How To Write A Book On Business

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1 Operations & Supply Chain Management: World Class Theory and Practice Rohit Verma School of otel Administration and The Johnson Graduate School of Management, Cornell University Kenneth K. Boyer Fisher College of Business, Ohio State University *% SOUT-WESTERN c> CENGAGE Learning- Australia Brazil Japan Korea Mexico Singapore Spain United Kingdom United States

2 Preface xvii About the Authors xxix PART I STRATEGIC OPERATIONS MANAGEMENT CAPTER 1 Operations and Supply Chain Strategy Rolex: No Copying the Original 8 Apple: Maintaining a Steady Supply of Innovation 10 TECNOLOGY IN OPERATIONS MANAGEMENT Supply Chain Challenges in Tracing '< Food 21 Kellogg's Company: They Taste Grrreat-AII Over the World! 1 Sony-Electronics and Entertainment Provider to the World 2 American Express-Financial Services Worldwide 4 Operations Strategy Within a Single Organization Competitive Priorities versus Capabilities 6 Operations' Role Within Business Strategy 10 Operational Decision Areas 13 Services 15 Differences Between Services and Manufacturing 15 Similarities Between Services and Manufacturing 17 Supply Chain Strategy 17 The Global Nature of Supply Chains 18 Supply Chain Within a Single Organization 18 Supply Chain Across Multiple Organizations 19 Organization of This Book 20 Part 1: Strategic Operations Management 23 Part 2: Tools and Tactical Issues 23 Part 3: The Extended Enterprise 23 SUMMARY 24 UESTIONS 25,, CASE STUDY: Natural Designs Inc. 26 CAPTER 2 uality Management 27 B Many Facets of uality Management at American Express 27 Defining uality 28 Why Firms Improve uality 30 Cost Reduction 30 Customer Satisfaction Enhancement 31 Customer Loyalty, Word of Mouth, and Enhancement of the Firm's Reputation 32 Increase in Profitability and Market Share 32 Determinants of uality 33 uality of Goods 33 Service uality 33 Customer Expectations 35 istory of uality Management 36 Early Development of uality Management 36 Recent Advances in uality Management 37

3 E The Evolving Definition of uality at Ritz-Carlton 29 S 3 Setting igh uality Standards for French Wine 45 Profile of a Baldrige Award Winner: IBM Rochester 48 Motorola and the Genesis of Six Sigma 50 Teachings of uality Gurus 37 W. Edwards Deming 38 Philip Crosby 39 Armand Feigenbaum 39 Kaoru Ishikawa 39 Joseph M. Juran 40 Genichi Taguchi 40 Walter Shewhart 40 uality Management Frameworks 40 Total uality Management 40 ISO 9000 and ISO Standards 42 Baldrige Framework for Performance Excellence 45 Six Sigma 50 The Conceptual Framework of Six Sigma 51 Implementing Six Sigma 56 SUMMARY 59 SOLVED PROBLEMS 61 PROBLEMS 62 CASE STUDY: The Case of the Complaining Customer 63 CAPTER New Product Development 67 l Boutique otels by Joie de Vivre ospitality 83 S TECNOLOGY IN OPERATIONS MANAGEMENT Mass Customization by Lands' End 84 Use of uality Function Deployment in the Design, Development, and Production of Electrical Transformers 96 a Development of a New Pharmaceutical Drug What Is New Product Development? Why New Products Fail 70 Why Firms Develop New Products 71 The New Product Development Process Tradeoffs in New Product Development Product Life Cycle 76 Time-Based Competition 77 Industry Clock Speed 78 Continuous, Radical, and Disruptive Innovation 78 Blue Ocean Strategy of New Product Innovation 80 Major Concepts in New Product Development so Product Development for Enhanced Customer Experience 80 Mass Customization 81 Computer-Aided Design (CAD) and Virtual Reality 82 Design for Production (Manufacturability) and Rapid Prototyping Environmentally Friendly Designs 85 Modular Design 86 Concurrent Engineering 88 Product Platforms 88 Group Technology 88 Reverse Engineering 88 Analysis Tools for New Product Development Customer Choice Analysis 89 Product Reliability Analysis 91 Product Complexity Index 91 uality Function Deployment 91 SUMMARY 98 UESTIONS 99 CASE STUDY: Boutique otels

4 CAPTER 4 Process Design and Analysis 102 P a Outsourcing Scallion Production- Efficient or Dangerous? 105 Process Management at American Express 107 S TECNOLOGY IN OPERATIONS MANAGEMENT Electronic Check Processing 116 Filling Your Prescription 129 Pop-Tart Production at Kellogg's 102 Service-Process Matrix 104 Service Factories 105 Service Shops 106 Mass Services 106 Professional Services 106 Product-Process Matrix 109 Projects 109 Job Shop Processes 109 Batch Processes 110 Line Processes 111 Continuous Processes 111 ~ Using Technology to Move Off the Diagonal 112 Layout Types 112 Process Layout 112? Product Layout 113 Fixed-Position Layout 115 ybrid Layouts 115 The Impact of Strategy and Technology on Process Choice Process Strategy 115 Technology Impacts 116 Designing Processes 117 Break-Even Analysis 117, Reengineering 118 ' Bottleneck Analysis 119 Process Analysis Techniques 126 Process Selection-The Process Swamp 132 Self-Sourcing 132 Outsourcing 133 SUMMARY 134 SOLVED PROBLEMS 135 PROBLEMS 139 o CASE STUDY: Penn & Pat's Pretty ot Pizza Pronto CAPTER Forecasting 144 Special K = Special Challenges 144 Why We Need to Forecast 146 Principles of Forecasting 146 Forecasts Are Wrong 147 Forecasts Get Worse the Farther into the Future They Go 147 Aggregated Forecasts for Product or Service Groups Tend to Be More Accurate 147 Forecasts Are Not a Substitute for Derived Values 147 Components of Demand and Forecasting Methods 148 Components of Demand 148 Forecasting Methods 149 Time-Series Analysis 149 Naive Forecast 149 Estimating the Average 149

5 XII Contents J S Making Sure the Toy Is Under the Tree 160 ] Statin Wars: Anticholesterol Drug Makers Estimate Sales 174 TECNOLOGY IN OPERATIONS MANAGEMENT Wal-Mart's Application of RFID and CPFR: Sharing Data Across the Supply Chain to Maximize Forecast Accuracy 176 Including a Trend 154 Including Seasonality 157 Measuring Errors and Selecting a Time-Series Method 164 Measures of Forecast Error 164 Mean Absolute Percentage Error 166 Additional Forecasting Methods 169 ualitative Methods 170 Causal Methods 170 Linear Regression 170 Supply Chain Forecasting 175 Information Systems for Sharing Data Across the Supply Chain Building a Responsive Organization/Supply Chain 177 SUMMARY 179 SOLVED PROBLEMS 180 PROBLEMS 189 o CASE STUDY: Personal Care Grooming CAPTER 195 TECNOLOGY IN OPERATIONS MANAGEMENT ERP Systems Manage Vital ealth-care Equipment 215 I COMPANY ILLUSTRATION Kellogg's Direct Store Delivery COMPANY ILLUSTRATION Preventing Stockouts from Turning Up the eat on AC Repair 224 n The Wal-Mart Effect 195 Inventory Equilibrium 196 Reasons to Carry Inventory 196 Reasons to Reduce Inventory 197 Inventory Types 198 Cycle Inventory 199 Safety Stock Inventory 200 Anticipation Inventory 200 Pipeline Inventory 200 Work-in-Progress (WIP) Inventory 201 Remanufactured/Reconditioned Inventory 201 Independent versus Dependent Demand 201 Inventory Systems 202 Two Types of Systems 202 Continuous Review Systems 2 0 3'' Special Cases of the Economic Order uantity 210 Periodic Review Systems 214 Other Types of Inventory Systems 219 Inventory Accuracy 222 SUMMARY 224 SOLVED PROBLEMS 225 o CASE STUDY: Dano's Drugstore 230 UESTIONS 227 CAPTER 233 a Dependent Demand at Kellogg's 233 istory of Dependent Demand Planning 235 MRP Inputs 238 The Master Schedule 238 The Bill of Materials 240 Inventory Records 243 MRP Processing-Creating an Inventory Record for a Single Item Developing Inventory Records for Single Items 244 Determining Planning Factors

6 XIII A Spicy Challenge for orseradish Planning 256 TECNOLOGY IN OPERATIONS MANAGEMENT ERP-The Underpinnings of Under Armour's Success 262 COMPANY ILLUSTRATION The Systems Behind McDonald's Success 263 TECNOLOGY IN OPERATIONS MANAGEMENT Improving Contact at RxAmerica 265 Multiple-Level Processing and Output Generation 253 MRP Explosion 253 Action Notices 254 MRP as a Dynamic System 256 Capacity Planning 257 Strategies for Dependent Demand Inventory 26i Evolution of MRP to Enterprise Resource Planning 261 Service Resource Planning 262 Making MRP/ERP Work 264 SUMMARY 266 SOLVED PROBLEMS 267 UESTIONS 271 o CASE STUDY: Doug's Dens 276 CAPTER' 279 E l The Project to Develop Affordable Bluray Video Players at Sony 297 ^ TECNOLOGY IN OPERATIONS MANAGEMENT Project Management Software 306 Project Management at American Express Service Center 309 n Animated Movie Projects at Pixar 279 Elements of Project Management 28i What Is a Project? 281 What Is Project Management? 282 The Project Manager 284 Project Management Tools and Techniques 284 Work Breakdown Structure 284 Precedence Relationship and Time Estimates 285 Gantt Chart 286 Network-Diagram 287 Critical Path Method (CPM) 289 Cost and Time Tradeoff Analysis 298 Program Evaluation and Review Technique (PERT) 299 Resource Management 307 Success Factors in Project Management 310 Why Do Projects Fail? 310 Project Risk Management 311 Why Do Projects Succeed?.313 SUMMARY 316 SOLVED PROBLEMS 317 PROBLEMS 320 o CASE STUDY: Global Textbook Publishers 322 CAPTER 324 Scheduling Operating Rooms at Mount Sinai ospital by Integer Linear Programming 332 S TECNOLOGY IN OPERATIONS MANAGEMENT PLATO elps Athens Win Gold During 2004 Summer Olympic Games 337 VOLCANO Saves $187 Million for UPS 344 B TECNOLOGY IN OPERATIONS MANAGEMENT Simulation of the Mix of Tables for a Restaurant 347 f TECNOLOGY IN OPERATIONS MANAGEMENT Computer Simulation of Check Processing Operations 351 o Linear Programming elps Kellogg's Optimize Production, Inventory, and Distribution 324 Linear Programming 325 Formulation of a Linear Programming Problem 326 Solution of a Linear Programming Problem by a Graphical Method 328 Solution of a Linear Programming Problem Using Microsoft Excel Solver 333 Other Decision-Making Applications of Linear Programming in Operations Management 338 Simulation Modeling 345 Numerical Simulation 345 Discrete-Event Simulation 346 Building Simulation Models 348 SUMMARY 355 SOLVED PROBLEMS 355 PROBLEMS 360 o CASE STUDY: Multiperiod Inventory Management at Zeta 362

7 XIV Contents CAPTER Capacity Planning 363 g j Capacity at American Express 369 B J Blockbuster and Netflix: Where Does Growth Stop? 372 Grand Luxor otel Applies Yield Management to Smooth Demand and Increase Revenue 380 B TECNOLOGY IN OPERATIONS MANAGEMENT Self-Checkout at ome Depot: Reducing Costs While Improving Service 386 a Postmarked Gone 363 Capacity Management and Its Relationship to Value 364 Capacity Measures 364 Capacity Factors 366 Capacity Strategies 368 Wait and See 369 Aggressive Expansion 370 Capacity Cushion 371 Evaluating Capacity Alternatives 374 Incorporating Flexibility 374 Accounting for Life-Cycle Stage 374 Looking at the Big Picture 375 Dealing with Capacity Increments 377 Smoothing Out Capacity Requirements 377 Systematic Capacity Planning 382 Step 1. Estimating Requirements 383 Step 2. Identifying Gaps 386 Step 3. Developing Alternatives 387 Step 4. Choosing Alternatives 389 Service Capacity 392 Time 392 Location 393 Volatility of Demand 393 Capacity Utilization and Service uality 393 Wrap-Up 395 SUMMARY 396 SOLVED PROBLEMS 398 o CASE STUDY: Carl's Sandwiches 404 PROBLEMS 401 CAPTER 11 uality Improvement Methods 405 Two Scoops of Raisins in a Box of Kellogg's Raisin Bran 405 Sources of uality Improvement Ideas 407 Customer Feedback 407 Benchmarking 408 Employee Feedback 410 ualitative uality Improvement Tools 411 Brainstorming 411 Affinity Diagram 412 Interrelationship Diagram 414 Tree Diagram 414 Process Decision Program Chart (PDPC) 415 Flowchart 415 Cause-and-Effect, Fishbone, or Ishikawa Diagram Failure Modes and Effects Analysis (FMEA) 416 Mistake-proofing, Fail-safing, or Poka-Yoke 417 uantitative uality Improvement Tools 418 Inspection and Sampling 418 Check Sheet

8 xv TECNOLOGY IN OPERATIONS MANAGEMENT American Express Shares Benchmarked uality Reports with Its Travel Service Clients 409 S 3 Recovering from uality Mistakes: Sony Batteries in Dell Computers 417 Pareto Analysis and Bar Charts 421 istogram 421 Scatter Diagram 422 Process Capability Analysis 423 Run Chart 424 Statistical Process Control Charts 424 SUMMARY 436 SOLVED PROBLEMS 437 PROBLEMS 441 o CASE STUDY: Southtown Medical Center 443 PART III TE EXTENDED ENTERPRISE CAPTER 12 Lean Enterprise 447 B Lean ealth Care at the ospital for Sick Children (SickKids) 451 I S Fast Fashion and Lean Thinking at Zara 456 E S JIT II at Bose Corporation 463 Toyota and Lean Thinking 447 Lean Production and Lean Thinking 449 What Is Lean Production? 449 Lean Thinking 449 Waste Elimination 452 > Waste Resulting from Overproduction 453 Waste Resulting from Setup Time 453 Waste Occurring During Processing Time 453 Waste Resulting from Waiting Time 454 Waste Resulting from Transportation 454 Waste Resulting from Movement 454 Waste Resulting from Inventory 454 Waste Resulting from Poor uality 454 Components of Lean Production Systems Pull Production System 455 Push Production System 455 Small Batch Sizes 457 Short Setup Times 457 Just-in-Time Inventory 46 y 0, Uniform Production Planning 461 Continuous Improvement or Kaizen 462 Close Supplier Relationships 462 Multifunctional Work Force 464 Five S 464 Visual Controls 464 / Preventive Maintenance 465 Value Stream Mapping 465 New Advances in Lean Production 465 Technology in Lean Production 465 Lean Production and Six Sigma = Lean Six Sigma 468 SUMMARY 470 SOLVED PROBLEMS 471 PROBLEMS 473 CASE STUDY: Tasty, ealthy, and "Lean" Food Service for Olympic Champions 474

9 XVI Contents CAPTER 13 Technology and Integrated Supply Management 476 TECNOLOGY IN OPERATIONS MANAGEMENT McDonald's Technology Evolution 480 Computer Testing of Work Methods at Ford 484 TECNOLOGY IN OPERATIONS MANAGEMENT ERP for Medical Equipment and ATMs 488 Using RFID to Combat Counterfeit Drugs 495 LEGO'S Custom Building Blocks 498 ^ UPS Improves Routing 500 CAPTER 14 Bm Made in the World by Toyota 517 American Express Pushes the Electronic Payment Envelope 476 Technology and Its Role in Improved Operations/Supply Chain Management 478 Technology in Services 478 Manufacturing Technologies 482 Supply Chain Information Technologies 485 Linking Across Organizations 486 The Bullwhip Effect 491 Evaluating Technology Investments 496 Typical Benefits of New Technologies 497 Technology Adoption Risks 499 Factors That Support Technology Development and Implementation 502 Worker Training and Empowerment 502 Strategic Emphasis 502 i SUMMARY 504 UESTIONS 506 CASE STUDY: Online Purchasing at McDonald's 507 Global Supply Chain and Service Integration 508 American Express-A Global Corporation 508 Globalization 510 What Is Globalization? 511 Why Globalize? 511 Brief istory of Globalization 512 Global Production and Multinational Corporations 515 What Production Functions Are Globalized? 516 Classification of International Production Facilities 518 The World Is Flat 520 Outsourcing and Offshoring 523 Types of Outsourcing and Offshoring Activities 523 Risks Related to Offshoring and Outsourcing 525 SUMMARY 530 UESTIONS 530 CASE STUDY: Customer Support ebay 531 Appendix Al References Rl Photo Credits Cl Index II