Introduction to Operations and Supply Chain Management

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1 Third Edition Introduction to Operations and Supply Chain Management Cecil C. Bozarth North Carolina State University Robert B. Handfield North Carolina State University Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

2 ~ CONTENTS Preface xiii PART II PART I Establishing the Operations Environment 38 Creating Value through Operations and Supply Chains 1 1 Introduction to Operations and Supply Chain Management 1 Introduction Why Study Operations and Supply Chain Management? 3 Operations Management 4 Supply Chain Management Important Trends 10 Electronic Commerce 10 Increasing Competition and Globalization 10 Relationship Management Operations and Supply Chain Management and You 11 Professional Organizations 11 Cross-Functional and Interorganizational Linkages Purpose and Organization of This Book 13 Chapter Summary 14 KeyTerms 14 Discussion Questions 15 Problems 15 Case Study 15 References 17 2 Operations and Supply Chain Strategies 18 Introduction Elements ofthe Business Strategy Operations and Supply Chain Strategies 23 Customer Value 24 Four Performance Dimensions 26 Trade-offs among Performance Dimensions 28 Order Winners and Order Qualifiers 28 Stages of Alignment with the Business Strategy 29 Core Competencies in Operations and Supply Chains 30 Chapter Summary 32 Key Formulas 32 Key Terms 32 Solved Problem 32 Discussion Questions 34 Problems 34 Case Study 36 References 37 3 Process Choice and Layout Decisions in Manufacturing and Services 38 Introduction Manufacturing Processes 40 Production Lines and Continuous Flow Manufacturing 41 Job Shops 42 Batch Manufacturing 43 Fixed-Position Layout 43 Hybrid Manufacturing Processes 43 Linking Manufacturing Processes across the Supply Chain 44 Selecting a Manufacturing Process 45 The Product-Process Matrix Product Customization within the Supply Chain 45 Four Levels ofcustomization 46 The Customization Point Service Processes 48 Service Packages 49 Service Customization 50 Customer Contact 51 Service Positioning 54 Services within the Supply Chain Layout Decision Models 56 Line Balancing 56 Assigning Department Locations in Functional Layouts 60 Chapter Summary 63 Key Formulas 63 Key Terms 64 Solved Problem 64 Discussion Questions 67 Problems 67 Case Study 70 References 71 4 Business Processes 72 Introduction Business Processes 74 Improving Business Processes Mapping Business Processes 76 Process Maps 77 Swim Lane Process Maps Managing and Improving Business Processes 81 Measuring Business Process Performance 81 Productivity 82 Efficiency 84 vii

3 viii Contents Cycle Time 85 Benchmarking 85 The Six Sigma Methodology 86 Continuous ImprovementTools Business Process Challenges and the SCOR Model 95 How Standardized Should Processes Be? 96 Business Process Reengineering (BPR) 96 Coordinating Process Management Efforts across the Supply Chain 96 The SCOR Model 97 Chapter Summary 99 Key Formulas 99 Key Terms 99 Solved Problem 100 Discussion Questions 101 Problems 102 Case Study 103 References 104 6S 6.4 Understanding and Analyzing Process Capacity 157 The Theory of Constraints (TOC) 157 Waiting Line Theory 160 Little's Law 164 Chapter Summary 166 Key Formulas 166 Key Terms 168 Using Excel in Capacity Management 168 Solved Problem 169 Discussion Questions 170 Problems 170 Case Study 174 References 175 Advanced Waiting Line Theory and Simulation Modeling 176 Introduction Managing Quality 106 Introduction Quality Defined Total Cost of Quality Total Quality Management 113 TQM and the Six Sigma Methodology Statistical Quality Control 116 Process Capability 116 Six Sigma Quality 117 Control Charts 119 Acceptance Sampling 126 Taguchi's Quality Loss Function Managing Quality across the Supply Chain 128 ISO 9000 Family 129 External Failures in the Supply Chain 129 Chapter Summary 130 Key Formulas 130 Key Terms 132 Using Excel in Quality Management 132 Solved Problem 133 Discussion Questions 134 Problems 134 Case Study 138 References Managing Capacity 141 Introduction Capacity 143 Measures of Capacity 143 Factors That Affect Capacity 144 Supply Chain Considerations Three Common Capacity Strategies Methods of Evaluating Capacity Alternatives 146 Cost 146 Demand Considerations 149 Expected Value 149 Decision Trees 150 Break-Even Analysis 152 Learning Curves 153 Other Considerations Alternative Waiting Lines 177 Assumptions behind Waiting Line Theory 178 Waiting Line Formulas for Three Different Environments Simulation Modeling 182 Monte Carlo Simulation 183 Building and Evaluating Simulation Models with SimQuick 185 Supplement Summary 188 Discussion Questions 189 Problems 189 References 189 PART III Establishing Supply Chain Linkages Supply Management 190 Introduction Why Supply Management Is Critical 192 Global Sourcing 192 Financial Impact 192 Performance Impact The Strategic Sourcing Process 196 Step 1: Assess Opportunities 196 Step 2: Profile Internally and Externally 197 Step 3: Develop the Sourcing Strategy 200 Step 4: Screen Suppliers and Create Selection Criteria 205 Step 5: Conduct Supplier Selection 206 Step 6: Negotiate and Implement Agreements The Procure-to-Pay Cycle 210 Ordering 210 Follow-Up and Expediting 210 Receipt and Inspection 210 Setdement and Payment 211 Records Maintenance Trends in Supply Management 211 Sustainable Supply 211 Supply Chain Disruptions 212

4 Contents ix Chapter Summary 213 Key Formulas 213 Key Terms 213 Solved Problem 214 Discussion Questions 215 Problems 215 Case Study 217 References Logistics 219 Introduction Why Logistics Is Critical Logistics Decision Areas Transportation Selecting a Transportation Mode 223 Multimodal Solutions 224 Warehousing 225 Logistics Information Systems 228 Material Handling and Packaging 230 InventoryManagement Logistics Strategy 231 Owning versus Outsourcing 231 Measuring Logistics Performance 233 Landed Costs 234 Reverse Logistics Systems Logistics Decision Models 236 Weighted Center of Gravity Method 236 Optimization Models 238 The Assignment Problem 238 Chapter Summary 243 Key Formulas 244 Key Terms 244 Solved Problem 245 Discussion Questions 246 Problems 246 Case Study 249 References 250 PART IV Planning and Controlling Operations and Supply Chains Forecasting 251 Introduction Forecast Types 253 Demand Forecasts 253 Supply Forecasts 253 Price Forecasts Laws offorecasting 254 Law 1: Forecasts Are Almost Always Wrong (ButThey Are Still Useful) 255 Law 2: Forecasts for the Near Term Tend to Be More Accurate 255 Law 3: Forecasts for Groups of Products or Services Tend to BeMore Accurate 255 Law 4: Forecasts Are No Substitute for Calculated Values Selecting a Forecasting Method Qualitative Forecasting Methods Time Series Forecasting Models 257 Last Period 258 Moving Average 258 Weighted Moving Average 260 Exponential Smoothing 261 Adjusted Exponential Smoothing 264 Linear Regression 265 Seasonal Adjustments Causal Forecasting Models 273 Linear Regression 273 Multiple Regression Measures of Forecast Accuracy Computer-Based Forecasting Packages Collaborative Planning, Forecasting, and Replenishment (CPFR) 280 Chapter Summary 284 Key Formulas 285 Key Terms 286 Solved Problem 287 Discussion Questions 289 Problems 289 Case Study 293 References Sales and Operations Planning (Aggregate Planning) 295 Introduction S&OP in the Planning Cycle Major Approaches to S&OP 298 Top-Down Planning 299 Level, Chase, and Mixed Production Plans 301 Bottom-Up Planning 305 Cash Flow Analysis Organizing for and ImplementingS&OP 309 Choosing between Alternative Plans 309 Rolling Planning Horizons 310 Implementing S&OP in an Organization Services Considerations 312 Making Sales Match Capacity 312 Making Capacity Match Sales Linking S&OP throughout the Supply Chain Applying Optimization Modeling to S&OP 315 Chapter Summary 318 Key Formulas 318 Key Terms 319 Solved Problem 319 Discussion Questions 320 Problems 320 Case Study 325 References 326

5 x Contents 11 Managing Inventory throughout the Supply Chain S Supply Systems 393 Chain Information Introduction The Role of Inventory 330 Inventory Types 330 Inventory Drivers 332 Independent versus Dependent Demand Inventory Periodic Review Systems 334 Restocking Levels Continuous Review Systems 336 The Economic Order Quantity (EOQ) 337 Reorder Points and Safety Stock 339 Quantity Discounts Single-Period Inventory Systems 343 Target Service Level 344 Target Stocking Point Inventory in the Supply Chain 347 The Bullwhip Effect 347 Inventory Positioning 348 Transportation, Packaging, and Material Handling Considerations 349 Chapter Summary 350 Key Formulas 350 KeyTerms 351 Using Excel in InventoryManagement 352 Solved Problems 353 Discussion Questions 353 Problems 354 Case Study 357 References Managing Production across the Supply Chain 359 Introduction Master Scheduling 361 The Master Schedule Record 362 Using the Master Schedule Material Requirements Planning 368 The MRP Record 370 The Advantages of MRP 375 Special Considerations in MRP Production Activity Control and Vendor Order Management Systems 377 Job Sequencing 377 Monitoring and Tracking Technologies Synchronizing Planning and Control across the Supply Chain 379 Distribution Requirements Planning 379 Chapter Summary 382 Key Formulas 382 Key Terms 383 Solved Problem 383 Discussion Questions 384 Problems 384 Case Study 392 References 392 Introduction Understanding Supply Chain Information Needs 394 Differences across Organizational Levels 394 Direction oflinkages Supply Chain Information Systems Trends to Watch 398 BPM Tools 399 Cloud Computing 399 Supplement Summary 400 Key Terms 401 Discussion Questions 401 References JIT/Lean Production 402 Introduction The Lean Perspective on Waste The Lean Perspective on Inventory Recent Developments in Lean Thinking Kanban Systems 411 Controlling Inventory Levels Using Kanbans 414 Synchronizing the Supply Chain Using Kanbans 415 Using MRP and Kanban Together 416 Chapter Summary 418 Key Formula 418 KeyTerms 418 Solved Problem 418 Discussion Questions 420 Problems 420 Case Study 421 References 423 PART V Project Management and Product/ Service Development Managing Projects 424 Introduction The Growing Importance of Project Management Project Phases 427 Concept Phase 427 Project Definition Phase 427 Planning Phase 428 Performance Phase 428 Postcompletion Phase Project Management Tools 429 Gantt Charts 429 Network Diagrams 431 Constructing a Network Diagram 431 Crashing a Project 435

6 . Product Contents xi 14.4 Project Management Software PMI andthe Project ManagementBodyof Knowledge (PMBOK ) 440 Chapter Summary 440 Key Formulas 440 Key Terms 441 Solved Problem 441 Discussion Questions 442 Problems 443 Case Study 445 References Developing Services 446 Introduction 448 Products and Product Design and the Development Process 448 Four Reasons for Developing New Products and Services Operations and Supply Chain Perspectives on Design 449 Repeatability, Testability, and Serviceability 450 Product Volumes 451 Costs 451 Match with Existing Capabilities The Development Process 452 A Model of the Development Process 452 Sequential Development versus Concurrent Engineering Organizational Roles in Product and Service Development 455 Engineering 455 Marketing 455 Accounting 455 Finance 455 Designers 456 Purchasing 456 Suppliers 457 Who Leads? Approaches to Improving Product and Service Designs 457 DMADV (Define-Measure-Analyze- Design-Verify) 457 Quality Function Deployment (QFD) 458 Computer-Aided Design (CAD) and Computer- Aided Design/Computer-Aided Manufacturing (CAD/CAM) 459 " The "Design for... Approaches 459 Target Costing and Value Analysis 461 Chapter Summary 461 Key Terms 462 Discussion Questions 462 Case Study 462 References 463 Appendices 465 Glossary 471 Index 483

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