Operations Management - Pearson Education€¦ · introduction to operations management, operations design, project management, and manufac-turing planning and control systems. Lee

Operations ManagementPROCESSES AND SUPPLY CHAINS

LEE J. KRAJEWSKIProfessor Emeritus at

The Ohio State University and the University of Notre Dame

MANOJ K. MALHOTRAUniversity of South Carolina

Case Western Reserve University

LARRY P. RITZMANThe Ohio State University

and Professor Emeritus at Boston College

Twelfth Edition

New York, NY

A01_KRAJ1062_12_SE_FM.indd 1 10/20/17 10:46 AM

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Library of Congress Cataloging-in-Publication Data

Names: Krajewski, Lee J., author. | Malhotra, Manoj K. (Manoj Kumar), author. | Ritzman, Larry P., author.Title: Operations management. Processes and supply chains / Lee J. Krajewski, professor emeritus at the Ohio State University and the University of Notre Dame, Manoj K. Malhotra, University of South Carolina, Larry P. Ritzman, professor emeritus at the Ohio State University and Boston College.Other titles: Operations management. Processes and value chainsDescription: Twelfth edition. | Boston : Pearson Education, Inc., [2019] | Includes bibliographical references and indexes.Identifiers: LCCN 2017024658| ISBN 9780134741062 | ISBN 0134741064Subjects: LCSH: Production management.Classification: LCC TS155 .K785 2019 | DDC 658.5--dc23LC record available at https://lccn.loc.gov/2017024658

1 17

ISBN 10: 0-13-474106-4ISBN 13: 978-0-13-474106-2


Dedicated with love to our families.

■

Judie KrajewskiChristine and Gary; Gabrielle

Selena and Jeff; AlexLori and Dan; Aubrey, Madeline, Amelia, and Marianna

Carrie and Jon; Jordanne, Alaina, and BradleyVirginia and JerryVirginia and Larry

■

Maya MalhotraVivek, Pooja, and Neha

Santosh and Ramesh MalhotraIndra and Prem Malhotra; Neeti, Neil, Niam, and Nivin Ardeshna;

Deeksha Malhotra and Maneish JoshiSadhana Malhotra

Leela and Mukund DabholkarAruna and Harsha Dabholkar; Aditee

Mangala and Pradeep Gandhi; Priya and Medha

■

Barbara RitzmanKaren and Matt; Kristin and Alayna

Todd; Cody, Cole, Taylor, and ClaytonKathryn and PaulMildred and Ray



v

About the AuthorsLee J. Krajewski is Professor Emeritus at The Ohio State Univer-sity and Professor Emeritus at the University of Notre Dame. While at The Ohio State University, he received the University Alumni Dis-tinguished Teaching Award and the College of Business Outstanding Faculty Research Award. He initiated the Center for Excellence in Manufacturing Management and served as its director for four years. At the University of Notre Dame, he held the William and Cassie Daley Chair in Management. In addition, he received the National President’s Award and the National Award of Merit of the American Production and Inventory Control Society. He served as president of the Decision Sciences Institute and was elected a Fellow of the Deci-sion Sciences Institute in 1988. He received the Distinguished Service Award in 2003.

Lee received his PhD from the University of Wisconsin. Over the years, he has designed and taught courses at both graduate and undergraduate levels on topics such as operations strategy, introduction to operations management, operations design, project management, and manufac-turing planning and control systems.

Lee served as the editor of Decision Sciences, was the founding editor of the Journal of Operations Management, and has served on several editorial boards. Widely published him-self, Lee has contributed numerous articles to such journals as Decision Sciences, Journal of Operations Management, Management Science, Production and Operations Management, Inter-national Journal of Production Research, Harvard Business Review, and Interfaces, to name just a few. He has received five best-paper awards. Lee’s areas of specialization include operations strategy, manufacturing planning and control systems, supply chain management, and master production scheduling.

Manoj K. Malhotra is the Dean and Albert J. Weatherhead III Professor of Management at the Weatherhead School of Management, Case Western Reserve University. Previously, he was the Senior Associate Dean of Graduate Programs, Jeff B. Bates Professor, and Chairman of the Management Science Department at the Darla Moore School of Business, University of South Carolina (USC), Columbia. He also served from 2005 to 2017 as the founding director of the Center for Global Supply Chain and Process Management (GSCPM) at the Moore School. He earned an engineering undergraduate degree from the Indian Institute of Technology (IIT), Kanpur, India, in 1983, and a PhD in operations management from The Ohio State University in 1990. He is a Fellow of the Decision Sciences Institute (DSI) and

the American Production and Inventory Management Society (APICS). Manoj has conducted seminars and consulted with firms such as Avaya, BMW, Continental, Cummins Turbo Tech-nologies, Delta Air Lines, John Deere, Metso Paper, Palmetto Health, Sonoco, Verizon, Walmart, and Westinghouse-Toshiba among others.

Apart from teaching operations management, supply chain management, and global busi-ness issues at USC, Manoj has also taught at the Terry School of Business, University of Georgia; Wirtschaftsuniversität Wien in Austria; and the Graduate School of Management at Macquarie University, Australia. His research has thematically focused on the deployment of flexible re-sources in manufacturing and service firms, operations and supply chain strategy, and on the interface between operations management and other functional areas of business. His work on these and related issues has been published in the leading refereed journals of the field such as Decision Sciences, European Journal of Operational Research, Interfaces, Journal of Opera-tions Management, and Production and Operations Management. Manoj has been recognized for his pedagogical and scholarly contributions through several teaching and discipline-wide research awards. He is the recipient of the Michael J. Mungo Outstanding Graduate Teaching Award in 2006, the Carolina Trustee Professor Award in 2014, and the Breakthrough Leadership


vi ABOUT THE AUTHORS

in Research Award in 2014 from the University of South Carolina. He has been the program chair for international conferences at both the Decision Sciences Institute (DSI) and Production and Operations Management Society (POMS). He also served as the President of POMS in 2017 and continues to serve on the editorial boards of top-tier journals in the field.

Larry P. Ritzman is Professor Emeritus at The Ohio State University and Professor Emeritus at Boston College. While at The Ohio State University, he served as department chairman and re-ceived several awards for both teaching and research, including the Pace Setters’ Club Award for Outstanding Research. While at Boston College, he held the Thomas J. Galligan, Jr. chair and received the Distinguished Service Award from the School of Management. He re-ceived his doctorate at Michigan State University, having had prior industrial experience at the Babcock and Wilcox Company. Over the years, he has been privileged to teach and learn more about operations management with numerous students at all levels— undergraduate, MBA, executive MBA, and doctorate.

Particularly active in the Decision Sciences Institute, Larry has served as council coordinator, publications committee chair, track chair, vice president, board member, executive committee member, doctoral consortium coordinator, and president. He was elected a Fellow of the Decision Sciences Institute in 1987 and earned the Distinguished Service Award in 1996. He has received three best-paper awards. He has been a frequent reviewer, discussant, and session chair for several other professional organizations.

Larry’s areas of particular expertise are service processes, operations strategy, production and inventory systems, forecasting, multistage manufacturing, and layout. An active researcher, Larry’s publications have appeared in such journals as Decision Sciences, Journal of Operations Management, Production and Operations Management, Harvard Business Review, and Manage-ment Science. He has served in various editorial capacities for several journals.


vii

Brief Contents1 USING OPERATIONS TO CREATE VALUE 1SUPPLEMENT A DECISION MAKING 31

PART 1 Managing Processes 49

2 PROCESS STRATEGY AND ANALYSIS 493 QUALITY AND PERFORMANCE 974 CAPACITY PLANNING 137SUPPLEMENT B WAITING LINES 1615 CONSTRAINT MANAGEMENT 1796 LEAN SYSTEMS 2117 PROJECT MANAGEMENT 243

PART 2 Managing Customer Demand 283

8 FORECASTING 2839 INVENTORY MANAGEMENT 327SUPPLEMENT C SPECIAL INVENTORY MODELS 37110 OPERATIONS PLANNING AND SCHEDULING 385SUPPLEMENT D LINEAR PROGRAMMING 42111 RESOURCE PLANNING 449

PART 3 Managing Supply Chains 497

12 SUPPLY CHAIN DESIGN 49713 SUPPLY CHAIN LOGISTIC NETWORKS 52514 SUPPLY CHAIN INTEGRATION 55715 SUPPLY CHAIN SUSTAINABILITY 595

Appendix NORMAL DISTRIBUTION 617

Selected References 619

Glossary 627

Name Index 639

Subject Index 643

MYLAB OPERATIONS MANAGEMENT SUPPLEMENTS

Supplement E SIMULATION E-1

Supplement F FINANCIAL ANALYSIS F-1

Supplement G ACCEPTANCE SAMPLING PLANS G-1

Supplement H MEASURING OUTPUT RATES H-1

Supplement i LEARNING CURVE ANALYSIS i-1

Supplement J OPERATIONS SCHEDULING J-1

Supplement K LAYOUT K-1



ix

ContentsPreface xv

1 USING OPERATIONS TO CREATE VALUE 1

Disney 1Role of Operations in an Organization 3

Historical Evolution and Perspectives 4A Process view 5

How Processes Work 5Nested Processes 5Service and Manufacturing Processes 6

A Supply Chain view 7Core Processes 7Support Processes 7Supply Chain Processes 8

Operations Strategy 9Corporate Strategy 9Market Analysis 11

Competitive Priorities and Capabilities 12Managerial Practice 1.1 Zara 13

Order Winners and Qualifiers 14Using Competitive Priorities: An Airline Example 15Identifying Gaps between Competitive Priorities

and Capabilities 15Addressing the Trends and Challenges in Operations

Management 17Productivity Improvement 17Global Competition 18Ethical, Workforce Diversity, and Environmental

Issues 20The Internet of Things 21

Developing Skills for Your Career 22Adding Value with Process Innovation 23Learning Goals in Review 24MyLab Operations Management Resources 24Key Equations 25Key Terms 25Solved Problems 25Discussion Questions 26Problems 27Active Model Exercise 29

Video Case Using Operations to Create Value at Crayola 29Case Chad’s Creative Concepts 30

SUPPLEMENT A Decision Making 31Break-Even Analysis 31

Evaluating Services or Products 32Evaluating Processes 34

Preference Matrix 35Decision Theory 36

Decision Making under Certainty 37Decision Making under Uncertainty 37Decision Making under Risk 39

Decision Trees 39Learning Goals in Review 41MyLab Operations Management Resources 41Key Equations 42Key Terms 42Solved Problems 42Problems 44

PART 1 Managing Processes 49

2 PROCESS STRATEGY AND ANALYSIS 49

CVS Pharmacy 49Process Structure in Services 53

Customer-Contact Matrix 53Service Process Structuring 54

Process Structure in Manufacturing 55Product-Process Matrix 55Manufacturing Process Structuring 55Production and Inventory Strategies 57Layout 57

Process Strategy Decisions 58Customer Involvement 58Resource Flexibility 58Capital Intensity 59

Strategic Fit 61Decision Patterns for Service Processes 61Decision Patterns for Manufacturing Processes 61Gaining Focus 62

Managerial Practice 2.1 Plants-within-a-Plant at Ford Camacari 63

Strategies for Change 64Process Reengineering 64Process Improvement 64Process Analysis 65

Defining, Measuring, and Analyzing the Process 66Flowcharts 66Work Measurement Techniques 68Process Charts 70Data Analysis Tools 72

Redesigning and Managing Process improvements 77Questioning and Brainstorming 77Benchmarking 78Implementing 78Learning Goals in Review 80MyLab Operations Management Resources 80Key Terms 81Solved Problems 81Discussion Questions 84Problems 85Active Model Exercise 92

Video Case Process Analysis at Starwood 93Case Custom Molds, Inc. 94Case José’s Authentic Mexican Restaurant 96


x CONTENTS

3 QUALITY AND PERFORMANCE 97

QVC 97Costs of Quality 99

Prevention Costs 99Appraisal Costs 100Internal Failure Costs 100External Failure Costs 100Ethical Failure Costs 100

Total Quality Management and Six Sigma 101Total Quality Management 101

Managerial Practice 3.1 Improving Quality Through Employee Involvement at Santa Cruz Guitar Company 103

Six Sigma 104Acceptance Sampling 105Statistical Process Control 106

Variation of Outputs 106Control Charts 108Control Charts for Variables 110Control Charts for Attributes 114

Process Capability 117Defining Process Capability 117Using Continuous Improvement to Determine

the Capability of a Process 118international Quality Documentation Standards and

Awards 119The ISO 9001:2008 Documentation Standards 120Malcolm Baldrige Performance Excellence

Program 120Systems Approach To Total Quality Management 120

Learning Goals in Review 121MyLab Operations Management Resources 121Key Equations 122Key Terms 123Solved Problems 123Discussion Questions 126Problems 126Active Model Exercise 134

Video Case Quality at Axon 134Experiential Learning 3.1 Statistical Process Control

with a Coin Catapult 136

4 CAPACITY PLANNING 137

Tesla Motors 137Planning Long-Term Capacity 139

Measures of Capacity and Utilization 140Economies of Scale 140Diseconomies of Scale 141

Capacity Timing and Sizing Strategies 141Sizing Capacity Cushions 141Timing and Sizing Expansion 142Linking Capacity and Other Decisions 143

A Systematic Approach to Long-Term Capacity Decisions 143

Step 1: Estimate Capacity Requirements 143Step 2: Identify Gaps 145Step 3: Develop Alternatives 145Step 4: Evaluate the Alternatives 146

Tools for Capacity Planning 147Managerial Practice 4.1 Capacity Planning at PacifiCorp 147

Waiting-Line Models 148

Simulation 149Decision Trees 149Learning Goals in Review 149MyLab Operations Management Resources 149Key Equations 150Key Terms 150Solved Problems 150Discussion Questions 152Problems 152

Video Case Gate Turnaround at Southwest Airlines 158Case Fitness Plus, Part A 159

SUPPLEMENT B Waiting Lines 161Structure of Waiting-Line Problems 162

Customer Population 162The Service System 163Priority Rule 164Probability Distributions 165Arrival Distribution 165Service Time Distribution 165

Using Waiting-Line Models to Analyze Operations 166Single-Server Model 167Multiple-Server Model 169Little’s Law 170Finite-Source Model 171

Waiting Lines and Simulation 172SimQuick 172

Decision Areas for Management 173Learning Goals in Review 174MyLab Operations Management Resources 174Key Equations 174Key Terms 175Solved Problem 175Problems 176

5 CONSTRAINT MANAGEMENT 179

Microsoft Corporation 179The Theory of Constraints 182

Key Principles of the TOC 182Managing Bottlenecks in Service Processes 183Managing Bottlenecks in Manufacturing Processes 185

Identifying Bottlenecks 185Relieving Bottlenecks 187Drum-Buffer-Rope Systems 187

Applying the Theory of Constraints to Product Mix Decisions 188

Managing Constraints in Line Processes 190Line Balancing 190Rebalancing the Assembly Line 195

Managerial Practice 5.1 Assembly Line Balancing at Chrysler 195

Managerial Considerations 195Learning Goals in Review 196MyLab Operations Management Resources 196Key Equations 196Key Terms 197Solved Problems 197Discussion Questions 199Problems 199

Experiential Learning 5.1 Min-Yo Garment Company 206Video Case Constraint Management at Southwest Airlines 210


CONTENTS xi

6 LEAN SYSTEMS 211

ALDI 211Continuous improvement Using A Lean Systems

Approach 213Strategic Characteristics of Lean Systems 215

Supply Chain Considerations in Lean Systems 215Process Considerations in Lean Systems 216

Managerial Practice 6.1 Alcoa 218Toyota Production System 221

Designing Lean System Layouts 222One Worker, Multiple Machines 222Group Technology 223

The Kanban System 224General Operating Rules 225Determining the Number of Containers 225Other Kanban Signals 226

value Stream Mapping 227Current State Map 227Future State Map 230

Operational Benefits and implementation issues 232Organizational Considerations 232Process Considerations 233Inventory and Scheduling 233Learning Goals in Review 234MyLab Operations Management Resources 234Key Equations 234Key Terms 234Solved Problems 234Discussion Questions 237Problems 237

Video Case Lean Systems at Autoliv 241Case Copper Kettle Catering 242

7 PROJECT MANAGEMENT 243

Burj Khalifa 243Defining and Organizing Projects 247

Defining the Scope and Objectives of a Project 247Selecting the Project Manager and Team 247Recognizing Organizational Structure 247

Constructing Project Networks 248Defining the Work Breakdown Structure 248Diagramming the Network 249

Developing the Project Schedule 251Critical Path 251Project Schedule 252Activity Slack 254

Analyzing Cost–Time Trade-Offs 255Cost to Crash 255Minimizing Costs 256

Assessing and Analyzing Risks 259Risk-Management Plans 259

Managerial Practice 7.1 San Francisco—Oakland Bay Bridge 260

Statistical Analysis 261Analyzing Probabilities 263Near-Critical Paths 264

Monitoring and Controlling Projects 265Monitoring Project Status 265Monitoring Project Resources 265Controlling Projects 266


Video Case Project Management at Choice Hotels International 280

Case The Pert Mustang 281

PART 2 Managing Customer Demand 283

8 FORECASTING 283

Kimberly-Clark 283Managing Demand 286

Demand Patterns 286Demand Management Options 286

Key Decisions on Making Forecasts 288Deciding What to Forecast 288Choosing the Type of Forecasting Technique 289

Forecast Error 289Cumulative Sum of Forecast Errors 289Dispersion of Forecast Errors 290Mean Absolute Percent Error 291Computer Support 292

Judgment Methods 292Causal Methods: Linear Regression 293Time-Series Methods 295

Naïve Forecast 295Horizontal Patterns: Estimating the Average 295Trend Patterns: Using Regression 298Seasonal Patterns: Using Seasonal Factors 300Criteria for Selecting Time-Series Methods 302

insights into Effective Demand Forecasting 303Big Data 304

Managerial Practice 8.1 Big Data and Health Care Forecasting 305

A Typical Forecasting Process 305Using Multiple Forecasting Methods 306Adding Collaboration to the Process 307Forecasting as a Nested Process 308Learning Goals in Review 308MyLab Operations Management Resources 308Key Equations 309Key Terms 310Solved Problems 310Discussion Questions 314Problems 315

Video Case Forecasting and Supply Chain Management at Deckers Outdoor Corporation 323

Case Yankee Fork and Hoe Company 324Experiential Learning 8.1 Forecasting a Vital Energy Statistic 326

9 INVENTORY MANAGEMENT 327

Ford’s Smart Inventory Management System (SIMS) 327inventory Trade-offs 329

Pressures for Small Inventories 330Pressures for Large Inventories 330


Managerial Practice 9.1 Inventory Management at Netflix 331Types of inventory 332

Accounting Inventories 332Operational Inventories 333

inventory Reduction Tactics 335Cycle Inventory 335Safety Stock Inventory 335Anticipation Inventory 336Pipeline Inventory 336

ABC Analysis 336Economic Order Quantity 337

Calculating the EOQ 338Managerial Insights from the EOQ 341

Continuous Review System 342Selecting the Reorder Point when Demand and Lead

Time Are Constant 342Selecting the Reorder Point when Demand Is

Variable and Lead Time Is Constant 343Selecting the Reorder Point when Both Demand

and Lead Time Are Variable 347Systems Based on the Q System 348Calculating Total Q System Costs 348Advantages of the Q System 349

Periodic Review System 349Selecting the Time Between Reviews 350Selecting the Target Inventory Level when Demand

Is Variable and Lead Time Is Constant 351Selecting the Target Inventory Level when Demand

and Lead Time Are Variable 352Systems Based on the P System 352Calculating Total P System Costs 353Advantages of the P System 353Learning Goals in Review 353MyLab Operations Management Resources 353Key Equations 354Key Terms 355Solved Problems 356Discussion Questions 360Problems 361Active Model Exercise 366

Video Case Inventory Management at Crayola 367Experiential Learning 9.1 Swift Electronic Supply, Inc. 368Case Parts Emporium 369

SUPPLEMENT C Special Inventory Models 371

Noninstantaneous Replenishment 371Quantity Discounts 374One-Period Decisions 376

Learning Goals in Review 379MyLab Operations Management Resources 379Key Equations 379Key Term 379Solved Problems 380Problems 382

10 OPERATIONS PLANNING AND SCHEDULING 385

Cooper Tire and Rubber Company 385Levels in Operations Planning and Scheduling 388

Level 1: Sales and Operations Planning 388Level 2: Resource Planning 390Level 3: Scheduling 390

S&OP Supply Options 391S&OP Strategies 392

Chase Strategy 392Level Strategy 392Constraints and Costs 392Sales and Operations Planning as a Process 392

Spreadsheets for Sales and Operations Planning 395Spreadsheets for a Manufacturer 395Spreadsheeets for a Service Provider 396

Scheduling 398Job and Facility Scheduling 399Workforce Scheduling 400

Managerial Practice 10.1 Scheduling Major League Baseball Umpires 401

Sequencing Jobs at a Workstation 404Software Support 406Learning Goals in Review 406MyLab Operations Management Resources 406Key Terms 407Solved Problems 407Discussion Questions 411Problems 411Active Model Exercise 418

Video Case Sales and Operations Planning at Starwood 418Case Memorial Hospital 419

SUPPLEMENT D Linear Programming 421Characteristics of Linear Programming Models 421Formulating a Linear Programming Model 422Graphic Analysis 424

Plot the Constraints 424Identify the Feasible Region 426Plot the Objective Function Line 427Find the Visual Solution 428Find the Algebraic Solution 429Slack and Surplus Variables 429Sensitivity Analysis 430

Computer Analysis 431Simplex Method 431Computer Output 431

The Transportation Method 433Transportation Method for Sales and Operations

Planning 433Learning Goals in Review 437MyLab Operations Management Resources 437Key Terms 438Solved Problems 438Discussion Questions 440Problems 440

11 RESOURCE PLANNING 449

Philips 449Material Requirements Planning 451

Dependent Demand 451Master Production Scheduling 453

Developing a Master Production Schedule 454Available-to-Promise Quantities 455Freezing the MPS 456

xii CONTENTS


Reconciling the MPS with Sales and Operations Plans 456

MRP Explosion 456Bill of Materials 457Inventory Record 458Planning Factors 460Outputs from MRP 463MRP and the Environment 467MRP, Core Processes, and Supply Chain

Linkages 467Enterprise Resource Planning 468

How ERP Systems Are Designed 468Managerial Practice 11.1 ERP Implementation

at Valle del Lili Foundation 469Resource Planning for Service Providers 470

Dependent Demand for Services 470Bill of Resources 471Learning Goals in Review 474MyLab Operations Management Resources 474Key Terms 475Solved Problems 475Discussion Questions 480Problems 481Active Model Exercise 493

Case Flashy Flashers, Inc. 493

PART 3 Managing Supply Chains 497

12 SUPPLY CHAIN DESIGN 497

Amazon.com 497Creating an Effective Supply Chain 499Supply Chains for Services and Manufacturing 501

Services 501Manufacturing 502

Measuring Supply Chain Performance 503Inventory Measures 503Financial Measures 505

Strategic Options for Supply Chain Design 506Efficient Supply Chains 507Responsive Supply Chains 507Designs for Efficient and Responsive Supply

Chains 509Mass Customization 510

Competitive Advantages 510Supply Chain Design for Mass

Customization 511Outsourcing Processes 511Managerial Practice 12.1 Outsourcing in the Food Delivery

Business 512Vertical Integration 514Make-or-Buy Decisions 514Learning Goals in Review 515MyLab Operations Management Resources 515Key Equations 516Key Terms 516Solved Problem 516Discussion Questions 517Problems 517

Video Case Supply Chain Design at Crayola 520Experiential Learning 12.1 Sonic Distributors 521Case Brunswick Distribution, Inc. 522

13 SUPPLY CHAIN LOGISTIC NETWORKS 525

Airbus SAS 525Factors Affecting Location Decisions 528

Dominant Factors in Manufacturing 528Dominant Factors in Services 530

Load–Distance Method 531Distance Measures 532Calculating a Load–Distance Score 532Center of Gravity 533

Break-Even Analysis 535Transportation Method 537

Setting Up the Initial Tableau 537Dummy Plants or Warehouses 537Finding a Solution 538

Geographical information Systems 539Using GIS 539

Managerial Practice 13.1 Using GIS to Find Locations for Fast-Food Restaurants 540

The GIS Method for Locating Multiple Facilities 540inventory Placement 541A Systematic Location Selection Process 542


Video Case Continental Tire: Pursuing a Winning Plant Decision 554

Case R.U. Reddie for Location 555

14 SUPPLY CHAIN INTEGRATION 557

Coral Princess 557Supply Chain Disruptions 560

Causes of Supply Chain Disruptions 560Supply Chain Dynamics 562Integrated Supply Chains 562

Additive Manufacturing 563Supply Chain Implications of AM 564Enablers of Adopting AM 565

New Service or Product Development Process 566Design 566Analysis 567Development 567Full Launch 567

Supplier Relationship Process 567Sourcing 567Design Collaboration 571Negotiation 571

Managerial Practice 14.1 The Consequences of Power in an Automotive Supply Chain 572

Buying 573Information Exchange 574

Order Fulfillment Process 575Customer Demand Planning 575Supply Planning 576

CONTENTS xiii


Production 576Logistics 576

Customer Relationship Process 578Marketing 578Order Placement 579Customer Service 579

Supply Chain Risk Management 580Operational Risks 580Financial Risks 581Security Risks 582Performance Measures 584Learning Goals in Review 585MyLab Operations Management Resources 585Key Equations 585Key Terms 586Solved Problems 586Discussion Questions 588Problems 588

Video Case Sourcing Strategy at Starwood 593Case Wolf Motors 594

15 SUPPLY CHAIN SUSTAINABILITY 595

FedEx 595The Three Elements of Supply Chain Sustainability 597Reverse Logistics 599

Supply Chain Design for Reverse Logistics 599Financial Implications 600

Energy Efficiency 601Transportation Distance 601Freight Density 603Transportation Mode 605

Disaster Relief Supply Chains 606Organizing for Disaster Relief 606Managing Disaster Relief Operations 607

Managerial Practice 15.1 Using Drones in Disaster Relief 608

Supply Chain Ethics 609Buyer–Supplier Relationships 609Facility Location 610Inventory Management 610

Managing Sustainable Supply Chains 611Learning Goals in Review 611MyLab Operations Management Resources 611Key Equation 612Key Terms 612Solved Problems 612Discussion Questions 614Problems 614

Video Case Supply Chain Sustainability at Clif Bar & Company 616

Appendix NORMAL DISTRIBUTION 617

Selected References 619

Glossary 627

Name Index 639

Subject Index 643

MyLab Operations Management SupplementsSUPPLEMENT E Simulation E-1

SUPPLEMENT F Financial Analysis F-1

SUPPLEMENT G Acceptance Sampling Plans G-1

SUPPLEMENT H Measuring Output Rates H-1

SUPPLEMENT I Learning Curve Analysis I-1

SUPPLEMENT J Operations Scheduling J-1

SUPPLEMENT K Layout K-1

xiv CONTENTS


xv

PrefaceNew to This EditionThe profession of operations management is constantly evolving as new technologies, innova-tive ideas, and increasing competition enter the global picture. Since the eleventh edition we have monitored events and developments in operations management and made the twelfth edi-tion the most relevant text to date for all business students regardless of their major. Here are the highlights of the new material for this edition:

Unifying Central Figure We have introduced a new figure to introduce each chapter that embodies our philosophy of opera-tions management. We adhere to the “building block” approach to teaching operations management. In Part 1, we discuss how to de-sign and manage processes, sometimes referred to as “journeys” in practice, at the firm level. These processes must effectively satisfy customer demands. In Part 2, we discuss how firms forecast their demands and satisfy them with appropriate inventory and sched-uling practices. In Part 3, we show how the building blocks are connected into supply chains, linking the processes in one firm with those of another. All three levels of the diagram are linked with feedback loops.

Chapter Opening Vignettes Each chapter opens with a real-world example of a company addressing the topic of that chapter. In this edition we have introduced five new vignettes highlighting the opera-tions of CVS Pharmacy, Airbus, Microsoft, Ford Motor Company, and the Burj Khalifa, the tallest building in the world.

Using Operations to Create Value

Part 1Managing Processes

Designing andoperating processes in the firm

Part 2Managing Customer Demand

Forecasting demands and devlopinginventory plans and operting schedules

Part 3Managing Supply Chains

Designing an integrated and sustainable supplychain of connected processes between firms

Managing Processes

Managing Supply Chains

Process Strategy and AnalysisQuality and Performance

Capacity PlanningConstraint Management

Lean SystemsProject Management

Forecasting InventoryManagement Operations Planningand Scheduling Resource Planning

Supply Chain Design Supply Chain Logistics Networks

Supply Chain IntegrationSupply Chain Sustainability

Managing Customer Demand

Managerial Practices It is important for the understanding of operations management to provide many examples of current practices. In this edition, we have added eleven new managerial practices, ranging from the scheduling of major league baseball umpires to the use of drones in a disaster-relief supply chain.

Video Cases Fourteen chapters have a video case showing actual managers dealing with an important operating problem. Each video has an associated case in the text, along with thought-pro-voking questions to generate discussion. In this edition we have two new video cases, one featuring TASER and its quality program, and the other featuring Choice Hotels and their major information

technology project. Videos of all fourteen cases appear in MyLab Operations Management.

New Topics The field of operations management is typically at the vortex of the storm when disruptive technologies become available. To keep the twelfth edition at the cutting edge of operations management, we have added three new sections dealing with the latest in new technology and its effects on the opera-tions of a firm. In Chapter 1, “Using Operations to Create Value,” we discuss the Internet of Things (IoT), which relates to the interconnectivity of objects that can collect and exchange data without human intervention. IoT has implications for product design and development, healthcare, inventory management, and logis-tics, to name a few. In Chapter 8, “Forecasting,” the use of big data for forecasting demand is shown to have great potential for operations management. Big data re-fers to the use of huge, complex databases, often generated by the IoT, for predict-ing the demand for products and services. Finally, Chapter 14, “Supply Chain Integration,” discusses how a disruptive technology such as additive manufacturing (AM) can reduce material inputs and make supply chains more flexible. AM, also called 3-D printing, cre-ates products on demand by laying down successive layers of material to fabricate a 3-D object.

ContinuousImprovement

EmployeeInvolvement

AnalyticalProcess Thinking

Planning

Training

EmpowermentCustomer FocusManagement by Fact

ManagementCommitment& Leadership


xvi PREFACE

In addition to discussing the impact of new technologies on operations, we have added a new section in Chapter 3, “Quality and Performance,” that introduces a systems approach to total quality management and emphasizes its importance with an integrating diagram that ex-plains the interactions between continuous improvement, employee involvement, management commitment, and analytical process thinking.

Solving Teaching and Learning ChallengesMany students who take the introduction to operations management course have difficulty seeing the relevance of a process view of a business or the concepts of competitive priorities, throughput, and sustainability to their lives and their careers. Teaching can be a challenge when students are not motivated and get little reinforcement in what they have learned. We have found that students get motivated when they study concepts, techniques, and methods that are actually used in practice, and they get reinforcement when they can apply what they have learned. As for motivation, we have designed the twelfth edition on four pillars:

▪▪ Practical. This text is written from a managerial perspective. There are many examples of problems typically experienced in practice and the decision tools used to analyze them. The explanations are intuitive and provide a basis for students to apply the concepts and techniques in practice.

▪▪ Current. The chapter opening vignettes, managerial practices, videos, and photos connect the topics covered in the text to present-day practice and issues.

▪▪ Comprehensive. The twelfth edition covers all of the new and traditional topics managers need to know to make their processes competitive weapons in a dynamic environment. Regardless of the functional area, processes are the means to get work done.

▪▪ Understandable. The twelfth edition has numerous diagrams clearly showing the concepts or techniques being discussed. We took care to avoid unnecessary jargon. Key terms are defined in the margins of the paragraph where they are used, and key equations are listed at the end of the chapter. Further, each learning goal for a chapter is repeated at the end of the chapter with guidelines for review. All of these features are in the twelfth edition to enhance clarity and make the text much more accessible to students of all majors.

The following testimonials are exemplary of the value students are finding in the text.

The Krajewski, Malhotra, Ritzman text was instrumental in my success in my career preparation, university project work, and job-hunting process. As I had not been previously exposed to operations management, the text was an excellent introduction to the field and the vast variety of management related career opportunities. It also helped lay a strong conceptual foundation that positioned me for success throughout my advanced supply chain management courses. I found it most useful during my work as student consultant as the text’s in-depth explanation of inventory management helped my group and I design an inventory replenishment tool for the Sonoco Company.

Further, the work’s clear and concise explanations of operations management concepts prepared me to ace technical questions during both internship and job interviews. Its powerful descriptions have positioned me for success in my future career by instilling a deep understanding of core management principles. After working with this text, I am confident that I will be able to implement lean techniques in my position after graduation.

Jessica ThiergartnerGlobal Supply Chain and Operations Management | International BusinessUniversity of South Carolina Honors College (2017)

The Krajewski, Malhotra, Ritzman text laid an amazing foundation for me as I started my Global Supply Chain and Op-erations Management journey as I earned my International MBA. The text was laid out in a logical way that enabled students to start with the basics and build upon that knowledge as we worked through each chapter. I was able to easily follow along as the professor taught, and I found the text to be an excellent source to refer to when something the professor taught was not perfectly clear to me by the end of class. The videos and stories were especially helpful in understanding how each of the concepts could be applied to real-world situations. I am an individual who learns by example, so having specific examples that I could learn about and understand truly helped me to know how I would use the concepts in my future career.

I also used this text extensively during my internship with a logistics company. As I worked on challenging projects that incorporated many of the concepts discussed in the book, I referred to the text to refresh my memory and to make sure I was implementing practices and processes in the correct way. The material was presented in a way that made it easy to translate into real-world use.

Jean McDowellInternational MBA Candidate (2017)Darla Moore School of Business


PREFACE xvii

As for reinforcement by applying what they have learned, the twelfth edition provides am-ple opportunity for students to engage with the content.

▪▪ Examples and Solved Problems. Many students struggle with quantitative problem solv-ing. To help students who have difficulty, in the twelfth edition each technique or interim calculation has an associated example problem in the chapter where it is discussed and a solved problem showing the entire technique for another problem at the end. In each case the problem and all the steps toward solution are clearly demonstrated. Similar solved problems appear in MyLab Operations Management.

INVENTORY MANAGEMENT CHAPTER 9 351

for the economic order quantity, or TBOEOQ. Because demand is variable, some orders will be larger than the EOQ and some will be smaller. However, over an extended period of time, the average lot size should be close to the EOQ. If other models are used to determine the lot size (e.g., those described in Supple-ment C, “Special Inventory Models”), we divide the lot size chosen by the annual demand, D, and use this ratio as P. It will be expressed as the fraction of a year between orders, which can be converted into months, weeks, or days as needed.

Selecting the Target Inventory Level when Demand Is Variable and Lead Time Is ConstantNow, let us calculate the target inventory level, T, when demand is variable but the lead time is constant. Figure 9.13 reveals that an order must be large enough to make the inventory posi-tion, IP, last beyond the next review, which is P time periods away. The checker must wait P periods to revise, correct, and reestablish the inventory position. Then, a new order is placed, but it does not arrive until after the lead time, L. Therefore, as Figure 9.13 shows, a protection interval of P + L periods is needed. A fundamental difference between the Q and P systems is the length of time needed for stockout protection. A Q system needs stockout protection only during the lead time because orders can be placed as soon as they are needed and will be received L periods later. A P system, however, needs stockout protection for the longer P + L protection interval because orders are placed only at fixed intervals, and the inventory is not checked until the next designated review time.

As with the Q system, we need to develop the appropriate distribution of demand during the protection interval to specify the system fully. In a P system, we must develop the distribution of demand for P + L time periods. The target inventory level T must equal the expected demand dur-ing the protection interval of P + L periods, plus enough safety stock to protect against demand uncertainty over this same protection interval. We assume that lead time is constant and that demand in one period is independent of demand in the next period. Thus, the average demand during the protection interval is d (P + L), or

T = d (P + L) + Safety stock for the protection interval

We compute safety stock for a P system much as we did for the Q system. However, the safety stock must cover demand uncertainty for a longer period of time. When using a normal probability distribution, we multiply the desired standard deviations to implement the cycle-service level, z, by the standard deviation of demand during the protection interval, sP + L. The value of z is the same as for a Q system with the same cycle-service level. Thus,

Safety stock = zsP + L

Based on our earlier logic for calculating sdLT we know that the standard deviation of the distribution of demand during the protection interval is

sP + L = sd2P + L

Because a P system requires safety stock to cover demand uncertainty over a longer time period than a Q system, a P system requires more safety stock; that is, sP + L exceeds sdLT. Hence, to gain the convenience of a P system requires that overall inventory levels be somewhat higher than those for a Q system. Example 9.9 demonstrates the calculation of P and T for the bird feeder example.

MyLab Operations ManagementTutor 9.5 in MyLab Operations Management provides a new example to determine the review interval and the target inventory for a P system.

Large, fixed-capacity modes of transportation require defined schedules of operation. Such a situation supports the use of periodic review sys-tems. Here ocean vessels await loads of petrochemicals at the Vopak terminal in the Port of Rotterdam.

Pict

ure

Cont

act B

V/Al

amy

Calculating P and TEXAMPLE 9.9

Again, let us return to the bird feeder example. Recall that demand for the bird feeder is normally distrib-uted with a mean of 18 units per week and a standard deviation in weekly demand of 5 units. The lead time is 2 weeks, and the business operates 52 weeks per year. The Q system developed in Example 9.6 called for an EOQ of 75 units and a safety stock of 9 units for a cycle-service level of 90 percent. What is the equivalent P system? Answers are to be rounded to the nearest integer.

M09_KRAJ1062_12_SE_C09.indd 351 8/30/17 4:07 PM

INVENTORY MANAGEMENT CHAPTER 9 359

c. Inventory position = On@hand inventory + Scheduled receipts - Backorders

IP = OH + SR - BO = 40 + 440 - 0 = 480 mixers

Because IP (480) exceeds R (373), do not place a new order.

Solved Problem 5Suppose that a periodic review (P) system is used at the distributor in Solved Problem 4, but otherwise the data are the same.

a. Calculate the P (in workdays, rounded to the nearest day) that gives approximately the same number of orders per year as the EOQ.

b. What is the target inventory level, T? Compare the P system to the Q system in Solved Problem 4.

c. What is the total annual cost of the P system?

d. It is time to review the item. On-hand inventory is 40 mixers; receipt of 440 mixers is scheduled, and no backorders exist. How much should be reordered?

SOLUTION

a. The time between orders is

P =EOQ

D (260 days/year) =

44026,000

(260) = 4.4, or 4 days

b. Figure 9.15 shows that T = 812 and safety stock = (1.41)(79.37) = 111.91, or about 112 mixers. The corresponding Q system for the countertop mixer requires less safety stock.

c. The total annual cost of the P system is

C =dP2

(H ) +DdP

(S) + (H )(Safety stock)

C =(100)(4)

2 ($9.40) +

26,000(100)(4)

($35) + ($9.40)(1.41)(79.37)

= $5,207.80

d. Inventory position is the amount on hand plus scheduled receipts minus backorders, or

IP = OH + SR - BO = 40 + 440 - 0 = 480 mixers

The order quantity is the target inventory level minus the inventory position, or

Q = T - IP = 812 mixers - 480 mixers = 332 mixers

An order for 332 mixers should be placed.

◀ FIGURE 9.15OM Explorer Solver for Inventory Systems

1.41

Continuous Review (Q) Systemz

73Safety Stock

373Reorder Point

$4,822.38Annual Cost

4.00

Periodic Review (P) SystemTime Between Reviews (P) Days

Enter manually

79.37Standard Deviation of Demand During Protection Interval

112Safety Stock

812Target Inventory Level (T)

$5,207.80Annual Cost

700Average Demand During Protection Interval

M09_KRAJ1062_12_SE_C09.indd 359 8/30/17 4:07 PM

▪▪ Discussion Questions and Problems. Instructors can use the discussion questions in class to spark dialog of various issues and managerial situations. The problems are grouped under learning goals to make it easier for instructors assign problems that cover all goals, both in the text and in MyLab Operations Management. Students can complete assignments on MyLab Operations Management and receive instant feedback. Tutorials are available to assist students in learning the techniques and methods for solving common operating problems.

152 PART 1 MANAGING PROCESSES

$80,000 at the end of year 0 and an additional investment of $170,000 at the end of year 3. The pretax profit is $2 per meal. What are the pretax cash flows for this alternative through year 5, compared with the base case?

SOLUTION

Table 4.1 shows the cash inflows and outflows. The year 3 cash flow is unusual in two respects. First, the cash inflow from sales is $50,000 rather than $60,000. The increase in sales over the base is 25,000 meals (105,000 - 10,000) instead of 30,000 meals (110,000 - 80,000) because the restaurant’s capacity falls somewhat short of demand. Second, a cash outflow of $170,000 occurs at the end of year 3, when the second-stage expansion occurs. The net cash flow for year 3 is $50,000 - $170,000 = - $120,000.

For comparison purposes, the NPV of this project at a discount rate of 10 percent is calculated as follows, and equals negative $2,184.90.

TABLE 4.1 CASH FLOWS FOR TWO-STAGE EXPANSION AT GRANDMOTHER’S CHICKEN RESTAURANT

YearProjected Demand

(meals/yr)Projected Capacity

(meals/yr)Calculation of Incremental Cash Flow Compared

to Base Case (80,000 meals/yr) Cash Inflow (outflow)

0 80,000 80,000 Increase kitchen capacity to 105,000 meals = ($80,000)

1 90,000 105,000 90,000 - 80,000 = (10,000 meals)($2/meal) = $20,000

2 100,000 105,000 100,000 - 80,000 = (20,000 meals)($2/meal) = $40,000

3 110,000 105,000 105,000 - 80,000 = (25,000 meals)($2/meal) = $50,000

Increase total capacity to 130,000 meals = ($170,000)

($120,000)

4 120,000 130,000 120,000 - 80,000 = (40,000 meals)($2/meal) = $80,000

5 130,000 130,000 130,000 - 80,000 = (50,000 meals)($2/meal) = $100,000

Discussion Questions1. What are the economies of scale in college class size? As

class size increases, what symptoms of diseconomies of scale appear? How are these symptoms related to cus-tomer contact?

2. A young boy sets up a lemonade stand on the corner of College Street and Air Park Boulevard. Temperatures in the area climb to 100°F during the summer. The inter-section is near a major university and a large construc-tion site. Explain to this young entrepreneur how his

business might benefit from economies of scale. Explain also some conditions that might lead to diseconomies of scale.

3. Identify an industry in which expansionist strategy has generally been followed by most firms in the past. Under which conditions will it be better for a firm to follow the wait-and-see strategy rather than the expansionist strat-egy? Then identify a firm or an industry that has done so successfully.

NPV = -80,000 + (20,000/1.1) + [40,000/(1.1)2] - [120,000/(1.1)3] + [80,000/(1.1)4] + [100,000/(1.1)5]

= - $80,000 + $18,181.82 + $33,057.85 - $90,157.77 + $54,641.07 + $62,092.13

= -$2,184.90

On a purely monetary basis, a single-stage expansion seems to be a better alternative than this two-stage expansion. However, other qualitative factors as mentioned earlier must be considered as well.

ProblemsThe OM Explorer and POM for Windows software is avail-able to all students using the 12th edition of this textbook. Go to http://www.pearsonhighered.com/krajewski to download these computer packages. If you purchased MyLab Operations Management, you also have access to Active Models software and significant help in doing the following problems. Check with your instructor on how best to use these resources. In many cases, the instructor wants you to understand how to do

the calculations by hand. At the least, the software provides a check on your calculations. When calculations are particularly complex and the goal is interpreting the results in making deci-sions, the software replaces entirely the manual calculations.

Problems 20, 21, 22, 23, 24, and 25 require reading of Supplement A, “Decision Making.” Problems 15, 16, 17, 24, and 25 require reading of MyLab Operations Management Supplement F, “Financial Analysis.”

M04_KRAJ1062_12_SE_C04.indd 152 9/1/17 1:41 PM


xviii PREFACE

▪▪ Cases. Students can test their understanding of the content using cases in two ways. First, the twelfth edition has 14 video cases. Each video case has two parts, a written case describing a problem experienced by a real company along with several questions asking how the student might resolve the issue at hand, and a video on MyLab Operations Management showing the actual setting for the case and discussions with managers regarding the problem. Each format provides a rich environment to discuss the topic of the chapter. The second way instructors can engage students is to use any of the thirteen written cases in the text. These cases often provide data that students can use with techniques in the text to resolve an issue.

324 PART 2 MANAGING CUSTOMER DEMAND

Deckers ships 50 containers a week from its Chinese manufacturing sources, each holding approximately 5,000 pairs of shoes. Ownership of the finished goods transfers from the factories to Deckers in Hong Kong.

When the shipping containers arrive in the United States, the footwear is transferred to Deckers’s distribution centers in southern California. Teva products are warehoused in Ventura, California; all other products are handled by the company’s state-of-the-art facility in Camarillo, California. Typically, Deckers brings product into the distribution centers 2 to 3 months in advance of expected needs so that the production at the suppliers’ factories and the labor activities at the distribution centers are leveled. There are definitive spikes in the demand for footwear, with Teva spiking in quarter 1 and UGG spiking in quarter 4. The leveling approach works to keep costs low in the supply chain. However, it also means that Deckers must maintain sizable inventories. Most shipments from suppliers come in to the distribution centers and are stored in inventory for 1 to 2 months awaiting a customer order. By the time the footwear is stocked in the distribution center, the company knows which retail custom-ers will be getting the various products, based on the orders booked months earlier. Then, according to delivery schedules negotiated with the customers, the company begins filling orders and shipping products to retail locations. The warehouse tracks incoming shipments, goods placed on the shelves for customers, and outgoing orders. The inventory system helps manage the cus-tomer order filling process.

Because the booked orders are a relatively large proportion of the total orders from retailers, and the number of unanticipated orders is very small, only small safety stocks are needed to service the retailers. Occasionally, the purchase order from Deckers to one of its suppliers matches the sales order from the customer. In such a case, Deckers uses a “cross-dock” system. When the shipment is received at the distribution center, it is immediately checked in and loaded on another truck for delivery to customers. Cross docking reduces the need to store vast quantities of product for long periods of time and cuts down on warehousing expenses for Deckers. The company has been success-ful in turning its inventory over about four times a year, which is in line with footwear industry standards.

The online sales traffic is all managed centrally. In fact, for ordering and inventory management purposes, the online side of the business is treated just like another major retail store account. As forecasted seasonal orders are generated by each brand’s sales team, a manufacturing order for the online business is placed by the e-commerce sales team at the same time. However,

unlike the retail outlets that take delivery of products on a regular schedule, the inventory pledged to the online business is held in the distribution center until a website order is received. Only then is it shipped directly to the consumer who placed the online order. If actual demand exceeds expected demand, Char Nicanor-Kimball checks if more inventory can be secured from other customer orders that have scaled back.

The forecasting and supply chain management challenges now facing Deckers are twofold. First, the company plans to grow the brands that have enjoyed seasonal sales activity into yearround footwear options for consumers by expanding the number of products for those brands. For example, most sales for UGG footwear occur in the fall/winter season. Sales for Teva historically have been in the spring and summer. Product managers are now working to develop styles that will allow the brands to cross over the seasons. Second, the company plans to expand internationally, and will have retail outlets in Europe, China, and other Asian locations in the very near future. Company managers are well aware of the challenges and opportunities such global growth will bring, and are taking steps now to ensure that the entire supply chain is pre-pared to forecast and handle the demand when the time comes.

QUESTIONS1. How much does the forecasting process at Deckers correspond with the

“typical forecasting process” described at the end of this chapter?2. Based on what you see in the video, what kinds of information technology

are used to make forecasts, maintain accurate inventory records, and project future inventory levels?

3. What factors make forecasting at Deckers particularly challenging? How can forecasts be made for seasonal, fashionable products for which there is no history file? What are the costs of overforecasting demand for such items? Underforecasting?

4. What are the benefits of leveling aggregate demand by having a portfolio of products that create a 365-day demand?

5. Deckers plans to expand internationally, thereby increasing the vol-ume of shoes it must manage in the supply chain and the pattern of material flows. What implications does this strategy have on forecast-ing, order quantities, logistics, and relationships with its suppliers and customers?

CASE Yankee Fork and Hoe Company

The Yankee Fork and Hoe Company is a leading producer of garden tools ranging from wheelbarrows, mortar pans, and hand trucks to shovels, rakes, and trowels. The tools are sold in four different product lines ranging from the top-of-the-line Hercules products, which are rugged tools for the toughest jobs, to the Garden Helper products, which are economy tools for the occasional user. The market for garden tools is extremely competitive because of the simple design of the products and the large number of competing producers. In addition, more people are using power tools, such as lawn edgers, hedge trim-mers, and thatchers, reducing demand for their manual counterparts. These factors compel Yankee to maintain low prices while retaining high quality and dependable delivery.

Garden tools represent a mature industry. Unless new manual products can be developed or a sudden resurgence occurs in home gardening, the

prospects for large increases in sales are not bright. Keeping ahead of the competition is a constant battle. No one knows this better than Alan Roberts, president of Yankee.

The types of tools sold today are, by and large, the same ones sold 30 years ago. The only way to generate new sales and retain old customers is to provide superior customer service and produce a product with high cus-tomer value. This approach puts pressure on the manufacturing system, which has been having difficulties lately. Recently, Roberts has been receiving calls from long-time customers, such as Sears and True Value Hardware Stores, complaining about late shipments. These customers advertise promotions for garden tools and require on-time delivery.

Roberts knows that losing customers like Sears and True Value would be disastrous. He decides to ask consultant Sharon Place to look into the matter

M08_KRAJ1062_12_SE_C08.indd 324 10/5/17 7:07 PM

280 PART 1 MANAGING PROCESSES

VIDEO CASE Project Management at Choice Hotels International

Choice Hotels International is the company behind well-known hotel brands that range from budget-friendly EconoLodge and Rodeway Inns to Quality, Comfort Inns and its luxury brands, Ascend and Cambria. Over 6,400 proper-ties are part of the franchisor’s offerings in both domestically and abroad. This translates to over 500,000 rooms around the globe.

To help hotel guests find and book those rooms, Choice Hotels maintains a robust central reservation system, or CRS, that must connect travel agents, online reservation websites such as Trivago and Kayak, and mobile app users to the company’s daily available inventory. On the back end, the system also must connect to each property’s front check-in desk system and the organization’s revenue management systems. For Choice, the CRS is the heart of their hotel operations and it could not operate without it.

The company first developed its CRS back in the 1980s using the latest project management techniques and information technology (IT) available. But the company’s growth, coupled with dramatic changes in information technol-ogy and the cost of maintaining inflexible systems built for last century busi-ness that couldn’t scale with growth, have compelled the organization in 2014 to embark on a multi-million dollar, multi-year project, called choiceEDGE, to replace this mission-critical system by 2017.To replace such a vital system, Todd Davis, Choice’s Chief Information Officer (CIO), knew they couldn’t just remove the old software and hardware systems and then plug in brand-new ones. The risk was too high. Nor could they rely on a linear systems develop-ment approach that would require the company to deliver a finished solution that would be outdated at the end of several years of work. The world of business and technology were changing too rapidly to wait. The company has seen hospitality industry competitors spend hundreds of millions doing just that, with failed outcomes.

Instead, senior management at Choice Hotels committed to a new IT proj-ect management approach, called “Agile,” that allowed development to occur iteratively around “projects within projects” so as each requirement outlined in its work breakdown structure (WBS) was completed, it could be deployed without disruption to the entire enterprise. This approach both minimized risk of business disruption and allowed new features to be seamlessly rolled out without the need for major workforce training initiatives. It also allowed fran-chisees to start seeing the benefit of the new “heart” just months after helping to define the desired business outcomes instead of waiting years.

To get started, Choice defined its project scope and objectives with input from its various stakeholders: thousands of franchisees, dozens of external business partners, millions of customers, and thousands of employees. Brian Kirkland, Vice President of Engineering, was chosen to head up the project team of nearly 120 systems architects, “scrum masters” (daily project man-agers), software developers, and quality assurance professionals at Choice’s Scottsdale, Arizona location. From the start, Kirkland wanted the team to use all the tools available to manage the project. For example, early on in the project, Denise Tower, Director of IT Project Management and Delivery, used a WBS and Gantt charts to identify the critical path. Kirkland and his team quickly realized that the system’s underlying distribution engine (the platform upon which all the functionality rested) was in the critical path. Any problems or delays would cause downstream delays and cost the com-pany software programmer idle time. So resources were shifted to getting this core system functionality in place and off the critical path. Resources

were then redirected back toward completion of the business outcomes that relied on the distribution engine, which were delivered weekly through-out the project’s entire development process. Daily monitoring meetings, called “daily stand-ups,” were held each morning to keep the focus on the work at hand, and assured issues got priority attention for resolution to avoid those parts of the project ending up in the critical path and causing downstream delays.

Today, choiceEDGE is capable of quickly scaling to meet the business demands it faces in the competitive hospitality industry. The system processes over 250 million transactions a day that include simple shopping queries for room rates and availability, pricing and inventory updates, or actual room book-ings. Amazon Web Services is used for cloud storage. And as the demand for mobile access to its systems continues to grow, the company’s IT department is equipped to rapidly respond.

QUESTIONS:1. Assess the four categories of a risk-management plan for the choiceEDGE

project. Given the information in the case, how risky is this project for Choice Hotels?

2. Go online to research “Agile” information systems development and the role of “scrum masters” in helping organizations manage successful IT projects. Why are leading organizations now turning to this approach for developing their systems projects?

3. Assume you are Denise Tower and have responsibility for the overall management of the choiceEDGE IT project. Describe what you might need to do to monitor and control the project to assure scope, budget, and schedule are managed.

Choi

ce H

otel

s In

tern

atio

nal,

Inc.

Cambria Hotels and Suites, such as this one on Times Square in New York, is a luxury product of Choice Hotels. With over 6,400 properties across all of its brands, and more than 500,000 rooms to fill, Choice must have a flexible and reliable reservation system to remain competitive.

M07_KRAJ1062_12_SE_C07.indd 280 10/5/17 5:23 PM

▪▪ Experiential Learning and Active Model Exercises. Perhaps the most engaging, and fun, activities in the twelfth edition are the experiential learning and active model exercises. There are five time-tested experiential learning exercises that require students to form teams for work both in and out of class on exercises that involve them in team-based discussion ques-tions and decisions. Two of these experiences are competitive decision simulations that often generate intense interest in the students. In addition, there are 29 active model spreadsheets that require students to evaluate different situations based on problem scenarios. These mod-els are perfect for asking “what if” questions and learning from the results.

All told, the twelfth edition has the elements to support student motivation and reinforce-ment and, along with a host of Instructor Resources, it solves most of the teaching and learning challenges involved in the introduction to operations management course.


PREFACE xix

MyLab Operations ManagementReach every student with MyLab Operations Management—MyLab Operations Management is the teaching and learning platform that empowers you to reach every student. By combining trusted author content with digital tools and a flexible platform, MyLab Operations Management person-alizes the learning experience and improves results for each student. Learn more about MyLab Operations Management.

Deliver trusted content—You deserve teaching materials that meet your own high standards for your course. That’s why we partner with highly respected authors to develop interactive content and course-specific resources that you can trust—and that keep your students engaged.

Empower each learner—Each student learns at a different pace. Personalized learning pinpoints the precise areas where each student needs practice, giving all students the support they need—when and where they need it—to be successful.

Teach your course your way—Your course is unique. So whether you’d like to build your own assignments, teach multiple sections, or set prerequisites, MyLab Operations Management gives you the flexibility to easily create your course to fit your needs.

Improve student results—When you teach with MyLab Operations Management, student perfor-mance improves. That’s why instructors have chosen MyLab Operations Management for over 15 years, touching the lives of over 50 million students.

Developing Employability SkillsFor students to succeed in a rapidly changing job market, they need to develop a variety of skills. We have identified seven critical skills that recruiters look for in students seeking a career in business. The matrix shows how major elements of the twelfth edition map into those essen-tial skills.

Employability Skills in KMR 12e

Text Elements CommunicationCritical

Thinking Collaboration

Knowledge Application

and Analysis

Business Ethics

and Social Responsibility

Information Technology

Application and Computing Skills

Data Literacy

Active Model Exercises ✓ ✓ ✓

Cases ✓ ✓ ✓ ✓ ✓

Chapter Opening Vignettes ✓ ✓

Discussion Questions ✓ ✓

Experiential Learning ✓ ✓ ✓ ✓

Managerial Practices ✓ ✓

Numerical Examples ✓ ✓

OM Explorer and POM for Windows

✓

Photo Illustrations ✓

Problems ✓ ✓ ✓ ✓

Solved Problems

and MyLab Operations Management Problem Videos

✓ ✓


xx PREFACE

instructor Teaching ResourcesThis text comes with the following teaching resources.

Supplements available to instructors www.pearsonhighered.com/

krajewski Features of the Supplement

Instructor’s Manual # Chapter-by-chapter summaries

# Examples and activities not in the main book

# Teaching outlines

# Teaching tips

# Solutions to all questions and problems in the book

Solutions Manual Solutions to the end-of-chapter content and video cases

Test Bank More than 1,500 multiple-choice, true/false, short- answer, and graphing questions with these annotations:

# Difficulty level (Easy for straight recall, Moderate for some analysis, Difficult for complex analysis)

# Type (Multiple-choice, true/false, short-answer, essay

# Topic (The term or concept the question supports)

# Learning outcome

# AACSB learning standard (Written and Oral Communication; Ethical Understanding and Reasoning; Analytical Thinking; Information Technology; Interpersonal Relations and Teamwork; Diverse and Multicultural Work; Reflective Thinking; Application of Knowledge)

Computerized TestGen TestGen allows instructors to:

# Customize, save, and generate classroom tests

# Edit, add, or delete questions from the Test Item Files

# Analyze test results

# Organize a database of tests and student results

PowerPoints Slides include all the graphs, tables, and equations in the textbook.

PowerPoints meet accessibility standards for students with disabilities. Features include, but not limited to,

# Keyboard and Screen Reader access

# Alternative text for images

# High color contrast between background and foreground colors

AcknowledgementsNo book is just the work of the authors. We greatly appreciate the assistance and valuable contri-butions by several people who made this edition possible. Thanks to Beverly Amer of Aspenleaf Productions for her efforts in filming and producing the new video segments for this edition. Special thanks are due to Howard Weiss of Temple University whose expertise in upgrading the software for this book is greatly appreciated.

We would like to thank the people at Pearson, including Stephanie Wall, Jeff Holcomb, Melissa Feimer, and Yasmita Hota, and Heather Winter, Nicole Suddeth, Raja K., Carey Lange, and Adrienne Booth at SPi Global. Without their hard work, dedication, and guidance this book would not have been possible.

Many colleagues at other colleges and universities provided valuable comments and sugges-tions for this and previous editions. In particular, we gratefully acknowledge Moonwon Chung, Jack Jensen, and Giuliano Marodin at the University of South Carolina for their contributions to the twelfth edition.

Finally, we thank our families for supporting us during this project involving multiple emails, teleconference calls and long periods of seclusion. Our wives, Judie, Maya, and Barb, have provided the love, stability, and encouragement that sustained us while we transformed the eleventh edition into the twelfth.


Documents

Operations Management - Pearson Education€¦ · introduction to operations management, operations design, project management, and manufac-turing planning and control systems. Lee