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Projects are unique, one-time operations designed to accomplish a set of objectives in a limited time frame (Stevenson, 2021).
Think about a project you did recently or a project you will soon work on and detail the following:

Offer a brief explanation of the type of project.
Create a Work Breakdown Structure (WBS) of the project and explain how it will help you with your project.
Present both probabilistic (t0, tp, and tm) and deterministic time estimates and discuss how you arrived at these time estimates.
For each activity, determine hypothetical costs in a table. Include budgeted costs, percent complete, actual/projected cost, and over/under budget (and total). Discuss the rationale for how you derived these costs.
Finally, tell us how the project management tools helped you gain a better vision of the project.Project
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You should be able to:
LO 17.1
LO 17.2
Describe the project life cycle
Discuss the behavioral aspects of projects in terms of project
personnel and the project manager
LO 17.3 Explain the nature and importance of a work breakdown structure
in project management
LO 17.4 Name the six key decisions in project management
LO 17.5 Give a general description of PERT/CPM techniques
LO 17.6 Construct simple network diagrams
LO 17.7 Analyze networks with deterministic times
LO 17.8 Analyze networks with probabilistic times
LO 17.9 Describe activity ‘crashing’ and solve typical problems
LO 17.10 Discuss the advantages of using PERT and potential sources
of error
LO 17.11 Discuss the key steps in risk management
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 Projects
 Unique, one-time operations designed to accomplish a
specific set of objectives in a limited time frame
 Examples:
 The Olympic Games
 Producing a movie
 Software development
 Product development
 ERP implementation
LO 17.1
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 Projects go through a series of stages – a life cycle
 Projects bring together people with a diversity of
knowledge and skills, most of whom remain associated
with the project for less than its full life
 Organizational structure affects how projects are
LO 17.1
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Monitoring and Controlling
LO 17.1
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 The project manager is ultimately responsible for the
success or failure of the project
 The project manager must effectively manage:
 The work
 The human resources
 Communications
 Quality
 Time
 Costs
LO 17.2
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Performance Objectives
LO 17.2
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 Behavioral problems can be created or exacerbated by
 Decentralized decision making
 Stress of achieving project milestones on time and within budget
 Surprises
 The team must be able to function as a unit
 Interpersonal and coping skills are very important
 Conflict resolution and negotiation can be an important part of a
project manager’s job
LO 17.2
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 Many problems can be avoided or mitigated by:
 Effective team selection
 Leadership
 Motivation
 Maintaining an environment of
 Integrity
 Trust
 Professionalism
 Being supportive of team efforts
LO 17.2
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 Project champion
 A person who promotes and supports a project
 Usually resides within the organization
 Facilitate the work of the project by ‘talking up’ the project to
other managers who might be asked to share resources with
the project team as well as employees who might be asked to
work on parts of the project
 The project champion can be critical to the success of a
LO 17.2
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 A hierarchical listing of what must be done during a
 Establishes a logical framework for identifying the required
activities for the project
LO 17.3
Identify the major elements of the project
Identify the major supporting activities for each of the
major elements
Break down each major supporting activity into a list of the
activities that will be needed to accomplish it
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LO 17.3
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 Project success depends upon making key
managerial decisions over a sequence of steps:
 Deciding which projects to implement
 Selecting the project manager
 Selecting the project team
 Planning and designing the project
 Managing and controlling project resources
 Deciding if and when a project should be terminated
LO 17.4
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 PERT (program evaluation and review technique) and
CPM (critical path method) are two techniques used
to manage large-scale projects
 By using PERT or CPM Managers can obtain:
LO 17.5
A graphical display of project activities
An estimate of how long the project will take
An indication of which activities are most critical to timely project
An indication of how long any activity can be delayed without
delaying the project
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 Network diagram
 Diagram of project activities that shows sequential relationships by
use of arrows and nodes
 Activity on arrow (AOA)
 Network diagram convention in which arrows designate
 Activity on node (AON)
 Network convention in which nodes designate activities
 Activities
 Project steps that consume resources and/or time
 Events
 The starting and finishing of activities
LO 17.6
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LO 17.6
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 Deterministic
 Time estimates that are fairly certain
 Probabilistic
 Time estimates that allow for variation
LO 17.7
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 Finding ES and EF involves a forward pass through
the network diagram
 Early start (ES)
 The earliest time an activity can start
 Assumes all preceding activities start as early as possible
 For nodes with one entering arrow
 ES = EF of the entering arrow
 For activities leaving nodes with multiple entering arrows
 ES = the largest of the largest entering EF
 Early finish (EF)
 The earliest time an activity can finish
 EF = ES + t
LO 17.7
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 Finding LS and LF involves a backward pass through
the network diagram
 Late Start (LS)
 The latest time the activity can start and not delay the project
 The latest starting time for each activity is equal to its latest finishing time
minus its expected duration:
 LS = LF – t
 Late Finish (LF)
 The latest time the activity can finish and not delay the project
 For nodes with one leaving arrow, LF for nodes entering that node equals the
LS of the leaving arrow
 For nodes with multiple leaving arrows, LF for arrows entering node equals
the smallest of the leaving arrows
LO 17.7
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 Slack can be computed one of two ways:
 Slack = LS – ES
 Slack = LF – EF
 Critical path
 The critical path is indicated by the activities with zero
LO 17.7
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 Knowledge of slack times provides managers with
information for planning allocation of scarce
 Control efforts will be directed toward those activities that might be
most susceptible to delaying the project
 Activity slack times are based on the assumption that all of the
activities on the same path will be started as early as possible and
not exceed their expected time
 If two activities are on the same path and have the same slack, this
will be the total slack available to both
LO 17.7
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 The beta distribution is generally used to describe the
inherent variability in time estimates
 The probabilistic approach involves three time
 Optimistic time, (to)
 The length of time required under optimal conditions
 Pessimistic time, (tp)
 The length of time required under the worst conditions
 Most likely time, ™
 The most probable length of time required
LO 17.8
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LO 17.8
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 The expected time, te ,for an activity is a weighted
average of the three time estimates:
te =
to + 4t m + t p
 The expected duration of a path is equal to the sum of
the expected times of the activities on that path:
Path mean =  of expected times of activities on the path
LO 17.8
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 The standard deviation of each activity’s time is estimated
as one-sixth of the difference between the pessimistic and
optimistic time estimates. The variance is the square of the
standard deviation:
 (t p − to )
 =


 Standard deviation of the expected time for the path
 path =
LO 17.8
 (Variances of activities on path )
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 Knowledge of expected path times and their standard
deviations enables managers to compute probabilistic
estimates about project completion such as:
 The probability that the project will be completed by a
certain time
 The probability that the project will take longer than its
expected completion time
LO 17.8
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 Calculating path probabilities involves the use of the normal
 Although path activities are represented by the beta distribution, the
path distribution can be represented by a normal distribution
LO 17.8
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LO 17.8
Specified time – Path mean
Path standard deviation
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 A project is not complete until all project activities are complete
 It is risky to only consider the critical path when assessing the
probability of completing a project within a specified time
 To determine the probability of completing the project within a particular
time frame
 Calculate the probability that each path in the project will be completed
within the specified time
 Multiply these probabilities
 The result is the probability that the project will be completed
within the specified time
LO 17.8
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 Independence
 Assumption that path duration times are independent
of each other
 Requires that
Activity times are independent
Each activity is on only one path
 The assumption of independence is usually considered to be
met if only a few activities in a large project are on multiple
LO 17.8
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 When activity times cannot be assumed to be
independent, simulation is often used
 Repeated sampling is used
 Many passes are made through the project network
 In each pass, a random value for each activity time is selected
based on the activity time’s probability distribution
 After each pass, the project’s duration is determined
 After a large number of passes, there are enough data points to
prepare a frequency distribution of the project duration
 Probabilistic estimates of completion times are made based on
this frequency distribution
LO 17.8
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 Activity time estimates are made for some given level
of resources
 It may be possible to reduce the duration of a project
by injecting additional resources
 Motivations:
 To avoid late penalties
 Monetary incentives
 Free resources for use on other projects
LO 17.9
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 Crashing
 Shortening activity durations
 Typically, involves the use of additional funds to support additional
personnel or more efficient equipment, and the relaxing of some work
 The project duration may be shortened by increasing direct
expenses, thereby realizing savings in indirect project costs
LO 17.9
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 To make decisions concerning crashing requires
information about:
Regular time and crash time estimates for each activity
Regular cost and crash cost estimates for each activity
A list of activities that are on the critical path
 Critical path activities are potential candidates for crashing
 Crashing non-critical path activities would not have an impact
on overall project duration
LO 17.9
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 General procedure:
Crash the project one period at a time
Crash the least expensive activity that is on the critical path
When there are multiple critical paths, find the sum of crashing
the least expensive activity on each critical path

LO 17.9
If two or more critical paths share common activities, compare
the least expensive cost of crashing a common activity shared
by critical paths with the sum for the separate critical paths
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LO 17.9
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 Among the most useful features of PERT:
1. It forces the manager to organize and quantify available
information and to identify where additional
information is needed
2. It provides the a graphic display of the project and its
major activities
3. It identifies
a. Activities that should be closely watched
b. Activities that have slack time
LO 17.10
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 Potential sources of error:
The project network may be incomplete
2. Precedence relationships may not be correctly expressed
3. Time estimates may be inaccurate
4. There may be a tendency to focus on critical path activities to the
exclusion of other important project activities
5. Major risk events may not be on the critical path
LO 17.10
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 Risks are an inherent part of project management
 Risks relate to occurrence of events that have undesirable
consequences such as
 Delays
 Increased costs
 Inability to meet technical specifications
LO 17.11
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 Good risk management involves
 Identifying as many risks as possible
 Analyzing and assessing those risks
 Working to minimize the probability of their occurrence
 Establishing contingency plans and budgets for dealing
with any that do occur
LO 17.11
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Operations Management
Operations Management
William J. Stevenson
Saunders College of Business
Rochester Institute of Technology
Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2021 by McGraw-Hill
Education. All rights reserved. Printed in the United States of America. Previous editions © 2018, 2015, and
2012. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a
database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not
limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside the
United States.
This book is printed on acid-free paper.
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ISBN 978-1-260-23889-1 (bound edition)
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ISBN 978-1-260-71842-3 (loose-leaf edition)
MHID 1-260-71842-5 (loose-leaf edition)
Portfolio Manager: Noelle Bathurst
Product Developer: Fran Simon/Katie Ward
Marketing Manager: Harper Christopher
Content Project Managers: Fran Simon/Jamie Koch
Buyer: Sandy Ludovissy
Design: Matt Diamond
Content Licensing Specialist: Jacob Sullivan
Cover Image: Daniel Prudek/Shutterstock
Compositor: SPi Global
All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.
Library of Congress Cataloging-in-Publication Data
Library of Congress Cataloging-in-Publication Data
Names: Stevenson, William J., author.
Title: Operations management / William J. Stevenson, Saunders College of
Business, Rochester Institute of Technology.
Description: Fourteenth edition. | New York, NY : McGraw-Hill Education,
[2021] | Includes bibliographical references and index.
Identifiers: LCCN 2019044799 | ISBN 9781260238891 (bound edition ;
acid-free paper) | ISBN 126023889X (bound edition ; acid-free paper) |
ISBN 9781260718423 (loose-leaf edition ; acid-free paper) | ISBN
1260718425 (loose-leaf edition ; acid-free paper)
Subjects: LCSH: Production management.
Classification: LCC TS155 .S7824 2021 | DDC 658.5–dc23
LC record available at https://lccn.loc.gov/2019044799
The internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does
not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not
guarantee the accuracy of the information presented at these sites.
The McGraw-Hill Series in Operations
and Decision Sciences
Supply Chain Management
Business Research Methods
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Thirteenth Edition
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The material in this book is intended as an introduction to the
field of operations management. The topics covered include
both strategic issues and practical applications. Among the
topics are forecasting, product and service design, capacity
planning, management of quality and quality control, inventory management, scheduling, supply chain management, and
project management.
My purpose in revising this book continues to be to provide
a clear presentation of the concepts, tools, and applications of
the field of operations management. Operations management
is evolving and growing, and I have found updating and
integrating new material to be both rewarding and challenging, particularly due to the plethora of new developments in
the field, while facing the practical limits on the length of
the book.
This text offers a comprehensive and flexible amount
of content that can be selected as appropriate for different
courses and formats, including undergraduate, graduate, and
executive education.
This allows instructors to select the chapters, or portions
of chapters, that are most relevant for their purposes. That
flexibility also extends to the choice of relative weighting
of the qualitative or quantitative aspects of the material, and
the order in which chapters are covered, because chapters do
not depend on sequence. For example, some instructors cover
project management early, others cover quality or lean early,
and so on.
As in previous editions, there are major pedagogical features
designed to help students learn and understand the material.
This section describes the key features of the book, the chapter
elements, the supplements that are available for teaching the
course, highlights of the fourteenth edition, and suggested
applications for classroom instruction. By providing this support, it is our hope that instructors and students will have the
tools to make this learning experience a rewarding one.
What’s New in This Edition
In many places, content has been rewritten or added to
improve clarity, shorten wording, or update information. New
material has been added on supply chains, and other topics.
Some problems are new, and others have been revised. Many
new readings and new photos have been added.
Some of the class preparation exercises have been revised.
The purpose of these exercises is to introduce students to the
subject matter before class in order to enhance classroom
learning. They have proved to be very popular with students, both as an introduction to new material and for study
purposes. These exercises are available in the Instructor’s
Resource Manual. Special thanks to Linda Brooks for her
help in developing the exercises.
I want to thank the many contributors to this edition. Reviewers and adopters of the text have provided a “continuously
improving” wealth of ideas and suggestions. It is encouraging to me as an author. I hope all reviewers and readers will
know their suggestions were valuable, were carefully considered, and are sincerely appreciated. The list includes postpublication reviewers.
Jenyi Chen
Eric Cosnoski
Mark Gershon
Narges Kasiri
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University of Texas at Dallas
Governors State University
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University of Scranton
Cleveland State University
University of Wisconsin-Eau Claire
University of Northern Iowa
Additional thanks to the instructors who have contributed extra
material for this edition, including accuracy checkers: Ronny
Richardson, Kennesaw State University and Gary Black,
University of Southern Indiana; Solutions and SmartBook:
Tracie Lee, Idaho State University; PowerPoint Presentations:
Avanti Sethi, University of Texas-Dallas; Test Bank: Leslie
Sukup, Ferris State University.
Special thanks goes out to Lisa Spencer, California State
University-Fresno, for her help with additional readings and
Finally, I would like to thank all the people at McGraw-Hill
for their efforts and support. It is always a pleasure to work
with such a professional and competent group of people.
Special thanks go to Noelle Bathurst, Portfolio Manager;
Michele Janicek, Lead Product Developer; Fran Simon and
Katie Ward, Product Developers; Jamie Koch, Assessment
Content Project Manager; Sandy Ludovissy, Buyer; Matt Diamond, Designer; Jacob Sullivan, Content Licensing Specialist; Harper Christopher, Executive Marketing Manager; and
many others who worked behind the scenes.
I would also like to thank the many reviewers of previous
editions for their contributions: Vikas Agrawal, Fayetteville
State University; Bahram Alidaee, University of Mississippi;
Ardavan Asef-Faziri, California State University at Northridge; Prabir Bagchi, George Washington State University;
Gordon F. Bagot, California State University at Los Angeles;
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Loretta Cochran, Arkansas Tech University; Lewis Coopersmith, Rider University; Richard Crandall, Appalachian State
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Dellana, East Carolina University; Kathy Dhanda, DePaul
University; Xin Ding, University of Utah; Ellen Dumond,
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University of North Carolina at Greensboro; Kurt Engemann,
Iona College; Diane Ervin, DeVry University; Farzaneh
Fazel, Illinois State University; Wanda Fennell, University of
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Lu, St. John’s University; Janet Lyons, Utah State University; James Maddox, Friends University; Gita Mathur, San
Jose State University; Mark McComb, Mississippi College;
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Southern Nazarene University; Philip F. Musa, University of
Alabama at Birmingham; Roy Nersesian, Monmouth University; Jeffrey Ohlmann, University of Iowa at Iowa City; John
Olson, University of St. Thomas; Ozgur Ozluk, San Francisco
State University; Kenneth Paetsch, Cleveland State University; Taeho Park, San Jose State University; Allison Pearson,
Mississippi State University; Patrick Penfield, Syracuse University; Steve Peng, California State University at Hayward;
Richard Peschke, Minnesota State University at Moorhead;
Andru Peters, San Jose State University; Charles Phillips,
Mississippi State University; Frank Pianki, Anderson University; Sharma Pillutla, Towson University; Zinovy Radovilsky, California State University at Hayward; Stephen A.
Raper, University of Missouri at Rolla; Pedro Reyes, Baylor
University; Buddhadev Roychoudhury, Minnesota State University at Mankato; Narendra Rustagi, Howard University;
Herb Schiller, Stony Brook University; Dean T. Scott, DeVry
University; Scott J. Seipel, Middle Tennessee State University; Raj Selladurai, Indiana University; Kaushic Sengupta,
Hofstra University; Kenneth Shaw, Oregon State University;
Dooyoung Shin, Minnesota State University at Mankato;
Michael Shurden, Lander University; Raymond E. Simko,
Myers University; John Simon, Governors State University;
Jake Simons, Georgia Southern University; Charles Smith,
Virginia Commonwealth University; Kenneth Solheim,
DeVry University; Young Son, Bernard M. Baruch College;
Victor Sower, Sam Houston State University; Jeremy Stafford, University of North Alabama; Donna Stewart, University of Wisconsin at Stout; Dothang Truong, Fayetteville State
University; Mike Umble, Baylor University; Javad Varzandeh, California State University at San Bernardino; Timothy
Vaughan, University of Wisconsin at Eau Claire; Emre Veral,
Baruch College; Mark Vroblefski, University of Arizona;
Gustavo Vulcano, New York University; Walter Wallace,
Georgia State University; James Walters, Ball State University; John Wang, Montclair State University; Tekle Wanorie,
Northwest Missouri State University; Jerry Wei, University
of Notre Dame; Michael Whittenberg, University of Texas;
Geoff Willis, University of Central Oklahoma; Pamela Zelbst,
Sam Houston State University; Jiawei Zhang, NYU; Zhenying Zhao, University of Maryland; Yong-Pin Zhou, University of Washington.
William J. Stevenson
A number of key features in this text have been specifically
designed to help introductory students learn, understand, and
apply operations concepts and problem-solving techniques.
Examples with Solutions
Throughout the text, wherever a quantitative or
analytic technique is introduced, an example is
included to illustrate the application of that technique. These are designed to be easy to follow.
Determining a Regression Equation
Sales of new houses and three-month lagged unemployment are shown in the following
table. Determine if unemployment levels can be used to predict demand for new houses
and, if so, derive a predictive equation.
Period . . . . . . . . . . . . . 1
Units sold . . . . . . . . . . 20
Unemployment %
(three-month lag)
Plot the data to see if a linear model seems reasonable. In this case, a linear model
seems appropriate for the range of the data.
Units sold, y
Level of unemployment (%), x
Check the correlation coefficient to confirm that it is not close to zero using the website template, and then obtain the regression equation:
r = −.966
This is a fairly high negative correlation. The regression equation is
y = 71.85 − 6.91x
Note that the equation pertains only to unemployment levels in the range 3.6 to 9.0, because
sample observations covered only that range.
Solved Problems
At the end of chapters
and chapter supplements,
“Solved Problems” are
provided to illustrate
problem solving and the
core concepts in the chapter.
These have been carefully
prepared to help students
understand the steps
involved in solving different
types of problems. The Excel
logo indicates that a spreadsheet is available on the
text’s website.
Computing Productivity
Problem 1
A company that processes fruits and vegetables is able to produce 400 cases of canned peaches in
one-half hour with four workers. What is labor productivity?
400 cases
Quantity produced
Labor productivity = ________________ = ________________________
Labor hours
4 workers × 1 / 2 hour / worker
= 200 cases per labor hour
Computing Multifactor Productivity
Problem 2
A wrapping-paper company produced 2,000 rolls of paper in one day. Labor cost was $160, material
cost was $50, and overhead was $320. Determine the multifactor productivity.
Quantity produced
Multifactor productivity = ______________________________
Labor cost + Material cost + Overhead
2,000 rolls
= _______________ = 3.77 rolls per dollar input
$160 + $50 + $320
A variation of the multifactor productivity calculation incorporates the standard price in the
numerator by multiplying the units by the standard price.
TABLE 16.5 Excel solution for Example 2a
Excel Spreadsheet
Where applicable, the
examples and solved
problems include screen
shots of a spreadsheet
Within each chapter, you will find the following elements
that are designed to facilitate study and learning. All of
these have been carefully developed over many editions and
have proven to be successful.
Learning Objectives
Every chapter and supplement lists the learning
objectives to achieve when studying the chapter
material. The learning objectives are also
included next to the specific material in the
margins of the text.
Product and Service
After completing this chapter, you should be able to:
Explain the strategic importance of product and service design.
Describe what product and service design does.
Name the key questions of product and service design.
Identify some reasons for design or redesign.
List some of the main sources of design ideas.
Discuss the importance of legal, ethical, and sustainability considerations in product and service design.
Explain the purpose and goal of life-cycle assessment.
Explain the phrase “the 3 Rs.”
Briefly describe the phases in product design and development.
Discuss several key issues in product or service design.
Discuss the two key issues in service design.
List the characteristics of well-designed service systems.
List some guidelines for successful service design.
Mark Lennihan/AP Images
4.11 Service Design 165
Overview of Service Design 166
Differences between
Service Design and
Product Design 166
Phases in the Service Design
Process 167
Service Blueprinting 168
Characteristics of WellDesigned Service Systems 168
Challenges of Service
Design 169
Guidelines for Successful
Service Design 169
4.12 Operations Strategy 170
Operations Tour: High Acres
Landfill 174
Chapter Supplement:
Reliability 176
Introduction 140
What Does Product and Service
Design Do? 140
Objectives of Product and
Service Design 141
Key Questions 141
Reasons for Product or Service
Design or Redesign 141
Idea Generation 142
Legal and Ethical
Considerations 144
Human Factors 145
Cultural Factors 145
Global Product and Service
Design 146
Designing for Mass
Customization 154
Reliability 156
Robust Design 157
Degree of Newness 158
Quality Function Deployment 158
The Kano Model 160
Environmental Factors:
Sustainability 146
Cradle-to-Grave Assessment 146
End-of-Life Programs 147
The Three Rs: Reduce, Reuse,
and Recycle 147
Reduce: Value Analysis 147
Reuse: Remanufacturing 148
Recycle 149
Other Design
Considerations 151
4.10 Designing for Production 163
Strategies for Product or
Service Life Stages 151
Product Life Cycle
Management 153
Degree of Standardization 153
Phases in Product Design
and Development 162
Concurrent Engineering 163
Computer-Aided Design
(CAD) 164
Production Requirements 165
Component Commonality 165
The essence of a business organization is the products and services it offers, and every
LO4.1 Explain the strateaspect of the organization and its supply chain are structured around those products
gic importance of product
and services. Organizations that have well-designed products or services are more
and service design.
likely to realize their goals than those with poorly designed products or services. Hence,
organizations have a strategic interest in product and service design. Product or service design should be closely tied
to an organization’s strategy. It is a major factor in cost, quality, time-to-market, customer satisfaction, and competitive
advantage. Consequently, marketing, finance, operations, accounting, IT, and HR need to be involved. Demand forecasts and projected costs are important, as is the expected impact on the supply chain. It is significant to note that an
important cause of operations failures can be traced to faulty design. Designs that have not been well thought out, or
are incorrectly implemented, or instructions for assembly or usage that are wrong or unclear, can be the cause of product and service failures, leading to lawsuits, injuries and deaths, product recalls, and damaged reputations.
Chapter Outlines
Opening Vignettes
Every chapter and supplement includes an
outline of the topics covered.
Each chapter opens with an introduction to the
important operations topics covered in the chapter.
This enables students to see the relevance of
operations management in order to actively engage
in learning the material.
Figures and Photos
The text includes photographs and
graphic illustrations to support
student learning and provide interest
and motivation. Approximately 100
carefully selected photos highlight
the 14th edition. The photos illustrate
applications of operations and supply
chain concepts in many successful
companies. More than 400 graphic
illustrations, more than any other
text in the field, are included and all
are color coded with pedagogical
consistency to assist students in
understanding concepts.
Process selection and
capacity planning influence
system design
Facilities and
Product and
service design
A major key to Apple’s continued
success is its ability to keep pushing
the boundaries of innovation. Apple
has demonstrated how to create
growth by dreaming up products so
new and ingenious that they have
upended one industry after another.
Operations Strategies
The strategic implications of capacity decisions can be enormous, impacting all areas of the
organization. From an operations management standpoint, capacity decisions establish a set
of conditions within which operations will be required to function. Hence, it is extremely
important to include input from operations management people in making capacity decisions.
Flexibility can be a key issue in capacity decisions, although flexibility is not always an
option, particularly in capital-intensive industries. However, where possible, flexibility allows
an organization to be agile—that is, responsive to changes in the marketplace. Also, it reduces
to a certain extent the dependence on long-range forecasts to accurately predict demand. And
flexibility makes it easier for organizations to take advantage of technological and other innovations. Maintaining excess capacity (a capacity cushion) may provide a degree of flexibility,
albeit at added cost.
Some organizations use a strategy of maintaining a capacity cushion for the purpose of
blocking entry into the market by new competitors. The excess capacity enables them to produce at costs lower than what new competitors can. However, such a strategy means higherthan-necessary unit costs, and it makes it more difficult to cut back if demand slows, or to
shift to new product or service offerings.
Efficiency improvements and utilization improvements can provide capacity increases.
Such improvements can be achieved by streamlining operations and reducing waste. The
chapter on lean operations describes ways for achieving those improvements.
Bottleneck management can be a way to increase effective capacity, by scheduling nonbottleneck operations to achieve maximum utilization of bottleneck operations.
In cases where capacity expansion will be undertaken, there are two strategies for determining the timing and degree of capacity expansion. One is the expand-early strategy (i.e.,
before demand materializes). The intent might be to achieve economies of scale, to expand
market share, or to preempt competitors from expanding. The risks of this strategy include
an oversupply that would drive prices down, and underutilized equipment that would result in
higher unit costs.
The other approach is the wait-and-see strategy (i.e., to expand capacity only after demand
materializes, perhaps incrementally). Its advantages include a lower chance of oversupply due
to more accurate matching of supply and demand,
and higher capacity utilization. The key
An Operations Strategy section
is included at the end of most
chapters. These sections discuss
how the chapters’ concepts can
be applied and how they impact
the operations of a company.
Readings highlight important
real-world applications, provide
examples of production/
operations issues, and offer
further elaboration of the text
material. They also provide a
basis for classroom discussion
and generate interest in the
subject matter. Many of the
end-of-chapter readings include
assignment questions.
Sherwin-Williams’ Dutch Boy Group put a revolutionary spin on
paint cans with its innovative square-shaped Twist & PourTM
paint-delivery container for the Dirt Fighter interior latex paint line.
The four-piece square container could be the first major change in
how house paint is packaged in decades. Lightweight but sturdy,
the Twist & Pour “bucket” is packed with so many conveniences, it
is next to impossible to mess up a painting project.
Winning Best of Show in an AmeriStar packaging competition sponsored by the Institute of Packaging Professionals, the
exclusive, all-plastic paint container stands almost 7½ in. tall and
holds 126 oz., a bit less than 1 gal. Rust-resistant and moistureresistant, the plastic bucket gives users a new way to mix, brush,
and store paint.
A hollow handle on one side makes it comfortable to pour and
carry. A convenient, snap-in pour spout neatly pours paint into
a tray with no dripping but can be removed if desired, to allow
a wide brush to be dipped into the 5¾-in.-diameter mouth. Capping the container is a large, twist-off lid that requires no tools to
open or close. Molded with two lugs for a snug-finger-tight closing, the threaded cap provides a tight seal to extend the shelf life
of unused paint.
While the lid requires no tools to access, the snap-off carry bail
is assembled on the container in a “locked-down position” and
can be pulled up after purchase for toting or hanging on a ladder.
Large, nearly 4½-inch-tall label panels allow glossy front and back
labels printed and UV-coated to wrap around the can’s rounded
corners, for an impressive display.
Jim MacDonald, co-designer of the Twist & Pour and a packaging engineer at Cleveland-based Sherwin-Williams, tells Packaging
Digest that the space-efficient, square shape is easier to ship and
easier to stack in stores. It can also be nested, courtesy of a recess
Jerry Simon
in the bottom that mates with the lid’s top ring. “The new design
allows for one additional shelf facing on an eight-foot rack or
shelf area.”
The labels are applied automatically, quite a feat, considering
their complexity, size, and the hollow handle they likely encounter
during application. MacDonald admits, “Label application was a
challenge. We had to modify the bottle several times to accommodate the labeling machinery available.”
Source: “Dutch Boy Brushes Up Its Paints,” Packaging Digest, October 2002.
Copyright ©2002 Reed Business Information. Used with permission.
For student study and review, the following items are
provided at the end of each chapter or chapter supplement.
Summaries and Key Points
associative model, 80
bias, 109
centered moving average, 96
control chart, 107
correlation, 102
cycle, 82
Delphi method, 81
error, 105
exponential smoothing, 87
focus forecasting, 88
forecast, 76
irregular variation, 82
judgmental forecasts, 80
least squares line, 99
linear trend equation, 89
mean absolute deviation
(MAD), 106
mean absolute percent error
(MAPE), 106
mean squared error (MSE), 106
moving average, 84
naive forecast, 82
predictor variables, 98
random variations, 82
regression, 98
seasonality, 82
seasonal relative, 94
seasonal variations, 93
standard error of estimate, 100
time series, 82
time-series forecasts, 80
tracking signal, 109
trend, 82
trend-adjusted exponential
smoothing, 92
weighted average, 86
Key Terms
Key terms are highlighted in the text and then
repeated in the margin with brief definitions for
emphasis. They are listed at the end of each
chapter (along with page references) to aid in
Taking Stock and Critical
Thinking Exercises
These activities encourage analytical thinking
and help broaden conceptual understanding.
A question related to ethics is included in the
Critical Thinking Exercises.
This item appears at the end of each chapter. It is intended to focus your attention on three key
issues for business organizations in general, and operations management in particular. Those issues
are trade-off decisions, collaboration among various functional areas of the organization, and the
impact of technology. You will see three or more questions relating to these issues. Here is the first
set of questions:
Chapters contain summaries that provide an
overview of the material covered, and the
key points of the chapter are emphasized in a
separate section.
Discussion and Review Questions
1. What are trade-offs? Why is careful consideration of trade-offs important in decision making?
2. Why is it important for the various functional areas of a business organization to collaborate?
Each chapter and each supplement have a
list of discussion and review questions. These
precede the problem sets and are intended
to serve as a student self-review or as class
discussion starters.
3. In what general ways does technology have an impact on operations management decision
This item also will appear in every chapter. It allows you to critically apply information you learned in
the chapter to a practical situation. Here is the first set of exercises:
1. Many organizations offer a combination of goods and services to their customers. As you learned
in this chapter, there are some key differences between the production of goods and the delivery of
services. What are the implications of these differences relative to managing operations?
2. Why is it important to match supply and demand? If a manager believes that supply and demand
will not be equal, what actions could the manager take to increase the probability of achieving a
3. One way that organizations compete is through technological innovation. However, there can be
downsides for both the organization and the consumer. Explain.
Problem Sets
Each chapter includes a set of problems
for assignment. The problems have been
refined over many editions and are intended
to be challenging but doable for students.
Short answers to most of the problems
are included in Appendix A so students
can check their understanding and see
immediately how they are progressing.
1. Determine the utilization and efficiency for each of the following situations.
a. A loan processing operation that processes an average of 7 loans per day. The operation has a
design capacity of 10 loans per day and an effective capacity of 8 loans per day.
b. A furnace repair team that services an average of four furnaces a day if the design capacity is
six furnaces a day and the effective capacity is five furnaces a day.
c. Would you say that systems that have higher efficiency ratios than other systems will always
have higher utilization ratios than those other systems? Explain.
2. In a job shop, effective capacity is only 50 percent of design capacity, and actual output is 80 percent
of effective output. What design capacity would be needed to achieve an actual output of eight jobs
per week?
Operations Tours
These provide a simple “walkthrough” of an operation
for students, describing the company, its product
or service, and its process of managing operations.
Companies featured include Wegmans Food Markets,
Morton Salt, Stickley Furniture, and Boeing.
in New York State, two in Connecticut, one in North Carolina, and
its furniture is sold nationally by some 120 dealers.
L. & J.G. Stickley was founded in 1900 by brothers Leopold and
George Stickley. Located just outside of Syracuse, New York, the
company is a producer of fine cherry, white oak, and mahogany
furniture. In the 1980s, the company reintroduced the company’s
original line of mission oak furniture, which now accounts for
nearly 50 percent of the company’s sales.
Over the years, the company experienced both good and bad
times, and at one point it employed over 200 people. However,
by the early 1970s, the business was in disarray; there were only
about 20 full-time employees, and the company was on the brink
of bankruptcy. The present owners bought the ailing firm in 1974,
and under their leadership, the company has prospered and grown,
and now has 1,350 employees. Stickley has five retail showrooms
The production facility is a large, rectangular building with a
30-foot ceiling. Furniture making is labor intensive, although saws,
sanders, and other equipment are very much a part of the process. In fact, electric costs average about $60,000 a month. The
company has its own tool room where cutting tools are sharpened, and replacement parts are produced as needed.
Worker skills range from low-skilled material handlers to highly
skilled craftsmen. For example, seven master cabinet makers handle customized orders.
The process (see figure below) begins with various sawing
operations where large boards received from the lumber mills
are cut into smaller sizes. The company recently purchased a
Promotional Novelties provides a wide range of novelty items for
its corporate customers. It has just received an order for 20,000
toy tractor-trailers that will be sold by a regional filling station company as part of a holiday promotion. The order is to be shipped
at the beginning of week 8. The tree diagram shows the various
components of the trucks.
The company can complete final assembly of the
trailers at the rate of 10,000 a week. The tractor and trailer
are purchased; lead time is three weeks. The wheels
manager’s main concern.
The company has a sufficient supply of brackets
Assembly time is one week each for tractors, trailers, and
assembly. However, the wheel department can only
wheels at the rate of 100,000 a week. The manager
use the wheel department to full capacity, starting in
of the schedule, and order additional wheels from a
as needed. Ordered wheels come in sets of 6,400.
time for delivery from the supplier is expected to be
three weeks. Use lot-for-lot ordering for all items ex
purchased wheels.
Wheels (6)
Wheels (12)
1. How many wheel sets should the manager order?
2. When should the wheel sets be ordered?
The text includes short cases. The cases were
selected to provide a broader, more integrated
thinking opportunity for students without taking
a full case approach.
Available within Connect, instructors have access to teaching supports such as electronic files
of the ancillary materials: Solutions Manual, Instructor’s Manual, Test Bank, PowerPoint
Lecture Slides, Digital Image Library, and accompanying Excel files.
Instructor’s Manual. This manual, revised for the new edition by Tracie Lee, Idaho
State University, includes teaching notes, chapter overview, an outline for each chapter, and
solutions to the problems in the text.
Test Bank. Updated for the new edition by Leslie Sukup, Ferris State University, and
reviewed by Nancy Lambe, University of South Alabama, the Test Bank includes over
2,000 true/false, multiple-choice, and discussion questions/problems at varying levels of
difficulty. The Test Bank is available to assign within Connect, as Word files available in
the Instructor Resource Library, and through our online test generator. Instructors can organize, edit, and customize questions and answers to rapidly generate tests for paper or online
PowerPoint Lecture Slides. Revised by Avanti Sethi, University of Texas-Dallas, the
PowerPoint slides draw on the highlights of each chapter and provide an opportunity for the
instructor to emphasize the key concepts in class discussions.
Digital Image Library. All the figures in the book are included for insertion in PowerPoint
slides or for class discussion.
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Note to Students
The material in this text is part of the core knowledge in your
education. Consequently, you will derive considerable benefit from your study of operations management, regardless
of your major. Practically speaking, operations is a course in
This book describes principles and concepts of operations
management. You should be aware that many of these principles and concepts are applicable to other aspects of your
professional and personal life. You can expect the benefits of
your study of operations management to serve you in those
other areas as well.
Some students approach this course with apprehension, and
perhaps even some negative feelings. It may be that they have
heard that the course contains a certain amount of quantitative
material that they feel uncomfortable with, or that the subject
matter is dreary, or that the course is about “factory management.” This is unfortunate, because the subject matter of this
book is interesting and vital for all business students. While
it is true that some of the material is quantitative, numerous
examples, solved problems, and answers at the back of the
book help with the quantitative material. As for “factory management,” there is material on manufacturing, as well as on
services. Manufacturing is important, and something that you
should know about for a number of reasons. Look around you.
Most of the “things” you see were manufactured: cars, trucks,
planes, clothing, shoes, computers, books, pens and pencils,
desks, and cell phones. And these are just the tip of the iceberg. So it makes sense to know something about how these
things are produced. Beyond all that is the fact that manufacturing is largely responsible for the high standard of living
people have in industrialized countries.
After reading each chapter or supplement in the text,
attending related classroom lectures, and completing assigned
questions and problems, you should be able to do each of the
1. Identify the key features of that material.
2. Define and use terminology.
3. Solve typical problems.
4. Recognize applications of the concepts and techniques
5. Discuss the subject matter in some depth, including its
relevance, managerial considerations, and advantages
and limitations.
You will encounter a number of chapter supplements.
Check with your course syllabus to determine which ones are
This book places an emphasis on problem solving. There
are many examples throughout the text illustrating solutions.
In addition, at the end of most chapters and supplements you
will find a group of solved problems. The examples within
the chapter itself serve to illustrate concepts and techniques.
Too much detail at those points would be counterproductive.
Yet, later on, when you begin to solve the end-of-chapter
problems, you will find the solved problems quite helpful.
Moreover, those solved problems usually illustrate more and
different details than the problems within the chapter.
I suggest the following approach to increase your chances
of getting a good grade in the course:
1. Do the class preparation exercises for each chapter if
they are available from your instructor.
2. Look over the chapter outline and learning objectives.
3. Read the chapter summary, and then skim the chapter.
4. Read the chapter and take notes.
5. Look over and try to answer some of the discussion and
review questions.
6. Work the assigned problems, referring to the solved
problems and chapter examples as needed.
Note that the answers to many problems are given at the
end of the book. Try to solve each problem before turning to
the answer. Remember—tests don’t come with answers.
And here is one final thought: Homework is on the
Highway to Success, whether it relates to your courses, the
workplace, or life! So do your homework, so you can have a
successful journey!
Brief Contents
1 Introduction to Operations Management 2
2 Competitiveness, Strategy, and Productivity 40
3 Forecasting 74
4 Product and Service Design 138
SUPPLEMENT TO CHAPTER 4: Reliability 176
5 Strategic Capacity Planning for Products and Services 190
SUPPLEMENT TO CHAPTER 5: Decision Theory 222
6 Process Selection and Facility Layout 244
7 Work Design and Measurement 300
SUPPLEMENT TO CHAPTER 7: Learning Curves 336
8 Location Planning and Analysis 348
9 Management of Quality 378
10 Quality Control 418
11 Aggregate Planning and Master Scheduling 464
12 Inventory Management 502
13 MRP and ERP 560
14 JIT and Lean Operations 610
SUPPLEMENT TO CHAPTER 14: Maintenance 646
15 Supply Chain Management 654
16 Scheduling 692
17 Project Management 732
18 Management of Waiting Lines 784
19 Linear Programming 824
Appendix A: Answers to Selected Problems 858
Appendix B: Tables 870
Appendic C: Working with the Normal Distribution 876
Appendic D: Ten Things to Remember Beyond the Final Exam
Company Index 883
Subject Index 884
Introduction to Operations
Management 2
Introduction 42
Competitiveness 42
Mission and Strategies 44
Amazon Ranks High in Customer Service
Introduction 4
Production of Goods Versus Providing
Services 8
Why Learn About Operations Management? 10
Career Opportunities and Professional
Societies 12
Process Management 13
The Scope of Operations Management 14
Why Manufacturing Matters 17
Low Inventory Can Increase Agility
Dutch Tomato Growers’ Productivity Advantage 60
Productivity Improvement 62
The Historical Evolution of Operations
Management 21
Operations Today 24
Agility Creates a Competitive Edge 26
Key Issues for Today’s Business Operations
Sustainable Kisses 28
Summary 62
Key Points 63
Key Terms 63
Solved Problems 63
Discussion and Review Questions 64
Taking Stock 64
Critical Thinking Exercises 65
Problems 65
Home-Style Cookies 67
Diet and the Environment: Vegetarian
vs. Nonvegetarian 29
Hazel Revisited
Operations Tour:
Wegmans Food Markets
Girlfriend Collective
“Your Garden Gloves”
Operations Tour:
The U.S. Postal Service
Summary 36
Key Points 36
Key Terms 36
Discussion and Review Questions 36
Taking Stock 37
Critical Thinking Exercises 37
Selected Bibliography and Further Readings
Hazel 38
Selected Bibliography and Further Readings
Problem-Solving Guide 39
Operations Strategy 51
Implications of Organization Strategy for Operations
Management 54
Transforming Strategy into Action: The Balanced
Scorecard 54
Productivity 56
Why Productivity Matters 59
Operations Management and Decision
Making 18
Analytics 20
Competitiveness, Strategy, and
Productivity 40
Forecasting 74
Introduction 76
Features Common to All Forecasts 78
Elements of a Good Forecast 78
Legal and Ethical Considerations 144
Human Factors 145
Cultural Factors 145
Green Tea Ice Cream? Kale Soup? 146
Forecasting and the Supply Chain 79
Steps in the Forecasting Process 79
Approaches to Forecasting 80
Qualitative Forecasts 80
Forecasts Based on Time-Series Data 82
Associative Forecasting Techniques 98
Lilacs 104
Forecast Accuracy 104
High Forecasts Can be Bad News
Global Product and Service Design 146
Environmental Factors: Sustainability 146
Kraft Foods’ Recipe for Sustainability 148
China Clamps Down on Recyclables
Recycle City: Maria’s Market
Monitoring Forecast Error 107
Choosing a Forecasting Technique 111
Using Forecast Information 112
Computer Software in Forecasting 113
Operations Strategy 113
Gazing at the Crystal Ball 114
Fast-Food Chains Adopt Mass Customization 155
Phases in Product Design and Development 162
Designing for Production 163
Service Design 165
The Challenges of Managing Services 169
Operations Strategy
Highline Financial Services, Ltd.
Operations Tour:
High Acres Landfill
Product and Service Design 138
Design as a Business Strategy
Introduction 140
Dutch Boy Brushes Up Its Paints
Idea Generation 142
Vlasic’s Big Pickle Slices
Selected Bibliography and Further Readings
Summary 170
Key Points 171
Key Terms 171
Discussion and Review Questions 171
Taking Stock 172
Critical Thinking Exercises 172
Problems 172
Selected Bibliography and Further Readings
Other Design Considerations 151
Lego A/S in the Pink 152
Summary 115
Key Points 117
Key Terms 117
Solved Problems 118
Discussion and Review Questions 124
Taking Stock 125
Critical Thinking Exercises 125
Problems 125
M&L Manufacturing
Strategic Capacity Planning for Products
and Services 190
Introduction 191
Excess Capacity Can Be Bad News!
Capacity Decisions Are Strategic
Designing Process Layouts
Defining and Measuring Capacity 194
Determinants of Effective Capacity 196
Strategy Formulation 197
Forecasting Capacity Requirements 198
Additional Challenges of Planning Service Capacity 200
Do It In-House or Outsource It? 201
My Compliments to the Chef, Er, Buyer 202
Developing Capacity Strategies
Constraint Management 207
Evaluating Alternatives 207
Operations Strategy 213
Summary 328
Key Points 328
Key Terms 329
Solved Problems 329
Discussion and Review Questions 330
Taking Stock 331
Critical Thinking Exercises 331
Problems 331
Selected Bibliography and Further Readings
Theory 222
Process Selection and Facility Layout
Introduction 246
Process Selection 246
Operations Tour:
Morton Salt 250
Curves 336
Technology 252
Foxconn Shifts Its Focus to Automation 254
Zipline Drones Save Lives in Rwanda
Self-Driving Vehicles
Work Design and Measurement 300
Motion Study 315
Work Measurement 316
Operations Strategy 327
Outsourcing of Hospital Services 221
Introduction 301
Job Design 301
Quality of Work Life 305
Methods Analysis 310
Taylor’s Techniques Help UPS 311
Summary 213
Key Points 214
Key Terms 214
Solved Problems 214
Discussion and Review Questions 216
Taking Stock 217
Critical Thinking Exercises 217
Problems 217
Selected Bibliography and Further Readings
Summary 285
Key Points 286
Key Terms 286
Solved Problems 286
Discussion and Review Questions 290
Taking Stock 291
Critical Thinking Exercises 291
Problems 291
Selected Bibliography and Further Readings
Process Strategy 260
Strategic Resource Organization: Facilities
Layout 260
A Safe Hospital Room of the Future 269
Designing Product Layouts: Line Balancing
BMW’s Strategy: Flexibility 280
Location Planning and Analysis 348
The Need for Location Decisions 350
The Nature of Location Decisions 350
Global Locations 352
Coffee? 355
General Procedure for Making Location
Decisions 355
Identifying a Country, Region, Community, and
Site 356
Service and Retail Locations 363
Evaluating Location Alternatives 364
Summary 370
Key Points 370
Key Terms 371
Solved Problems 371
Discussion and Review Questions 372
Taking Stock 372
Critical Thinking Exercises 373
Problems 373
Hello, Walmart?
Process Capability 443
RFID Chips Might Cut Drug Errors in
Hospitals 448
Operations Strategy 448
Selected Bibliography and Further Readings
Management of Quality 378
Introduction 379
The Evolution of Quality Management 380
The Foundations of Modern Quality Management:
The Gurus 381
Insights on Quality Management 383
American Fast-Food Restaurants Are Having
Success in China 386
Hyundai: Exceeding Expectations
Quality and Performance Excellence Awards 391
Quality Certification 392
Quality and the Supply Chain 393
Total Quality Management 394
Problem Solving and Process Improvement 398
Quality Tools 401
Operations Strategy 409
Summary 409
Key Points 409
Key Terms 410
Solved Problem 410
Discussion and Review Questions 411
Taking Stock 412
Critical Thinking Exercises 412
Problems 412
Chick-n-Gravy Dinner Line
Tip Top Markets
Toys, Inc. 462
Tiger Tools 462
Selected Bibliography and Further Readings
11 Aggregate Planning and Master
Scheduling 464
Introduction 466
Duplicate Orders Can Lead to Excess Capacity 470
Basic Strategies for Meeting Uneven Demand
Techniques for Aggregate Planning 476
Aggregate Planning in Services 484
Disaggregating the Aggregate Plan 485
Master Scheduling 486
The Master Scheduling Process 487
Eight Glasses a Day (EGAD)
10 Quality Control 418
Introduction 419
Inspection 420
Falsified Inspection Reports Create Major Risks
and Job Losses 424
Statistical Process Control 425
Summary 449
Key Points 450
Key Terms 450
Solved Problems 450
Discussion and Review Questions 454
Taking Stock 455
Critical Thinking Exercises 455
Problems 456
Summary 491
Key Points 491
Key Terms 492
Solved Problems 493
Discussion and Review Questions 496
Taking Stock 496
Critical Thinking Exercises 496
Problems 496
Selected Bibliography and Further Readings
Selected Bibliography and Further Readings
12 Inventory Management 502
Introduction 503
$$$ 504
The Nature and Importance of Inventories 504
Requirements for Effective Inventory
Management 507
Radio Frequency Identification (RFID) Tags 509
Catch Them Before They Steal! Reducing Inventory
Loss With an Assist From AI 510
Drones Can Help With Inventory Management in
Warehouses 513
Inventory Ordering Policies 513
How Much to Order: Economic Order Quantity
Models 514
Reorder Point Ordering 525
How Much to Order: Fixed-Order-Interval
Model 530
The Single-Period Model 533
Operations Strategy 538
Summary 589
Key Points 590
Key Terms 590
Solved Problems 590
Discussion and Review Questions 599
Taking Stock 599
Critical Thinking Exercises 600
Problems 600
Promotional Novelties
DMD Enterprises
Operations Tour:
Stickley Furniture 606
14 JIT and Lean Operations 610
Introduction 612
Toyota Recalls 614
Supporting Goals 615
Building Blocks 616
General Mills Studied NASCAR Pit Crew to Reduce
Changeover Time 619
UPD Manufacturing 553
Grill Rite 554
Farmers Restaurant 554
Operations Tours:
Bruegger’s Bagel Bakery 556
Selected Bibliography and Further Readings
Operations Strategy
Selected Bibliography and Further Readings
Summary 538
Key Points 538
Key Terms 540
Solved Problems 540
Discussion and Review Questions 545
Taking Stock 545
Critical Thinking Exercises 545
Problems 546
11 Common ERP Mistakes and How to
Avoid Them 587
13 MRP and ERP 560
Introduction 561
An Overview of MRP 562
MRP Inputs 563
MRP Processing 566
MRP Outputs 573
Other Considerations 574
MRP in Services 576
Benefits and Requirements of MRP 576
MRP II 577
Capacity Requirements Planning 579
ERP 581
The ABCS of ERP 583
Lean Tools 632
Gemba Walks 635
Transitioning to a Lean System
Lean Services 637
JIT II 638
Operations Strategy 638
Summary 639
Key Points 639
Key Terms 640
Solved Problems 640
Discussion and Review Questions 641
Taking Stock 642
Critical Thinking Exercises 642
Problems 642
Level Operations 643
Operations Tour:
Boeing 644
Selected Bibliography and Further Readings
Scheduling Services 715
Operations Strategy 719
15 Supply Chain Management 654
Introduction 656
Trends in Supply Chain Management 657
Walmart Focuses on Its Supply Chain 660
Supply Chain Transparency
At 3M, a Long Road Became a Shorter Road
Global Supply Chains 663
ERP and Supply Chain Management 663
Ethics and the Supply Chain 664
Small Businesses 664
Management Responsibilities 665
Procurement 667
E-Business 670
Supplier Management 671
Inventory Management 674
Order Fulfillment 675
Logistics 676
Operations Tour:
Wegmans’ Shipping System 677
UPS Sets the Pace for Deliveries and Safe
Driving 679
Springdale Farm 680
Active, Semi-Passive, and Passive RFID Tags 681
Creating an Effective Supply Chain 681
Clicks or Bricks, or Both? 683
Easy Returns
Summary 687
Key Points 687
Key Terms 687
Discussion and Review Questions 687
Taking Stock 688
Critical Thinking Exercises 688
Problems 688
Selected Bibliography and Further Readings
16 Scheduling 692
Scheduling Operations 694
Scheduling in Low-Volume Systems
Summary 719
Key Points 719
Key Terms 720
Solved Problems 720
Discussion and Review Questions 724
Taking Stock 724
Critical Thinking Exercises 724
Problems 725
Hi-Ho, Yo-Yo, Inc. 731
Selected Bibliography and Further Readings
17 Project Management 732
Introduction 734
Project Life Cycle 734
Behavioral Aspects of Project Management 736
Artificial Intelligence Will Help
Project Managers 740
Work Breakdown Structure 741
Planning and Scheduling with Gantt Charts 741
PERT and CPM 742
Deterministic Time Estimates 745
A Computing Algorithm 746
Probabilistic Time Estimates 753
Determining Path Probabilities 756
Simulation 758
Budget Control 759
Time–Cost Trade-Offs: Crashing 759
Advantages of Using PERT and Potential
Sources of Error 762
Critical Chain Project Management 763
Other Topics in Project Management 763
Project Management Software 764
Operations Strategy 764
Risk Management 765
Summary 766
Key Points 767
Key Terms 767
Solved Problems 767
Discussion and Review Questions 774
Taking Stock 774
Critical Thinking Exercises 774
Problems 774
Time, Please 781
Selected Bibliography and Further Readings
19 Linear Programming 824
18 Management of Waiting Lines 784
Why Is There Waiting? 786
New Yorkers Do Not Like Waiting in Line 787
Managerial Implications of Waiting Lines 787
Goal of Waiting-Line Management 788
Characteristics of Waiting Lines 789
Measures of Waiting-Line Performance 792
Queuing Models: Infinite-Source 793
Queuing Model: Finite-Source 807
Constraint Management 813
The Psychology of Waiting 813
David H. Maister on the Psychology of Waiting 814
Operations Strategy 814
Managing Waiting Lines at Disney World
Summary 815
Key Points 816
Key Terms 816
Solved Problems 816
Discussion and Review Questions 818
Taking Stock 818
Critical Thinking Exercises 818
Problems 818
Big Bank
Summary 846
Key Points 846
Key Terms 846
Solved Problems 846
Discussion and Review Questions 849
Problems 849
Son, Ltd. 853
Custom Cabinets, Inc.
Selected Bibliography and Further Readings
APPENDIX A Answers to Selected Problems 858
APPENDIX B Tables 870
APPENDIX C Working with the Normal
APPENDIX D Ten Things to Remember Beyond the Final
Exam 882
Company Index 883
Subject Index 884
Selected Bibliography and Further Readings
Introduction 825
Linear Programming Models 826
Graphical Linear Programming 828
The Simplex Method 840
Computer Solutions 840
Sensitivity Analysis 843
Operations Management
to Operations
After completing this chapter, you should be able to:
Define the terms operations management and supply chain.
Identify similarities and differences between production and service operations.
Explain the importance of learning about operations management.
Identify the three major functional areas of organizations and describe how they interrelate.
Summarize the two major aspects of process management.
Describe the operations function and the nature of the operations manager’s job.
Explain the key aspects of operations management decision making.
Briefly describe the historical evolution of operations management.
Describe current issues in business that impact operations management.
Explain the importance of ethical decision making.
Explain the need to manage the supply chain
Introduction 4
Production of Goods Versus
Providing Services 8
Why Learn About Operations
Management? 10
Career Opportunities and
Professional Societies 12
Process Management 13
Managing a Process to Meet
Demand 13
Process Variation 14
The Scope of Operations
Management 14
Managing the Supply Chain to
Achieve Schedule, Cost, and
Quality Goals 15
Models 18
Quantitative Approaches 19
Performance Metrics 19
Analysis of Trade-Offs 19
Degree of Customization 20
A Systems Perspective 20
Establishing Priorities 20
The Influence of Japanese
Manufacturers 23
Operations Management and
Decision Making 18
The Historical Evolution of
Operations Management 21
The Industrial Revolution 21
Scientific Management 21
The Human Relations
Movement 23
Decision Models and
Management Science 23
Operations Today 24
1.10 Key Issues for Today’s
Business Operations 27
Environmental Concerns 27
Ethical Conduct 29
The Need to Manage the
Supply Chain 31
Elements of Supply Chain
Management 32
Operations Tour: Wegmans
Food Markets 33
Case: Hazel 38
Problem-Solving Guide 39
Recalls of automobiles, foods, toys, and other products; major oil spills; and even dysfunctional state and
federal legislatures are all examples of operations failures. They underscore the need for effective operations
management. Examples of operations successes include the many electronic devices we all use, medical breakthroughs in diagnosing and treating ailments, and high-quality goods and services that are widely available.
Operations is what businesses do. Operations are processes that either provide services or create goods. Operations take
place in businesses such as restaurants, retail stores, supermarkets, factories, hospitals, and colleges and universities. In
fact, they take place in every business organization. Moreover, operations are the core of what a business organization does.
As you read this book, you will learn about managing those operations. The subject matter is relevant for you regardless of your major. Productivity, quality, e-business, competition, and customer satisfaction are important for every
aspect of a business organization. This first chapter presents an introduction and overview of operations management.
Among the issues it addresses are: What is operations management? Why is it important? What do operations management professionals do?
The chapter also provides a description of the historical evolution of operations management and a discussion of the
trends and issues that impact operations management.
You will learn about (1) the economic balance that every business organization seeks to achieve; (2) the condition
that generally exists that makes achieving the economic balance challenging; (3) the line function that is the core of
every business organization; (4) key steps in the history and evolution of operations management; (5) the differences
and similarities between producing products and delivering services; (6) what a supply chain is, and why it is essential
to manage it; and (7) the key issues for today’s business operations.
Chapter One
Introduction to Operations Management
LO1.1 Define the terms
operations management
and supply chain.
Goods Physical items
produced by business
Services Activities that
provide some combination
of time, location, form, and
psychological value.
Operations management
The management of systems
or processes that create
goods and/or provide
Supply chain A sequence of
organizations—their facilities,
functions, and activities—that
are involved in producing and
delivering a product or service.
Operations is that part of a business organization that is responsible for producing goods and/
or services. Goods are physical items that include raw materials, parts, subassemblies such as
motherboards that go into computers, and final products such as cell phones and automobiles.
Services are activities that provide some combination of time, location, form, or psychological
value. Examples of goods and services are found all around you. Every book you read, every
video you watch, every e-mail or text message you send, every telephone conversation you
have, and every medical treatment you receive involves the operations function of one or more
organizations. So does everything you wear, eat, travel in, sit on, and access through the internet. The operations function in business can also be viewed from a more far-reaching perspective: The collective success or failure of companies’ operations functions has an impact on the
ability of a nation to compete with other nations, and on the nation’s economy.
The ideal situation for a business organization is to achieve an economic match of supply
and demand. Having excess supply or excess capacity is wasteful and costly; having too little
means lost opportunity and possible customer dissatisfaction. The key functions on the supply
side are operations and supply chains, and sales and marketing on the demand side.
While the operations function is responsible for producing products and/or delivering services, it needs the support and input from other areas of the organization. Business organizations have three basic functional areas, as depicted in Figure 1.1: finance, marketing, and
operations. It doesn’t matter whether the business is a retail store, a hospital, a manufacturing
firm, a car wash, or some other type of business; all business organizations have these three
basic functions.
Finance is responsible for securing financial resources at favorable prices and allocating
those resources throughout the organization, as well as budgeting, analyzing investment proposals, and providing funds for operations. Marketing is responsible for assessing consumer
wants and needs, and selling and promoting the organization’s goods or services. Operations
is responsible for producing the goods or providing the services offered by the organization. To put this into perspective, if a business organization were a car, operations would be
its engine. And just as the engine is the core of what a car does, in a business organization,
operations is the core of what the organization does. Operations management is responsible
for managing that core. Hence, operations management is the management of systems or
processes that create goods and/or provide services.
Operations and supply chains are intrinsically linked, and no business organization could
exist without both. A supply chain is the sequence of organizations—their facilities, functions, and activities—that are involved in producing and delivering a product or service. The
sequence begins with basic suppliers of raw materials and extends all the way to the final
customer. See Figure 1.2. Facilities might include warehouses, factories, processing centers,
offices, distribution centers, and retail outlets. Functions and activities include forecasting,
purchasing, inventory management, information management, quality assurance, scheduling,
production, distribution, delivery, and customer service.
Figure 1.3a provides another illustration of a supply chain: a chain that extends from wheat
growing on a farm and ends with a customer buying a loaf of bread in a supermarket. The
value of the product increases as it moves through the supply chain.
The three basic functions
of business organizations
Chapter One Introduction to Operations Management
A simple product supply
A supply chain for bread
Equipment suppliers
Equipment repair
Feed, seed, fertilizers, pesticides
Equipment suppliers
Equipment repair
Equipment suppliers
Equipment repair
Other ingredients
One way to think of a supply chain is that it is like a chain, as its name implies. This is
shown in Figure 1.2. The links of the chain would represent various production and/or service
operations, such as factories, storage facilities, activities, and modes of transportation (trains,
railroads, ships, planes, cars, and people). The chain illustrates both the sequential nature of
a supply chain and the interconnectedness of the elements of the supply chain. Each link is a
customer of the previous link and a supplier to the following link. It also helps to understand
that if any one of the links fails for any reason (quality or delivery issues, weather problems,
or some other problem [there are numerous possibilities]), that can interrupt the flow in the
supply chain for the following portion of the chain.
Another way to think of a supply chain is as a tree with many branches, as shown in
Figure 1.3b. The main branches of the tree represent key suppliers and transporters (e.g.,
trucking companies). That view is helpful in grasping the size and complexity that often
exists in supply chains. Notice that the main branches of the tree have side branches (their
own key suppliers), and those side branches also have their own side branches (their own
key suppliers). In fact, an extension of the tree view of a supply chain is that each supplier
Value-added The difference
between the cost of inputs
and the value or price of
Chapter One
Introduction to Operations Management
(branch) has its own supply tree. Referring to Figure 1.3a, the farm, mill, and bakery of the
trucking companies would have their own “tree” of suppliers.
Supply chains are both external and internal to the organization. The external parts of
a supply chain provide raw materials, parts, equipment, supplies, and/or other inputs to
the organization, and they deliver outputs that are goods to the organization’s customers.
The internal parts of a supply chain are part of the operations function itself, supplying
operations with parts and materials, performing work on products, and/or performing
The creation of goods or services involves transforming or converting inputs into outputs.
Various inputs such as capital, labor, and information are used to create goods or services
using one or more transformation processes (e.g., storing, transporting, repairing). To ensure
that the desired outputs are obtained, an organization takes measurements at various points
in the transformation process (feedback) and then compares them with previously established
standards to determine whether corrective action is needed (control). Figure 1.4 depicts the
conversion system.
Table 1.1 provides some examples of inputs, transformation processes, and outputs.
Although goods and services are listed separately in Table 1.1, it is important to note that
goods and services often occur jointly. For example, having the oil changed in your car is a
service, but the oil that is delivered is a good. Similarly, house painting is a service, but the
paint is a good. The goods–service combination is a continuum. It can range from primarily goods, with little service, to primarily service, with few goods. Figure 1.5 illustrates this
continuum. Because there are relatively few pure goods or pure services, companies usually
sell product packages, which are a combination of goods and services. There are elements of
both goods production and service delivery in these product packages. This makes managing
operations more interesting, and also more challenging.
Table 1.2 provides some specific illustrations of the transformation process.
The essence of the operations function is to add value during the transformation process.
Value-added is the term used to describe the difference between the cost of inputs and the
value or price of outputs. In nonprofit organizations, the value of outputs (e.g., highway construction, police and fire protection) is their value to society; the greater the value-added, the
greater the effectiveness of these operations. In for-profit organizations, the value of outputs
is measured by the prices that customers are willing to pay for those goods or services. Firms
use the money generated by value-added for research and development, investment in new
facilities and equipment, worker salaries, and profits. Consequently, the greater the valueadded, the greater the amount of funds available for these purposes. Value can also be psychological, as in branding.
Many factors affect the design and management of operations systems. Among them are
the degree of involvement of customers in the process and the degree to which technology
is used to produce and/or deliver a product or service. The greater the degree of customer
The operations function
involves systems for
converting inputs into
Measurement and Feedback
Measurement and
Measurement and
Chapter One Introduction to Operations Management
High goods percentage
Cutting, drilling
Physical labor
Intellectual labor
Raw materials
Food products
Cell phones
Health care
Vehicle repair
Retail stores
Examples of inputs,
transformation, and outputs
High service percentage
Legal constraints
Government regulations
involvement, the more challenging it can be to design and manage the operation. Technology
choices can have a major impact on productivity, costs, flexibility, and quality and customer
Surgery, teaching
Songwriting, software development
Computer repair, restaurant meal
Automobile repair, fast food
Home remodeling, retail sales
Automobile assembly, steelmaking
The goods–service
Chapter One
Illustrations of the
transformation process
Food Processor
Introduction to Operations Management
Raw vegetables
Canned vegetables
Metal sheets
Making cans
Doctors, nurses
Medical supplies
Treated patients
LO1.2 Identify the
similarities and differences
between production and
service operations.
Although goods and services often go hand in hand, there are some very basic differences
between the two, differences that impact the management of the goods portion versus management of the service portion. There are also many similarities between the two.
Production of goods results in a tangible output, such as an automobile, eyeglasses, a golf
ball, a refrigerator—anything that we can see or touch. It may take place in a factory, but it
can occur elsewhere. For example, farming and restaurants produce nonmanufactured goods.
Delivery of service, on the other hand, generally implies an act. A physician’s examination, TV and auto repair, lawn care, and the projection of a film in a theater are examples of
services. The majority of service jobs fall into these categories:
Professional services (e.g., financial, health care, legal)
Mass services (e.g., utilities, internet, communications)
Service shops (e.g., tailoring, appliance repair, car wash, auto repair/maintenance)
Personal care (e.g., beauty salon, spa, barbershop)
Government (e.g., Medicare, mail, social services, police, fire)
Education (e.g., schools, universities)
Food service (e.g., catering)
Services within organizations (e.g., payroll, accounting, maintenance, IT, HR, janitorial)
Retailing and wholesaling
Shipping and delivery (e.g., truck, railroad, boat, air)
Residential services (e.g., lawn care, painting, general repair, remodeling, interior design)
Transportation (e.g., mass transit, taxi, airlines, ambulance)
Travel and hospitality (e.g., travel bureaus, hotels, resorts)
Miscellaneous services (e.g., copy service, temporary help)
Manufacturing and service are often different in terms of what is done, but quite similar in
terms of how it is done.
Chapter One Introduction to Operations Management
Consider these points of comparison:
Degree of customer contact. Many services involve a high degree of customer contact,
although services such as internet providers, utilities, and mail service do not. When
there is a high degree of contact, the interaction between server and customer becomes
a “moment of truth” that will be judged by the customer every time the service occurs.
Labor content of jobs. Services often have a higher degree of labor content than manufacturing jobs do, although automated services are an exception.
Uniformity of inputs. Service operations are often subject to a higher degree of variability of inputs. Each client, patient, customer, repair job, and so on presents a somewhat
unique situation that requires assessment and flexibility. Conversely, manufacturing
operations often have a greater ability to control the variability of inputs, which leads to
more-uniform job requirements.
Measurement of productivity. Measurement of productivity can be more difficult for service jobs due largely to
the high variations of inputs. Thus, one doctor might have
a higher level of routine cases to deal with, while another
might have more difficult cases. Unless a careful analysis
is conducted, it may appear that the doctor with the difficult cases has a much lower productivity than the one with
the routine cases.
Quality assurance. Quality assurance is usually more
challenging for services due to the higher variation in
input, and because delivery and consumption occur at the
same time. Unlike manufacturing, which typically occurs
away from the customer and allows mistakes that are identified to be corrected, services …
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