout problem, many actual implementations are based more on art than science. Regardless, good layouts typically consider all of the factors identified in this slide. Instructors might point out that a major reason why layouts have become more open (fewer offices, shorter cubical walls, etc.) over the years has been to increase information flow (communication) among workers (sometimes to the dismay of those who like to work in private).

9-17

OFFICE LAYOUT

(9-18 through 9-20)

Slide 18: The use of modular cubicles and flexible furniture allows office managers to rather easily alter layouts as conditions and personnel change.

Slide 19: When showing the relationship chart, instructors can add some examples such as the boss wanting to be near the bathroom, the senior manager wanting a lakeside view, or the couple who broke up wanting to be as far away from each other as possible. Software has existed for a long time that can provide good layouts based on a relationship chart this is particularly useful for layout decisions involving many employees and/or departments. Instructors might point out that the development of a relationship chart can be a good way to involve employees in the design process. Let each employee provide input, at least concerning the departments or people relevant to them, and base the final chart on aggregate employee perceptions and desires.

Slide 20: Workspace can inspire informal and productive encounters if it balances the three physical and social aspects identified on this slide. In particular, spaces should naturally bring people together (proximity), people must be able to control access to their conversations (privacy), and the culture should signal that non-work interactions are encouraged (permission). People spend much of their lives at the office most individuals would like it to be a social place! Finally, advances in information technology are leading to more offsite work, resulting in lots of empty cubes. Firms are responding with flexible and shared workspaces. Class discussion could focus on how important it would be to students to have their ―own‖ permanent work area at the office, even if they‘re constantly on the road. 9-18

RETAIL LAYOUT

(9-21 through 9-26)

Slides 21-22: Retail layout is fascinating due to the significant influence of consumer behavior. This represents an area of business where academic research has had a tremendous impact. As seen in the list on Slide 22, an important reason for the location of some items is to get consumers to look at other, perhaps less popular, items along the way. High-impulse items are sometimes located ―front and center‖ in the store, and others are located in the checkout line, enticing customers to put them in their basket even though they had no intention of purchasing such products upon entering the store.

Slide 23: Figure 9.2 illustrates the intentional placing of dairy and bakery on opposite ends of the store to cause customers to pass by many other products on their way from one staple product area to the other.

Slides 24-25: Most retail store managers are judged based on their store‘s profitability per square foot of floor space (Slide 24). Slotting fees are a somewhat controversial mechanism that retailers employ to allow manufacturers to put products on the store shelves. Retailer power has enabled this practice, but it provides a particular hindrance to small suppliers (Slide 25). Some suppliers may attempt direct selling through the Internet to avoid paying such a fee.

Slide 26: A servicescape describes the physical surroundings in which a service is delivered and how the surroundings have a humanistic effect on customers and employees. Firms should consider the elements identified in this slide in order to design a good service layout.

WAREHOUSING AND STORAGE LAYOUTS (9-27 through

9-32)

Slides 27-29: An interesting feature of warehouses is that most storage and space considerations are three-dimensional in nature (east-west, north-south, and up). There can be definite safety considerations about the vertical dimension, e.g., it‘s better to put toilet paper than televisions on the top shelf. In general, high-volume items should be placed closest to the docks to minimize material handling costs; however, items that take up a lot of space should be placed further from the docks so that other items can be retrieved quicker (i.e., there is an opportunity cost for taking up a lot of space near the dock with only one type of item). (See Supplement 11 for the formulation of the one-dock warehouse problem along these lines.) The first bullet on Slide 29 demonstrates one of the benefits of component commonality. Essentially, more and more space is wasted when stocking more and more different items, as space needs to be allocated for each item type.

Slide 30: Cross-docking is considered to be an enlightened approach to distribution. The warehouse actually does not store anything for longer than a few hours, so it acts as a transfer point rather than as a traditional warehouse. Cross-docking may work particularly well for fastmoving items requiring daily deliveries.

Slide 31: Random stocking can save a significant amount of inventory space, particularly for firms storing many different items. The computer information systems requirements are significant.

Slide 32: In some sense, the opposite of cross-docking, customizing, suggests that warehouses should not only store goods but should also add some value to them. This slide identifies some of the value-added activities now performed at warehouses. Customizing may be an excellent way to implement postponement, as described in Chapters 7 and 11.

FIXED-POSITION LAYOUT (9-33 through 9-34)

Slides 33-34: These slides describe the fixed-position layout. It is the obvious choice for certain large products/projects, or for ones where the product itself would be very difficult to move (e.g., the land for a corn farm). For firms managing more than one of these, scheduling and moving workers, materials, and machines can be a challenging task, and it might be possible that more workers and machines would be needed than on a traditional assembly line. Slide 34 illustrates the concept of ―manufactured homes,‖ where much of the structure is made ahead of time on an assembly line and the whole thing, despite its size, is shipped to and placed at its final location.

PROCESS-ORIENTED LAYOUT (9-35 through 9-50)

Slide 35: A process-oriented layout is the layout of choice for a typical job shop, as well as for many service industries (banks, cafeterias, hospitals, etc.). The machine investment costs are typically lower than those for a high-volume assembly line. But labor costs may be higher (due to the necessity for higher-skilled, flexible employees). Also, work-in-process inventory levels are typically higher than for an assembly line.

Slide 36: Figure 9.3 shows hospital layout, which makes much more sense than sending all patients past every department as an assembly line layout would.

Slides 37-46: These slides take us through Example 1 in the text, which utilizes the load-distance method to design a process-oriented layout. The objective is to arrange work centers in order to minimize total costs of material handling, defined here as load (the number of shipments per unit time) times distance (or cost to move between department i and department j). Slide 39 shows the steps to follow in designing a good layout. Slide 40 illustrates a from-to matrix (Figure 9.4), showing the loads between each station. Apparently, Department 3 should be placed near Departments 1 and 6 due to the high number of loads per week between Department 3 and those two departments. Slide 41 (Figure 9.5) shows an initial solution, which is hoped to be improved upon. Slide 42 shows the interdepartmental flow graph (Figure 9.6) of the layout shown in Figure 9.5. Placing the loads on the arrows provides a good visual picture of potential areas for change (for example, Assembly and Machine Shop should probably be closer together; meanwhile, Painting and Shipping do not have to be that close). Slides 43-46 show how the costs for the initial solution are improved by $90 (16%) after switching to the second solution (Figure 9.7). Note that for just six departments, there are 6! = 720 possible arrangements to try. For 10 departments? The manager would have to explore 10! = 3,628,800 combinations to be certain of finding the very best!

Slides 47-49: These slides cover computer software, which is usually necessary for large applications. These programs tend to be interactive, and most claim to provide good but not necessarily optimal solutions. Slides 48 and 49 show an application of Proplanner, which can manipulate layouts to illustrate the cost savings from an improved layout.

Slide 50: Here we see that virtual reality has entered the world of layout design.

FOCUSED FACILITIES (9-51 through 9-59)

Slides 51-53: Focused facilities may be appropriate when a family of similar products has been identified that has reasonably stable demand (Slide 51). Such facilities are designed for a specific customer group such that little excess capacity should exist. Three types of focused facilities described in this section are the work cell, the focused work center, and the focused factory. In order to run in sync with the customer, the process requires a takt time, which is the pace of production needed to meet the customer‘s demand. Slide 52 provides the formula for takt time.

Slides 54-56: Work cells can often be thought of as ―mini-factories,‖ producing their own products or product groups. Slide 54 describes work cells, Slide 55 identifies the requirements of

cellular production, and Slide 56 lists potential advantages stemming from focusing on one or few items as well as a sense of employee ownership.

Slides 57-58: These slides (Figures 9.9 and 9.10) illustrate two different instances where U-shaped layouts for work cells can be effective, particularly when the workers are cross-trained.

Slide 59: Slide 59 defines focused work center and focused factory

REPETITIVE AND PRODUCT-ORIENTED LAYOUT (9-60 through 9-71)

Slides 60-63: These slides describe product-oriented layouts, or what students imagine as traditional high-volume assembly lines. These often require a high level of capital investment for the specialized assembly line equipment. Less skilled labor is needed than for a processoriented layout, implying potentially lower labor costs and less training. However, such jobs may be more boring for the workers, which could lead to morale and absenteeism issues. In terms of layout, the general placement of machines may be relatively straightforward, as the order of machines must follow the progression of steps by which the product is made. Products often move down the line via automatic conveyor belts. Balancing the line becomes the major task in layout design.

Slide 64: This slide (Figure 9.11) illustrates the McDonald‘s hamburger assembly line. Each hamburger goes through the same series of stations.

Slide 65: This slide identifies the steps in assembly-line balancing. Such an approach assigns multiple tasks to single workstations in the hope that each workstation will then take approximately the same amount of time per product.

Slides 66-71: These slides cover Examples 2 through 4, which illustrate a line balancing application for Boeing. Slides 66 and 67 (Table 9.2 and Figure 9.12) present the time and precedence data for each task (similar to the project management tables of Chapter 3 but with times in minutes or seconds instead of days or weeks). Slide 68 overlays Slide 67 with the cycle time and minimum number of workstations calculations. Slide 69 (based on Table 9.3) presents five of the most popular heuristics (rules) for assigning tasks to workstations. The Boeing example utilizes the most following tasks heuristic. Slide 70 (Figure 9.13) displays the solutions, and Slide 71 computes the efficiency of the line. A high efficiency value would imply little slack (idle) time in any of the workstations.

Additional Assignment Ideas

1. Have the students view episodes of the sitcom The Office and comment on the layout, including the location of personnel. Then have them find out what it is like to be a white collar worker in a large Japanese firm such as Toyota. The students will likely discover offices with hundreds of people in one room, with no partitions, walls, or offices very depersonalizing.

2. Many warehouses are happy to grant tours to student groups. Either provide a class tour of a local warehouse, or ask the students to visit warehouses themselves in small groups. (If nothing else, most likely, the university campus itself has several warehouses.) Ask the students to write up a report about the warehouse layout, with emphasis directed toward the issues raised in the text. In particular, does the warehouse use forklifts, automatic guided vehicles, or ASRSs? Does it practice crossdocking, random stocking, or customizing? Where are the docks located, and are they dedicated to certain functions, shipment types, or shipment companies? Do the docks serve as inbound only, outbound only, or both? How is inventory stored on the shelves? How high do the shelves go? How are goods picked from the shelves? How automated is the whole warehouse system?

3. Review the websites listed below and describe the layouts represented.

Boeing: http://www.boeing.com/company/tours/ Toyota: http://toyotaky.com/tourvid.asp

Internet Resources

Layout: iQ

www.rapidmodeling.com

Proplanner‘s Flow Planner calculator http://www.proplanner.com/en/products/flow_planner/ Various facility design plans www.manufacturing.net

Other Supplementary Material

Learning Games

o Fish, L. (2005). Teaching Assembly Line Balancing: A Mini-Demonstration with DUPLO® Blocks or ―The Running of the Dogs.‖ Decision Sciences Journal of Innovative Education, 3(1), 169-176. This develops a student‘s understanding of assembly line balancing, quantitatively and qualitatively. Assembly lines issues, such as bottleneck and unbalanced workstations, quality, task times, product assembly, and space allocation are presented.

o Balancing Planes (http://webserver.lemoyne.edu/~wright/planes.htm), by Salwa Ammar and Ronald Wright, Le Moyne College, Syracuse, NY. (Additional material from Drs. Ammar and Wright is available at: http://web.lemoyne.edu/~wright/learn.htm )

Videos

Film available from:

Society of Manufacturing Engineers

One SME Drive

P.O. Box 930

Dearborn, Michigan 48121-0930

(P) 313-425-3000

(F) 313-425-3412

http://www.sme.org

o Layout Improvements for Just-in-Time: See how three manufacturing facilities have maximized plant floor space efficiency to eliminate waste, improve delivery and performance, increase inventory turnovers, and reduce cycle time. Order # PI-VT393-3456.

Models Distance

For models that use distance measures, actual distance should be used when known. However, if such data are difficult to obtain or keep track of, distances can be calculated based on (x, y) coordinates. Students should be familiar with the Euclidean (straight line) distance formula from high school for the distance between two points (x1, y1) and (x2, y2):

Often, however, particularly in office buildings, retail stores, and warehouses, travel occurs in rectangles (north-south and east-west), as opposed to straight lines (e.g., climbing over office cubicles). The formula for the rectilinear distance between two points (x1, y1) and (x2, y2) is:

Single-dock warehouse problem

A simple, greedy algorithm exists for the problem of where to stock items in a warehouse that only has one dock for pickups and deliveries and the objective is to minimize average distance traveled (See the full treatment in Supplement 11 of the text ) This is a ―bang for the buck‖ approach. To solve the problem, first divide the warehouse into blocks of storage area (such as storage shelves). Then, for each type of item that will be stored in the warehouse, calculate the ratio of average number of trips (the bang) to blocks of storage area needed (the buck). The blocks of storage area needed would presumably be based on the maximum inventory level for that item. (In an EOQ environment, this would be the size of the incoming order.) One-by-one, place the items as close to the dock as possible in decreasing order of their ratios. In general, items that are visited frequently should be placed near the dock; however, items that take up a lot of space should be placed further from the dock so that other items can be retrieved quicker (i.e., there is an opportunity cost for taking up a lot of space near the dock with only one type of item).

Chapter 10

Human Resources, Job Design, and Work Measurement

Background

More than any other, this chapter emphasizes the management part of the operations manager‘s job. Most students will have held at least a part-time job, so they should be able to relate to much of the content. Were their jobs appropriately designed and compensated? If desired, lots of time can be spent discussing psychological and reward issues for employees. The methods analysis section ties in well with Chapter 7 on process strategy. Upon reaching the labor standards section of the chapter, instructors could devote some class time to bringing students up front and actually demonstrating a time-and-motion study for a particular task. In fact, instructors could introduce delays or other confounding circumstances such as using a task that pulls an item off of a high shelf a six-foot student might be able to reach it directly while a 5-foot student might have to go find a chair first. Such an example introduces issues of designing tasks that workers can physically handle and also the dangers of basing time studies on just one subject.

Class Discussion Ideas

1. Have the students identify job-related characteristics or rewards that they personally would find motivational. This can work particularly well with groups of senior students or MBAs who are currently in the job market. Instructors might even ask if anyone has had a job with rewards that he or she did not feel were particularly ―rewarding‖ or motivational.

2. Ask the students to identify examples of visual workplace principles in operation at local businesses or organizations. They should describe the system and explain how this improves the operation.

3. Ask the students if any of them have ever held particularly boring jobs, and then try to determine how, acting as managers, the respective firms might have implemented job expansion tactics to help retain employees holding such positions.

4. Ask the students if any of them have ever managed unhappy workers. Was there anything that they tried that successfully turned those workers around?

5. Apple‘s Ethical Dilemma (Blog by Barry Render) https://heizerrenderom.wordpress.com/2012/01/27/teaching-tip-apples-ethical-dilemma/

Active Classroom Learning Exercises

1. Many visual and motion exercises can be used to introduce ergonomics and the man-machine interface; here is one. A machine design requires that students operate a foot pedal on the machine that requires that they lift their right foot off the floor and make clockwise circles with it. Now, while doing this, they must draw the number ‗6‘ in the air with their right hand. Their foot will most likely change direction. (Man is a tool-using animal, but the tools must be designed so man can use them.) It may help verify the results to have the class pair up and

have one person try the activity while the other observes. They can then try again with the roles switched.

2. Have the class split into groups. Using a different job or operation for each group (with which the group is familiar), have the students prepare a flowchart of the job. Using the flowchart, ask them to identify areas where process improvements might be possible. Groups can report their findings to the class.

3. Students often have trouble with the concept of where a performance rating (PR) comes from in time studies. The instructor can hand out a bunch of decks of cards and have students time their partners dealing a very neat bridge hand, i.e., 13 cards per player in four even piles. The students repeat the task twice more, and an average time per student is computed. It turns out that for this manual task, and many others, the Standard Time is known: 30 seconds. Then we can work backwards to find the PR when given the average cycle time and the standard time. This exercise can break the class up, and students may have fun seeing who has the highest PR for manual tasks.

See Barry Render‘s Blog post: https://heizerrenderom.wordpress.com/2010/10/24/teaching-tip-class-exercise-in-workmeasurement-ch-10/

4. If you visit your local science center, you‘ll find experiments that play tricks with our senses. Demonstrating such phenomena in class could be fun and instructive with regard to job design and ergonomics.

Company Videos

1. The ―People‖ Focus: Human Resources at Alaska Airlines (8:23)

Most any service business has an increased interaction between its employees and customers as compared to a manufacturing business. This is certainly true in the airline industry. A customer flying on a trip relies on the combined efforts of many people (e.g., check-in agents, gate agents, flight attendants, pilots, and behind-the-scene players including mechanics, luggage handlers, and caterers) to be part of an on-time, pleasant, and safe trip. Alaska Airlines works hard to attract and retain excellent, customer-focused employees. A big part of the interview process for flight attendants is how they respond at the end of a long day of interviewing because they‘re applying for a position that by its nature involves dealing with customers for an extended period of time. Once hired, flight attendants go through 5.5 weeks of training, which includes providing medical care, responding to emergencies, and controlling disruptive passengers. Meanwhile, the pilots that are hired already have flight experience, but they still go through an extensive training regimen about flying the ―Alaska way,‖ which includes many hours in the flight simulator and test flights with instructors. All 10,000 employees receive training on empowerment and leadership, and the ―Gear Up‖ program provides additional training for the 1,500 managers. Vendor partners, such as ramp operators, caterers, baggage handlers, cleaning personnel, and fuel operators, are considered part of Alaska‘s team and are expected to provide the same quality service. Finally, customer interaction is a key component of Alaska‘s people focus. As Jeff Butler, VP, Customer

Service Airports and Cargo states, ―How we handle an event when something goes wrong we‘re either going to lose a customer or gain a loyal one for life.‖

Prior to showing the video, instructors could ask the students how they would conduct interviews for flight attendant positions if they were managing an airline. What would the process be like? What types of skills would they be looking for? All students have been an employer, a supervisor, or certainly a customer. After watching the video, students could be asked to provide examples of interviews that they‘ve been through or conducted, employee training that they have had or conducted, and/or customer service experiences that they have had as a customer or provided as an employee. What were positive and negative examples? What seems to work well? What doesn‘t work well? All companies talk about how ―our people make the difference,‖ but how do firms really ―walk the walk‖ and provide a true ―people focus‖ instead of just ―talking the talk?‖

2 Hard Rock‘s Human Resource Strategy (7:01)

Why does Hard Rock Cafe have such a long waiting list of people who want to work for the company? Why is the turnover rate half that of the industry norm? Some of the reasons include great benefits, working in a rock and roll environment, good standards for training, good opportunities for internal promotions, the chance to express individuality (tattoos and body piercings are OK!), and the gift of a Rolex watch after 10 years of service. Part of Hard Rock‘s mission is to offer the Hard Rock family a fun, healthy, and nurturing work environment to ensure the company‘s long-term success. ―Rock 101,‖ the entry-level management course, provides not only professional development training, but personal development as well, all in a rock and roll environment. Every employee receives training, which is supplemented by a series of instructional CDs. Much of the firm‘s success seems to be due to hiring practices. Managers take time to hire the best qualified, as opposed to grabbing the best available at the moment. The attractiveness of the job allows such a practice to thrive.

Prior to showing the video, instructors might ask any students who have worked in restaurants to share information about some of the employee benefits, work rules, and working environment. After showing the video, discussion might center around what Hard Rock offers employees that seems to exceed the norm for most other restaurants. In addition, what do students think about the allowance (and sometimes encouragement) of ―rocker‖ appearances of employees wherein tattoos and piercing may be omnipresent? Disneyworld allows none of that forcing employees to sport the clean-cut ―Disney look.‖ Do both strategies make sense for these two separate service firms? Is either strategy unfair or offensive to employees or customers? Finally, employees are hired at Hard Rock to create an authentic and memorable experience for customers. Succeeding in this endeavor requires a constant infusion of energy and enthusiasm from the workers. How can such work attitudes be determined in the interview process? And how can they be maintained after months and months of doing the same job?

Cinematic Ticklers

1. 9 to 5 (Lily Tomlin, Dabney Coleman, Dolly Parton, and Jane Fonda), 20th Century Fox, 1980

The boss (Dabney Coleman) is a control freak who attempts sexual harassment with his secretary (Dolly Parton) and who also is generally unsupportive of his subordinates. After three employees kidnap him, they begin to implement job design changes in his name that greatly improve motivation and productivity. Selected clips could focus on some of the boss‘s sleazy tactics and the description of the specific job design changes that the women implemented.

2. Office Space (Ron Livingston and Jennifer Aniston), 20th Century Fox, 1999

Among the funniest scenes in the movie are passive-aggressive attempts by the boss to get his employees to complete their work or even come in over the weekend to work overtime.

3. Modern Times (Charlie Chaplin), CBS/FOX VIDEO, 1992 (1936)

If not already shown with Chapters 1 or 7, this assembly line clip goes well with the Chapter 10 discussion of labor specialization.

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: China, High-Tech, and the 996 Schedule

Visiting U.S. high-tech executives recently learned about the Chinese concept of 996: work from 9:00 a.m. to 9:00 p.m., 6 days per week. They also found that everybody working in the firms visited is Chinese. Even in its early days, Google had employees from 39 nationalities speaking 40-plus languages.

https://heizerrenderom.wordpress.com/2018/11/09/om-in-the-news-china-high-tech-and-the-996schedule/

2. OM in the News: Life and Death on the Third Shift

One of the most dangerous jobs: cleaning the Tyson slaughterhouse during the third shift. Workers have 14 severe injuries for every 10,000 workers. The amputation rate is 9.4 dismemberments per 10,000 workers five times higher than for U.S. manufacturing workers as a whole.

https://heizerrenderom.wordpress.com/2018/01/15/om-in-the-news-life-and-death-on-the-thirdshift/

3. OM in the News: Ergonomics and the ―Incredible Shrinking Airline Seat‖

To fit more passengers, airlines have been squeezing more, and smaller, seats into the backs of their planes. Meanwhile, passengers have been getting taller and wider. The seats were originally designed for men who averaged 5 feet 10 inches and 170 pounds. Currently, the average man weighs just under 200 pounds.

https://heizerrenderom.wordpress.com/2017/11/15/om-in-the-news-ergonomics-and-theincredible-shrinking-airline-seat/

4. OM in the News: IBM Says No to Home Work

IBM is dismantling its popular, decades-old remote work program to bring employees back into offices in order to improve collaboration and accelerate the pace of work.

https://heizerrenderom.wordpress.com/2017/05/22/om-in-the-news-ibm-says-no-to-home-work/

Presentation Slides

INTRODUCTION (10-1 through 10-8)

Slides 4-6: This Global Company Profile provides a nice example of teamwork, training, continuous improvement, and work measurement. More than most jobs in existence, the NASCAR pit crew member must make every split second count. Only if every team member meets or exceeds standards will the driver likely have a chance to win the race. Such precision involves not only up-front training, but also continuous practice and exercise. And good teams evaluate themselves, sometimes during the actual race itself, to focus on continuous improvement. The surprisingly large salaries for pit crew members attest to the difficulty and seriousness of these jobs.

Copyright

HUMAN RESOURCE STRATEGY FOR COMPETITIVE ADVANTAGE

(10-9 through 1011)

Slides 9-11: We often say that operations management deals with the management of processes, while organization (or human resources) management deals with the management of people. However, the two fields must merge at some point to run a successful business. Operations managers without good people skills may not be operations managers much longer. The success of most businesses, even highly automated ones, ultimately depends upon the effectiveness of people line workers and managers. Slide 10 reminds us that part of the human resource task is to generate effective utilization of people, but just as important can be creating a workplace that produces job satisfaction, employee comfort, and hopefully some level of fun as well. Slide 11 (Figure 10.1) suggests that many decisions made about people are constrained by other operations decisions. Technology and process decisions, in particular, may shape the workplace environment and place significant constraints on workers.

LABOR PLANNING

(10-12 through 10-15)

Slides 12-13:Employment stability deals with the number of employees maintained by an organization at any given time. These two slides describe the two very basic (and opposite) employment stability policies. Looking ahead to Chapter 13, these align perfectly with the pure policies generated from aggregate planning: chase policy (follow demand exactly) vs. level policy (hold employment constant). Companies can decide whether they want the cost-minimizing policy emanating from the aggregate plan to drive the employment stability policy, or whether they want to hold to an employment stability policy that would then dictate the aggregate plan.

Slide 14: This slide identifies the major work schedule variations. The standard workweek in the United States remains at 40 total hours (much higher for management employees of some companies students should be prepared!). Some European countries such as France and Germany have reduced that standard number by a few hours. Flextime and flexible workweeks have become very popular recently, and communications technology has facilitated these changes. While sometimes creating a scheduling headache for operations managers, the availability of flexible work schedules can help to attract and retain excellent employees. Some workers really appreciate the opportunity, for example, to have Fridays off to run errands while other businesses are open around town. Finally, many firms employ a large number of part-time workers. In some cases, such schedules fit perfectly for an individual‘s desired work-life balance. However, many such jobs offer no fringe benefits such as health insurance (which saves money for the companies but can produce a serious financial burden on the workers). As those costs continue to skyrocket, companies are being pressured by the media and the public to provide benefits to part-time help.

Slide 15: Many organizations, particularly union shops, have strict job classifications. We‘ve all heard stories about, for example, managers not being allowed to change a light bulb in their own offices because that task is someone else‘s specific responsibility. Unions often strive for such specific classifications in order to protect jobs for their members. For management, however, this lack of flexibility can produce burdens. Building morale and meeting staffing requirements that result in an efficient, responsive operation are easier if managers have fewer job classifications and workrule constraints. Japanese factories, for example, are known to have far fewer job classifications than their American counterparts.

10-15

JOB DESIGN (10-16 through 10-28)

Slide 16: This slide identifies five components of job design that are studied in this section.

Slide 17: The classic assembly line represents the case where labor specialization may enhance productivity the most. Instead of having the workers build an entire product individually, each worker focuses on a subset of tasks that is repeated for every product coming down the line. This slide identifies the classic advantages of labor specialization, and the concept of learning curves (Module E) applies here. The benefits should be weighed against the downsides of having mind-numbing jobs and the failure of such jobs to be able to bring to the workplace the employee‘s full set of skills (both manual and intellectual).

Slides 18-19:Job expansion, adding more variety to jobs, helps to improve the quality of work life for many employees. Slide 18 identifies four of the major approaches to job expansion: (1) job enlargement adds tasks requiring similar skills, (2) job rotation moves the employee from one specialized job to another, (3) job enrichment adds planning and control (the mind) to the job, and (4) employee empowerment assigns responsibility to employees for decisions normally associated with staff specialists. Recall that employee empowerment is considered to be an important concept in Total Quality Management (Chapter 6). Slide 19 (Figure 10.2) provides an example of job expansion via job enlargement (horizontal expansion) and job enrichment (vertical expansion).

Slides 20-22:These slides cover the psychological components of job design. Slide 21 describes the famous Hawthorne studies (conducted in the late 1920s at a Western Electric plant), which introduced the idea of psychology in the workplace. Researchers have since conducted numerous studies regarding the psychological components of job design. Slide 22 summarizes much of that work into five desirable characteristics of job design.

Slide 23-25: Slide 23 describes self-directed teams and why such teams can be so effective. Slide 24 provides additional information not found in the text about how such teams should be managed. Slide 25 (Figure 10.3) suggests a job design continuum showing the techniques of Slide 18, culminating in self-directed teams.

Slides 26-27:Slides 26 and 27 present advantages and limitations, respectively, of job expansion.

Slide 28: Properly designed incentive systems can be powerful motivators for employees. Such schemes may be based on individual performance, team performance, or even organizational performance. Sometimes, bonuses or raises come after an employee has attained certain knowledge through perhaps completing a training program or an academic degree. One caveat about bonuses presenting a bonus one year may create similar expectations in future years. If the conditions for receiving the bonus change, incentives may backfire because employees may not be receiving money that they now consider to be part of their overall compensation package. Once introduced, bonus systems may be difficult to take away without generating employee backlash. Instructors can insert a short class discussion at this point to explore good incentives for a professional basketball or football player. Would bonuses based only on individual statistics make sense? Interested instructors could also present various CEO incentive schemes and ask the class if these are designed to drive the best decisions for the organization.

ERGONOMICS AND THE WORK ENVIRONMENT (10-29 through 10-33)

Slides 29-30:These slides identify some of the important issues in creating a proper work environment. Tools, furniture, keyboards, etc. should be designed with employee comfort and productivity in mind. How the machines provide feedback to operators through sight, sound, and feel is important as well. Also, aspects that affect the senses, such as illumination, noise, temperature, and humidity should be carefully controlled.

Slides 31-33:These slides provide information about light and sound under various conditions. The Occupational Safety and Health Administration (OSHA) has established certain regulations for employee protection under various environmental conditions.

METHODS ANALYSIS (10-34 through 10-39)

Slides 34-39:Slide 34 describes three uses for methods techniques, and examples of four of these techniques are provided in the following five slides. Slides 35 and 36 (Figures 10.5(a) and (b), respectively) provide a flow diagram for an old method and new method, respectively. The new method has improved workflow and requires less storage and space. Slide 37 (Figure 10.5(c)) illustrates a process chart for the method shown in Slide 36. Every sequential step in the process should be identified, including all operations, transportation, inspection, delay, and storage. For transportation steps, a column records the distance, while a second column records the time for the other types of steps. Slide 38 (Figure 10.6) provides an example of an activity chart (also called a man-machine chart or a crew chart) depicting a twoperson oil change operation. Such a chart helps to understand crew or man-machine interaction. Slide 39 (Figure 10.7) provides an example of an operations chart (also called a right-hand/left-hand chart) for a bolt-washer assembly. The chart uses the same symbols as a process chart, but it splits activities into right-hand and left-hand movements, which can help to point out wasted motion or idle time.

THE VISUAL WORKPLACE (10-40 through 10-44)

Slides 40-41:The idea of the visual workplace is to replace difficult-to-understand printouts and paperwork with simple visual displays of key information. Updates can occur quickly, providing timely information in an ever-changing environment. The visual workplace can eliminate non-value-added activities by making standards, problems, and abnormalities visual.

Slides 42-44:These slides, from Figure 10.8 in the text, display some very different implementations of the visual workplace.

LABOR STANDARDS (10-45 through 10-79)

Introductory Subsection (10-45 through 10-48)

Slides 45-46:These slides introduce the concept of labor standards, representing the third requirement of an effective human resource strategy (after labor planning and job design).

Slide 47: This slide identifies seven uses for meaningful labor standards. Note how together these serve a variety of important functions, including determining the production cost of products, determining resource requirements, planning production and balancing assembly lines, devising proper compensation and incentive plans, and having a means to evaluate employee performance.

Slide 48: This slide identifies the four ways to establish labor standards, which are described in detail in succeeding sections.

10-48

Historical Experience (10-49)

Slide 49: Historical experience represents the least preferred of the four methods of establishing labor standards. This method is unattractive because management cannot necessarily determine whether or not the old data represent a good work pace or a poor work pace, or whether they were recorded during any kind of unusual circumstances.

10-49

Time Studies (10-50 through 10-67)

Slide 50: Time studies (or stopwatch studies) date back to Frederick Taylor in 1881, and they probably represent his most important contribution. The basic idea is to observe and time a worker performing a task and then to use that time as the standard for all other workers under normal operating conditions. (Conditions for the sample should be carefully designed so that the subject does not produce an abnormal result. For example, if the worker believed that he or she was being judged in some way based on the test, then the worker might operate faster than normal. Alternatively, if the worker believed that his or her future compensation would be based on performance against the standard, then he or she might intentionally work slowly during the test.)

Slides 51-54:These slides present the eight steps to conducting a time study. Note that complete jobs (or tasks) are divided into specific elements that are timed separately. These elements often take no more than a few seconds. Note also the performance rating factor in Step 6. The factor attempts to adjust the average observed time to what a trained worker could expect to accomplish working at a normal pace. A value greater than 1 implies that the observed worker has performed faster than average, while a value less than 1 implies a slower than average performance. The Society for the Advancement of Management has established benchmarks for work pace,

but the precise estimation of this factor remains something of an art. If there is no reason to believe that the observations are unusual, a performance rating factor of 1.00 should be used. Finally, the culminating standard time calculation in Step 8 includes an allowance factor (Slide 54), which adjusts time to complete a task to account for items such as personal time allowances (usually 4% to 7% of total time) for restroom breaks, etc., delay allowances for known delays in the system, and fatigue allowances to account for human energy expenditure under various conditions.

Slides 55-57:These slides reproduce Table 10.1 from the text, which presents a sample set of personal and fatigue allowances in percentage terms for various classes of work. This suggests that the total allowance factor can add up to be a significant amount for certain physically or mentally demanding jobs.

Slide 58: This slide presents Example 1 from the text showing the computation of a standard time.

Slides 59-61:Here we see Example 2 from the text, which includes raw data from five observations. The concept of deleting unusual or nonrecurring observations is illustrated in this example (Slide 59). These observations would not be part of the job element and would presumably include some sort of delay, but such potential delays will be accounted for with the allowance factor i.e., we do not want to double-count for potential delays. (Note that the denominator of the average times will change for job elements that had deleted observations.)

Slides 62-64:These slides present a nice straightforward way to determine the appropriate sample size for a time study. The three items identified in Slide 62 determine the inputs for the sample size formula, where the third item is based on the mean and standard deviation of the initial sample. Slide 63 presents the formula, and Slide 64 (Table 10.2) presents a convenient listing of common z-values from the standard normal distribution table.

Slide 65: This slide presents Example 3 from the text, which is a sample size calculation. Notice how the sample size can reach a relatively large level, so the complete time study may take a while to finish.

Slides 66-67:These slides present two variations on the sample size formula given in Slide 63. The first variation (Slide 66) should be used if the accuracy is expressed in absolute terms instead of percentage terms, while the second (Slide 67) should be used to compute the sample standard deviation when the true standard deviation is not known (which is typically the case).

Predetermined Time Standards (10-68 through 10-70)

Slide 68: If work can be broken down into very specific basic motions called therbligs, then the analyst can simply sum together well-established times for each therblig to estimate the time for the overall task. This avoids having to run time studies and can be computed before production begins.

Slide 69: The most common predetermined time standard is methods time measurement (MTM), a product of the MTM Association. Slide 69 (Figure 10.9) presents a sample MTM table for the ―GET and PLACE‖ motion. The time values are in time measurement units (TMUs), where 1 TMU = .0006 min. or 100,000 TMUs = 1 hr. Notice how the times differ depending on conditions, such as weight, conditions of GET (easy, difficult, handful), PLACE accuracy (approximate, loose, tight), and the distance range.

Slide 70: This slide presents Example 4 from the text. Times for the first three elements can be retrieved from Slide 69, while times for the other two elements would come from similar tables. After summing together and converting, the total time for this task is 0.143 minutes. Most MTM calculations are actually computerized, so the user only needs to key in the appropriate MTM codes to determine the overall predetermined time standard.

Work Sampling (10-71 through 10-79)

Slides 71-79:The final set of labor standards slides covers work sampling, which estimates the percentage of time that a worker spends on various tasks. The estimates are made via random observations to record the activity that the worker is performing. This method is a more ―macro‖ view of time estimation than the first three methods, which determine very specific task times. Sometimes firms ask employees to selfreport how they spent their day, rather than actually observing them (this especially makes sense for white collar office jobs). Slide 72 identifies the five steps of work sampling. The sample size calculation is presented in Slide 73. The formula bears some resemblance to the sample size formula for time studies (Equation (10-4)), but variance ÷ mean2 is replaced with p(1 – p), where p is the estimated sample proportion of the task being measured. Slide 74 presents Example 5 showing a sample size calculation. Slide 75 presents Example 6 showing an application of work sampling. Here, management wants employees to be idle 25% of the time. After taking 833 unbiased samples, the study suggests that employees only average 22.6% idle time, so management should consider hiring more employees or otherwise decreasing work burdens. Slides 76 and 77 (Figure 10.10) present results from two work sampling studies. Slides 78 and 79 present the advantages and

disadvantages of work sampling, respectively. In short, work sampling is easier and less intrusive than time studies, but it provides more macro and less accurate indications of how workers spend their time.

ETHICS (10-80)

Slide 80: Particularly because humans are involved, proper job design must take into consideration issues of fairness, equity, and ethics. Operations managers must know the law, as well as generally accepted human resource standards. Most firms have human resource and legal departments to help define appropriate job design parameters. Management must also educate employees about equipment, work rules, and the work environment and enforce the rules even if they are unpopular among employees.

Additional Assignment Ideas

1. Have the students perform a work sampling study of their own activities during each day of a regular workweek. They need to decide on the basic activity categories (eating, traveling, studying, in class, etc.), compute the number of observations required, and collect and record the data. They should then summarize and report on their analysis.

2. MTM (The Methods Time Measurement Association) has created software for developing labor standards in specialized areas. For example, one area of measurement is Healthcare labor. Find and identify the other specialized areas. (Hint: Start your search at http://www.mtm.org/. Click on ―SERVICES,‖ then ―Work Measurement Systems.‖)

Internet Resources

Human Measurements by Open Ergonomics Ltd.

www.openerg.com

Institute of Industrial & Systems Engineers https://www.iise.org/Home/

Methods Time Measurement Association www.mtm.org

Occupational Safety and Health Administration www.osha.gov

Quetech Ltd.

www.quetech.com

Tectime Data Systems Ltd. www.tectime.com

Timer Pro Professional www.acsco.com

Visual Thinking Inc. Visual-Learn Institute www.visualworkplace.com

World at Work www.worldatwork.org

Other Supplementary Material

Videos

Cheaper by the Dozen (Clifton Webb and Myrna Loy), 20th Century Fox, 1950 This is the story of the Gilbreth family.

Films available from:

Society of Manufacturing Engineers

One SME Drive

P.O. Box 930

Dearborn, Michigan 48121-0930

(P) 313-425-3000

(F) 313-425-3412

http://www.sme.org

o Managing Teams in Manufacturing Practical management agenda to help you focus on avoiding pervasive pitfalls that often limit team performance. Order # PI-VT506-3456.

o Ergonomics in Manufacturing See how ergonomics can effectively boost manufacturing productivity through increased worker productivity, lower absenteeism, and dramatically reduced health claims. Order # PI-VT507-3456.

o Ergonomic Safety Four steps to setting up an effective ergonomic safety program, a 10point ergonomic approach to reviewing the workplace environment, and what the future holds for ergonomic safety. Order # PT-VT618-3456.

o Work Measurement Shows how manufacturers are using the process to measure productivity improvements. Order # PI-VT641-3456.

Commercial Software

 A.D.A.M. Interactive Physiology

A.D.A.M., a business unit of Ebix 10 10th Street NE, Ste. 500 Atlanta, Georgia 30309 1-800-755-ADAM http://www.adameducation.com/interactive-physiology.aspx

 4M System, Computerized Work Measurement Technology

MTM Association for Standards and Research 1111 East Touhy Avenue Des Plaines, Illinois 60018 (P): 847-299-1111 (F): 847-299-3509 http://www.mtm.org

Chapter 11 Supply Chain Management

Background

Supply chain management remains one of the hottest topics in business today, as companies continue to search for effective ways to drive costs out of the supply chain. Many schools offer one or more courses or even full programs devoted to the topic. Chapter 11 provides a good overview of some of the major supply chain management issues. Slides 11-35 through 11-37 identify important opportunities for managing supply chains. The main theme that instructors should emphasize is that effective supply chain management is all about cooperation among members of the chain through close partnerships with suppliers, sharing information throughout the supply chain, etc. Optimizing decisions for the whole supply chain instead of for each firm

individually creates value, and the extra value creates a win-win situation as long as the benefits are shared among the supply chain members.

Class Discussion Ideas

1. The world‘s largest retailer, Walmart, owns and manages its own fleet of trucks. The company has often received praise for its distribution capabilities. The practice, however, seems to represent a stark contrast to the practice of outsourcing not only shipping, but other logistics operations to third-party logistics providers. Discussion could address the advantages and disadvantages of these different policies. Under what conditions would it make sense for a firm to own and manage its own trucking operation?

2. Multi-facility companies must decide whether to purchase goods centrally or let each site purchase on its own. Instructors could have the students try to identify the advantages and disadvantages of centralized purchasing. Some advantages include: (1) more ability to obtain quantity discounts, (2) reduced duplication of effort, (3) economies of scale in purchasing activities, and (4) potential risk- pooling benefits. Some disadvantages include: (1) potential extra material handling, (2) potential longer lead times, (3) local site needs being ignored, and (4) loss of control for local managers who are judged on profit or cost.

Active Classroom Learning Exercises

1. Split the class into small groups. Have the groups choose a firm with which they are familiar and list and describe in detail some ethical issues the firm might face in managing its supply chain activities. Have each group report its ideas to the whole class.

Company Videos

1. Darden‘s Global Supply Chains (8:12)

Darden Restaurants manages four distinct supply chains in support of its franchise restaurants: (1) Central Distribution for Smallware (nonfood items), (2) Independent Supply Chain (local purchasing for items such as dairy products), (3) Darden Direct Distribution (Darden owns and manages its inventory positions while using third-party logistics providers for warehousing and distribution), and (4) Seafood Warehousing Network (utilizing warehouses throughout the world where the seafood is harvested). The seafood network stores as much as $150 million in inventory at any point in time in order to protect against potential supply disruptions. Distribution centers are located to try to find the proper balance between cost and service. Concerning suppliers, Darden works to develop partnering and win-win relationships, and it strives to find the proper balance between supplier needs and customer needs.

Prior to showing the video, instructors might ask students to think about how Red Lobster and Olive Garden restaurants might procure and receive all of their supplies (food and nonfood). Afterwards, discussion could begin with exploring why having four different supply chains makes sense for these restaurants. This could evolve into a centralized vs.

decentralized purchasing discussion. Would an individual restaurant manager want to purchase any of his or her own materials or food? If so, which ones? What about other types of large businesses with many outlets (Jiffy Lube, Target Stores, Great Clips Hair Salons, Starbucks, The UPS Store, etc.)? Would any of those be particularly appropriate to utilize local purchasing?

A different discussion thread could address the environmental impact of Darden‘s global sourcing of fresh fish. As one article in Orlando stated, ―If fish were intended to fly, they wouldn‘t be fish.‖ Darden‘s huge claim to serve non-frozen (i.e., fresh) fish means that the carbon footprint on everyone‘s meal is enormous. The firm is very sustainability-oriented in many other activities that it engages in, but the volumes involved in Darden‘s fresh fish sourcing strategy certainly contribute to the global warming problem. Discussion could focus on what Darden‘s responsibility, if any, should be with regard to its potential impact on global warming. Should the company be trying any new tactics in the long run?

2. Arnold Palmer Hospital‘s Supply Chain (8:08)

The hospital was originally one of 900 members of a national purchasing group, which had served it well with respect to getting good prices for its supplies. However, when the national purchasing group switched vendors for some products away from Arnold Palmer Hospital‘s preferred vendors, the hospital decided to form its own regional purchasing organization, along with seven partner hospitals in Florida. Surprisingly, even with far fewer members than the national organization, the regional group provided a 7% overall cost reduction for Arnold Palmer Hospital, in part due to savings in national membership fees. The regional group has been so effective because it has successfully relied upon trust among member hospitals, which must share patient and forecasting information with each other. Three other supply chain issues emerge from the video. First, the medical and nursing staff members at the hospital actively participate in supply chain management efficiency improvement efforts. Second, when possible, the hospital tries to focus on a few suppliers to form long-term relationships. Third, the regional purchasing group has successfully integrated three tiers of suppliers in some of its supply chain management initiatives.

Prior to showing the video, instructors might ask students about the pros and cons, as a single-facility or small business, of joining a large purchasing group from which to purchase most major supplies. Afterwards, discussion could flush out the gains that Arnold Palmer Hospital attained by belonging to a purchasing group, but also the challenges that it faced. Instructors could ask students why prices for certain supplies seemed to decrease when the hospital joined a much smaller purchasing group the video only touched on this issue briefly, leaving us to speculate a bit about some of the reasons why (perhaps guarantees of sole supplier status, cheaper shipping cost, or being better able to accommodate certain supplier needs are all possibilities). An issue that is not addressed in the video but comes to mind about hospitals is the question of why this hospital cares so much about getting supplies at a low cost. To the extent that insurance companies and Medicare likely pay for the cost of supplies via hospital bills to patients, why should this hospital care? Healthcare costs seem to rise every year and consumers keep paying because they seldom have other options to remain healthy. Does the existence of competition play a role? Do insurance plans and Medicare pay

a flat reimbursement fee per procedure, regardless of actual hospital cost? If so, then lower purchasing costs would definitely help the hospital.

3. Supply-Chain Management at Regal Marine (9:58)

This video provides information about both ends of Regal Marine‘s supply chain: the suppliers and the distributors. The firm strives to form partnering relations with its major suppliers. Regal‘s forecasts are regularly communicated with its partner suppliers, and Regal expects these firms to implement continuous improvement policies. The firm has worked hard to reduce inventory. In many cases, vendors deliver raw materials weekly for use that week. Regal has a vendor managed inventory relationship with some suppliers, which has eliminated order taking, receiving, and warehousing of those products. To help ensure quality, Regal chooses to partner with suppliers that are or are trying to become ISO 9000 certified. Regal is a member of a 12-company purchasing group that allows member firms to attain volume discounts from suppliers, leveling the playing field against the big conglomerate boat manufacturers. On the distribution end, Regal searches for first-class dealers that are mature and will represent the products well. Potential dealers are evaluated on location, maturity of sales force, market share, and perhaps most importantly, customer satisfaction index. Regal can attract first-class dealers by striving to produce best-in-class products.

Prior to showing the video, instructors ask the students to think about the task for manufacturing companies of finding the best dealers through which to sell their products. What factors should they take into consideration? Following the video, student input could be compared with the factors with which Regal Marine focuses. Once a dealer is chosen, how should that relationship be monitored and maintained over time? At what point should a manufacturer search for a new dealer? On the purchasing side, the video gives a nice example of some suppliers physically entering the plant to take orders, returning two days later with the proper parts, and not transferring title until the boat is actually finished (all a form of vendor managed inventory (VMI)). Instructors could ask students to identify the pros and cons for both Regal Marine and for the vendors of such a VMI system. Finally, the ISO 9000 requirement for suppliers ties in nicely with material in Chapter 6 of the book. Instructors could point out that ISO 9000 certification appears to be an order qualifier for potential suppliers of Regal Marine. A brief class discussion could attempt to identify pros and cons for Regal Marine of implementing such a policy.

Cinematic Ticklers

1. The Simpsons, Season 10: ―Maximum Homerdrive,‖ 20th Century Fox Video, 2007 (19981999) Homer gets to be a truck driver in this episode.

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: In Russia, McDonald‘s Serves Local Fries and a Side of Realpolitik McDonald‘s became a leading ambassador of American culture after opening its first restaurant in Moscow in the twilight of the Soviet Union. Now, as Russia-U.S. tensions rise

and pro-Kremlin politicians call to close the U.S. chain, management is taking a new tack: Go Russian. This year, the company boosted the share of Russian suppliers its restaurants use to 98%.

https://heizerrenderom.wordpress.com/2018/11/19/om-in-the-news-in-russia-mcdonalds-serveslocal-fries-and-a-side-of-realpolitik/

2. OM in the News: The Stressed Global Auto Supply Chain

Fights are emerging across the auto industry over who should bear the costs of tariffs, leading to stress along the supply chain. Toyota has told suppliers they shouldn‘t count on the Japanese car maker to help absorb the higher tariff-related costs. The average operating profit margin in the auto parts manufacturing business is already slim about 7% so extra costs can hit earnings hard.

https://heizerrenderom.wordpress.com/2018/11/14/om-in-the-news-the-stressed-global-autosupply-chain/

3. OM in the News: Airplane Supply Chains and the Rolls-Royce Constraint Rolls-Royce is warning that its aircraft engine production will fall short this year, adding to the pressure plane makers face in delivering new jets to airlines on time. Boeing 787 Dreamliners have been beset by repair problems on their Roll-Royce engines. https://heizerrenderom.wordpress.com/2018/11/02/om-in-the-news-airplane-supply-chains-andthe-rolls-royce-constraint/

4. OM in the News: Cobalt Mines, Supply Chain, and Ethics

Dozens of global manufacturers found themselves on the defense when Amnesty International reported that the cobalt in some of their batteries was dug up by Congolese miners and children under inhumane conditions. Many of the companies said they would audit their suppliers and send teams to Congo to fix the problem. https://heizerrenderom.wordpress.com/2018/09/24/om-in-the-news-cobalt-mines-supply-chainsand-ethics/

Presentation Slides

INTRODUCTION (11-1 through 11-8)

Slides 5-6: This information on Red Lobster can be supplemented by mentioning the common characteristics of all four supply channels: (1) supplier qualification, (2) product tracking, (3) independent audits of suppliers, and (4) just-in-time delivery.

Copyright

THE SUPPLY CHAIN‘S STRATEGIC IMPORTANCE

(11-9 through 11-15)

Slide 10: The Beer Supply Chain shown in this slide (Figure 11.1) provides an example of the breadth of the links and activities that a supply chain may cover.

Slides 11-12:The key term in the definition of supply chain management is coordination Effective supply chain management is all about getting all members of the supply chain working together as though they were one vertically integrated company. Mathematically, this suggests a global (across the supply chain) optimization strategy, as opposed to a collection of local (firm-only) optimization strategies. Effective coordination entails establishing relationships among supply chain members. Long-term supplier relationship management has received a significantly increased effort in recent years.

Slide 13: Table 11.1 shows dramatically that in many industries, purchasing costs represent a very large percentage of sales often more than 50%. This implies that supply chain performance has a huge impact on bottom-line profits; therefore, firms should devote serious resources to help effectively manage supply chain activities. Proper control of supply chain costs can ensure success for an organization

Slide 14: The insight from this slide (Example 1) is that it‘s often easier to meet increased profit goals via improving supply chain efficiency than it would be by having to generate more revenue. This is one reason why supply chain management receives so much attention. Under the assumptions of this particular example, the firm can increase profit by 50% either by cutting purchasing costs by 8.3% or by increasing sales by 25%. Which is easier?

Slide 15: This slide reproduces Table 11.2 from the text. We see another example here of how important it is to clearly define and disseminate the firm‘s strategy to all employees, as the strategy dictates very different supply chain policies that should be followed.

SOURCING ISSUES: MAKE-OR-BUY VS. OUTSOURCING (11-16)

Slide 16: This slide distinguishes the slight difference between make-or-buy decisions vs. outsourcing. Firms are outsourcing more and more support (non-production) functions, such as payroll and call centers. Outsourcing is covered in detail in Chapter 2.

SIX SOURCING STRATEGIES (11-17 through 11-24)

Slide 17: This slide identifies very different approaches to managing the supply base, which are detailed in the following set of slides.

Slide 18: The ―many-suppliers‖ approach is considered to be the ―old‖ or ―unenlightened‖ method for selecting suppliers, but it may still make sense for certain commodity products or for firms that practice an extreme low-cost strategy. These are called ―arms-length‖ transactions, and firms may switch suppliers frequently.

Slide 19: The ―few-suppliers‖ approach is considered to be a more ―enlightened‖ method for selecting suppliers, and many top companies have been aggressively working to reduce their respective supply bases. It can be nearly impossible to ―work together‖ in the supply chain coordination sense if dealing with many suppliers for the same components. When successfully implemented, the few-suppliers approach creates win-win opportunities for all parties.

Slides 20-21:These slides describe vertical integration. Slide 20 reproduces Figure 11.2 from the text, which provides examples of vertical integration in three industries. Importantly, vertical integration works in both directions, including taking over the distribution network. Clearly, the Internet has allowed many manufacturers to open up new direct sales channels to customers. Vertical integration is in many ways the opposite of outsourcing; thus, outsourcing‘s recent popularity implies that we‘re seeing less vertical integration than we used to. Certainly for some products, such as paper mills, vertical integration makes perfect sense. Some of the giant South Korean companies have a fascinating history of growth through a substantial effort toward both vertical and horizontal integration.

Slide 22: Joint ventures can represent a nice way to gain the benefits of partnering while retaining independence and being in a relationship that is easier to dissolve.

Slide 23: Keiretsu networks come from Japan. They may include banks in addition to more traditional supply chain partners. In addition to cross-ownership and loans among members, in many cases, officers of some companies serve on the board of directors of other firms within the network.

Slide 24: In a virtual company, the supply chain is the company. In some sense, a virtual company takes delegation to the limit. Several firms have become very profitable by using this strategy. Some critics argue that an economy that becomes full of ―hollowed out‖ organizations that do not make anything themselves carries significant risk and does not represent a strong, stable economy. This concern could be addressed in a short class discussion.

SUPPLY CHAIN RISK

(11-25 through 11-32)

Slide 25: Along with all of the upsides of creating partnerships with supply chain members come the inherent risks of giving up certain control and depending on others. The use of global supply networks compounds the risks by introducing political and currency risk, along with the added complexity that managing global networks entails. The reliability and quality of foreign suppliers may be more difficult to determine up front and monitor over time. Therefore, proper risk management becomes crucial for survival. The area of supply chain risk is currently a hot research topic among academicians as they are attempting to develop solutions to the challenging supply chain risk problems.

Slides 26-31:The development of a successful strategic plan for supply chain management requires careful research, a thorough assessment of the risks involved, and innovative planning (Slide 26). Companies need to try to reduce potential disruptions, but they also should have contingency plans in place to prepare for such events. Flexible, secure supply chains can provide a good foundation. Slides 27-31 (Table 11.3) present major categories of risks, along with suggested potential tactics to help manage them. An industry example is provided for each risk category. Supplement 11 provides a decision tree approach to incorporate disaster risk into the decision of choosing the best number of suppliers.

Slide 32: Instructors could emphasize the statistic from the text stating that some 5% of international container movements are misrouted, stolen, damaged, or excessively delayed. Fortunately, technologies such as those identified in this slide are helping. Improvements in security may aid JIT, and improvements in JIT may aid security both of which can improve supply chain logistics.

MANAGING THE INTEGRATED SUPPLY CHAIN (11-33

through 11-37)

Slides 33-34:All three of the bullets on Slide 33 contribute to the bullwhip effect (Slide 34). All three are related in the sense that such practices fail to take into account their impact on the other supply chain members. The Beer Game (referenced above) represents an outstanding way to illustrate how such thinking can generate a bullwhip effect in a short period of time. Supplement 11 describes the bullwhip effect in more detail and provides a straightforward quantitative way to identify the bullwhip effect in a supply chain.

Slides 35-37:Each of these 11 items represents opportunities for effective management in the supply chain. They can all help to minimize the bullwhip effect. Thus, these slides are among the most important in this chapter. Slide 35: (1) accurate pull data are generated by sharing point-of-sales information and computer-assisted ordering; (2) lot size reduction occurs when the benefits of large orders are diminished (e.g., providing discounts based on annual volume rather than units per order or reducing the cost of placing orders); (3) single-stage control of replenishment implies designating one supply chain member to monitor and manage inventory for the whole system; and (4) VMI has vendors maintaining inventory for the buyers, often physically doing so directly in the buyers‘ facilities (an example might be a soft

drink company keeping the shelves stocked weekly at a local convenience store). Slide 36: (1) CPFR involves members of the supply chain sharing planning, forecasting, and inventory information; (2) blanket orders are long-term commitments with suppliers to purchase items, which are later delivered upon receipt of a shipping requisition; and (3) standardization means employing the use of common components in different products and across production facilities (firms have saved thousands or even millions of dollars doing this via higher volume discounts and inventory reductions). Slide 37: (1) postponement combines a maketo-stock strategy for subassemblies with a make-to-order strategy for final products; thus, this can be a way to move toward mass customization (Benetton provided a famous example of postponement by shipping all white sweaters to its distribution centers and dyeing the sweaters there once fashion tastes for the upcoming season are better known); (2) electronic ordering and funds transfer speed transactions, reduce paperwork, and reduce transactions costs this is usually done over the Internet or via an electronic data interchange (EDI) format; (3) drop shipping involves having suppliers ship certain components or peripherals directly to the customers, without physically going through the selling firm‘s hands; and (4) blockchain improves tracking of items as they flow through the supply chain.

BUILDING THE SUPPLY BASE

(11-38 through 11-42)

Slide 38: Selecting the appropriate suppliers can have an enormous impact on quality and production efficiency. A fair amount of research has been, and continues to be, conducted regarding the supplier selection problem. This is arguably the most important task of a purchasing professional. Supplement 11 illustrates how to apply the factor-weighting approach to supplier selection. Many firms formalize the selection process by making use of a supplier certification program to pre-qualify potential suppliers. Some of these firms require external verification such as ISO

9000 certification (see Chapter 6), while others implement their own companyspecific certification process. Once certified, the supplier may be awarded special treatment and priority.

Slide 39: Supplier development refers to the concept of incorporating selected suppliers into the supply chain. Often a large buying firm will essentially provide free consulting services to smaller suppliers to help them reach the necessary quality and production levels.

Slide 40: While most consumer transactions involve no negotiations, most business-tobusiness transactions do. Even when the same prices are offered to all customers, other terms such as delivery and payment are typically open to negotiation between companies. This slide identifies three typical ways that prices are determined in business-to-business transactions.

Slide 41: Supply chain contracting is another area that has received an enormous amount of research attention recently. Beyond merely spelling out the ―rules of engagement‖ for the relationship, a modern supply chain contract is crafted to enable the parties to share risks and benefits while creating appropriate incentives that will encourage the parties to engage in behaviors that benefit the supply chain as a whole. The idea is to make the total pie (of supply chain profits) bigger and then divide the bigger pie among all participants. Three common contract mechanisms include quantity discounts, buybacks, and revenue sharing. The second part of Slide 41 covers benefits of creating a centralized purchasing organization. Any company with multiple facilities must determine which products to procure centrally (for all sites) and which to purchase locally at each site. Anecdotes can be found in many firms about different branches getting different deals from the same supplier the text cites an extreme one: different plants for Nestle USA‘s brands once paid 29 different prices to the same supplier for its vanilla ingredient!

Slide 42: This slide covers the increasing practice of firms that order items with computers. Online catalogs come in three forms: (1) catalogs provided by vendors, (2) catalogs provided by intermediaries, and (3) industry-specific exchanges often developed by buyers. An Internet trading exchange provides a centralized online system for certain industries and eliminates the need to contact multiple companies one-byone. In addition, online auctions have become an excellent mechanism for firms to unload excess material or inventory. EBay is probably the best-known consumerbased example of such auctions. At this point, instructors could ask the students about their experiences with eBay or similar auctions. The pros and cons identified there might be relevant for business-to-business auctions as well. Finally, a reverse auction (or Dutch auction) is common in business-to-business markets. In reverse auctions, the buyer initiates the process by submitting a description of the desired product or service. Potential suppliers then submit bids. The price bidding goes in the downward direction, as opposed to a regular auction where bids raise the price.

LOGISTICS MANAGEMENT (11-43 through 11-50)

Slide 43: Essentially, logistics simply refers to moving and storing goods through the supply chain. Companies such as Walmart have gained competitive advantage by implementing outstanding logistics systems. Many firms outsource their logistics functions.

Slides 44-46:These slides identify the major distribution systems. Trucking is by far the most common, but the others still play a substantial role in some industries. For international shipments, the huge cost savings attained by sending goods by ship instead of plane must be weighed against substantially longer lead times. Instructors might ask if students can think of any ―modern‖ distribution system that is not on the slides answer: electronic (downloading music, etc.).

Slide 47: When selecting a distribution alternative, in general, firms pay for speed. Supplement 11 presents an example of quantitative transportation mode analysis.

Slides 48-49:Storing goods in a warehouse, sometimes for long periods, remains a ubiquitous activity in many industries. Warehousing is often less expensive than alternatives such as accepting backorders, losing sales, paying for express delivery, or storing all goods at local sites. Modern warehouses may be many football fields long and may utilize enormous overhead conveyor belt systems. Bar codes on boxes moving at high speeds can indicate to an automated conveyor belt system which among 100 chutes to push the box into. In some warehouses, automatic guided vehicles (e.g., Amazon‘s use of Kiva robots) bring the items to the workers rather than having the workers go to the items. These days, some warehouses perform functions in addition to classic storage, including those identified on Slide 48. Through innovative scheduling of shipments, warehouses can perform consolidation and break-bulk activities to reduce shipping costs by taking advantage of full truckload discounts. Via cross-docking, some warehouses serve merely as a consolidation point and never hold inventory longer than a few hours (see also Chapter 9).

Finally, via channel assembly (Slide 49), a warehouse can be an excellent means of implementing postponement (see also Chapter 7). With channel assembly, part of the assembly process occurs at the warehouse, just prior to shipping to customers. Supplement 11 demonstrates the simple quantitative solution to the problem of product allocation to space in a one-dock warehouse.

Slide 50: This slide describes the concept of third-party logistics, where firms completely outsource their logistics efforts, including, in some cases, their warehousing, assembly, and customs. FedEx, UPS, and DHL have expanded their roles from shipping companies to full-service logistics providers.

DISTRIBUTION MANAGEMENT

(11-51 through 11-55)

Slides 51-54:The design of distribution networks to meet customer expectations suggests three criteria: (1) rapid response, (2) product choice, and (3) service (Slide 51). Slide 52 identifies the three primary cost considerations when determining the best number of distribution facilities to operate. Slides 53-54 (Figure 11.3) illustrate trade-offs involved in determining the appropriate number of facilities (e.g., warehouses or stores) in a distribution network. Having more facilities decreases distance to customers, which can decrease transportation costs and improve response time and customer satisfaction (potentially increasing revenue). However, having more facilities also creates more facility investment and operating costs; inventory costs rise as well because the firm loses the economies of scale and risks pooling benefits that centralized warehousing provides. Note that the transportation cost curve in Slide 53 eventually begins to rise after some point, many shipments of the same products are being sent to multiple locations, often without the benefit of full truckload discounts. An important insight from Slides 53 and 54 is that the decision on the optimal number of facilities should look at both revenue and cost impacts instead of simply trying to minimize total logistics costs.

Slide 55: While the supply (upstream) side of supply chain management tends to receive more attention, the demand (downstream) side may require just as much care. Dealers or retailers that mishandle or misrepresent products can cause irreparable damage to a manufacturer. The company video Supply Chain Management at Regal Marine describes how the boat manufacturer carefully chooses which dealers will sell its products. Regal searches for mature, first-class dealers that will represent its products well. Potential dealers are evaluated on financial strength, location, maturity of sales force, market share, and perhaps most importantly, customer satisfaction index. Regal strives to produce best-in-class products and uses only outstanding dealers to ensure a well-functioning supply chain, from raw materials to satisfied customers.

ETHICAL AND SUSTAINABLE SUPPLY CHAIN MANAGEMENT

(11-56 through 11-63)

Slide 56: Opportunities for ethical violations abound within supply chain management. On a personal level, temptations of bribery and kickbacks must be resisted. Within the supply chain, more and more companies are being held accountable for unethical actions of their suppliers. Finally, as supply chain management deals with the entire process from raw materials to use and final disposal of products, firms must be aware of their environmental impact and should support the conservation and renewal of resources.

Slides 57-61:These slides identify the principles and standards of ethical supply management conduct as developed by the Institute for Supply Management. It should be noted that anyone working as a buyer for a governmental organization typically has a large number of additional regulations that he or she must adhere to (e.g., soliciting bids from a certain number of minority-owned businesses, receiving at least a certain number of bids per contract, etc.). Furthermore, instructors should point out that the word ―appearance‖ shows up in these standards. It‘s not enough to avoid the unethical act there should not even be any appearance of impropriety.

Slides 62-63:As part of overall corporate sustainability efforts (see Supplement 5), companies are getting better at designing and managing the ―return‖ supply chain. The operations manager‘s goal should be to limit the burning or burying of returned products and instead strive for reuse. The key feature of a closed-loop supply chain is thinking about how to handle returns before the product is ever introduced (Slide 62). Slide 63 presents Table 11.4, which shows the challenges of managing reverse logistics. As compared to forward (regular) logistics, the issues in reverse logistics are generally more difficult to manage and involve a greater level of uncertainty.

MEASURING SUPPLY-CHAIN PERFORMANCE (11-64 through 11-73)

Slides 64-65:These slides focus on the supply-chain metric of percentage invested in inventory (in general, the lower the better). Slide 64 presents Example 2 from the text. Typical values for four industries are presented in Slide 65 (Table 11.5), along with examples of exceptional performance.

Slides 66-69:The formula for inventory turnover is provided in Slide 66, with company examples provided in Slide 68 (Table 11.6). Note how inventory turnover can vary substantially, depending on industry and company conditions. In general, higher turnover is better. Slide 67 presents the inventory turnover calculation from Example 3 in the text. Slide 69 continues the example by also determining the weeks of supply (Example 4). In general, a smaller value is better.

Slide 70-73: While metric values such as those computed in Slides 64, 66, and 69 convey their own meaning and are useful when compared to past data, another important use compares these values to those of benchmark firms. Slide 70 (Table 11.7) provides an example of metrics for typical and benchmark firms from the consumer packaged goods industry. Slide 71 presents Figure 11.4 from the text, showing the Supply-Chain Operations Reference (SCOR) model developed by the APICS Supply-Chain Council. Membership in the council provides, among other benefits, access to the process, metric, and best practice data from the SCOR model. Slide 72 (Table 11.8) presents a sampling of some of the SCOR metrics and associated calculations. Slide 73 reminds us that benchmarking, while useful, may not ensure supply chain excellence on its own. Audits should be considered a welcome and necessary exercise among all members of the supply chain team.

Additional Assignment Ideas

1. Professional societies, such as APICS, ISM, and CSCMP, offer education and certifications. Describe the professional societies and the programs they offer. APICS (http://www.apics.org/)

Institute for Supply Management (https://www.instituteforsupplymanagement.org/)

Council for Supply Chain Management Professionals (http://cscmp.org)

2. Responsive Learning Technologies (http://responsive.net/) produces several online simulation games that instructors can use in their classes to have teams compete against each other. Pricing is charged per student. Games that incorporate supply chain management include The Supply Chain Game, The Sourcing Game, and The Electronic Beer Game.

Internet Resources

Council of Supply Chain Management Professionals www.cscmp.org

Distribution Solutions International www.dsii.com

Erasmus Center for Maritime Economics and Logistics www.maritimeeconomics.com

Institute for Supply Management www.instituteforsupplymanagement.org/ Proactis www.proactis.com/us/

Other Supplementary Material

Learning Games

1. Reyes, P.M. (2007). Parallel Interaction Supply Chain Game: An Extension of the Beer Game. Decision Sciences Journal of Innovative Education, 5(2), 413-421.

o Teaching brief designed to illustrate the rationing and gaming as a cause of the bullwhip effect for two homogeneous products. It can also be used to introduce various SCM topics.

2. Fawcett, S. and McCarter, M. (2006). The Supply Chain Puzzle Game: Highlighting Behavioral Issues in SCM. Decision Sciences Journal of Innovative Education, 4(2), 337342.

o Teaching brief presents a tool to introduce the student to firsthand experience with the behavioral challenges that can hinder supply chain coordination.

3. Eriksson, J., Finne, N. and Janson, S. (2006). Evolution of a Supply Chain Management Game for the Trading Agent Competition. AI Communications, 19(1), 1-12.

4. Production and Operations Management, Spring 2000, 9(1): Special issue on teaching supply chain management

o Chen, F. and Samroengraja, R. ―The Stationary Beer Game.‖ pp 19-30.

o Jacobs, F. ―Playing the Beer Distribution Game Over the Internet.‖ pp 31-39.

o Anderson, E. and Morrice, D. ―A Simulation Game for Teaching Service-Oriented Supply Chain Management: Does Information Sharing Help Managers with Service Capacity Decision?‖ pp 40-55.

o Mehring, J. ―A Practical Setting for Experiential Learning About Supply Chains: Siemens Brief Case Game Supply Chain Simulator.‖ pp 56-65.

o Campbell, A., Goentzel, J., and Savelsbergh, M. ―Experiences with the Use of Supply Chain Management Software in Education.‖ pp 66-80.

o Vollmann, T., Cordon, C., and Heikkila, J. ―Teaching Supply Chain Management to Business Executives.‖ pp 81-90.

o Kopezak, L. and Fransoo, J. ―Teaching Supply Chain Management Through Global Projects with Global Project Teams.‖ pp 91-104.

5. Experimental Learning Activities (http://web.lemoyne.edu/~wright/learn.htm): In-class exercises for The Distribution Game and The Beer Game.

Case Studies

The Supply Chain Management Casebook: Comprehensive Coverage and Best Practices in SCM. Chuck Munson, ed., New York: Financial Times Press, 2013.

Films available from:

Films for the Humanities and Sciences

P.O. Box 2053

Princeton, NJ 08543-2053 (P) 800-257-5126

(F) 609-671-0266 (E) custserv@films.com http://www.films.com

o Aligning Supply and Demand: Creating the Right Supply Chain (Item# 10868)

o Your Computer, Your Way: Dell and the Direct Sales Model (Item# BVL10070) Teaching Guide (CSCMP Toolbox) available from: Council of Supply Chain Management Professionals 333 East Butterfield Road, Suite 140 Lombard, IL 60148 (P) 630-574-0985 (F) 630-574-0989 (E) cscmpadmin@cscmp.org http://cscmp.org

o What in the World Is the Global Supply Chain?

Articles on Teaching Supply Chain Management

1. Johnson, M.E. and Pyke, D.F. (2000). Supply Chain Management: Innovations for Education, POMS Series in Technology and Operations Management, Vol. 2, Production and Operations Management Society, Miami.

2. Munson, C.L., Hu, J., and Rosenblatt, M.J. (2003). Teaching the Costs of Uncoordinated Supply Chains. Interfaces, 33(3), 24-39.

Certifications

Three Supply Chain Certifications: CSCP, CPIM, CPSM (Blog by Barry Render) https://heizerrenderom.wordpress.com/2014/01/26/om-in-the-news-three-supply-chaincertifications/

Chapter 12 Inventory Management

Background

This chapter is arguably the most important in the book. Some suggest that inventory management is the ―heart and soul‖ of operations management. The chapter contains quite a few formulas. While none of the techniques are particularly difficult, the primary challenge for students is applying the correct technique to the problem at hand. Identifying the proper modeling environment is the key. The qualitative aspects of the lecture can be enhanced by relating some of these inventory issues to students‘ personal lives. Everyone stores inventory in their homes and workplaces, so they should be able to see the connection to some of these issues. For example, driving to the price club involves a setup cost, storing winter clothes takes up much-needed space, a sale on Ramen noodles may entice students to stock up, etc.

Copyright

Class Discussion Ideas

1. The University Bookstore is generally a good site to investigate the full range of independent demand inventory decisions. It‘s especially interesting when there is a stockout! Instructors might see if they can get the Bookstore Manager to discuss some of these issues in class and answer the students‘ questions.

2. Have students describe how they manage the groceries they buy, and analyze their inventory policies. Do any of them purchase in bulk at a price club? How do they purchase for an upcoming party that they will be hosting? Does any of their food ever spoil? Do they visit the grocery store on a periodic basis or when they run out of something? When they go, do they try to stock up on all regular items in the same trip?

3. Odd Quantity Discounts (Guest Blog by Howard Weiss) https://heizerrenderom.wordpress.com/2017/10/27/guest-post-odd-quantity-discounts/

Active Classroom Learning Exercises

1. Inventory simulation game: ―He Shoots, He Scores.‖ See Other Supplementary Material below.

2. After the students have worked though the basic EOQ model and costs, have them split into small groups to try to identify other costs beyond the basic ordering and holding costs that might affect inventory decisions. Each group can share their findings with the class. This is a good opportunity to identify more advanced models and approaches.

Company Videos

1. Managing Inventory at Frito-Lay (8:03)

This video shows many scenes of the production process at the plant level and focuses on the inventory needs at the Frito-Lay plants. All four types of inventory described in the text are discussed in the video. Frito-Lay has five main types of raw materials: potatoes, corn, oil, salt and seasoning, and packaging. Overall inventory turnover is 150 times per year, and in most cases, less than one week‘s worth of raw materials are on hand. Potatoes, in particular, require many deliveries and only about 20 hours‘ worth of inventory in the factories because potatoes break down quickly once delivered. About one shift‘s worth of work-in-process inventory is kept in the plant at any time. In many cases, finished goods go straight from the line to the truck and onto store shelves later that day. Proper inventory management is crucial for low cost but smooth production flow of this high-volume operation.

Prior to showing the video, instructors might ask students to consider what items need to be ordered and stored to make a potato chip. Afterwards, discussion might focus on the potato situation in particular. What challenges does Frito-Lay face with this fast-decaying raw material? How can multiple deliveries per day be sustained year-round? What kinds of supplier relationships are required? What happens if a supply truck breaks down? What if a production machine breaks down? What measures should Frito-Lay institute to mitigate these risks?

2. Inventory Management at Celebrity Cruises (5:35)

Food is the number-one reason guests take a second Celebrity cruise. Celebrity must feed 5000 guests and crew each day with a whopping 4.5–5 meals on average. Guests tend to order several appetizers or entrees at each meal. Fortunately for Celebrity, full ships and consistent eating patterns lead to extremely accurate forecasts. Annual purchase volumes for the fleet include 5 mil. cans of soda; 2 mil. bottles of wine; 2 mil. each of apples, oranges, and bananas; 4.5 mil. cookies; and 9.8 mil. eggs. It takes 7 hours to load the ship at the port before embarking on another cruise. Celebrity must store enough food and drinks to last the full cruise; however, it sometimes adds inventory at certain destination ports along the way. All of this requires an intricate supply chain and inventory management system.

Prior to showing the video, instructors might ask the class to guesstimate the number of cans of soda Celebrity purchases per year per bottle of wine (Answer: only 2 compare that to an airline, which is surely much higher). Instructors could also ask if any students have been on a cruise, and how much eating they did. Students could be asked to guesstimate the number of meals eaten per passenger per day on a Celebrity cruise (4.5–5.0 on average is a lot of eating for 7–10 straight days). After showing the video, discussion could turn to inventory management. In some ways, this is a massive newsvendor problem, or perhaps a two-stage newsvendor problem if the ship can pick up certain supplies at a port partway through. If Celebrity‘s goal is to have near-empty pantries by the end of the voyage, how much safety stock should be carried? If the company were to use safety stock calculations, what service level seems appropriate? (Does it need to be very high for all items, or would substitutes be OK? Which items should carry more safety stock? How important is it not to run out of wine vs., say, potatoes?)

3. Inventory Control at Wheeled Coach (6:20)

Wheeled Coach manufactures custom ambulances, which presents extra challenges for proper inventory control. With a lack of standardization of final products, forecasting demand levels for specific parts proves difficult. The company manages approximately 7,000 different parts. Inventory is delivered just-in-time to the assembly line, and little work-in-process inventory exists. Wheeled Coach performs cycle counting of its items to ensure that inventory records match on-hand inventory levels at all times. The video presents a nice example of ABC analysis in practice. The ―A‖ items, such as truck chassis, aluminum, and plywood, receive more attention and are cycle counted more frequently.

Prior to showing the video, instructors might ask students to guesstimate how much work-in-process inventory they would expect to see in a production line that produces ambulances. Afterwards, discussion could focus on the almost complete lack of inventory in Wheeled Coach‘s assembly line. What specific processes would need to be put in place to ensure that the right parts are brought to the line at the right times? What kinds of supplier relationships might be required? What would the internal information system need to be able to do? What happens if a part is missing?

Cinematic Ticklers

1. Seinfeld, Season 7, Episode 121: ―The Rye‖ (Jerry Seinfeld, Julia Louis-Dreyfus, Michael Richards, and Jason Alexander), NBC, Jan. 4, 1996

The Downside of Quantity Discounts

In this episode, Kramer goes wild at the price club and purchases huge packages of certain items, including ―Beef-A-Reeno.‖ To try to get rid of some of it, he begins feeding it to the carriage horse that he is taking care of for the week. When giving a ride to the parents of George‘s fiancé, the horse develops a gas problem and the humor ensues.

2. The Simpsons, Season 4: ―A Streetcar Named Marge,‖ 20th Century Fox Video, 2004 (1992-1993) The Decisions of a Newsboy

In this episode, Marge has the lead role in a community theatre musical version of ―A Streetcar Named Desire.‖ In an early scene, she approaches a newsboy (played by Apu) and tells him that she wants to kiss him. Apu sings a short song: ―I am just a simple paper boy, no romance do I seek Will this bewitching floozy seduce this humble newsy? Oh what‘s a paperboy to dooooooooooooooo?‖

3. Jingle All the Way (Arnold Schwarzenegger, Sinbad, Rita Wilson, Phil Hartman, Jake Lloyd), 20th Century Fox, 1996 Not Enough Safety Stock

All Howard Langston‘s son wants for Christmas is a Turbo-Man doll. But alas, when Howard joins the mad rush at the toy sore, he finds that Turbo-Man dolls aren‘t anywhere to be found except for the woman who just picked one up from layaway. The chase is on and chaos ensues.

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: Setting Inventory on Fire

High-end clothing brands often send their unsold clothes off to be burned. The justification: goods that end up in outlet stores or in the gray market, priced at a steep discount, contradict the industry‘s main sales pitch that luxury goods command higher prices. Clients don‘t want to spend thousands of dollars on a suit, only to see the same item a few months later selling at an outlet store for half the price.

https://heizerrenderom.wordpress.com/2018/09/12/om-in-the-news-setting-inventory-on-fire/

2. OM in the News: Zara‘s New Inventory and Logistics Plan

Fast-fashion giant Zara is equipping its stores to also ship online purchases, betting that the move will boost sales of full-priced items that can be delivered to customers more quickly than from a warehouse. Zara‘s efforts are part of a broader push among retailers to rethink how they can better use their network of brick-and-mortar stores to compete with Amazon, whose dominance in the retail industry has depressed profits and set new standards for delivery speed.

https://heizerrenderom.wordpress.com/2018/08/08/om-in-the-news-zaras-new-inventory-and-logisticsplan/

3. OM in the News: Target Tests Retail ‗Flow Center‘ for Faster, Nimbler Distribution

Target is testing a new ―flow center‖ operation, where the company sends shipments to stores more frequently and in smaller lots tailored more precisely to demand rather than shipping big cases of products. Stores supported by the flow center have reduced back-room inventories substantially.

https://heizerrenderom.wordpress.com/2018/05/20/om-in-the-news-target-tests-retail-flow-center-forfaster-nimbler-distribution/

4. OM in the News: H&M Stocks Stores with AI H&M retail chain is ramping up its use of data to customize what it sells in individual stores, breaking with its longstanding practice of stocking stores around the globe with similar merchandise. The chain uses algorithms to take into account factors such as currency fluctuations and the cost of raw materials to ensure goods are priced right when they arrive in stores.

https://heizerrenderom.wordpress.com/2018/05/14/om-in-the-news-hm-stocks-stores-with-ai/

Presentation Slides

INTRODUCTION (12-1 through 12-8)

Slides 4-6: The Global Company Profile description of the Amazon.com order filling process is a nice one that includes some good detail. Note in particular, Step 3, where kiva robots are now delivering merchandise to workers, rather than having workers traverse up and down long aisles. Throughout the system, computers, bar codes, and conveyor belts help to route products automatically to the appropriate boxes, which end up at the customers‘ doorstep often within two days.

THE IMPORTANCE OF INVENTORY (12-9 through 12-13)

Slides 9-10: While the topic may not sound particularly ―sexy‖ to students, inventory management is arguably the most important OM decision. OM researchers have written thousands of papers modeling every facet of inventory management imaginable. Companies tie up thousands or often millions of dollars in inventory, and the lost interest revenue alone on that money can represent a huge reduction in profit. On the other hand, companies that do not have the right goods at the right places at the right times may incur significant delays, backorder costs, or lost sales. Firms have gone out of business due to poor inventory management.

Slide 11: These inventory functions can also be thought of as advantages of having inventory. Instructors can expand upon this list somewhat. For example, anticipatory inventory is built up during low- to medium-demand periods to get ready for an upcoming high-demand period (such as Christmas). This practice (level production policy see Chapter 13)

potentially avoids hiring and laying off workers, working extra overtime, etc. The decoupling (Function 2) allows individual stations to work at their own pace and permits constant production quantities. Buffer stock can be placed between stations within a facility or between different companies in the supply chain. Finally, in addition to taking advantage of quantity discounts, firms may order or produce in large lots to exploit economies of scale in supply (spread a large setup cost over multiple items). This is also known as cycle inventory. While on Slide 11, instructors might take this opportunity to mention some of the disadvantages of having too much inventory. In addition to generating holding costs (described in detail later): (1) inventory can be difficult to control, store, and maintain; (2) handling inventory is a non-value added activity; (3) inventory reduces cash availability, which may be particularly troublesome for small firms; (4) having too much inventory runs the risk of product obsolescence or delays responsiveness to the market with new products; and (5) (as the Japanese remind us) having too much inventory may act as a bandage to help get around a problem, but in the long run, this bandage may cover up the ―wound‖ so that the firm cannot even identify the underlying problem (i.e., having no extra inventory exposes root problems in the system, which can then be corrected creating a long-term competitive advantage).

Slide 12: This slide describes the four types of inventory. Raw material, WIP, and finished goods inventory represent what the firm will eventually sell to customers, while MRO inventory keeps the business running smoothly.

Slide 13: This is Figure 12.1 from the text, with the caption: ―Most of the time that work is inprocess (95% of the flow time) is not productive time.‖

MANAGING INVENTORY

(12-14 through 12-24)

Slides 15-19: These slides describe ABC analysis, which is often the first step in setting up an inventory control system. Based on the Pareto principle, the idea is to identify and then focus resources on the few critical parts, not the many trivial ones (such as paper clips). The cutoffs are not exact, but in general, Class A items represent about 15% of total inventory items and 70%-80% of total dollar usage. Class B items represent about 30% of total inventory items and 15%-25% of total dollar usage. Class C items represent about 55% of total inventory items but only 5% of total dollar usage. Slide 16 (Figure 12.2) shows the

typical graphical representation of ABC analysis. Slide 17 illustrates Example 1 from the text. Items are ranked in decreasing order of annual dollar volume (annual volume times unit cost), and the A-B-C cutoffs are made from there. Slide 18 identifies other possible ways to rank items the point being to help firms identify the items that need the most attention to address their particular issues. Slide 19 identifies some of the managerial actions to employ once the Class A (and to a lesser extent Class B) items have been identified.

Slides 20-21: Good inventory decisions rely on good data, so accurate record keeping of inventory is crucial. This process is challenging because inventory disappears for a variety of reasons: shoplifting, employee theft, breakage, spoilage, sales clerks/systems not correctly identifying sold items, etc.

Slides 22-23: Cycle counting is employed to more continuously count inventory and audit records than, say, an annual full physical count and reconciliation would entail. Slide 23 (Example 2) illustrates how such a system might be set up, based on ABC analysis. In this example, the Class A items are counted each month but through a rolling process, so some Class A items are counted every day to spread out the workload.

Slide 24: Service industries usually have inventory on hand, and in fact, a shortage of inventory in those environments (e.g., no shampoo at the salon or no coffee at the coffee shop) could even more readily result in lost sales. This slide identifies some techniques that can be employed to reduce the levels of shrinkage and pilferage.

INVENTORY MODELS

(12-25 through 12-28)

Slide 25: Demand characteristics determine which inventory models are appropriate. The models in Chapter 12 are applied to independent demand situations, while dependent demand is covered in Chapter 14. Two other demand distinctions include deterministic vs. stochastic and static (constant mean) vs. variable.

Slide 26: The primary trade-off in lot-sizing decisions of basic inventory models involves balancing ordering/setup costs and holding (carrying) costs. Larger lot sizes imply lower ordering/setup costs but higher holding costs, and vice versa.

Slides 27-28: Slide 27 (Table 12.1) illustrates some of the possible components that may comprise the overall holding cost. Interest on tied-up money is an important part of holding cost that students sometimes have trouble grasping. Even though inventory is listed as an asset in the accounting books, if, say, a $100 item is purchased and left on the store shelf for one year, the firm has lost the opportunity cost on that money. The rate used is often the weighted average cost of capital for the firm, but even the bank savings account interest rate could apply. For example, if the firm earns 5% on its deposit accounts with the bank, then it would have had $105 at the end of one year if it had left the money in the bank instead of purchasing the inventory item. Thus, the annual holding cost of that $100 item should be at least $5. Another item that could be mentioned as part of Slide 27 is worker‘s compensation costs because the most common worker‘s compensation claims stem from back injuries due to moving inventory.

INVENTORY MODELS FOR INDEPENDENT DEMAND

(12-29 through 12-62)

The Basic Economic Order Quantity (EOQ) Model (12-29 through 12-31)

Slide 30: It is important to cover the assumptions of the EOQ model. When any of these are relaxed, a more complicated model might apply better. There are actually a few other assumptions that can be mentioned as well: (1) the time horizon is infinite, (2) demand is not only constant period after period, but it is uniform (technically this implies that it is continuous and smooth, with no seasonality, large orders, or lumpiness hence the straight declining lines in Slide 31), (3) there are no constraints on the order size, (4) decisions for one item are made independently of decisions for other items, and (5) there is no inflation. While these assumptions may seem restrictive and unrealistic, the EOQ is known to be a robust model and can at least provide a good base case or starting point decision.

Slide 31: Instructors should spend some time on this important graph (Figure 12.3). The EOQ assumption of instantaneous and complete receipt of inventory causes the line to shoot straight up when an order is placed. The assumption of constant (and uniform) demand causes the line to decline smoothly and continuously over time until the inventory level reaches zero, at which point another order must be placed. Since the time horizon is infinite and nothing about cost or demand conditions changes, this pattern repeats itself indefinitely. The graph also illustrates why we assume that average inventory on hand equals Q / 2.

Minimizing Costs (12-32 through 12-46)

Slides 32-33: As the authors state, Slide 32 (Figure 12.4(c)) represents the heart of inventory modeling. It illustrates the essential trade-off between ordering/setup cost and holding cost. With very small order sizes, ordering/setup cost is much higher than holding cost, and total cost would decrease by ordering more units each time. This continues, in fact, until ordering/setup cost exactly equals holding cost (Slide 33). At that point, the total cost curve reaches its minimum. (This can be shown analytically as well as graphically.)

Slides 34-38: These slides develop the EOQ formula. Slide 34 describes the necessary steps. Then, keeping the notation at the top of each slide, we see the annual setup cost formula in Slide 35 and the annual holding cost formula in Slide 37. Slide 38 derives the optimal order quantity formula, knowing that annual setup and holding cost should be set equal to each other. For the more mathematically inclined students, the formula can also be derived by showing that the total cost formula is convex in Q, and the EOQ is the result of setting the first derivative equal to zero and solving for Q (see Endnote 3 in the text).

Slides 39-42: These slides present the continuing Examples 3 through 5 in the text. Slide 39 provides the order quantity. Slide 40 provides the expected number of orders per year for the same example (Note that this value can be a fraction, implying that some years will have the rounded down integer number of orders while other years will have the rounded up integer ) Slide 41 provides the expected time between orders (in days) for the same example. Slide 42 computes the total cost. Instructors may want to share that there is a

shortcut formula for total cost of the EOQ model, which is based on the parameters only and not Q. If the EOQ is ordered, the total annual holding and setup cost will be 2DSH . This can be derived by plugging Q* into the general total setup and holding cost formula as a function of Q

Slide 43: This slide shows how to incorporate annual purchasing cost into the total cost formula for the EOQ model. Normally, it‘s not included because the order quantity does not affect purchase price in the basic EOQ model. It will be needed, however, for the quantity discount model.

Slides 44-46: Slide 44 notes that, due to the flat shape of the total cost function (see Slide 32), the EOQ model is robust, i.e., it often provides satisfactory answers even with substantial variation in the parameters. Slide 45 illustrates Example 6 from the text, which looks at the previous example under the condition that demand was underestimated by a full 50%. The important issue is not that costs will increase (they obviously will be higher along with higher demand no matter which model is used), but that the total cost using the wrong EOQ is less than 2% higher in this example (Slide 46) than the total cost using the correct EOQ (if demand had been known correctly).

Reorder Points (12-47 through 12-49)

Slides 47-49: The basic EOQ model assumes that orders arrive instantaneously and completely. But when the (complete) orders take time to arrive, the timing of the order must account for this lead time. In other words, the firm must place the order before completely running out of inventory so that the new units have time to arrive before they are needed. Slide 47 provides the reorder point formula. Slide 48 (Figure 12.5) illustrates when (in units) the order should be placed. Slide 49 provides a reorder point calculation (Example 7).

Production Order Quantity Model (12-50 through 12-55)

Slide 50: An important assumption of the basic EOQ model is that orders arrive instantaneously and completely (i.e., the production rate is infinite). While this assumption may be true for purchased parts, produced parts may take time to make. In particular, when units are produced and sold simultaneously, the EOQ graph changes to the one shown in this slide (Figure 12.6). This necessitates a different model, the Production Order Quantity (POQ) Model

Slides 51-53: These slides derive the POQ formula. Note the addition of two new parameters: p = daily production rate and d = daily demand rate. Slide 53 also provides the formulas for annual setup cost and annual holding cost. Note what differs from the basic EOQ model. Due to the gradual inventory buildup, the holding cost parameter H is essentially reduced by a factor of (1 – d/p). Similarly, the maximum inventory level does not equal the order size

but instead equals Q*(1 – d/p). This occurs because every day p units are added to inventory but d units are taken from inventory. As with the EOQ model, the POQ model has a shortcut formula for total annual holding and setup cost: 2[1(/)] DSHdp . When p = ∞ (infinite production rate), the POQ formulas all collapse to the corresponding basic EOQ formulas. After students are shown the formulas, the instructor can ask the question: ―If a firm can control its production pace, should it speed up or slow down?‖ The answer (slow down all the way to p = d) may sound counterintuitive to some students. Assuming no other use of the production resources (potentially a big assumption), from a holding and setup cost perspective, it is actually best to produce no faster than the demand rate (pure just-in-time production). In this way, inventory is never held (zero holding cost) and the single setup divided by an infinite time horizon implies an annual setup cost of zero. This zero cost can also be seen by looking directly at the shortcut total cost formula with p as a decision variable: 2[1(/)] DSHdp .

Slide 54: This slide shows the POQ example (Example 8) from the text.

Slide 55: This slide shows how to modify the POQ formula when annual demand and production rates are used instead of daily demand and production rates.

Quantity Discount Models (12-56 through 12-62)

Slides 56-57: Particularly with business-to-business transactions, quantity discounts are arguably more likely to exist than not. One study found that 95% of managers interviewed had all-units quantity discounts for at least some of the items that they either purchased or sold. Slide 56 (Table 12.2) illustrates a typical all-units quantity discount schedule. Whereas purchase cost can be ignored in the basic EOQ model, it must be considered when faced with a quantity discount price schedule. Importantly, note that annual purchase cost (not purchase cost per order) is added to the annual holding and setup cost formula (Slide 57). Also, annual holding cost per unit is now expressed as IP instead of H because it should be decreasing as the unit price decreases (at least the portion of holding cost due to the investment costs from Table 12.1). As with going to the price club and buying much more toilet paper than necessary, the existence of quantity discounts may encourage buying a lot

more and incurring a lot higher holding costs in order to take advantage of a great price break.

Slide 58: This slide identifies the two-step solution procedure for the all-units quantity discount problem. It is assumed that Q* will differ for each price discount because holding cost should be computed as an annual holding cost percentage I of unit cost P (which changes for each price interval). Note that this algorithm works because, by starting at the lowest price and working toward the highest price, once a feasible Q* is found (meaning that Q would be in the correct interval to qualify for the price P used in the formula to generate that Q), all higher price intervals can be ignored. That is because the holding and setup costs would be higher ( 2DSIP ) in those intervals, and the purchasing cost would also be higher.

Slides 59-61: These slides illustrate Example 9 from the text. Figure 12.7 (Slide 59) illustrates the solution procedure graphically, including the concept of feasible/not feasible. The graph shows why an upward adjustment from the EOQ is necessary if the buyer wants to get the very best discount (Discount 2). Slide 60 shows the two necessary EOQ calculations. Because the $98 price was feasible, the EOQ for $100 didn‘t need to be checked. The resulting set of possible order quantities is 275 (with a $98 price) and 1,500 (with a $96 price). Slide 61 provides the total cost calculations for each candidate order quantity. In this particular example, the quantity using the higher price of $98 was chosen because the holding cost penalty for ordering 1,500 units at $96 was too high to make the purchasing savings worthwhile.

Slide 62: This slide identifies several variations of quantity discounts that are commonly seen in industry. In particular, aggregating purchases over time (e.g., year-long contracts with discounts) and aggregating products over units (e.g., product bundling with discounts) are very common in many industries. Finding optimal solutions in those situations can be challenging.

QuantityDiscountModels

QuantityDiscountModels

QuantityDiscountModels

Stepsinanalyzingaquantitydiscount

1. Startingwiththelowestpossiblepurchase price,calculateQ*untilthefirstfeasible EOQisfound.Thisisapossiblebestorder quantity,alongwithallprice-break quantitiesforalllowerprices.

2. Calculatethetotalannualcostforeach possibleorderquantitydeterminedinStep 1.Selectthequantitythatgivesthelowest totalcost.

QuantityDiscountVariations

▶ All-unitsdiscountisthemostpopularform

▶ Incrementalquantitydiscountsapplyonlyto thoseunitspurchasedbeyondtheprice breakquantity

▶ Fixedfeesmayencouragelargerpurchases

▶ Aggregationoveritemsortime

▶ Truckloaddiscounts buy-one-get-one-free offers one-time-onlysales

PROBABILISTIC MODELS AND SAFETY STOCK

(12-63 through 12-76)

Slide 63: From a research perspective, stochastic inventory models can be quite complicated. Most real-world systems take a relatively straightforward approach to incorporating random demand. Clearly, in the real world, most demand has a random component. Thus, most firms should be expected to keep on hand some level of safety stock in order to account for this demand uncertainty. This slide modifies the reorder point formula to incorporate this safety stock cushion, and it also provides the formula for annual stockout costs.

Slides 64-65: These slides illustrate Example 10 from the text, which demonstrates the selection of the optimal reorder point if given a discrete demand distribution and a known stockout cost.

Slides 66-68: Because the actual cost of a stockout may be hard to identify, managers often base safety stock level on a desired cycle service level, defined as the probability of not running out of stock during demand lead time. (Other service levels may be considered, such as fill rate, but calculations for those are beyond the scope of this text.) Demand during lead time in these formulas is assumed to be normally distributed. Slide 66 (Figure 12.8) shows how the reorder point is increased to account for safety stock. Slide 67 provides the new ROP formula, where safety stock is computed as Z (based on desired service level applied to the standard normal distribution table) times the standard deviation of demand during lead time. Slide 68 illustrates the effect of safety stock. For a given standard deviation, safety stock increases as desired service level (Z-value) increases. Note that because we assume a normal distribution, half the time demand will be less than average. Thus, having no safety stock at all will still lead to a service level of 50%.

Slide 69: This slide (Example 11) calculates the safety stock and reorder point with normally distributed demand.

Slides 70-76: Several introductory texts only speak about safety stock for uncertain demand, but firms may need safety stock to cover uncertain supply as well. Slide 70 identifies three additional models that are provided in this text that incorporate uncertain supply and the case where standard deviation of lead time demand is not known. The following six slides provide the respective formulas and an example: Slide 71 variable demand and constant lead time, Slide 72 Example 12 illustrating Slide 71, Slide 73 variable lead time and constant demand, Slide 74 Example 13 illustrating Slide 73, Slide 75 variable demand and lead time, and Slide 76 Example 14 illustrating Slide 75. Students sometimes have difficulty grasping why standard deviation per day is multiplied by the square root of the lead time in days. In fact, demand is proportional in time, but standard deviation is not. This occurs because, according to probability theory, independent variances can be summed, but the standard deviation is the square root of the variance. Thus, for example, for a four-day lead time, if the standard deviation per day is 100, then the standard deviation over four days equals 2222 10010010010040,0002001004.

SINGLE-PERIOD MODEL (12-77 through 12-79)

Slide 77: Also known as the newsstand or newsvendor model, the single-period model forms the basis for much research conducted in operations management. Given a single selling season with only one chance to purchase, the interesting result is that the manager should not order the expected value of demand (in general). Instead, the optimal order quantity trades off the relative costs of shortage and overage. If it costs more to have too much than too little, then an amount less than the expected value should be ordered. On the other hand, if overage cost is less than shortage cost, then a quantity larger than the expected value should be ordered. The stockout cost is easier to estimate in the single-period model than in multiperiod models because there is not a later chance to purchase the item (no backorders) and, with only one period, goodwill loss may be minimal thus, stockout cost simply equals lost gross margin. Applications in addition to those listed in the text might include July 4th fireworks stands and ordering pizza for a large meeting. Example 15 in the text illustrates the method for solving the problem if demand is normally distributed (i.e., find the Z-value corresponding to the service level from (12-18) and set Q = μ + Zσ). Note that when the overage cost exceeds the shortage cost, Z will be negative and the firm should order less than expected demand. Finally, the newsstand problem can be solved for any distribution, not just the normal. In each case, order Q* such that the distribution function at that point equals the service level, i.e., F(Q*) = Cs / (Cs + Co).

Slides 78-79: These slides illustrate Example 15 from the text. Note how the stockout risk equals 1 –service level. 12-77

FIXED-PERIOD (P) SYSTEMS (12-80 through 12-83)

Slides 80-81: The inventory models considered up to the last section of the chapter are known as fixedquantity (Q) systems, or continuous review systems. Another very popular system in practice is the fixed-period (P) system, otherwise known as periodic review. Instead of having a fixed order size every time and having a variable time between orders, a P system has a variable order size every time and a constant time between orders. For example, the purchaser might place an order every Friday afternoon (P = 1 week). The value of P can be determined by management, or it might be based on the average time between orders if the EOQ were ordered every time. When it is time to order, Q = T – IP, where T = the target quantity (average demand during [P + lead time] + safety stock (where σ covers [P + lead time])), and IP = on-hand inventory + scheduled receipts – backorders.

Slide 82: This slide (Figure 12.9) illustrates how a P system works. An effective analogy can be the process of filling water glasses in a restaurant. A server might be instructed to visit each table every five minutes (P). Once there, he or she fills each water glass to the top (T). Customers who drank a lot during the previous five minutes get a lot more water (Q), whereas those who drank little or no water are poured a small amount or even none.

Slide 83: This slide presents characteristics of P systems. The primary advantage of a P system is convenience, i.e., the purchaser does not have to monitor inventory continuously and place an order at a moment‘s notice. The primary disadvantage is being less able to react quickly

to large orders, implying either a lower service level or a higher cost in the form of more safety stock. Fixed-period systems do make it easier to combine orders from the same supplier, which could reduce overall ordering costs, allow for combined shipments, or allow for volume discounts based on total dollar volume purchased. On the other hand, the fixed lot sizes in fixed-quantity systems may help the firm obtain discounts each time when those discounts are based on amount purchased each time per item, or they may help when there are specific capacity limits or desired packaging/shipping sizes.

Additional Assignment Ideas

1. Visit Inventory Management at http://www.inventorymanagement.com and list the services it provides to businesses.

2. Visit APICS at http://www.apics.org and identify two upcoming educational events or programs that would be appropriate for students. APICS is self-described as the premier professional association for supply chain management (previously known as the American Production and Inventory Control Society).

3. Responsive Learning Technologies (http://responsive.net/) produces several online simulation games that instructors can use in their classes to have teams compete against each other. Pricing is charged per student. Games that incorporate inventory control include Littlefield Technologies, The Supply Chain Game, The Sourcing Game, and The Electronic Beer Game.

4. Have the students complete the Inventory simulation found in MyLab Operations Management. https://heizerrenderom.wordpress.com/2016/10/08/teaching-tip-our-new-inventory-managementsimulation/

Internet Resources

APICS: The Association for Operations Management www.apics.org

Institute of Industrial Engineers www.iise.org/Home/ Inventory Management www.inventorymanagement.com

Other Supplementary Material

Videos/Films

Film available from:

Humanities and Sciences

(P) 800-257-5126

(F) 609-275-1400

(E) custserv@films.com http://www.films.com

o The Story of Inventory (Item# BVL29654)

Models

A myriad of additional inventory models can be presented along with Chapter 12 for those who are interested, including the intentional allowing of backorders, warehouse space or budget constraints, and joint replenishment models. One interesting and relatively easy one would help with business-to-business transactions. Specifically, the EOQ model assumes typical consumer demand, which may be uniform and continuous. However, what about a supplier who‘s major customer orders its own EOQ? This creates a lumpy demand pattern, rather than a uniform pattern. The inventory graph goes down in a stair-step pattern, rather than as a straight line.

It turns out that the optimal order quantity for the supplier in such a lumpy demand environment is to order an integer multiple n of the size of its incoming orders Q. So the supplier‘s decision variable is an integer, and the formula is:

, where D is the same annual demand faced by the EOQ-ordering customer. The supplier‘s order size is n*Q. The supplier‘s annual setup and holding costs equal:

Instructors who want to take this one step further can present a nice illustration of supply chain management by comparing the system costs of jointly determined lot sizes with individually determined lot sizes. Details can be found in Munson, C.L., Hu J., and Rosenblatt, M.J. (2003), ―Teaching the Costs of Uncoordinated Supply Chains,‖ Interfaces, 33(3), 24-39.

Learning Game Teaching Note

Decision-Making Exercise Inventory Simulation Game

"He Shoots, He Scores"

Purpose:

This decision-making exercise allows students to observe the inherent complexities in making inventory replenishment decisions in a stochastic demand environment. It is purposely designed as a fairly simple game that can be played in one class period (30-45 minutes). There are three components, this teaching note, a spreadsheet, and the student instructions.

Spreadsheet: (The spreadsheet is located in MyLab Operations Management) The spreadsheet calculates cumulative profits throughout the game for each team.

At times it may be desirable to use different demand figures in various sections (especially if the sections follow one another). As such, the spreadsheet supplied includes 3 different sets of actual demand figures (along with the optimal solution for each). The instructions remain the same regardless of which is used.

Procedure: (The Student Instructions follow this Teaching Note and are located in MyLab Operations Management)

Form groups of 3 – 6 students such that there are about 10 groups in total.

The students begin the game with no units on-hand. After they decide how much to order in July and it has been recorded on the spreadsheet, announce the demand for that month and input it into the spreadsheet (demands given on the next page). After they have completed their inventory calculations and made their replenishment decision for the next month, announce the next month‘s demand, and so on. The spreadsheet should be projected at the front of class so students get a "month-by-month" picture of simulation results. Most students enjoy the game more if they only fill in the top 5 rows of the worksheet, keeping track of their inventory position. Some groups also fill in the bottom of the worksheet, but this is not necessary to get the learning value from the game.

It is vital that student teams correctly grasp the calculation of the amount sold (minimum of: demand or stock on hand) and inventory position (minimum of: stock on hand – demand or zero (if all units were sold). Teams ought to use the accompanying inventory table to record their respective ending inventories, their inventory position, and to keep track of their monthly replenishments. It is usually a good idea to check with each group after the 2nd or 3rd month to ensure they are calculating this correctly. This can be done by showing the students the blue portion of the spreadsheet with this information so they can compare their by-hand calculations.

The winning group will be, obviously, the one that has the highest annual profit. After the game has been completed, it may be desirable to show the optimal solution produced with the Wagner-Whitin dynamic programming method (included with the spreadsheet, but ―hidden‖ to avoid showing it prematurely). The students can be told that this method assumes that you knew the monthly demands in advance. As a result, the annual profit realized from this method is an "upper bound" on the profit they could have obtained without knowing demands in advance. The problem of determining optimal replenishment decisions when facing stochastic demand is an exceedingly difficult problem (heuristic procedures are often used to obtain "good" solutions in these cases).

Designed by: Keith Willoughby, Bucknell University Ken Klassen, Brock University

Note: This game has been developed for educational purposes. It may be used, disseminated, and modified for educational purposes, but it may not be sold. In all uses of the game, the original developers must be acknowledged (as has been done above).

© Keith Willoughby and Ken Klassen, 2003

Decision-Making Exercise:

Inventory Simulation

"He Shoots, He Scores"

Student Instructions

At a recent trade show, a Canadian company unveiled its radical new product for the sports equipment industry - a graphite hockey stick! The company, known as "He Shoots, He Scores" has enthusiastic plans for the stick. As owner of a medium-sized retail sporting goods store, you are aware of the various costs involved in ordering and holding inventory. Taking into account the respective costs, you are to develop an appropriate ordering policy for this brand-new item.

Since this is a new product, you have no historical data on which to base your forecast of demand. However, you have data on the number of sticks sold for other new, state-of-the-art sticks from prior years:

2 years ago Last year 2 years ago Last year

Jul 20 24

Jan 34 68

Aug 35 44 Feb 41 62

Sep 59 49 Mar 38 33

Oct 79 100 Apr 19 26 Nov 42 51 May 27 26 Dec 83 81 Jun 25 21

As in any business, sales for any given month could be extremely volatile (or not). In this game, the demand for the next year is generated from a Normal distribution (which ranges from negative infinity to infinity). It is not necessary to know the parameters of the Normal distribution for this game, but they are given at the end of these instructions.

"He Shoots, He Scores" will allow you to purchase hockey sticks for $20. Market research results given at the recent trade show indicated that potential customers would pay up to $30 for the item. Thus, you plan to use $30 as your selling price. Note that the amount you sell in a given month is always the lowest of either monthly demand or (beginning inventory + quantity ordered).

Placing an order costs you $60 (note that the manufacturer allows at most one replenishment per month). Any unsatisfied demand (a stockout, or should we call it a "stick" out?) costs you $7 per unit short. Backorders are not allowed (since customers will most likely purchase the hockey stick from a competitor if you don't have enough on-hand). Inventory remaining at the end of a month costs you $1 per unit.

Your task is to plan replenishments (when to order, how much to order) on a month-by-month basis for the next 12 months. Assume that the first month in the planning horizon is July, and that there is no inventory on-hand. After you make your replenishment decision, the instructor will announce the demand for that month. Then, you may make the decision for next month. Use the attached table to indicate your monthly replenishments, and to tabulate the results of your respective strategy. If a stockout occurs, write "0" for the ending inventory, and put a "0" for the beginning inventory of the subsequent month.

For example, assume that there were no units in beginning inventory, and that you ordered 15 sticks at the beginning of July. Assuming a demand of 23 sticks, you would face the following costs:

o revenue: $30 * min(0+15,23) = $30 * 15 = $450

o ordering cost: $60 + ($20 * 15) = $360

o shortage cost: $7 * 8 = $56

o holding cost: 0 (since there is no ending inventory - i.e. we had a stockout)

o monthly profit = $450 - ($360 + $56) = $34

Parameters for Normal Distribution:

Normal( (D2+D1*3) / 4 , Absvalue(D1-D2) )

where: D1 is demand last year D2 is demand 2 years ago

Thus, demand for July is calculated from: Normal ((20+24*3) / 4, Absvalue(24-20))

Normal (23,4)

Designed by: Keith Willoughby, Bucknell University Ken Klassen, Brock University

Note: This game has been developed for educational purposes. It may be used, disseminated, and modified for educational purposes, but it may not be sold. In all uses of the game, the original developers must be acknowledged (as has been done above).

© Keith Willoughby and Ken Klassen, 2003

Worksheet

1 Beg. Inventory 0

2 Order quantity

3 Number available = (1) + (2)

4 Demand

5 End. Inventory = max[(3)-(4), 0] Revenue:

6 Sales = $30 * min [(3), (4)] Costs:

7 Ordering If (2)>0, = $60 + ($20* (2)), If (2)=0, = 0

8 Shortage = - $7 * min[0, (3)-(4)]

9 Holding = $1 * (5)

10 Total Costs = (7) + (8) + (9)

11 Monthly Profit = (6) - (10)

12 Annual Profit

Chapter 13

Aggregate Planning and S&OP

Background

As we move into Chapters 13-15 of the book, it becomes important for instructors to help the students see the big picture in terms of which techniques apply to which circumstances. Figure 13.1 (Slide 13-8) is quite useful in that regard. Chapter 12 just covered lot-sizing, but in Chapter 13 we are moving the planning horizon back out to the medium term. Different products that use similar resources are often ―aggregated‖ to form an aggregate plan, and the focus here is on personnel planning decisions (including overtime), along with decisions regarding aggregate inventory levels and any needed use of

subcontracting. The personnel decisions, in particular, may take time to implement, and, of course, they may impact workers‘ lives positively or negatively.

Aggregate planning is really split into two parts: capacity options and demand options. Demand options are often implemented to smooth out the demand flow, which can make production planning much simpler and less costly. Yield management represents a somewhat extreme and very dynamic type of demand option. Usually, the capacity options are explored once the demand options have been determined and the demand pattern has been forecasted. A more comprehensive approach would be to try various demand options simultaneously with capacity options to find the best profit-producing mix. There is an obvious marketing component to this chapter, and it represents one of the best examples of how marketing can impact operations positively and negatively.

Class Discussion Ideas

1. Yield management (revenue management) has produced significant revenue gains for some firms. Some consumers extract a certain level of excitement by successfully locating or negotiating a particularly low price, but for others, yield management produces frustration. These customers often feel that they were charged more than necessary and that some other customers must be getting a better deal for the same service. Economics teaches us that a perfect pricing scheme would charge each customer exactly the maximum amount that he or she would be willing to pay, thus transferring all consumer surplus to the selling firm. However, consumers do not live in a vacuum, and in the real world, customers talk, and reputation (good and bad) spreads. A class discussion could uncover students‘ feelings about revenue management as consumers themselves. Do students like knowing that the airline price they looked up an hour before might have changed already? Do they like playing a ―wait and see‖ game until they think prices have hit rock bottom? Do any of them feel that they are treated unfairly? Discussion could turn to the ethics of price discrimination. Even if the practice is legal, is it ethical to treat consumers differently just because supply and demand conditions have changed? Should someone who reserved and paid for a spot on the cruise ship a year earlier have to pay twice as much as the last-minute vacationer who caught a discount price the day before the ship left? If given a choice, would any students select to purchase from a firm that did not price discriminate vs. one that did (or vice versa)?

2. A chase strategy often involves hiring and laying off workers regularly. The text mentions that the costs of hiring, layoff, and training may be significant. Class discussion could expand on this concept to explore the various human resource implications of such a strategy. What are some potential pitfalls, beyond the known direct hiring, layoff, and training costs, of a chase strategy? What potentially unforeseen worker-related issues might emerge? What human resource strategies might a firm implement to mitigate some of these potential risks?

Active Classroom Learning Exercises

1. Have the students split into small groups. Each group should choose a local organization and suggest how it might employ a level, chase, or mixed strategy to best meet demand. The students should be able to explain how their suggestion would enable the firm to best meet their typical demand in a way that minimizes cost or maximizes profit. Have each group share its findings with the class.

2. Table 13.5 from the text shows the comparisons from Examples 2, 3, and 4. For this problem, the subcontracting option performs best among those three choices. A fourth option performs even better this is a combination of a level strategy (at 41 units per day) using inventory in the first three months and subcontracting in the last three months. Have the students determine the specific plan and compute the costs. (Inventory = 2, 40, and 101, for Jan., Feb., and Mar., respectively; and subcontracting = 238, 598, and 280, for Apr., May, and June, respectively. Total cost = $104,379.)

Company Videos

1. Forecasting and Revenue Management at the Orlando Magic (9:50)

The Orlando Magic is the first team in the NBA to utilize dynamic pricing for basketball tickets. Each game is individually priced before the season begins. As the season marches on, prices are updated to reflect things such as an opponents‘ superstar being traded, interest in the game as perceived on websites and secondary ticket markets, and ticket sales for each section of the stadium. The Magic use a regression model to forecast revenue, i.e., what price consumers are willing to pay for a ticket. The dependent variable of revenue is based on secondary market data (e.g., fans selling tickets to each other on the Internet). The three independent variables are: X1 = time of year (late in season or around holidays are best); X2 = day of week (Saturdays are best); and X3 = opponent‘s rating (based on highdraw teams or NBA superstars). The adjusted R-squared for their model with just these three variables is 0.85.

Prior to showing the video, an extended discussion could center on the whole concept of revenue management and whether or not students like the idea of constantly changing prices (some might enjoy the shopping challenge while others may loathe the apparent unfairness). The discussion could conclude by asking if ticket prices should be higher for the school‘s annual basketball game against its chief rival (if one exists). After showing the video, it would be interesting to gauge student reaction to dynamic pricing for sporting events. As a fan, is it OK? If a student were in charge of an NBA team, would he or she think differently? The Magic are making a lot more money by pricing this way. Can the team now afford not to do it? What would the stockholders say if the strategy was eliminated?

Cinematic Ticklers

1. The Hudsucker Proxy: A Comedy of Invention (Tim Robbins, Jennifer Jason Leigh, Paul Newman), Warner Brothers Home Video, 1994

During the introduction of the Hoola Hoop, we see a dramatic display of price discrimination as the store manager keeps reducing the price of this (apparently useless) toy all the way to zero until one kid figures out how to use it and every kid in town then demands one. A price premium is quickly introduced.

2. Fawlty Towers: ―Gourmet Night‖ (John Cleese and Prunella Scales), CBS/FOX VIDEO, 1986 (1975)

The hotel owners try out a special weekly ―gourmet night‖ at their restaurant in order to charge a premium to high-society guests and to keep the ―riff-raff‖ out.

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: Disneyland‘s Dynamic Pricing Model

After raising some ticket prices for its theme parks by more than 20% over the past 5 years, Walt Disney will set a new benchmark when it offers die-hard fans the chance to attend a 6-hour preview of a new attraction at Disneyland for $299. The steep price stems in part from a perennial tension Disney faces at its theme parks, where public demand is so strong.

https://heizerrenderom.wordpress.com/2018/06/27/om-in-the-news-disneylands-dynamic-pricing-model/

2. OM in the News: Revenue Management and ―Hello, Dolly!‖

Thanks to what‘s known as revenue management or dynamic pricing, in which costs shift constantly to match demand, top ticket prices for hit shows on Broadway have reached previously unheard-of levels. Last month, the top box-office price for ―Hello, Dolly!‖ was $748. For the phenomenon ―Hamilton,‖ it was $849. Online this week, the top price for a performance of ―Hello, Dolly!‖ at several ticket resellers was $1,450.

https://heizerrenderom.wordpress.com/2017/06/11/om-in-the-news-revenue-management-and-hello-dolly/

3. OM in the News: Yield Management Enters the Magic Kingdom

Overcrowding during holidays has become enough of a problem that Disney had little choice in moving to a demand-based ticket-pricing structure, analysts say. Ticket prices may cost up to 20% more during holidays and some weekends.

https://heizerrenderom.wordpress.com/2016/03/01/om-in-the-news-yield-management-enters-the-magickingdom/

4. OM in the News: Yield Management Hits the Zoo

Adult passes to the Indianapolis Zoo used to cost $16.95. Now they set customers back $8 or $30 or almost anywhere in between. The zoo prices tickets like airfares, changing prices daily based on advance sales and expected demand. Since introducing such dynamic pricing last year, the zoo‘s admission revenue has grown 12%.

https://heizerrenderom.wordpress.com/2015/12/16/om-in-the-news-yield-management-hits-the-zoo/

Presentation Slides

INTRODUCTION (13-1 through 13-7)

Slides 4-5: These slides summarize the Frito-Lay Global Company Profile. Slide 4: With a substantial level of capital investment, the plants must experience high utilization rates, and aggregate

planning helps them attain those goals. Slide 5: The total demand profile considers several inputs, including historical sales (techniques of Chapter 4), but also information about new products, upcoming promotions from the marketing department, and input about local demand from local account managers.

THE PLANNING PROCESS (13-8)

Slide 8: This slide (Figure 13.1) helps to distinguish the various planning horizons and associated tasks and personnel responsible for the decisions. Aggregate planning provides the link between long-range capacity decisions (Supplement 7) and short-range scheduling of workers and jobs (Chapter 15). Long-range capacity decisions certainly impact the flexibility of aggregate plans.

SALES AND OPERATIONS PLANNING (13-9

through 13-12)

Slides 9-12: Sales and operations planning represents a planning effort, typically performed by crossfunctional teams, that attempts to coordinate demand forecasts with functional areas of a firm and its supply chain. The effort particularly helps to identify all relevant limitations and constraints from the various areas involved (Slide 9). The output of this effort is called an aggregate plan. As Slide 10 (Figure 13.2) shows, the effort receives input from a variety of sources both internal and external to the firm. Slide 12 identifies four features needed for sales and operations planning to generate a useful aggregate plan.

THE NATURE OF AGGREGATE PLANNING

(13-13 through 13-15)

Slide 13: Aggregate planning covers intermediate-range decisions, usually 3 to 18 months ahead.

Slide 14: This example from the text shows a sample output of Snapper‘s family of 145 lawnmower models for the upcoming three quarters. Typically in aggregate planning, the demand for different models is aggregated into a family for resource and production planning purposes.

Slide 15: The aggregate plan is described in general terms. Disaggregation of the plan breaks it down into more detail for more specific planning, such as the master production schedule, which is a timetable that specifies what is to be made and when (Chapter 14).

Theobjectiveofaggregateplanning isusuallytomeetforecastdemand whileminimizingcostoverthe planningperiod

AGGREGATE PLANNING STRATEGIES

(13-16 through 13-31)

Slide 16: This list presents legitimate planning strategies. The aggregate plan may suggest one or a combination of the strategies.

Slides 17-21: These slides describe the five capacity options, named so because they do not try to change demand but attempt to absorb demand fluctuations. Slide 17: firms can change inventory levels, building up anticipatory inventory during periods of low demand. We know from Chapter 12 that inventory is expensive, so this can be a costly approach for firms experiencing very seasonal demand. Slide 18: firms can vary the workforce size as demand conditions change. This strategy may work well if hiring and firing costs are not too high and significant training of new employees is not necessary. The human resource implications of this strategy need to be carefully considered. Slide 19: firms can vary production rates using overtime and idle time. This strategy may work well for short-term or relatively small demand changes, but it becomes expensive and potentially unmanageable for reacting to major demand shifts. Slide 20: firms can subcontract out excess demand that they cannot handle internally. The unit cost of this strategy is typically higher than the internal production cost, and the strategy carries with it the usual risks of delegating any task. Slide 21: firms can use temporary or part-time workers during peak demand periods. This practice may work well, particularly in service industries. However, there have been concerns in recent years that big companies are hiring too many temporary employees and avoiding paying benefits such as health insurance in the process. Concerns such as this can damage a firm‘s reputation as a good corporate citizen.

Slides 22-24: These slides cover demand options, through which firms try to smooth out changes in the demand pattern over the planning period. A smoother demand pattern implies less necessity for implementing one of the expensive capacity options. Instructors can present examples showing that sometimes a smooth demand pattern can result in higher overall profit than a varying pattern with higher total demand (i.e., the varying pattern might have more revenue but the additional costs of meeting that varying demand might outweigh the revenue gain). Slide 22: firms can influence demand through the use of advertising and promotions in lowdemand periods. We often see lower prices during such periods, known as off-peak pricing, and we observe this all the time in the form of matinee movie specials, cheap rates at ski resorts during the summer, etc. Some of this generated demand may be new customers enticed by the promotion, but the rest may be shifted demand (customers moving from high-demand periods to low-demand periods). Shifted demand produces a smoother demand pattern overall. Slide 23: firms sometimes intentionally plan backorders during high-demand periods. These come at a cost and assume that customers will be willing to wait to receive the product (a potentially dangerous assumption). Firms with some sort of monopoly power are often in a better position to employ this strategy. Slide 24: firms sometimes employ the strategy of counterseasonal products and service mixing. Producing products with different high-demand seasons such as snowmobiles and jet skis can smooth out demand over the year. Another form of this technique sells seasonal products to markets in the Northern Hemisphere for part of the year and to markets in the Southern Hemisphere for the other part of the year.

Slides 25-28: These slides present Table 13.1 from the text, which nicely summarizes the pros and cons of each of the eight aggregate planning options. Instructors should point out the COMMENTS column as well, which provides more information about the applicability of each option.

Slides 29-31: A combination of the different aggregate planning options may turn out to be the best strategy. There are also two extreme strategies: chase and level. Slide 30 describes the chase strategy, where demand is ―chased‖ by production. Little or no inventory is held, and

the strategy may result in a significant amount of hiring and worker layoffs. Slide 31 describes the level strategy, where workforce levels and production rates remain constant over time. The changing inventory levels option applies here. Human resource difficulties are usually minimized using a level strategy, but the inventory costs may be significant.

METHODS FOR AGGREGATE

PLANNING

Graphical Methods (13-32 through 13-44)

(13-32 through 13-49)

Slides 32-33: Graphical methods represent trial-and-error approaches to the aggregate planning problem. Slide 33 identifies the five steps involved. And, actually, Steps 1-4 are required for any of the aggregate planning solution methods.

Slides 34-44: These slides cover continuing Examples 1-4 from the text. Slide 34 presents the demand data for the examples. Note that the daily demand is based on the number of production days per month, which varies for this firm. Slide 35 graphs the average forecasted monthly demand per day as compared to the average daily demand overall of 50 units. The ensuing three examples present three different strategies for meeting the forecasted demand. Slides 36-39 present the raw data along with Example 2 a level strategy with constant workforce. This strategy builds anticipatory inventory in the first few months to be drawn down in later months. The only costs incurred are regular labor and inventory costs. Slides 40-41 present Example 3 a level strategy to cover the lowest-demand period along with subcontracting for all other months. The only costs incurred are regular labor (lower than Example 2) and subcontracting. Slides 42-43 present Example 4 a chase strategy via hiring and layoffs. The costs incurred in this plan are regular labor, hiring, and layoff costs. Slide 44 summarizes the costs of the three plans. In this problem, the subcontracting option was the best among the three options, although that would certainly not always be the case.

Mathematical Approaches (13-45 through 13-49)

Slide 45: This slide identifies the mathematical approaches for generating good strategies that are described in the text.

Slides 46-49: These slides describe the transportation method of linear programming, which is a special type of linear program that can be solved by hand. It applies to aggregate planning when the options are limited to holding inventory, using overtime, and subcontracting. When hiring and firing decisions are also involved, a general linear program that must be solved on a computer should be used (see Other Supplementary Material below). To set up the transportation table, there should be a row for beginning inventory followed by three rows for each period of analysis and a final row for total demand. There should be a column for each period followed by a dummy column for unused capacity and a final column listing

the total available capacity (supply). Slide 46 (Example 5) presents the raw data, while Slides 47-48 describe important points about the transportation method. Note that the solution in Slide 49 is feasible, but not optimal. The firm spent $72 per tire to subcontract in period 1 for demand in period 2; however, 100 units of subcontracting capacity were unused in period 2. Moving 100 units of subcontracting from period 1 to period 2 would save $2 per tire or $200 in total holding costs.

AGGREGATE PLANNING IN SERVICES (13-50 through 13-53)

Slide 50: Aggregate planning techniques apply equally as well in services as in manufacturing, but services often implement more demand management strategies. As the control of labor cost is critical in service firms, this slide identifies four successful techniques for doing that.

Slides 51-52: Five different service scenarios are described in these slides. Slide 51: For restaurants, some anticipatory inventory can be produced during slack periods (perishable inventory is an important consideration), but most demand changes are accommodated by labor capacity changes. Hospitals may have floating staff positions capable of filling in for the very uncertain demand fluctuations in different departments. For chains of small service firms such as funeral homes, oil change outlets, photocopy centers, and tire centers, central planning may be appropriate if the central office can influence demand via special promotions. Slide 52: ―Miscellaneous services‖ include businesses such as financial, transportation, and many communication and recreation services that provide intangible output. Along with managing demand to minimize the need for extra highly paid professionals during peak periods, these firms need to determine how to fully utilize the professionals during low-demand periods. The airline industry is considered by some to represent the ―Mother of All Scheduling Problems.‖ And even if a good schedule is produced that satisfies all constraints and maximizes revenue, weather or mechanical problems can wreak havoc on the system.

Slide 53: This slide presents Example 6 from the text. Here, a law firm is evaluating its personnel needs under three forecasts: best, likely, and worst. The best-case forecast would increase the workload by 21.8%, whereas the wort-case forecast would result in about 6% underutilization of talent.

13-53

REVENUE MANAGEMENT

(13-54 through 13-59)

Slide 54: Revenue management (also known as yield management) changes the focus of aggregate planning from capacity management to demand management. Successful revenue management implementations have generated millions of dollars of additional revenue for some companies. On the other hand, active revenue management programs can drive consumers crazy as they may always feel, for example, that someone else on the airplane must be receiving the same service for a lower price. With revenue management, companies keep raising and lowering prices in an attempt to extract as much money from customers as possible while simultaneously trying to fill every seat on the airplane, room in the hotel, or seat for the rock concert. Organizations with perishable inventory (airlines, hotels, car rental agencies, cruise lines, etc.) have the shared characteristics identified in Slide 54 that make revenue management of interest to them.

Slides 55-56: These illustrate Example 7 from the text. Slide 55 (Figure 13.5) shows the current demand curve as it relates to the current pricing scheme of charging $150 for every room. Because the hotel does not price discriminate based on willingness to pay, potential revenue is lost. Slide 56 (Figure 13.6) shows how additional revenue can be extracted by charging two different price levels.

Slides 57-58: These slides describe different revenue management approaches taken by firms, depending on their respective (1) predictability of duration of use and (2) variability of pricing. The first industries listed (airlines, hotels, and rental cars) are traditionally associated with revenue management. Nevertheless, with enough imagination, firms in other industries can implement certain revenue management techniques. Instructors could insert a short class discussion here by having students try to identify good revenue management techniques for the industries identified.

Slide 59: Firms need to manage the three issues identified in this slide to make revenue management work. The third issue, ―changes in demand,‖ has at least three components. First, the firm must be able to handle the increased demand with its available resources. Second, customer service must be able to address consumer concerns that arise when the pricing structure may not seem logical and fair to all customers. Third, the firm must deal with any overbooking occurrences arising from an imperfect forecast.

Additional Assignment Ideas

1. An Excel spreadsheet can be developed that finds the optimal aggregate plan via linear programming. (See Other Supplementary Material below.) If the students are learning linear programming in the course (Module B), a good exercise would be to have them try to create such a spreadsheet. Otherwise, instructors can create the spreadsheet themselves and make it available to students who needn‘t have any knowledge of linear programming to run the application. Then, various assignments could be developed to have students find the optimal solution and possibly compare it to pure chase or level strategies. Another twist could be to use demand option tools to change the pattern of demand, which impacts the aggregate plan. Examples can be created that show that off-season promotions may actually increase overall profit as compared to peak-season promotions, even if the peak-season promotions increase total demand (revenue) by more. This would be due to the expensive impact that very seasonal demand may have on production costs.

2. Instructors could have the students interview someone from the human resources department of a company to inquire about their procedures and costs for hiring (especially temporary) workers, laying off workers, and training new front-line employees. A write-up could describe these procedures and costs in detail.

3. An interesting semester-long assignment could have the students select, say, 3 airlines and, say, 2 flights for each that will occur within 3 months of the time of the assignment. Have the students check prices on the same website (probably the airline‘s official website) at multiple points in time during those 3 months. Include different days of the week and times of day as well. Ask the students to write up any conclusions about the airlines‘ revenue management practices that they observe.

See Barry Render‘s Blog, ―Teaching Tip: The Secret to the Airline Pricing Model:‖ https://heizerrenderom.wordpress.com/2011/01/29/teaching-tip-the-secret-to-the-airline-pricing-model/

Internet Resources

APICS: The Association for Operations Management www.apics.org

Using Excel Teaching Videos at U. of Dayton https://heizerrenderom.wordpress.com/2013/02/10/guestpost-using-excel-teaching-videos-at-u-of-dayton/

Other Supplementary Material Game

Available from: The Manufacturing Game 7702 FM 1960 East, Suite 226 Humble, TX 77346 (P) 281-812-4148 (E) info@mfg-game.com http://www.manufacturinggame.com/

o The Manufacturing Game

Linear Programming in Excel

In Example 5, the text clearly illustrates how to solve the aggregate planning problem by hand when it can be converted into the transportation model of linear programming. The ―CREATING YOUR OWN EXCEL SPREADSHEETS‖ example at the end of the chapter illustrates how to implement that example in Excel. A downside of Example 5 is that hiring and layoff costs based on production change are not included. However, Excel can handle the more general linear programming problem with relative ease. Interested instructors can create the spreadsheet and make it available for their students. All the students would need to do is input the parameters and run Solver to find the optimal plan. The spreadsheet shown below is based on the aggregate planning environment covered in the book and is more general than the one presented in the textbook.

INPUT SECTION:

OUTPUT SECTION:

FORMULAS FOR THE

FORMULAS IN THE OUTPUT

Notes: The regular time increase and decrease values are probably the trickiest feature. We want to avoid using IF statements to ensure that the formulation remains a linear integer program. The balance equations for ―Inc/Dec‖ provide the necessary logic. The ―Inventory‖ balance equations ensure that demand is met in some way in each month, and they create positive inventory when available inventory exceeds demand. Finally, there is a rounding issue with the way in which the text has formulated the problem. The Excel program displayed here assumes that the costs for increasing and decreasing production are proportional, allowing, for example, half the cost to be incurred if a one-half day change in production occurs (i.e., the daily production rate numbers are not rounded in the spreadsheet).

Chapter 14 Material Requirements Planning (MRP)

and ERP

Background

This chapter covers a lot of issues. After being hit with a big chunk of inventory theory in Chapter 12, students may be surprised to see inventory appear once again in a different form. As the calculations are all relatively straightforward, the most important goal should be to help students understand the underlying concepts and tradeoffs. The MRP section of the chapter is basically about planning ahead so that everything is in place to produce the final product on time. Instructors should stress that MRP is primarily a planning tool, as opposed to an inventory or short-term dispatching technique. The ERP section describes how firms are trying to significantly extend MRP and create fully integrated business functions where all relevant information is easily obtainable as needed. Students who have worked full-time may have some experience using ERP systems that they could share with the class.

Class Discussion Ideas

1. For a specific product and process they understand, have the students identify specific reasons why inventory counts might be inaccurate. Then have them develop possible solutions to these problems.

2. One way to get students thinking about the function of MRP is to begin the lecture by asking them to provide examples of planning ―backwards in time‖ in their own lives. One example might be completing a big term paper by the end of the semester. Do students think about how long each task of writing the paper should take and which tasks need to be completed before others may begin? Do they plan out a schedule of when to start (or at least finish) each task, or do they wait until the last minute? A second example might be cooking a complex meal. Certain ingredients need preparation prior to being mixed into the final dish. If guests arrive at 6:00, do the cooks schedule backwards in time to make sure that the final meal is ready on time?

3. Have students consider the advantages and disadvantages of ERP as described in the text. Based on what they‘ve studied, do students think that installing an ERP system would be worth it, even at a cost of, say, $100 million (for a fairly large firm)? Do the responses differ among students who have worked full-time compared to those who have not? Would their answers differ if they were managing a small- to medium-size firm and the installation cost was, say, $300,000? Are there other ways to attain some of the benefits of ERP without purchasing a system through an expensive ERP provider?

Active Classroom Learning Exercises

1. Have the students split into groups and assign each group a different product. It may be necessary to let them examine the product itself or to at least provide pictures or blueprints.

Have each group develop a bill of material (BOM) for the product. It might be useful to express the BOM as both a product structure tree and an indented BOM. Have each group share its results with the class.

2. Divide the class into groups and charge each group with the task of designing an effective lot-sizing heuristic that is different from those presented in the text (lot-for-lot, EOQ, and periodic order quantity). Have each group describe its heuristic to the class. (It would be interesting to see if any groups come up with something like part-period balancing, least unit cost, or Silver-Meal.) Go ahead and test the various heuristics against a set of, say, three different patterns of gross requirements. (Excel could help to automate the holding and setup cost calculations on the fly.) Award a prize to the team whose heuristic performs best.

Company Videos

1. When 18,500 Orlando Magic Fans Come to Dinner (9:40)

Serving dinner for thousands of guests, night after night they probably didn‘t cover how to do that in Chef John‘s culinary school. But wherever he learned it, Chef John now makes extensive use of OM tools, including forecasting attendance, determining products in the form of menu items, selecting recipes (bills of materials), adjusting inventory, purchasing from the supply chain, and scheduling manpower. The Amway Center in Orlando has 45 different food outlets operating on any given day, including a fine dining restaurant. The chef plans meals for the upcoming season during the summertime 16 total meals are rotated throughout the season to keep season ticket holders happy. Chef John forecasts gross requirements for food based on ticket sales and previous food demand. Then spreadsheets play a vital role in the food inventory process, acting much like an MRP system. The spreadsheets take the recipes for the food items and provide detailed lists of the quantities of ingredients needed and when. The chef has instituted procedures to track and minimize waste, and internal audits are conducted to ensure that everyone is following exact specifications when preparing food. All food items are inspected off the truck, and Chef John inspects each food service area every day. His motto is, ―If you don‘t inspect it, don‘t expect it to be right.‖ For a sporting event or a concert held at the Amway Center, the number of different food selections is rather astonishing. OM tools, including inventory management software, help things run smoothly.

Prior to showing the video, instructors might ask students what they think would be involved in preparing meals for 18,000 guests. What would be some of the OM challenges? One of the surprising realizations from the video is how much uncertainty and variability is involved. This operation is so much more than just heating up 5,000 hot dogs every day. Meals are rotated, attendance varies, the time between events can vary from one day to several weeks, and many employees are part-time workers. Follow-up discussion could focus on these issues of variability and uncertainty. How can they be managed? Is there something that Chef John could do to improve things further or at least to give him fewer things to worry about? Another avenue for discussion could focus on the concept of rotating meals. Surely fans appreciate that, but what is the revenue impact? Would fans order ―anything‖ or ―whatever is on the menu‖ just because they are at the arena and hungry, or is Amway truly pulling in

more revenue by offering this product variety? How could they try to collect data to find out for sure?

2. MRP at Wheeled Coach (7:45)

Each ambulance made by Wheeled Coach is comprised of about 3,000 different raw materials. The company custom-builds an ambulance designed from an unlimited number of configurations in just 19 days. Particularly for firms producing custom-ordered items like this, MRP is crucial to getting the right parts at the right place at the right time. A detailed BOM is created during sales negations so that Wheeled Coach can properly cost out the item. Once the order is accepted, this BOM feeds into the MRP system. Wheeled Coach freezes its MPS for two weeks, so that changes cannot interfere with the production planning process during that time period. The MRP system incorporates a 3-4 week lead time. Thus, inventory decisions for certain items with much longer lead times, such as aluminum and chassis, are made outside of the MRP system. Wheeled Coach‘s old system based dependent demand inventory decisions on historical data, resulting at times in obsolete inventory. In Wheeled Coach‘s ever-changing industry with custom orders, MRP has essentially eliminated that problem while reducing overall inventory levels significantly.

Prior to showing the video, instructors might ask students to guess how many different raw materials go into an ambulance and to think about how those items should be managed. Afterwards, instructors might ask how the MPS might look different at Wheeled Coach compared to an automobile assembly line factory such as Ford. Also, do the students think that safety stock would be more important for components at Wheeled Coach or at Ford? Finally, by the company president‘s own admission, the MRP system was very expensive. Can the students describe why having too much inventory or having obsolete inventory is such a bad thing? Did the benefits of the MRP purchase seem to outweigh the costs in this case?

Cinematic Ticklers

MRP typically time-phases the requirements based on lead times such that everything is ready just-in-time for its intended use. Thus, with little to no slack time in the system, disruptions anywhere along the line can cause the final product to be late. Any clip that shows the main character‘s schedule being disrupted and the frantic actions that follow would apply here. One such example is provided below.

1. Clockwise (John Cleese), Republic Pictures Corporation, 1985 Headmaster Brian Simpson (Cleese) insists on absolute punctuality from both his staff and students, even if it means keeping tabs on them with binoculars. When he‘s elected chairman of the national Headmasters Conference, he‘s deeply moved. But when he misses his train to the conference, he‘s off on one bizarre misadventure after another as he frantically tries, in his very own way, to make up for precious lost time.

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: Blockchain and High Health Care Costs

Eventually, blockchain could be used to provide a secure and accurate medical history for every individual patient. With a low-cost and decentralized-ledger approach to managing information, blockchain technology gives all of the parties in the provision of health care simultaneous access to a single body of strongly encrypted data, and it creates an audit trail each time data are changed, helping to ensure the integrity and authenticity of the information.

https://heizerrenderom.wordpress.com/2018/06/01/om-in-the-news-blockchain-and-high-healthcare-costs/

2. Teaching Tip: How Microsoft Sells Supply Chain Management and ERP

Microsoft‘s website, the Dynamics of SCM, suggests that supply chain and logistics costs can eat up 50-70% of a company‘s profits. Its product, Microsoft Dynamics ERP, touts these ERP benefits: (1) simplify critical purchasing and receiving processes, (2) know what your customers want, (3) keep inventory lean and still address demand, (4) tools to make smarter buying decisions and to negotiate better terms, and (5) help improve customer service and improve customer relationships.

https://heizerrenderom.wordpress.com/2016/10/06/teaching-tip-how-microsoft-sells-supplychain-management-and-erp/

3 OM in the News: Reinventing Federal-Mogul‘s Supply Chain

Federal-Mogul is spending $100 million to upgrade its supply chain from end to end. The push under the new plan is to move the entire company onto SAP enterprise software.

https://heizerrenderom.wordpress.com/2015/10/14/om-in-the-news-reinventing-federal-mogulssupply-chain/

4. OM in the News: 3 Rules of Thumb for ERP Implementation

What can a firm do to successfully implement an ERP system? Apptricity provides these three old adages: (1) Look before you leap, (2) Too many cooks spoil the broth, and (3) Be careful what you ask for. It all goes back to the planning process. Once a company determines what its scope and budget for an ERP system should be, management should firmly commit the company to staying within that scope and budget.

https://heizerrenderom.wordpress.com/2013/09/17/om-in-the-news-3-rules-of-thumb-for-erpimplementation/

Presentation Slides

INTRODUCTION (14-1 through 14-7)

Slides 4-5: Because Wheeled Coach deals with so many parts for its custom-made assembled ambulances, an excellent MRP system is crucial for getting the right parts at the right place at the right time.

14-7

DEPENDENT

DEMAND (14-8 through 14-10)

Slides 8-10: While Chapter 12 introduced techniques for independent demand, Chapter 14 illustrates how to handle dependent demand, which occurs when the demand for one item is dependent on the demand for another. In short, for all components that a firm produces to go into a final product, material requirements planning (MRP) determines when to begin producing them and in what quantities. Taking lead times into consideration, components are scheduled far enough in advance to ensure that the final product can be completed when scheduled. Slide 9 identifies four benefits of MRP.

14-8

14-9

14-10

DEPENDENT INVENTORY MODEL REQUIREMENTS (14-11 through 14-29)

Slide 11: Operations managers must have knowledge about each of the items identified in this slide in order to implement MRP.

Slides 12-13:The master production schedule (MPS) stems from the aggregate plan (Chapter 13). The MPS specifies exactly how many final products will be made and when. This schedule applies to the independent demand items. Based on the MPS, MRP schedules all of the dependent demand items.

Slides 14-16:These slides (Figure 14.1) show where the MPS and MRP fit within the overall sales and operations planning process. Feedback loops are in place in case any of the plans are deemed infeasible.

Slide 17: This slide (Figure 14.2) nicely illustrates how an aggregate production plan based on quantity of product families per month is disaggregated into an MPS showing weekly production of specific products. This slide is arguably the most useful visual tool in the presentation slides to help students understand the relationship between Chapters 13 and 14.

Slide 18: This slide emphasizes that the MPS applies to end products no matter what process strategy is being used.

Slide 19: This slide (Table 14.1) illustrates a typical MPS. The time unit is usually either days or weeks, and it is not uncommon to have zero production scheduled for certain days or weeks. (For example, if the quantities are generated from the Production Order Quantity formula (Chapter 12), then the lot sizes may cover several periods of demand.)

Slides 20-22:A bill of material (BOM) breaks a product down into all of its subassemblies and components and identifies how many units of each component go into each parent

component/subassembly, all the way up to making one unit of the final product. Note that certain components may appear in more than one place in the BOM, e.g., one-inch fasteners might be used in both an inner casing and an outer casing. (A good test question that catches a lot of students off-guard provides a BOM and asks for the total units of a certain subassembly needed to produce one unit of final product, where the subassembly appears in two places in the BOM.) A BOM is probably best explained visually by going quickly to the example shown in Slide 21 (from Example 1). Slide 22 computes the number of each part needed to make one unit of final product. Students need to be aware that the numbers on the BOM refer to the amount required for the immediate parent, not the final product, so the amount needed for the final product has a multiplicative relationship.

Slide 23: When firms practice modular design (see Chapter 5), or postponement (see Chapter 7), they produce major subassemblies or modules to stock but make final products to order. This allows for hundreds or even tens of thousands of different final product configurations based on combinations of perhaps 10-50 modules. When production is organized in this way, modular bills are used for each module, and no bills of material for final products are needed.

Slides 24-25:These slides describe two other special kinds of bills of material, planning bills (or kits) and phantom bills. Low-level coding is necessary when identical items exist at various levels in the BOM (for example, item D in Slide 21).

Slides 26-27:Endnote 2 of the text dramatically illustrates the importance of accuracy: ―Record accuracy of 99% may sound good, but note that even when each component has an availability of 99% and a product has only seven components, the likelihood of a product being completed is only .932 (because .997 = .932).‖

Slide 28: If lead times were zero, a tool as sophisticated as MRP would not be necessary. Lead times drive the schedules, as production start times depend upon the lead time of the component in question as well as all of its parents.

Slide 29: This slide (Figure 14.3) presents a time-phased product structure of the BOM from Slide 21 (turned on its side). It includes lead times and thus illustrates when each component must start in order for the final product to be completed on time.

MRP STRUCTURE (14-30 through 14-41)

Slide 30: This slide (Figure 14.4) shows the structure of the MRP system. Once set up, the calculations are all mechanical, but tedious. They could be done manually, but excellent computer software eliminates that burden and reduces potential errors.

Slides 31-34:These slides discuss the development of the gross material requirements plan (from Example 2, a continuation of Example 1), which is a schedule showing the total demand for an item during each time period (which is based on the order release of the parent), as well as the order release of the item (i.e., when production must begin or the item must be ordered). Note that demand for an item with multiple parents is combined into a single gross material requirements plan for that item.

Slides 35-39:These slides (Example 3, a continuation of Example 2) discuss the net material requirements plan, which adjusts the gross material requirements plan to account for on-hand inventory (and allocations and scheduled receipts). Slides 35-36 provide the actual plan for each item, while Slides 37-39 describe the calculations for items A and B. The superscripts in Slides 35-36 indicate the source (parent) of the demand. The planned order release indicates when to start producing or ordering the part, time-phased from the planned order receipt to account for the lead time.

Slide 40: MRP gross requirements can combine multiple products, spare parts, and items sold directly into a single gross material requirements plan. This slide (Figure 14.5) provides an example.

Slide 41: Most inventory systems also note the number of units in inventory that have been assigned to specific future production but not yet used or issued from the stockroom. Such items are often referred to as allocated items. Allocated items increase requirements and may then be included in an MRP planning sheet. This slide presents the formula for net requirements.

MRP MANAGEMENT (14-42 through 14-46)

Slides 42-44:These slides describe demand-driven MRP (DDMRP), which involves more active management of MRP systems. The idea is to monitor conditions and strategically adjust lead times and safety stock levels to ensure continuing smooth operations and on-time delivery of components. The five primary components of DDMRP are presented in Slide 43 and illustrated in Slide 44 (Figure 14.6).

Slide 45: MRP schedules production for a specified length of time, such as two weeks, eight weeks, etc. However, during that time, new orders arrive or other conditions change that might alter the net requirements for items. And any such change has a cascading effect down the whole product tree. To avoid making too many alterations to previously scheduled planned order releases, companies can implement techniques to reduce the nervousness of the system. One technique is the use of time fences, which allow a segment of the master schedule to be designated as ―not to be rescheduled,‖ i.e., it is considered to be frozen. A second technique is pegging, which involves tracing upward in the BOM from the component to the parent item. By pegging upward, the production planner can determine the cause for the requirement and make a judgment about the necessity for a change in the schedule. Instructors may want to share that several researchers have studied issues

surrounding MRP nervousness, and some have proposed more sophisticated lotsizing models that incorporate a production change cost (that could equal infinity for frozen parts of the schedule).

Slide 46: MRP on its own ignores resource and capacity constraints. The result could be long queues and delays, especially in process-focused operations.

LOT-SIZING TECHNIQUES (14-47 through 14-58)

Slides 47-49:The most important managerial decision in standard MRP is the lot-sizing decision. Firms may utilize a lot-for-lot approach (Slide 47), which means producing or ordering exactly the planned order release for that period. However, a setup cost would be incurred every time, which is why other lot-sizing rules consider producing in larger batches that take advantage of economies of scale. Like the EOQ model, these techniques look for a balance between holding and setup costs. The main alternative method discussed in the text is the periodic order quantity, which determines the average number of periods of demand that the EOQ would cover and has the user always order enough to cover that many periods (Slide 48). The EOQ itself generally performs poorly because in some periods it may leave enough inventory in place to cover only a partial period of demand this is a waste because a setup would still have to be incurred that period anyway (Slide 47). Slide 49 identifies other lot-sizing techniques. Part period balancing, least unit cost, and least period cost are all heuristics that can be relatively easily implemented by hand but that are not guaranteed to generate the optimal solution. On the other hand, the Wagner-Whitin algorithm is the optimal solution to the finite-horizon lot-sizing problem, but it is generally too onerous to compute by hand. Furthermore, given the system nervousness and dynamic nature of continuing demand that often occurs in real-world MPR environments, a Wagner-Whitin plan that was optimal one day may no longer be optimal the following day. In that regard, the heuristics may perform just as well. Finally, instructors might note that for purchased parts,

researchers have modified and tested these lot-sizing heuristics for the case of both all-units and incremental quantity discounts.

Slides 50-56:These slides cover Examples 4-6, which apply three different lot-sizing rules to the same gross requirements pattern. Slides 50-51 (Example 4) apply the lot-for-lot rule. Inventory is never held when using lot-for-lot, but setup costs are maximized. Slides 52-53 (Example 5) apply the EOQ (infinite horizon) lot size. Notice how this technique performs even worse than lot-for-lot due in several cases to holding inventory that does not meet the full week‘s demand. Slides 54-55 (Example 6) show how to apply the periodic order quantity method. Note how both the lot size and the number of periods of demand covered by the order can change each time. Slide 56 compares the costs of the three techniques. In this example, POQ was the best heuristic tested, while the optimal Wagner-Whitin algorithm would have improved costs by an additional 8.1%.

Slides 57-58:These slides provide some summary information about lot sizing. No matter which method is used, the changes caused by the rolling horizon, new orders, and other factors cause nervousness in the system, which needs to be managed. As a longterm goal, firms should try to reduce setup costs to the point where lot-for-lot (hence just-in-time production) becomes economically viable.

EXTENSIONS OF MRP (14-59

through 14-68)

Slides 60-62:These slides describe material resource planning, known as MRP II. Similar to basic MRP, the system can determine needs not only for units, but also for scheduling and determining resources such as labor hours, machine hours, scrap, and payables (cost). Slides 61-62 (Table 14.4) provide an example.

Slide 63: Virtually all commercial MRP software applications provide closed-loop MRP systems, which provide feedback to the capacity plan, master production schedule, and production plan. This slide (Figure 14.7) provides a schematic of the interactions.

Slides 64-68:These slides show how closed-loop MRP can assist in capacity planning. The system produces load reports, which show the resource requirements in a work center for all work currently assigned there as well as all planned and expected orders. When capacity is exceeded, smoothing tactics (Slide 65) can be implemented to try to bring the load back within capacity. The idea beyond overlapping is that rather than having finished parts wait around for the entire lot to be completed, they are sent ahead so that the setup on the next operation can begin. Then when the rest of the lot arrives, the setup has already been completed so there is no additional waiting time for those units. Lot splitting is a similar idea, but two full setups still might take place because the order has actually been broken up (and it‘s possible that another order may come in between). Operations splitting also breaks up an order, but it sends the smaller lots to two simultaneous operations as opposed to sending them at different times. Slides 66-68 (Example 7) illustrate how order splitting can be used to smooth the resource load.

MRP IN SERVICES

(14-69 through 14-72)

Slide 69: Services or service items may have dependent demand (and hence require MRP) as well. For example, restaurants have ingredients and side dishes dependent upon the demand for meals; hospitals utilize equipment, materials, and supplies based on the demand for surgeries; and hotels require materials, furniture, and decorations in response to demand for renovations.

Slides 70-71:These slides come from Figure 14.9, which shows an example product structure tree and bill of materials for a top-selling dish at the Amway Center in Orlando

Slide 72: Distribution resource planning (DRP) extends MRP beyond one firm into multiple firms within the supply chain. DRP is a time-phased stock-replenishment plan for all levels of a distribution network. This represents an excellent mechanism for enhancing supply chain coordination (Chapter 11).

ENTERPRISE RESOURCE PLANNING (ERP)

(14-73 through 14-82)

Slides 73-74:Enterprise resource planning (ERP) is software that allows companies to (1) automate and integrate many of their business processes, (2) share a common database and business practices throughout the enterprise, and (3) produce information in real time. The basic idea is certainly a noble one to try to tie all information systems together so that employees can have access to relevant data from any department. In an ERP system, data are entered only once in a common, complete, and consistent database shared by all applications. These are almost always custom-designed systems provided by companies specializing in ERP. The cost of setting up such systems is usually counted in the millions of dollars and sometimes in the hundreds of millions. Most ERP implementations exceed budget projections and take longer than anticipated. Many success stories exist about ERP, as well as many horror stories. In general, ERP does not solve problems it only provides the information. Other solution software or services need to be purchased for that type of assistance.

Slides 75-79:These slides emphasize different sections of Figure 14.10, which is a schematic showing some of the ERP relationships for a manufacturing firm. Notice that ERP often extends into the supply chain to include customers (customer relationship management (CRM) software) and suppliers (supply chain management (SCM) software).

Slide 80: This slide identifies a few of the potential advantages and disadvantages of ERP. Enterprise resource planning is a high-profile implementation with substantial potential gains but many potential pitfalls. Employees tend to either love it or hate it.

Slide 81: This slide (Figure 14.11) shows a set of SAP AG‘s many available modules for ERP. We can see why ERP is truly ―enterprise-wide.‖

Slide 82: Service industries have implemented ERP as well.

1. Allowsautomationandintegrationofmany businessprocesses

2. Sharescommondatabasesandbusiness practices

3. Producesinformationinrealtime

Coordinatesbusinessfromsupplier

EnterpriseResourcePlanning (ERP)

▶ERPsystemshavethepotentialto ▶Reducetransactioncosts ▶Increasethespeedandaccuracyof information

▶FacilitatesastrategicemphasisonJIT systemsandsupplychainintegration

▶Canbeexpensiveandtime-consuming toinstall

ERPintheServiceSector

▶ERPsystemshavebeendevelopedfor healthcare,government,retailstores, hotels,andfinancialservices

▶Alsocalledefficientconsumerresponse (ECR)systemsinthegroceryindustry

▶Objectiveistotiesalestobuying, inventory,logistics,andproduction

Additional Assignment Ideas

1. Have the students identify university bookstore items that could be classified as dependent demand items. This will be a bit of a challenge as most retail items are independent demand items. There will be some items, such as student CDs, linked to specific textbooks that could be classified as dependent demand.

2. There are many ERP (Enterprise Resource Planning) software packages. Visit the websites representing any two of these companies and describe the distinguishing features of their product. What are the various modules? How can the software be tailored to specific industries? (Hint: The big ones are SAP and Oracle/PeopleSoft.)

Internet Resources

American Software

www.amsoftware.com

JDA: The Supply Chain Company http://www.jda.com/ IQMS Intelligent Enterprise Software www.iqms.com Oracle/PeopleSoft www.oracle.com

SAP America www.sap.com

Software evaluation www.technologyevaluation.com

Infor http://www.infor.com/

Other Supplementary Material

Learning Game

Fish, L. (2006). Materials Requirements Planning: Tinkertoy Lawn Mower Activity. Decision Sciences Journal of Innovative Education, 4(1), 129-140.

o Teaching brief describes a hands-on exercise to develop fundamental skills in MRP.

Chapter 15 Short-Term Scheduling

Background

Scheduling can be a fun topic because it is easy for students to relate to. In fact, instructors can introduce the topic by bringing up an all-too-familiar problem: a student has three assignments and a book report due this week, along with a major midterm which course should she work on first? If Chapter 15 is covered toward the end of the term, many students may well be behind in several of their classes by that time. A counter-intuitive result to share with them is that scheduling by the earliest due date (EDD) may not be their best chance to avoid a lot of lateness, particularly if they are behind already. Often SPT is the best way to catch up, even if it means

sacrificing the grade in one course (or crying in the professor‘s office until he or she gives the student a break). If we think of all of the assignments as a set of fires, extinguish the small ones first before focusing attention on the big blazes.

This chapter discusses several quantitative techniques that can be completed by hand, as well as several potential software applications. Hopefully instructors can convey the importance of scheduling for all kinds of organizations and that it represents an important and mature research area. One example problem that instructors might mention is the economic lot scheduling problem, which attempts to combine the production order quantity model from Chapter 12 with some of the scheduling issues presented here. In particular, when multiple products must be produced using the same resource, the lot sizes need to be adjusted to ensure that enough units of all products are made in time to satisfy their respective demands.

Interested future managers can purchase whole books on scheduling techniques. Scheduling problems are combinatorial in nature; thus, solution times, even with computers, grow exponentially every time a factor (such as a job) is added to the problem. Scheduling is also very dynamic the ever-changing environment forces regular re-examination of schedules.

Class Discussion Ideas

1. When first introducing the subject, instructors could ask students to identify different types of scheduling problems in the real world. The list could easily fill a page and take several minutes to develop the point being to get students thinking about the tremendous variety and prevalence of scheduling applications in existence, no matter in which industry they will eventually work. Examples to have handy in case of dead air include: factory (jobs on a machine, purchases and deliveries, workforce), university (assigning professors to classes, assigning rooms to classes, setting registration priorities), airlines (flights, connections, crews), hospitals (operating rooms, outpatient procedures, nurses), and the National Football League (games, referees). Discussions about scheduling the school sports teams can spark interest as well.

2. Before going over the sequencing priority rules covered in the text, instructors could ask students what they think good priority rules might be for sequencing jobs on machines or even for sequencing class assignments given a set that is due in the coming week. Usually, students will eventually come up with the most popular four (probably not critical ratio), and they may have other ideas such as the bulkiest jobs or projects that take up the most space, the most profitable jobs, jobs from the most important customer, jobs from the customers who complain the loudest, jobs with the most perishable raw materials or that have the greatest chance of becoming obsolete, whatever the boss tells them to do, and jobs with economies of scope (for example, similar setups on the machine). Instructors could ask about the television show M*A*S*H, where, via triage, the most-wounded patients were treated first. Triage had a fascinating caveat in the show, however, in that gut-wrenching decisions sometimes had to be made about severely wounded soldiers with less than a 50% chance of survival who might take, say, four hours of a surgeon‘s time in the meantime, several lesswounded soldiers might perish waiting for the surgeon to become available. Who should be worked on next? Finally, certain college sports schedules are dictated above all else by when

the game can be aired on television. Other rules exist such as potentially alternating the home field against conference opponents, playing against the rival school at the end of the season, or even scheduling a home basketball game in another city in the state during holiday breaks when the students have left town.

Active Classroom Learning Exercises

1. A fun exercise can create some sort of assignment problem involving celebrities who make the news for doing crazy things or who otherwise get made fun of for various antics or characteristics. Fictional tasks could be created for these individuals that might draw upon some of their respective strengths or weaknesses. At this point, the instructor can ask students to provide numerical ratings for the celebrities for each of the categories (say from 1 to 10, where 1 represents outstanding and 10 represents awful). As shown at the end of the chapter, the assignment problem can be rather easily handled by Excel‘s Solver (or Excel OM or POM for Windows). Instructors could have a solution program up and ready on the screen and then insert the students‘ table into the software to determine the best assignment. Sensitivity analysis could see what happens to the assignments if either the ratings are reexamined or perhaps if a new (fictitious) scandal hits the news about one of the celebrities. Also, instructors can develop various scenarios showing that, for subjective ratings like this, it‘s the differences within each category that drive the results, more so than the differences between categories. For example, Suzy might score a 1 in category A and an 8 in category B. Meanwhile, Bob might score a 2 in category A and a 10 in category B. In this case, the optimal assignment is Suzy in category B and Bob in category A (total score of 10), implying that the overall best possible rating of putting Suzy in category A would not be assigned. See Chuck Munson‘ blog, ―Spicing Up the Assignment Problem in Class at Washington State U.‖: https://heizerrenderom.wordpress.com/2011/04/22/guest-post-spicing-up-the-assignmentproblem-in-class-at-washington-state-u/

2. The widely used Lekin software mentioned in the chapter is available for free at www.stern.nyu.edu/om/software/lekin/. Consider having the program showing on the screen during class. Let students generate different collections of jobs needing processing. Then try different priority rules on these sets of jobs. Record the results and compare the performance of the various rules. For those interested, the Lekin software handles other types of scheduling situations such as general job shops, which go beyond the scope of the text. Instructors could demonstrate some of these applications using Lekin.

3. In Jay, Barry, and Chuck‘s OM Blog, Professor Steven Harrod describes an interesting exercise that helps students match sequencing rules with the three major operations strategies from Chapter 2. The post is called, ―Guest Post: Tying Scheduling Back to Operations Strategy in Your Course.‖

http://heizerrenderom.wordpress.com/2013/03/07/guest-post-tying-scheduling-back-tooperations-strategy-in-your-course/

Company Videos

(Note: The Module B video, Using LP to Meet Scheduling Challenges at Alaska Airlines (5:51), coincides very well with Chapter 15 as well, especially if the instructor isn‘t covering Module B in the course.)

1. From the Eagles to the Magic: Converting the Amway Center (8:30)

Charles Leone, Jr. is the operations manager of the Amway Center. One of his biggest challenges is staffing and scheduling for conversion from one type of event to another (e.g., from a rodeo to a hockey game). The Orlando Magic of the NBA is the primary tenant of the facility, comprising 35% of its calendar. However, all kinds of different events are scheduled around and in between the basketball games. Often the conversion has to be made in less than 24 hours. And the amount of equipment involved can be quite large as much as 42 trailers of gear for a concert. The scheduling and deploying of labor for a conversion is very important for Leone. More ―hands‖ are not always better. For example, if more than 4-6 people are working on converting a seating structure, they just get in the way. Thus, smart, efficient scheduling is key. Each conversion team wears a different color shirt for easy identification in the huge facility. Toward the end of the video, we see an impressive timelapse look at the complete conversion from a rock concert to a basketball court. What‘s the best part of OM scheduling for Leone? ―Finishing on time. That‘s the best part.‖

Prior to showing the video, instructors might ask students to share their experiences running an event, with particular emphasis on preparing the facility for the event. What were their challenges? How long did it take to set up and to clean up? How much manpower help did they have? After showing the video, the Amway experience could be compared to the students‘ experiences. Another line of discussion might delve into potential risk management tactics for scheduling conversions at places such as the Amway Center. For example, what do you do in the middle of the night if two key workers don‘t show up? The clock is ticking before the game starts at noon what do you do if stage dismantling was delayed by two hours? The clock is ticking what happens if the concert tour‘s crews aren‘t following your rules or are taking too long to move out or are drunk? Do you have a plan for the guests standing in line if you‘re not ready to open the outside doors to the arena or the inside doors to the stadium itself?

2. Scheduling at Hard Rock Cafe (4:35)

This is a short video but packed full of interesting characteristics of a complicated problem to which most students can relate. The Hard Rock Cafe in Orlando, Florida has 1,100 seats and must try to schedule 160 servers fairly and effectively. The primary driver of employee scheduling is the sales forecast, which is based on prior sales, trends, seasonality, and known local events. Employees are then asked to provide preferences for work times, work days, and work stations. A linear program (Module B) solves the scheduling problem for Hard Rock, creating a daily schedule for each employee. The preference constraints are modified by seniority and a priority weighting from 1 to 9 is assigned to each employee. The schedule also keeps the number of employees at a minimum during low-demand times of the day. Workers are allowed to swap shifts, but they seldom do so because the software takes care of

most of their personal constraints. One result of the scheduling system is a turnover rate equal to one-half of the industry average.

Prior to showing the video, instructors could ask students to think about what factors Hard Rock Cafe in Orlando might consider when scheduling its 160 servers every week. Afterwards, discussion could compare the students‘ a priori impressions with the considerations described in the video. Beyond that, instructors might ask students to share any positive or negative work schedule experiences that they might have had as an employee for a service firm. Then any students who had to create work schedules as managers could relate their experiences. What happened when an employee either refused to come in when requested or simply did not show up? How was absenteeism handled? Finally, some chain restaurants have regional or national offices create the employee schedules for the local franchise. What might be the advantages and disadvantages of such an approach?

Cinematic Ticklers

1. The Simpsons, Season 2: ―Bart Gets an F,‖ 20th Century Fox Video, 2002 (1990-1991)

If instructors are using student study schedule decisions to help illustrate scheduling issues, then they may want to show the opening scene from this episode. The students are presenting their book reports orally to class, but Bart has not read his book. He tries to fake his way through his report, but he gets caught when Mrs. Krabappel asks him to state the name of the pirate (in Treasure Island). Later on in the episode, Bart is trying to study, but he keeps getting interrupted (for example, when his father Homer asks him to stay up late and watch a movie together).

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: Using OM to Fix School Bus Routes

In hopes of reducing spending, Boston Public Schools offered $15,000 in prize money in a contest that challenged competitors to reduce the number of buses. MIT‘s Operations Research Center won by devising an algorithm that drops as many as 75 bus routes (out of 650).

https://heizerrenderom.wordpress.com/2017/08/20/om-in-the-news-using-om-to-fix-school-busroutes/

2. OM in the News: The Airlines‘ On Time Flight Game

This year, Delta‘s flights have been scheduled about 9 minutes longer than they actually took, on average, a 6% cushion. Partly as a result, Delta scored best in on-time arrivals among the 4 biggest U.S. carriers. However, every minute added to schedules can increase costs: higher crew pay for trips and more planes and gates needed to fly the same number of trips. Adding one minute to every flight costs about $10 million annually.

https://heizerrenderom.wordpress.com/2017/07/03/om-in-the-news-the-airlines-on-time-flightgame/

3. OM in the News: Delta‘s Epic Scheduling Meltdown

Spring break for hundreds of thousands of Delta Air Lines passengers was disrupted by April thunderstorms in Atlanta that led to an epic OM meltdown. At the root of 4,000 canceled flights: telephone busy signals. The biggest problem was that Delta‘s 13,000 pilots and 20,000 flight attendants calling in for new assignments couldn‘t get through to the people in Atlanta on the front lines of rebuilding the schedule.

https://heizerrenderom.wordpress.com/2017/05/07/om-in-the-news-deltas-epic-schedulingmeltdown/

4. OM in the News: Scrutinizing the Scheduling of Workers at Retail Chains

The attorneys general of 8 states are scrutinizing big retailers over their staffing practices and whether they require workers to show up or stay home with little notice. A 2015 report examined the prevalence of unpredictable schedules among young adults, and it found that 41% receive their schedules a week or less in advance, and half have no input into the timing of their hours.

https://heizerrenderom.wordpress.com/2016/04/20/om-in-the-news-scrutinizing-the-schedulingof-workers-at-retail-chains/

Presentation Slides

INTRODUCTION (15-1 through 15-6)

Slide 4: We‘ve all been stuck at the airport at one time or another. Alaska Airlines has worked hard to make such waits less frequent and less painful. Airline scheduling has been called the ―Mother of All Scheduling Problems,‖ because the companies must schedule thousands of planes with interconnections daily, plus pilots and flight crews with all of their human resource constraints, plus local staff at each airport. This application is where mathematical programming really shines. The static scheduling problem is difficult enough, but the dynamic scheduling problem kicks in when a plane breaks down or Mother Nature gets nasty. One delayed plane can cause a ripple effect throughout the system. The interesting Global Company Profile in Chapter 15 describes how Alaska Airlines stays on top of potential flight disruptions using a combination of technology on planes and on the ground, along with the power of mathematical scheduling models. The company estimates annual savings of $18 million from reduced cancellations and delays. And don‘t forget the priceless goodwill stemming from satisfied customers who get to their destinations on time!

THE IMPORTANCE OF SHORT-TERM SCHEDULING

(15-7 through 15-9)

Slide 7: This slide describes the objective of short-term scheduling, the focus of Chapter 15. After all of the higher-level planning that the book has discussed, we finally see how to determine exactly what is produced and when.

Slide 8: Good scheduling increases utilization rates on equipment while producing items quicker and on time more often.

Slide 9: This slide (Table 15.1) provides examples of scheduling activities at five different organizations.

SCHEDULING ISSUES

(15-10 through 15-18)

Slide 10: Companies schedule jobs (products or customers), resources (machines, rooms, and employees), and activities (maintenance, purchasing etc.). The resulting schedules depend upon the priorities that management has deemed important.

Slide 11: By this point in the book, students have been exposed to an array of planning functions at different levels of aggregation. This slide (Figure 15.1) does a nice job of showing where short-term scheduling fits in with the other planning functions.

Slides 12-14:Scheduling involves assigning due dates to specific jobs, but many jobs compete simultaneously for the same resources. These slides describe forward vs. backward scheduling. Forward scheduling (Slide 12) may be more appropriate in situations where customer orders arrive and the goal is to complete each order as soon as possible. Here, due dates are not considered, causing some jobs to potentially be late. Backward scheduling (Slide 13), which may be more appropriate for repetitive manufacturing environments or for services with specific event times (a concert or a doctor appointment), attempts to produce a schedule that meets all due dates. However, the schedule may not be feasible given the available resources. Slide 14 informs us that the two scheduling approaches are often combined in an attempt to address the trade-off between schedules that are feasible given available resources and schedules that meet all customer due dates.

Slide 15: Loading is the process of assigning jobs to work or processing centers. Finite loading considers capacity constraints, while infinite loading does not. Basic MRP (Chapter 14) is an infinite loading technique.

Slide 16: This slide identifies four important scheduling criteria. (Note that criteria 1 and 3 are often very highly correlated.) Other criteria may be used, such as minimizing the maximum lateness of any job, minimizing the average lateness for those jobs that are late, minimizing the number of late jobs, or some sort of fairness criterion for customers or employees. Determination of the most important criteria often drives which scheduling method to use.

Slides 17-18:These slides (Table 15.2) provide an overview of different processes and approaches to scheduling.

SCHEDULING PROCESS-FOCUSED FACILITIES (15-19)

Slide 19: On a daily basis, job shops tend to be more difficult to schedule than assembly lines or continuous flow facilities due to the variety of products produced, different routes through the system that these products take, and unstable demand. (The product-focused facilities might be more likely to utilize mathematical programming to set a weekly or monthly schedule, but once in place, these schedules seldom need to be updated certainly not on a daily basis.)

LOADING JOBS

(15-20 through 15-35)

Slide 20: Loading means the assigning of jobs to work or processing centers. When loading is undertaken via the perspective of capacity, input-output control can be used. When loading is undertaken via assigning specific jobs to work centers, either Gantt charts or the assignment method of linear programming can be used.

Slides 21-24:Slide 21: Input-output control compares arrival rates of new jobs to the capacity of the facility in order to identify overloading (too much work) or underloading (too much idleness) conditions. ConWIP (constant work-in-process) cards can be used to aid input-output control. Such cards control the amount of work in a work center. Once the job has been completed, its ConWIP card is released and returned to the initial workstation, authorizing the entry of a new batch into the work center. Slides 22 and 23 (Example 1) illustrate the use of input-output controls. Note that the cumulative change in backlog is computed as the sum of the actual inputs minus the sum of the actual outputs. When this value moves too far from 0, managers should consider actions such as those identified in Slide 24. Changing work center input can be accomplished by (a) routing work to or from other work centers, (b) increasing or decreasing subcontracting, or (c) producing less (or more).

Slides 25-27:Slide 25: Gantt charts are visual aids that are useful in loading and scheduling. The charts show the use of resources, such as work centers and labor. A Gantt load chart shows the relative workloads over time of departments, machines, or facilities. Managers can shift work between resources when overloading or underloading appears. A Gantt schedule chart shows jobs in process, indicating which are on schedule and which are behind or ahead of schedule. Again, this type of chart provides management with a quick visual aid to look for areas requiring action. Slide 26 (Example 2) provides an example of a load chart (here, metalworks and painting are completely loaded for the entire week), and Slide 27 (Example 3) provides an example of a schedule chart (here, job A is one-half day behind schedule, job B was completed on time, and job C is ahead of schedule).

Slides 28-35:Slide 28 defines the assignment method. Importantly, it only applies when one and only one job (or worker) is assigned to one and only one machine (or project). (The assignment problem is actually a special case of the transportation problem seen in Chapter 13 and Module C, with demands and capacities both equal to 1.) Examples include assigning jobs to machines, contracts to bidders, people to projects, and salespeople to territories. Each assignment problem uses a table, such as the one illustrated in Slide 29. (Prohibited assignments could be given a cost or time of infinity ) The special structure of the assignment problem allows it to be solved by hand (using the Hungarian method). The solution steps are provided in Slides 30 and 31. Slides 32-35 go through a complete example of assigning three jobs to three typesetters (Example 4). The final solution assigns R-34 to person C, S-66 to person B, and T-50 to person A, at a final cost of $25.

SEQUENCING JOBS

(15-36 through 15-59)

Slide 36: Once jobs are loaded, managers must decide the sequence in which they are to be completed (also called dispatching). Students regularly perform sequencing in their own lives when they decide in what order to work on their assignments or which of several errands to run first. This slide identifies the four most popular priority rules for sequencing. A nice feature of sequencing is that, before any processing begins, different priority rules can be easily tested and the results compared. In fact, the rule used might change from one application to another depending on comparison results.

Slides 37-38:The important time measure to track in sequencing problems is flow time, defined as total time in the system (waiting plus processing). (Note how this differs from throughput time used in Supplement 7, which does not incorporate waiting.) While total processing time (throughput time) will not depend upon the sequence, total flow time will because the flow time of any particular job in the sequence becomes part of the waiting time for all other jobs that follow. (This is why SPT is the rule that minimizes total flow time overall waiting is minimized by getting the quick jobs finished right away.) Four measures of effectiveness are computed (Slide 37): (1) average completion time, (2) utilization metric, (3) average number of jobs in the system, and (4) average job lateness. Note that the first three measures are completely correlated, i.e., the rule that performs best on one will perform best on all three. Job lateness (Slide 38) is computed as Max(0, yesterday + flow time – due date). (Here we assume no penalties for finishing early.) The lateness formula assumes that a one-day job that is begun today (in the morning) and is due today (by the end of today) would finish by the end of today and be on time. Clearly, the lateness depends upon the sequence chosen.

Slides 39-48:These slides apply the four main priority rules to the same set of jobs waiting to be sequenced. Slide 48 summarizes the results. In this example, SPT performed best on the first three measures (which will always be true), while EDD performed best on average lateness (which, surprisingly, is not always true).

Slide 49: This slide provides general comparisons for the common sequencing rules. While SPT does not always minimize average lateness, it does always minimize average completion time. A suggestion: ―When in doubt, use SPT.‖ FCFS usually performs at a decent average level, and it has the primary advantage of being fair to customers. FCFS may be particularly appropriate when customers can see the queue of jobs (Think about sitting in a restaurant and then watching a group who just

entered get seated before you, or think about potential unfairness that arises with multiple grocery store lines.) Although EDD performed best on average lateness for Example 5 in the text, it is very important to emphasize that while EDD does minimize maximum lateness, it does not necessarily minimize average lateness or even number of late jobs. In fact, examples can be presented showing that EDD may perform very poorly on those lateness criteria. The basic idea is that if everything is scheduled via EDD, once the system falls behind, it may well remain behind for every single job that follows. This phenomenon is counter-intuitive and is one reason why students run into trouble meeting due dates during their respective semesters.

Slides 50-52:If average lateness is the most important criterion, the critical ratio technique may be the best one to use. It‘s in some sense a hybrid of EDD and LPT that examines the slack available for each job. Slide 50 provides the formula, and Slide 51 illustrates Example 6 from the text. A primary advantage of this technique is that the ratios can be recomputed after each job finishes, which potentially changes the remaining sequence after the slack conditions have changed. Slide 52 identifies benefits of the critical ratio technique in most production systems.

Slides 53-58:The sequencing rules discussed up to this point in the chapter all deal with sequencing on one machine. But if jobs must pass through two different machines in the same order, Johnson‘s Rule can be used to minimize the total flow time. The steps (Slide 54) may sound rather strange and illogical to students, but they are not too difficult to follow. Slides 55-58 clearly illustrate Example 7 from the text. These PowerPoint slides incorporate very nice animation that illustrates each step clearly.

Slide 59: This slide identifies three limitations of using myopic, rule-based dispatching systems. Nevertheless, schedulers often apply one of these methods at each work center and then modify the sequence to deal with a multitude of real-world variables. They may do this manually or with finite capacity scheduling software.

FINITE CAPACITY SCHEDULING (FCS) (15-60

through 15-62)

Slides 60-62:Finite capacity scheduling provides the scheduler with interactive computing and graphic output to help overcome the disadvantages of rule-based systems. FCS systems may allow virtually instantaneous schedule changes based on the most upto-date information. Slide 61 (Figure 15.5) shows the different components that are combined to produce the Gantt chart output in FCS. Slide 62 provides a screen shot (Figure 15.6) from the Lekin finite capacity scheduling software showing the data from Example 7 (the Johnson‘s Rule example) in the text. This widely used software is available for free.

SCHEDULING SERVICES

(15-63 through 15-74)

Slide 63: This slide presents several ways in which the scheduling of service systems differs from the scheduling of manufacturing systems. Some of these service characteristics appear in the Hard Rock Cafe video case associated with this chapter.

Slides 64-65:The complexity of scheduling services is exemplified by the industries highlighted in these slides.

Slides 66-74:Cyclical scheduling is utilized to develop a schedule with the minimum number of workers. Each employee is assigned to a shift and has time off. Slide 67 provides the steps used to address the staffing problem of Example 8 in the text. Slides 68-74 schedule employees one at a time until all staffing requirements have been met.

Additional Assignment Ideas

1. Have the students develop a Gantt chart for their daily activities, from the time they get up in the morning until they go to bed at night, each day for seven days.

2. Search the web and see if you can locate two or more scheduling software vendors. Can you identify what types of schedules and theories are used? How do they differ?

3. Responsive Learning Technologies (http://responsive.net/) produces several online simulation games that instructors can use in their classes to have teams compete against each other. Pricing is charged per student. The Littlefield Technologies game incorporates scheduling issues.

Internet Resources

Finite scheduling software

www.asprova.com

ILOG (IBM) Model Development http://www-01.ibm.com/software/info/ilog/ MDSI, Shop Floor Communication www.mdsi2.com

Production Scheduling www.production-scheduling.com

Other Supplementary Material

Modeling Extension

Johnson‘s Rule provides a method to schedule a set of jobs that must go through two machines in the same order. How about for three machines? It turns out that Johnson‘s Rule can be easily modified to handle the three-machine case. The resulting solution is optimal under some conditions, and it usually represents a good heuristic otherwise.

Label the three machines A, B, and C. Create two dummy machines A′ and B′, where for any job, the time on machine A′ equals the time on machine A plus the time on machine B, and the time on machine B′ equals the time on job B plus the time on machine C. Apply Johnson‘s Rule to A′ and B′.

Chapter 16

Lean Operations Background

Just-in-time (JIT) has been alluded to throughout the book, and we finally see its full treatment here in Chapter 16. Instructors should emphasize that JIT is a philosophy of continuous problem solving that drives out waste. It is not a set of techniques or just something about kanbans or small lot sizes. JIT should be thought of as a journey toward a long-term goal of working in a completely lean operation. For example, pure JIT might suggest lot sizes of one unit, but in practice, we more often think of moving toward JIT and reducing lot sizes. At its heart, JIT glorifies procrastination, a concept with which many students live daily. But the key to effective procrastination is eliminating the causes (variability, waste, errors) that would otherwise encourage early completion of any task. Without any problems or variability, we don‘t need any safety stock, safety capacity, or safety time.

This chapter covers many issues. Perhaps two of the more important concepts to emphasize with students are the boat picture (Slides 33-36) and the idea of treating setup cost (or time) as a decision variable rather than as a parameter (Slides 40-42). The book also provides a nice set of specific tactics for the operations manager covering Lean layout, Lean inventory, Lean scheduling, and Lean quality (Slides 27, 32, 44, and 57, respectively, corresponding to Tables 16.1 through 16.4). Whether called JIT, TPS, Lean, Six Sigma, or TQM, the concepts presented in this chapter have redefined the way in which businesses think and operate. These concepts may someday be present in virtually all successful companies.

Class Discussion Ideas

1. A powerful example of setup time reduction is the process of changing tires. When we get a flat tire, we have to change it, taking 10 minutes or more, and then we drive to the tire store to fix or replace the flat. Usually the process takes at least one hour. In a car race, however, all four tires are changed in a matter of seconds (recall the Global Company Profile in Chapter 10). Every lost second represents about 500 yards of distance in the race, so a fast setup time is critical for success. Clearly, with enough investment and ingenuity, most setup times can be reduced. Have students identify some of the changes that were implemented in the car racing world to enable such a fast setup time (including product design, having replacements available where and when needed, devoting human resources to the task, using automation, etc.). Then note how some of these same ideas can be applied to many different setup tasks in companies.

2. There are several potential disadvantages or risks of implementing JIT, which might preclude companies from pursuing that strategy. After completing the lecture, instructors might ask students if they can think of any such disadvantages. Examples include: (1) risk of supply shortage (what if there‘s a strike at your supplier‘s plant?); (2) no ―just-in-case‖ inventory (safety stock) to cover unforeseen events (fires, absenteeism, snowstorms, etc.); (3) inventory does provide some operational advantages as described in Chapter 12, but those are lost under JIT; (4) potential traffic problems (particularly during the day in big cities, and having multiple deliveries per day adds trucks to the roadways!); (5) increased transportation costs of delivering less-than-truckload quantities frequently; (6) reliance on non-affiliated suppliers (loss of control); (7) potentially more idle workers (envision how taxpayers feel as they drive by a highway construction site with one worker shoveling and the rest observing and chatting about it); (8) dependence on level schedules (which may not always be possible); and (9) a stoppage anywhere because, say, a broken machine stops the whole line (because nobody else has any buffer inventory to work on). This discussion would fit very nicely with the Additional Online Case, ―JIT After a Catastrophe.‖

Active Classroom Learning Exercises

1. Create two identical assembly lines with, say, three stations each. Place a student at each station. Assign relatively simple tasks to the ―product,‖ for example, taping, putting Lego blocks together, stapling, etc. Have the tasks for station 1 take about 2 seconds, station 2 take about 6 seconds, and station 3 take about 15 seconds. Station 1 has unlimited raw materials available, while the other stations start empty. Instruct each member of team 1 to work as fast

as possible. Instruct team 2 to implement a pull system. Specifically, have a green kanban card for station 3 and yellow card for station 2. Station 3 is to produce as fast as possible, but each time he/she begins working on a new unit, he/she should pass the green kanban card to station 2. Only when station 2 receives the green card should he/she begin production on a new unit. At that point, station 2 should pass the yellow card to station 1. When station 2 completes a product, he/she should place the green card on top of the product and physically pass it to station 3. Similarly, station 1 should only begin work when he/she receives the yellow card. After completing a product, he/she should place the yellow card on top of the product and deliver it to station 2.

To introduce quality issues, for the setup of both lines, change the color of the raw materials at station 1 to red after the 15th unit. Red represents a defect that is only noticeable once it reaches station 3 but don‘t tell anyone. Run a simultaneous simulation of production that lasts for five minutes. Offer candy or some small prize to members of the winning team so that the students will work at a good pace. (Other class members could even be allowed to vote for which team they think will win and be promised candy for the right selection.) What should we see? The throughput for both lines should be approximately 20 units (4 units per minute at the bottleneck times 5 minutes). (It doesn‘t really matter which team ―wins‖ with respect to throughput because the ―costs‖ incurred by the push team will make it much less profitable i.e., give candy to everyone in the class!) Two observations should become immediately apparent. (1) Inventory: The push team should have much more inventory there should be about 30 units of WIP in front of station 3 [(60/6)5 – 20] and about 100 units of WIP in front of station 2 [(60/2)5 – 50]. Meanwhile, the pull team should have at most one unit of WIP in front of both stations 1 and 2. (2) Quality: Assuming that station 3 operators were working at about 15 seconds per task, when the quality inspector stops at station 3, he/she should notice about five defective finished products (20 − 15), which were the last ones produced. Now count the total defects in the system. The pull team should have no more than five defective components back in the assembly line (one in front of stations 2 and 3 and one being worked on at each station). The push team, however, should have one for the entire WIP inventory in front of stations 2 and 3 plus those being worked on (about 133 units). Clearly we see a huge waste difference here.

As a side observation, the instructor could ask about the utilization rates of the workers. Students should notice that workers 1 and 2 on the pull team weren‘t working for much of the time. Such apparently low utilization rates appear to suggest waste in the system. In practice, (1) the lines could be better balanced, which would increase throughput as well, (2) those workers could be cross-trained to help out at other stations during idle times, which would increase throughput as well, or (3) stations 1 and 2 could be combined, which would eliminate the cost of one person‘s job.

2. One classic strategy in Lean systems is to locate suppliers close to (and on occasion, right next to) the customer. Have the students split into groups and choose an organization with a geographically diverse supplier base. Each group should develop strategies for how these suppliers can support a Lean system without relocating. Have the groups share their ideas with the class.

Company Videos

1. Lean Operations at Alaska Airlines (8:10)

Since 2007, Alaska Airlines has made a significant commitment to Lean operations. The company has infused a culture of continuous improvement into every element of its operations via quality processes and empowered employees. This all started when COO Ben Minicucci observed his airline, and the competition, from atop the Seattle airport viewing tower. He could see many non-value-added steps in his operations that were ripe for elimination. Alaska provides a lot of kaizen and Six-Sigma training for its employees, and the carrier implements Lean techniques such as 5S, kaizen projects, and gemba walks. Some results include reducing the door opening time upon arrival from 4.5 minutes to 1 minute, reducing the application time for the ―Tier Match Program‖ from 20 minutes to 2 minutes, and reducing the number of people needed at turnaround. A major experiment has been with the use of dual-door deplaning. Despite its costs and risks, implementation has reduced average deplaning time by 2.5 minutes and a full 8 minutes for customers in the back of the plane!

Prior to showing the video, instructors could ask the students where they have noticed waste and non-value-added activities in their air travel experiences. The list may get long! Afterwards, the video might spur ideas in students‘ heads about their own work experiences. Whether in a restaurant, on the farm, in the office, or dealing with the university‘s bureaucracy, have the students ever observed inefficient processes that drove them crazy? Were there seemingly obvious solutions? What obstacles might hinder companies from implementing such solutions? What has Alaska Airlines done to apparently remove such obstacles?

2. JIT at Arnold Palmer Hospital (9:15)

We get to hear about two implementations of JIT at the hospital. First, at the hospital pharmacy, drugs are drawn just-in-time based on actual patient demand and prescriptions written by doctors. Second, supplies for pre-scheduled surgeries are delivered from the outside supplier the same day as the surgery. The hospital performs 45 different types of surgeries, each requiring a different ―surgical pack.‖ The packs are bulky and would take up a huge amount of storage space if extras had to be stored in the hospital for all of the different potential surgery types. Instead, based on the surgery schedule, the first-tier supplier procures all of the needed items from physician-approved vendors and organizes the appropriate surgical pack for each surgery to be performed that day. These packs are trucked by 4:00 a.m. to arrive just-in-time. (Note that supplies needed for emergency surgeries are stored on-site for the obvious reasons.) Beyond inventory savings, another benefit of receiving these surgical packs to order is that when physician demands for the packs change, there are no extra packs in stock that would have to be reconfigured. For Arnold Palmer Hospital, JIT has resulted in waste reduction, variability reduction, and inventory being pulled only when needed.

Prior to showing the video, instructors might ask students to think about what at a hospital might be managed on a just-in-time basis. Afterwards, the student ideas could be compared to the two implementations at Arnold Palmer Hospital (It would be surprising if anyone

would have thought of the surgical pack implementation ) Further discussion could focus on the risks of a system like the surgical pack implementation. What contingency plans would need to be in place to handle potential supply disruptions? If a pack were missing any items, how might the delay affect the patient and the patient‘s family? Should the hospital hold safety stock? If so, should it hold safety stock packs for all types of surgeries or just some types of surgeries? Finally, instructors might bring up the cost tradeoff for this specific implementation. While the hospital has reduced inventory holding costs significantly, surely the costs of assembling, handling, and delivering the packs every morning are higher than they would be if packs were purchased in bulk and delivered less frequently. However, presumably, health insurance companies are more likely to fully reimburse the direct costs of procurement than they would be to reimburse the overhead costs of inventory. Thus, even if the cost tradeoff were exactly the same, the hospital might not experience a net procurement cost increase at all (after reimbursement); meanwhile, the inventory cost reductions would represent true cost decreases.

Cinematic Ticklers

1. Cars (Owen Wilson, Larry the Cable Guy, Bonnie Hunt, Paul Newman), Walt Disney Pictures Pixar, 2006

In the big race at the end of the movie, Lightning McQueen has to have his tires changed and get back on the track in time, before he gets lapped by his two competitors. Guido represents Lightning‘s entire pit crew and is mocked throughout the race by the opposing pit crew. When Lightning pulls in, Guido changes all four tires and sends his racer on his way in an incredibly short time leaving the opposing pit crew speechless. This is a nice and humorous example of reducing setup times.

2. Any clip that illustrates procrastination can be used to introduce JIT. One such example is seen in many of the old Popeye cartoons (Paramount Pictures) that feature the character, Wimpy. His famous line was, ―I would gladly pay you Tuesday for a hamburger today.‖

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: Tesla‘s Lean Problems

Tesla has had trouble being lean. An industry expert who visited the Fremont manufacturing plant noticed things such as: ―High, leaning stacks of cardboard boxes and other items make it difficult to see…Most of the AGVs were empty. The aisles were narrow and crowded, and some of the stuff, piled up, was leaning into the aisle.‖ https://heizerrenderom.wordpress.com/2018/09/19/om-in-the-news-teslas-lean-problems/

2. OM in the News: How to Fix the Emergency Room Using OM Tools

Not only are hospital emergency room wait times long, but they‘re not improving. Some hospitals are trying to implement OM tools, including focusing on the following: (1) eliminate triage, (2) eliminate details that waste time using lean management, and (3) quickly help patients with minor complaints and those who probably just need tests.

https://heizerrenderom.wordpress.com/2017/09/19/om-in-the-news-how-to-fix-the-emergencyroom-using-om-tools/

3. OM in the News: Andons Move to the Office?

Engineering giant ABB developed an automated solution to reducing office interruptions: an andon light that turns red, green, or yellow to indicate when interruptions are OK and when they aren‘t. The system reduced interruptions by 46%. In general, employees reported becoming more conscious of how disruptive interruptions can be and more motivated to focus.

https://heizerrenderom.wordpress.com/2017/05/25/om-in-the-news-andons-move-to-the-office/

4. OM in the News: Business Students Find Real World Applications for OM Topics Crime-scene DNA is processed 3 weeks faster at a state forensic lab thanks to internship work by recent Washington State University graduate Kristina Hoffman. A forensic scientist with the Washington State Patrol, she applied ―lean‖ business management practices that resulted in a 26% increase in productivity, $5,200 savings in overtime pay, and reduction in the average turnaround time for processing DNA samples from 93 days to 71. https://heizerrenderom.wordpress.com/2016/02/07/om-in-the-news-business-students-find-realworld-applications-for-om-topics/

Presentation Slides

INTRODUCTION (16-1 through 16-7)

Slides 3-5: Toyota Motor Corporation, the subject of this chapter‘s Global Company Profile, is credited with introducing just-in-time (JIT) production concepts to the world. The Toyota Production System (TPS) adds additional elements to pure JIT, and together, those operations strategies have greatly contributed to Toyota‘s rise to become one of the largest vehicle manufacturers in the world. These slides describe elements of JIT and TPS evident at Toyota, which are described in more detail in this chapter.

LEAN OPERATIONS

(16-8 through 16-20)

Slides 8-10: Over the years, various authors, consultants, and companies have coined new terms that, frankly, sometimes just sound like a repackaging of old concepts. Much of the content today in JIT, TPS, Lean, and Six Sigma programs is based on total quality management principles developed by Deming and others more than 50 years ago (Chapter 6). As these three slides indicate, the distinctions among some of these strategies are not always clear, and their goals are usually very similar. Nevertheless, they all bring added value to our collective knowledge of how to run an operation efficiently. The authors have chosen to use the term Lean operations as an umbrella concept to incorporate all of these issues. Elimination of waste is arguably the most fundamental concept to adhere to.

Slides 11-12:All non-value-added activities are considered to be waste. Taiichi Ohno has identified seven such categories of waste (Slide 12).

Slide 13: Waste is sometimes more broadly defined as the waste of any resources, such as air, energy, and water. This kind of waste can be reduced or eliminated via efficient, sustainable production.

Slides 14-15:The Japanese developed the initial 5 Ss, representing a good checklist for Lean operations (Slide 14). U.S. managers added two more (Slide 15).

Slides 16-18:Management would be simple if there were no variability. Slide 17 identifies four of the many possible sources of variability. Slide 18 tells us that JIT and inventory reduction can act like magnifying glasses, exposing the causes of variability. Once the causes are known, corrective action can be taken.

Slides 19-20:A technique for improving throughput is a pull system, a concept that results in material being produced only when requested and moved to where it is needed, just as it is needed. Pull systems are a standard tool of JIT and Lean systems.

16-20

LEAN AND JUST-IN-TIME (16-21 through 16-57)

Introductory Section (16-21 through 16-23)

Slide 21: This slide describes some of the most important aspects of JIT.

Slides 22-23:These slides reproduce Figure 16.1 from the text, showing how JIT contributes to competitive advantage.

Supplier Partnerships (16-24 through 16-26)

Slides 24-25:True JIT cannot exist unless it extends beyond the company such that the suppliers deliver parts just-in-time. Often, a large buying firm will offer ―free‖ consulting

services to its suppliers to try to help improve their processes and make them capable of delivering just-in-time. For example, complete incoming inspection does not mesh well with JIT deliveries. The buyer would like to be convinced that the supplier has sufficient statistical process control and inspection systems in place so that the buyer can take the supplier‘s parts right off the truck and straight onto the assembly line. Slide 25 (Figure 16.2) displays the many characteristics of supplier partnerships. An important one is that in many cases, suppliers open factories very close to the buyer‘s factories to ease communication and make frequent deliveries of small lot sizes economically viable. In fact, some large Japanese firms have been known to subsidize the location costs of some of their major suppliers when opening a new factory abroad.

Slide 26: Instructors should spend a fair amount of time on this slide because proper supplier integration is absolutely crucial for a successful JIT program. And vendors may be essentially forced to become JIT suppliers for large manufacturers if they want to supply those manufacturers at all. The promise of large sales volumes potentially comes with significant risks and costs, particularly if the supplier is not currently JIT-capable. The last bullet on this slide, in particular, is a common criticism of JIT. If the supplier does not have JIT capability itself, or if its production process possesses significant economies of scale, then the supplier may have to hold a significant amount of finished goods inventory to be able to respond quickly to JIT orders. Seen this way, EOQ-based inventory normally held at the manufacturer‘s plant is simply moved to the supplier‘s plant, along with the associated holding costs. 16-24 16-25

Lean Layout (16-27 through 16-31)

Slide 27: A properly designed layout can significantly help firms reach their Lean goals, particularly by removing the waste of excess movement. This slide (Table 16.1) identifies several proven tactics for Lean layout.

Slide 28: Work cells were discussed in detail in Chapter 9, and such arrangements often work very well for companies implementing JIT. Instructors can emphasize here why the U-shape makes sense under these conditions. With JIT, every machine is not necessarily working all of the time (as they might be in a traditional assembly line). Thus, these work cells often can be operated by fewer workers than machines. The workers are flexible and can operate all of the machines in the cell. Therefore, the U-shape helps these workers observe all of the machines better and move between them much faster, as distance may be cut by half or more compared to moving along a linear layout.

Slide 29: Almost nothing in these new departments is bolted down. Most machines, furniture, office equipment, walls, and electronic/communications connections are movable. This type of flexibility is crucial in an environment of continuous improvement.

Slide 30: Clearly, workers in a Lean/JIT environment have more job enlargement, enrichment, and empowerment (Chapter 10) than workers in a traditional assembly line do. Traditional union rules requiring very specific job classifications would not work well in a JIT system. Along with the broader job tasks of JIT comes the responsibility for quality control and making it right the first time. There is no safety stock to replace defects on the fly.

Slide 31: This slide presents a visual inventory-reduction tactic: remove the storage space. It may sound simple, but humans tend to fill empty spaces with ―stuff.‖ If little storage space is available, then systems must be designed to minimize inventory levels or else inventory will be left on the machines, blocking other products from being produced. (This concept relates well to the video example of gel packs in Arnold Palmer Hospital, where space is a premium.)

Lean Inventory (16-32 through 16-42)

Slides 32-36:Inventory reduction arguably represents the most powerful impact of moving to a JIT system. Slide 32 (Table 16.2) identifies tactics for reducing inventory. Slides 33-36 describe the famous inventory boat analogy (Figure 16.3). We see in these three pictures that inventory (the water level) acts as a double-edged sword. In the short run, it may provide ―smooth sailing‖ over the company‘s problems (the rocks). But in the long run, not only is the inventory itself expensive, but it hides the underlying problems with the operation, and those associated costs continue to be incurred. A similar analogy can be described using a bandage covering an infected wound. The bandage might stop the bleeding, but if it hides the infection from being noticed, then the wounded person will have a lot more problems later on.

Slides 37-42:Having learned all about the EOQ and Production Order Quantity (POQ) models from Chapter 12, students may wonder how to reconcile the potentially large lot sizes computed there with the Lean/JIT philosophy of small batches. Were the formulas wrong? Are the JIT proponents naive by ignoring relevant costs? The answer is that both approaches come together when we think of the setup cost S as a variable instead of a parameter. (This is arguably the most important contribution from the Japanese JIT philosophies.) By reducing the setup cost toward zero (potentially through some sort of initial investment in process change), the EOQ (POQ) lot size will approach 1. Slide 39 (Example 1) turns the POQ formula around to find the necessary setup cost (time) given a target order quantity. From there, the firm can work on methods to reduce S to the required amount. Slide 42 (Figure 16.6) provides steps for reducing setup times.

Lean Scheduling (16-43 through 16-55)

Slides 43-46:Slide 44 (Table 16.3) identifies tactics for Lean scheduling, the two most important of which (in addition to communicating schedules to suppliers) are level schedules and kanban. JIT does not perform well with highly variable schedules because the system cannot react quickly enough to major swings in demand. Thus, level schedules are a prerequisite for effective JIT (Slide 45). Sometimes firms freeze the schedules for a certain period of time to keep them stable. Level scheduling is sometimes referred to as ―jelly bean‖ scheduling because this technique schedules many small lots that are always changing (see Slide 46, modified from Figure 16.7).

Slides 47-55:These slides present information about kanbans (pronounced ―kahn-bahn,‖ not ―can-ban‖), which are the signaling mechanisms in JIT systems. A distinctive feature of JIT production is that if a kanban has not been received, then the work station sits idle, going against the traditional philosophy of maximizing utilization rates at all stations. Note that the kanban does not have to be a physical card. As Slide 48 (Figure 16.8) shows, any effective signaling mechanism will do. Slide 50 illustrates how kanban cards are used to pull material through an entire production process. Slides 51-52 provide additional implementation specifics about kanbans. Slide 53 provides the formula for determining the number of kanbans or containers needed for moving back and forth between the using area and the producing area. The size of each container is based on a lot-sizing model such as the Production Order Quantity model (Chapter 12 and Equation (16-1)). Slide 54 (Example 2) provides an example for computing the number of kanbans. Slide 55 identifies several advantages of kanban systems, realized in part because kanban containers are typically very small, usually a matter of a few hours‘ worth of production.

Lean Quality (16-56 through 16-57)

Slide 56: This slide presents three ways in which Lean and quality are directly related.

Slide 57: This slide (Table 16.4) presents several Lean quality tactics.

LEAN AND THE TOYOTA PRODUCTION SYSTEM (16-58 through 16-60)

Slides 58-60:The Toyota Production System (TPS) (recall Slide 5) ―brings the entire person to work.‖ Three core components of TPS continuous improvement, respect for people, and standard work practice are described in these slides. TPS requires that activities, connections, and flows include built-in tests to automatically signal problems. Any gap between what is expected and what occurs becomes immediately evident.

LEAN ORGANIZATIONS (16-61 through 16-64)

Slides 61-63:Lean organizations begin externally, with a focus on the customer (Slide 61). Slides 62 and 63 identify several attributes that tend to exist in Lean organizations Slide 64: This slide refers to sustainability (see Supplement 5) and how it relates to Lean. Both concepts focus on the elimination of waste. While Lean efforts tend to focus inward, sustainability efforts tend to focus outward beyond the firm. When implemented properly, the combination leads to higher levels of performance and a safer environment

LEAN IN SERVICES (16-65)

Slide 65: This slide identifies example areas where Lean techniques apply to services. First, virtually every restaurant deals with its suppliers on a JIT basis due to the perishability of the inventory. Second, Lean layouts are required in restaurant kitchens, where cold food must be served cold and hot food hot. Third, McDonald‘s reduces inventory waste by maintaining a finished-goods inventory of only 10 minutes; after that, it is thrown away. Fourth, at airline ticket counters, ticket counter personnel show up just-in-time to cover peaks in customer demand.

16-65

Additional Assignment Ideas

1. Boeing has proudly emphasized its lean practices for several years. Research the company and write a report describing some of the lean practices in place at Boeing.

2. Imagine you are a manager at a just-in-time manufacturing plant, and you are concerned about parts arriving on time. Visit the YRC Freight website at http://www.yrc.com/. Describe YRC Freight‘s solutions. Do they offer any innovative approaches to this situation?

3. Professor Patrick W. Shannon created a lean implementation case and project using ProModel simulation.

See https://blog.promodel.com/2016/09/12/teaching-supply-chain-management-withpromodel/.

Internet Resources

Kaizen Institute

http://us.kaizen.com/ Kanban and the environment www.epa.gov/lean/thinking/kanban.htm

Kanban explanation from Graphic Products www.graphicproducts.com/tutorials/kanban/index.php

Manufacturing Engineering, Inc. www.mfgeng.com

Mid-America Manufacturing Technology Center www.mamtc.com

Other Supplementary Material

Videos

Films available from: Society of Manufacturing Engineers

One SME Drive P.O. Box 930

Dearborn, Michigan 48121-0930 (P) 313-425-3000 (F) 313-425-3412 www.sme.org

o MI #21 Implementing Just-in-Time, SME Video Network

o Flexible Small Lot Production for JIT: See how Roll Forming Corp., Joy Technologies, and Lockheed Aeronautical Systems Company are able to do this. Order # PI-VT4153456.

o Implementing Just-in-Time: See how Opcon, Zytec, Hayes Industrial Brake, and Manufacturing Solutions were able to do this. Order # PI-VT284-3456.

Film available from: APICS

http://www.apics.org/productcatalog/apicsfindproducts

o Styro, Inc.: John Deere Components Works (Stock # 01201) distributed through APICS. It is a wonderful illustration of many just-in-time concepts. This 36-minute video demonstrates the concept of value-centered manufacturing, which is aimed at adding value not cost to the product while fulfilling customer demands.

Poetry

Instructors with a poetic bent might recite the poem called, ―An Ambulance Down in the Valley,‖ which is available in various forms on several websites (e.g., http://www.wealthandwant.com/docs/Malins_ambulance.html). The analogy here is that the ambulance is equivalent to inventory in the factory.

Excerpts:

―Twas a dangerous cliff as they freely confessed, Though to walk near its edge was so pleasant. But over its edge had slipped a Duke, And it fooled many a peasant.

The people said something would have to be done, But their projects did not at all tally.

Some said, ‗Put a fence around the edge of the cliff,‘ Others, ‗An ambulance down in the valley.‘

Yes, build up the fence and let us dispense, With this ambulance down in the valley.‖

Chapter 17 Maintenance and Reliability

Background

Some consider maintenance to be a rather ―hidden‖ operations management strategy. Nevertheless, proper maintenance is absolutely vital to the success of companies because the costs of failure can be so huge. The Frito-Lay video associated with this chapter shows how seriously the company takes preventive maintenance activities, and the concepts described in the video fit in very nicely with the total quality management discussion from Chapter 6. Chapter 17 is short, but the concepts are crucial.

The reliability concept fits well in this chapter on maintenance, in particular because good preventive maintenance might improve the reliability of machines. Reliability also corresponds well with the chapter on designing goods and services (Chapter 5), because design engineers make conscious managerial decisions regarding the levels of reliability in their products. A scary quote to get the students interested in reliability could come from Ben Rich, former head of Lockheed‘s Skunk Works operation: ―[We need to determine] how to keep silo-based missiles reliable and effective after years of sitting inert in the ground. In some cases reliability has dropped below 50 percent.‖ (Rich, Ben R. and Leo Janos, Skunk Works, Boston: Little, Brown and Company, 1994, p. 339)

Class Discussion Ideas

1. Have the students identify an organization (perhaps the university‘s computer lab) that experiences frequent equipment or process failures. What could the organization do to improve the reliability of the equipment or processes, and could some of the improvement come through improved maintenance?

2. Preventive maintenance examples that students can relate to are the scheduled maintenance guide for their cars and the scheduled virus scans on their computers. These could be viewed as a ―pay now or pay later‖ strategy. Find out how often students change the oil in their cars. For computers, in addition to virus scans, users can back up their files periodically just in case the system crashes. This not only provides a safety net, but it acts as a way to increase repair capabilities Ask the students how often they back up their files.

Active Classroom Learning Exercises

1. As a way to convey the meaning of reliability before introducing the formulas, instructors can try a little experiment with the students. Bring up, say, 10 students and tell them that they are each 90% reliable workers per day. They will each be asked to ―work‖ for 10 days. If they don‘t ―break down‖ after 10 days, they will receive $10 (or a lesser sum, depending upon the instructor‘s personal budget). Their success during the day will be drawn from a random distribution (the =RAND() Excel function can be used, or perhaps some Dungeons and Dragons dice). Any draw above 90% means that the student failed and has to sit down. The students have three options for playing the game: (1) they can act independently with 90% reliability; (2) they can join with one of the other players to create a work team in series, where a successful day means that both of them must succeed; or (3) they can pick another student from the class to act as a 90% reliable backup for them, where a successful day means that only one of them has to succeed. For any players who survive 10 rounds of the game, Option (1) has a $10 payoff, Option (2) has a $20 payoff for both students, and Option (3) has a $5 payoff for both students. Probability theory suggests that no students who choose Options (1) or (2) will survive all 10 rounds (although some certainly might). Instructors with extra disposable income could even add more options, for example, $30 each for a series of three workers, $40 each for a series of 4 workers, etc. It can be interesting to see what kind of decisions the students make. Are they risk-averse or risk-loving? Do they understand how difficult it would be to win with Option (2)?

2. A preventive maintenance exercise can be performed in class using dominoes. Bring up two teams of students. The teams are competing in a race to see which team can successfully stack X number of dominoes vertically (standing end-to-end) first. When it is a player‘s turn on a team, he or she walks to the table, picks up a domino, and tries to place it on top of the stack. After returning to the starting point, the next team member goes, and so on. Team 1 has no other special instructions. Players on Team 2, on the other hand, may adjust (re-align) the stack before they place their own domino. In any cases, if the stack falls, the teams must start over again. The trade-off in this game is testing breakdown maintenance (Team 1) vs. preventive maintenance (Team 2). Team 1 should be stacking faster but should have a higher chance of failure. The game could be run several times using different values for the height

of the stack. Presumably, preventive maintenance should pay off more and more as the value of X increases. Provide candy or some other prizes as an incentive. Provide candy to the rest of the class for choosing the winning team.

3. For a reliability exercise, split the class into teams. Assign the same ―product‖ to each team. The product should have several components in series, each of which has a different reliability. Allow backups to be added for some of the components. Provide each team with a ―product improvement budget,‖ along with options for improvements and the cost of those options. For example, the budget constraint might be $10 per product. Each backup costs $3. Each 2% increase in reliability costs $1 up to 99%, and each 0.2% increase after that costs $1. Yet another option might allow for two rather unreliable backups for the same component at a total cost of $3. Give the teams about 10 minutes to determine how to best spend their budget in order to increase reliability the most. This exercise can be performed either before or after the reliability formulas have been discussed. (If before, students who read the book before class would certainly have an advantage!) After 10 minutes, compute the overall reliability for each team‘s chosen strategy. (A pre-set Excel spreadsheet can speed the calculations). Give the winning team members a prize. The different strategies utilized can help to answer the following types of questions: (1) is it better to improve one component by 4% or two components by 2% each; (2) is it better to add 2% reliability to a component with higher or lower initial reliability; and (3) is it better to install one good backup or two poor ones?

Company Videos

1. Maintenance Drives Profits at Frito-Lay (8:03)

Good maintenance practices are crucial for process industry companies such as Frito-Lay because high utilization levels of extremely expensive equipment are demanded. At FritoLay, good maintenance ensures reliable processes, which drive low cost, high quality, safety, and people engagement. Machine operators play a critical role in preventive maintenance at the company. Training helps operators become experts on their machines. Operators and maintenance personnel are assigned significant responsibility for maintenance issues, and they have the authority to shut down the line for a perceived maintenance problem. Frito-Lay practices TPM and 5S, which are both described in Chapter 17. The company has a program called ―Run Right,‖ with three features: (1) a mid-shift and post-shift review of critical performance metrics, (2) ―power walks‖ with critical experts and operators to ensure that machines are set at the proper levels, and (3) a maintenance and operations board where operators can post maintenance issues that need to be addressed in the future. Finally, the company makes sure that workers on shifts that are ending communicate with the incoming workers so that any issues about the line are monitored and handled appropriately. The employee empowerment concepts utilized by Frito-Lay tie in nicely with the total quality management material in Chapter 6.

Prior to showing the video, instructors might ask students to think about ideas for involving line operators in the preventive maintenance practices of manufacturing firms. Afterwards, the students‘ ideas could be compared with the measures that Frito-Lay takes. Further discussion could explore students‘ opinions on whether or not they think that machine

operators would actually want to have responsibility for preventive maintenance on their machines. Have any of the students worked in a factory, and would they have wanted to have preventive maintenance responsibility? Do they know any workers whom they think would not want such responsibility? Finally, the video does not mention this, but instructors could ask the students what types of incentive systems should be put in place to encourage line workers to take their preventive maintenance responsibilities seriously. What can change the task from being perceived as an extra burden into an empowered quality responsibility that would produce real results and be rewarded when executed properly and in good faith?

Cinematic Ticklers

1. The Simpsons, Season 7: ―King-Size Homer,‖ 20th Century Fox Video, 2006 (1995-1996) Homer has become so fat that he now works from home. As he sits at his computer screen for the nuclear power plant, the screen asks him if he wants to ―vent radioactive gas.‖ At first he replies, ―NO.‖ The computer comes back with, ―Venting radioactive gas prevents explosion. Vent radioactive gas?‖ After Homer replies, ―YES,‖ gas escapes from the plant and burns up a cornfield. The farmer exclaims, ―Oh no! Paul Newman is gonna have my legs broke!‖

Jay, Barry, and Chuck’s OM Blog

1. OM in the News: Hurricanes, F-22 Fighter Jets, and Chapter 17 Approximately $2 billion in fighter jets were trapped on the ground because of maintenance issues and forced to ride out Category 4 Hurricane Michael. As many as 17 F-22s sustained damaged or were destroyed during the storm. But why can‘t F-22 jet fighters, of all things, escape a storm? Answer: They lack the parts to be operational. Less than half of the Air Force‘s total fleet are ―mission capable‖ at any one time.

https://heizerrenderom.wordpress.com/2018/10/22/om-in-the-news-hurricanes-f-22-fighter-jetsand-chapter-17/

2. OM in the News: 787 Dreamliners Facing More Rolls-Royce Engine Flaws

Faulty Rolls-Royce engine blades are deteriorating faster than expected, prompting additional groundings of Boeing Co.‘s 787 jetliners for early repairs. The flaws add to RollsRoyce‘s struggle with design faults to the engines, which have already prompted the company to record $1.5 billion in charges.

https://heizerrenderom.wordpress.com/2018/10/05/om-in-the-news-787-dreamliners-facingmore-rolls-royce-engine-flaws/

3. OM in the News: Read This Blog Before You Fly!

A passenger‘s greatest health risk on an airplane may come from exposure to fellow travelers. Cabin cleaners describe a work environment where pay and morale are low and turnover is high. Cleaners complain that they need twice as much time during an airplane turn at a gate than they are given.

https://heizerrenderom.wordpress.com/2018/02/09/om-in-the-news-read-this-blog-before-youfly/

4. NASA‘s ―Failed Mission‖ Probabilities

NASA‘s statistical limit for a ―failed mission‖ remains 1 in 55 launches. That limit applies to mission failures in which the vehicle doesn‘t reach the space station but the crew uses emergency procedures to survive. NASA‘s statistical standard for crew fatalities is no greater than one in 270 flights. By contrast, the global airline industry has achieved fatal accident rates for jetliners of 1 crash for several million flights.

https://heizerrenderom.wordpress.com/2018/01/26/om-in-the-news-nasas-failed-missionprobabilities/

Presentation Slides

INTRODUCTION (17-1 through 17-6)

Slides 5-6: The Global Company Profile of the Orlando Utilities Commission provides a perfect lead-in to the power and importance of preventive maintenance. The statistics in these two slides are rather staggering, with regard to both the amount of maintenance that is performed as well as the cost of downtime and the cost of failures. The potential $27 million crack was invisible to the naked eye. It was only detectable via the preventive maintenance dye tests, X-rays, and ultrasound.

THE STRATEGIC IMPORTANCE OF MAINTENANCE AND RELIABILITY (7-7 through 711)

Slide 8: This list is not in the text. It provides a nice summary of the potential far-reaching implications of a system failure. Another potentially disastrous consequence would be a safety hazard, possibly damaging the environment or even causing injury or death to employees, customers, or surrounding residents.

Slides 9-11: The respective definitions of maintenance and reliability are provided in Slide 9. Slide 10 identifies two primary tactics for both. Slide 11 (Figure 17.1) illustrates that good maintenance and reliability management requires employee involvement and good procedures, resulting in enhanced company performance. The interdependence of operator, machine, and mechanic is a hallmark of successful maintenance and reliability. 17-7

17-10

17-11

RELIABILITY (17-12 through 17-20)

Slides 12-14:Any component or system must have some probability of failure. If someone thinks it is 0%, then that person probably rounded too much. And while 99% reliability may sound like a high figure, it depends upon the context. If a 99% daily reliable dishwasher is run every day for a year, chances are that it will fail at least three times during the year not very acceptable to most consumers. Furthermore, the cost of a failure should play a role in reliability. A manned rocket ship certainly needs to be more than 99% reliable, because the cost of a failure is catastrophic. Slide 12 presents the formula for the reliability of a system with n individual independent components that all must work in order for the system to work (referred to as components in series). (The independence assumption means that the probability of failure of one component has no correlation with the probability of failure of any of the other components certainly true for some systems but not others.) The calculation is a simple multiplication of terms, but the implications may surprise students. As Slide 13 (Figure 17.2) graphically illustrates, the

degradation can compound quickly. Here are three more examples: 10 parts at 90% reliability each would produce a 35% reliable system (0.9010); 100 parts at 99% reliability each would produce a 37% reliable system (.99100); and 1,000 parts at 99% reliability each would produce a 0.004% reliable system (.991000) that essentially would never work at all (think about how many parts go into an airplane). This simple reliability formula has a clear implication for new product development. That is, try to limit the number of components in series in the product design (for example, consider a single molded interlocking part instead of using a hinge with four separate screws). Slide 14 (Example 1) provides a straightforward example of the system reliability formula.

Slides 15-17:The basic unit of measure for reliability is the product failure rate (FR). It can be described as the percentage of failures among the total number of products tested (FR(%)) or as the number of failures during a period of time (FR(N)). Firms producing high-technology equipment often provide failure-rate data on their products. Perhaps the most common term in reliability analysis is the mean time between failures (MTBF), which is the reciprocal of FR(N). Slide 15 provides the formulas for all three measures. Slide 16 presents Example 2 from the text illustrating all three measures. Notice how the operating time in the FR(N) calculation subtracts out the downtime during the two failures that occurred. Slide 17 converts the FR(N) value into a failure rate per trip, by multiplying the operating hourly failure rate by the length of a trip (24 hours times 6 days).

Slides 18-19:While it may be possible to increase the reliability of individual components, a more cost-effective approach may be to provide a backup for certain components. This is called redundancy, and the components are said to be operating in parallel. Interestingly, the reliability of the backup does not even need to be particularly high (say 50%) to improve overall component reliability substantially. Slide 18 provides the formula along with a sample problem. (Note that for this example, even if the backup had been only 50% reliable, the new reliability with redundancy would still have jumped from 80% to 90%.) Slide 19 (Example 3) provides a reliability example that combines components in series with components in parallel. Perform all of the backup calculations first for each component; then multiply all of the revised component reliabilities together.

Slide 20: This slide describes Example 4, which presents an alternative way to graphically illustrate redundancy. As long as the flow makes it through one of the paths, the system will have succeeded. An electronic circuit or a water flow system might be illustrated in this way. Notice that the formula used in this example represents a rearrangement of the formula in Slide 18. In other words, the reliability of a system with backups = 1 minus the product of the failure probabilities of all parallel components.

MAINTENANCE (17-21 through 17-34)

Slide 21: This slide describes the two basic types of maintenance. Performing more of the first usually means having to perform less of the second.

Slide 22: Predictive maintenance represents a newer maintenance approach. Sophisticated sensors allow managers to design maintenance procedures that cannot only detect, but also predict, equipment failure.

Slides 23-24:Slide 23 identifies issues surrounding the implementation of preventive maintenance. Reliability and maintenance are of such importance that most systems are now computerized. Slide 24 (Figure 17.3) presents a schematic of a computerized maintenance system.

Slides 25-27:These slides address the traditional vs. an enlightened view regarding the amount of preventive maintenance to perform. Since the full cost of a breakdown may involve so much more than the repair cost itself (e.g., extra safety stock, safety, morale, customer relations, etc.), the implication is that the cost curve looks more like Slide 27 than Slide 26, implying that sufficient preventive maintenance should be performed to ensure that the system almost never breaks down.

Slides 28-31:These slides (Example 5) illustrate a cost analysis for preventive maintenance. No preventive maintenance would cost the firm $480 per month in breakdown costs. Purchasing a service contract for preventive maintenance would reduce the expected number of breakdowns per month from 1.6 to 1. Even after adding the cost of the service contract, the preventive maintenance option in this example was more cost effective, saving an estimated $30 per month.

Slide 32: A good maintenance facility should have the six features identified in this slide.

Slide 33: Since not all repairs can be performed in the firm‘s facility, managers must decide where repairs are to be performed. This slide (Figure 17.5) provides a continuum of options and how they rate in terms of speed, cost, and competence. Moving to the right may improve the competence of the repair work, but at the same time, it increases costs and replacement time.

Slide 34: Autonomous maintenance is consistent with employee empowerment (Chapters 6 and 10). System performance is enhanced when operators take ownership of their equipment and help to prevent breakdowns.

TOTAL PRODUCTIVE MAINTENANCE

(17-35 through 17-36)

Slides 35-36: Many firms have moved to bring total quality management concepts to the practice of preventive maintenance with an approach known as total productive maintenance (TPM). This strategic view of maintenance includes the points described on these two slides.

SUPPLEMENTAL MATERIAL

(17-37 through 17-53)

Slides 37-53:Instructors who want to delve further into maintenance and reliability issues can select from this set of slides covering material not in the chapter. Most of the slides discuss the concept of predictive maintenance: using advanced technology to monitor equipment and predict failures. One note: from Slide 38 (as with Slide 20), it is likely that fewer students will miscalculate the redundancy formula if it is expressed as:

Reliability = 1 – (Probability that the original fails)×(Probability that the backup fails).

Additional Assignment Ideas

1. Maintenance and reliability management is a topic included in many Operations Management courses. Is this topic sufficiently complex that it requires a professional certification in and of its own (i.e., something more than the Operations Management certification of APICS)? What is the argument given by the Society of Maintenance and Reliability Professionals (http://www.smrp.org/)? Does the SMRP argument place more emphasis on benefits to the organization or to the individual?

2. Interview a manager of a manufacturing plant regarding the firm‘s preventive maintenance policies. Write a report describing the firm‘s practices, including detailed scheduling information, if available.

Internet Resources

Center for System Reliability

http://reliability.sandia.gov/ The Center for Risk and Reliability at U. of Maryland www.crr.umd.edu

Society for Maintenance and Reliability Professionals www.smrp.org

Society of Reliability Engineers

Other Supplementary Material

Video Film available from:

Society of Manufacturing Engineers One SME Drive P.O. Box 930

Dearborn, Michigan 48121-0930 (P) 313-425-3000 (F) 313-425-3412 http://www.sme.org

www.sre.org

o TPM: Total Productive Maintenance: Demonstrates how predictive and preventive maintenance techniques keep equipment operating at design specs. Order # PI-VT4923456

Article

This article from Interfaces applies decision analysis to the problem of deciding whether or not to perform preventive maintenance and whether or not to conduct reliability tests. It provides an excellent (and very readable for students) combination of Chapter 17 and Module A.

Mellichamp, Joseph M., David M. Miller, and O-Joung Kwon, ―The Southern Company Uses a Probability Model for Cost Justification of Oil Sample Analysis,‖ Interfaces, Vol. 23, No. 3 (May-June 1993), pp. 118-124.

Reliability and a Cost of Failures Example

The book has a nice example of analyzing a preventive maintenance decision based on expected breakdown costs. A similar kind of analysis can utilize the reliability formulas as they might be related to new product design. A sample example is provided here.

Cost of a failed part = $500

Current reliability = 90%

Demand = 80 units

Time Horizon = 1 period

Current expected failure cost per part =

$500×P(failure) = $500×[1 – P(success)] = $500(1 − .90) = $50

Overall expected cost of failures = 80 units × $50 per unit = $4,000

To options for improvement:

Option A Spend $1,000 to increase reliability to 96%.

Option B Spend $2,000 to install a redundant process with the same reliability

Option A

Expected failure cost per part =

$500(1 − .96) = $20

New overall failure cost = 80($20) = $1,600

Total cost of improvement plus failure = $1,000 + $1,600 = $2,600

Option B

New reliability = .90 + (.90)(1 − .90) = .99

Expected failure cost per part = $500(1 − .99) = $5

New overall failure cost = 80($5) = $400

Total cost of improvement plus failure = $2,000 + $400 = $2,400

In this example, both options are better than the current condition, but Option B is the better of the two and should be chosen. Note that combining Options A and B would improve reliability the most but would not be the optimal decision because the investment costs themselves would equal $3,000, which already exceeds the total cost of Option B.