Management Question

‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية اإللكترونية‬

Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University

Department of Business Administration

College of Administrative and Financial Sciences

Assignment 3
Introduction to operations Management (MGT 311)
Due Date: 6th December 2025 @ 23:59

Course Name: Introduction to
Operations Management

Student’s Name:

Course Code: MGT311

Student’s ID Number:

Semester: FIRST

CRN:
Academic Year: 2025-26

For Instructor’s Use only
Instructor’s Name:
Students’ Grade: Marks Obtained/Out
of

Level of Marks: High/Middle/Low

Instructions – PLEASE READ THEM CAREFULLY
• The Assignment must be submitted on Blackboard (WORD format only) via
allocated folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the
cover page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.

• Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
• All answered must be typed using Times New Roman (size 12, double-spaced)
font. No pictures containing text will be accepted and will be considered
plagiarism).
Submissions without this cover page will NOT be accepted
• Place of Submission is Blackboard.
• Weight 10 Marks

Learning Outcomes:
• To understand the concept of transformation and invention of the
Product. (CLO 1)
• To manage the level of Inventory. (CLO 2)
• To take the decision of new product Development. (CLO 5)

Critical Thinking
The Chinese company BYD is pursuing electric cars and hopes to become the world’s largest
car company. With the financial support of American Warren Buffett, the company, which
has only been in existence for a few years mostly making batteries, has caught the attention
of not only Mr. Buffett but also many in the auto industry.
ELECTRIC AND HYBRID CARS
Electric cars (also known as electric vehicles or EVs) rely exclusively on battery power. With
an all-electric EV there is no internal combustion engine, muffler, gasoline tank, air and fuel
filters, and other parts needed to run a gasoline powered system. The vehicle itself also
produces no tailpipe emissions, and by getting its power from an efficient utility company,
overall, it produces fewer greenhouse gases. This is especially true if the electricity is
produced with nuclear power, clean coal, or natural gas. EVs are also less expensive to fuel
on a per mile basis. Electric cars, however, have a shorter driving range and are difficult to
operate with long distance travel.
There is also some safety concerns associated with using a lithium-ion battery, as lithium is a
highly reactive material prone to explosion

1. Do you think electric cars may become a viable alternative to gasoline-powered
vehicles? What is the future of the electric car? Explain your answer especially in the
context of KSA as Saudi Arabia is moving towards carbon free economy. (3 Marks)
2. Given a business strategy of being the word leader in manufacturing electric cars with
innovative technology, what operations and supply chain strategy do you think BYD
should pursue? Identify what operations and supply chain should do to help BYD
compete including a mission, objectives, distinctive competence, and key decisions.
(4 Marks)
3. How electric car will be useful in Saudi Arabia’s Neom city project to achieve
Kingdom’s vision? (3 Marks)

Note: Go to the company website and answer the above questions. This is just an advice.
You may surf net, company report, Saudi vision 2030 to answer the questions. Each answer
should lie between 250 to 400 hundred words.

Answers:
1.
2.
3.

SEVENTH EDITION

Operations Management
in the Supply Chain
DECISIONS AND CASES

Roger Schroeder | Susan Meyer Goldstein

Operations
Management in the
Supply Chain
Decisions and Cases

The McGraw-Hill Education Series Operations and Decision Sciences

OPERATIONS MANAGEMENT
Beckman and Rosenfield
Operations Strategy: Competing in the
21st Century
First Edition
Benton
Purchasing and Supply Chain
Management
Third Edition
Bowersox, Closs, and Cooper
Supply Chain Logistics Management
Fifth Edition
Brown and Hyer
Managing Projects: A Team-Based
Approach
Second Edition
Burt, Petcavage, and Pinkerton
Supply Management
Ninth Edition
Cachon and Terwiesch
Operations Management
First Edition
Cachon and Terwiesch
Matching Supply with Demand: An
Introduction to Operations Management
Fourth Edition
Finch
Interactive Models for Operations and
Supply Chain Management
First Edition
Fitzsimmons and Fitzsimmons
Service Management: Operations,
Strategy, Information Technology
Eighth Edition
Gehrlein
Operations Management Cases
First Edition
Harrison and Samson
Technology Management
First Edition

Hayen
SAP R/3 Enterprise Software: An
Introduction
First Edition
Hill
Manufacturing Strategy:
Text & Cases
Third Edition
Hopp
Supply Chain Science
First Edition
Hopp and Spearman
Factory Physics
Third Edition

Simchi-Levi, Kaminsky,
and Simchi-Levi
Designing and Managing the
Supply Chain: Concepts, Strategies,
Case Studies
Third Edition
Sterman
Business Dynamics: Systems
Thinking and Modeling for a
Complex World
First Edition
Stevenson
Operations Management
Twelfth Edition

Jacobs, Berry, Whybark, and Vollmann
Manufacturing Planning & Control for
Supply Chain Management
Sixth Edition

Swink, Melnyk, Cooper,
and Hartley
Managing Operations Across
the Supply Chain
Third Edition

Jacobs and Chase
Operations and Supply Chain
Management
Fourteenth Edition

Thomke
Managing Product and Service
Development: Text and Cases
First Edition

Jacobs and Chase
Operations and Supply Chain
Management: The Core
Fourth Edition

Ulrich and Eppinger
Product Design and
Development
Sixth Edition

Jacobs and Whybark
Why ERP?
First Edition

Zipkin
Foundations of Inventory
Management
First Edition

Johnson, Leenders, and Flynn
Purchasing and Supply
Management
Fifteenth Edition

QUANTITATIVE METHODS AND
MANAGEMENT SCIENCE

Larson and Gray
Project Management: The Managerial
Process
Sixth Edition

Hillier and Hillier
Introduction to Management Science: A
Modeling and Case Studies Approach
with Spreadsheets
Fifth Edition

Schroeder and Goldstein
Operations Management in the Supply
Chain: Decisions and Cases
Seventh Edition

Stevenson and Ozgur
Introduction to Management Science
with Spreadsheets
First Edition

Operations
Management in the
Supply Chain
Decisions and Cases

Seventh Edition

Roger G. Schroeder
Susan Meyer Goldstein
Carlson School of Management
University of Minnesota

OPERATIONS MANAGEMENT IN THE SUPPLY CHAIN: DECISION AND CASES, SEVENTH EDTION
Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2018 by McGraw-Hill
Education. All rights reserved. Printed in the United States of America. Previous editions © 2013, 2011,
and 2008. No part of this publication may be reproduced or distributed in any form or by any means, or stored in
a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not
limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside the
United States.
This book is printed on acid-free paper.
1 2 3 4 5 6 7 8 9 LWI 21 20 19 18 17
ISBN 978-0-07-783543-9
MHID 0-07-783543-3
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All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.
Library of Congress Cataloging-in-Publication Data
Schroeder, Roger G., author. | Goldstein, Susan Meyer, author. |
Operations management in the supply chain : decisions and cases /
Roger G. Schroeder, Susan Meyer Goldstein, Carlson School of Management,
University of Minnesota.
Operations management
Seventh edition. | Dubuque : McGraw-Hill Education, 2016.
LCCN 2016043564 | ISBN 9780077835439 (alk. paper) |
ISBN 0077835433 (alk. paper)
LCSH: Production management. | Production management—Case studies. |
Decision making.
LCC TS155 .S334 2016 | DDC 658.5—dc23 LC record available at
The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does
not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not
guarantee the accuracy of the information presented at these sites.
mheducation.com/highered

To our families, whose encouragement and love we appreciate
—Roger G. Schroeder
—Susan Meyer Goldstein

About the Authors
Roger G. Schroeder

is the Frank A. Donaldson Chair in Operations Management Emeritus at the Curtis L.
Carlson School of Management, University of Minnesota. He received a B.S. degree in
Industrial Engineering with high distinction and a MSIE degree from the University of
Minnesota, and a Ph.D. from Northwestern University. He held positions in the Carlson
School of Management as Director of the Ph.D. program, Chair of the Operations and
Management Science Department, and Co-Director of the Joseph M. Juran Center for
Leadership in Quality. Professor Schroeder has obtained research grants from the National
Science Foundation, the Ford Foundation, and the American Production and Inventory
Control Society. His research is in the areas of quality management, operations strategy,
and high-performance manufacturing, and he is among the most widely published and
cited researchers in the field of operations management. He has been selected as a member
of the University of Minnesota Academy of Distinguished Teachers and is a recipient of
the Morse Award for outstanding teaching. Professor Schroeder received the lifetime
achievement award in operations management from the Academy of Management, and he
is a Fellow of the Decision Sciences Institute and a Fellow of the Production and Operations Management Society. Professor Schroeder has consulted widely with numerous organizations, including 3M, Honeywell, General Mills, Motorola, Golden Valley Foods, and
Prudential Life Insurance Company.

Susan Meyer Goldstein

is Associate Professor in the Supply Chain and Operations Department at the Curtis L.
Carlson School of Management, University of Minnesota. She earned a B.S. degree in
Genetics and Cell Biology and an M.B.A. at the University of Minnesota and worked in the
health care industry for several years. She later obtained a Ph.D. in operations management
from Fisher College of Business at The Ohio State University. She has served on the
­faculty at the University of Minnesota since 1998 and was a Visiting Professor at the Olin
Business School at Washington University in St. Louis for two years. Her current research
investigates the link between service process design and process performance, and she is
currently working with a Minnesota hospital that has been achieving one of the lowest
heart attack mortality rates in the United States. She is also interested in issues related to
aging service workers, operations strategy, and service quality. Her research has been published in Decision Sciences, Journal of Operations Management, and Production and
­Operations Management, among others. She is Associate Editor at Decision Science
­Journal, Quality Management Journal, and Service Industries Journal and serves on the
editorial boards of many operations and service journals. She is the recipient of several
research awards and research grants, and received the 2011 Carlson School of Management
Teaching Award.

vi

Preface
FEATURES
Operations management is an exciting and vital field in today’s complex business world.
Therefore, students in both MBA and undergraduate courses have an urgent need to understand operations—an essential function in every business.
This textbook on operations management in the supply chain emphasizes decision making in operations with a supply chain orientation. The text provides materials of interest to
general business students and operations and supply chain management majors. By stressing cross-functional decision making, the text provides a unique and current business perspective for all students. This is the first text to incorporate cross-functional decision
making in every chapter.
A unique decision framework organizes the material by grouping decisions into five
major categories: process, quality, capacity, inventory, and supply chain. This framework is
intended to make it easy for students to understand the decision role and responsibilities of
operations and supply chain management in relation to functions such as marketing and
finance. See the illustration below. The text also provides a balanced treatment of both
service and manufacturing firms. We continue to emphasize operations in the supply chain
with new chapters on sourcing and logistics.
The most current knowledge is incorporated, including global operations, supply chain
management, e-operations, service blueprinting, competency-based strategy, Six Sigma, lean
systems, 3D printing, sustainability, supply chain risk, and mass customization. Complete
coverage is also provided on traditional topics, including process design, service systems,
quality management, ERP, inventory control, and scheduling.
While covering the concepts of operations and supply chain management in 18 chapters,
the book also provides 18 case studies. The cases are intended to strengthen problem formulation skills and illustrate the concepts presented in the text. Long and short case studies
are included. The cases are not just large problems or examples; rather, they are substantial
management case studies, including some from the Northwestern, Sheffield, Cranfield,
and The Case Centre collections.
The softcover edition with fewer pages than most introductory books covers all the
essentials students need to know about operations management in the supply chain, leaving
out only superfluous and tangential topics. By limiting the size of the book, we have
condensed the material to the basics. The book is also available for the first time in digital
formats in Connect and LearnSmart versions.
Decision-making
framework for
operations in the
supply chain.

Human
Resources

Suppliers

Supply
Chain
Decisions

Finance
Process

Inventory

Information
Systems

Quality

Marketing

Customers

Capacity
Accounting
vii

viii

Preface

This book is ideal for regular operations management courses and also case courses and
modular courses. It is particularly useful for those who desire a cross-functional and
­decision-making perspective that reaches across the supply chain. Instructors can easily
supplement the text with their own cases, readings, or course materials as desired.
The Connect Library and Instructor Resources contain 20 Excel templates designed to
assist in solving problems at the end of chapters and the case studies. These resources also
contain technical chapters on linear programming, simulation, transportation method, and
queuing, which can be assigned by the instructor, if desired. The resources have PowerPoint slides, solutions manual, the test bank, and web links to companies cited in the Student Internet Exercises in the text. Access to these web resources can be obtained from
your McGraw-Hill sales representative or directly in the Connect Library.
A number of pedagogical features are contained in this book.

x

e cel

∙ Operations Leader boxes are included in each chapter to illustrate current practices
being implemented by leading firms.
∙ Each chapter contains at least three Student Internet Exercises. These exercises allow
for extended learning about concepts discussed in the chapter.
∙ Points of cross-functional emphasis are noted in each chapter by a special symbol—a
handshake. This highlights the locations of cross-functional aspects of operations
decisions.
∙ Solved problems are included at the end of quantitative chapters to provide additional examples for students.
∙ Excel spreadsheets are keyed to specific problems at the end of chapters.

KEY CHANGES IN THE SEVENTH EDITION
This book is known for its decision orientation and case studies. We have strengthened the
decision-making framework by addressing new decisions in sourcing, logistics, sustainability, and global supply chains. We also added new cases to address these decisions.
1. Supply Chain Management. This edition added a new section on Supply
Chain. It contains two new chapters on Sourcing and Global Logistics. The Sourcing
chapter contains material on sourcing goals, outsourcing, offshoring, reshoring, supply
base optimization, the purchasing cycle, and scorecard weighting. The Global Logistics chapter contains material on the role of logistics, transportation modes, distribution centers, logistics ­networks, location, third-party logistics, and logistics strategy. In
addition, the Supply Chain Management chapter was moved to this section and updated to add a new section on supply chain risk and another new section on supply
chain sustainability. This edition now has the latest and best supply chain material
available.
2. Sustainability. More emphasis is given to sustainability. It is now covered in the c­ hapters
on The Operations Function, Operations and Supply Chain Strategy, Process Selection, and
Supply Chain Management. A new case study is added on Murphy Warehouse: Sustainable
Logistics.
3. Global. More material is provided on global operations and supply chains. With the
addition of the Sourcing and Global Logistics chapters, global emphasis now moves
­beyond operations to the entire supply chain. New material on outsourcing, offshoring, and
managing global supply chains has been added. New cases on global sourcing, global plant
location, and global logistics are added.

Preface

ix

4. Other Additions. We have added materials on lean Six Sigma, 3D Printing, big
data, analytics, ethics in sourcing, and disaster logistics.
5. Digital Versions. Digital versions of the text in McGraw-Hill’s Connect and
­LearnSmart have been developed. The Connect version provides a complete course management system for the instructor and pdf content for students. It can be used to customize
the course by selecting learning objectives for course coverage, using the test bank for
multiple choice questions, automatic grading for selected quantitative problems, and access
to all instructor support materials. The LearnSmart version provides feedback to students
via multiple choice probes for each learning objective. The student is directed to return to
readings where retention is weak.
6. Cases. Eighteen case studies are provided including cases from The Case Centre,
and Northwestern, Sheffield, and Cranfield Universities. Existing cases have been revised
to add current information. Ten new cases are added:
Altimus Brands: Managing Procurement Risk;
Murphy Warehouse Company: Sustainable Logistics;
Polaris Industries Inc.—Global Plant Location;
Shelter Box: A Decade of Disaster Relief;
The Westerfield Physician Practice: Value Stream Mapping;
Journey to Perfect: Mayo Clinic and the Path to Quality;
The Evolution to Lean Six Sigma in 3M, Inc.;
Sage Hill Above Onion Creek: Focusing on Service Process and Qualilty;
Toledo Custom Manufacturing: Quality Control;
Best Homes: Forecasting

INSTRUCTOR RESOURCES
Instructor Resource Center www.mhhe.com/schroeder7e
The Instructor Resource Center provides complete materials for study and review. At this
book’s website, instructors have access to teaching support such as electronic files of the
ancillary materials: Solutions Manual, Technical Chapters, Excel Spreadsheets, PowerPoint Lecture Slides, Digital Image Library, and Test Bank.
Solutions Manual. Prepared by the authors, this manual contains solutions to all the
end-of-chapter problems and cases.
Test Bank. The Test Bank includes true/false, multiple-choice, and discussion questions/
problems at varying levels of difficulty.
EZ Test Online. All test bank questions are available in EZ Test Online, a flexible electronic testing program. The answers to all questions are given, along with a rating of the
level of difficulty, chapter learning objective met, Bloom’s taxonomy question type, and
the AACSB knowledge category.
PowerPoint Lecture Slides. The PowerPoint slides draw on the highlights of each chapter
and provide an opportunity for the instructor to emphasize the key concepts in class discussions.
Digital Image Library. All the figures in the book are included for insertion in PowerPoint slides or for class discussion.

x

Preface

Excel Spreadsheets. Twenty Excel Spreadsheets are provided for students to solve designated problems at the end of chapters.
Technical Chapters. Four technical chapters are provided for additional technical material on linear programming, transportation method, simulation and waiting lines.

Operations Management Video Series
The operations management video series, free to text adopters, includes professionally developed videos to help students fully understand the content and terminology within
­Operations and Supply Chain Management. These videos will be both relevant and up-todate in order to be effectively utilized. Each video will come with a series of questions to
assess the students’ knowledge of the material.

TECHNOLOGY
McGraw-Hill Connect® Operations Management
McGraw-Hill Connect® Operations Management is an online assignment and assessment
solution that connects students with the tools and resources they’ll need to achieve success
through faster learning, higher retention, and more efficient studying. It provides instructors with
tools to quickly pick content and assignments according to the topics they want to emphasize.
Online Assignments. Connect Operations Management helps students learn more efficiently
by providing practice material and feedback when they are needed. Connect grades homework
automatically and provides feedback on any questions that students may have missed.
LearnSmart. LearnSmart adaptive self-study technology with Connect Operations
Management helps students make the best use of their study time. LearnSmart provides
a seamless combination of practice, assessment, and remediation for every concept in the
textbook. LearnSmart’s intelligent software adapts to students by supplying questions on a
new concept when students are ready to learn it. With LearnSmart students will spend less
time on topics they understand and instead focus on the topics they need to master.
Simple Assignment Management and Smart Grading. When it comes to studying,
time is precious. Connect Operations Management helps students learn more efficiently by
providing feedback and practice material when they need it, where they need it. When it
comes to teaching, your time also is precious. The grading function enables you to:
∙ Have assignments scored automatically, giving students immediate feedback on their
work and side-by-side comparisons with correct answers.
∙ Access and review each response; manually change grades or leave comments for students to review.
Student Reporting. Connect Operations Management keeps instructors informed about
how each student, section, and class is performing, allowing for more productive use of
lecture and office hours. The progress-tracking function enables you to:
∙ View scored work immediately (Add Assignment Results Screen) and track individual
or group performance with assignment and grade reports.
∙ Access an instant view of student or class performance relative to learning objectives.
∙ Collect data and generate reports required by many accreditation organizations, such
as AACSB.

Preface

xi

Instructor Library. The Connect Operations Management Instructor Library is your
repository for additional resources to improve student engagement in and out of class.
You can select and use any asset that enhances your lecture. The Connect Operations
Management Instructor Library includes:
∙
∙
∙
∙
∙
∙
∙

eBook
PowerPoint presentations
Test Bank
Instructor’s Solutions Manual
Digital Image Library
Excel Spreadsheets
Technical Chapters

Integrated Media-Rich eBook. An integrated media-rich eBook allows students to
access media in context with each chapter. Students can highlight, take notes, and access
shared instructor highlights/notes to learn the course material.
Dynamic Links. Dynamic links between the problems or questions you assign to your
students and the location in the eBook where that problem or question is covered.

Tegrity Campus: Lectures 24/7
Tegrity Campus is a service that makes class time available 24/7 by automatically capturing every lecture in a searchable format for students to review when they study and
complete assignments. With a simple one-click start-and-stop process, you capture all
computer screens and corresponding audio. Students can replay any part of any class with
easy-to-use browser-based viewing on a PC or Mac.
Educators know that the more students can see, hear, and experience class resources,
the better they learn. In fact, studies prove it. With Tegrity Campus, students quickly recall
key moments by using Tegrity Campus’s unique search feature. This search helps students efficiently find what they need, when they need it, across an entire semester of class
recordings. Help turn all your students’ study time into learning moments immediately
supported by your lecture. To learn more about Tegrity, watch a two-minute Flash demo at

Online Course Management
No matter what online course management system you use (WebCT, BlackBoard, or ­eCollege),
we have a course content ePack available for your course. Our new ePacks are specifically
designed to make it easy for students to navigate and access content online. For help, our online
Digital Learning Consultants are ready to assist you with your online course needs. They provide training and will answer any questions you have throughout the life of your adoption.
McGraw-Hill Higher Education and Blackboard have teamed up. What does this mean for you?
1. Single sign-on. Now you and your students can access McGraw-Hill’s Connect and
Create right from within your Blackboard course-all with one single sign-on.
2. Deep integration of content and tools. You get a single sign-on with Connect and Create,
and you also get integration of McGraw-Hill content and content engines right into Blackboard. Whether you’re choosing a book for your course or building Connect assignments,
all the tools you need are right where you want them-inside of Blackboard.
3. One gradebook. Keeping several gradebooks and manually synchronizing grades into
Blackboard is no longer necessary. When a student completes an integrated Connect

xii

Preface

assignment, the grade for that assignment automatically (and instantly) feeds your
Blackboard grade center.
4. A solution for everyone. Whether your institution is already using Blackboard or you
just want to try Blackboard on your own, we have a solution for you. McGraw-Hill and
Blackboard can now offer you easy access to industry-leading technology and content,
whether your campus hosts it, or we do. Be sure to ask your local McGraw-Hill representative for details.

ASSURANCE OF LEARNING READY
Many educational institutions today are focused on the notion of assurance of learning, an
important element of some accreditation standards. Operations Management in the Supply
Chain, 7e is designed specifically to support your assurance of learning in initiatives with
a simple yet powerful solution.
Instructors can use Connect to easily query for learning outcomes/objectives that directly relate to the learning objectives of the course. You can then use the reporting features of Connect to aggregate student results in similar fashion, making the collection and
presentation of assurance of learning data simple and easy.

AACSB STATEMENT
McGraw-Hill Global Education is a proud corporate member of AACSB International.
Understanding the importance and value of AACSB accreditation, the authors of Operations Management in the Supply Chain, 7e have sought to recognize the curricula guidelines detailed in the AACSB standards for business accreditation. By connecting questions
in the test bank and end-of-chapter material to the general knowledge and skill guidelines
found in the AACSB standards.
It is important to note that the statements contained in Operations Management in the
S­ upply Chain, 7e are provided only as a guide for the users of this textbook. The AACSB
leaves content coverage and assessment within the purview of individual schools, the mission of the school, and the faculty. While Operations Management in the Supply Chain, 7e
and the teaching package make no claim of any specific AACSB qualification or evaluation, we have within Operations Management in the Supply Chain, 7e labeled selected
questions according to the general knowledge and skills areas.

MCGRAW-HILL CUSTOMER CARE CONTACT INFORMATION
At McGraw-Hill, we understand that getting the most from new technology can be challenging. That’s why our services don’t stop after you purchase our products. You can
­e-mail our Product Specialists 24 hours a day to get product-training online. Or you can
search our knowledge bank of Frequently Asked Questions on our support website. For
Customer Support, call 800-331-5094, e-mail [email protected], or visit www.
mhhe.com/support. One of our Technical Support Analysts will be able to assist you in a
timely fashion.

Preface

xiii

ACKNOWLEDGMENTS
The authors would like to acknowledge the many individuals who have assisted with this
book. Special thanks go to the reviewers for this edition:
Tobias Stapleton
University of Massachusetts—Dartmouth
Richard C. Yokeley
Forsyth Technical Community College
Ralph James Rich
Marian University
Rajkumar Kempaiah
College of Mount Saint Vincent
Thomas Buchner
University of Minnesota
Chris D. Bellamy
Eastern University
Pradip K. Shukla
Chapman University
Marvin E. Gonzalez
College of Charleston
Gerald T. Pineault
Lasell College
Jeffrey William Fahrenwald
Rockford University
William M. Penn
Belhaven University

Jeryl L. Nelson
Wayne State College
Clarke W. Higgins
Chapman University
Jay Zortman
Eastern University
Deborah L. Piscitiello
University of Jamestown
Charles Vincent Nemer
Metropolitan State University
Kenneth E. Murphy
Chapman University
Kathy Schaefer
Southwest Minnesota State
University
Nancy Levenburg
Grand Valley State University
Tyler M. Moore
Marian University
Steven Williams
Marian University

The authors would also like to thank the staff at McGraw-Hill Education who had a direct
hand in the editing and production of the text.
We would like to thank our colleagues at the University of Minnesota who listened to our
ideas and provided suggestions for book improvement. Additional thanks go to Doug and
Letty Chard, who diligently and carefully prepared the index. We would also like to thank
Tom Buchner of the University of Minnesota who carefully prepared the test bank questions. Our thanks to Ed Pappanastos of Troy University for constructing the Connect solutions to problems. Finally, we thank our families for their patience and perseverance during
the many months of writing and editing. Without their support and encouragement this
textbook would not have been possible.
Roger G. Schroeder
Susan Meyer Goldstein

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Using Connect improves passing rates
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Brief Table of Contents
About the Authors vi

12 Scheduling Operations

Preface vii

13 Project Planning and Scheduling

PART ONE

PART FIVE

Introduction 1

Inventory

1 The Operations Function

246
263

285

2

14 Independent Demand Inventory

286

2 Operations and Supply Chain
Strategy 18

Supplement: Advanced Models

314

3 Product Design

PART TWO

Process Design

36

PART SIX

51

4 Process Selection

15 Materials Requirements Planning
and ERP 317
Supply Chain Decisions 341

52

5 Service Process Design

16 Supply Chain Management 342
73

17 Sourcing

367

6 Process-Flow Analysis 92

18 Global Logistics 386

7 Lean Thinking and Lean
Systems 113

PART SEVEN

PART THREE

APPENDIXES 485

Quality 137

8 Managing Quality 138
9 Quality Control and
Improvement 159
Capacity and Scheduling 185
186

Supplement: Advanced
Methods 211
11 Capacity Planning

xvi

INDEX

487

ACRONYMNS

PART FOUR

10 Forecasting

Case Studies 409

216

501

Technical Chapters available in the Instructor’s
Resource Library in Connect
Waiting Lines
Simulation
Transportation Method
Linear Programming

Contents
About the Authors
Preface

vi

2.4
2.5

vii

2.6
2.7

PART ONE

INTRODUCTION 1
Chapter 1
The Operations Function
1.1
1.2
1.3
1.4
1.5
1.6
1.7

2.8

2

Why Study Operations Management? 3
Definition of Operations Management
and Supply Chains 4
Decisions at Pizza U.S.A. 7
Operations Decisions in the Supply
Chain—A Framework 9
Cross-Functional Decision Making 10
Operations as a Process 11
Challenges Facing Operations
and Supply Chain Managers 13
Services 14
Customer-Directed Operations 14
Integration of Decisions Internally and
Externally 14
Environmental Sustainability 14
Globalization of Operations
and the Supply Chain 15

1.8

Key Points and Terms

2.3

3.2

3.3
3.4
3.5

Operations Strategy Model

Strategies for New-Product
Introduction 37
New-Product Development Process 38
Concept Development 38
Product Design 39
Pilot Production/Testing 39
Cross-Functional Product Design 40
Supply Chain Collaboration 42
Quality Function Deployment 43
Customer Attributes 44
Engineering Characteristics 45
Modular Design 47
Key Points and Terms 48
Student Internet Exercises 49
Discussion Questions 49

PART TWO

PROCESS DESIGN 51
Chapter 4
Process Selection 52
20

4.1
4.2
4.3
4.4
4.5
4.6
4.7

Corporate and Business Strategy 21
Operations Mission 22
Operations Objectives 22
Strategic Decisions 22
Distinctive Competence 24

2.2

3.1

15

Chapter 2
Operations and Supply Chain
Strategy 18
2.1

Chapter 3
Product Design 36

3.6
3.7

Student Internet Exercises 16
Discussion Questions 17

Distinctive Competence 28
Global Operations and
Supply Chains 29
Supply Chain Strategy 30
Environment and Sustainable
Operations 32
Key Points and Terms 33
Student Internet Exercises 34
Discussion Questions 34

Competing with Operations
Objectives 25
Cross-Functional Strategic Decisions

26

4.8

Product-Flow Characteristics 53
Approaches to Order Fulfillment 58
Process Selection Decisions 61
Product-Process Strategy 62
Focused Operations 64
Mass Customization 65
3D Printing and Additive
Manufacturing 67
Environmental Concerns 68
xvii

xviii

4.9
4.10

Contents

Cross-Functional Decision Making 69
Key Points and Terms 70
Student Internet Exercises 71
Discussion Questions 72

Chapter 5
Service Process Design
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8

73

Student Internet Exercises 90
Discussion Questions 90

6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8

92

Process Thinking 93
The Process View of Business 94
Process Flowcharting 95
Process-Flow Analysis as Asking
Questions 100
Measuring Process Flows 101
Measuring Process Flows at Pizza
U.S.A. 103
Process Redesign 104
Key Points and Terms 107
Student Internet Exercises 108
Solved Problems 108
Discussion Questions 110
Problems 110

Chapter 7
Lean Thinking and Lean Systems 113
7.1
7.2

7.8
7.9
7.10
7.11

Stabilizing the Master
Schedule 120

Controlling Flow with the Kanban
System 121
Reducing Setup Time and Lot Sizes 124
Changing Layout and Maintaining
Equipment 125
Cross-Training, Rewarding, and Engaging
Workers 126
Delivering Quality 127
Changing Relationships with Suppliers 127
Implementation of Lean 129
Key Points and Terms 132
Student Internet Exercises 133
Solved Problems 133
Discussion Questions 134
Problems 135

PART THREE

QUALITY 137
Chapter 8
Managing Quality 138
8.1
8.2
8.3
8.4
8.5
8.6
8.7
8.8

Quality as Customer Requirements 139
Product Quality 140
Service Quality 142
Quality Planning, Control, and
Improvement 142
Mistake-Proofing 145
Ensuring Quality in the Supply Chain 146
Quality, Cost of Quality, and Financial
Performance 147
Quality Pioneers 150
W. Edwards Deming
Joseph Juran 150

8.9
8.10
8.11
8.12

150

ISO 9000 Standards 152
Malcolm Baldrige Award 154
Why Some Quality Improvement
Efforts Fail 156
Key Points and Terms 157
Student Internet Exercises 158
Discussion Questions 158

Evolution of Lean 114
Lean Tenets 115
Create Value 115
Value Stream 116
Ensure Flow 117
Customer Pull 118
Strive for Perfection 119
Lean Thinking Techniques 119

7.3

7.5
7.6
7.7

Defining Service 74
Service-Product Bundle 75
Service Delivery System Matrix 77
Customer Contact 80
Service Recovery and Guarantees 82
Technology and Globalization
of Services 84
Service Profitability and Employees 87
Key Points and Terms 89

Chapter 6
Process-Flow Analysis

7.4

Chapter 9
Quality Control and Improvement 159
9.1
9.2
9.3
9.4
9.5

Design of Quality Control Systems
Process Quality Control 163
Attribute Control Chart 165
Variables Control Chart 166
Using Control Charts 167

160

Contents

9.6
9.7
9.8
9.9
9.10

Process Capability 168
Continuous Improvement 170
Six Sigma 174
Lean and Six Sigma 176
Key Points and Terms 177

11.6
11.7
11.8
11.9

Student Internet Exercises 178
Solved Problems 178
Discussion Questions 181
Problems 181

PART FOUR

CAPACITY AND SCHEDULING

Student Internet Exercises 237
Solved Problems 237
Discussion Questions 242
Problems 242

185

Chapter 10
Forecasting 186
Forecasting for Decision Making 188
Qualitative Forecasting Methods 189
Time-Series Forecasting 191
Moving Average 192
Exponential Smoothing 194
Forecast Accuracy 197
Advanced Time-Series
Forecasting 199
10.8 Causal Forecasting Methods 200
10.9 Selecting a Forecasting Method 202
10.10 Collaborative Planning, Forecasting, and
Replenishment 203
10.11 Key Points and Terms 205
10.1
10.2
10.3
10.4
10.5
10.6
10.7

Student Internet Exercises 206
Solved Problems 206
Discussion Questions 208
Problems 208
Supplement: Advanced Methods 211

Chapter 11
Capacity Planning
11.1
11.2

11.3
11.4
11.5

Chapter 12
Scheduling Operations
12.1
12.2
12.3
12.4
12.5
12.6
12.7

Batch Scheduling 247
Gantt Charts 248
Finite Capacity Scheduling 251
Theory of Constraints 253
Priority Dispatching Rules 254
Planning and Control Systems 256
Key Points and Terms 258

Chapter 13
Project Planning and Scheduling
13.1
13.2
13.3
13.4
13.5
13.6

263

Objectives and Trade-Offs 264
Planning and Control in Projects 265
Scheduling Methods 268
Constant-Time Networks 269
CPM Method 274
Use of Project Management
Concepts 277
Key Points and Terms 278
Student Internet Exercises 279
Solved Problems 279
Discussion Questions 282
Problems 283

216

Capacity Defined 217
Facilities Decisions 219

Sales and Operations Planning
Definition 224
Cross-Functional Nature
of S&OP 226
Planning Options 227

246

Student Internet Exercises 259
Solved Problems 259
Discussion Questions 261
Problems 261

13.7

Amount of Capacity 220
Size of Facilities 221
Timing of Facility Decisions 222
Facility Location 222
Types of Facilities 223

Basic Aggregate Planning
Strategies 229
Aggregate Planning Costs 230
Aggregate Planning Example 231
Key Points and Terms 236

PART FIVE

INVENTORY

285

Chapter 14
Independent Demand Inventory
14.1
14.2
14.3

Definition of Inventory 287
Purpose of Inventories 289
Costs of Inventory 290

286

xix

xx

Contents

Independent versus Dependent
Demand 291
14.5 Economic Order Quantity 292
14.6 Continuous Review System 296
14.7 Periodic Review System 301
14.8 Using P and Q Systems in Practice 304
14.9 Vendor Managed Inventory 306
14.10 ABC Classification of Inventory 306
14.11 Key Points and Terms 308
14.4

Student Internet Exercises 309
Solved Problems 309
Discussion Questions 311
Problems 312
Supplement: Advanced Models 314

Chapter 15
Materials Requirements Planning
and ERP 317
15.1
15.2
15.3
15.4

The MRP System 318
MRP versus Order-Point Systems
Parts Explosion: How an MRP
System Works 321
MRP System Elements 326
Master Scheduling 326
Bill of Materials (BOM) 327
Inventory Records 327
Capacity Planning 328
Purchasing 328
Shop-Floor Control 329

15.5
15.6
15.7
15.8

Chapter 16
Supply Chain Management
16.1
16.2

16.6
16.7
16.8

Supply Chain Dynamics—The Bullwhip
Effect 349
Improving Supply Chain Performance 352
Supply Chain Structural
Improvements 352
Supply Chain System Improvements 354
Technology and Supply Chain
Management 356
Supply Chain Risk and Resilience 358
Analysis of Supply Chain Risk 359

16.9 Sustainability of the Supply Chain
16.10 Key Points and Terms 364

Chapter 17
Sourcing 367
320

17.1
17.2
17.3

Importance of Sourcing 368
Sourcing Goals 369
Insource or Outsource? 369
Advantages of Outsourcing 370
Disadvantages of Outsourcing 370
Total Cost Analysis 372

17.5

Offshoring

372

Supply Chain and Supply Chain
Management 343
Measuring Supply Chain
Performance 347

373

Supply Base Optimization

375

Spend Analysis 375
Total Number of Suppliers 376
Single or Multiple Suppliers 376

17.6

The Purchasing Cycle

377

Internal User-Buyer Interface 378
Sourcing and Make-Buy Decision 378
Find Suppliers 378
Supplier Selection 378
Supplier Relationship
Management 379

17.7
17.8

Challenges Facing Purchasing
Key Points and Terms 381

380

Student Internet Exercises 382
Solved Problems 382
Discussion Questions 384
Problems 384

341

342

361

Student Internet Exercises 365
Discussion Questions 366

The Costs of Offshoring
Reshoring 374

Student Internet Exercises 335
Solved Problem 335
Discussion Questions 337
Problems 338

SUPPLY CHAIN DECISIONS

16.4
16.5

17.4

Operating an MRP System 329
The Successful MRP System 330
Enterprise Resource Planning
Systems 331
Key Points and Terms 334

PART SIX

16.3

Chapter 18
Global Logistics 386
18.1

Role of Logistics in Supply Chain
Management 387

Contents

18.2

Transportation

18.3
18.4

The Evolution of Lean Six Sigma
at 3M, Inc. 441

389

Transportation Economics 389
Modes of Transportation 390
Selecting the Transportation Mode

392

Best Homes, Inc.: Forecasting 447
Polaris Industries Inc.: Global Plant
Location 449
Lawn King, Inc.: Sales and
Operations Planning 454

Distribution Centers and
Warehousing 394
Logistics Networks 396
Location 397
Number of Warehouses (Distribution
Centers) 399

18.5
18.6
18.7

Capacity and Scheduling

Third-Party Logistics Providers
Logistics Strategy 403
Key Points and Terms 405

401

Student Internet Exercises 405
Solved Problems 406
Discussion Questions 407
Problems 407

PART SEVEN

CASE STUDIES
Introduction

Inventory

Consolidated Electric: Inventory
Control 458
Southern Toro Distributor,
Inc. 463
ToysPlus, Inc.: MRP 470

Supply Chain

Altimus Brands: Managing
Procurement Risk 474
Murphy Warehouse Company:
Sustainable Logistics 477
Shelterbox: A Decade of
Disaster Relief 481

409

Operations Strategy at BYD of China,
Electrifying the World’s Automotive
Market 410
Early Supplier Integration in the Design of
the Skid-Steer Loader 415

Process Design

Eastern Gear, Inc.: Job Shop 417
Sage Hill Inn Above Onion Creek: Focusing
on Service Process and Quality 420
U.S. Stroller: Lean 424
The Westerville Physician Practice:
Value-Stream Mapping 430

Quality

Journey to Perfect: Mayo Clinic and the Path
to Quality 433
Toledo Custom Manufacturing: Quality
Control 439

APPENDIXES
A
B

Areas Under the Standard Normal
Probability Distribution 485
Random Number Table 486

INDEX

487

ACRONYMNS

501

Online Technical Chapters
Technical Chapters available in the Instructor’s
Resource Library in Connect
Waiting Lines
Simulation
Transportation Method
Linear Programming

xxi

Part

i

Introduction

1. The Operations Function
2. Operations and Supply Chain Strategy
3. Product Design
The introductory part of this text provides an overview of the operations function,
operations and supply chain strategy, and product design. After reading this part,
students should have an appreciation for the importance to the firm of decisions
made in the operations function and its associated supply chain. Also, the need for
strategy to guide all decision making is emphasized. New-product design is treated
as a cross-functional decision responsibility that precedes the p
­ roduction and
delivery of goods or services.

1

c h a p t e r

The Operations
Function
LEARNING OBJECTIVES
After reading this chapter, you should be able to:
LO1.1

Define operations management.

LO1.2

Describe the five main decisions made by operations and supply chain managers.

LO1.3

Explain the nature of cross-functional decision making with operations.

LO1.4

Define typical inputs and outputs of an operations transformation system.

LO1.5

Identify contemporary challenges facing operations and supply chain managers.

Operations management, as a field, deals with the production of goods and services. Every
day we come in contact with an abundant array of goods or services, all of which are produced under the leadership of operations managers. Nonprofit and government services are
also managed by operations managers. Without effective management of operations, a
modern industrialized society cannot exist. The operations function is the engine that creates goods and services for the enterprise and underpins the global economy.
Operations managers have important positions in every organization. One example is the
plant manager who is in charge of a factory. Other managers who work in the factory—­
including production and inventory control managers, quality managers, and line
­supervisors—are also operations managers. Collectively, this group of managers is responsible for producing the supply of goods in a manufacturing business. We should also include
in the group of operations managers all manufacturing managers at the corporate or divisional level. These managers might include a corporate vice president of operations (or
manufacturing) and a group of corporate staff operations managers concerned with quality,
production and inventory control, facilities, and equipment.
Operations managers have important responsibilities in service industries as well. In the
private sector, operations managers take leadership roles in hotels, restaurants, airlines,
2

Chapter 1 The Operations Function

3

banks, and retail stores. In each of these organizations,
operations managers are responsible for producing and
delivering the supply of services. In government
offices, there are operations managers in the post office,
police department, and housing department, to name
only a few. Anyone who is responsible for producing or
delivering the service is an operations manager.
At first glance, it may appear that service operations
have little in common with manufacturing operations.
However, the unifying feature of these operations is that
both can be viewed as transformation processes inside
organizations that are themselves embedded within
­supply chains. In manufacturing, inputs of raw materials,
energy, labor, and capital are transformed into finished
goods. In service operations, the same types of inputs are
transformed into services. Managing the transformation
process in an efficient and effective manner is the task of
the operations manager in any type of organization.
Most Western economies have shifted dramatically
from the production of goods to the production of
­services. It may come as a surprise that today more than
80 percent of the U.S. workforce is employed in service
industries.1 Even though the preponderance of employment is in the service sector, manufacturing remains
important to provide the goods needed for export and
internal consumption. Because of the importance of
both service and manufacturing operations, they are
treated on an equal ­basis in this text.
In the past when the field was related primarily
Operations managers make important decisions in both
to
manufacturing,
operations management was called
manufacturing and service organizations.
© McGraw-Hill Education/Jill Braaten
production management. Later, the name was expanded
to “production and operations management,” or,
more simply, “operations management,” to include the service industries as well. The term
“operations management” as used in this text refers to both manufacturing and service industries.
Today, individuals who work in operations and associated supply chains can belong to a
number of professional societies. These societies provide opportunities to become certified, network with other professionals, and learn about and share best practices. See the
Operations Leader box titled “Professional Societies ­Affiliated with Operations and Supply Chain Management.” The Operations Leader boxes throughout this book highlight best
practices and useful professional knowledge in a variety of industries.

1.1 WHY STUDY OPERATIONS MANAGEMENT?
All businesses want to hire bright people who can make the best decisions for the business
as a whole, not the best marketing, finance, or operations decisions. They want employees
who can see the big picture of how these functional areas interact. You will severely limit
your career if you take a narrow functional perspective.
1

U.S. Census Bureau, Statistical Abstract of the United States, Washington, DC, 2016 ed.

4

Part One Introduction

Operations Leader Professional Societies Affiliated with Operations and
Supply Chain Management

ASSOCIATION FOR OPERATIONS
MANAGEMENT

INSTITUTE FOR SUPPLY MANAGEMENT

The global leader and premier
source of the body of knowledge in
operations management, including
production, inventory, the supply
chain, materials management, sourcing and logistics
(see www.apics.org for more information).

The largest and one of the most respected
supply management associations in the
world, whose mission is to lead the supply
management and sourcing profession
through its standards of excellence,
research, promotional activities, and education (see www.
ism.ws for more information).

AMERICAN SOCIETY FOR QUALITY

COUNCIL OF SUPPLY CHAIN
MANAGEMENT PROFESSIONALS

The world’s leading organization devoted
to advancing learning, quality improvement,
and knowledge exchange to improve business results and create better workplaces
and communities worldwide (see www.asq.
org for more information).

The preeminent worldwide professional
association for supply chain management
professionals, whose vision is to lead the
evolving supply chain management profession by developing, advancing, and disseminating supply chain knowledge and research (see
for more information).

Every decision is cross-functional in nature.2 You will be working with operations and need
to understand operations no matter what career path you choose. Operations is a major function in every organization, and regardless of the function in which you work, you will interact
with the operations function that produces goods or services (or both). The organization in
which someone works only with people from his or her own function does not exist. That is
why we take a cross-functional perspective in this text so that the content is useful to all majors.
As you study operations management, you will find that many of the ideas, techniques,
and principles can be applied across the business, not just in operations. For example, all
work is accomplished through a process (or sequence of steps). The principles of process
thinking found in this text can be applied to all functions. After graduating, many students
find that the ideas learned in operations management are among the most useful, regardless
of the industry or career they enter.
Operations management is an exciting and challenging field of study. The material is
both qualitative and quantitative, and both are essential to good management practices. You
are embarking on a journey that is interesting and useful no matter what career you choose!

1.2 DEFINITION OF OPERATIONS MANAGEMENT
AND SUPPLY CHAINS
LO1.1 Define operations management.

All organizations (for-profit and nonprofit) thrive by producing and delivering a good or a
service deemed to be of value to customers. Value is the tangible and intangible benefits
that customers derive from consuming a good or service at a price they are willing to pay.
2

The “hand shake” symbol in the margin identifies a point of cross-functional emphasis and is designed
to illustrate that the various functions must work together for an organization to be successful and thrive.

Chapter 1 The Operations Function

Operations Leader

5

Dell Delivers Products and Value

In 1984 Michael Dell founded Dell Computer Corporation with $1000 in start-up capital and a business model
to sell custom-configured personal computers directly to
customers while passing along cost savings to customers by cutting out the middlemen. The company offers a range of
products beyond personal desktop and
mobile computing products; servers,
storage, and networking products; printing and imaging products; electronics and accessories;
enhanced business and consumer services; and business solutions. Nearly half of Dell’s revenue comes from
outside of the United States.
In 2013 Dell was taken private in a stock buyout by
Michael Dell and investors. In 2015 Dell bought EDS services to expand its offerings to services, and the cloud.
A key to Dell’s strategy is its customer-driven
approach to innovation. This approach signals a commitment to delivering new products and services that
are valued by ­customers and that address customer
needs. This approach explains how Dell pioneered the
direct-selling system to allow customer orders to be
placed over the Internet or over the phone and, since

2007, through select retail outlets. Orders for products,
once taken, are assembled in one of Dell’s factories
and often shipped to customers or retail stores within
days, with the factories carrying very little finished
goods inventory.
In addition to the importance of the operations function at Dell, sourcing and logistics activities are critical.
Sourcing managers source the many components
required to manufacture Dell products, and logistics
managers handle the global movement of components
and finished goods to satisfy customer demand. Managing Dell’s fast and rapidly changing supply chain is a challenging task that they perform well.
Dell today is pursuing environmentally friendly best
practices: Its global headquarters campus is now ­powered
by 100 percent green energy; its desk ­computer systems
have been designed to reduce carbon dioxide emissions;
Dell was the first computer manufacturer to offer free
computer recycling to customers worldwide; and its “Plant
a Tree for Me” and “Plant a Forest for Me” programs have
planted over 600,000 trees.
Source: Adapted from www.dell.com, 2015.

For example, value in a pair of shoes may be shoes that are good looking and comfortable
and will last a long time at a price you can afford. What is of value to one customer (or set
of customers) may not be of value to another. Flying in first class may be of value to
­business travelers, but for leisure travelers flying in first class may not be of value because
of the price of first-class seats. Value, thus, is always defined in the eyes of the customer
(or set of customers) relative to the price paid. See the Operations Leader box for Dell
­Computer Inc. for a company that creates value for its customers.
Organizations that are successful strive to identify the value inherent in the goods or
services being offered to customers. They then deploy this understanding to guide the decisions that affect the production and delivery of those goods and services. These decisions
have an impact on the design, execution, and performance of operations and should be
coordinated with decisions made by managers of the sourcing and the logistics functions.
The sourcing function (also called purchasing or procurement) is responsible for finding
other organizations to serve as sources and then buying the material and service inputs for
the transformation process of the organization. The logistics function, in contrast, is typically responsible for the actual movement of goods and/or services across organizations.
Collectively, the operations, sourcing, and logistics functions manage the production of the
goods or services that are moved through the production process and delivered to customers.
Most organizations exist as part of a larger supply chain. The supply chain is the network of manufacturing and service operations (often multiple organizations) that supply
one another from raw materials through production to the ultimate customer. The supply
chain consists of the physical flow of materials, money, and information along the entire
chain of sourcing production, and distribution. For example, the food supply chain reaches

6

Part One Introduction

from the farm to the food processor to the wholesaler and then the retailer. The supply
chain links together the work and output of many different organizations.
In this book we discuss operations management in the supply chain. This means we deal
with operations in the larger context of its supply chain, including external suppliers and
customers. Before discussing the larger supply chain implications, we define operations
management as follows:
Operations management focuses on decisions for the production and delivery of the firm’s
products and services.

There are three aspects of operations management that require elaboration:
1. Decisions. The above definition refers to decision making as an important element of
operations management. Since all managers make decisions, it is natural to focus on
decision making as a central theme in operations. Within the broader context of supply
chain, this decision focus provides a basis for identifying major decision types. In this
text, we specify the five major decision responsibilities of operations and supply chain
management as process, quality, capacity, inventory, and supply chain. These decisions provide the framework for organizing the text and describing what operations and
supply chain managers do. We will discuss these decisions in greater detail in subsequent chapters.
2. Function. Operations is a major function in any organization, along with marketing
and finance. In a manufacturing company, the operations function typically is called
the manufacturing or production department. In service organizations, the operations function may be called the operations department or some name peculiar to
the particular industry (e.g., the policy service department in insurance companies).
In general, the generic term “operations” refers to the function that produces and
delivers goods or services. While separating operations out in this manner is useful
for analyzing decision making and assigning responsibilities, we must also integrate
the business by considering the cross-functional nature of decision making in
the firm.
3. Process. Operations managers plan and control the transformation process and its interfaces in organizations as well as across the supply chain. This process view provides common ground for defining service and manufacturing operations as
transformation processes and is a powerful basis for the design and analysis of operations in an ­organization and across the supply chain. Using the process view, we consider operations managers as managers of the conversion process in the firm. But the
process view also provides important insights for the management of productive processes in functional areas outside the operations function. For example, a sales office
may be viewed as a production process with inputs, transformation, and outputs. The
same is true for an accounts payable office and for a loan office in a bank. In terms of
the process view, operations management concepts have applicability beyond the
functional area of operations. Toyota, for example, uses lean thinking to improve processes throughout the firm, including processes in human resources, accounting, finance, information systems, and even the legal department. Process improvement is
not restricted to operations.
Since the field of operations and supply chain management can be defined by decisions,
function, and processes, we will expand on these three elements in detail in this chapter.
But first we provide an example of the decisions that would be made by operations and
supply chain management in a typical company that makes and markets pizzas.

Chapter 1 The Operations Function

7

1.3 DECISIONS AT PIZZA U.S.A.
LO1.2 Describe the five
main decisions made by
operations and supply
chain managers.

Pizza U.S.A., Inc., produces and markets pizzas on a national basis. The firm consists of 85
company-owned and franchised outlets (each called a store) in the United States. The operations function in this company exists at two levels: the corporate level and the level of the
individual store.
The major operations and supply chain decisions made by Pizza U.S.A. can be described
as follows:

Process
Corporate staff makes some of the process decisions, since uniformity across different
stores is desirable. They have developed a standard facility design that is sized to fit a
particular location. Each store incorporates a limited menu with equipment that is
designed to produce high volumes of pizza. As pizzas are made, customers can watch
the process through a glass window; this provides entertainment for both children and
adults as they wait for their orders to be filled. Because this is a service facility, special
care is taken to make the layout attractive and convenient for the customers.
Within the design parameters established by the corporate operations staff, the store
managers seek to improve the process continually over time. This is done both by additional investment in the process and by the use of better methods and procedures, which
often are developed by the employees themselves. For example, a store might re-arrange
its layout to speed up the process of producing pizzas.

Quality
Certain standards for quality that all stores must follow have been set by the corporate
staff. The standards include procedures to maintain service quality and ensure the quality
and food safety of the pizzas served. While perceptions of service quality may differ by
customer, the quality of the pizzas can be specified more exactly by using criteria such as
temperature at serving time and the amount of raw materials used in relation to standards,
among others. Service-quality measures include courtesy, cleanliness, speed of service,
and a friendly atmosphere. Service quality is monitored by store manager observation,
comment cards, and occasional random surveys. Each Pizza U.S.A. store manager must
carefully monitor quality internally and with suppliers
to make sure that it meets company standards. All
employees are responsible for the quality of their work
to ensure that service quality and food quality are meeting the standards of the company.

Capacity

Pizza U.S.A. satisfies its customers by carefully managing the
four key decision areas in operations.
© Steve Mason/Getty Images

Decisions about capacity determine the maximum
level of output of pizzas. The capacity available at any
point in time is determined by the availability of
equipment and labor inputs for the pizza-making process at that time. First, when the initial location and
process decisions are made, the corporate staff determines the physical capacity of each facility. Individual
store managers then plan for annual, monthly, and
daily fluctuations in capacity within the available
physical facility. During peak periods, they may
employ part-time help, and advertising is used in an

8

Part One Introduction

Operations Leader Careers in Operations and Supply Chain
from Monster.com

SUPPLY CHAIN ANALYST
PayPal, owned by online shopping site eBay, is hiring a
supply chain management professional responsible for
end-to-end support for PayPal’s new Here product. The
job requires international travel to
manufacturing and distribution
sites. Responsibilities include product and distribution management, on time and on budget; reviewing inventory reports with supply partners;
arranging freight shipments globally; and coordinating
and collaborating with internal groups within PayPal and
eBay. The job description also requests “maniacal attention to detail.”

BUSINESS METRICS/ANALYTICS
SUPPLY CHAIN ANALYST
Cardinal Health is seeking an analyst to develop, quantify, and evaluate the transformation of internal and external information into business intelligence. Qualified candidates will demonstrate knowledge of concepts and
principles of business metrics and analytical techniques/
tools. The position requires listening to internal/external
customers’ needs and proactively providing them a quality experience through effective communication.

VICE PRESIDENT OF OPERATIONS
Envista Credit Union is seeking an executive whose
responsibilities include organizing, planning, and directing all operations functions associated with branches and

central operations. This individual will participate in the
development of strategic implementation plans and
related objectives. Candidates must have strong communication skills and acknowledge the important relationship with customer members in supporting the credit
union’s vision and mission.

CONTINUOUS IMPROVEMENT
PLANT LEAD
ConAgra Foods seeks a partner to roll out a system
establishing a zero-loss manufacturing culture. Coordinating with the Plant Manager, this Plant Lead executes
plans for sustainability, develops and maintains training
and tracking standards, and coaches sites on improvement methodologies. This position serves as a key development role for a future Plant Manager.

MATERIALS SOURCING MANAGER
Herbalife, a direct-sales nutrition company, is hiring a
senior-level sourcing manager for global spending of
$200 million on raw materials. Responsibilities include
reducing raw materials costs yearly, analyzing market
intelligence for trends in commodity markets, and making
strategic recommendations to senior management for
each category of raw materials. This job also requires
maintaining appropriate inventory levels and developing
strategic supplier relationships.
Source: Abstracted from www.monster.com, April 2012.

attempt to raise demand during slack periods. In the short run, individual personnel are
scheduled in shifts to meet demand during store hours.

Inventory
Each store manager buys the ingredients required to make the recipes provided by corporate staff. The store managers decide how much flour, tomato paste, sausage, and other
ingredients to order and when to place orders. Store operators must carefully integrate
sourcing and inventory decisions to control the flow of materials in relation to capacity.
For example, they do not want to purchase ingredients for more pizzas than they have the
capacity to bake. They also do not want to run out of food during peak periods or waste
food when demand is low.

Supply Chain
The supply chain decisions consist of sourcing and logistics. Sourcing is done by the corporate office. They select the specific suppliers for all inputs, negotiate prices, write contracts,
and issue blanket purchase orders that stores use to order individual ingredients and items as

Chapter 1 The Operations Function

9

they need them. The orders are then fulfilled by the suppliers, and a logistics provider ensures
the orders are delivered on time. Logistics is handled by a third-party provider who secures
transportation and uses its distribution centers to make deliveries to Pizza U.S.A. stores.
Because Pizza U.S.A. is only one example of an operation, students often ask: What do
operations managers do in more general terms? The Monster.com Operations Leader box
provides examples of five typical operations management and supply chain positions and
describes the associated decision-making responsibilities. The descriptions have been
greatly simplified for purposes of illustration.
As the Operations Leader box indicates, there is a great variety of management positions
in operations and the supply chain. These range from entry-level supervisory positions to
middle- and top-management positions with considerable responsibility. These positions
also show the breadth of operations and apply to both manufacturing and service operations.
There are many opportunities for international employment in operations management
since operations are located around the world. Many operations in other countries are seeking to implement world-class best practices, and so what is learned in this course can be
applied globally.

1.4 OPERATIONS DECISIONS IN THE SUPPLY CHAIN—A FRAMEWORK
The five decision groupings showcased in the Pizza U.S.A. example provide a framework for
understanding the various decisions made by operations and supply chain managers. Although
many different frameworks are possible, the primary one used here is a conceptual scheme for
grouping decisions according to decision responsibilities. The five key decision areas—process, quality, capacity, inventory, and supply chain—encompass what operations and supply
chain managers do. This novel and useful decision framework is shown in Figure 1.1 and
summarized in Table 1.1. In the table, examples are given of key decisions in each area.
Careful attention to the five decision areas in the framework is the key to the successful
management of operations and the associated supply chain. Indeed, well-managed operations and its supply chain can be defined in terms of this decision framework. If decisions
in each of the five groupings support the strategy of the firm, provide value, and are well
integrated with the other functions of the organization, the operations function and its associated supply chain can be considered well managed.
Each major section of this text is devoted to one of the five decision categories.3 The
framework thus provides an integrating mechanism for the text that covers both the decisions faced by operations and supply chain managers as well as the cross-functional issues
that must be considered.
FIGURE 1.1

Human
Resources

Decision-making
framework for
operations in the
supply chain.
Suppliers

Supply
Chain
Decisions
Inventory

Information
Systems

3

Finance
Process

Quality

Marketing

Capacity
Accounting

Students have called these five categories QPICS, pronounced “Q-PICS.”

Customers

10

Part One Introduction

TABLE 1.1

Operations and
Supply Chain
Decisions—A
Framework

Decisions

Examples of Decisions

1. Process

• What type of process should be selected?
• How should the service delivery system be designed?
• How should material and customer flows be managed?
• What principles of lean systems should be deployed?
• How should environmental and global goals be met?

2. Quality

• What should the quality standards be?
• How can quality be controlled and improved?
• What statistical approaches should be used (e.g., control charts and
Six Sigma)?
• How should the suppliers and customers be involved in quality?

3. Capacity

• What is the facility strategy for size, location, and timing?
• How should Sales and Operations Planning be implemented?
• How should variable demand be handled with capacity adjustments?
• What priority rule should be used for scheduling?

4. Inventory

• How much inventory should be held?
• What should the order size and reorder frequency be?
• Who should hold the inventory?
• How can the inventories of suppliers and customers be coordinated?

5. Supply Chain

• What suppliers should be used for products and services?
• How should sourcing be conducted and evaluated?
• What form of transportation should be used?
• How should warehouses be used to allow economic flow of materials?

Analytics is the analysis of data to make better decisions. Analytics uses many techniques for the analysis including those from operations research, statistics, data sciences,
and computer science. The analysis can use either big data from massive databases or small
data depending on the application. Analytics can be descriptive, predictive, or prescriptive
in nature. A descriptive analysis typically summarizes the present situation from data. The
data can be used to go one step further and predict what will happen in the future. Prescriptive analytics typically uses mathematical models to find an optimal or best decision. Analytics are used in operations and supply chains for a variety of decisions, including quality
control, forecasting, capacity, scheduling, inventory, logistics, and sourcing.
Throughout the text, best practices are presented. Additionally, discussion and examples
of firms in which the best practice is not the best for their particular situation are included.
These contingencies, situations, or conditions that require different solutions offer a more
nuanced view of operations decision making. For example, successful implementation of a
new method such as lean or Six Sigma is contingent on top management support. Similarly, the “best” forecasting tools and concepts depend on the availability of data. If there
was a single best practice that works for all firms, then operations would not be the challenging function to manage that it is. Therefore, by offering insight into specific conditions
in which best practices may not be best, the text addresses the various contingencies or
prerequisites or situaitons that need to be considered.

1.5 CROSS-FUNCTIONAL DECISION MAKING
LO1.3 Explain
the nature of
c­ ross-functional
decision making with
operations.

The operations function is a critical element in every business. No business can survive
without good decisions being made by operations managers. The operations function is
one of the three primary functions in an organization, along with marketing and finance. In
addition, an organization has supporting functions that include human resources, information systems, and accounting. Some organizations also have separate sourcing and logistics

Chapter 1 The Operations Function

11

functions that support operations. In others, the operations, sourcing and logistics functions are joined together to become the supply
chain function.
Functional areas are concerned with a particular focus of responsibility or decision making in an organization. The marketing function is typically responsible for creating demand and generating
sales revenue; the operations function is responsible for the production and distribution of goods or services (generating supply); and
finance is responsible for the acquisition and allocation of capital.
Within for-profit businesses, functional areas tend to be closely
associated with organizational departments because businesses typManagerial decision making is cross-functional
ically are organized on a functional basis. Supporting functions are
in nature.
essential to provide staff support to the three primary functions.
© Corbis
Every function must be concerned not only with its own
decision responsibilities but also with integrating decisions with other functions. The five
areas of operations and supply chain decisions, for example, cannot be made separately;
they must be carefully integrated with one another and, equally important, with decisions
made in marketing, finance, and other parts of the organization. In the Pizza U.S.A. example, if marketing decides to change the price of pizza, this is likely to affect sales and
change the capacity needs of operations as well as the amount of ingredients (materials)
used. Also, if finance cannot raise the necessary capital, operations may have to redesign
the process to require less capital or manage pizza-related inventories more efficiently.
This in turn may affect the response time to serve customers, costs, and so on.
Decision making is therefore highly interactive and systemic in nature. Unfortunately,
functional silos have developed in many organizations and impede cross-functional decision making. As a result, the overall organization suffers due to an emphasis on functional
prerogatives.
But some companies are different. Texas Instruments, for example, has been a leader in
fostering cross-functional integration. They do this by forming cross-functional management teams for new-product introductions and for day-to-day improvement. Each member
of the team is trained in common methodologies, and the team is given responsibility for
achieving its own goals. Some of the key cross-functional decision-making relationships
are shown in Table 1.2.

1.6 OPERATIONS AS A PROCESS
LO1.4 Define typical
inputs and outputs of
an operations
t­ ransformation
system.

Operations can be defined as a transformation system (or process) that converts inputs
into outputs. Inputs to the system include energy, materials, labor, capital, and information
(see Figure 1.2). Process technology is then used to convert inputs into outputs. The process technology is the methods, procedures, and equipment used to transform materials or
inputs into products or services.
Viewing operations as a process is very useful in unifying seemingly different operations from different industries. For example, the transformation process in manufacturing
is one of material conversion from raw materials into finished products. When an automobile is produced, steel, plastics, aluminum, cloth, and many other materials are transformed
into parts that are then assembled into the finished automobile. Labor is required to operate
and maintain the equipment, and energy and information are also required to produce the
finished automobile.
In service industries a transformation process is also used to transform inputs into service outputs. For example, airlines use capital inputs of aircraft and equipment and human

12

Part One Introduction

TABLE 1.2

Examples of CrossFunctional Decision
Making

Key Decision Area

Interface with Operations Decisions

Marketing
Market segment and needs
Market size (volume)
Distribution channels
Pricing
New-product introduction
Finance and Accounting
Availability of capital
Efficiency of conversion process
Net present value and cash flow
Process costing or job costing
Measurement of operations
Human Resources
Skill level of employees
Number of employees and part-time or
full-time employment
Training of employees
Job design
Teamwork
Information Systems
Determination of user needs
Design of information systems
Software development
Hardware acquisition

Quality design and quality management
Type of process selected (assembly line, batch, or
­project) and capacity required
Inventory levels and logistics
Quality, capacity, and inventory
Cross-functional teams
Inventory levels, degree of automation, process type
selected, and capacity
Process type selection, process flows, value-added
determination and sourcing
Automation, inventory, and capacity
Type of process selected
Costing systems used
Process type selected and automation
Capacity and scheduling decisions
Quality improvement and skills
Process and technology choice
Cross-functional decisions in operations

Systems should support all users in operations
Systems should help streamline operations and support
all analytics and decisions in operations
Software is needed for capacity, quality, inventory,
scheduling and supply chain decisions
Hardware is needed to support automation decisions in
operations and to run software

EXTERNAL BUSINESS
ENVIRONMENT

FIGURE 1.2

An operation as a
productive system.

OPERATIONS MANAGEMENT
INPUTS

OUTPUTS

Energy
Materials
Labor
Capital

Transformation
(conversion)
process

Goods or services

Information

Feedback information for
control of process inputs
and process technology
NATURAL ENVIRONMENT

Chapter 1 The Operations Function

TABLE 1.3
Examples of
Productive
Systems

Operation

Inputs

Outputs

Bank

Tellers, staff, computer equipment,
­facilities, and energy
Cooks, waiters, food, equipment,
­facilities, and energy
Doctors, nurses, staff, equipment,
­facilities, and energy
Faculty, staff, equipment, facilities,
energy, and knowledge
Equipment, facilities, labor, energy, and
raw materials
Planes, facilities, pilots, flight attendants, maintenance people, labor,
and energy

Financial services (loans, deposits,
safekeeping, etc.)
Meals, entertainment, and satisfied
customers
Health services and healthy
­patients
Educated students, research, and
public service
Finished goods

Restaurant
Hospital
University
Manufacturing plant
Airline

13

Transportation from one location
to another

inputs of pilots, flight attendants, and support personnel to produce safe, reliable, fast, and
efficient transportation. Transformations of many different types occur in all industries, as
indicated in Table 1.3. By studying these different types of transformation processes, you
can learn a great deal about how to analyze and manage any operation.
Operations as a process provides a basis for seeing an entire business as a system of
interconnected processes. This makes it possible to analyze an organization and improve it
from a process point of view. All work, whether in finance, marketing, accounting, or other
functions, is accomplished by processes. For example, financial analysis of a stock, closing
the books at the end of the year, or conducting market research are each conducted by carrying out an appropriate process. Thus, process principles and tools can be applied in every
function in a business.
All of these processes and systems interact with their internal and external environments. We have indicated the nature of internal interaction through cross-functional ­decision
making. Interaction with the external environment occurs through the economic, physical,
social, and political environment of operations. Examples include economic changes such as
rising labor costs, social changes such as customer preference for “green” products, and political changes such as regulations. Each of these can mean that the operations function and
associated supply chain will have to change the way it was producing products and services.
Operations is surrounded by both internal and external environments and constantly
interacts with them. The interactive nature of these relationships makes it necessary to
constantly monitor the environment and make decisions related to corresponding changes
in operations and the supply chain when needed. In the fast-changing world of today’s
global business, constant change has become essential as a means of survival. Viewing
operations as a process or a constantly updating transformation system helps us understand
how operations and the supply chain cannot be insulated from changes in the environment
but rather must adapt to them.

1.7 CHALLENGES FACING OPERATIONS
AND SUPPLY CHAIN MANAGERS
LO1.5 Identify
contemporary
challenges facing
operations and supply
chain managers.

Several challenges are important for operations and supply chain managers today and will
be addressed repeatedly throughout this text. These challenges make operations and supply
chain management an exciting and interesting place for aspiring managers and those who
want the challenge of leadership in a fast-moving career.

14

Part One Introduction

Services

Operations concepts and ideas have been applied in service operations for years. Yet, ­service
operations lag behind manufacturing in applying the latest ideas in supply chain management,
lean operations, and quality improvement. This represents a challenge and tremendous opportunity to apply what is learned in this course. Also, service-specific ideas such as service
recovery, web-enabled service and globalization of service still represent implementation
challenges. Nevertheless, some leading service businesses do excel in operations including
Walmart, Nordstrom, Starbucks, Amazon.com, FedEx, and Delta ­Airlines, to name only a
few. They excel by applying many of the operations concepts that are presented in this text.

CustomerDirected
Operations

Every operation should be externally directed to meet customer requirements based on the
“voice of the customer.” This concept is often taught in marketing courses and is being
integrated into operations and supply chain courses as well. A key point is that operations
efficiency need not be sacrificed in the pursuit of meeting customer needs. Rather, the
customer can be a powerful driver for reducing waste and improving the efficiency of all
processes as firms reduce or eliminate activities that customers do not value. This is an
ongoing challenge for operations and supply chain managers to put the customer first, and
we provide tools and concepts for doing so.

Integration of
Decisions
Internally and
Externally

One of the most difficult challenges facing all managers is cross-functional integration
within the organization. Some organizations are managing functions as separate departments with little integration across them. The best operations are now seeking increased
integration through the use of cross-functional teams, information systems, management
coordination, rotation of employees and other methods of integration. Most of the implementation problems of new systems or new approaches can be traced to lack of cross-functional internal cooperation. The same thing can be said about interorganizational change in
supply chains. Even when companies partner with their suppliers or customers the partnerships are often not successful. Adequate information systems may also be lacking for supply
chain integration.

Environmental
Sustainability

The focus on sustainability of the natural environment has been heightened in recent years
with concerns over global warming, water contamination, air pollution, and so on. Organizations are increasingly being asked to produce and deliver products or services while minimizing the negative impact on the global ecosystem and not endangering the ability to meet the
needs of future generations. See the Operations Leader box titled “Sustainability in Interface
Inc.’s Operations Transformation Process” for an example of one firm’s success in facing
these issues. Operations and
supply chain partners have
made tremendous strides in
reducing pollution of the environment from air to ground to
water, but there is still a long
way to go. Operations and their
supply chains are finding they
can reduce pollution, conserve
resources, recycle products and
be socially responsible to
­provide a sustainable world for
future generations. Sustainability is a challenge that progresCoke is produced and sold globally. Here, workers unload
sive operations and supply chain bottles of Coca Cola from a truck in Caracas, Venezuela.
© Ronaldo Schemidt/AFP/Getty Images
organizations are accepting.

Chapter 1 The Operations Function

15

Operations Leader Sustainability in Interface Inc.’s Operations
Transformation Process

Interest in sustainability continpost-consumer waste (used carues to grow, and the operations
pet) as raw material input to their
function of most organizations is
production system. It is not a
deeply involved in such efforts.
perfect system, as it still requires
The philosophy of sustainability
some newly extracted raw mateis “meeting the needs of the
rials, but they believe they are
present without compromising
moving in the right direction for
the ability of future generations
achieving sustainability.
to meet their own needs.” Over
With production on four contithe past 15 years, carpet manunents and offices in more than
facturer Interface Inc. has shifted
100 countries, Interface Inc. is the
its operations toward this phiglobal leader in the design, prolosophy and three bottom-line
duction, and sales of modular carimpacts: social, environmental,
pet squares. Since undertaking
and financial. Or, in their words:
the goal of sustainability, InterPeople, Planet, and Profit.
face Inc. reports more than 133
A typical operations transformillion pounds of post-­consumer
mation process requires a conwaste has been diverted from
tinuous supply of new raw matelandfills to serve as raw materials
rial input. “In most instances,
for new carpet squares. They
extraction of raw material
have achieved a series of major
[from the natural environment] © Arcaid Images/Alamy Stock Photo
milestones at the European manexceeds its natural rate of regenufacturing facility in The Nethereration.” Following production, customers use and then lands. As of 2015, the plant is operating with 100 percent
dispose of products. Interface Inc. set out to change this renewable energy, using virtually zero water in manufacturtypical supply chain with its environmental costs at both ing ­processes and has attained zero waste to landfill.
ends. They found that the most benign materials to use in Source: Adapted from Dave Gustashaw and Robert W. Hall,
manufacturing new products are their own used products. “From Lean to Green: Interface, Inc.”. Target 24, no. 5
Creating a closed-loop supply chain, they use their own (2008), pp. 6–14 and interfaceglobal.com 2015.

Globalization
of Operations
and the Supply
Chain

Finally, the globalization of operations and supply chains is a pervasive theme in business
today. One can hardly avoid information on the accelerating nature of global business.
Strategies for operations and its supply chain partners should be formulated with global
effects in mind and not only consider narrow national interests. Even many small businesses compete globally, sourcing or selling goods and services in markets with global
competitors. Facility location must be considered in view of its global implications. Technology can be transferred rapidly across national borders. All decisions in operations and
its associated supply chains are affected by the global nature of business.

1.8 KEY POINTS AND TERMS
This text provides a broad overview of the challenging and dynamic field of operations
management and the supply chain. It stresses decision making in operations, its associated
supply chain, and the relationship of these decisions to other functions. The five major
decision categories—process, quality, capacity, inventory and supply chain are the organizing framework for the text.

16

Part One Introduction

Key points emphasized in the chapter are these:
∙ Operations and its associated supply chain produces and delivers goods or services
deemed to be of value to customers in a global economy. The operations function is essential for both for-profit and nonprofit organizations.
∙ Operations management focuses on decisions for the production and delivery of the
firm’s products and services. These decisions are intended to maximize the value inherent in goods or services delivered to customers throughout the entire supply chain.
∙ The supply chain is the network of manufacturing and service operations that supply
each other from raw materials through manufacturing to the ultimate customer. The
supply chain consists of the physical flow of materials, money, and information along
the entire chain of sourcing production, and distribution. The supply chain connects
many different organizations.
∙ There are five key groupings of decisions in operations: process, quality, capacity,
inventory, and supply chain. These decisions need to utilize analytics when appropriate
and account for contingencies, or special situations, because a best practice may not be
best in all circumstances.
∙ Operations decisions are often cross-functional in nature. Decisions may impact or be
impacted by activities in other functions such as marketing and finance. Often, crossfunctional teams are formed to undertake complex decisions.
∙ We identify several challenges facing operations and supply chain managers that are
emerging and will be important in the future. These challenges are services, customerdirected operations, integration of decisions internally and externally, environmental
sustainability, and globalization of operations and the supply chain.

Key Terms

Value 4
Sourcing function 5
Logistics function 5
Supply chain 5
Operations management 6
Decision making 6
Process 6

Quality 6
Capacity 6
Inventory 6
Process view 6
Analytics 10
Cross-functional
decision making 11

Transformation
system 11
Internal and external
environments 13
Voice of the customer 14
Sustainability 14
Globalization 15

STUDENT
INTERNET
EXERCISES

1. Search the Internet for “Wikipedia Operations Management.”
Read about the Wiki definition of Operations Management and prepare a short synopsis
of the History of Operations Management.
2. Search the Internet for “How everyday things are made.”
Find a site (e.g., manufacturing.stanford.edu) that shows everything from motorcycles to
jelly beans to denim. Create a presentation that explains the five operations and supply chain
decisions relevant to the sourcing, production and delivery of a product of your choosing.
3. Monster.com
www.monster.com
Check the monster.com website for positions and career opportunities in operations management. Come to class prepared to discuss one or two jobs in operations that you found
interesting (not necessarily an entry-level job).

Chapter 1 The Operations Function

17

Discussion Questions
1. Why study operations management in the supply chain?
2. What is the difference between the terms “production
management” and “operations management”?
3. What is the difference between operations management
and supply chain management?
4. What are the key decisions made by sourcing and logistics managers?
5. How does the work of an operations manager differ
from the work of a marketing manager or a finance
manager? How are these functions similar?
6. How is the operations management function related to
activities in human resources, information systems, and
accounting?
7. Describe the nature of operations management in the
following organizations. In doing this, first identify the
outputs of the organization and then use the five decision types to identify important operations decisions
and responsibilities.
a. A college library
b. A hotel
c. A small manufacturing firm

8. For the organizations listed in question 7, describe the
inputs, transformation process, and outputs of the
­production ­system.
9. Describe the decision-making view and the view of
operations as a process. Why are both views useful in
studying the field of operations management?
10. Write a short paper on some of the challenges
facing operations management in the future. Use
­newspapers, business magazines, or the Internet as
your sources.
11. Review job postings from various sources for
­management positions that are available for operations
­management graduates. Summarize the responsibilities
of these positions.
12. Describe how the view of operations as a process can
be applied to the following types of work:
a. Acquisition of another company.
b. Closing the books at the end of the year.
c. Marketing research for a new product.
d. Design of an information system.
e. Hiring a new employee.

2

c h a p t e r

Operations and Supply
Chain Strategy
LEARNING OBJECTIVES
After reading this chapter, you should be able to:
LO2.1

Define operations strategy.

LO2.2

Describe the elements of operations strategy and alignment with business and other
functional strategies.

LO2.3

Differentiate the ways to compete with operations objectives.

LO2.4

Compare product imitator and innovator strategies.

LO2.5

Provide examples of a distinctive competence for operations.

LO2.6

Explain the nature of global operations and supply chains.

LO2.7

Describe two types of supply chain strategies.

LO2.8

Illustrate how operations can become more environmentally sustainable.

LO2.1 Define operations strategy.
18

There is an increasing awareness that operations and the supply chain contribute to the
global competitive position of a business and are not merely making a firm’s products
or services. This can be done by contributing distinctive capability (or competence) to
the business and continually improving the products, services, and processes. The
Operations Leader box on Insignia Athletics discusses the way it competes through a
strategy of flexible manufacturing and just-in-time delivery for both customized and
standard products.
Operations should be fully connected to the business strategy. Operations strategies and
decisions should fulfill the needs of the business and add competitive advantage to the firm.

Chapter 2 Operations and Supply Chain Strategy

Operations Leader
Insignia Athletics in Worcester,
Massachuset…
Purchase answer to see full
attachment