MGT301 terms Flashcards

Question

World Trade Organization (WTO)

Answer 1

An international organization that promotes world trade by lowering barriers to the free flow of goods across borders. rade agreements also help reduce tariffs and thereby reduce the cost of operating facilities in foreign countries. The World Trade Organization (WTO) has helped reduce tariffs from 40% in 1940 to less than 3% today. Another important trade agreement is the North American Free Trade A greement (NAFTA).

Answer 2

A free trade agreement between Canada, Mexico, and the United States. Another important trade agreement is the North American Free Trade A greement (NAFTA). NAFTA seeks to phase out all trade and tariff barriers among Canada, Mexico, and the U.S. Other trade agreements that are accelerating global trade include APEC (the Pacific Rim countries), SEATO (Australia, New Zealand, Japan, Hong Kong, South Korea, New Guinea, and Chile), MERCOSUR (Argentina, Brazil, Paraguay, and Uruguay), and CAFTA (Central America, Dominican Republic, and United States).

Answer 3

A European trade group that has 28 member states. Another trading group is the European Union (EU) . 1 The European Union has reduced trade barriers among the participating European nations through standardization and a common currency, the euro.

Answer 4

The purpose or rationale for an organization’s existence.

Answer 5

How an organization expects to achieve its missions and goals.

Answer 6

(1) differentiation, (2) cost leadership, and (3) response. This means operations managers are called on to deliver goods and services that are (1) better , or at least different, (2) cheaper , and (3) more responsive

Answer 7

The creation of a unique advantage over competitors. Competitive advantage implies the creation of a system that has a unique advantage over competitors. The idea is to create customer value in an efficient and sustainable way.

Answer 8

Distinguishing the offerings of an organization in a way that the customer perceives as adding value. differentiation should be thought of as going beyond both physical characteristics and service attributes to encompass everything about the product or service that influences the value that the customers derive from it.

Answer 9

Engaging a customer with a product through imaginative use of the five senses, so the customer “experiences” the product. The idea of experience differentiation is to engage the customer—to use people’s five senses so they become immersed, or even an active participant, in the product. Disney does this with the Magic Kingdom.

Answer 10

Achieving maximum value, as perceived by the customer. Low-cost leadership entails achieving maximum value as defined by your customer. It requires examining each of the 10 OM decisions in a relentless effort to drive down costs while meeting customer expectations of value. A low-cost strategy does not imply low value or low quality.

Answer 11

A set of values related to rapid, flexible, and reliable performance.

Answer 12

``` Product Quality Process Location Layout Human resources Supply chain Inventory Scheduling Maintenance ``` strategy and example DIFFERENICATION Innovative design . . . . . . . . . . . . . . . . . . . . . . . Safeskin’s innovative gloves Broad product line. . . . . . . . . . . . . . . . . . . . . . . Fidelity Security’s mutual funds After-sales service . . . . . . . . . . . . . . . . Caterpillar’s heavy equipment service Experience . . . . . . . . . . . . . . . . . . . . . . . . . Hard Rock Cafe’s dining experience COST LEADERSHIP: Low overhead . . . . . . . . . . . . . . . . . . . . . Franz-Colruyt’s warehouse-type stores Effective capacity use . . . . . . . . . . . . Southwest Airlines' high aircraft utilization Inventory management . . . . . . . . . . Walmart's sophisticated distribution system RESPONSE: Flexibility . . . . . . . . . . . . . Hewlett-Packard’s response to volatile world market Reliability . . . . . . . . . . . . . . . . . . . . . . . FedEx’s “absolutely, positively on time” Quickness . . . . . . . . . . . . . Pizza Hut’s ﬁve-minute guarantee at lunchtime

Answer 13

A method managers use to evaluate the resources at their disposal and manage or alter them to achieve competitive advantage.

Answer 14

A way to identify those elements in the product/service chain that uniquely add value. Value-chain analysis is used to identify activities that represent strengths, or potential strengths, and may be opportunities for developing competitive advantage.

Answer 15

A method of analyzing the five forces in the competitive environment.

Answer 16

introduction -> growth -> maturity -> decline

Answer 17

A method of determining internal strengths and weaknesses and external opportunities and threats.

Answer 18

Activities or factors that are key to achieving competitive advantage.

Answer 19

Analyze the Environment Identify strengths, weaknesses, opportunities, and threats. Understand the environment, customers, industry, and competitors Determine the Corporate Mission State the reason for the ﬁrm’s existence and identify the value it wishes to create. Form a Strategy Build a competitive advantage, such as low price, design or volume ﬂexibility, quality, quick delivery, dependability, after-sale services, or broad product lines.

Answer 20

A set of skills, talents, and capabilities in which a firm is particularly strong. A core competency may be the ability to perform the

Answer 21

◆ “What tasks must be done particularly well for a given strategy to succeed?” ◆ “Which activities provide a competitive advantage?” ◆ “Which elements contain the highest likelihood of failure, and which require additional commitment of managerial, monetary, technological, and human resources?”

Answer 22

A graphical link of competitive advantage, KSFs, and supporting activities.

Answer 23

Transferring a firm’s activities that have traditionally been internal to external suppliers. s organizations develop missions, goals, and strategies, they identify their strengths—what they do as well as or better than their competitors—as their core competencies . By contrast, non-core activities, which can be a sizable portion of an organization’s total business, are good candidates for outsourcing. Outsourcing is transferring activities that have traditionally been internal to external suppliers Other examples of outsourcing non-core activities include: ◆ DuPont’s legal services routed to the Philippines ◆ IBM’s handing of travel services and payroll and Hewlett-Packard’s provision of IT services to P&G ◆ Production of the Audi A4 convertible and Mercedes CLK convertible by Wilheim Karmann in Osnabruck, Germany ◆ Blue Cross sending hip resurfacing surgery patients to India

Answer 24

theory which states that countries benefit from specializing in (and exporting) goods and services in which they have relative advantage, and they benefit from importing goods and services in which they have a relative d isadvantage

Answer 25

Risk management starts with a realistic analysis of uncertainty and results in a strategy that minimizes the impact of these uncertainties. Indeed, outsourcing is risky, with roughly half of all outsourcing agreements failing because of inadequate planning and analysis. Timely delivery and quality standards can be major problems, as can underestimating increases in inventory and logistics costs.

Answer 26

(1) reduced employment levels, (2) changes in facility requirements, (3) potential adjustments to quality control systems and manufacturing processes, and (4) expanded logistics issues, including insurance, tariffs, customs, and timing.

Answer 27

A firm that engages in crossborder transactions. International strategy A strategy in which global markets are penetrated using exports and licenses.

Answer 28

A firm that has extensive involvement in international business, owning or controlling facilities in more than one country Multidomestic strategy A strategy in which operating decisions are decentralized to each country to enhance local responsiveness.

Answer 29

A strategy in which operating decisions are centralized and headquarters coordinates the standardization and learning between facilities.

Answer 30

1. cost reduction 2. local responsiveness Global strategy(high 1 low two) • Standardized product • Economies of scale • Cross-cultural learning Examples: Texas Instruments Caterpillar Otis Elevator international strategy (low 1 low 2) • Import/export or license existing product Examples: U.S. Steel Harley-Davidson ``` Transnational strategy (high 1 high 2)• Move material, people, or ideas across national boundaries • Economies of scale • Cross-cultural learning Examples: Coca-Cola Nestlé ``` ``` Multidomestic strategy(low 1 high 2) Use existing domestic model globally • Franchise, joint ventures, subsidiaries Examples: Heinz McDonald’s The Body Shop Hard Rock Cafe ```

Answer 31

A strategy that combines the benefits of global-scale efficiencies with the benefits of local responsiveness. A transnational strategy exploits the economies of scale and learning, as well as pressure for responsiveness, by recognizing that core competence does not reside in just the “home” country but can exist anywhere in the organization. Transnational describes a condition in which material, people, and ideas cross—or transgress —national boundaries.

Answer 32

The art and science of predicting future events. Forecasting may involve taking historical data (such as past sales) and projecting them into the future with a mathematical model.

Answer 33

1. Short-range forecast: This forecast has a time span of up to 1 year but is generally less than 3 months. It is used for planning purchasing, job scheduling, workforce levels, job assignments, and production levels. 2. Medium-range forecast: A medium-range, or intermediate, forecast generally spans from 3 months to 3 years. It is useful in sales planning, production planning and budgeting, cash budgeting, and analysis of various operating plans. 3. Long-range forecast: Generally 3 years or more in time span, long-range forecasts are used in planning for new products, capital expenditures, facility location or expansion, and research and development.

Answer 34

1. First, intermediate and long-range forecasts deal with more comprehensive issues supporting management decisions regarding planning and products, plants, and processes. Implementing some facility decisions, such as GM’s decision to open a new Brazilian manufacturing plant, can take 5 to 8 years from inception to completion. 2. Second, short-term forecasting usually employs different methodologies than longer-term forecasting. Mathematical techniques, such as moving averages, exponential smoothing, and trend extrapolation (all of which we shall examine shortly), are common to shortrun projections. Broader, less quantitative methods are useful in predicting such issues as whether a new product, like the optical disk recorder, should be introduced into a company’s product line. 3. Finally, as you would expect, short-range forecasts tend to be more accurate than longerrange forecasts. Factors that influence demand change every day. Thus, as the time horizon lengthens, it is likely that forecast accuracy will diminish. It almost goes without saying, then, that sales forecasts must be updated regularly to maintain their value and integrity. After each sales period, forecasts should be reviewed and revised.

Answer 35

1. Economic forecasts address the business cycle by predicting inflation rates, money supplies, housing starts, and other planning indicators. 2. Technological forecasts are concerned with rates of technological progress, which can result in the birth of exciting new products, requiring new plants and equipment. 3. Demand forecasts are projections of demand for a company’s products or services. Forecasts drive decisions, so managers need immediate and accurate information about real demand. They need demand-driven forecasts , where the focus is on rapidly identifying and tracking customer desires. These forecasts may use recent point-of-sale (POS) data, retailer-generated reports of customer preferences, and any other information that will help to forecast with the most current data possible. Demand-driven forecasts drive a company’s production, capacity, and scheduling systems and serve as inputs to financial, marketing, and personnel planning. In addition, the payoff in reduced inventory and obsolescence can be huge.

Answer 36

Planning indicators that are valuable in helping organizations prepare medium- to long-range forecasts

Answer 37

Long-term forecasts concerned with the rates of technological progress.

Answer 38

Projections of a company’s sales for each time period in the planning horizon.

Answer 39

Good supplier relations and the ensuing advantages in product innovation, cost, and speed to market depend on accurate forecasts. Here are just three examples: Apple has built an effective global system where it controls nearly every piece of the supply chain, from product design to retail store. With rapid communication and accurate data shared up and down the supply chain, innovation is enhanced, inventory costs are reduced, and speed to market is improved. Toyota develops sophisticated car forecasts with input from a variety of sources, including dealers. But forecasting the demand for accessories such as navigation systems, custom wheels, spoilers, and so on is particularly difficult. And there are over 1,000 items that vary by model and color. As a result, Toyota not only reviews reams of data with regard to vehicles that have been built and wholesaled but also looks in detail at vehicle forecasts before it makes judgments about the future accessory demand. When this is done correctly, the result is an efficient supply chain and satisfied customers. Walmart collaborates with suppliers such as Sara Lee and Procter & Gamble to make sure the right item is available at the right time in the right place and at the right price. For instance, in hurricane season, Walmart’s ability to analyze 700 million store–item combinations means it can forecast that not only flashlights but also Pop-Tarts and beer sell at seven times the normal demand rate.

Answer 40

Hiring, training, and laying off workers all depend on anticipated demand. If the human resources department must hire additional workers without warning, the amount of training declines, and the quality of the workforce suffers.

Answer 41

hen capacity is inadequate, the resulting shortages can lead to loss of customers and market share. This is exactly what happened to Nabisco when it underestimated the huge demand for its new Snackwell Devil’s Food Cookies

Answer 42

1. Determine the use of the forecast: Disney uses park attendance forecasts to drive decisions about staffing, opening times, ride availability, and food supplies. 2. Select the items to be forecasted: For Disney World, there are six main parks. A forecast of daily attendance at each is the main number that determines labor, maintenance, and scheduling. 3. Determine the time horizon of the forecast: Is it short, medium, or long term? Disney develops daily, weekly, monthly, annual, and 5-year forecasts. 4. Select the forecasting model(s): Disney uses a variety of statistical models that we shall discuss, including moving averages, econometrics, and regression analysis. It also employs judgmental, or nonquantitative, models. 5. Gather the data needed to make the forecast: Disney’s forecasting team employs 35 analysts and 70 field personnel to survey 1 million people/businesses every year. Disney also uses a firm called Global Insights for travel industry forecasts and gathers data on exchange rates, arrivals into the U.S., airline specials, Wall Street trends, and school vacation schedules. 6. Make the forecast. 7. Validate and implement the results: At Disney, forecasts are reviewed daily at the highest levels to make sure that the model, assumptions, and data are valid. Error measures are applied; then the forecasts are used to schedule personnel down to 15-minute intervals.

Answer 43

◆ Outside factors that we cannot predict or control often impact the forecast. ◆ Most forecasting techniques assume that there is some underlying stability in the system. Consequently, some firms automate their predictions using computerized forecasting software, then closely monitor only the product items whose demand is erratic. ◆ Both product family and aggregated forecasts are more accurate than individual product forecasts. Disney, for example, aggregates daily attendance forecasts by park. This approach helps balance the over- and underpredictions for each of the six attractions.

Answer 44

Forecasts that employ mathematical modeling to forecast demand.

Answer 45

Naïve approach

Answer 46

1. Jury of executive opinion : Under this method, the opinions of a group of high-level experts or managers, often in combination with statistical models, are pooled to arrive at a group estimate of demand. Bristol-Myers Squibb Company, for example, uses 220 well-known research scientists as its jury of executive opinion to get a grasp on future trends in the world of medical research. 2. Delphi method: There are three different types of participants in the Delphi method: decision makers, staff personnel, and respondents. Decision makers usually consist of a group of 5 to 10 experts who will be making the actual forecast. Staff personnel assist decision makers by preparing, distributing, collecting, and summarizing a series of questionnaires and survey results. The respondents are a group of people, often located in different places, whose judgments are valued. This group provides inputs to the decision makers before the forecast is made. TJury of executive opinion 3. Sales force composite : In this approach, each salesperson estimates what sales will be in his or her region. These forecasts are then reviewed to ensure that they are realistic. Then they are combined at the district and national levels to reach an overall forecast. A variation of this approach occurs at Lexus, where every quarter Lexus dealers have a “make meeting.” At this meeting, they talk about what is selling, in what colors, and with what options, so the factory knows what to build. 4. Market survey : This method solicits input from customers or potential customers regarding future purchasing plans. It can help not only in preparing a forecast but also in improving

Answer 47

A forecasting technique that uses the opinion of a small group of high-level managers to form a group estimate of demand.

Answer 48

A forecasting technique using a group process that allows experts to make forecasts.

Answer 49

A forecasting technique based on salespersons’ estimates of expected sales

Answer 50

A forecasting method that solicits input from customers or potential customers regarding future purchasing plans.

Answer 51

Time-series models 1. Naive approach 2. Moving averages 3. Exponential smoothing Associative model 4. Trend projection 5. Linear regression

Answer 52

A forecasting technique that uses a series of past data points to make a forecast. Time-series models predict on the assumption that the future is a function of the past. In other words, they look at what has happened over a period of time and use a series of past data to make a forecast. If we are predicting sales of lawn mowers, we use the past sales for lawn mowers to make the forecasts.

Answer 53

Associative models, such as linear regression, incorporate the variables or factors that might influence the quantity being forecast. For example, an associative model for lawn mower sales might use factors such as new housing starts, advertising budget, and competitors’ prices.

Answer 54

1. Trend is the gradual upward or downward movement of the data over time. Changes in income, population, age distribution, or cultural views may account for movement in trend. 2. Seasonality is a data pattern that repeats itself after a period of days, weeks, months, or quarters. 3. Cycles are patterns in the data that occur every several years. They are usually tied into the business cycle and are of major importance in short-term business analysis and planning. Predicting business cycles is difficult because they may be affected by political events or by international turmoil. 4. Random variations are “blips” in the data caused by chance and unusual situations. They follow no discernible pattern, so they cannot be predicted.

Answer 55

The simplest way to forecast is to assume that demand in the next period will be equal to demand in the most recent period. In other words, if sales of a product A forecasting technique that assumes that demand in the next period is equal to demand in the most recent period.

Answer 56

A moving-average forecast uses a number of historical actual data values to generate a forecast. Moving averages are useful if we can assume that market demands will stay fairly steady over time . A forecasting method that uses an average of the n most recent periods of data to forecast the next period. A moving-average forecast uses a number of historical actual data values to generate a forecast. Moving averages are useful if we can assume that market demands will stay fairly steady over time .

Answer 57

Weighted moving average = sum of (Weight for period n)(Demand in period n) / sum of weight

Answer 58

A weighted-moving-average forecasting technique in which data points are weighted by an exponential function.

Answer 59

New forecast = Last period’s forecast + a (Last period’s actual demand − Last period’s forecast)

Answer 60

The weighting factor used in an exponential smoothing forecast, a number greater than or equal to 0 and less than or equal to 1 where a is a weight, or smoothing constant, chosen by the forecaster, that has a value greater than or equal to 0 and less than or equal to 1.

Answer 61

The overall accuracy of any forecasting model—moving average, exponential smoothing, or other—can be determined by comparing the forecasted values with the actual or observed values. If Ft denotes the forecast in period t, and At denotes the actual demand in period t , the forecast error (or deviation) is defined as: Forecast error = Actual demand - Forecast value

Answer 62

A measure of the overall forecast error for a model. Mean Absolute Deviation The first measure of the overall forecast error for a model is the mean absolute deviation (MAD) . This value is computed by taking the sum of the absolute values of the individual forecast errors (deviations) and dividing by the number of periods of data ( n ): MAD = sum of ABS(autual - forecast) / n

Answer 63

The average of the squared differences between the forecasted and observed values. Mean Squared Error The mean squared error (MSE) is a second way of measuring overall forecast error. MSE is the average of the squared differences between the forecasted and observed values. Its formula is: MAD = sum of ABS(autual - forecast)^2 / n

Answer 64

The average of the absolute differences between the forecast and actual values, expressed as a percent of actual values. MAPE = 100 * sum of ABS((autual - forecast)/autual / n

Answer 65

Forecast including trend (FIT t) = Exponentially smoothed forecast average (Ft) + Exponentially smoothed trend (T t) Ft=a(Actual demand last period)+(1- a)(Forecast last period +Trend estimate last period) Tt = b(Forecast this period - Forecast last period) + (1 - b)(Trend estimate last period) a = smoothing constant for the average (0 … a … 1) b = smoothing constant for the trend (0 … b … 1) Ft = a(At-1) + (1 - a)(Ft-1 + T t-1) T t = b(Ft - Ft-1) + (1 - b)Tt-1

Answer 66

STEP 1: Compute F t , the exponentially smoothed forecast average for period t , using Equation (4-9) . STEP 2: Compute the smoothed trend, T t , using Equation (4-10) . STEP 3: Calculate the forecast including trend, FIT t , by the formula FIT t = F t + T t [from Equation (4-8) ].

Answer 67

A time-series forecasting method that fits a trend line to a series of historical data points and then projects the line into the future for forecasts. y-hat = a + bx y hat = computed value of the variable to be predicted (called the dependent variable ) a = y -axis intercept b = slope of the regression line (or the rate of change in y for given changes in x ) x = the independent variable (which in this case is time )

Answer 68

b = [sum(xy) - nxmean ymean) / sum(x2) - sum(xmean2) a = ymean - bxmean

Answer 69

1. We always plot the data because least-squares data assume a linear relationship. If a curve appears to be present, curvilinear analysis is probably needed. 2. We do not predict time periods far beyond our given database. For example, if we have 20 months’ worth of average prices of Microsoft stock, we can forecast only 3 or 4 months into the future. Forecasts beyond that have little statistical validity. Thus, you cannot take 5 years’ worth of sales data and project 10 years into the future. The world is too uncertain. 3. Deviations around the least-squares line are assumed to be random and normally distributed, with most observations close to the line and only a smaller number farther out. page 165

Answer 70

Regular upward or downward movements in a time series that tie to recurring events. Seasonal variations in data are regular movements in a time series that relate to recurring events such as weather or holidays. Demand for coal and fuel oil, for example, peaks during cold winter months. Demand for golf clubs or sunscreen may be highest in summer.

Answer 71

1. Find the average historical demand each season (or month in this case) by summing the demand for that month in each year and dividing by the number of years of data available. For example, if, in January, we have seen sales of 8, 6, and 10 over the past 3 years, average January demand equals (8 + 6 + 10)/3 = 8 units. 2. Compute the average demand over all months by dividing the total average annual demand by the number of seasons. For example, if the total average demand for a year is 120 units and there are 12 seasons (each month), the average monthly demand is 120/12 = 10 units. 3. Compute a seasonal index for each season by dividing that month’s historical average demand (from Step 1) by the average demand over all months (from Step 2). For example, if the average historical January demand over the past 3 years is 8 units and the average demand over all months is 10 units, the seasonal index for January is 8/10 = . 80. Likewise, a seasonal index of 1.20 for February would mean that February’s demand is 20% larger than the average demand over all months. 4. Estimate next year’s total annual demand. 5. Divide this estimate of total annual demand by the number of seasons, then multiply it by the seasonal index for each month. This provides the seasonal forecast .

Answer 72

Unlike time-series forecasting, associative forecasting models usually consider several variables that are related to the quantity being predicted.

Answer 73

A straight-line mathematical model to describe the functional relationships between independent and dependent variables the equation: ybar = a + bx ybar = value of the dependent variable (in our example, sales) a = y -axis intercept b = slope of the regression line x = independent variable

Answer 74

To measure the accuracy of the regression estimates, we must compute the standard error of the estimate , Sy, x . This computation is called the standard deviation of the regression: It measures the error from the dependent variable, y , to the regression line, rather than to the mean. A measure of variability around the regression line—its standard deviation. î

Answer 75

A measure of the strength of the relationship between two variables.

Answer 76

A measure of the amount of variation in the dependent variable about its mean that is explained by the regression equation

Answer 77

An associative forecasting method with more than one independent variable. Multiple regression is a practical extension of the simple regression model we just explored. It allows us to build a model with several independent variables instead of just one variable.

Answer 78

A measurement of how well a forecast is predicting actual values.

Answer 79

Tracking signal =Cumulative error / MAD

Answer 80

A forecast that is consistently higher or consistently lower than actual values of a time series

Answer 81

An approach to exponential smoothing forecasting in which the smoothing constant is automatically changed to keep errors to a minimum.

Answer 82

1. Sophisticated forecasting models are not always better than simple ones. 2. There is no single technique that should be used for all products or services. Focus forecasting Forecasting that tries a variety of computer models and selects the best one for a particular application.

Answer 83

Specialty Retail Shops Specialty retail facilities, such as flower shops, may have other unusual demand patterns, and those patterns will differ depending on the holiday. Fast-Food Restaurants Fast-food restaurants are well aware not only of weekly, daily, and hourly but even 15-minute variations in demands that influence sales. Therefore, detailed forecasts of demand are needed.

Answer 84

The ability of a product or service to meet customer needs.

Answer 85

1. Company reputation: An organization can expect its reputation for quality—be it good or bad—to follow it. Quality will show up in perceptions about the firm’s new products, employment practices, and supplier relations. Self-promotion is not a substitute for quality products. 2. Product liability: The courts increasingly hold organizations that design, produce, or distribute faulty products or services liable for damages or injuries resulting from their use. Legislation such as the Consumer Product Safety Act sets and enforces product standards by banning products that do not reach those standards. Impure foods that cause illness, nightgowns that burn, tires that fall apart, or auto fuel tanks that explode on impact can all lead to huge legal expenses, large settlements or losses, and terrible publicity. 3. Global implications: In this technological age, quality is an international, as well as OM, concern. For both a company and a country to compete effectively in the global economy, products must meet global quality, design, and price expectations. Inferior products harm a firm’s profitability and a nation’s balance of payments.

Answer 86

A set of quality standards developed by the International Organization for Standardization (ISO) ISO 9000 is the quality standard with international recognition. Its focus is to enhance success through eight quality management principles: (1) top management leadership, (2) customer satisfaction, (3) continual improvement, (4) involvement of people, (5) process analysis, (6) use of data-driven decision making, (7) a systems approach to management, and (8) mutually beneficial supplier relationships.

Answer 87

The cost of doing things wrong—that is, the price of nonconformance. ◆ Prevention costs: costs associated with reducing the potential for defective parts or services (e.g., training, quality improvement programs). ◆ Appraisal costs: costs related to evaluating products, processes, parts, and services (e.g., testing, labs, inspectors). ◆ Internal failure costs: costs that result from production of defective parts or services before delivery to customers (e.g., rework, scrap, downtime). ◆ External failure costs: costs that occur after delivery of defective parts or services (e.g., rework, returned goods, liabilities, lost goodwill, costs to society).

Answer 88

Management of an entire organization so that it excels in all aspects of products and services that are important to the customer. Quality expert W. Edwards Deming used 14 points (see Table 6.2 ) to indicate how he implemented TQM. We develop these into seven concepts for an effective TQM program: (1) continuous improvement, (2) Six Sigma, (3) employee empowerment, (4) benchmarking, (5) just-in-time (JIT), (6) Taguchi concepts, and (7) knowledge of TQM tools.

Answer 89

A continuous improvement model of plan, do, check. act. Plan-Do-Check-Act Walter Shewhart, another pioneer in quality management, developed a circular model known as PDCA (plan, do, check, act) as his version of continuous improvement.

Answer 90

A program to save time, improve quality, and lower costs. The term Six Sigma , popularized by Motorola, Honeywell, and General Electric, has two meanings in TQM. In a statistical sense, it describes a process, product, or service with an extremely high capability (99.9997% accuracy).

Answer 91

◆ It is a strategy because it focuses on total customer satisfaction. ◆ It is a discipline because it follows the formal Six Sigma Improvement Model known as DMAIC ◆ I t is a set of seven tools that we introduce shortly in this chapter: check sheets, scatter diagrams, cause-and-effect diagrams, Pareto charts, flowcharts, histograms, and statistical process control.

Answer 92

esides Crosby there are several other giants in the field of quality management, including Deming, Feigenbaum, and Juran. Table 6.1 summarizes their philosophies and contributions. Takumi is a Japanese character that symbolizes a broader dimension than quality, a deeper process than education, and a more perfect method than persistence.

Answer 93

For operations managers, one of the most important jobs is to deliver healthy, safe, and quality products and services to customers. The development of poor-quality products, because of inadequate design and production processes, not only results in higher production costs but also leads to injuries, lawsuits, and increased government regulation

Answer 94

DMAIC . This five-step process improvement model (1) Defines the project’s purpose, scope, and outputs and then identifies the required process information, keeping in mind the customer’s definition of quality; (2) M easures the process and collects data; (3) A nalyzes the data, ensuring repeatability (the results can be duplicated) and reproducibility (others get the same result); (4) I mproves , by modifying or redesigning, existing processes and procedures; and (5) C ontrols the new process to make sure performance levels are maintained.

Answer 95

Implementing Six Sigma is a big commitment. Indeed, successful Six Sigma programs in every firm, from GE to Motorola to DuPont to Texas Instruments, require a major time commitment, especially from top management. These leaders have to formulate the plan, communicate their buy-in and the firm’s objectives, and take a visible role in setting the example for others.

Answer 96

Enlarging employee jobs so that the added responsibility and authority is moved to the lowest level possible in the organization Employee empowerment means involving employees in every step of the production process. Consistently, research suggests that some 85% of quality problems have to do with materials and processes, not with employee performance.

Answer 97

(1) building communication networks that include employees; (2) developing open, supportive supervisors; (3) moving responsibility from both managers and staff to production employees; (4) building highmorale organizations; and (5) creating such formal organization structures as teams and quality circles.

Answer 98

A group of employees meeting regularly with a facilitator to solve work-related problems in their work area.

Answer 99

Selecting a demonstrated standard of performance that represents the very best performance for a process or an activity.

Answer 100

1. Determine what to benchmark. 2. Form a benchmark team. 3. Identify benchmarking partners. 4. Collect and analyze benchmarking information. 5. Take action to match or exceed the benchmark.

Answer 101

The philosophy behind just-in-time (JIT) is one of continuing improvement and enforced problem solving.

Answer 102

◆ JIT cuts the cost of quality: This occurs because scrap, rework, inventory investment, and damage costs are directly related to inventory on hand. Because there is less inventory on hand with JIT, costs are lower. In addition, inventory hides bad quality, whereas JIT immediately exposes bad quality. ◆ JIT improves quality: As JIT shrinks lead time, it keeps evidence of errors fresh and limits the number of potential sources of error. JIT creates, in effect, an early warning system for quality problems, both within the firm and with vendors. ◆ Better quality means less inventory and a better, easier-to-employ JIT system: Often the purpose of keeping inventory is to protect against poor production performance resulting from unreliable quality. If consistent quality exists, JIT allows firms to reduce all the costs associated with inventory.

Answer 103

Products that are consistently built to meet customer needs despite adverse conditions in the production process.

Answer 104

A philosophy of continuous improvement to bring a product exactly on target.

Answer 105

A mathematical function that identifies all costs connected with poor quality and shows how these costs increase as output moves away from the target value.

Answer 106

(a) Check Sheet: An organized method of recording data (b) Scatter Diagram: A graph of the value of one variable vs. another variable (c) Cause-and-Effect Diagram: A tool that identiﬁes process elements (causes) that may affect an outcome

Answer 107

(d) Pareto Chart: A graph that identiﬁes and plots problems or defects in descending order of frequency (e) Flowchart (Process Diagram): A chart that describes the steps in a process

Answer 108

(f) Histogram: A distribution that shows the frequency of occurrences of a variable (g) Statistical Process Control Chart: A chart with time on the horizontal axis for plotting values of a statistic

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A schematic technique used to discover possible locations of quality problems. Material

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A graphic way of classifying problems by their level of importance, often referred to as the 80–20 rule.

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Block diagrams that graphically describe a process or system.

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A process used to monitor standards, make measurements, and take corrective action as a product or service is being produced.

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Graphic presentations of process data over time, with predetermined control limits.

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A means of ensuring that an operation is producing at the quality level expected Inspection should be thought of as a vehicle for improving the system. Operations managers need to know critical points in the system: (1) when to inspect and (2) where to inspect .

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1. At your supplier’s plant while the supplier is producing. 2. At your facility upon receipt of goods from your supplier. 3. Before costly or irreversible processes. 4. During the step-by-step production process. 5. When production or service is complete. 6. Before delivery to your customer. 7. At the point of customer contact.

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Controlling or monitoring at the point of production or purchase— at the source.

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Literally translated, “mistake proofing”; it has come to mean a device or technique that ensures the production of a good unit every time

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A type of poka-yoke that lists the steps needed to ensure consistency and completeness in a task.

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An inspection that classifies items as being either good or defective

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Classifications of inspected items as falling on a continuum scale, such as dimension or strength.

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Training and empowering frontline workers to solve a problem immediately Well-run companies have service recovery strategies. This means they train and empower frontline employees to immediately solve a problem. For instance, staff at Marriott Hotels are drilled in the LEARN routine— Listen, Epathize, Aologize, Re act, Notify—with the final step ensuring that the complaint is fed back into the system.

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A popular measurement scale for service quality that compares service expectations with service performance. anagers of service firms may find SERVQUAL useful when evaluating performance. SERVQUAL is a widely used instrument that provides direct comparisons between customer service expectations and the actual service provided. SERVQUAL focuses on the gaps between the customer service expectations and the service provided on 10 service quality determinants. page 282

Answer 123

A process used to monitor standards by taking measurements and corrective action as a product or service is being produced. Statistical process control (SPC) is the application of statistical techniques to ensure that processes meet standards. All processes are subject to a certain degree of variability. While studying process data in the 1920s, Walter Shewhart of Bell Laboratories made the distinction between the common (natural) and special (assignable) causes of variation. He developed a simple but powerful tool to separate the two—the control chart .

Answer 124

A graphical presentation of process data over time. process is said to be operating in statistical control when the only source of variation is common (natural) causes. The process must first be brought into statistical control by detecting and eliminating special (assignable) causes of variation. 1 Then its performance is predictable, and its ability to meet customer expectations can be assessed. The objective of a process control system is to provide a statistical signal when assignable causes of variation are present. Such a signal can quicken appropriate action to eliminate assignable causes.

Answer 125

Variability that affects every production process to some degree and is to be expected; also known as common cause Natural Variations N atural variations affect almost every process and are to be expected. Natural variations are the many sources of variation that occur within a process, even one that is in statistical control. Natural variations form a pattern that can be described as a distribution

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Variation in a production process that can be traced to specific causes Assignable variation in a process can be traced to a specific reason. Factors such as machine wear, misadjusted equipment, fatigued or untrained workers, or new batches of raw material are all potential sources of assignable variations

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B ecause of natural and assignable variation, statistical process control uses averages of small samples (often of four to eight items) as opposed to data on individual parts. Individual pieces tend to be too erratic to make trends quickly visible.

Answer 128

(a) are weighed, (b) form a distribution, and (c) can vary. The distributions formed in (b) and (c) will fall in a predictable pattern (d) if only natural variation is present. If assignable causes of variation are present, then we can expect either the mean to vary or the dispersion to vary, as is the case in (e) .

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a process is (a) in control and the process is capable of producing within established control limits, (b) in control but the process is not capable of producing within established limits, or (c) out of control. We now look at ways to build control charts that help the operations manager keep a process under control.

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A quality control chart for variables that indicates when changes occur in the central tendency of a production process These changes might be due to such factors as tool wear, a gradual increase in temperature, a different method used on the second shift, or new and stronger materials.

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A control chart that tracks the “range” within a sample; it indicates that a gain or loss in uniformity has occurred in dispersion of a production process. The R- chart values indicate that a gain or loss in dispersion has occurred. Such a change may be due to worn bearings, a loose tool, an erratic flow of lubricants to a machine, or to sloppiness on the part of a machine operator. The two types of charts go hand in hand when monitoring variables because they measure the two critical parameters: central tendency and dispersion.

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The theoretical foundation for x -charts, which states that regardless of the distribution of the population of all parts or services, the distribution of x s tends to follow a normal curve as the number of samples increases. The theorem also states that: (1) the mean of the distribution of the Xbarbar will equal the mean of the overall population (called m ); and (2) the standard deviation of the sampling distribution, sx , will be the population (process) standard deviation ,

Answer 133

Upper control limit (UCL) = xbarbar + zsx Lower control limit (LCL) = xbarbar - zsx x = mean of the sample means or a target value set for the process z = number of normal standard deviations (2 for 95.45% confidence, 3 for 99.73%) sx = standard deviation of the sample means = s/sqrt(n) s = population (process) standard deviation n = sample size UCL x = x + A2Rbar LCL x = x - A2Rbar

Answer 134

``` UCLR = D4Rbar LCLR = D3Rbar ``` UCL R = upper control chart limit for the range LCL R = lower control chart limit for the range

Answer 135

1. Collect 20 to 25 samples, often of n = 4 or n = 5 observations each, from a stable process, and compute the mean and range of each. 2. Compute the overall means ( x and R) , set appropriate control limits, usually at the 99.73% level, and calculate the preliminary upper and lower control limits. Refer to Table S6.2 for other control limits. If the process is not currently stable and in control , use the desired mean, m, instead of x to calculate limits.

Answer 136

A quality control chart that is used to control attributes. Using p- charts is the chief way to control attributes. Although attributes that are either good or bad follow the binomial distribution, the normal distribution can be used to calculate p- chart limits when sample sizes are large. The procedure resembles the x -chart approach, which is also based on the central limit theorem. The formulas for p -chart upper and lower control limits follow: UCLp = p + zsp (S6-9) LCL p = p - zsp here p = mean fraction (percent) defective in the samples 5 total number of defects sample size * number of samples z = number of standard deviations ( z = 2 for 95.45% limits; z = 3 for 99.73% limits) sp = standard deviation of the sampling distribution sp is estimated by the formula: sp = sqrt(p(1 - p)/ n) where n = number of observations in each sample

Answer 137

A quality control chart used to control the number of defects per unit of output c -Charts I n E xample S 4, we counted the number of defective records entered. A defective record was one that was not exactly correct because it contained at least one defect. However, a bad record may contain more than one defect. We use c- charts to control the number of defects per unit of output (or per insurance record, in the preceding case). SOLUTION

Answer 138

A test used to examine the points in a control chart to see if nonrandom variation is present.

Answer 139

The ability to meet design specifications.

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A ratio for determining whether a process meets design specifications; a ratio of the specification to the process variation. The process capability ratio, Cp, is computed as: C p =(Upper specification - Lower specification)/6sigma

Answer 141

A proportion of variation (3 s ) between the center of the process and the nearest specification limit C pk = Minimum of [Upper specification limit - X 3s , X - Lower specification limit 3s ] X = process mean s = standard deviation of the process population

Answer 142

A method of measuring random samples of lots or batches of products against predetermined standards.

Answer 143

A graph that describes how well an acceptance plan discriminates between good and bad lots page 302

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the mistake of having a producer’s good lot rejected through sampling.

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The mistake of a customer’s acceptance of a bad lot overlooked through sampling.

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The quality level of a lot considered good T he acceptable quality level (AQL) is the poorest level of quality that we are willing to accept. In other words, we wish to accept lots that have this or a better level of quality, but no worse.

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The quality level of a lot considered bad

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Statistically, the probability of rejecting a good lot.

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Statistically, the probability of accepting a bad lot.

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The percentage defective in an average lot of goods inspected through acceptance sampling AOQ =(Pd) (Pa) (N - n)/ N ``` Pd = true percentage defective of the lot Pa = probability of accepting the lot for a given sample size and quantity defective N = number of items in the lot n = number of items in the sample ```

Answer 151

Eliminates waste through continuous improvement and focus on exactly what the customer wants.

Answer 152

Continuous and forced problem solving via a focus on throughput and reduced inventory.

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Focus on continuous improvement, respect for people, and standard work practices.

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◆ Overproduction: Producing more than the customer orders or producing early (before it is demanded) is waste. ◆ Queues: Idle time, storage, and waiting are wastes (they add no value). ◆ Transportation: Moving material between plants or between work centers and handling it more than once is waste. ◆ Inventory: Unnecessary raw material, work-in-process (WIP), finished goods, and excess operating supplies add no value and are wastes. ◆ Motion: Movement of equipment or people that adds no value is waste. ◆ Overprocessing: Work performed on the product that adds no value is waste. ◆ Defective product: Returns, warranty claims, rework, and scrap are wastes.

Answer 155

A Lean production checklist: Sort Simplify Shine Standardize Sustain ◆ Sort/segregate: Keep what is needed and remove everything else from the work area; when in doubt, throw it out. Identify nonvalue items and remove them. Getting rid of these items makes space available and usually improves workflow. ◆ Simplify/straighten: Arrange and use methods analysis tools (see Chapter 7 and Chapter 10 ) to improve workflow and reduce wasted motion. Consider long-run and short-run ergonomic issues. Label and display for easy use only what is needed in the immediate work area. (For examples of visual displays, see Chapter 10 , Figure 10.8 and the adjacent photo of equipment located within prescribed lines on the tarmac at Seattle’s airport.) ◆ Shine/sweep: Clean daily; eliminate all forms of dirt, contamination, and clutter from the work area. ◆ Standardize: Remove variations from the process by developing standard operating procedures and checklists; good standards make the abnormal obvious. Standardize equipment and tooling so that cross-training time and cost are reduced. Train and retrain the work team so that when deviations occur, they are readily apparent to all. ◆ Sustain/self-discipline: Review periodically to recognize efforts and to motivate to sustain progress. Use visuals wherever possible to communicate and sustain progress. U.S. managers often add two additional Ss that contribute to establishing and maintaining a Lean workplace: ◆ Safety: Build good safety practices into the preceding five activities. ◆ Support/maintenance: Reduce variability, unplanned downtime, and costs. Integrate daily shine tasks with preventive maintenance.

Answer 156

The time between the arrival of raw materials and the shipping of finished products.

Answer 157

The Japanese word for card , which has come to mean “signal”; a kanban system moves parts through production via a “pull” from a signal.

Answer 158

Any deviation from the optimum process that delivers a perfect product on time, every time

Answer 159

The rate at which units move through a process.

Answer 160

A concept that results in material being produced only when requested and moved to where it is needed just as it is needed

Answer 161

Partnerships of suppliers and purchasers that remove waste and drive down costs for mutual benefits.

Answer 162

An organization formed to ensure that programs (projects) receive the proper management and attention The project organization may be most helpful when: 1. Work tasks can be defined with a specific goal and deadline. 2. The job is unique or somewhat unfamiliar to the existing organization. 3. The work contains complex interrelated tasks requiring specialized skills 4. The project is temporary but critical to the organization. 5. The project cuts across organizational lines.

Answer 163

Project managers receive high visibility in a firm and are responsible for making sure that (1) all necessary activities are finished in proper sequence and on time; (2) the project comes in within budget; (3) the project meets its quality goals; and (4) the people assigned to the project receive the motivation, direction, and information needed to do their jobs

Answer 164

Project managers often deal with (1) offers of gifts from contractors, (2) pressure to alter status reports to mask the reality of delays, (3) false reports for charges of time and expenses, and (4) pressures to compromise quality to meet bonuses or avoid penalties related to schedules.

Answer 165

A hierarchical description of a project into more and more detailed components

Answer 166

Level 1. Project 2. Major tasks in the project 3. Subtasks in major tasks 4. Activities (or “work packages”) to be completed

Answer 167

Planning charts used to schedule resources and allocate time. Gantt charts are low-cost means of helping managers make sure that (1) activities are planned, (2) order of performance is documented, (3) activity time estimates are recorded, and (4) overall project time is developed.

Answer 168

1. It shows the relationship of each activity to others and to the whole project. 2. It identifies the precedence relationships among activities. 3. It encourages the setting of realistic time and cost estimates for each activity. 4. It helps make better use of people, money, and material resources by identifying critical bottlenecks in the project.

Answer 169

(1) detailed cost breakdowns, (2) labor requirements, (3) cost and hour summaries, (4) raw material and expenditure forecasts, (5) variance reports, (6) time analysis reports, and (7) work status reports.

Answer 170

A project management technique that employs three time estimates for each activity.

Answer 171

A project management technique that uses only one time factor per activity.

Answer 172

1. Define the project and prepare the work breakdown structure. 2. Develop the relationships among the activities. Decide which activities must precede and which must follow others. 3. Draw the network connecting all the activities. 4. Assign time and/or cost estimates to each activity. 5. Compute the longest time path through the network. This is called the critical path . 6. Use the network to help plan, schedule, monitor, and control the project. Critical path: The computed longest time path(s) through a network. ERT and CPM are important because they can help answer questions such as the following about projects with thousands of activities: 1. When will the entire project be completed? 2. What are the critical activities or tasks in the project—that is, which activities will delay the entire project if they are late? 3. Which are the noncritical activities—the ones that can run late without delaying the whole project’s completion? 4. What is the probability that the project will be completed by a specific date? 5. At any particular date, is the project on schedule, behind schedule, or ahead of schedule? 6. On any given date, is the money spent equal to, less than, or greater than the budgeted amount? 7. Are there enough resources available to finish the project on time? 8. If the project is to be finished in a shorter amount of time, what is the best way to accomplish this goal at the least cost?

Answer 173

Activity-on-node (AON) A network diagram in which nodes designate activities. Activity-on-arrow (AOA) A network diagram in which arrows designate activities. There are two approaches for drawing a project network: activity on node (AON) and activity on arrow (AOA) . Under the AON convention, nodes designate activities. Under AOA, arrows represent activities. Activity-on-Node Example When there are many activities in a project with fairly complicated precedence r elationships, it is difficult for an individual to comprehend the complexity of the project from just the tabular information. In such cases, a visual representation of the project, using a project network , is convenient and useful. A project network is a diagram of all the activities and the precedence relationships that exist between these activities in a project. Example 2 illustrates how to construct an AON project network for Milwaukee Paper Manufacturing.

Answer 174

Critical path analysis A process that helps determine a project schedule As mentioned earlier, the critical path is the longest time path through the network. To find the critical path, we calculate two distinct starting and ending times for each activity. These are defined as follows: Earliest start (ES) = earliest time at which an activity can start, assuming all predecessors have been completed Earliest finish (EF) = earliest time at which an activity can be finished Latest start (LS) = latest time at which an activity can start so as to not delay the completion time of the entire project Latest finish (LF) = latest time by which an activity has to finish so as to not delay the completion time of the entire project

Answer 175

Forward pass A process that identifies all the early times Earliest Start Time Rule B efore an activity can start, all its immediate predecessors must be finished: ◆ If an activity has only a single immediate predecessor, its ES equals the EF of the predecessor. ◆ If an activity has multiple immediate predecessors, its ES is the maximum of all EF values of its predecessors. That is: ES = Max {EF of all immediate predecessors} Earliest Finish Time Rule The earliest finish time (EF) of an activity is the sum of its earliest start time (ES) and its activity time. That is: EF = ES + Activity time

Answer 176

Backward pass An activity that finds all the late start and late finish times Latest Finish Time Rule T his rule is again based on the fact that before an activity can start, all its immediate predecessors must be finished: ◆ If an activity is an immediate predecessor for just a single activity, its LF equals the LS of the activity that immediately follows it. ◆ If an activity is an immediate predecessor to more than one activity, its LF is the minimum of all LS values of all activities that immediately follow it. That is: LF = Min{LS of all immediate following activities} Latest Start Time Rule T he latest start time (LS) of an activity is the difference of its latest finish time (LF) and its activity time. That is: LS = LF − Activity time

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Slack time Free time for an activity. Also referred to as free float or free slack. Slack is the length of time an activity can be delayed without delaying the entire project. Mathematically: Slack = LS − ES or Slack = LF − EF he activities with zero slack are called critical activities and are said to be on the critical path. The critical path is a continuous path through the project network that: ◆ Starts at the first activity in the project (Start in our example). ◆ Terminates at the last activity in the project (H in our example). ◆ Includes only critical activities (i.e., activities with no slack time). Total Slack Time Delaying either activity by 1 week causes not only that activity, but also the other activity, to lose its slack. This type of a slack time is referred to as total slack. Typically, when two or more noncritical activities appear successively in a path, they share total slack.

Answer 178

Three Time Estimates in PERT Optimistic time The “best” activity completion time that could be obtained in a PERT network. Pessimistic time The “worst” activity time that could be expected in a PERT network. Most likely time The most probable time to complete an activity in a PERT network. Optimistic time ( a ) = time an activity will take if everything goes as planned. In estimating this value, there should be only a small probability (say, 1/100) that the activity time will be < a . Pessimistic time( b ) = time an activity will take assuming very unfavorable conditions. In estimating this value, there should also be only a small probability (also 1/100) that the activity time will be > b . Most likely time ( m ) = most realistic estimate of the time required to complete an activity. To find the expected activity time , t, the beta distribution weights the three time estimates as follows: t = ( a + 4 m + b ) ∕ 6 To compute the dispersion or variance of activity completion time , we use the formula: Variance = [( b − a ) ∕ 6] 2 Probability of Project Completion

Answer 179

Crashing Shortening activity time in a network to reduce time on the critical path so total completion time is reduced. Hence, when choosing which activities to crash, and by how much, we need to ensure the following: ◆ The amount by which an activity is crashed is, in fact, permissible ◆ Taken together, the shortened activity durations will enable us to finish the project by the due date ◆ The total cost of crashing is as small as possible Crashing a project involves four steps: STEP 1: Compute the crash cost per week (or other time period) for each activity in the network. If crash costs are linear over time, the following formula can be used: Crash cost per period = (Crash cost - Normal cost) (Normaltime - Crash time) (3-11) STEP 2: Using the current activity times, fi nd the critical path(s) in the project network. Identify the critical activities. STEP 3: If there is only one critical path, then select the activity on this critical path that (a) can still be crashed and (b) has the smallest crash cost per period. Crash this activity by one period. If there is more than one critical path, then select one activity from each critical path such that (a) each selected activity can still be crashed and (b) the total crash cost per period of all selected activities is the smallest. Crash each activity by one period. Note that the same activity may be common to more than one critical path. STEP 4: Update all activity times. If the desired due date has been reached, stop. If not, return to Step 2.

Answer 180

s a critique of our discussions of PERT, here are some of its features about which operations managers need to be aware: Advantages 1. Especially useful when scheduling and controlling large projects. 2. Straightforward concept and not mathematically complex. 3. Graphical networks help highlight relationships among project activities. 4. Critical path and slack time analyses help pinpoint activities that need to be closely watched. 5. Project documentation and graphs point out who is responsible for various activities. 6. Applicable to a wide variety of projects. 7. Useful in monitoring not only schedules but costs as well. Limitations 1. Project activities have to be clearly defined, independent, and stable in their relationships. 2. Precedence relationships must be specified and networked together. 3. Time estimates tend to be subjective and are subject to fudging by managers who fear the dangers of being overly optimistic or not pessimistic enough. 4. There is the inherent danger of placing too much emphasis on the longest, or critical, path. Near-critical paths need to be monitored closely as well.

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Entering Data Let us again consider the Milwaukee Paper Manufacturing project. Recall that this project has eight activities (repeated in the margin). The first step is to define the activities and their precedence relationships. To do so, we select File|New to open a blank project. We type the project start date (as July 1), then enter all activity information (see Program 3.1). For each activity (or task, as Microsoft Project calls it), we fill in the name and duration. The description of the activity is also placed in the Task Name Viewing the Project Schedule When all links have been defined, the complete project schedule can be viewed as a Gantt chart. We can also select View|Network Diagram to view the schedule as a project network If desired, we can manually change the layout of the network (e.g., reposition activities) by changing the options in Format|Layout . PERT Analysis Microsoft Project does not perform the PERT probability calculations discussed in Examples 10 and 11 . However, by clicking View|Toolbars|PERT Analysis, Tracking the Time Status of a Project P erhaps the biggest advantage of using software to manage projects is that it can track the progress of the project. In this regard, Microsoft Project has many features available to track individual activities in terms of time, cost, resource usage, and so on.

Answer 182

Process strategy An organization’s approach to transforming resources into goods and services. Variety A process strategy is an organization’s approach to transforming resources into goods and services. The objective is to create a process that can produce offerings that meet customer requirements within cost and other managerial constraints. irtually every good or service is made by using some variation of one of four process strategies: (1) process focus, (2) repetitive focus, (3) product focus, and (4) mass customization. Process Focus The vast majority of global production is devoted to making low-volume , high-variety products in places called “job shops.” Process focus A production facility organized around processes to facilitate low volume, high-variety production. Such facilities are process focused in terms of equipment, layout, and supervision. They provide a high degree of product flexibility as products move between the specialized processes. The vast majority of global production is devoted to making low-volume , high-variety products in places called “job shops.” Such facilities are organized around specific activities or processes. In a factory, these processes might be departments devoted to welding, grinding, and painting. In an office, the processes might be accounts payable, sales, and payroll. In a restaurant, they might be bar, grill, and bakery. Such facilities are process focused in terms of equipment, layout, and supervision. They provide a high degree of product flexibility as products move between the specialized processes. Each process is designed to perform a variety of activities and handle frequent changes. Consequently, they are also called intermittent processes . Repetitive Focus Modules Parts or components of a product previously prepared, often in a continuous process. Repetitive process A product-oriented production process that uses modules. Product focus A facility organized around products; a product-oriented, high-volume, low-variety process Mass customization Rapid, low-cost production that caters to constantly changing unique customer desires. Making Mass Customization Work Build-to-order (BTO) Produce to customer order rather than to a forecast. Postponement The delay of any modifications or customization to a product as long as possible in the production process. ◆ Product design must be imaginative. Successful build-to-order designs include a limited product line and modules. Ping Inc., a premier golf club manufacturer, uses different combinations of club heads, grips, shafts, and angles to make 20,000 variations of its golf clubs. ◆ Process design must be flexible and able to accommodate changes in both design and technology. For instance, postponement allows for customization late in the production process. Toyota installs unique interior modules very late in production for its popular Scion, a process also typical with customized vans. Postponement is further discussed in Chapter 11 . ◆ Inventory management requires tight control. To be successful with build-to-order, a firm must avoid being stuck with unpopular or obsolete components. With virtually no raw material, Dell puts custom computers together in less than a day. ◆ Tight schedules that track orders and material from design through delivery are another requirement of mass customization. Align Technology, a well-known name in orthodontics, figured out how to achieve competitive advantage by delivering custom-made clear plastic aligners within 3 weeks of the first visit to the dentist’s office (see the OM in Action box “Mass Customization for Straight Teeth”). ◆ Responsive partners in the supply chain can yield effective collaboration. Forecasting, inventory management, and ordering for JCPenney shirts are all handled for the retailer by its supplier in Hong Kong Crossover chart A chart of costs at the possible volumes for more than one process. Focus also contributes to building a core competence that fosters market and financial success. The focus can be: ◆ Customers (such as Winterhalter Gastronom, a German company that focuses on dishwashers for hotels and restaurants, for whom spotless glasses and dishes are critical) ◆ Products with similar attributes (such as Nucor Steel’s Crawford, Ohio, plant, which processes only high-quality sheet steels, and Gallagher, a New Zealand company, which has 45% of the world market in electric fences) ◆ Service (such as Orlando’s Arnold Palmer Hospital, with a focus on children and women; or Shouldice Hospital, in Canada, with a focus on hernia repair) ◆ Technology (such as Texas Instruments, with a focus on only certain specialized kinds of semiconductors; and SAP, which despite a world of opportunities, remains focused on s oftware) The key for the operations manager is to move continuously toward specialization, focusing on the core competence necessary to excel at that speciality

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Flexibility The ability to respond with little penalty in time, cost, or customer value. in this age of rapid technological change and short product life cycles, adding flexibility to the production process can be a major competitive advantage. Flexibility is the ability to respond with little penalty in time, cost, or customer value.

Answer 184

When analyzing and designing processes, we ask questions such as the following: ◆ Is the process designed to achieve competitive advantage in terms of differentiation, response, or low cost? ◆ Does the process eliminate steps that do not add value? ◆ Does the process maximize customer value as perceived by the customer? ◆ Will the process win orders? Flowchart A drawing used to analyze movement of people or material. Time-function mapping (or process mapping) A flowchart with time added on the horizontal axis. Process charts Charts that use symbols to analyze the movement of people or material. Value-stream mapping (VSM) A process that helps managers understand how to add value in the flow of material and i nformation through the entire production process Service blueprinting A process analysis technique that lends itself to a focus on the customer and the provider’s interaction with the custome

Answer 185

◆ In the upper sections (quadrants) of mass service and professional service , where labor content is high , we expect the manager to focus extensively on human resources. ◆ The quadrants with low customization tend to (1) standardize or restrict some offerings, as do fast-food restaurants, (2) automate, as have airlines with ticket-vending machines, or (3) remove some services, such as seat assignments, as has Southwest Airlines. ◆ Because customer feedback is lower in the quadrants with low customization , tight control may be required to maintain quality standards. ◆ Operations with low labor intensity may lend themselves particularly well to innovations in process technology and scheduling. Production Technology In this section, we introduce nine areas of technology: (1) machine technology, (2) automatic identification systems (AIS), (3) process control, (4) vision systems, (5) robots, (6) automated storage and retrieval systems (ASRSs), (7) automated guided vehicles (AGVs), (8) flexible manufacturing systems (FMSs), and (9) computer-integrated manufacturing (CIM). Computer numerical control (CNC) Machinery with its own computer and memory. Additive manufacturing The production of physical items by adding layer upon layer, much in the same way an inkjet printer lays down ink. Automatic identification system (AIS) A system for transforming data into electronic form, for example, bar codes. Radio frequency identification (RFID) A wireless system in which integrated circuits with antennas send radio waves. Process control The use of information technology to control a physical process. process control systems operate in a number of ways, but the following are typical: ◆ Sensors collect data, which is read on some periodic basis, perhaps once a minute or second. ◆ Measurements are translated into digital signals, which are transmitted to a computer. ◆ Computer programs read the file and analyze the data. ◆ The resulting output may take numerous forms. These include messages on computer consoles or printers, signals to motors to change valve settings, warning lights or horns, or statistical process control charts Vision systems Systems that use video cameras and computer technology in inspection roles. Robot A flexible machine with the ability to hold, move, or grab items. It functions through electronic impulses that activate motors and switches. Automated storage and retrieval system (ASRS) Computer-controlled warehouses that provide for the automatic placement of parts into and from designated places in a warehouse Automated guided vehicle (AGV) Electronically guided and controlled cart used to move materials. Computer-integrated manufacturing (CIM) A manufacturing system in which CAD, FMS, inventory control, warehousing, and shipping are integrated. Technology in Services Just as we have seen rapid advances in technology in the manufacturing sector, so we also find dramatic changes in the service sector. These range from electronic diagnostic equipment at auto repair shops, to blood- and urine-testing equipment in hospitals, to retinal security scanners at airports. Process redesign The fundamental rethinking of business processes to bring about dramatic improvements in performance.

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Capacity The “throughput,” or number of units a facility can hold, receive, store, or produce in a period of time. Design capacity The theoretical maximum output of a system in a given period under ideal conditions. Effective capacity The capacity a firm can expect to achieve, given its product mix, methods of scheduling, maintenance, and standards of quality. Utilization Actual output as a percent of design capacity. Utilization = Actual output / Design capacity Efficiency Actual output as a percent of effective capacity. Efficiency = Actual output / Effective capacity Expected output = Effective capacity x Efficiency Capacity Considerations 1. Forecast demand accurately: Product additions and deletions, competition actions, product life cycle, and unknown sales volumes all add challenge to accurate forecasting. 2. Match technology increments and sales volume: Capacity options are often constrained by technology. Some capacity increments may be large (e.g., steel mills or power plants), while others may be small (hand-crafted Louis Vuitton handbags). Large capacity increments complicate the difficult but necessary job of matching capacity to sales. 3. Find the optimum operating size (volume): Economies and diseconomies of scale often dictate an optimal size for a facility. Economies of scale exist when average cost declines as size increases, whereas diseconomies of scale occur when a larger size raises the average cost. As F igure S 7.2 suggests, most businesses have an optimal size—at least until someone comes along with a new business model. For decades, very large integrated steel mills were considered optimal. Then along came Nucor, CMC, and other minimills, with a new process and a new business model that radically reduced the optimum size of a steel mill. 4. Build for change: Managers build flexibility into facilities and equipment; changes will occur in processes, as well as products, product volume, and product mix. page 351