MGT301 terms

Question 1

chapter 1 Operations and Productivity

Production

Answer 1

The creation of goods and services.

Question 2

Operations management (OM)

Answer 2

Activities that relate to the creation of goods and services through the transformation of inputs to outputs.

Question 3

Supply chain

Answer 3

A global network of organizations and activities that supplies a firm with goods and services

Soft Drink Supply Chain
A supply chain for a bottle of Coke requires a beet or sugar cane farmer, a syrup producer, a bottler, a distributor, and a retailer, each adding value to satisfy a customer. Only with collaborations between all members of the supply chain can efficiency and customer satisfaction be maximized. The supply chain, in general, starts with the provider of basic raw materials and continues all the way to the final customer at the retail store.

Question 4

We study OM for four reasons:

Answer 4

1. O M is one of the three major functions of any organization, and it is integrally related to all the other business functions. All organizations market (sell), finance (account), and produce (operate), and it is important to know how the OM activity functions. Therefore, we study how people organize themselves for productive enterprise . 2. We study OM because we want to know how goods and services are produced. The production function is the segment of our society that creates the products and services we use.
   
   3. We study OM to understand what operations managers do . Regardless of your job in an organization, you can perform better if you understand what operations managers do. In addition, understanding OM will help you explore the numerous and lucrative career opportunities in the field.
   4. We study OM because it is such a costly part of an organization. A large percentage of the revenue of most firms is spent in the OM function. Indeed, OM provides a major opportunity for an organization to improve its profitability and enhance its service to society. Example 1 considers how a firm might increase its profitability via the production function.

Question 5

10 Strategic OM Decisions

Answer 5

1. Design of goods and services
2. Design of goods and services: Defi nes much of what is required of operations in each of the other OM decisions. For instance, product design usually determines the lower limits of cost and the upper limits of quality, as well as major implications for sustainability and the human resources required
3. Managing quality

Determines the customer’s quality expectations and establishes policies and procedures to identify and achieve that quality.

3. Process strategy

Determines how a good or service is produced (i.e., the process for production) and commits management to specifi c technology, quality, human resources, and capital investments that determine much of the fi rm’s basic cost structure.

4. Location strategies

Requires judgments regarding nearness to customers, suppliers, and talent, while considering costs, infrastructure, logistics, and government.

5. Layout strategies

Requires integrating capacity needs, personnel levels, technology, and inventory requirements to determine the effi cient fl ow of materials, people, and information

6. Human resources

Determines how to recruit, motivate, and retain personnel with the required talent and skills. People are an integral and expensive part of the total system design.

7. Supply-chain management

Decides how to integrate the supply chain into the fi rm’s strategy, including decisions that determine what is to be purchased, from whom, and under what conditions.

8. Inventory management

Considers inventory ordering and holding decisions and how to optimize them as customer satisfaction, supplier capability, and production schedules are considere

9. Scheduling

Determines and implements intermediate- and short-term schedules that effectively and effi ciently utilize both personnel and facilities while meeting customer demands.

10. Maintenance

Requires decisions that consider facility capacity, production demands, and personnel necessary to maintain a reliable and stable process.

Question 6

Services

Answer 6

Economic activities that typically produce an intangible product (such as education, entertainment, lodging, government, financial, and health services).

Question 7

Differences Between Goods and Services

Answer 7

CHARACTERISTICS OF SERVICES CHARACTERISTICS OF GOODS Intangible: Ride in an airline seat Tangible: The seat itself Produced and consumed simultaneously: Beauty salon produces a haircut that is consumed as it is produced Product can usually be kept in inventory (beauty care products) Unique: Your investments and medical care are unique Similar products produced (iPods) High customer interaction: Often what the customer is paying for (consulting, education) Limited customer involvement in production Inconsistent product defi nition: Auto insurance changes with age and type of car Product standardized (iPhone) Often knowledge based: Legal, education, and medical services are hard to automate Standard tangible product tends to make automation feasible Services dispersed: Service may occur at retail store, local offi ce, house call, or via Internet. Product typically produced at a fi xed facility Quality may be hard to evaluate: Consulting, education, and medical services Many aspects of quality for tangible products are easy to evaluate (strength of a bolt) Reselling is unusual: Musical concert or medical care Product often has some residual value

Question 8

Service sector

Answer 8

The segment of the economy that includes trade, financial, lodging, education, legal, medical, and other professional occupations

U.S. Agriculture, Manufacturing, and Service Employment Source: U.S. Bureau of Labor Statistics.

Question 9

Productivity

Answer 9

The ratio of outputs (goods and services) divided by one or more inputs (such as labor, capital, or management).

Question 10

The Economic System Adds Value by Transforming Inputs to Outputs

Answer 10

An effective feedback loop evaluates performance against a strategy or standard. It also evaluates customer satisfaction and sends signals to managers controlling the inputs and transformation process.

Question 11

Single-factor productivity

Answer 11

Indicates the ratio of goods and services produced (outputs) to one resource (input).
Single-factor productivity = Units produced \ Labor-hours used

Question 12

Productivity =

Answer 12

Units produced / Input used

Question 13

Multifactor productivity

Answer 13

Indicates the ratio of goods and services produced (outputs) to many or all resources (inputs).

The use of just one resource input to measure productivity, as shown in Equation (1-1) , is known as single-factor productivity. However, a broader view of productivity is multifactor productivity , which includes all inputs (e.g., capital, labor, material, energy). Multifactor productivity is also known as total factor productivity . Multifactor productivity is calculated by combining the input units as shown here:

Percent change in productivity

Question 14

three productivity variables

Answer 14

1. Labor, which contributes about 10% of the annual increase. 2. Capital, which contributes about 38% of the annual increase. 3. Management, which contributes about 52% of the annual increase.

Question 15

Productivity variables

Answer 15

The three factors critical to productivity improvement—labor, capital, and the art and science of management.

Question 16

Three key variables for improved labor productivity are:

Answer 16

1. Basic education appropriate for an effective labor force. 2. Diet of the labor force. 3. Social overhead that makes labor available, such as transportation and sanitation.

Question 17

Knowledge society

Answer 17

A society in which much of the labor force has migrated from manual work to work based on knowledge.

Question 18

Productivity of the service sector has proven difficult to improve because service-sector work is:

Answer 18

1. Typically labor intensive (e.g., counseling, teaching). 2. Frequently focused on unique individual attributes or desires (e.g., investment advice).
   
   3. Often an intellectual task performed by professionals (e.g., medical diagnosis). 4. Often difficult to mechanize and automate (e.g., a haircut). 5. Often difficult to evaluate for quality (e.g., performance of a law firm).

Question 19

Current Challenges in Operations Management

Answer 19

◆ Globalization: The rapid decline in the cost of communication and transportation has made markets global.

◆ Supply-chain partnering: Shorter product life cycles, demanding customers, and fast changes in technology, materials, and processes require supply-chain partners to be in tune with the needs of end users.

◆ Sustainability: Operations managers’ continuing battle to improve productivity is concerned with designing products and processes that are ecologically sustainable.

◆ Rapid product development: Technology combined with rapid international communication of news, entertainment, and lifestyles is dramatically chopping away at the life span of products.

◆ Mass customization: Once managers recognize the world as the marketplace, the cultural and individual differences become quite obvious.

◆ Lean operations: Lean is the management model sweeping the world and providing the standard against which operations managers must compete.

Question 20

Stakeholders

Answer 20

Those with a vested interest in an organization, including customers, distributors, suppliers, owners, lenders, employees, and community members.

Question 21

dentifying ethical and socially responsible responses while developing sustainable processes that are also effective and efficient productive systems is not easy. Managers are also challenged to:

Answer 21

◆ Develop and produce safe, high-quality green products
◆ Train, retain, and motivate employees in a safe workplace
◆ Honor stakeholder commitments

If operations managers have a moral awareness and focus on increasing productivity in this system, then many of the ethical challenges will be successfully addressed.

Question 22

chapter 2 Operations Strategy in a Global Environment

The result is innovative strategies where firms compete not just with their own expertise but with the talent in their entire global supply chain. For instance:

Answer 22

◆ Boeing is competitive because both its sales and supply chain are worldwide. ◆ Italy’s Benetton moves inventory to stores around the world faster than its competition with rapid communication and by building exceptional flexibility into design, production, and distribution. ◆ Sony purchases components from a supply chain that extends to Thailand, Malaysia, and elsewhere around the world for assembly of its electronic products, which in turn are distributed around the world. ◆ Volvo, considered a Swedish company, was purchased by a Chinese company, Geely. But the current Volvo S40 is assembled in Belgium, South Africa, Malaysia, and China, on a platform shared with the Mazda 3 (built in Japan) and the Ford Focus (built in Europe). ◆ China’s Haier (pronounced “higher”) is now producing compact refrigerators (it has onethird of the U.S. market) and refrigerated wine cabinets (it has half of the U.S. market) in South Carolina.

Question 23

we have identified six reasons domestic business operations decide to change to some form of international operation. They are:

Answer 23

1. Improve the supply chain. 2. Reduce costs and exchange rate risk. 3. Improve operations. 4. Understand markets. 5. Improve products. 6. Attract and retain global talent.

Improve the Supply Chain
The supply chain can often be improved by locating facilities in countries where unique resources are available. These resources may be human resource expertise, low-cost labor, or raw material. For example, auto-styling studios from throughout the world have migrated to the auto mecca of southern California to ensure the necessary expertise in contemporary auto design.

Reduce Costs and Exchange Rate Risk
Many international operations seek to reduce risks associated with changing currency values (exchange rates) as well as take advantage of the tangible opportunities to reduce their direct costs.

Improve Operations
Operations learn from better understanding of management innovations in different countries. For instance, the Japanese have improved inventory management, the Germans are aggressively using robots, and the Scandinavians have contributed to improved ergonomics throughout the world

Understand Markets
B ecause international operations require interaction with foreign customers, suppliers, and other competitive businesses, international firms inevitably learn about opportunities for new products and services.

Improve Products
Learning does not take place in isolation. Firms serve themselves and their customers well when they remain open to the free flow of ideas. For example, Toyota and BMW will manage joint research and share development costs on battery research for the next generation of green cars.

Attract and Retain Global Talent
G lobal organizations can attract and retain better employees by offering more employment opportunities. They need people in all functional areas and areas of expertise worldwide.

Question 24

maquiladoras

Answer 24

Mexican factories located along the U.S.–Mexico border that receive preferential tariff treatment.

the United States and Mexico have created maquiladoras (free trade zones) that allow manufacturers to cut their costs by paying only for the value added by Mexican workers.

Question 25

World Trade Organization (WTO)

Answer 25

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).

Question 26

North American Free Trade Agreement (NAFTA)

Answer 26

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).

Question 27

European Union (EU)

Answer 27

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.

Question 28

Mission

Answer 28

The purpose or rationale for an organization’s existence.

Question 29

Strategy

Answer 29

How an organization expects to achieve its missions and goals.

Question 30

Firms achieve missions in three conceptual ways:

Answer 30

(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

Question 31

Competitive advantage

Answer 31

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.

Question 32

Differentiation

Answer 32

Distinguishing the offerings of anorganization 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.

Question 33

Experience differentiation

Answer 33

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.

Question 34

Low-cost leadership

Answer 34

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.

Question 35

Response

Answer 35

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

Question 36

10 Operations Decisions

Answer 36

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

Question 37

Resources view

Answer 37

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

Question 38

Value-chain analysis

Answer 38

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.

Question 39

Five forces model

Answer 39

A method of analyzing the fiveforces in the competitive environment.

Question 40

Strategy and Issues During a Product’s Life

Answer 40

introduction -> growth -> maturity -> decline

Question 41

SWOT analysis

Answer 41

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

Question 42

Key success factors (KSFs)

Answer 42

Activities or factors that are key to achieving competitive advantage.

Question 43

Strategy Development Process

Answer 43

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.

Question 44

Core competencies

Answer 44

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

Question 45

KSFs or a combination of KSFs. The operations manager begins this inquiry by asking:

Answer 45

◆ “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?”

Question 46

Activity map

Answer 46

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

Question 47

Outsourcing

Answer 47

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

Question 48

Theory of comparative advantage

Answer 48

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

Question 49

Risks of Outsourcing

Answer 49

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.

Question 50

In addition to the external risks, operations managers must deal with other issues that outsourcing brings. These include:

Answer 50

(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.

Question 51

International business

Answer 51

A firm that engages in crossborder transactions.

International strategy A strategy in which global markets are penetrated using exports and licenses.

Question 52

Multinational corporation (MNC

Answer 52

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.

Question 53

Global strategy

Answer 53

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

Question 54

Identify and explain four global operations strategy options

Answer 54

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

Question 55

Transnational strategy

Answer 55

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.

Question 56

chapter 4 forecasting page 145

Forecasting

Answer 56

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.

Question 57

Forecasting Time Horizons
A forecast is usually classified by the future time horizon that it covers. Time horizons fall into three categories:

Answer 57

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.

Question 58

Medium- and long-range forecasts are distinguished from short-range forecasts by three features:

Answer 58

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.

Question 59

Types of Forecasts

Organizations use three major types of forecasts in planning future operations:

Answer 59

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.

Question 60

Economic forecasts

Answer 60

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

Question 61

Technological forecasts

Answer 61

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

Question 62

Demand forecasts

Answer 62

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

Question 63

Supply-Chain Management

Answer 63

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.

Question 64

Human Resources

Answer 64

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.

Question 65

Capacity

Answer 65

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

Question 66

Seven Steps in the Forecasting System

Answer 66

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.

Question 67

Regardless of the system that firms like Disney use, each company faces several realities:

Answer 67

◆ 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.

Question 68

Quantitative forecasts

Answer 68

Forecasts that employ mathematical modeling to forecast demand.

Question 69

Qualitative forecasts

Answer 69

Naïve approach

Question 70

In this section, we consider four different qualitative forecasting techniques:

Answer 70

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

Question 71

Jury of executive opinion

Answer 71

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

Question 72

Delphi method

Answer 72

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

Question 73

Sales force composite

Answer 73

A forecasting technique based on salespersons’ estimates of expected sales

Question 74

Market survey

Answer 74

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

Question 75

Overview of Quantitative Methods

Answer 75

Time-series models
1. Naive approach 2. Moving averages 3. Exponential smoothing

Associative model
4. Trend projection 5. Linear regression

Question 76

Time-Series Models

Answer 76

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.

Question 77

Associative Models

Answer 77

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.

Question 78

Decomposition of a Time Series

analyzing time series means breaking down past data into components and then projecting them forward. A time series has four components:

Answer 78

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.

Question 79

Naive Approach

Answer 79

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.

Question 80

Moving Averages

Answer 80

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 .

Question 81

A weighted moving average may be expressed mathematically as:

Answer 81

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

Question 82

Exponential smoothing

Answer 82

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

Question 83

Exponential smoothing is another weighted-moving-average forecasting method. It involves very
little record keeping of past data and is fairly easy to use. The basic exponential smoothing formula can be shown as follows:

Answer 83

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

Question 84

Smoothing constant

Answer 84

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.

Question 85

Measuring Forecast Error

Answer 85

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

Question 86

Mean absolute deviation (MAD)

Answer 86

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

Question 87

Mean squared error (MSE)

Answer 87

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

Question 88

Mean absolute percent error (MAPE)

Answer 88

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

Question 89

Exponential Smoothing with Trend Adjustment

Answer 89

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

Question 90

So the three steps to compute a trend-adjusted forecast are:

Answer 90

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) ].

Question 91

Trend projection

Answer 91

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 )

Question 92

Statisticians have developed equations that we can use to find the values of a and b for any regression line. The slope b is found by:

Answer 92

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

a = ymean - bxmean

Question 93

Notes on the Use of the Least-Squares Method Using the least-squares method implies that we have met three requirements:

Answer 93

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.

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Question 94

Seasonal variations

Answer 94

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.

Question 95

Here are the steps we will follow for a company that has “seasons” of 1 month:

Answer 95

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 .

Question 96

Associative Forecasting Methods: Regression and Correlation Analysis

Answer 96

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

Question 97

Linear-regression analysis

Answer 97

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

Question 98

Standard Error of the Estimate

Answer 98

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

Question 99

Coefficient of correlation

Answer 99

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

Question 100

Coefficient of determination

Answer 100

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

Question 101

Multiple regression

Answer 101

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.

Question 102

Monitoring and Controlling Forecasts

Tracking signal

Answer 102

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

Question 103

A tracking signal is a measurement of how well a forecast is predicting actual values. As forecasts are updated every week, month, or quarter, the newly available demand data are compared to the forecast values. T he tracking signal is computed as the cumulative error divided by the mean absolute deviation (MAD) :

Answer 103

Tracking signal =Cumulative error / MAD

Question 104

Bias

Answer 104

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

Question 105

Adaptive Smoothing

Answer 105

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

Question 106

Focus forecasting is based on two principles:

Answer 106

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.

Question 107

Forecasting in the Service Sector

Answer 107

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.

Question 108

Chapter 6 managing quality page 256

Quality

Answer 108

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

Question 109

why quality is important

Answer 109

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.

Question 110

ISO 9000

Answer 110

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.

Question 111

Cost of quality (COQ)

Answer 111

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).

Question 112

Total quality management (TQM)

Answer 112

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.

Question 113

Continuous Improvement

PDCA

Answer 113

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.

Question 114

Six Sigma

Answer 114

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).

Question 115

Six Sigma is a comprehensive system— a strategy, a discipline, and a set of tools—for achieving and sustaining business success:

Answer 115

◆ 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.

Question 116

Leaders in Quality

B

Answer 116

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.

Question 117

Ethics and Quality Management

Answer 117

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

Question 118

DMAIC

Answer 118

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.

Question 119

Implementing Six Sigma

Answer 119

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.

Question 120

Employee empowerment

Answer 120

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.

Question 121

echniques for building employee empowerment include

Answer 121

(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.

Question 122

Quality circle

Answer 122

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

Question 123

Benchmarking

Answer 123

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

Question 124

The steps for developing benchmarks are:

Answer 124

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.

Question 125

Just-in-Time (JIT)

Answer 125

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

Question 126

JIT systems are designed to produce or deliver goods just as they are needed. JIT is related to quality in three ways:

Answer 126

◆ 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.

Question 127

Quality robust

Answer 127

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

Question 128

Target-oriented quality

Answer 128

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

Question 129

Quality loss function (QLF)

Answer 129

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.

Question 130

Tools for Generating Ideas

Answer 130

(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

Question 131

Tools for Organizing the Data

Answer 131

(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

Question 132

Tools for Identifying Problems

Answer 132

(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

Question 133

Tools of TQM

Cause-and-effect diagram

Answer 133

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

Question 134

Pareto charts

Answer 134

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

Question 135

Flowcharts

Answer 135

Block diagrams that graphically describe a process or system.

Question 136

tatistical process control (SPC)

Answer 136

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

Question 137

Control charts

Answer 137

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

Question 138

Inspection

Answer 138

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 .

Question 139

When and Where to Inspect
Deciding when and where to inspect depends on the type of process and the value added at each stage. Inspections can take place at any of the following points:

Answer 139

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.

Question 140

Source inspection

Answer 140

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

Question 141

Poka-yoke

Answer 141

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

Question 142

Checklist

Answer 142

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

Question 143

Attribute inspection

Answer 143

An inspection that classifies items as being either good or defective

Question 144

Variable inspection

Answer 144

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

Question 145

Service recovery

Answer 145

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.

Question 146

SERVQUAL

Answer 146

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

Question 147

chapter 6s

Statistical Process Control (SPC)

Answer 147

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 .

Question 148

Control chart

Answer 148

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.

Question 149

Natural variations

Answer 149

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

Question 150

Assignable variation

Answer 150

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

Question 151

Samples

Answer 151

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.

Question 152

The samples of five boxes of cereal

Answer 152

(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) .

Question 153

Control Charts

Answer 153

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.

Question 154

x bar-chart

Answer 154

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.

Question 155

R -chart

Answer 155

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.

Question 156

Central limit theorem

Answer 156

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 ,

Question 157

f we know, through past data, the standard deviation of the population (process), s, we can set upper and lower control limits 3 by using these formulas:

Answer 157

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

Question 158

Setting Range Chart Limits ( R -Charts)

We can use the following equations to set the upper and lower control limits for ranges:

Answer 158

UCLR = D4Rbar   
LCLR = D3Rbar

UCL R = upper control chart limit for the range LCL R = lower control chart limit for the range

Question 159

Steps to Follow When Building Control Charts
There are five steps that are gen
erally followed in building x - and R -charts:

Answer 159

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.

Question 160

p -chart

Answer 160

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

Question 161

c -chart

Answer 161

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

Question 162

Run test

Answer 162

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

Question 163

Process capability

Answer 163

The ability to meet design specifications.

Question 164

Cp

Answer 164

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

Question 165

Process Capability Index (C pk )

Answer 165

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

Question 166

Acceptance sampling

Answer 166

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

Question 167

Operating characteristic (OC) curve

Answer 167

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

Question 168

Producer’s risk

Answer 168

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

Question 169

Consumer’s risk

Answer 169

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

Question 170

Acceptable quality level (AQL)

Answer 170

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.

Question 171

Lot tolerance percentage defective (LTPD)

Answer 171

The quality level of a lot considered bad

Question 172

Type I error

Answer 172

Statistically, the probability of rejecting a good lot.

Question 173

Type II error

Answer 173

Statistically, the probability of accepting a bad lot.

Question 174

Average Outgoing Quality

Answer 174

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

Question 175

chapter 16

Lean operations

Answer 175

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

Question 176

Just-in-time (JIT)

Answer 176

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

Question 177

Toyota Production System (TPS)

Answer 177

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

Question 178

Seven wastes

Answer 178

◆ 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.

Question 179

5Ss

Answer 179

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.

Question 180

Manufacturing cycle time

Answer 180

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

Question 181

Kanban

Answer 181

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

Question 182

Variability

Answer 182

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

Question 183

Throughput

Answer 183

The rate at which units move through a process.

Question 184

Pull system

Answer 184

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

Question 185

Supplier partnerships

Answer 185

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

Question 186

chapter 3

Project organization

Answer 186

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.

Question 187

The Project Manager

Answer 187

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

Question 188

Ethical Issues Faced in Project Management

Answer 188

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.

Question 189

Work breakdown structure (WBS)

Answer 189

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

Question 190

The work breakdown structure typically decreases in size from top to bottom and is indented like this:

Answer 190

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

Question 191

Project Scheduling

Gantt charts

Answer 191

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.

Question 192

To summarize, whatever the approach taken by a project manager, project scheduling serves several purposes: page104

Answer 192

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.

Question 193

Project Controlling

These programs produce a broad variety of reports, including

Answer 193

(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.

Question 194

Project Management Techniques: PERT and CPM

Program evaluation and review technique (PERT)

Answer 194

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

Question 195

Critical path method (CPM)

Answer 195

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

Question 196

PERT and CPM both follow six basic steps:

Answer 196

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?
   3. 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?
   4. 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?

Question 197

Network Diagrams and Approaches

Answer 197

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 justthe 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.

Question 198

Determining the Project Schedule

Answer 198

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

Question 199

Forward Pass

Answer 199

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

Question 200

Backward Pass

Answer 200

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

Question 201

Calculating Slack Time and Identifying the Critical Path(s)

Answer 201

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.

Question 202

Variability in Activity Times

Answer 202

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

Question 203

Cost-Time Trade-Offs and Project Crashing

Answer 203

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.

Question 204

A Critique of PERT and CPM

Answer 204

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.

Question 205

Using Microsoft Project to Manage Projects

Answer 205

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.

Question 206

chapter 7

Four Process Strategies

Answer 206

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

Question 207

Selection of Equipment

Answer 207

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.

Question 208

Process Analysis and Design

Answer 208

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

Question 209

Special Considerations for Service Process Design

Answer 209

◆ 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.

Question 210

chapter 7s Capacity and Constraint Management

Answer 210

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.

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