Book Report: Production/Op Mgmt

REVIEW OF PRODUCTION/OPERATIONS MANAGEMENTWilliam J. Stevenson's book, Production/Operations Management provides an up-to-date introduction to the field. The book is well written and makes excellent use of charts, graphs, illustrations and photographs. Each chapter includes learning objectives and a chapter outline at the beginning, and concludes with a summary, a list of key terms and the pages where they are defined, and solved problems. In addition, there are discussion and review questions as well as problems without solutions provided. There are two appendices, one containing solutions to some problems, and the other containing appropriate tables for calculations. Stevenson has also included a number of case studies to encourage the application of what is presented in the text. By making good use of headings and subheadings, and by using shaded areas to call attention to real-world examples, Stevenson has succeeded in creating a text that is eminently readable and useful to students of production and operations management. The text itself is divided into four sections: introduction, forecasting, design of production systems and operating and controlling the system. The bulk of the text (a full eight of 16 chapters) is dedicated to the fourth section, indicating the importance which the author gives to operation and control. Five chapters are dedicated to production system design, with the forecasting section made up of only one chapter. The introduction contains two chapters, an overview of production management and a chapter on decision making.In beginning his book, Stevenson asserts that operations is one of three main functions of any organization; marketing and finance comprise the other two (5). He also defines operations management as being responsible for the management of productive systems, "systems that either create goods or provide services" (4). Recognizing that historically, operations management has concentrated on manufacturing, Stevenson suggests that the scope of operations management has expanded to include both manufacturing and service activities.Expanding on the idea that operations management is responsible for all activities directly related to manufacturing a product or providing a service, the author suggests that operations management is responsible for transforming inputs of resources (people, material, energy, money, information) into useful goods and services. Two main decision areas have emerged within operations management as a result: system design and system operation (11).System design is concerned with decisions related to capacity, location, layout and product/process design. System operation, on the other hand, is concerned with human resources, schedule, inventory, overall project management and quality. The operations manager is charged with maintaining a high level of productivity (14), which Stevenson identifies as the relationship between outputs and inputs.Recognizing that operations and production management has evolved over the years, the author concludes this chapter by identifying issues facing managers today. He identifies government regulation, increased foreign competition, and an exponential rate of growth of technology as having a great influence on the operations manager. At the same time that the manager's world is becoming more complex and subject to the influence of a greater number of variables, there is also a growing emphasis on controlling costs, increasing quality and maintaining a flexible atmosphere. The balance of the book is dedicated to teaching readers how they can accomplish this.The second chapter of the introductory section of the book is dedicated to decision making, which the author identifies as an "integral" part of operations management (42). Stevenson presents a seven-step decision process to aid managers: 1) identify the problem; 2) specify objectives and the decision criteria for choosing a solution; 3) develop alternatives; 4) analyze and compare alternatives; 5) select the best alternative; 6) implement the chosen alternative; and 7) monitor the results to ensure that desired results are achieved (42). The author also introduces the use of quantitative systems models.Stevenson also presents an overview of decision theory, which he identifies as providing a framework for decision analysis. Decision theory includes different techniques which can be classified according to the level of uncertainty associated with the particular problem under consideration (51). Decisions which Stevenson feels are subject to decision theory are characterized by three elements: a set of possible future conditions exists that will have a bearing on the results of the decision; the manager has a list of alternatives to choose from; there is a known payoff for each alternative under each possible future condition (51). The author suggests two visual tools, decision trees and graphical sensitivity analysis, as ways of helping managers using decision theory. There is also a lengthy section on linear programming as a tool for decision making at the end of the chapter.The second section of the book, forecasting, has only one chapter dedicated to it. Stevenson chooses to put this chapter near the beginning of the text because "forecasts are the basis for a wide range of design and operating decisions" (125). In other words, much of what follows in the book assumes a knowledge, or at least a passing understanding, of forecasting. The author is also careful to point out that while forecasts are traditionally thought of as belonging in the province of marketing, operations also is a significant user and developer of forecasts (125).According to Stevenson, forecasts can be either quantitative (measurable) or qualitative (subjective). He presents two quantitative approaches: time series analysis and associative techniques. Time series analysis are historically based and make future predictions based on the behavior of data in the past. Additional variables which might influence the factor at hand are not considered. Associated techniques, such as simple and multiple regression, attempt to account for these variables which will have an impact on the factor being predicted.Qualitative techniques rely on the individual's experience and expertise to make the forecast. Examples of this type of technique include consumer surveys, sales force composites, outside opinion and the Delphi technique. When the Delphi technique is used, a questionnaire is circulated among individuals who have the background to accurately assess the situation at hand. Additional questionnaires are circulated with information gleaned from previous iterations incorporated. The goal is to achieve a consensus forecast from among experts (132).Stevenson cautions that forecasts are predictions of the future, and therefore, subject to inaccuracy. He then presents measures of accuracy which he submits should be incorporated into any forecast. Such measures can identify whether the forecasting technique is valuable or appropriate for the issue, as well as whether the forecast is accurate. Forecasts must be monitored for accuracy, usefulness and cost. When selecting a forecasting technique, managers must align the expected accuracy with the associated cost, and make decisions appropriately. For example, if a forecast which has an accuracy level of 95 percent costs significantly less than a forecast with an accuracy level of 98 percent, the manager must weigh whether an increase of three points is worth the additional cost.The next five chapters are dedicated to the design of production systems. Stevenson recognizes that design decisions are not made just when an organization is starting out (although design decisions made at that time are critical). In fact, design decisions are made throughout the life cycle of an organization. These decisions have an effect on the long-term goals of the organization and the costs associated with doing business. They can be costly and difficult to reverse. Strategic in nature, design decisions encompass product and service design, location planning, process selection and capacity planning, facilities layout and the design of work systems. This section of the text begins with a discussion of product and service design.Product and service design is at the heart of a company's operations because the other design aspects of the organization are based on the product or service in question. The dynamic environment in which today's organizations exist also dictate that product and service design decisions be subject to constant improvement.Although costly, research and development (R & D) is an effective way to develop new products (202). Because of the cost factor, however, relatively few organizations are able to indulge in significant R & D efforts. Design by imitation is less costly than R & D, but does not enable an organization to be the first provider of a product or service. Standardization and reliability are key components of product design. Uniformity of output and related activities yields certain economies, but decreases the differentiation which can be implemented. Reliability has three key components: probability; definition of failure; and prescribed operating conditions (207). Reliability is fundamentally the ability of a part to perform as intended given a certain set of conditions. Measuring and improving reliability are key components of systems design.Two tools which have been developed to aid in product design are computer aided design (CAD) and computer aided manufacturing (CAM). The two are often used in conjunction with one another. Such sophisticated tools are necessary since function and cost, both products of design and manufacturing, are important factors in the success of an organization.Stevenson next turns his attention to location planning, which has long-term ramifications for new and existing organizations, alike. New organizations make location decisions based on their long-term goals, expected rates of growth, product decisions and the capitalization behind the organization. The variables are similar for existing organizations, who must determine whether to expand existing facilities, move the entire operation to new facilities, or settle on some combination of the two.Supply sources, including raw materials and labor supply, influence location decisions. Market conditions, housing availability and climate can all affect a company's location decision. Foreign locations may be attractive because of lower labor costs and raw material availability. These advantages must be considered against the disadvantages of language differences and cultural differences, as well as the stability of the government in the foreign location and their sentiments toward Americans and American companies.In order to decide which location alternative is optimum for an organization, operations managers can first determine a region that meets the overall needs, then identify the communities which may warrant further evaluation. Stevenson presents a number of methods, including location cost-volume analysis and factor rating, which can be used to make determinations among the final alternatives. He also presents a transportation model as a supplement to the chapter.In chapter 6, Stevenson discusses process selection, which refers to the ways an organization produces or provides its products and services. Technology is often a key component of process selection which, in turn, affects capacity planning and equipment procurement (296). The methods used by an organization to produce its product affect productivity, costs, competitiveness and flexibility. New products and changes in existing products provide the reason that most organizations are constantly engaged in some sort of process selection.Involved in process selection is the type of processing currently in use (steady and high-volume, or intermittent and low-volume, for example), the level of automation in use (including computer assisted processing), the amount of flexibility needed, and processing costs.Stevenson defines capacity as a "system's potential for producing goods or delivering services over a specified time interval" (322). Capacity limitations determine operating costs as well as provide a maximum level of output which can be achieved.Full or maximum capacity is seldom realized; a number of factors conspire to prevent this. Among these are facility design and layout, human inefficiency, design, equipment failures and quality factors. Despite this, capacity planning has evolved as an integral part of operations management, with short- and long-term considerations and goals. Short-term considerations include anticipating and reacting to variances in demand. Long-term considerations must account for the overall capacity level, even with short-term seasonal fluctuations.Developing capacity alternatives involves taking a systems approach and realizing that increases in capacity can be acquired in chunks, rather than units. Flexible systems which can adapt to short-term fluctuations are preferable to inflexible systems, and product combinations which can overcome temporary changes in demand in one product area are preferable to a one-product system.Quantitative and qualitative techniques are used to evaluate capacity alternatives. Quantitative techniques are characterized by consideration of economic factors while qualitative techniques may include factors such as public opinion and managers' preferences. Cost-volume analysis, financial analysis and decision theory are also tools which can be used for analyzing and selecting alternatives.Stevenson concludes this chapter with a supplement on financial analysis, including tax considerations and financial evaluation methods such as payback and net present value.Chapter 7, Facilities Layout, includes four-color photographs of John Deere and Apple Computer, among other manufacturers, illustrating the points that Stevenson makes in the text. Layout decisions are directly affected by location, product and capacity decisions discussed earlier.Stevenson identifies three types of processing, each of which has a bearing on facility layout: continuous, intermittent, and project. Continuous processing has a high volume of a few (even one) products. Intermittent processing is able to provide for a broader range of products. Projects are used to plan and co-ordinate complicated jobs with brief life spans. Product layouts are used for continuous processing, process layouts for intermittent processing and fixed-position layouts for projects. Some projects do not require layouts at all. Workers and equipment are allocated based on the technological requirements of the product. The operations manager tries to optimize work flow through the system when designing the layout. Because the alternatives facing the decision maker can be overwhelming, computer software has been developed to help determine the best alternative.Chapter 8, the last chapter in this section of the book, focuses on the design of work systems. Stevenson asserts that work systems involve job design, work measurement and compensation (394).Job design is concerned with what jobs are to accomplish and the method in which they are to accomplish those tasks. In recent years, there has been an increasing awareness of the impact jobs have on workers' behavior and satisfaction, as well. Productivity, which came into increasing popularity during the 1980s, also has influenced job design.Methods analysis and motion studies can be used to determine the efficiency of jobs, but they ignore the behavioral aspects. At the same time, working conditions are an important part of job design in that they can increase efficiency and augment behavioral factors, and can also determine the health and safety of workers.Work measurement refers to efforts to determine how long it should take to complete a given job in a given set of circumstances. Measurements such as this are necessary for human resource planning, cost forecasting, budgeting and scheduling equipment. Stopwatch time studies and predetermined times are two commonly used approaches. Work sampling can also be used to determine activity time.The last eight chapters of the book are dedicated to operating and controlling the system used to produce the product, be it a good or a service. Here Stevenson addresses aggregate planning, inventory management, material requirements planning (MRP), just-in-time systems (JIT), scheduling, project management, waiting lines and quality assurance. This section begins with a bridge between the design aspects of the first chapters and the operating aspects of the last chapters.In fact, aggregate planning seeks to "achieve a production plan that will effectively utilize the organization's resources to satisfy expected demand" within a two- to 18-month timeframe (466). Aggregate planning is between the broad design decisions necessary for the long-term goals of the organization and the detailed short-range decisions that comprise day-to-day operations. Aggregate planning is characterized by an overall forecast for the period in question and methods for applying the plan to specific products.The heart of aggregate planning is the combining of an organization's products and services into one "product." Such a combination enables the planners to consider overall employment and inventory levels without becoming bogged down in the day-to-day details.Stevenson considers inventory management central to the success of most organizations, and devotes the tenth chapter to this issue. Inventory must be maintained at a level which permits optimum output, but which does not burden the company with inefficiency. There are holding costs associated with inventory, just as there are costs associated with providing a given level of customer satisfaction. Inventory management is successful when it is able to balance the two.The author presents four classes of inventory management models: economic order quantity (EOQ), reorder point (ROP), fixed-interval and single-period. If unused parts can be carried over into subsequent periods, then the first three models are used. The single-period model is appropriate, as its name implies, when items cannot be carried over into the next time period.EOQ models are based on how much to order. ROP models are based on when to order and are optimum when there are variations in item availability or lead time. Fixed interval models are useful when the time between orders is predetermined. Stevenson presents formulas for each of these models under various conditions, and discusses their implementation under the same conditions. In Chapter 11, Stevenson addresses a specific information system, material requirements planning (MRP), used to order dependent-demand items, such as components of assembled products (609). Planning begins with customer orders, which are used to develop a schedule showing the timing and quantity of finished products. The finished items are then "exploded" using their bill of materials, and plans are developed indicating the quantity and timing for ordering or producing components.The salient components of MRP are the timeliness of requirements, determining what the components are, and ordering according to planned releases. To be successful, MRP requires computers and accurate schedules along with bills of material and inventory data. The lack of any of these components can cause the failure of the system as a whole.MRP II is the term given to recent innovations in MRP. It refers to manufacturing resource planning and links the business plan with the production plan and the master schedule. It does not replace MRP, nor is it simply an improved version. Instead, MRP II seeks to incorporate marketing and finance within the manufacturing plan.Just-in-time systems (JIT) move items through a system in such a way that the items reach the next point in the system at the exact point they are needed. One of the advantages of such systems is that when successfully implemented, they reduce the inventory that is carried on hand because each item arrives just as it is needed. Because of the nature of JIT, it is best suited to repetitive manufacturing environments (627). JIT demands that an even rate of work flow be maintained as much as possible. High quality is also necessary to the success of the system since any defective parts throw off the entire process. Quick set-ups and special layouts are characteristic of JIT, since they allow for items to be "pulled" through the system. At the same time, problem solving within JIT systems tends to be directed at keeping disruptions to the system at a minimum and making the system more efficient.The benefits of JIT, in addition to lower inventory carrying costs, include high quality, a flexible system, increased productivity and reduced rework due to poor quality.Manufacturers who are considering converting to a JIT system should consider the support both of management and employees, since a high spirit of co-operation is necessary for its successful implementation. This co-operation also carries over into the relationships that the manufacturer enjoys with the suppliers, as vendor compliance with schedules is also necessary for the success of the system.Stevenson next takes on the issue of scheduling, which he identifies as the timing and co-ordination of operations. Scheduling is basic to every organization. Problems arise depending on whether a scheduling system is set up for high volume, intermediate volume, or as a job shop. The complexity increases in job shops because the number of jobs that may be processed is quite large.Two major problems arise in scheduling job shops: assigning jobs to machines and designating the sequence of jobs to be processed at those machines. Gantt charts can be used to help managers obtain a visual picture of the problem (657) and are also useful to describe and sequence alternatives. Scheduling in service systems is significantly different from that in manufacturing. Appointment and reservations systems are often employed, but the goal of balancing the system given the multiple resources involved (customers, human resources) can be complex and difficult to manage.Chapter 14 focuses on project management. Projects are defined has having a unique set of activities which seek to meet a given set of objectives within a certain timeframe (696). Projects are nonroutine in nature and are co-ordinated not by the operations manager directly, but by project managers. Program evaluation and review techniques (PERT) and critical path methods (CPM) are two widely used techniques for managing projects. Both of these methods enable the project manager to have a graphical model of the project. Both provide an estimate of how long the project will take. PERT and CPM both provide an indication of which activities are most critical to complete the project on time. In addition, both provide information which can be used to determine how long any one activity can be delayed without upsetting the entire project schedule.Two different methods are used to construct a network diagram. In one method, arrows are used to show activities. In the other method, nodes are used to show activities. Stevenson uses the arrow method to avoid confusion.Since developing and updating project networks takes a considerable amount of time for even mildly complex projects, computer software programs have been written which can simplify the task. When activity times are generally accepted and subject to little variance, a deterministic approach can be used. When those activity times are subject to greater variance and some degree of uncertainty, a probabilistic approach is called for.In some cases, it is possible to decrease the time it will take to complete a project by decreasing one or more of the component activities. Additional resources can be used to accomplish this, or resources already allocated to the project might be moved about. Projects are generally shortened to the point of realizing some gain over the additional resource cost, or, when resources are moved in an existing project, when gain is realized over any training costs.Waiting lines are associated with service systems and generally form even when the system is underloaded. Customers arrive at random times and service times vary. The result can be temporary overloads. This is the subject of Chapter 15. Waiting lines appear during overload periods, but even with good scheduling techniques, there will be times when human resources (servers) will be idle.When considering waiting lines and queuing systems, it is necessary to consider whether the potential number of customers is unlimited (infinite source) or limited (finite source) (745). Stevenson describes four models for handling infinite source situations, and one model based on a finite source of customers.Only one chapter, the last one, is given to quality assurance, but it is one of Stevenson's longest. Quality assurance is a comprehensive approach that begins with the design phase and which continues even after the product or service has been delivered. Successful quality assurance demands a clear definition of what is acceptable. Goods and services must conform to the standards established by the organization. Samples are taken to determine if the organization is meeting this level of quality since it is not generally feasible to actually examine each product.Stevenson has produced a text which provides a solid understanding of operations management. Although he tries to cover both manufacturing and service industries, his comments on the service area are generally considerably less than those directed at manufacturers, and he might do well to separate the two into different texts. This is a small complaint, however, given the text as a whole.In fact, Stevenson provides a selected bibliography at the end of each chapter as well as short readings from outside sources which serve to give the interested reader additional sources. Those interested in JIT, for example, can find additional sources listed at the end of the chapter.In all, Stevenson has done a good job of producing a text which not only explains the salient points of operations management, but which also serves to expose the reader to considerations which are not readily quantifiable. The book is a good introductory text and is also likely to be used for reference by current operations managers.

SOURCE

Stevenson, William J. Production/Operations Management (Homewood, IL: Irwin, 1990).1