Production and Operations Management Systems Sushil Gupta and Martin Starr CRC Press Taylor & Francis Croup Boca Raton London New York CRC Press is an imprint of the Taylor & Francis Group, an informa business
Contents Preface Epilogue Acknowledgments Authors xix xxvii xxix xxxi 1 Introduction to Production and Operations Management 1 1.1 The Systems Viewpoint 3 1.2 Strategie Thinking 4 1.3 Explaining P/OM 4 1.4 Use of Models by P/OM 5 1.5 The Systems Approach 5 1.5.1 Using the Systematic-Constructive Approach 7 1.5.2 Why Is the Systems Approach Required? 8 1.5.3 Defming the System 8 1.5.4 Structure of the Systems Approach 10 1.5.5 Examples of the Systems Approach 10 1.5.6 Designing the Product Line Using the Systems Approach 11 1.6 Information Systems for Manufacturing and Services 12 1.7 Defining Operations 13 1.7.1 Manufacturing Operations 13 1.7.2 Service Operations 14 1.7.3 Similarities and Differences between Services and Manufacturing 16 1.8 Working Defi nitions of Production and Operations 18 1.9 Contrasting Production Management and Operations Management 19 1.10 P/OM The Hub of the Business Model 20 1.11 Transformation Process 20 1.12 Costs and Revenues Associated with Input-Output (I/O) Models 22 1.12.1 Inputs Associated with Variable (or Direct) Costs 23 vii
viii Contents 1.12.2 Transformations Associated with Fixed (or Indirect) Costs 23 1.12.3 Outputs Associated with Revenues and Profits 24 1.13 P/OM Input-Output Profit Model 25 1.14 Productivity A Major P/OM Issue 26 1.15 The Stages of P/OM Development 27 1.16 Organizational Positions and Career Opportunities in P/OM 30 1.16.1 Career Success and Types of Processes 30 1.16.2 Operations Management Career Paths 33 1.16.3 Global Aspects of Career Paths 34 1.16.4 Manager of Production or Operations: Manufacturing or Services 35 1.16.5 Inventory Manager, Materials Manager, or Purchasing Agent (and Supply Chain Manager) 36 1.16.6 Director of Quality 36 1.16.7 Project Manager/Consultant (Internal or External) 37 Summary 37 Review Questions 38 Problems 39 P/OM History Archive 40 Archival Articles 40 Readings and References 41 Source of Video Clips on Manufacturing 42 Alliance for Innovative Manufacturing (AIM): How Everyday Things Are Made 42 2 Strategy, Productivity, and History. 43 2.1 The Systems Viewpoint 46 2.2 Strategie Thinking 47 2.3 Measurement of Productivity 48 2.3.1 Labor Productivity 50 2.3.2 Capital Productivity 51 2.3.3 Multifactor Productivity 52 2.3.3.1 Trends in Multifactor (MFP) Productivity 52 2.3.4 Operational Measures of the Organization's Productivity 54 2.4 System-Wide Issues Impacting Productivity 55 2.4.1 Global Issues 56 2.4.2 Bureaucracy, Flexibility, and Productivity 58 2.4.3 Size of Firms and Flexibility 59 2.4.4 Price-Demand Elasticity and Productivity 59 2.4.5 Elasticity of Quality and Productivity 61 2.4.6 Economies of Scale and the Division of Labor 62
Contents ix 2.5 History of Improvements of P/OM Transformations 63 2.5.1 Artisans, Apprentices, and Trainees The Beginning 63 2.5.2 Interchangeable Parts (IP) P/OM's First Step 65 2.5.3 Scientific Management (SM) P/OM's Second Step 66 2.5.4 Sequenced Assembly (SA) P/OM's Third Step 67 2.5.5 Statistical Quality Control P/OM's Fourth Step 68 2.5.6 Lean Production Systems P/OM's Fifth Step 68 2.5.7 Mass Customization with CAD, CAM, and Flexible Production System P/OM's Sixth Step 69 2.5.8 Global Competition: Year 2010 Plus P/OM's Seventh Step 72 Summary 73 Review Questions 74 Problems 75 Readings and References 76 3 Workload Assessment (Forecasting) 79 3.1 Introduction 81 3.2 Time Series and Extrapolation 82 3.3 Forecasting Methods for Time-Series Analysis 85 3.3.1 Moving Average 86 3.3.2 Weighted Moving Average 88 3.3.3 Exponential Smoothing 89 3.3.4 Forecasting with a Seasonal Cycle 92 3.3.5 Trend Analysis 96 3.4 Regression Analysis 98 3.5 Coefficients of Correlation and Determination 99 3.6 Forecasting Errors 101 3.7 The Delphi Method 102 3.8 Pooling Information and Multiple Forecasts 103 3.9 Product Life-Cycle Stages and Forecasting 103 3.9.1 Introduction and Growth of the New Product (Goods and Services) 104 3.9.2 Maturation and Decline of the New Product (Goods and Services) 104 3.9.3 Demand Prediction in Life-Cycle Stages 105 3.9.4 Protection of Established (Mature) Products (Goods and Services) 106 Summary 107 Review Questions 108 Problems 108 Readings and References 114
Contents Capacity Management and Aggregate Production Flanning 117 4.1 Definitions of Capacity 119 4.2 Introduction to Aggregate Production Flanning 122 4.3 Example 1: Aggregate Production Flanning 123 4.3.1 Production Plans 124 4.3.2 Production Capacity 129 4.4 Example 2: Aggregate Manufacturer's Production Flanning 131 4.4.1 Costs in AP 133 4.4.2 Production Capacity 134 4.4.3 Production Plans 136 4.4.3.1 Level Plan 136 4.4.3.2 Chase Plan 138 4.4.3.3 Mixed or Hybrid Plan 138 4.4.3.4 Overtime in a Chase Plan with Level Production and Overtime 140 4.4.4 Selection of a Production Plan 144 4.4.5 Beginning Conditions 144 4.5 Example 3: Aggregate Production Flanning in a Service Industry 145 4.5.1 Costs in AP for the Blood-Testing Laboratory 147 4.5.2 Production Capacity 149 4.5.3 Production Plans 150 4.5.3.1 Level Plan 150 Summary 153 Review Questions 154 Problems 155 Readings and References 159 Inventory Management 161 5.1 I ntroduction 163 5.2 Types of Inventory Situations 166 5.2.1 Static versus Dynamic 167 5.2.2 Type of Demand Distribution Certainty, Risk, and Uncertainty 168 5.2.3 Stability of Demand Distribution Fixed or Varying 170 5.2.4 Demand Continuity Smoothly Continuous or Lumpy 170 5.2.5 Lead-Time Distributions Fixed or Varying 170 5.2.6 Dependent or Independent Demand 171 5.3 Inventory-Related Costs 171 5.3.1 Costs of Ordering 171 5.3.2 Costs of Setups and Changeovers 171 5.3.3 Costs of Carrying Inventory 172
Contents xi 5.3.4 Costs of Discounts 173 5.3.5 Out-of-Stock Costs 173 5.3.6 Costs of Running the Inventory System 174 5.3.7 Additional Inventory Policy Costs 175 5.4 EOQ Model 175 5.4.1 Annual Ordering Cost 176 5.4.2 Annual Inventory Holding Cost 176 5.4.3 Annual Item Cost 178 5.4.4 Annual Total Cost 178 5.4.5 Annual Total Variable Cost 178 5.4.6 Example for Cost Calculations 178 5.4.7 EOQFormula 180 5.5 EPQ Model 181 5.6 ABC Classification 182 5.6.1 Material Criticality 183 5.6.2 Annual Dollar Volume of Materials 184 5-7 Quantity Discount Model 187 5.8 Lead Times 189 5.9 Order Point Policies 191 5.10 Perpetual (Fixed Quantity) Inventory Systems 192 5.10.1 Reorder Point and Safety (Buffer) Stock 193 5.10.2 Operating the Perpetual Inventory System 194 5.10.3 Two-Bin Perpetual (Fixed Quantity) Inventory Control System 195 5.11 Periodic Review (Fixed Time) Inventory Systems 196 5.11.1 Safety (Buffer) Stock in Periodic (Fixed Time) Inventory Systems 197 Summary 198 Review Questions 198 Problems 200 Readings and References 202 6 Scheduling 205 6.1 Introduction 207 6.1.1 Loading 209 6.1.2 Sequencing Operations 210 6.1.3 Scheduling Example 210 6.2 Classification of Scheduling Problems 214 6.2.1 Sequence of Machines r. 214 6.2.2 Number of Machines 214 6.2.3 Processing Times 215 6.2.4 Job Arrival Times 215 6.2.5 Objective Functions 215
xii Contents 6.3 Two Machines Flow-Shop Problem 215 6.3.1 Johnsons Rule 216 6.3.2 Finding Make-Span 220 6.3.3 Multiple Sequences 220 6.3.4 Breaking Ties 221 6.4 Single-Machine Scheduling 224 6.4.1 Objective Functions 224 6.4.2 Scheduling Rules 225 6.4.3 Example 225 6.4.3.1 FCFS Rule 226 6.4.3.2 Calculation of Objective Functions 227 6.4.3.3 SPT Rule 227 6.4.3.4 EDD Rule 228 6.4.3.5 More on FCFS or First-In, First-Out Sequence Rule 228 6.5 Dynamic Scheduling Problems 230 6.5.1 Example 230 6.5.2 Objective Functions for Dynamic Problems 231 Summary 232 Review Questions 232 Problems 233 Readings and References 237 7 Project Management 239 7.1 Introduction 241 7.2 Managing Projects 243 7.3 Good Project Managers Are Leaders 244 7.4 Basic Rules for Managing Projects 245 7.5 Project Management Origins 246 7.6 Project Network 247 7.6.1 Project Network Example 248 7.7 Critical Path and Project Duration 249 7.8 Early Start and Early Finish Times 250 7.9 Late Start and Late Finish Times 251 7.10 SlackTime 252 7.11 Reducing Project Duration Crashing Activities 254 7.12 Cost Analysis 255 7.12.1 Example 255 7.12.2 Cost of Crashing an Activity 256 7.12.3 Reducing Project Duration 256 7.12.4 Fixed Costs 259 7.13 Crashing Multiple Paths 260
Contents xiii 7.14 Probabilistic Projects 261 7-14.1 Probabilistic Projects Example 262 7.15 Resource Management 264 Summary 265 Review Questions 266 Problems 267 Readings and References 270 8 Quality Management 273 8.1 Introduction 275 8.2 How Much Quality 276 8.3 Dimension; of Quality 278 8.3.1 Models of Quality 279 8.3.1.1 Failure Critical to Quality Evaluation 281 8.3.1.2 Warranty Policies 282 8.3.1.3 The Service Function Repairability 282 8.3.1.4 Functional Human Factors 282 8.3.1.5 Nonfunctional Quality Factors Aesthetics and Timing 283 8.3.1.6 The Variety Dimension 284 8.4 The Costs of Quality 285 8.4.1 The Cost of Prevention 285 8.4.2 The Cost of Appraisal (Inspection) 287 8.4.3 The Cost of Failure 288 8.4.4 The Total Cost of Quality 289 8.5 QC Methodology 289 8.5.1 Data Check Sheets (DCSs) 290 8.5.2 Bar Charts 290 8.5.3 Histograms 291 8.5.4 Pareto Analysis 292 8.5.5 Cause and Effect Charts (Ishikawa aka the Fishbone) 293 8.5.5.1 Example: A Good Cup of Coffee 294 8.6 Control Charts for Statistical Process Control 297 8.6.1 Inspection by Variables versus Attributes 297 8.6.2 Causes of Process Variation 298 8.6.2.1 Chance Causes 299 8.6.2.2 Assignable Causes 299 8.6.3 What Are QC Charts? 299 8.6.3.1 Analysis of Statistical Runs 300 8.6.3.2 Example: Control Charts for a Manufacturing Process 301 8.6.4 Stable Process 302 8.6.5 Selecting a Manufacturing Process 302
xiv Contents 8.7 Control Charts for Variables: x-bar Charts 304 8.7.1 Example: Control Charts for a Manufacturing Process 306 8.7.2 Discussion of UCL and LCL for BCTF 308 8.8 Control Charts for Variables: i?-charts 308 8.9 Control Charts for Attributes: /»-Charts 309 8.10 Control Charts for Attributes: c-charts 312 8.11 Acceptance Sampling 314 8.11.1 Single Sampling Plans 316 8.11.1.1 Operating Characteristic Curves 316 8.11.2 Multiple-Sampling Plans 318 8.12 International Quality Standards 319 8.13 Industrial Recognition of Quality 321 8.13.1 The Malcolm Baldrige National Quality Award 321 Summary 321 Review Questions 322 Problems 323 Readings and References 326 9 Supply Chain Management 331 9.1 Introduction 333 9.2 Acquisition Chain Management 336 9.3 The Purchasing Function 339 9.3.1 Purchasing Agents 340 9.3.2 The Ethics of Purchasing 342 9.4 Receiving, Inspection, and Storage 342 9.5 Requiring Bids before Purchase 343 9.6 Certification of Suppliers 346 9.7 Global Sourcing 348 9.8 Distribution Chain Management 349 9.9 e-business 352 9.9.1 e-business System Design 352 9.9.2 Competition, Conflict, Collaboration, and Coordination (C 4 ) 353 9.9.3 Radio Frequency Identification 353 9.9.3.1 Business Value of RFID 354 9.9.3.2 Adoption and Implementation ofrfid 355 9.10 Logistics 355 9.10.1 Transportation Cost 356 9.11 Forecasting and Inventory Decisions in Supply Chain 357 9.11.1 Contingency Flanning for Supply Chain Capacity Crises 358
Contents xv 9.11.2 A Supply Chain System The Better Beer Company Game 9.12 Bullwhip Effect Summary Review Questions Problems Reading and References 10 Long-Term Flanning (Facilities, Location, and Layout) 10.1 Facilities Flanning 10.2 Who Does Facilities Flanning? 10.3 Models for Facility Decisions 10.4 Location Decisions Qualitative Factors 10.4.1 Location to Enhance Service Contact 10.4.2 Just-in-Time Orientation 10.4.3 Location Factors 10.5 Structure and Site Selection 10.6 Rent, Buy, or Build Cost Determinants 10.7 Facility Selection Using Scoring Models 10.8 Location Decisions Using the Transportation Model 10.8.1 Shipping (Transportation or Distribution) Costs 10.8.2 Rukna Auto Parts Manufacturing Company 10.9 Location Decisions Using Breakeven Models 10.9.1 Variable (Direct) Costs 10.9.2 Fixed (Indirect) Costs 10.9.3 Revenue 10.9.4 Example Musuk Spices Company 10.10 Facilities Layout 10.10.1 Opportunity Costs for Layout Improvement 10.10.2 Layout Types 10.10.3 Layout Models 10.10.4 Layout Criteria 10.10.5 Floor Plan Models 10.11 Load-Distance Models 10.12 Heuristics to Improve Layout 10.13 Finding the Load Matrix Summary Review Questions Problems Readings and References.359.363 364.365.365 366 371.374.376.376.377.378.378.379.380.382.383.386.386.387.389.389.390.390.390.391.392.394.396.396.397.397 400.401.403.403 404 409
xvi Contents 11 Innovation by P/OM for New Product Development (NPD) and Sustainability 411 11.1 Introduction to NPD and Innovation 414 11.2 Organizations Must Be Adaptable 414 11.2.1 Innovation Is Necessary for Humanitarian Operations and Crisis Management (HO&CM) 415 11.2.2 Innovation Is Essential for Sustainability 416 11.3 Competition for New Ideas, Resources, and Customers 419 11.3.1 Patent Protection of Innovations 419 11.3.2 Continuous Innovation (Step 1) 420 11.3.3 Continuous Innovation (Step 2) 421 11.3.4 Coordinated Teamwork Is Essential 422 11.4 Product Innovation Failures Can Be Avoided 423 11.4.1 Failure Might Turn Out to Be an Unexpected Opportunity 424 11.4.2 Failure Caused by Inadvertent Process Change 424 11.4.3 Unintended Consequences of Product and Process Changes 425 11.5 Continuous Project Management Is a Successful Innovation 427 11.5.1 New Service Development Applications 429 11.5.2 Lifetime Value of a Loyal Customer 429 11.5.3 Innovations to Restore Loyalty 432 11.6 New Growth Platforms for Innovation 434 11.6.1 Innovative W. L. Gore & Associates, Inc 434 11.6.2 Continuous Innovation Using Product Platform Flanning (Step 3) 435 11.6.3 Continuous Innovation Using Product Modularity 435 11.6.4 Platform Differentiation for Different Demographics 436 11.6.5 Mass Customization 437 11.6.6 Product Life Cycles: Rollovers 439 11.7 The Dynamics of Brand Share 440 11.7.1 Product Renewal Innovation 441 11.7.2 Brand Switching Matrix Equilibrium Analysis 443 11.7.3 How Quickly Does Equilibrium Occur? 444 11.7.4 Blue versus Red Ocean Strategies and Closed-Loop Supply Chains 445 11.8 Innovators and Imitators 446 11.8.1 Teaching and Learning Innovations 447 11.8.2 Competitors Are Working on the Same Areas of Innovation 448 11.9 Innovators' Production Strategies 449
Contents xvii 11.9.1 Lean Production Methods Are a Form of Process Innovation 449 Summary 450 Review Questions 451 Problems 452 Readings and References 455 Appendix A: Quantitative Models 457 A.l Breakeven Models 457 A. 1.1 Linear Breakeven Equations 458 A. 1.2 Breakeven Charts 459 A.l.3 Interfunctional Breakeven Capacity Flanning 463 A.2 Transportation Model of Linear Programming 464 Reference 470 Appendix B: The z-table...471 Index 475